Vi Du

May 2005 2005

The AACE International Journal of Cost Estimation, Cost/Schedule Control, and Project Management Promoting the Planning and Management of Cost and Schedules

IN IN THIS THIS ISSUE ISSUE • Technical Article Design/Build Selection Process — Art or Science?

• Technical Article Using Earned Value Management Indexes as Team Development Factor and a Compensation Tool

• Technical Article The Goalposts for Project Success Have Moved — A Marketing View

• Executive Article The Art of Compromise

AACE AACE International’s International’s 2005 2005 ANNUAL ANNUAL MEETING MEETING ISSUE ISSUE

• Education Board News 2005 Update on Globalization of Educational Materials • Certification Corner Study Groups

• Special Feature Earned Value Professional Certification on Track for New Orleans Premier

The Association for the Advancement of Cost Engineering International Visit our website at www.aacei.org

The AACE International Journal of

AACE International Board of Directors President Clive D. Francis, CCC Black & Veatch, MI 734-622-8543/fax: 734-622-8700 e-mail: [email protected] President-Elect Philip D. Larson, CCE PSP WinEstimator, WA 253-395-3631/fax: 253-395-3634 e-mail: [email protected] Past President Ozzie F. Belcher Belstar, Inc., VA 703-645-0280/fax: 703-645-0286 e-mail: [email protected] Vice President-Finance Robert B. Brown, PE PMA Consultants of Illinois, LLC, IL 312-920-0404/fax: 312-920-0405 e-mail: [email protected] Vice President-Administration William E. Kraus, PE CCE B & C Project Services, CO 970-206-0947/fax: 970-226-1818 e-mail: [email protected] Vice President-Regions Marvin Woods, CCE Project Controls Group, Inc., MO 314-838-4987/fax: 314-389-8957 e-mail: [email protected] Vice President-TEC James G. Zack Jr., Fluor Daniel, CA 949-349-7905/fax: 949-349-7919 e-mail: [email protected] Director-Region 1 Mustansir H. Raj, CCE Bantrel, Calgary, Canada 403-282-6545/fax: 403-290-5050 e-mail: [email protected] Director-Region 2 Charles E. Bolyard Jr., PSP McDonough Bolyard Peck, Inc., VA 703-641-9088/fax: 703-641-8965 e-mail: [email protected] Director-Region 3 Robert E. McCoy, CCC BWXT Y-12, LLC, TN 865-482-7658 e-mail: [email protected] Director-Region 4 Jeffrey D. Kursave, CCC SAIC., MO 314-770-3006/fax: 314-344-4349 e-mail: [email protected] Director-Region 5 Stephen W. Warhoe, PE CCE 303-740-2665 e-mail: [email protected]

Cost Estimation, Cost/Schedule Control, and Project Management

ESTABLISHED 1958

Depar tments President’s Message ................................3 In Our Estimation ..................................5 Letters to the Editor................................8 Education Board News ........................10 Certification Corner ............................11 Executive Article ..................................13

Special Feature ....................................26 Professional Services Directory ..............38 AACE International Bulletin ..............39 Article Reprints and Permissions ..........43 Calendar of Events ..............................44

Featured Ar ticles Design/Build Selection Process — Art or Science?

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Talal Abi-Karam, PE CCE Although Design/Build is one of the most popular integrated alternative delivery methods, it does not have wellestablished contractor selection procedures. The selection of a Design/Builder can be based solely on qualification, solely on price, or a combination of price/qualification. Even with qualification-based selection (QBS), the selection process may be subjective, since various state agencies (DOT's) and municipalities have different selection criteria for pre-qualifying and evaluating bids of the perceptive Design/Build teams. This article examines the various selection methods of Design/Build teams in the public works sector. It addresses the legal framework for selecting Design/Build teams, including qualification-based selection (QBS), selection criteria, and weighting of criteria.

Using Earned Value Management Indexes as Team Development Factor and a Compensation Tool

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Ricardo Viana Vargas The objective of this article is to present the main components of the development of a project team and the motivational characteristics inherent to team work. It also looks at an interrelation proposal between the earned value analysis and team development through the SPI and CPI indexes. These are obtained by tool use and team development models and the compensation and reward in the project. This reduces the subjectiveness of humans resource in the project evaluation. The article presents a brief report about team development and compensation policies, as well as an introduction to the earned value concept, aiming to align the approached concepts.

The Goalposts for Project Success Have Moved — A Marketing View

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P.S. Kupakuwana and G.J.H. van der Berg Traditionally, a successful project was seen as one in which the triad of time, budget, and specification was complied with at a profit. Current project literature places more emphasis on customer satisfaction as a fourth important success parameter. This article discusses project management services and focuses on what constitutes project success. This type of project is named the new project in this article and a set of new project rules is arrived at. The article also takes a services marketing view and examines the customer's motivation in appointing a project manager.

In This Issue Board of Directors Contact List ........................1 AACE Certification Exams ..........................11

Index to Advertisers ......................................38 AACE International HQ Contact List ........42

On the Cover: New Orleans is ready to welcome AACE International members and guests to our 49th Annual Meeting, June 26-29. Register by May 27, and save $100.

Director-Region 6 Mark G. Grotefend, CCC 253-835-8081 e-mail: [email protected]

COST ENGINEERING Managing Editor - Marvin Gelhausen e-mail: [email protected]

Morgantown, WV 26501

Interim Executive Director Charla Miller e-mail: [email protected]

Graphic Designer/Editor - Noah Kinderknecht e-mail: [email protected]

fax: 304.291.5728

AACE International Headquarters

Vol. 47, No.5/May 2005

209 Prairie Avenue, Suite 100 ph: 800.858.COST

Policy concerning published columns, features, and articles Viewpoints expressed in columns, features, and articles published in Cost Engineering journal are solely those of the authors and do not represent an official position of AACE International. AACE International is not endorsing or sponsoring the author’s work. All content is presented solely for informational purposes. Columns, features, and articles not designated as Technical Articles are not subject to the peer-review process.

Cost Engineering (ISSN: 0274-9696) is published monthly by AACE International, Inc, 209 Prairie Ave., Suite 100, Morgantown, WV 26501 USA. Periodicals postage paid at Morgantown, WV, and at additional mailing office. POSTMASTER: Send address changes to AACE International; 209 Prairie Ave., Suite 100, Morgantown, WV 26501 USA. Single copies: US$8 members/ US$12 nonmembers (both +shipping), excluding special inserts available to AACE members only. Subscription rates: United States, US$65/year; all other countries, US$82/year. Overseas airmail delivery is available at US$99. Subscriptions are accepted on an annual-year basis only. Copyright © 2005 by AACE International, Inc. All rights reserved. This publication or any part thereof may not be reproduced in any form without written permission from the publisher. AACE assumes no responsibility for statements and opinions advanced by the contributors to its publications. Views expressed by them or the editor do not necessarily represent the official position of Cost Engineering, its staff, or AACE International, Inc. Printed in York, PA, USA. Cost Engineering is a refereed journal. All technical articles are subject to review by a minimum of three experts in the field. To submit a manuscript for peer review, please e-mail it to [email protected]. Cost Engineering is indexed regularly in the Engineering Index., Cambridge Scientific Abstracts, by EBSCO Publishing, and in the ABI/Inform database. Cost Engineering is available online, via the ProQuest information service; on microform; electronically on CD-ROM and/or magnetic tape from Bell & Howell Information and Learning, PO Box 1346, Ann Arbor, MI 48106. Photocopy permission : Authorization to photocopy articles herein for internal or personal use, or the internal or personal use of specific clients, is granted by AACE International, Inc., provided that the base fee of US$4.00 is paid directly to Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923 USA. Telephone: 978.750.8400. For those organizations that have been granted a photocopy license by CCC, a separate system of payment has been arranged. The fee code for users of the transactional reporting service is ISSN0274-9696/02 US$4.00. This permission to photocopy does not extend to any Cost Engineers’ Notebook, AACE Recommended Practices supplements, or membership directories published in this magazine and/or special inserts. Payment should be sent directly to CCC. Copying for other than personal or internal reference use without the express permission of AACE is prohibited. Address requests for permission on bulk orders to the editor. ADVERTISING COPY: Contact Network Publications Inc., Executive Plaza 1, 11350 McCormick Road, Suite 900; Hunt Valley, MD 21031. Telephone: 410.584.1966. E-mail: [email protected] for rates. Advertisers and advertising agencies assume liability for all content (including text, representation, and illustrations) of advertisements printed and also assume responsibility for any claims arising therefrom made against the publisher. The publisher reserves the right to reject any advertising that is not considered in keeping with the publication’s mission and standards. The publisher reserves the right to place the word advertisement with copy which, in the publisher’s opinion, resembles editorial matter. All advertising accepted for publication in Cost Engineering is limited to subjects that directly relate to the cost management profession. Current rate card available on request. COST ENGINEERING DEADLINES : Submissions for Cost Engineering must be received at least 7 weeks in advance of the issue date. Send to: Editor, 209 Prairie Ave., Suite 100, Morgantown, WV 26501 USA. Deadlines do not apply to technical papers.

P resident’s P resident’s Message Clive D. Francis, CCC President

Our Association Continues to Change s I sit to write this message, it is hard to believe that there have been nine messages which have preceded this one, and I look forward to recognize that there are only two more to go. The elections have been completed, and the makeup of the next year’s Board of Directors (BOD) is truly exciting. The elections have brought to the BOD three new persons who have never been on the BOD. They will bring new ideas and energy to your association and provide a new outlook and ideas to make us grow. The other exciting action to come from the elections was the overwhelming vote to change the method of voting for your association executives. Our votes in this election were decided by only 15 percent of our membership. I recently voted for new directors and other issues for another group via electronic voting method. This was so easy and quick and I am sure brought out a much higher percentage of those eligible to vote. The Association will implement electronic voting for all members, hopefully by the 2006 election. By the time you read this, the April Board meeting will be history. I am going to this meeting with a lot of anticipation and hope for an exciting new process for AACE International. The plan is for us to spend a portion of the Board of Directors meeting developing an outline for a new AACE International Strategic Plan. The new plan will be our guide for the next two to three years. The expectation is that the strategic plan will be reviewed each year and used as a guide for the coming year. At the same time, we would expect that, after each two year interval, it would continue to serve as a guide for further updates and become the blueprint for the following two year interval. So why do we need a strategic plan? It has become very evident over the last couple of years that we need to spend time to determine who we are and where we want to be in the future. The whole profession of cost engineering has changed over the years. The profession is no longer a group dealing only with numbers. We are now a group of professionals who also deal with schedules, who provide

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Cost Engineering Vol. 47/No. 5 MAY 2005

earned value analysis, and who work on construction and other claims. With the strategic plan, we will have a guide to help us define who we are and where we need to be in the next few years. What else is new? We have introduced and successfully completed two Beta tests of new Earned Value Professional (EVP) certification. The certification gives AACE International professionals who perform earned value analysis as part of their daily work activities the recognition for the work they do. The certification was developed by a dedicated group of professionals who developed questions, developed processes, and developed the criteria. Also, by the time you read this message our Interim Executive Director, Andy Dowd, will have returned to his life before working at AACE International Headquarters. Andy has served the Association well over the last eight months. As Interim Executive Director, Andy chose to take the high road and to make improvements in operations, to guide the staff, helping to mentor them, and to be the conscience to the Board of Directors. All that Andy did was dedicated to improving the Association's operations. Andy also chose to be our representative with other associations. All of us at AACE International owe Andy a special thanks for his contributions. From a personal point of view, I believe that Andy was there when needed and I could depend on him to be there as a guide, mentor, and more importantly, as a friend. ◆

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I Inn Our Our Estimation Estimation Jennie Amos Manager, Marketing and Meetings

