Cost  Engineering  –  Part  1:  

What  is  Cost  Engineering?  
__________________________________
Kevin  Mattheys  
June  2015  
 
 

  This  is  the  first  part  of  a  two-­part  series  of  articles  on  cost  engineering  and  project  
controls.  The  two  parts  are  as  follows:  
  • Part  1  –  What  is  Cost  Engineering?  
• Part  2  –  My  five  best  Cost  Engineering  practices  
 
In   Part   1,   I   present   some   background   information   and   discuss   how   cost  
  engineering   differs   from   project   controls.   In   Part   2,   to   be   published   next   month,   I  
share  my  five  best  cost  engineering  practices.  

 
Introduction  

Cost  Engineering  as  a  discipline  has  been  around  for  a  number  of  years.  A  number  of  
standards  have  been  developed  over  these  years  by  various  organisations.  The  most  
widely  recognised  organisation  for  these  standards  currently  is  the  Association  for  the  
Advancement  of  Cost  Engineering  International  or  AACEI.  

Before   these   standards   became   widely   accessible   and   acceptable,   corporates  

developed   their   own,   relatively   similar   standards,   using   in-­house   databases   (mainly  
spreadsheets).  These  spreadsheets  resided  on  each  individual’s  computer,  were  not  
integrated   into   other   systems   and   became   the   ‘intellectual   knowledge’   of   that  
individual   instead   of   the   company.   The   soon   to   be   retiring   ‘grey   beards’,   who   have  
this  intellectual  knowledge,  have  presented  many  corporates  with  the  huge  challenge  
now   of   how   to   capture   this   dispersed   intellectual   knowledge   into   their   corporate  
systems  for  future  use  before  they  retire.  

Many   corporates   and   project   companies   have   taken,   or   used,   the   standards  
mentioned  above  and  translated  them  into  something  that  they  believe  provides  them  
with   a   competitive   advantage   and   that   is   aligned   with   their   unique   terminology   or  
culture.   The   personnel   on   the   projects   (Cost   Engineering   and/or   Project   Controls)  
then  apply  these  standards  to  the  project  for  its  natural  duration  or  for  however  long  
they  may  be  required  to  do  so.  

An  area,  I  find,  that  leads  to  a  lot  of  confusion  is  the  manner  in  which  different  terms  
are   interpreted.   This   tends   to   lead   to   misunderstanding   especially   between   owner  
organisations   and   contracting   organisations.   In   this   article,   and   others   to   follow,   I  
attempt  to  articulate  the  difference  between  Cost  Engineering  and  Project  Controls  as  
a  starting  point.  

So  what  is  Cost  Engineering?  

Many  formal  definitions  exist  and  they  can  be  found  in  literature  or  on  the  internet.  In  
my  mind,  Cost  Engineering  is  the  practice  of  applying  formal  processes,  procedures  
and  techniques,  systematically  throughout  each  phase  of  the  project,  in  the  areas  of  
business  analysis,  planning  and  scheduling,  estimating  and  cost  control  to  enable  the  
project  team  to  forecast,  and  communicate,  realistic  end-­of-­job  costs  and  completion  
dates  continuously  during  the  project.  

In   many   cases   the   terms   ‘Cost   Engineer’   and   ‘Project   Controls’   are   used  
interchangeably.   If   we   try   and   keep   it   simple,   Project   Controls   is   deemed   to   be   the  
control   required   from   the   disciplines   of   Planning   and   Scheduling,   as   well   as  
Estimating   and   Cost   Control   against   an   agreed   and   signed   off   scope.   Cost  
Engineering,  on  the  other  hand,  looks  at  the  asset  holistically  from  initial  idea  to  asset  
demolition  and  acts  as  the  integrator  of  all  the  information  in  order  for  the  scope  to  be  
defined  into  manageable  chunks  for  Project  Control  during  the  different  phases  of  the  
project.  

In   a   study   done   by   IPA   in   2009   titled   Project   Control   Best   Practices   for   Recent  
Projects,   conducted   by   Robert   Brown   and   Jennifer   Martin,   the   following   definitions  
were  included:  

•   Cost  Engineering:  
Cost   Engineering   refers   to   cost,   schedule   and   resource   analysis,   planning,  
estimating,  forecasting,  control,  and  change  management  practices.  Note  that:  
o   The   word   ‘engineering’   reflects   the   linkage   of   cost   and   schedule   skills   with  
specific  technical  knowledge;;  
o   Owner   cost   engineers   work   jointly   with   design   engineers   to   optimise   the  
project  scope  and  improve  its  business  value.  

•   Project  Control:  
The   ‘control’   practices   of   cost   engineering   including   control   level   cost   estimating  
and  project  control  through  execution.  

