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1990

AACB

TuAusIscT1ms

I-5
Controlling

Projects by Life Cycles


by Ron F. Cagle

PREMISE AND BACKGROUND

PROJECT CONCEPTION

The premise
of this
paper
is that
any major
capital
project
is comprised
of a series
of major
each function
having its own life cycle for
functions,
purposes
of project
control.
These functional
life
cycles
are
interrelated
and,
at certain
points,
Each functional
life
cycle has critical
overlapping.
time
points
for
the
implementation
of effective
project
controls.
The timing
of implementation
is
largely
a function
of the nature of the project
(i.e.,
new construction
versus rebuild,
fixed-price
contracts
versus cost-based
contracts).

Conception
of the project
is possibly
the most
critical
functional
life
cycle.
In fact,
this
life
cycle should be considered
dangerous
because of the
inherent
combination
of high optimism and low controlhigh optimism
in the sense that scope is thought to be
fully
defined-low
control
in the sense that there
exists
little
check and balance
over scope definition
and changes thereto
in the conceptual
stage.
A capital
project
is
authorized
because
of
management's
educated
judgment
that money invested
in
the project
is the best option
among numerous competing possibilities.
A capital
project
is normally
authorized
on the basis of the anticipated
rate of
return,
the payback
period,
and the size
of the
cashflows
involved.
Regardless
of the diligence
usually
put into these calculations,
however, they are
usually
based on the supposition
that scope is fixed
and will
stay fixed.

The functional
life
cycles occur in the following
engineering,
procurement,
conorder:
conception,
struction,
and start-up.
In the realm of cost engineering,
the major control
considerations
for each of
these include
the following:
authorization,
contractcost estimating,
cost control,
ing , administration,
(The major
acccunting,
and post-completion
analysis.
control
considerations
of constructability,
labor
utilization,
and quality
assurance
are more related
to
physical
construction
and are not addressed
in this
paper. )
two actual
For comparison
purposes,
referred
to later
in this paper:
-

projects

are

Project
A:
This was a new recovery
boiler
and
some directly
associated
work, authorized
in mid1987 for $77.2 million.
Actual
start-up
of the
boiler
occurred
in the 28th month of project
and the total
project
life
was 32 months.
l.ife,
The project
experienced
some scope growth
and a
cost overrun
of 2%. Of the total
project
cost,
82% was covered by a single
lump-sum contract
to
design,
furnish,
install,
and start
up theboiler
itself;
the balance
of the project
costs was
covered by various
other contracts.
of an existing
Project
B: This was the rebuild
paper machine and some directly
associated
work,
authorized
in early
1987 for
$87.6
million.
Actual
start-up
of the rebuilt
machine occurred
in the 18th month of project
life,
and the total
project
life
was 33 months.
The project
experienced little
scope growth and a cost overrun
of
Major
equipment
items were purchased
on
il%i;ed-price
contracts
and all
other
work was
performed
under variois
cost-based
contracts.

1.5.1

Solidly
fixed scope in the conceptual
stage of a
project
is simply
not a historical
fact of life
in
industrial
construction.
Studies
sponsored
by The
Construction
Industry
Institute
(CII) have shown that
"Poor scope definition
at the estimate
(budget)
stage
and loss of control
of project
scope rank as the most
(contributing
frequent
factors
to cost
overruns"
(Anon.,
1986).
Although
frequent
authorization
of projects
without
solidly
fixed
scope definition
is a demonstrated
fact,
there
are reasons
that
are arguably
valid
for it to continue
to happen.
Again citing
results
of the CII
studies,
project
owners
have
provided
the following
reasons for proceeding
without
adequate
scope definition:
Insufficient

engineering

expertise

No reason
favorable

to

spend

more

Reluctance
estimates

to

spend

on feasibility

Less preliminary
and overhead
High
cal

interest

time
rates

if

reduces

make project

feasibility

looks

studies
project
duration

and

duration
criti-

1990

Market

pressures

make

duration

market
pressures
reason,
with

Of these
reasons,
the single
most
important
tions
from
owners:

product,
causing
life
cycles,
industries

cited
explana-

in
product
development
competition
Increased
gives
impetus
to getting
to the market
first
order
to be in the market
at all
cases,
have

while
a trend
particularly

was
these

Demand
short-lived,
project
intensive

In
many
operations

increased
overshadowed

!rRAusBcT1ms

if
signi.ficant
in reserve.
Again,
do not occur
to the extent
provided
gency
component,
those
funds
can
uses.