AACE International Board Adopts New Vision and Mission Statements n my way to work today, I passed the time of the 30 minute drive by listening, as I do most mornings, to National Public Radio. I was intrigued with the interview on NPR's Morning Edition with Microsoft Chairman Bill Gates. That interview jump started my thought process of recent activities with AACE International and its Board of Directors. During the interview, Bill Gates was asked his opinion about the problem with the reduced number of science and engineering students in the US and whether the problems were with the educational system or a problem of the US culture. Here is what Bill Gates had to say:

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"The Chinese are clearly inculcating the idea that science is exciting and important and that's why they, as a whole, are graduating four times as many engineers as we [the US] are. That's just happened over the last 20 years. We see drop offs in terms of interest in this at every level of the educational system, particularly for women and minorities, but as a whole. So we have got to work on that in every stage." So you may be reading this and saying to yourself, "Self, what on earth does this have to do with AACE International?" Or you could be thinking that this girl at AACE Headquarters is a little wacky…I'll address the question on how Bill Gates' comments relate to AACE International, and leave you to judge the level of my sanity for yourself. At the AACE International Board of Directors meeting, April 21-22, in Toronto, Ontario, Canada, the Board conducted a strategic planning session for the first time in a few years. The newly adopted vision and mission statements for AACE International, I believe, help to define the Association to the profession at large. Although there is still more work to be done in the area of strategic planning, many of the issues and goals that were discussed in this day-long session touched on those comments made by Bill Gates. I believe that, like in Bill Gates' statement, AACE International should be instilling the idea that the work being done by our members is exciting and important. I am always fascinated to learn of many of the works and programs of our members, both historical and current. I recall that just a few days ago, while touring Toronto's CN Tower with fellow Headquarters Staffers Christian Heller, Teri Jefferson, and Charla Miller, we saw a display on the Seven Wonders of the Modern World (according to our friends at the American Society of Civil Engineers) which include the Channel Tunnel, CN Tower, Empire State Building, Golden Gate Bridge, Itaipu Dam, Netherlands North Sea Protection Works, and the Panama Canal.

AACE International's Vision: To be the recognized technical authority in cost and schedule management for programs, projects, and products.

AACE International's Mission: To provide technical programs, research, recommended practices, and professional development and expertise through technical programs, continuing education, and professional certification. It was then that I learned that a former AACE International President, Chris Walker, had been a project manager on the Channel Tunnel—how exciting that must have been! During my tenure at AACE International, I have also learned of members working on projects like the NASA Space Shuttle facilities, Disney's Epcot Center, and let's not forget AACE International President-Elect, Phil Larson, CCE PSP's, work as lead scheduler on Bill Gates' residence! These few examples and the many current projects AACE International members perform on a daily basis are just scratching the surface of a typical AACE member’s work. These could not have been done without some stimulation and notion that the work they were doing was not only difficult and technical, but exciting and important as well. With the good work being done by our dedicated members on our Board of Directors, TEC Boards, Technical Committees and SIGs, Sections, and our membership as a whole, AACE International will be the recognized technical authority in cost and schedule management for programs, projects, and products. I hope by this point, assuming that you haven't already decided that I'm a little too nuts for you and have stopped reading this article, you are asking yourself, "Self, what can I do right now to help ensure that AACE International is able to achieve it's vision and mission?" With the 49th Annual Meeting just around the corner, I hope you will be supporting our efforts for technical programs, continuing education, and professional certification offered there! AACE International is extremely thankful to one of our Sections, Genesee Valley, for their fifth year in sponsoring the Annual Meeting (they are the only section in recent years to have done so)! This year, the Genesee Valley section is also sponsoring the attendance of one of their members to the Annual Meeting! I think this is quite a feat for a section of only 40 mem-

Cost Engineering Vol. 47/No. 5 MAY 2005

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bers! Section Leaders, won't you consider matching support of AACE International like your friends at Genesee Valley have done for several years to help support AACE International's vision and mission? As an individual member, there are a number of ways you can help AACE International demonstrate its vision and mission by making your own contribution: get a friend to join AACE International, attend the Annual Meeting, brush up on your skills with the Professional Practice Guides, participate in a Technical Committee or SIG, attend a Continuing Education Seminar, take a Distance Learning Course, sign up to be an Approved Education Provider, or get AACE International certified: CCC (Certified Cost Consultant), CCE (Certified Cost Engineer), ICC (Interim Cost Consultant), PSP (Planning and Scheduling Professional), or EVP (Earned Value Professional). AACE International is helping you to do your exciting and important work, but your input and involvement is, as it has been for the last 49 years, vital to these overall efforts of the Association! ◆

MONEY SAVING TIPS for for the the

2005 ANNUAL MEETING TIP 1

- Stay in the AACE International Host Hotel, Sheraton New Orleans, and save $100 off of your Technical Program Registration. If you are taking a Continuing Education Seminar, you can receive $100 on one or both by staying at the Sheraton New Orleans as well!! Just make sure to enter your confirmation number on your annual Annual Meeting Registration Form.

TIP 2 - Register before the Early Registration Cut-

Off Date, May

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Cost Engineering Vol. 47/No. 5 MAY 2005

27th, and save an additional $100!

LLetters to the Editor etters to the Editor Marvin Gelhausen, Editor

All, I was on the telephone recently with a gentlemen who has the Planning & Scheduling Professional (PSP) Certification through AACE International. This individual is also a testifying expert in the area of construction scheduling. He just completed testifying in a jury trial in Northern California. Since he had recently achieved his PSP Certification, he had briefed the attorney he was working with on the implications of having a PSP Certification, as well as the requirements to attain such certification. His attorney asked all the "right questions" during voir dire (the qualifying process for an expert witness in Court) and the judge readily admitted him as an expert. Opposing counsel was unable to keep him off the stand as an expert. Additionally, it was noted during the trial that the opposing expert did not have this certification. The outcome of the trial was a settlement very much in favor of this individual's client. Now, it cannot be said that the PSP Certification was the only reason this happened or even the primary reason. I'm pretty confident that facts, law, contract language, analysis and presentation skills had something to do with the outcome also. But, the point is, having the PSP Certification made it much easier to be admitted as a testifying expert in the area of construction scheduling, at least in this case. You may want to pass this information along to those you know who are schedulers and who either are, or want to become, testifying experts in this area. This certification is starting to pay off -- at least for this individual. James G. Zack, Jr. Executive Director Corporate Claims Management Fluor Corporation One Enterprise Drive, S3-148 Aliso Viejo, CA 92656-2606 Hello AACE Colleagues, As many of you know, I am in the process of researching my Ph.D. thesis: “Is Project Management a Profession? And If Not, What is it?” under the supervision of Dr. Christophe N. Bredillet, Lille Graduate School of Management, Lille, France. Accordingly, I would be very appreciative if my AACE colleagues were to register your opinions on how you perceive and define what we do for a living. I am especially keen to make certain I get the input from as many PE’s as possible. I think the perspective of how PE’s perceive project management is going to be very interesting. Please take about 1.5 hours of your time to fill in my customer survey, and earn 2 PDU’s in the process. (You will receive a personal copy of the results and the analysis as soon as I complete it) OR you can earn one of our famous “Project Management- Art?, Science? Or Bull…..?” T-shirts as a reward for your efforts. Just visit, http://FreeOnlineSurveys.com/rendersurvey.asp?id=76670 Many thanks in advance and look forward to sharing the 8

results of this research with you in the coming 9 months or so……. And for those of you thinking about getting your Ph.D., I cannot think of any better distance learning program than the Ph.D. in Project/Program Management offered by Professor Bredillet at ESC-Lille. www.esc-lille.com . And rumor has it that a distance learning Masters degree from ESC-Lille in Program/Project Management may be in the works as well. BR, PDG, Jakarta Dear ICEC Members and Delegates: Many of you have submitted payments for your 2005 ICEC Subscriptions and we trust that those who have not yet done so will arrange payment soon. As indicated in the instructions previously sent to you for handling payments, if bank transfers are used, it is preferred that they be sent to the ICEC office in Australia, not to our United States bank account. Unfortunately, the United States Federal reserve system has changed the manner in which bank transfers are handled. When transfers are sent to the United States they are simply credited to accounts and no identification of who sent the funds is provided. Everything is done electronically. We have received several wire transfers and do not know who sent them. We must know when you send payments so that we can identify them. Even if you inform us of the amount transferred, because of fees charged on transactions, the amount credited to our account will not match the amount sent. This makes it very difficult for ICEC to identify who sent the payment and to properly credit the sender. This problem does not occur with transfers to the Australian bank. If you have sent a transfer to the United States, or if you send one in the future, always send an e-mail to [email protected] providing us with the details of your transmittal including the name of your bank and the name of the US correspondent bank which they used to handle the transfer so that we may properly identify your payment. Otherwise we may not know that you have made payment. We have received several payments this month which we cannot identify. If one of them is yours, please provide the requested information so that we can properly identify your payment. Thank you. Kenneth K. Humphreys Secretary-Treasurer International Cost Engineering Council 1168 Hidden Lake Drive Granite Falls, NC 28630, USA http://www.icoste.org Reply to: [email protected]

Cost Engineering Vol. 47/No. 5 MAY 2005

Consulting “101” Two years ago, when I was, “selected to participate in a force reduction,” many emotions were felt. Since several lay-offs had occurred in previous quarters, one emotion was relief—removing the uncertainty of the effects of market conditions on one’s daily employment. The most prominent emotion, however, was that of optimism and opportunity. I had always had the notion planted in the far reaches of my mind that “one day,” after retirement, I would like to become an independent consultant. I consider it extremely fortunate that, as one of the out-placement benefits provided by my former employer, I was able to participate in the “Fast Trac New Venture” program of the Ewing Marion Kauffman Foundation. The materials provided me with the information and tools needed to research and develop business plans, marketing plans, and to establish realistic goals for a successful entrepreneurial adventure. Hoping to springboard off my years of experience in the Cost Engineering profession, I filed the necessary forms to license with my state, acquire my FEIN, and register with the business associations. As many will tell you, networking is essential in “getting the word out” that your shingle is now flapping in the breeze. Letters of introduction were mailed to colleagues, former coworkers, professional association affiliations, potential clients, and (yes) family members. With a background in estimation, budget management, value engineering, and process improvement, I subscribed to various publications and journals dealing in entrepreneurship, new partnerships, and new projects where these skills could be applied. I sought out associations (among them AACE

International; ASPE; PMI; SAVE) and agencies (among them: AGC; ASA;NFIB; et.al.) where further networking could be achieved. There are numerous societies where one can share in knowledge and potential contracts. Be prepared to spend many hours in the up-front efforts of networking, marketing, planning, and research. And, yes, there are up-front costs associated with licenses, equipment, supplies, advertising, and much more that require the need to be planned for—and addressed in your business plan. Above all, dream your dream. Contact others in the consulting field to be appraised of pitfalls to avoid, hurdles to overcome, and rewards to be gained. If you choose this route, best wishes in your endeavors! Bruce A. Martin ◆

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EEducation ducation Board News Dr. Sean T. Regan, CCE

2005 Update on Globalization of Educational Materials n 2004, I shared my thoughts with you on the benefits of globalizing our educational materials. In a world that is continually changing, and constantly blending, it is my belief that our success in the international arena is dependent on shared knowledge that is mutually understood among all nations. The goal: to create translations that truly transcend our historic language barriers. Having children from two culturally diverse marriages, I have witnessed first hand how language barriers can introduce conflict and misunderstanding. However, the beauty of translation also means that it is possible to transcend those barriers and communicate freely and effectively. While my three sons from my first marriage are of US descent, they are eagerly learning Russian words and phrases and are now communicating with their two younger brothers who are of Russian lineage. They may not be fluent, but they have learned the importance of embracing their dual cultures. This same consideration must be adopted in our international arena if we are to be an effective Association both educationally and professionally. The Education Board is proud to acknowledge that we will be embracing this process by offering multi-language translations of a chapter on scheduling; specifically Chapter 13 of Skills and Knowledge of Cost Engineering - 5th Edition. The document has already been successfully translated into Russian, and we are working diligently to complete the Spanish, Japanese, and Mandarin translations as well. The goal is to have at least three of the languages available for sale at our Annual Meeting in New Orleans in June 2005. In order to fully understand and appreciate the time and support that it takes for these translations to take place, I share the following insights with you. From one culture to another, words and phrases have different meanings. Therefore, we take the following approach when translating our documents.