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With  this  as  backdrop,  I  suspect  that  because  the  owner  companies  prepare  defined  
packages   of   work   (scope)   for   engineering   contractors,   these   contractors,   who   are  
assigned  a  defined  scope  of  work,  use  the  term  ‘Project  Controls’  correctly.  However,  
the   owner   companies,   who   develop   these   packages   and   then   typically   provide   on  
oversight   role,   get   subjugated   by   this   apparent   dichotomy   and   then   revert   to   calling  
their   employees   ‘Project   Controls   Manager’,   ‘Project   Controls   Leader’   or   something  
similar.  The  owners  forget,  however,  that   they   are  in  fact   Cost  Engineers  who  have  
helped   to   develop   the   scope   and   then   need   to   see   it   through   to   completion   and  
beyond.  

Granted,  there  may  be  owner  personnel  who  do  perform  a  ‘project  controls’  role,  but  
the  defining  principle  is  whether  you’ve  helped  to  develop  the  scope  or  you  control  an  
agreed  scope.  

To   assist   further   in   clarifying   this,   let   us   reference   the   Total   Cost   Management  
Framework   shown   in   Figure   1.   This   framework   provides   an   excellent   macro   level  
starting  point  for  all  of  the  areas  where  Cost  Engineers/Project  Controls  will  probably  
be  required.  It  also  serves  as  an  invaluable  checklist  to  ensure  that  potential  gaps  are  
identified   and   then   closed.   These   high   level   processes   are   further   subdivided   into  
sub-­processes  below  this  framework.  

 
Figure  1:    Total  Cost  Management  Framework  (A  product  of  the  Technical  Board  
of  AACE  International)  

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As   you   can   see   from   this   model,   Project   Controls   kicks   off   just   before   ‘Projects  
Implementation’.   However,   there   is   normally   a   large   amount   of   definition   and  
preparation  work  required  during  the  Strategic  Asset  Management  Process.  I  deem  
this   to   be   primarily   the   work   of   the   Cost   Engineers   who,   together   with   Project  
Controls  and  the  rest  of  the  project  team,  must  ensure  that  everything  is  correctly  set  
up   for   effective   project   control.   Areas   to   be   addressed   are   understanding   of   the  
contracting  strategy,  systems  to  be  used  especially  for  forecasting,  resources  to  be  
secured,  reporting  needs,  etc.  

I   must   also   say   that   in   my   career   Quantity   Surveying   was   always   included   in   the  
Project   Control   arena   as   they   also   have   a   unique   and   important   role   to   play   during  
project   execution   when   it   comes   to   progress   and   payment   assessments.   I   must  
reiterate   that   the   statements   above   are   my   personal   view   and   can   be   interpreted  
differently  by  others.  

And  where  does  the  Cost  Engineer  fit  in?  

The  Cost  Engineer  plays  a  key  integration  role  on  projects.  The  Cost  Engineer  must  
liaise  and  co-­ordinate  primarily  with  the  Business  Manager,  the  Project  Manager  and  
the  Engineering  Manager  to  make  sure  all  parties  are  aligned  at  all  times  regarding  
cost,  schedule  and  scope.  The  Cost  Engineer  is  the  eyes  and  ears  of  the  project  and  
must   stay   alert   for   any   critical   bits   of   information   which   could   potentially   affect   the  
project.  

Communication  is  crucial,  as  is  the  ability  to  process  information  and  present  it  in  a  
way   that   is   meaningful,   understandable   and   facilitates   management   decisions,  
especially   the   project   end-­of-­job   information.   In   this   regard   the   Cost   Engineer   is  
damned  if  he  does  and  damned  if  he  doesn’t,  especially  if  such  news  is  not  positive.  
No  one  likes  bad  news,  especially  Project  Managers  who  have  to  present  this  to  the  
various   boards.   However,   the   Cost   Engineer   must   believe   in,   and   stand   by   his  
findings.  This  is  difficult  to  do  against  a  tough  project  manager  whom  you  are  not  able  
to  convince  about  your  analysis.  

Closing  remarks  

Cost   Engineering   is   the   practice   of   applying   formal   processes,   procedures   and  

techniques,   systematically   throughout   each   phase   of   the   project,   in   the   areas   of  
business  analysis,  planning  and  scheduling,  estimating  and  cost  control  to  enable  the  
project  team  to  forecast,  and  communicate,  realistic  end-­of-­job  costs  and  completion  
dates  continuously  during  the  project.  

The  term  ‘Cost  Engineer’  reflects  the  linkage  of  cost  and  schedule  skills  with  specific  
technical   (engineering)   knowledge.   Owner   cost   engineers   work   jointly   with   design  
engineers  to  optimise  the  project  scope  and  improve  its  business  value.  

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.  

References  

Brown,  R.  &  Martin,  J.,  2009,  Project  Control  Best  Practices  for  Recent  Projects,  
International  Project  Analysis  (IPA)  

Total  Cost  Management  Framework  –  A  product  of  the  Technical  Board  of  AACE  
International