critical

for

project

AACB

as

intense,
may
be
toward
shorter
in technology-

profits
all

cost

in

from
plant
overruns

If
it
is true
that
market
pressures
can justify
(or
at least
rationalize)
proceeding
with
a project
based
only
on a conceptual
estimate
for
an unfixed
what
control
options
still
remain
scope
definition,
available?
The answer
is a function
of the degree
of
disc:ipline
in the owner's
project
management
organization.
One
of
the
greatest
pressures
on
project
management,
beginning
soon after
authorization,
is to
changes
that
are
worthwhile
incorporate
changes
-from
an operations
standpoint,
that
are more
economical
to
do
during
the
current
project
than
to
do
that
have
possibly
been
"waiting
seuaratelv
or later,
to be done
when
a good
project
for
the
opportunity'
comes
along
-but,
nevertheless,
changes
that
were
not provided
for
in the
conceptual
estimate.
The only
effective
is to tightly
control
changes
- to
implement
cha.nge,
thereby
causing
before
acceptance.
although
the
possibilities
to these:
use

Structured

way to combat
"creeping
Scope"
the
process
for
incorporating
a deliberate
resistance
to
changes
to be fully
justified
Two
methods
are
recommended,
are
certainly
not
limited

Contingency

Frequently,
changes
are
funded
from
the
project
contingency
account
until
contingency
funds
approach
This
can conceal
an impending
bottomline
depletion.
overrun
and exhaust
trade-offs
among
other
problems
and
opportunities.
In
this
"first-in/first-out'
approach,
contingency
is usually
treated
as a general
discretionary
fund,
not
subject
to
specific
constraints
other
than
usage
directed
by the
project
manager
(or
executive
management).

period,
tilln,

Another
example
would
whether
for
a rebuild
for which
a contingency

be

the
high-risk
start-up
project
or new construccomponent
should
be held

1.5.2

be

the

problems
continfor other

Regardless
of how the overall
contingency
fund
is
structured
into
earmarked
components,
a discretionary
"management
reserve"
should
be provided.
portion
or
project
management
and operations
management
must have
the
latitude
to use contingency
for
fully
justified
changes
that
do not
fall
within
the earmarked
COQOAn amount
for
management
reserve
should
be
nents.
defined
at the beginning
of the project
(at
the
same
This
amount
time
earmarked
components
are
defined).
can be augmented
by savings
that
might
be recognized
At the
discretion
of project
during
project
life.
the
management
reserve
can be used
for
management,
or held
for
discretionchanges,
offsetting
overruns,
ary use in the late
stages
of project
life
(even
while
currently
showing
a bottomline
cost
variance).
Formally

Authorize

Changes

When scope
is only
generally
defined
in the first
place,
the
judgement
of whether
a change
is a chance
within
scope
or a chanqe
in scope
may be difficult
and
The difficulty
can be compounded
by
controversial.
where
the
need
for
change
originates
(whether
owner,
constructor,
or vendor).
engineer,
The less
fixed
the
definition
of scope
when
the
the
greater
is
the
need
to
project
is
authorized,
justify
and account
for
all
changes
through
administrative
controls
in order
to control
cost.
If controlling
bottomline
cost
is of paramount
importance,
then
strong
investment
in administrative
control
is imperative.
If producing
a quality
outcome
-- even
if
the
scope
creeps
and the cost
overruns
-is of paramount
importance,
then
administrative
control
is
less
important.
Most
proje&s
have
the
objective
of
finding
the
happy
medium
between
these
extremes,
although
individual
stakeholders
may have very
different emphases
in their
views.
With
these
mixed
viewpoints
in mind,
formal
change
authorization
is recommended
as the principal
control.
To
control
Project
manager.
zations
data:

The alternative
to this
is to structure
contingency
into
several
components,
as appropriate
for
the
particular
project.
Then,
earmark
each component
for
restricted
usage
according
to
predefined
decision
rules.
The decision
rules
must be thoroughly
communicated
to all
parties
who have
input
to or influence
over
the use of contingency.
For example,
a rebuild
project
will
have
a highrisk
shutdown
period
for
which
a contingency
component
to cover
the
cost
of extending
the peak
(E!.cl. I funds
labor
force
for
X additional
days)
should
be held
in
reserve,
regardless
of the pressure
for
changes
to be
funded
from
contingency.
If
the
shutdown
extension
doea
not actually
occur
to the extent
provided
for
by
the
contingency
component,
those
funds
can
then
be
released
for
other
uses.

start-up
for
by
released

be
successful,
must
be implemented
and
consistently
A standard
form
should
be designed

Control

number

Nature
within

of the
scope)

Description

Schedule

change
authorization
at the
beginning
of the
enforced
by
the
project
to use for
change
authorito include
the
following
date

change

of

Cost
impact
cost;
what
wor:khours,
calculation)

deleted
change

and

the

the

to

scope,

change

change

(in

from
the critical
has no schedule

Source
of funding
nent,
contingency
savings,
overrun)

origination

(addition

(increase
changes
and prices

impact

of

in

or
reduction
engineering,
are
reflected

terms
path,
impact)

(earmarked
ma.nagement

of

of project
quantities,
in the
cost

days added or
or

statement

contingency
reserve,

that

comporecognized

Name of the party originating


the change authorization
and what project
organization
he represents (owner,
engineer,
constructor,
or vendor)

Provision
for
authorization
owner's project
management,
and executive
management

signatures
of
operatingmanagement,

the

At what management
level
authorization
should
However,
if the
occur is a matter
of preference.
pro:ject
manager
has responsibility
for
denoting
whether
any given change is a chanqe in scope or a
chanqe within
scone,
and then executive
management
must authorize
the chances in scooe, perspective
can
be affixed
to the overall
change picture.
The project
manager
will
function
as a checkpoint
for change
- absorbing
chanqes within
scope for his
authorization
own accountability,
while having executive
support for
mses
in scone which
should
extend
beyond
the
accountability
of the project
manager.
ENGINRERING

Figure1

Project

A:

EIlgineering

(RX L-s Railer)

Engineering
amajor project
involves
coordination
of the owner's
in-house
staff and the outside
consultstaff;
ing
engineer's
translation
of preliminary
conceptual
engineering
into
detail
design;
and, in
large fast-track
projects
, integration
of the overlapping activities
of design
engineering,
procurement,
and construction.
As shown at Month 1 in Figures
1 and 2, several
hundred
thousand
dollars
may have already
been spent
on preliminary
engineering
at the point
of project
authorization.
Also shown is the fact that the bulk
of aingineering
is finished
relatively
early in overall
even for fast-track
projects
such as
pro:lect
life,
those represented
in Figures
1 and 2.
This emphasizes
the need to control
engineering
activities
very early,
including
the aforementioned
changes which tend to generate
increases
in engineering costs along with the other costs of the changes.
As ev:Ldent
in the prior
section,
control
of engineerThe
ing originates
in the project
conception
stage.
playing
field
is established
in the conception
stage;
the game plan is established
in the engineering
stage.
!fo keep engineering
under control
(i.e.,
in focus
on the stated
scope, on schedule,
and within
budget)
requires
a mutual
effort
between
the owner and the
outfiide
engineer.
The contract
for outside
engineering services
is based on a mutually
accepted estimate
of the workhours
and related
costs needed to complete
the detailed
design
(and possibly
perform
other
services
such as procurement
of major
equipment).
This mutually
accepted
estimate
is derived
from the
To the extent
c!onc:eptual scope previously
discussed.
that: "scope creep"
occurs,
"engineering
creep"
will
also occur.
!Cherefore,
it is essential
that project
changes
having
impact
on engineering
costs
be documented
through
change authorizations.
If this is not done,
the owner can get the impression
that
engineering
productivity
is less than promised
for a fixed scope.
Conversely,
the outside
engineer
can get the impression that the owner is expecting
more engineering
than
hle is willing
to pay for.
To avoid mutual misunderstanding,
which can harm productivity
and relationships,, the following
is recommended in addition
to the
earlier
recommendation
on change authorization:
1.5.3