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• • •

involved in international projects, thus increasing membership and participation in our vision. Now that there is a core group of volunteers to support our vision of "globalization," we invite other members who would like to contribute their time and talents, as well as start a charter. The committee's mission will be the continual translation of papers, books, manuals, and presentations in languages that help outside firms to develop their own dual (or multi) language programs. As the Association comes to its golden anniversary, the introduction and use of multiple languages and exams within our organization, will keep the association in the forefront for another 50 years. If you would like to provide a paper, recommend a text, be a presenter, or donate your time to translate a chapter from the Skills & Knowledge of Cost Engineering, please feel free to send an e-mail to [email protected] and I will be happy to add you to our pioneer committee on globalization education. ◆

A single individual translates the document. The translated document is reviewed by a second group of peers for content and subject matter. After the group comes to an agreement that the translation meets the context of the original document, we then "reverse translate" to verify that the meanings have not changed.

The initial chapter, "Scheduling", was translated by volunteers who are practicing professionals, not a paid firm. These volunteers translated while working a full time job, managing their own educational pursuits, and family commitments. And, while the primary goal of translating this document was done under the premise of supporting a globally cohesive community, we offer them "for sale" so that the monies earned may support further translation of other vital materials. In addition, the income generated from these sales can also be used to train more individuals

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C tification Cer ertification Corner Valerie Venters, CCC, Certification Board Member

Study Groups ou want to become certified, but don't know how to get started. I know what you are thinking. . .its has been a long, long, time since you poured over exam material and really studied for a test. Then the burning question is, “What if I don't pass?” Let me offer a suggestion for how to get started—join a study group. The study group approach may not work for you, but your ultimate goal is to improve your skills and get certified. One of the best places to get questions answered about confusing or difficult concepts or problems is in a study group. Oftentimes, individual group members have more expertise in the material covered in one of the exam sections than another, and can teach the material to the other members in the group. . . all learn together. Taking turns teaching and explaining helps build confidence for each of the members. The study group also provides a support group. All of us feel discouraged and overwhelmed at times, but a study group can refuel your motivation and make studying more productive. Let me give you an example. At one of our local section meetings, several members indicated an interest in becoming certified. The idea of forming a study group began to take shape. We needed presenters who were experienced project controls professionals. We recruited an experienced scheduler to present the scheduling material, an experienced cost engineer to present the cost material, and an experienced estimator to present cost estimating material. Other volunteers helped present contracts, earned value, and behavioral science. An eight week program was mapped out. At the beginning of each class, the first few minutes are spent reviewing the paper requirements and answering any questions. The rest of the class is focused upon exam con-

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cepts and material. Our group agreed to meet once a week immediately after work for two hours. We divided the chapters of Skills and Knowledge into blocks of material: scheduling, cost engineering, estimating, earned value, and other related material. The presenter for that block of material would prepare his/her presentation, assemble work problems on the subject, and lead an open question/answer discussion at the end of the evening. The open discussion at the end is very important. This is where real life examples from the workplace are tied to the presentation material. The results have been extremely successful. Six project controls professionals applied and sat for the exam. All six were successful. As word spread through our local section that a project controls study group was happening, many other members began to attend the classes. The concepts and material presented not only benefited the people interested in taking the exam, but also was a great benefit to less experienced project controls professionals who were new to our profession. We can sum it up this way by quoting one of our study group members: "Procrastination has always been a problem for me, but studying with others kept me motivated and excited about learning. Telling a co-worker that I would meet them at the study group meeting tonight ensured that I would actually be there. If I had studied alone, I would have procrastinated and started tomorrow. I would never have become certified at that rate. I just received my letter—I passed!!!" There is no time like the present to get started. Gain confidence in your abilities, improve your skills, and set yourself apart from the crowd—Become Certified!! ◆

AACE International Certification Exams The Second Quarter (2Q) 2005 CCC/CCE, PSP, and ICC Certification Exams will be given at the following AACE International sites Saturday, June 25, 2005 New Orleans, LA only - Right before AACE International’s Annual Meeting. The new Earned Value Professional (EVP) Certification Exam will also be offered on this exam date. Register online at www.aacei.org

Saturday, July 16, 2005 Final Registration for Exam -May 20, 2005 Atlanta Caribbean Catawba Valley Central Savannah River Chinook-Calgary Dubai, United Arab Emirates Delaware Valley East Tennessee Genesee Valley Great Lakes Hawaii

Kansas City Moscow Nevada New Mexico Niagara Frontier Oklahoma Rattlesnake Mountain Section Rocky Mountain St. Louis South Africa Southwest Ohio Tennessee Valley

The Final Deadline for submitting an examination application is May 20, 2005 Cost Engineering Vol. 47/No. 5 MAY 2005

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EExecutive Ar ticle xecutive Article Dr. Barton Goldsmith

The Art of Compromise ompromise may be the most important and most underused word in modern business. Webster defines compromise as a settlement of differences by consent, reached by mutual concessions. Put in simple terms, you've got to give a little to get a little, with the understanding that just because you don't get what you want, doesn't mean you won't get all you need. For a business to be successful, leaders and team members need to learn how to engage in this beneficial behavior. And it's not as hard as you might think. The first thing to remember is that in a business deal, you won't be comfortable unless the other company (or person) is comfortable as well. For some reason, compromising can be looked at as a loss, caving in or even being a doormat. The real truth is that if you have any of these sensations you are not really compromising. For there to be a real meeting of the minds, both people have to feel good about the end result. Getting everything you want every time you want it is not realistic. Those are the desires of a spoiled child, not an adult who wants to be in a successful business environment. Ask yourself something, if you get everything you want, and your client is feeling like they got the fuzzy end of the lollipop (and not at all happy about it), can you really see this deal being successful? Do you think this client will be back for more? To become willing to compromise you have to understand that it benefits everyone involved. If you are truly business partners then what is good for one should be good for the other. Try looking at the big picture and do what you can to make it balanced. The closer you come to equality, the more successful both of you will be. If either one of you feel that the deal is unbalanced, then something isn't working properly. Once you've agreed to a set of ground rules for your business relationship, if one of you decides to make drastic changes, for example you or your client want to change the financial terms, it can make future negotiations difficult. Before you do anything that changes the foundation of your agreements, you need to talk with your client or team mate and closely examine how this decision will change things. Most compromise issues are far less drastic than this, but the process for achieving a balanced situation is the same. Talk, examine and take some time to see how the changes will effect everyone involved. Getting the best terms possible is an appropriate business decision. However, if this is a new direction, you need your client to be willing to compromise and make the changes necessary so that both of you can feel comfortable and safe. Compromise is an art form that successful leaders have mastered. The key is understanding that you're not giving up or giving in—you're just seeking balance.

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About the Author Barton Goldsmith, Ph.D., is a highly sought after speaker and business consultant, US syndicated author, and radio talk show host. He presents to numerous companies, associations and leaders worldwide. His articles have appeared in more than 500 publications and he has given over 2,000 professional presentations. He can be contacted through his web site at: www.BartonGoldsmith.com or at (818) 879-9996. ◆

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T ECHNICAL A RTICLE

Design/Build Selection Process — Art or Science?

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Talal Abi-Karam, PE CCE

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ABSTRACT: The Design/Build method is an innovative project delivery system that is revolutionizing the delivery of private and public works projects. Advantages include a reduced project delivery time, costs, and reduced claims. The selection of a Design/Builder in the public works sector is a complex process that has required a number of US states to modify their procurement laws, state statutes, and licensing laws. Although Design/Build is one of the most popular integrated alternative delivery methods, it does not have well-established contractor selection procedures. The selection of a Design/Builder can be based solely on qualification, solely on price, or a combination of price/qualification. Even with qualification-based selection (QBS), the selection process may be subjective, since various state agencies (DOT's) and municipalities have different selection criteria for pre-qualifying and evaluating bids of the perceptive Design/Build teams. This article examines the various selection methods of Design/Build teams in the public works sector. It addresses the legal framework for selecting Design/Build teams, including qualification-based selection (QBS), selection criteria, and weighting of criteria.

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KEY WORDS: Bidding, cost, Design/Build, fixed budget, and project delivery systems

he delivery method of the majority of public works projects has been the traditional hard bid method. While this method results in the lowest price for the construction of a project, it also carries a high degree of risk. In the hard bid process, the owner is faced with the risk that the low bid is not within the budget allocated, and may hire an unknown contractor whose goals and interests are in direct conflict with the owner’s interests. Trends in the 1990s showed a sharp increase in the volume of litigation in public works construction. This increase was primarily because of an increase in the volume of construction put in place, while using the competitive bidding method [1]. Stiff competition caused contractors to cut their margins to gets jobs, and forced them to seek claims to make up profits. The increase in claims led all parties to seek alternative delivery methods. Public works owners were searching for alternative project delivery methods to reduce the risk of project overruns and prolonged litigation. The Design/Build project delivery method has emerged as the most attractive alternative. Moving into the new millennium, the engineering and construction community recognized the limitations of the procurement process that supports the traditional design-bid-build method.

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The perceived disadvantages Design/Build include the following.

New delivery methods will require new procurement processes to properly allocate risks and to provide public owners with value and quality of goods and services. The transition to a new procurement process will require a fundamental change and modifications to current legislation, procurements laws, US state statutes, and licensing laws at the US federal, state, and local levels. THE DESIGN/BUILD METHOD The Design/Build method is an integrated, project delivery technique whereby an owner contracts directly with a single entity (Design/Builder) to deliver the project (see figure 1). Advantages of Design/Build, as listed by W. Friedman, include the following [6]. • • • • •

the owner needs to hire a third party to watch for his/her interests; substitution of lower quality material and equipment; the owner must give up control over the process; and the owner must have a clear design criteria package (DCP).

Design/Build is not a new project delivery method. The Design/Build method (i.e., turnkey, performance contracts, etc.) has been used for delivering domestic (pulp and paper, industrial, hydroelectric) and international projects around the world for the last 50 years [2]. Design/Build allows the owner to acquire goods and services with a singlesource of responsibility and a single-source of accountability. Despite popular misconceptions, Design/Build does not eliminate risk and claims. In fact, one could still advance the same types of claims, whether using the AIA, EJCDC, FAR, or DBIA model contract documents. Owners switching to the Design/Build method must examine their procurement laws, state statutes, and licensing laws to ensure that they can legally engage in Design/Build. DESIGN/BUILD LEGAL ENVIRONMENT The rapid increase in the use of Design/Build is fueled by the passage of key legislation at the US federal and state levels that allow public owners to legally engage in Design/Build.

the selection is based on qualification, and definitive performance criteria; the contractor is involved early in the design phase; allows for reduction in the design, and construction phases; allows for a single source of responsibility; and eliminates the adversarial relationship between contractors, owners, and engineers. Figure 1— Design Builder

