Your Project Optimisation Partners In...

Cost control in energy & resource asset projects…

With the rise of career specialty and dilution of the qualified Project Controls Engineer during the resources boom, we now see some distinctive changes in project controls emerging, and they are not encouraging.

In 1985 when I joined Sir John Holland in St Kilda Road as Trainee in their Pre-Contracts team, trainees for the crafts of estimating, contracts, cost and planning for the energy & resource industries were mostly drawn from trade qualified or field engineers with detailed field and team supervision experience. This background provided an ability to assess a situation and understand the construction methods without reams of ‘procedure and definition’ and then, to make knowledge based judgements as to the risk and the commercial/contractual mitigation required for the bid. Sometimes we included allowances, sometimes qualified/excluded and sometimes assessed the potential impact range and chose to ‘sit tight’ the point is, we knew the likely issues.

As we moved closer toward 2000 the trend or preference for qualified engineers to be selected for training into these roles became greater… and that shift I can understand, however as me moved into the new millennia the concept that one can train an estimator, a cost controller or even a planner without any prior site experience seemed to take hold. Since then it appears software driver competence has overtaken knowledge based experience and inherent knowledge based planning foresight as the preferred skills base.

In parallel the belief that Quantity Surveying was somehow equivalent to estimating promoted the idea that concept estimates can be generated by individuals who were usually cheaper to employ (university graduates), trained to measure and assign costs to internationally defined and, easy specified as uniform units of measured work. This concept had strong merit within the civil & high rise construction industries where repetitive, standard scopes of work were reiterated and the variability of the specification and scope were limited and relatively easy to define well ahead of time.

Aside from local codes and standards civil engineering design was primarily driven by soil conditions, wind & seismic loads, underground & adjacent structures and services, so the pre- engineering process could develop reasonably accurate quantities with relative ease avoiding expensive pre-engineering to drive the concept design. The quantified results could also be interpreted and indirect costs extrapolated by those with little or no site experience.

This is in complete contrast to the project development process within the energy & resources industries where ‘process plant feed stock’ and ‘product rate and specification’ always includes a multitude of physical and chemical variables plus, the above building considerations which all need to be taken into account… ie: too many aspects to define within the pre-feasibility phase without some detailed concept engineering development. It is for this reason the AACE have released project development design requirement guidelines for Process Plant study estimates

AACEI 18R-97.

Since the early 1990s many senior players in the consulting and construction industries failed to fully understand this complete contrast between the traditional civil based construction company and those servicing the energy & resource industries where each plant is bespoke in scope, design and specification… with such leadership there is little wonder since the early 2000’s we have seen the capital cost blow-outs we now regard as common place in the complex chemical based process industries such as Mining and Oil & Gas.

The European term ‘Cost Engineering’ is more commonly known in Australia as Project Controls but what appear as narrative semantics could offer some hints as we continue to drift away from the core concepts of these very terms and to debate the reasons our ‘control’ seems to be getting worse not better. The term Cost Engineering actually embeds experience in the engineering & construction field within what our clients often regard as Financial or Cost focused processes such as Estimating and the Control of Cost & Schedule. The fundamental reality is that the only way to control cost (aside from defrauding your supplier) is to plan, execute, review then revise the plan, execute, review… and so on.

Under the AACEI TCM® philosophy the only way one can control cost, is to control the resources consuming the cost. Accounting is a rear-view process and cannot control construction LME resources so in order to control the overall cost itself Project or Cost Accounting plays no part. Nor should Project Administration be substituted for Cost Engineering if one hopes to ever truly control the cost of their projects.

We must ensure the Project or Cost Engineering team include adequate experience to develop the right scope, assign cost by experienced estimating staff equipped with enterprise IP and modern TCM® integrated software Tools which will allow adequate interrogation and review before the estimate is released, and these tools are now readily available with pre-populated estimating data and structure ready to proceed directly to project delivery control.

Once approved, experienced project cost and planning engineers should develop the master schedule aligned to the estimate for earned value budget tracking and change control, to run ahead of the game. If one waits for the Corporate ERP to deliver the consolidated monthly report, by then the game is actually over and the cost will already be consumed or at best committed.

On the assumption the scope & concept engineering development is of a high standard, the essence of pro-active delivery control system is to find ways to contain the costs by way of resource manipulation such as better sourcing, purchasing efficiency or scale; task or campaign planning delay, alignment or acceleration… etc., this is where the focus of the Cost & Planning Engineers must be allowed to use their knowledge, engineering education and site experience to question and develop better solutions by close communication with Project Construction, Contracts/Procurement/Logistics and other Services personnel.

Regardless of the system purpose, strong and seamless integration of the system elements is paramount to its long term effectiveness. PET® System review provides definitive and objective assessment of existing business and projects System’s basic elements: People + Enterprise IP + Tools to ensure the interaction between the elements is fully captured and understood. PET® System analysis provides end-state mapping and gap-analysis for each element to ensure System integration and efficiency is optimised.

Share on LinkedIn
Share on Facebook
Share on Twitter

No Comments Yet.

Leave a comment