$20

$1 0
,.

Figure2
Document

the

-Project

Contractual

8:

(lbtalProject)

Engineering

Scope

Major engineering
firms are able to accurately
estimate
the engineering
workhour
requirements
for
specific
work elements based on historical
experience.
The critical
task is to exhaustively
define
the work
elements,
.leaving no unidentified
but,required
work in
the engineering
scope.
The contract
scope statement
should
contain
a breakdown
of the total
engineering
scope into work packages and drawings
as the basis for
detailed
estimates
of workhour
requirements
and
resulting
costs.
Evaluate

Productivity

Frequently

Productivity
of engineering
work
should
be
evaluated
frequently
in terms of the workhours
earned
divided
by the workhours
expended for the actual work
performed
to date.
A ratio
of 1.0 or more means that
the work is being produced
at a rate equal to or more
than budgeted.
When the ratio
falls
below 1.0, the
owner should get an explanation
of the reasons and the
anticipated
schedule
impact from the engineer.
In the
event that productivity
shows a substantial
schedule
or cost impact,
the owner should get a plan from the

1990 A&CR BWS


engineer
showing how and when recovery
of lostproduction can be accomplished
without
adversely
impacting
the ,project.

Fixed-price
places
more risk
on the contractor
for which the owner must pay a price
premium.
The control
emphasis must be placed on contract
change orders
and quality
control.

PROCURRRRNT/CONTR?LCTING
The life
cycle of procurement
is highly
interrelated with that of engineering
and is sharply
influenced by the primary
type of
contracting.
Figures
3 and 4 show the contrast
in different
contracting
types in terms of the cumulative
dollars
committed
as
project
life
proceeds.
The high,
flat
commitment
curve in Figure 3 reflects
the large portion
committed
at the beginning
of
the project
under
fixed-price
contracting
that
included
most of the engineering.
The steep
commitment
curve
for the first
half
of
p.roject
life
in Figure
4 reflects
the predominance
of
cost-based
contracting
that included
the engineering.

Cost-based
places
more risk
on the owner but
offers
more opportunity
for
lower
cost
and
facilitates
fast-track
construction.
The control
emphasis must be placed on cost and
schedule
control.
The key to successful
contracting
for both owner
and contractor
is the contract
formation
process.
Another CII study (Anon.,
1986a) of 96 generic
clauses
shows the following
nine as the most problematic
based
on frequency
of requiring
clarification
or improvement, or of being the subject
of dispute:
Work Scope Definition
Supporting/Included
Design

Documents

Changes

Construction
Definition

Changes
of Costs

Price
Cost

Reporting

Schedule
Design

Pigllre3

-Project

82% Lump-Sum,

A:

and Control

Reporting

and Control

Rework

Bach of the above contract


areas obviously
should
be the
subject
of complete
mutual
understanding
between the parties
before the contract
is executed.
The fact that these are common problem areas suggests
either
frequently
have
that
contracting
parties
different
understandings
of contract
content
or that
their
mutual
understandings
are
not
effectively
articulated
in contract
language.