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of

The successful passage of this legislation is primarily because of an aggressive lobbying, marketing, and educational campaign by the Design Build Institute of America (DBIA). The Institute was founded in 1993, with the purpose of influencing US federal and state licensing laws to facilitate the use of Design/Build. The following are key milestones and events that helped the use of Design/Build in the public works sector. Brooks Act - 1972 In 1972 the Brooks Act required the segregation of design and construction for public works projects (40 U.C.S. Section 541). This act essentially limited the delivery options of publicly funded projects to the competitive bidding method (lowest price). One consequence of this is that US federal and state agencies alike were forced to assume direct responsibility for the planning, designing, maintaining and operating of infrastructure projects. Federal Acquisition Reform Act (FARA) 1996 The Federal Acquisition Reform Act was promugulated in 1996, giving US federal agencies the legal authority to engage in Design/Build. In 1997, the Civilian Agency Acquisition Council and the Defense Regulation Council agreed on a final rule to amend the US federal acquisition regulation (FAR) to implement two-step procedures for Design/Build contracting. With the implementation of the amendment to (FAR) and the FARA of 1996, Design/Build has become a prevalent method for US federal contracting. Florida Law: Qualification-Based Selection (QSB) - 1997 A Florida law that took effect in Oct., 1997, (FS 287.055 sec 10 (c)) provides an alternative to the competitive bidding process and could greatly reduce the time needed to select a Design/Build team. Under this law, most public agencies in the state of Florida can use qualificationbased selection (QBS) when awarding Design/Build projects. The FARA of 1996, reinforced by (QBS) in Florida, has opened the door for the formal and legal acceptance of the Design/Build method in the public works

While the private sector has the option sector, and changed past practices, giving municipality's legal authority to award jobs to negotiate directly with a single based on qualification criteria rather than participant, the public sector typically requires a competitive selection process. low price. The selection of a Design/Builder can Transportation Equity Act (TEA-21) - be solely based on qualifications, solely on price, or on a combination of price and 1998, 2003 A final rule, published Dec. 10, 2003, qualifications [7]. Many public works allows but does not require, Design/Build agencies are using forms of competitive to be used on projects valued at $50 selection that fall between qualificationbased and a low-bid selection. This is millions or more (23CFR, Part 636). The new rule permits state and local accomplished through the use of agencies to take full advantages of the prequalification and complex bid Design/Build method. This final rule was evaluation system. Although bid evaluation systems are effective Jan. 9, 2003. The rule was required under the provision of the fairly standardized, objective scoring of the Transportation Equity Act for the 21st proposals varies from agency to agency. Century (TEA-21), which allowed states to Since scoring involves human effort, use Design/Build on an experimental objectivity may not be fully achieved. basis. Section 1307(c) of the TEA-21 Act, Most selection processes for a public-sector enacted June 9, 1998, allowed Design/Builder involves prequalification. Prequalification serves to shorten the list of Design/Build on an experimental basis. prospective bidders, and to increase competition among the providers. SELECTION OF A Prequalification also streamlines the DESIGN-BUILDER selection process, helps agencies manage Public works owners and municipal the selection process, and helps to reduce managers are entrusted with public funds. the amount of stipends paid to prospective They are consistently challenged to put bidders. The following are the three public dollars to their maximum use. At primary methods of Design/Build the same time, public owners are looking procurement [7]. for more quality and value in the goods and • the one-step method; services they acquire. Value is created by finding the best • the two-step method; and combination of cost, quality and schedule. • qualification-based Design/Build. It is believed that alternative project The one-step and the two-step delivery methods, including Design/Build, are the frontier where value is created and methods are procedures that fit into the larger category of best value selection. Best maximized. Competition affords public value procurement is one that is structured accountability and protects the public from to consider price and other relevant factors exuberance. Public owners who elect to in making the bid selection to provide the use alternative project delivery methods owner the greatest value for the money. The one-step and the two-step must ensure that the method chosen is properly and fairly used to serve the public methods are also considered to be selection methods. interest with quality, cost effectiveness, and competitive Qualification-based selection is purely timely delivery of goods and services. Whatever methods used, the selection based on the qualification of the process for Design/Build services must be respondents. It is typically used when consistent, open, competitive, and most there are limited numbers of qualified bidders, or when a government agency is importantly legal. not regulated by the FARA (US Postal Services, some state agencies). Selection Methods Since price is not part of the The traditional design-bid-build method uses the fixed-price, sealed-bid evaluation, most public procurement laws system, as required by the Brooks Act. prohibit this form of selection, and it is Price is the only consideration, and mostly used in the private sector. projects are awarded to the lowest bidder. Qualification-based method fits into the category of negotiated selection [4].

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Figure 1— The One Step Method

Regardless of the method used, the cost of preparing proposals by a Design/Builder can be very significant. Some proposals are comprehensive and include detailed designs, construction sequences, baseline schedules (CPM), cost estimates, material selection, process equipment, and prices. The cost of preparing proposals could amount to 2-5 percent of the overall project costs, and will require resources, technical expertise, and commitment from vendors and subcontractors. Some transportation agencies, such as the Florida Department of Transportation (FDOT), have recognized this burden, and allow for a stipend to be paid to perspective bidders. However, this stipend is fixed and often limited to the direct labor hours spent on the proposal, and does not include any allowance for overhead, expenses and profits.

• • • • •

the technical proposal is then scored; scores below a pre-determined threshold are deemed non-responsive; scores above the threshold are deemed responsive; price envelops for the responsive bidders only are opened; and the committee selects the lowest bidder.

In scoring the technical proposals, the selection committee may assign a weight factor for each of the criteria. The following table is an example of a selection/evaluation scenario with weight factors. Scores for criteria 1-5 are compiled (including the weight factor). Compiled scores above the threshold (responsive bidders) are only considered. Then, the price envelops for the responsive bidders only are opened, and the cost envelop of those bidders who do not score a predetermined number will not be opened. At this stage, the agency can simply select the lowest price proposal of the responsive bidders and award the project. Some agencies compile a composite price score that takes into account the score from the technical evaluation and the score from the price evaluation and awards the project to the bidder with the lowest composite price. Other agencies have used an index value which is equal to the ratio of the

The selection committee may include members from across the owner's organization such as, engineering, purchasing, legal, operation and maintenance (O&M). The committee may include voting members and nonvoting members. Non-voting members may be technology advisors or average citizens from the district, whose presence is to ensure that the process is competitive and working as required. The selection committee evaluates and scores the technical proposal on a wide range of THE ONE-STEP METHOD The one-step procedure (single stage criteria, including the following. contractor selection) involves the of designs and evaluation of the technical proposal in • innovations construction; addition to price at the same time (one • meet owner's needs; package, see figure 2). This procedure will provide for • prior experience in this specific type of price score divided by the technical score projects; competitive evolution of the technical proposal with the contract award decision • management criteria such as, quality (see equation 1), and the project is awarded control, supervision, and management to the Design/Builder with the lowest based on best value to the agency for the index. approach; and combination of evaluated technical merit and associated price, but not necessary to • project schedule (deliverables, CPM). the lowest cost. The one-step method is mainly used for simple Design/Build projects. The evaluation process is Evaluation Criteria: Weight Factor (percent) primarily a low-bid selection. This process is recommended where the following 1. Understanding of the project 20 % procedure is required. 2. Design and construction approach 10 % 3. Delivery of the work 10 % Procedure 4. Management of the services 10 % • owner issues an invitation for bids (IFB); 5. Qualifications and experience of the team 10 % • D/B teams submit a proposal Total 60 % containing separate technical proposal Compile Technical Score and a price proposal at the same time 6. Cost of the project 40 % (separate envelopes); Compile Price Score • the technical proposal is evaluated by the selection committee; Table 1— Sample Selection/Evaluation Scenario

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Figure 3 — The Two-Step Method

THE TWO-STEP METHOD (COMPETITIVE SELECTION) The two-step method is the most commonly used in the pubic sector. It separates the price from the qualification process. The two-step method involves prequalification of firms through a request for qualification (RFQ), and then evaluation of the price and proposal [3]. First, technical proposals are received and qualified D/B teams are pre-qualified (short listed), next the qualified teams submit bids, and the award is based either on price or best value. The two-step method is used for large, highly complex projects, requiring only firms with financial strength, experience, and technical expertise to deliver the project. It limits the final competitors to the most pre-qualified firms by examining their financial strength and organizational resources (see figure 3). Procedure • owner analyzes current and future facility requirements; • owner establishes the project, needs, facility size, requirements and performances; • owner requests letter of interest (LOI); • interested D/B teams submit letter of interest (LOI); • owner issues request for qualification (RFQ); • D/B teams submit statement of qualification (SOQ); • owner pre-qualifies and short-lists 3-5 finalists; • owner conducts interviews and presentations; and • owner selects a team and negotiates a contract.

Prequalification The purpose of prequalification is to evaluate the capabilities of interested firms, in terms of financial assets, track records, equipment resources, and human resources. Since the efforts and cost involved in bid preparation are enormous, the number of qualified, short-listed bidders is limited to three to five teams. This number of prequalified bidders allows the agency to conduct comprehensive and detailed analyses of the bidders to avoid any subsequent failures and other risks. Pre-qualifying more than five bidders undermines the credibility of the prequalification process, and discourages high quality proposals. Bid Evaluation Normally, pre-qualified and shortlisted bidders are asked to submit two proposals, namely a technical proposal and a price proposal. These two proposals are evaluated separately. Members of the technical evaluation team evaluate the technical proposal based on approved criteria. Similarly, the financial evaluation team evaluates the price proposal and allocates scores for the price bids. The technical and price scores are then combined based on an approved proportion or by using a formula/equation to decide the best bids considering the best value for the money. These formulas and equations are often devised based on owner's specific experience, or based on the opinions of advisory teams. While these equations and formulas are standardized, they may not be applicable to every situation, and may not fit an agency's specific needs.

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SELECTED EVALUATION METHODS There are numerous bid evaluation methods. Some state agencies such as the FDOT have modified standard evaluation methods to fits their specific needs. For example, the value-of-time factor (VTF) adjustment is based on the proposed numbers of days to complete the project (schedule) multiplied by a value per day established by FDOT [8]. The value per day is derived from the benefits that users get by using a bridge or by having a bridge open that day. The following is a list of selective evaluation methods [4]. • Weighted criteria, (assign a weight factor for each criteria); • Adjusted low bid, (adjusted score Design/Build ASDB); • Equivalent design, low-bid, (design changes and price amendment); • Fixed budget best design, (owner states the price in the RFP); • Meeting criteria low bid, (low bid Design/Build, FDOT); and • Emergency, (safety, national emergency). Weighted Criteria After Design/Build teams are shortlisted, the owner issues a request for proposal (RFP). D/B teams submit their proposal which usually encompass a qualification part and a price proposal. Typically, qualification proposal includes a management plan, firm experience, and design solutions. A price proposal includes the price for performing the contract. Proposals are evaluated and scored. Price may account for 40 percent, and qualification accounts for 60 percent, for a total of 100 percent (refer to table 1). In evaluating a team's qualification, each

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criterion is provided with a weight factor, based on its relevance or importance to the owner. This weighting system ensures that each criterion get its proper rating (score) based on its utility to the overall project. A maximum price score is assigned to the lowest price. Selection and award are then made to the team with the highest combined score. Adjusted Low Bid This method follows the process of prequalification, short listing, RFP, and the proposal. The qualitative proposals are scored on a scale of 1 to 100 expressed in decimals (example a score of 80 is 0.80). Price envelops are opened and listed. The adjusted price for a team is calculated by dividing the price score by the qualitative score for an adjusted price (refer to equation 1). Award is made to the team with the lowest adjusted price. Please note that lowest adjusted price is not the contract price for the project.

lowest price proposal. The role of the selected team is to complete the design established earlier in the DCP rather than to propose and provide innovation. Fixed Budget, Best Design As the title indicates, the owner establishes a fixed budget for the project. Selection and initial prequalification steps are used in same manner as other methods. Shortlisted teams submit their qualitative proposals which contain their design concepts. The owner conducts oral presentations, evaluates qualitative (weighted) items, and scores the proposals. Award is based on the best qualitative score, and price is not a factor in the selection.

Emergency This method is used in case of emergencies when public safety and welfare are paramount. Examples of these emergencies include floods, hurricanes, acts of terrorism, and national security matters. Under these circumstances, contracting agencies negotiate and award Equivalent Design, Low-Bid This method is similar to the weighted Design/Build contracts with the best criteria and adjusted low bid methods. All qualified team available at that time. the steps involved in prequalification, EFFECT of the short-listing, RFP, and proposal are SELECTION METHOD followed. Design proposals submitted by various There are many factors that that must teams are evaluated and critiqued by the owner. The owner returns the design be considered when choosing the comments and provides a deadline for all appropriate selection method. Owners participants to respond with specific design must be aware of their capabilities and changes and any applicable limitations during the request for proposal changes/amendment to the price proposal (RFP) stage, and how much information is provided in the design criteria packages submitted earlier. The owner evaluates the revised (DCP). Under the one-step method, simple designs and revised price proposals. The award is then made based on both the new projects may be developed up to 50 price and original price. This method percent design completion. On the other allows the owner to customize design hand, under the two-step method, a design concepts, to create equivalent designs, and criteria package may be developed up to make the award based on the lowest price. the 20 percent or 30 percent level. The higher the design level in the DCP, the lower are the innovations in the proposed Meeting Criteria, Low-Bid The essence of this method is to list solutions. Another factor to consider is the time stringent, definitive criteria in the design criteria package (DCP). The RFP and and resources required for evaluating all of design criteria will outline very specific the proposals (technical and financial). An performances and designs concepts that element of public-sector Design/Build must be followed. There is little or no selection is the public (stakeholders). While the process is mostly controlled creativity allowed in the process. D/B teams submit their proposal based by the agency, the proposed selection on the criteria listed. Since the playing method and solution will daily affect many fields are made equal among participants stakeholders and users. A Design/Build the selection and award is made to the team should take the time to visit the site,

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meet with neighborhood associations, listen to what they are looking for in the project, and bring all stakeholders on board with the proposed solution. This will ensure their support, and will help buy-in of the solution by the agency. This can be critical on a large bridge crossing where adjacent property owners and homeowners associations are affected at both bridge approaches and by the overall appearance and aesthetics of the bridge. There have been numerous studies about the effect of the chosen method on project performances and potential costs growth and cost overrun. K.R. Moolenaar, in 1999, studied the following performance variables under the one and two-step method [7]. • • • • •

cost and time growth; project quality; conformity to expectation; administrative burden; and owner satisfaction,

In general, the two-step method resulted in better cost and time performance. Projects under this method were closer to the schedule and budget better than under the one-step method and under the purely qualification procedures. The study also concluded that qualification-based selection has a substantially lower administrative burden cost than both the one-step and the twosteps method. Obviously, the two-step method requires more time and resources to analyze and rank the proposals. The question of value is always present. Will the owner get more value for the money under the one-step, two-step, or the qualification-based method? The answer to this question is not simple since there are many measured benefits, as well as non-tangible negatives in the process. How do you measure value? Will the measure be objective? Regardless of the method chosen to select a Design/Builder, public owners will be involved in negotiations. This represent a dramatic shift since public owners tends to avoid negotiations because of the following. •

it appears to contradict the philosophy of open competition;

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it is very difficult to maintain confidentiality during negotiations and most importantly; and public owners and utility managers are answerable to the public and their governing bodies to justify the selection and evaluation methods used in the process.

esign/Build procurement provides opportunities for integration, innovation, and efficient delivery of projects. While the Design/Build process is becoming more popular, the selection of a Design/Builder remains a mysterious process. Is it an art? Is it a science? Or is it a combination of both? There are many standard models for selecting a successful Design/Builder in the public works sector. The one-step method, the two-step method, and the qualification-based method are all established procedures in the marketplace. These methods focus on pre-qualifying of bidders and evaluating bids that provide the best combination of costs and value for the owner. There are several standardized published evaluation techniques in the market. These statistical techniques involve formulae and equations that strive to systematically search for best value. Also, the composition of the selection committee, the hidden agenda of its members, and the subjectivity of participants, may taint the results. Owners

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seeking to use the Design/Build must evaluate their procurement laws, state statutes, and licensing laws to ensure that 6. they can legally engage in design/ build. ◆ REFERENCES 1. Abi-Karam, T. Project Delivery Trends in the Water and Wastewater Market, Proceedings of the Water Environment Federation, WEFTEC 2003, 76th Technical Exhibition and Conference, Los Angeles Calif. Published by WEF, 601 Wythe Street, Va., 22314. (Oct. 11-15, 2003). 2. Abi-Karam, T., (1999). Design/BuildThe Professional Services Race," Proceedings of 43rd Annual Meeting of AACE International, Denver, Co., editor: Marvin Gelhausen, AACE International, Morgantown, WV, (June 1999). 3. Design/Build Institute of America, The Design/Build Process— Utilizing Competitive Selection. A publication by the Design/Build Institute of America (DBIA), Washington, D,C. (DBIA 2003, a). 4. Design/Build Institute of America, The Design/Build Process— Utilizing Negotiated Selection. A publication by the Design/Build Institute of America (DBIA), Washington, D.C. (DBIA 2003, b). 5. Florida State Statutes, (1997). FS 287.055 Sec. 10 (c). Applicability to Design/Build Contract.

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(Qualification Based Selection, QBS), (Oct. 1997). Friedman, W. Construction Marketing and Strategic Planning, McGraw-Hill, Inc., New York, NY. (1984): 172-173. Molernaar, K.R., A.D. Songer, and M. Barash, Public Sector Design/Build Evolution and Performance, ASCE Journal of Management in Engineering, ASCE 15(2), (March/April 1999). Palaneeswarn, E., M. M. Kumaraswamy, and P.W.M. Tam, Comparing Approaches to Contractor Selection for Design/Build Projects, Proceeding, Joint Triennial Symposium on Customer Satisfaction: A Focus for Research and Practice, P. Bowen and R. Hindle, Eds, Vol 3, (1999): 936-945.

ABOUT THE AUTHOR Talal Abi-Karam,PE CCE, is an associate with Hazen & Sawyer, PC, 4000 Hollywood, Blvd., Suite 750 North, Hollywood, Fla., 33021. He can be contacted by sending e-mail to: [email protected], Technical Articles - Each month, Cost Engineering journal publishes one or more peerreviewed technical articles. These articles go through a blind peer review evaluation prior to publication. Experts in the subject area judge the technical accuracy of the articles. They advise the authors on the strengths and weaknesses of their submissions and what changes can be made to improve the article.

AACE International’s Chicago Midwest Section’s ANNUAL SEMINAR Friday May 20, 2005 Birmingham, Alabama

“CHAMPIONS of PROJECT CONTROLS — 2nd Edition” INFORMATION: Don Giegerich E-mail: [email protected]

Cost Engineering Vol. 47/No. 5 MAY 2005

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T ECHNICAL A RTICLE •

Using Earned Value Management Indexes as Team Development Factor and a Compensation Tool

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Ricardo Viana Vargas ABSTRACT: The objective of this article is to present the main components of the development of a project team and the motivational characteristics inherent to team work. It also looks at an interrelation proposal between the earned value analysis and team development through the SPI and CPI indexes. These are obtained by tool use and team development models and the compensation and reward in the project. This reduces the subjectiveness of humans resource in the project evaluation. The article presents a brief report about team development and compensation policies, as well as an introduction to the earned value concept, aiming to align the approached concepts. KEY WORDS: Analysis, earned value management, human resources, and projects

he project human resources area is one of the PMBOK Guide 2000 knowledge areas that managers and project teams have requested be given more attention [6]. As reported in the Guide, human resources project management includes

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the processes required to make the most effective use of the human resources involved with the project. It includes all project stakeholders: sponsors, customers, individual contributors and others. The main processes include the following.

Figure 1 provides an overview of the processes according to each project phase. These processes interact with each other and with the process in the other knowledge areas. Each process may involve effort from one or more individuals, or groups, depending on the needs of the project. Team development, as outlined in this article, involves an increase of the capability of the involved parties to contribute individually, as well as an increase of people capable of working as a team. Individual growth (managerial and technical) is the basis required to develop the team. This becomes crucial to the

Figure 1— Human Resources Management Processes Distributed Throughout the Project Phases.

Figure 2— Performance Change Factors 20

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Organizational planning—identify, document and assign project roles, responsibilities, and the reporting relationships. Staff acquisition—make the required human resources be designed and work in the project. Team development—develop individual and group skills to increase project performance.

Figure 3— Reward Policies and Bonuses (G. Parker, J. McAdams and D. Zielinski, [5])

success of projects and becomes a key for the organization to accomplish its goals. According to J. Fitz-Enz, each organization and each project is led by a combination of strengths and internal and external factors. These factors are the ones that make the organization unique, describing collectively how and why the organizational processes influence performance improvement. The internal factors are the ones determined by an organization and its project goals, while the external objectives are those determined by the external business environment in which the company and projects are inserted (See figure 2). According to S.W. Flanes and Ginger Levin, performance problems that impede the team members to perform their activities successfully can be divided into the following.

Equity Theory, people get motivated when they are treated in an equitable, impartial, and fair way [8].

Professional Compensation (Reward) Some of the main tools available to increase performance are compensation and reward policies. These, according to PMI, are the formal actions that promote or reinforce desired behavior [6]. To be effective, such a system should make the link between performance and reward clear, explicit, and achievable. According to G. Parker, J. McAdams and D. Zielinski, the reward models are designed to create a focus on specific goals or to celebrate and reward individuals or teams with diversified performance. To them, the reward models should meet individual, team and organization needs [5]. See the model shown in figure 3. H.D. Shuster, said the bonuses always • problems related to technical need to satisfy the individual and the team. If team satisfaction is neglected to satisfy an competency; • problems related to relationship and isolated individual, this process naturally generates dissatisfaction and demotivation. communication; and • problems related to time management A higher reward can only be achieved when high team and individual and work habits [3]. performances are achieved, (see figure 4). Because of these problems, it is fundamental to have an impartial and Earned Value Analysis Earned value is focused on the objective performance evaluation process that besides addressing the mentioned relationship between incurred actual cots problems, allows improvements in and the work performed on the project in a individual skills, team behavior, and given time period. The focus is on performance obtained in comparison to individual and team competencies. This impartial model directly reduces what was spent to get it. [4] Earned value is the evaluation the subjectiveness of performance evaluation and increases the team between what was actually spent and what motivation. According to the Adam's was budgeted, proposing that the value to

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Figure 4— Team and Individual Performance Extent (Based on Shuster, [7])

be earned initially by an activity is the value budgeted for it. As each activity or task of a project is performed, the initial budgeted value for the activity starts to constitute the earned value of the project. These concepts are based upon a 1997 Earned Value Implementation Guide from the US Department of Defense (DOD )[1] and on norm ANSI/EIA 748 of the American National Standards Institute. To formalize the concepts, a specific terminology was created. It is based on forecasted and actual costs, as well as earned value. The basic three elements of the earned value analysis include the following. •

BCWS (Budget cost of work scheduled)—is the value that indicates the budget portion that should be spent, taking into account the activity budget base line cost, allocation, or resource. BCWS is calculated as the 21

•

•

budget base line cost divided into phases and cumulative up to the status date, or current date. It is the budgeted cost. BCWP (Budget cost of work performed)—is the value that indicates the budget portion that should be spent, taking into account the work performed up to the moment and the budget base line cost for the activity, allocation, or resource. BCWP is also called earned value. ACWP (Actual cost of work performed)—is the value that shows actual costs incurred from the work already performed by a resource or task up to the status date or project current date from financial inputs.

Once these three parameters are determined, the outcome analysis is obtained based on the correlation between values found for each one in a given status date, (See figure 5). The correlation among BCWS, BCWP, and ACWP values allows one to rate project outcomes and to proceed with evaluations and future final cost forecasts. To treat the ratio among BCWP and BCWS and ACWP parameters, there are the following indexes. • SPI (Schedule Performance Index)— Division between the earned value (BCWP) and the budgeted base line cost (BCWS). SPI shows the conversion rate of the budgeted value in the earned value, (See equation 1).