PixedFrioe

As is the case in prior


functional
life
cycles,
early
implementation
of preventive
control
is needed
if both owners and contractors
are to minimize
the
cost of corrections.
In contracting,
the following
recommendation
is made in the interest
of preventive
control:
Set Up an Bffective

Figure

4 -

EmMATED

ProjectBt

COMMlTTED

ri

Formation

Process

Determine
that there is in fact a process whereby
deliberate
attention
is focused on potentially
troublesome areas and whereby contracts
are tailored
to
fit
specific
project
circumstances.
Determine
that
parties
who have to perform under the contract
actually have input
to contract
substance;
for example,
project
accounting
should
have input
to payment
provisions,
project
management
should
have input
to
scope definition
and change provisions,
cost engineering should
have input
to cost and schedule
control
provisions.
Finally,
determine
that
there
is a
feedback
loop to confirm
that the attorneys'
final
contract
language
reflects
the intent
of the parties
that established
substance
in the first
place.

PAlO

100% Coat-Based

Contract

Contracts

Many views exist


on which form of contracting
-fixed-price
or cost-based
-- is preferable
to owner
and to contractor.
The primary
comparison,
however,
is this:

CONSTRUCTION AND START-UP


Actual
construction
the procurement
activity
Aside from construction
1.5.4

activity
closely
parallels
with somewhat of a time lag.
management activities
per se,

1990 AACR TRAnSAcl!1oBs


the control
environment
has already
exerting
whatever
influence
it can as
At this point
life cycle is entered.
project
control
enters
the realm of
ress versus the budget
and schedule
performance
as needed.
project
cycle.

Rffective
control
In this

Evaluate

been set and is


the construction
in project
life,
evaluating
progand redirecting

flow of information
is essential
to
and ultimate
success
in this
life
regard,
the following
is recommended:

the Constructor's

Progress

Competent
constructors
will
have
a clearly
established
method or practice
for measuring
progress,
productivity,
and earned value.
The key measures are
actual
quantities
installed
and workhours
expended
versus those planned.
This is critical
information
for the owner as well
as the constructor
to know in
order to assess current
status
and project
the outcome
at any point
in project
life.
Regardless
of the type
of contract,
this information
should be shared between
constructor
and owner,
as should
each's
conclusions
derived
from evaluation
of the information.
Both the
owner and the constructor
should
believe
the same
thing with regard
to which way the project
is trending;
if they
do not share
the same conclusions,
chances are lessened
that each will
contribute
fully
to resolving
problems.
CONCLUSIONS
Although
perspective,

to both owner and contractors


common elements
are present
tions:

this
paper is written
from an owner's
the recommendations
should be beneficial

Some
on a project.
in all of the recommenda-

First,
anywhere scope is involved,
clear definition is critical
to success -- whether
in conception of the project,
performance
of engineering,
or formation
of contracts.

Second,
anywhere
implementation
involved,
early action
is critical
regardless
of which
functional
affected.

of control
to success
life
cycle

is
-is

In conclusion,
the whole
idea of implementing
controls
is to assure that activity
is accomplished
as
planned.
Since both the owner and his contractors
should have the same outcome planned,
project
controls
should benefit
both.
At any time a control
appears to
benefit
one party
at the expense
of another,
an
imbalance
of common interests
exists,
and both parties
should pursue resolution.
REFERENCES
Anon., 1986, "Scope Definition
tion
6-2,
Construction
July,
University
of Texas at Austin,

and Control,"
PublicaIndustry
Institute,
Austin,
Texas, pp. 2-3.

Anon., 1986, "Impact of Various


Construction
Contract
Types and Clauses on Project
Performance,"
Publication
5-1, July, Construction
Industry
Institute,
University
of Texas at Austin,
Austin,
Texas, p. 4.