An SPI equal to 1, indicates that the budgeted value was completely earned to the project. An SPI lower than 1, indicates that the project is being performed at a conversion rate lower than scheduled. In other words, the financial amount scheduled to be earned in the period was not achieved and the project is late. An SPI higher than 1, indicates that the project is earning outcomes in a speed higher than scheduled, i.e., it is advanced. • CPI (Cost Performance Index)— Division between the earned value (BCWP) and the actual cost and (ACWP). CPI shows the conversion between the actual values spent by the project and the

22

Figure 5— BCWS, BCWP, and ACWP Graphic Example Throughout the Time for a Given Project

earned values in the same period, (See index, while at the end of project occurs an inversion in the participation of indexes, equation 2). once the SPI tends to 1 (BCWP ? BCWS) with the termination of the project. The resulting formula is shown in equation 3. A CPI that equals 1, indicates that the value spent by the project was completely earned to the project (project in the budget). A CPI lower than 1, indicates that the project is spending more than scheduled up to the moment. If the CPI is higher than 1, this indicates that the project is costing less than scheduled up to that moment.

HPI =%c x CPI + (1-%c) x SPI (equation 3)

Where CPI = Cost performance index SPI = Schedule performance index %C = Project complete physical percentage Figure 6 shows the participation of the indexes in the HPI composition along the project. From the creation of this index, it is required to evaluate the HPI´s. This is for not only the individual work outcome, but also the team work. It’s in the team work in which the resource is an integral part of the project as a whole. Creating a final HPI

Human Performance Index and Professional Evaluation Models In order to allow the team to do evaluation and for project professionalism, a new index, called human performance index (HPI), was developed. This index consists of the relationship between the CPI and SPI, allowing the creation of an index that evaluates the accomplishment of the schedule and budget of the activities executed by the resources simultaneously. In developing this article, the author studied several types of relationships between indexes (sum, average, product, etc.). However, because the nature of the two indexes differs from the complete percentage of the project, the composition of the indexes with complete percentages was chosen. The participation of schedule performance index in the beginning of the project is higher than the cost performance Figure 6— Participation of the Indexes According to Project Complete Percentage

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that is the weighed average of these three indexes as shown in equation 4. HPIFinal can be obtained from different strategies, starting from a strong focus on individual outcomes up to a balanced focus among the individual, team and project. A model of weight Figure 7— Example of a Proposal of Weight Distribution for the HPI Resource Composition composition for different focuses is shown in figure 7. It is important to emphasize that the resource, team and project HPI´s are not obtained from CPI and SPI´s work packages, but from the sum of the BCWS, BCWP and ACWP's resource activities and later from the formula application, (equation 4) CPI=BCWP/ACWP and SPI = BCWP /BCWS. Where: CPIIndividual = Cost performance index of the work packages where the Example evaluated resource was involved To illustrate index development, SPIIndividual = Scheduled performance index of the work packages where consider a project composed of 20 different the evaluated resource was involved work packages to be performed by five CPITeam = Cost performance index of the team work packages of which the resources in two teams. Resources 1, 2, and evaluated resource is participant 3 belong to Team A and the resources 4 and 5 to Team B, respectively. In figure 8, SPITeam = Schedule performance index of the team work packages of a distribution of the resources in the work which the evaluated resource is participant packages is shown. CPIProject = Cost performance index of the project At a given time period, the project the SPIProject = Schedule performance index of the project package performance inputs were evaluated. The results are shown in figure WeightIndividual = Contribution of resource HPI in the HPIFinal 9, with BCWS, BCWP and ACWP inputs WeightTeam = Contribution of team HPI in the HPIFinal for each work package. From the crossing of each package WeightProject = Contribution of project HPI in the HPIFinal with resources used in them, the HPI of %C = Project complete physical percentage each one of the resources was obtained, as well as the HPI of each one of the teams,

Figure 8— Resource Distribution to be Used in the Work Packages Cost Engineering Vol. 47/No. 5 MAY 2005

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and the total HPI of the project. This is shown in figure 10. Each resource belongs to a given team. However, the following individual results are shown in figure 11. If you combine the results of figure 11 with the ones of figure 7, you can obtain

the final HPI of each resource from the individual, team, project focus, and the balance focus among the three parameters. These results are shown in figure 12. From these values, one can determine the outcomes of each one of the resources and its contribution for the project and

team outcome. An example of this is shown in figure 13. In this example, resources 1 and 3 showed a performance lower than their team and project; resource 2 showed a higher individual performance. However, in analyzing its team, its performance was

Figure 9— Example of Data Collected for a Project With Determined BCWS, BCWP, and ACWP

Figure 10— Project and Resource HPI Outcomes

Figure 11— HPI Results of Each Resource

Figure 12— Resource HPI Final for Each One of the Profiles of the Analysis Focus 24

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Figure 13— Comparative Graphic of the Focuses Among the Individual, Team, and Project for the Five Evaluated Resources

damaged by a weak performance of resources 1 and 3. Resources 4 and 5 had high performance, increasing the performance of Team B. The project performance was lower than the 4 and 5 resources performance and Team B. This was because the members of Team A lowered the global performance by their weak individual performances. he main objective of this article was to present an evaluation of the human resources and teams through a more direct mathematical model than the subjective evaluation by the project manager. Besides, bonuses and reward policies may be directly connected to the indexes causing a more transparent mechanism of the distribution of project outcomes However, some cautions have to be taken in using this kind of evaluation. First, when the executer is not responsible for overseeing the budget, he/she can have his/her performance compromised by, as an example, weak performance of the procurement team. Secondly, this mathematical model may not be deterministic, i.e., the only one to represent the truth of the work outcome of the project resource. Once they are completely mathematical, they may not evidence

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subjective human aspects inside the team 8. work. ◆ REFERENCES 1. DOD Earned Value Management Implementation Guide. Washington: United States of America Department of Defense, (1997). 2. Fitz-Enz, J. The ROI of Human Capital: Measuring the Economic Value of Employee Performance. New York; AMACOM, (2000). 3. Flanes, S. W. and G. Levin, People Skills for Project Managers. Vienna: Management Concepts, (2001). 4. Fleming, Q. W. and J. M. Koppelman, Earned Value Project Management, 2nd Ed. Newton Square: Project Management Institute, (1999). 5. Parker, G., J. McAdams, and D. Zielinski, Rewarding Teams: Lesson from the Trenches. San Francisco: Jossey-Bass, (2000). 6. PMI. A Guide to the Project Management Body of Knowledge. Newton Square: Project Management Institute, (2000). 7. Shuster, H. D. Teaming for Quality: The Right Way for the Right Reason. Newton Square: Project Management Institute, (2000).

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Verma, V. K. Human Resource Skills for the Project Manager, Vol. 2. Upper Darby: Project Management Institute, (1995).

ABOUT THE AUTHOR Ricardo Viana Vargas is a professor at the Getulio Vargas Foundation in Brazil. He is chair of the Grupo A&C in Brazil. He can be contacted by sending e-mail to: [email protected] or to: [email protected]. Technical Articles - Each month, Cost Engineering journal publishes one or more peerreviewed technical articles. These articles go through a blind peer review evaluation prior to publication. Experts in the subject area judge the technical accuracy of the articles. They advise the authors on the strengths and weaknesses of their submissions and what changes can be made to improve the article.

Did You Know? All AACE International members who attend the 49th Annual Meeting or Continuing Education Seminars will receive Continuing Education Credits/Professional Development Hours for their attendance. Continuing Education Seminar credits slightly vary for each course and are listed on AACE’s website. Attendees of the 3-day technical program will receive 20 PDHs / 2.0 CEUs. 25

SSpecial Feature pecial Feature Jennie Amos, Manager Marketing and Meetings

Earned Value Professional Certification on Track for New Orleans Premier ACE International's certification programs have been operating since 1976, and offer applicants who meet the eligibility requirements the ability to successfully take a text and attain certification through the Association. The Certified Cost Consultant (CCC)/Certified Cost Engineer (CCE) programs are accredited by the Council of Engineering Specialty Board (CESB) and the International Cost Engineering Council (ICEC). In 2000, AACE developed an interim certification program, Interim Cost Consultants (ICC). The ICC certification program is accredited by ICEC. In 2004, AACE began offering its first specialty certification, Planning & Scheduling Professional (PSP) which has been met with great interest. With the first official examination scheduled for the Annual Meeting in New Orleans, AACE International is gearing up to offer its second specialty certification, Earned Value Professional (EVP). Jennie Amos, Manager, Marketing and Meetings, representing the Cost Engineering journal, recently talked with Nick L. Earned Value Professional (EVP) Task Force Committee Members Kellar, CCC, and Jonathan P. (Jon) Mihalic, CCC, Chair and Co(pictured from left to right, top to bottom) Chair, respectively, of the Earned Value Professional task force to discuss the process in which the task force has undergone to create the • Nicholas L. Kellar, CCC (Chair); Alyeska Pipeline Service Co.; newest certification program. • Jonathan P. Mihalic, CCC (Co-Chair); Booz Allen Hamilton; • Donald J. Cass, CCE, The Cass Group; CE journal: This is a major undertaking—creating a valid certifica- • Ann Marie Cox, ARES Corporation; tion program from the ground up. Tell us about the overall process • Dan J. Demangos, PSP; Booz Allen Hamilton; for creating the EVP certification. • Michael B. Fisher, CCC; Parametrix, Inc.; • Tia Okwesa; Booz Allen Hamilton; Kellar: Our process followed a time line of creating a competency • Ruthanne Schulte, Welcom; and model, writing and documenting each component of the competen- • Cheryl Johnson (not pictured); Booz Allen Hamilton. cy model, and then writing a complete outline for each component that described—a definition, how it is applied, what a professional should know about the topic, what areas of competency that a candi- ment, large and small companies in most every type of business secdate must demonstrate specific knowledge, and finally, a matrix to tors [IT, consulting, research, oil and gas, construction, manufacturing, etc.] we often found that we had different views on most topics. which questions in the database are tied to the topic. This diversity, though, really became our strength and the key to a well developed exam that was not industry specific. CE journal: Can you expand on the actual creation of the exam? Probably the most challenging issue that the task force had Kellar: Sure. After the competency model, we started question to over come was the structure of the competency model itself. In its development. Then we compared questions to the competency early stages, the model followed AACE international's earlier outmodel to identify areas where more questions were needed. After the lines of project management components. The task force really struginitial questions were developed, we finalized the format of the exam gled with the first model and approach because we all knew that the to coincide with AACE International's other certification exam struc- model would have to be one that was universally accepted. After tures (a 4-part exam, each part lasting 1 hour, 45 minutes for a total much debate, a decision was made to follow the ANSI standard (748) for earned value. Once this decision was made, we knew we were on of a 7 hour exam.) the right track for this certification. CE journal: So everything went smoothly with the task force in the CE journal: You held a beta exam, right? Can you explain how this creation of the exam? Kellar: When ever you bring together a group with this much talent helped the overall process in creating the EVP exam? and experience, your going have a few exciting times. But I think that the thing that impressed me the most was the professionalism and a Kellar: We didn't hold a beta exam—we held beta one in four difcommitment that this task force maintained toward the earned value ferent locations on the weekend of March 5, with a total of 20 parproject and the goals that AACE International has for this certifica- ticipants. Beta one used a lot of open ended questions to have the tion. Because the backgrounds of the task force ranged from govern- beta testers write their answers and rational. After Beta one, we

A

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revised the exam with information supplied during that test to create Beta two. Beta two was scheduled for the weekend of April 9, in eight different locations with a total of 84 participants. We wanted a large number of beta testers to really see how the exam applied to different levels of experiences, industries, backgrounds, and education. CE journal: The EVP Task Force was comprised of nine professionals in the field, how did you get everyone together on the same page to undergo this very considerable task of creating a specialty certification program? Kellar: Our meeting approach was to conduct weekly Thursday meetings where we followed an agenda review of our schedule and priority tasks. We only had one meeting face to face in Las Vegas in January, but what happened in Vegas did not stay in Vegas. We pushed on hard and had the first beta exam only five weeks after our Vegas meeting and conducted our second beta four weeks later. We used technology effectively and had everyone on the task force using the same software, and passed electronic data back and forth weekly. CE journal: So aside from the great distance and time zone issues faced by the Task Force (Nick lives and works in Alaska, Jon in McLean, Virginia, just outside of Washington, D.C.—other Task Force members in California, Texas, and Washington) what were the other differences in the make up of the Task Force.

CE: Aside from the difference in ages and work-related backgrounds, what helped make the Task Force member's diversity so vital to the overall experience? Mihalic: Each individual approached the task with their own idea on what it should look like and what it should be used for. Some wanted a certification that can help them find skilled earned value professional for hiring; others just want earned value to have a great meaning in the project management world. These varying approaches provide the opportunity to mode a professional certification that met most, if not all needs. CE journal: And you'll be ready for June 25th in New Orleans? Kellar: We'll be ready. We are on schedule to turn over this exam a full three months ahead of schedule. CE journal: Then what? Kellar: We'll finalize the exam after it is given in New Orleans, and then turn it over to the Certification Board. ◆

Kellar: The composition of task force—Ages ranged from the 20's to the 60's, and areas of expertise was also varied with government, commercial, software developers, and many industries including IT, manufacturing, operations, consulting, construction, and education. Mihalic: The team members also include skill sets and experience ranging for true implementer of EV systems to experts in analysis.

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T ECHNICAL A RTICLE

The Goalposts for Project Success Have Moved — A Marketing View P.S. Kupakuwana and G.J.H. van der Berg ABSTRACT: Traditionally, a successful project was seen as one in which the triad of time, budget, and specification was complied with at a profit. Current project literature places more emphasis on customer satisfaction as a fourth important success parameter. This article discusses project management services and focuses on what constitutes project success. This type of project is named the new project in this article and a set of new project rules is arrived at. The article also takes a services marketing view and examines the customer's motivation in appointing a project manager. KEY WORDS: Customers, deliverables, financial, profit, project management, scope, and value

rofessional project management has become an industry of its own. Many organizations buy the services of project managers, especially where the needed technical expertise does not exist in the buyer's company or where temporary peaks exist in activities. Even professional Figure 1— Typical Management Structure [14] engineers, architects, surveyors, and other Project management services are fairly professionals really render project common in the South African market and management services. typically are rendered by various companies to other companies. This has R. Nobbs [1] argues that architects caused competition to increase and project have, "always had to be schizophrenic" in managers have to differentiate themselves that they have to act both as their in the market—currently mostly on an area employer's agent in supervising the works of specialization basis. and as an independent certifier. The increased competition in turn The Arbitration Act of 1950 ensured forces project managers to take a closer that the architect, "could not act as final look at their services for increased arbiter," because of doubts about his effectiveness and ways in which business impartiality and relationship with the growth and profitability can be improved. employer. The concept of what constitutes a However, Nobbs [10] adds, "Although successful project must also be closely the 1950 act changed the law as far as an examined. architect also acting as a final arbiter was The unique characteristics of project concerned, it did not affect the position in management services must be investigated relation to an architect's independent and service characteristics must be kept in certifying function." mind. For instance, when supplying the A. Howarth [6] quotes another author service, the sale is concluded before the as stating that the origins of project service is provided and in a sense the managers date back to the decline of service provider works with a captive architect's as leaders of building projects customer. It also is an ideal opportunity for and the advent of the Labor government's relationship marketing as the contract private financing Initiatives (PFI), which normally is of a relatively long term and has seen increasingly complex joint performance during the contract will venture groups bidding for the design and determine whether work will be expanded build of a development. With so many and/or continued. The project team, who different companies involved on one job, all relate with the customer's personnel, demand has risen for project managers should be targeted for internal marketing, who can coordinate the work of everyone. as they in turn will influence the (See figure 1). customer's perceptions of the project organization.

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Figure 2— Contractual Relationships [3]

However, as far as project success is concerned, it is traditionally accepted that a project that is completed on time, on budget, and to specifications is a success. Although true in the majority of instances, if a more market-oriented view is taken, the converse can, and should be, true as is illustrated by: •

•

Project 1—Completed on time, on budget and to specification, but the customer is not entirely happy. Project 2—Overspent the budget, exceeded the time frame, but the customer is happy.

This idea was summarized by Ruskin and Estes [12] who stated, "The single most important responsibility of the project manager is to ensure customer satisfaction. If the project is successful in every respect in terms of meeting its stated objectives, schedule, and budget, but the customer is somehow not satisfied, then the job was not done well enough . . ." This statement, however, is not an absolute rule. It applies in specific circumstances where the customer requires a result that is not well specified, or it may be a function of the project objectives being not well defined. It is believed that the current overemphasis on project success as achieving time, budget, and quality targets, is equivalent to the overemphasis on production rather than market focus in a manufacturing company. This article aims to arrive at a better definition of project success, and to explain the circumstances where the conventional success goal posts do not apply. It also aims to provide a theoretical viewpoint to justify the deviations from the more established values, and it describes the new rules that combine to form the project manager's new project environment.

LITERATURE REVIEW Project Success Parameters Project Success There is a general trend in project management literature toward greater customer focus and customer satisfaction. It is also believed that there is too much emphasis on the traditional measures of project success i.e., the triad of on time, on budget, and to specification (see figure 3). Rigorously sticking to these yardsticks can in certain circumstances actively detract from project success. Eric Verzuh [15] defines a successful project as one in which the project objectives were reached on time, on budget, and with a product of high quality. Quality in turn would be measured by functionality and performance. At the same time, however, he stresses that a successful project must meet stakeholders' expectations (see figure 4). Verzuh [15] lists the five project success factors as the following. •

•

agreement among the project team, the customer and management on project goals; a project plan that shows the overall path and clear responsibilities;

Figure 3— The Triangle of Project Objectives (adapted from Barnes and Wearne, 1993)

Figure 4— Primary Stakeholder Map [14]

and

Secondary

• • •

constant and effective communication; a controlled project scope; and management support.

Jack R. Meredith and Samuel J. Mantel recognizes the same three traditional items for project success, but they state that the triple constraints of time, budget, and specification are rapidly being replaced by a new model that invokes a fourth hurdle for project success: client satisfaction [9]. D. Baccarini distinguishes between the components of project success as being the following. • •

project management success; and product success.

Project management success focuses on the project process and the successful accomplishment of cost, time, and quality objectives. Product success in turn focuses on the effect of the project's final product [1]. It was noted that project managers largely interpreted successful projects as meeting the project management criteria such as budget and schedule, whereas customers interpret successful projects as those meeting product success criteria such as response time and reliability. Project managers therefore tend to focus more on short-term criteria relating to the project process, but customers focus more on the longer-term criteria relating to the project's product. If the project manager bears the customer's interest at heart, as he or she should, the manager must place traditional project success indicators lower on the importance scale than the customer's overall interest. The project must also appear successful from the customer's point of view. Belout stated that a synonym for success is effectiveness, i.e., the degree of achievement of objectives [2]. The customer typically employs the project manager as a tool to improve or optimize his or her own profitability. That is the customer's overriding objective and to be successful, the project manager should be effective in helping the customer achieve his or her objectives. The PMBOK Guide, by PMI, confirms that all projects should be supportive of the performing organization's strategic goals. It is therefore imperative for project managers to understand the business

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environment and view their project as part of the customer company's struggle for competitive advantage, revenues, and profit. To complicate matters further, A.J. Shenhar, O. Levy and D. Dvir suggested that the relative importance of project success dimensions change with time 13]. As in a relationship, different periods bring different expectations. In the early stages, internal dimensions (meeting schedule, budget, and specifications) are most important. Later in the project cycle, external dimensions (customer needs and satisfaction) become more important. To the project manager it has special significance as it is in the later stages of the project that the customer decides on reappointment or an increase in the scope of work. A.J. Shenhar, O. Levy and D. Dvir deal specifically with those projects that are perceived as successful by persons involved in their implementation, yet are poorly received by their customers [13]. They draw attention to the importance of viewpoints in defining project success and report that success can only be meaningful if considered from the following two vantage points. •

•

the degree to which the project's technical performance objective was attained on time and within budget; and the contribution that the project made to the strategic mission of the enterprise.

It was suggested to push the definition of project success even further by including the level of satisfaction of the following four different groups of stakeholders. • • • •

the customer organization; the developing organization; the project team; and the end-user.

This viewpoint turns all of the project stakeholders into customers that must be satisfied. The Customer—Procurer of Project Management Services The trend in project literature toward greater customer satisfaction is clear. The project manager should therefore turn his or her focus toward the customer and their

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needs. A project is not only about providing an end product, but is also a service product in and of itself. The processes of service delivery should be taken note of and service delivery best practices integrated into project management. In terms of the customer organization, it was found that business managers see the success of their units as comprising the following four separate dimensions. • • • •

profitability level; level of sales and new orders; generating new opportunities for new products and markets; and preparing the scientific and technological infrastructure for the development and production of future products.

In order to be supportive of the customer organization's objectives, project managers must be aware of these four dimensions. In Transaction Cost Economics, authors C. Berggren, J. Soderlund and C. Anderson investigates the boundaries of a firm, for instance when an activity should be performed in-house or contracted out [3]. If a project is associated with a low frequency of purchase, if uncertainty and degree of uniqueness is high, the preferred way should be to obtain the service in the market, rather than the organization performing the work itself. The customer therefore avoids risk by transferring project execution to a professional project management organization, but typically pays a premium for this experience. During project execution the customer may notice the price premium, (he or she could do it less expensively on their own) but may forget the risk that they are avoiding, especially if the project is executed smoothly. This aspect must be accommodated and benefits achieved by the customer must be brought to his or her attention to ensure that a negative feeling toward the project manager does not develop. C. Berggren, J. Soderlund and C. Anderson discuss the problem found in large engineering contracts where the customer appoints various consultants, e.g., for design, for project management, and even as financial controllers/advisors [3]. Such instances create unique management

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problems and may even involve an absent customer. In the case of an absent customer, the intermediary/consultant may become the project manager's real customer. This of course changes all the rules as the intermediary may have his or her own set of goals (e.g., a long term appointment from the customer), which may not necessarily include the end customer's best interest. In this case, the incentive chain is deformed and adapting solutions to real customer needs becomes difficult. The Project as a Service Product The project management organization sells its services to the customer and only after completing the sale is the service rendered. Theodore Levitt relates the service provider/customer relationship to a marriage, the sale consummates the courtship and the marriage begins [7]. The quality of the marriage is then based upon continued and expanded business or there will be trouble and divorce. In a marriage, what is good for one partner will also benefit the other and by working in his or her customer's interest, the project manager will benefit himself in the long run. The customer procured the services of the project management organization as a tool with which to produce items to yield a profit. C. Berggren, J. Soderlund and C. Anderson state, "the maxim about customers as kings assumes the customer has a long term interest in the service delivery and that he or she is approachable and negotiable" [3]. They warn that the same rules do not always apply. If it is known that a once off transaction is entered into, then the customer is king rule is not necessarily true. Christopher H. Lovelock defines a valued relationship as one in which the customer finds value because the benefits received from the service significantly exceed the associated cost of obtaining it [8]. To a firm, a valued relationship is one that is financially profitable over time. Lovelock also states that in a healthy and mutually profitable relationship, both parties have an incentive to ensure that it extends for many years. For the seller, the profit potential lies mainly in the following three items.

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• • •

profit from increased purchases; profit from reduced operating cost; and profit from price premium.

We are therefore in a paradoxical area —a project is short term by its very nature, but for real success a long-term view has to be taken by both the project manager and the customer. For the seller of the (project management) service, Lovelock states that creating a competitive position is vital for success and identifies the following four principles to achieve this: •

• • •

the company (or project manager) must establish a position in the minds of its targeted customer; the position should be singular, providing one consistent message; the position must set the company apart from its competitors; and the company cannot be all things to all people; it must focus its efforts [8].