Ron F. Cagle
Georgia-Pacific Corp.
PO Box 105605
Atlanta, GA, 30348

1.5.5

1990

A&a

TBI)BsAcT1ms

J-1
Controlling

Hazardous Waste Projects


by William

A. Zbitnoff,

CCE

INTRODUCTION

WHAT HAZARDOUS WASTE IS

The hazardous
waste industry
has become one of
the fastest
growing
fields
in the United States in the
past decade.
This industry
is continuing
to grow and
is now even having
an impact worldwide
with major
environmental
cleanups
taking place throughout
Europe,
China,
Latin
America,
and several
Pacific
Rim countries.
With this tremendous
growth comes the need to
develop
qualified
project
management
personnel
and
methods to control
the expenditure
of billions
of
dollars
that will
be spent in the next few years.

Hazardous waste is defined


in many ways, depending on the type of waste and the governing
regulation.
As one might expect,
several
of the more toxic
situations
result
from disposal
or spills
of industry
chemicals.
However, there are hundreds
of hazardous
waste sites
around the country
that have been created
from less ominous circumstances.
Public
and private
landfills,
more commonly known as dumps prior
to the
1980'6,
are one of the most common hazardous
waste
sites
in the nation.
Gas stations
present
a concern
from storing
gasoline
and diesel
fuel in underground
storage tanks.
Dry cleaning
facilities
also have been
the source of hazardous
wastes due to chemicals
used
for cleaning.

!Ihe US Congress
Office
of Technology
Assessment
(OTA) estimates
that more than $500 billion
dollars
will
be spent by Americans
on cleanups
over the next
50 l'ears
(OTA, January
1989).
These monies will
be
spent by private
industry
as well as local,
state and
federal
government.
As we proceed
with these cleanups, numerous organizations
are developing
a wealth of
experience
that will
be applied
to the industry.
The
construction
industry
has focused
its efforts
on the
cleanup
project
opportunities
and will
eventually
develop the personnel
and techniques
to control
these
projects.
it will
take time to develop
However,
experience
with the process.
'I'his paper is presented
as an introduction
to the
hazardous
waste industry
to help many of the cost
engineers
that
are just
entering
this
field.
The
pape'r is not intended
to provide
detailed
estimating
rate!6 or specific
project
management control
systems.
This has been avoided for several
reasons.
Companies
are currently
using
a wide variety
of computerized
project
control
programs
that
can be successfully
There are
applied
to the hazardous
waste industry.
also several
comprehensive
manuals
that
have been
developed
specifically
for estimating
hazardous
waste
projects.
basic
-

The paper will


concentrate
issues including:

on a variety

of more

As you can see, there are many possible


sources
for contaminants
to enter
the air,
soil,
surface
water,
or groundwater
to create
a hazardous
waste
situation.
The quantity,
concentration,
and physical,
chemical,
or infectious
characteristics
become the
criteria
for determining
how any given
product
is
regulated.
The EPA has determined
that some specific
wastes
are hazardous
and developed
lists
of these
wastes.
'These lists
are included
in the specific
regulation
documents that are available
from the EPA.
REGULATIONS
There is a wide range of environmental
laws that
have been established
to control
hazardous
substances.
The laws are evolving
as rapidly
as the industry
is
growing,
so I do not recommend that anyone spend the
time to study a specific
law.
However, it is important to have a basic understanding
of the process and
regulations
that are driving
any given cleanup.
This
information
can often result
in better
scheduling
and
cost savings
to the project.
Table
1 provides
a summary of the main laws
governing
hazardous
substances.
If you have an
interest
in a given regulation,
contact
the regional
EPA library
in your area and request
copies of available information.
These libraries
are set up as a
public
service
and have a wide variety
of pamphlets
summarizing
many of the laws.

What hazardous
waste is
Regulations
that drive many of cleanup projects
Problems challenging
managers of hazardous
wastes
projects
Project
management
methods
to
help
control
hazardous
waste projects
Typical
pitfalls
that may be avoided in a hazardous waste project

The primary
law governing
cleanup
actions
in the US is the
ronmental
Response, Compensation,

J.l.1

a majority
Comprehensive
and Liability

of

the
EnviAct,