In a project management environment, the problem of demand and capacity is a very real one and virtually the only certainty is that there will be periods in which demand will exceed capacity and vice versa. Lovelock states that strategies for managing demand must be developed and he says that one of the most direct ways to reduce excess costs is to charge customers more money during peak periods. An alternative also would be to change product elements. On the importance of technology, Lovelock states that the real power of technology is not in making old processes work better, but rather in enabling organizations to break old rules and create new ways of working. To become an effective service provider, project management organizations have to make full use of technology to inform and astound their customers and apply new ways of communicating and supplying information as it is developed. The project environment provides an ideal situation for relationship marketing with valuable relationships forming and internal marketing playing an important role to all the project team members.

Proposed Project Success Yardsticks There is no getting around it—for the new project, the customer will play a most important role. The traditional three project success parameters of on time, in budget, and to specification will not disappear, but they will be relegated to a secondary position behind customer satisfaction. Faultless project execution will always remain important but long-term customer satisfaction will be the main target. Long-term customer satisfaction, however, cannot be measured in the short term and a degree of faith in the project outcome will have to be involved. In the mean time, the project may run behind schedule and over budget and be unsuccessful by all the old yardsticks. This will have to be compensated for by introducing all possible excellent service delivery tools available to the project group. It will require greater leadership from the project manager to form a vision of the project outcome and marketing skills as he or she will have to sell the idea of, "what can be" to the customer rather than, "what is." Communication at all levels will have to be excellent with internal marketing required to get the project team to believe in the vision. Financial factors also play an important role. In general it can be said from a financial perspective that the project is a success if; •

•

THE NEW PROJECT AND SUCCESSFUL PROJECTS Project Success—A Services and Relationship Marketing View From a services and marketing viewpoint the project can only be a success if the customer is happy. By executing the project correctly with aspects such as on time, on budget, to specification, etc., chances are greatly increased for customer satisfaction although it is not guaranteed. Other non-product related factors that will ensure customer satisfaction include, but are not limited to, the following. • •

•

• •

•

the customer gets a profitable result from the project (if not in the short term, at least measurable in some • financial terms e.g., internal rate of return method (IRR) or some capital expenditure valuation technique); and to the project manager the project must have been profitable to execute.

good relations between the customer and project management personnel; providing a service that meets or exceeds the customer's expectations even in areas not falling within the project's objectives; professional appearance of the project managers staff—prompt response to crises, good presentations, factual information supply; the project organization's image of success; taking the customer with or through the process (i.e., keeping him or her informed, and making the customer understand the logic behind decisions); making the customer’s life easy (for instance if motivations have to be done for additional funds—provide the customer with all the required backup information); and professional reports and presentations (a good professional report leaves a positive image even if the project is not that well executed—the customer forms an impression from the report that is in front of him or her).

Note that in many of the above, communication plays an important role whether verbal or written—the importance of good communication cannot be over emphasized.

Figure 5— Components of Activity Cost [4]

The Role of the Project Manager as a Tool to the Customer As mentioned earlier, the end customer uses the project manager as a tool to achieve his or her own objectives. This is a position where the distinction becomes blurry, especially where project objectives are not clearly specified. Is it better to

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execute the customer's wishes to the letter and thus become exactly the tool he or she requested, or is it better to follow his or her intent and deviate from the letter of the instruction? Traditionally, it was seen that intent or strategic factors fell outside the scope of the project team—the team should function purely in an executing mode and leave interpretation or strategy to a more senior level of management. So the question is— should the project management team act as a dumb tool and purely execute, or should a more intelligent route be followed where the customer's intention is interpreted and anticipated? The "intelligent tool" option is definitely more risky, but also is the one with the most potential benefits. It is most likely the only way in which the customer can get more than asked for, which is the way to provide a successful service—by astounding the customer and giving him more than expected. The Tables are Turned—When the Conventional Rules Do Not Apply In smaller projects with an easily definable scope, e.g., install 20 lampposts for the local municipality, the traditional success parameters of on time, on-budget, and to specification certainly still apply. Unnecessary time and effort should not be expended in trying to second-guess the customer (whose project control representative may in any case not hold a strategic view). However, for instance if the project concerns a multi-million de-bottlenecking of a large chemical plant, the new project rules should apply. If the customer's scope specifically requires f a 50 percent increase in throughput (in a minimum time and at a minimum cost) opportunities abound for new project rules. The customer will certainly give friendly consideration to any project extensions that can decrease his or her maintenance cost, increase plant yield, decrease operating costs (utilities) or labor cost if the economic viability can be proven. It is therefore vital that the project manager understands the customer's business—not only the technical or operational aspects, but also the financial and business aspects. The money value of time must be taken into consideration. Depending on the project profitability it may be worthwhile to more than double the cost of

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the project if it can halve the execution time. In order to take this type of decision the business aspects must be clearly understood and a financial model rather than the project manager's gut feel should determine the outcome. On the negative side—beware of misbehaving customers. New project rules assume a logical/rational customer who is willing to participate in a win-win transaction. The likelihood exists that a powerful win-loose type customer is encountered at which time it may be better to switch back to old project rules and to do exactly as the customer asks. Such a relationship may in any case not be worth pursuing in the longer term.

Figure 6— Time/Cost Approximation [3]

Achieving Customer Buy-in in the Changed Rules The customer starts the project with a pre-conceived idea of what it is he wants to achieve. This concept should ideally be defined in the project objectives. In an ideal world, the project team should exactly execute these objectives. However, we do not live in an ideal world. To deviate from these objectives, the new plan will have to be sold to the customer. For such a sale to take place the customer will have to have a high degree of trust in the project manager. Any change in plans will have to be very well documented and technically and financially motivated. The customer's project representative will have to sell the idea to his own senior management. If he can start with a well documented case, it will make his internal sales job that much easier. It would also be better to have the transaction sold on a number of different levels (each person in the project organization to his customer counterparts) as we know that in organizational buying, decisions are influenced from many different levels. The more the customer's involvement in the process, the better the chances are that he or she will buy into the idea. It is not a good idea to spring the idea on the

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customer and expect an immediate positive result. In the ideal situation, the customer must believe it is his or her own idea that will now be implemented. It is likely that the customer will have a deep-lying knowledge of his or her business and may have the best ideas of how to solve any problems. The method of achieving good results is not as important as the results itself. The customer wants value for his or her money and net value equals perceived benefits—perceived outlays. If the customer is on the winning side, it would be irrational not to proceed with the plan. But, the customer must have proof (even in the form of projected figures) and he or she must not spend too much effort in gathering the proof —it must be provided. The progress Meeting as a Critical Service Encounter On most projects there are standard periodic progress meetings attended by the customer and other professionals. The customer’s perceptions of project success will most likely be equally formed by what is happening in practice and by impressions formed in the meeting. The hardware, or actual project performance, therefore only makes up approximately half of the service experience. By all service definitions, the project meetings are critical service encounters, as the customer's perception of the service received will most likely largely be formed there. Project performance is not always within the project manager's control (it may be dependent on the performance of subcontractors, weather, deliveries by suppliers, etc.), but the execution of project meetings are definitely in his or her control. Care should however be taken not to do such a good sales job that the customer is happy until he leaves the meeting, connects with the real world, and then feels duped. The project manager's integrity should not be doubted and he or she should not be selling leases to castles in the sky. A professional presentation backed up by hard facts and good motivations should convince even difficult customers, and unrealistic expectations will not be encouraged. It is also at this type of meeting that customer complaints would surface. Complaints should be invited, as research

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has shown that only a relatively small percentage of customers complain even if they are unhappy. If the project manager is perceived as an expert, the likelihood of complaints diminishes even further, Lovelock states [8]. Effective problem resolution techniques should then be followed—e.g., act fast, admit mistakes, and do not be defensive, show you understand the problem, clarify steps needed to solve the problem, and keep the customer informed of progress. Negative critical incidents that are satisfactorily resolved have great potential for enhancing loyalty, as it demonstrates to the customer that the project manager really cares about him or her. The receipt of complaints and corrections to the source, allows the opportunity to make changes that can really improve service delivery. Customer complaints traditionally are invited at the project close-out meeting. This meeting is too late in the process for problems to be brought to light, as at this stage very little remedial action can be taken. Back to Project Management Principles Does this mean that old project management principles can be discarded and we must just do an excellent sales job? The answer is a definite no. Indeed, the better the project is executed, the easier the sales job should be. The project manager must make use of all the tools and technology within his or her reach to execute an excellent project by all project success standards. The seed of project success is planted in the planning phase. The old maxim of an ounce of prevention is worth a pound of cure still applies and the following project rules remain as valid as ever. • • • • • • • •

work is to be planned as thoroughly as possible; think of every possible eventuality; break the work down into as small tasks as possible; schedule realistically; plan not only for the work, but also the staffing; ensure that the right people are used in the right positions; ensure that responsibilities are clearly spelled out; empower project personnel to go out and get the job done; and

•

do not forget about infrastructure requirements for the project team— make sure that their physical, communication, and administrative backup requirements are met.

Back to Marketing Principles The marketing concept means that an organization aims all its efforts at satisfying • its customers—at a profit, says E.D. Perrault [11]. To have a market orientation • means the organization is trying to carry out the marketing concept. This entails the • following three basic ideas. • • •

customer satisfaction; a total company effort; and profit—not just sales as the objective.

•

•

Figure 7— Planning and Control Cycle [14]

Communication is a vital requirement for project success and communication via cellular phones and e-mail. Having a project information Internet or intranet website can largely help to alleviate this problem. To update the old maxim somewhat—a digital photograph can be worth a thousand words and such photographs can be easily and widely dispersed electronically. The principle should be followed of— when in doubt, supply too much information too widely. Communication should not only flow between the project manager and the customer, but also within the project management group. Without effective internal information not only will the work execution be more difficult, but the sales job will be limited to the project manager where the whole project team can and must act as new salesmen. Verbal communication should not be underestimated and will probably remain the most important communication media of all.

In the competitive service environment it is necessary for the project management organization to differentiate its services from that of the competition, and it must do so in ways that are meaningful to customers. When defining the service, two main components must be considered—i.e., the core product and the core delivery process. The core product should be to provide the customer with an item or tool, which he in turn can use to generate his own profits. The core delivery process should be a project managed as a service delivery product by all the standards of service excellence. A project management service can be seen as a business product, which is treated differently than a consumer product. Organizations buy things to satisfy their own customers and typically focus on economic factors when they make purchase decisions. Many different people influence purchase decisions. Again it is quite clear that the real people that must be satisfied are the customer's customers. For the project manager to sell his own service effectively, it must be sold on many levels to many different people—from the key decision makers to the influencers of the key decision makers. In this, the value of a good customer relationship should not be underestimated.

•

•

• •

All in all, rocky waters to navigate for a project manager, and a golden middle way has to be, and is typically found on the majority of projects. However, new project rules that can change the above scenario can luckily be added, including the following. •

•

•

Back to Financial Principles For the project manager the basic • equation is simple—i.e., work = income. The specifics, however, are not that simple and in practice most project managers live by the following, often paradoxical rules. • • • Figure 8— The Main Information Channels [4]

work or income does not equal profit; the project management organization • demands profit as a non-negotiable; giving the customer more than what he asked for has cost implications that the customer may not be prepared to

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pay for. This will negatively affect the project manager's profits; long-term smaller profits are normally better than short-term higher profits. keeping an existing customer is much more cost-effective than winning a new customer; a satisfied customer increases the chances for long-term profits. invoicing the customer what is due may dissatisfy the customer and reduce long-term prospects; a satisfied customer may accept overinvoicing; over invoicing is not in the customer's best interest—and as stated before, to be really effective the project manager must work in the customer's best interest; salaries are likely the project organization's biggest single expense and therefore the main destroyer of profit; good salaries attract good staff and are seen as incentives to perform; and conversely—paying peanuts attracts monkeys and is a sure road to project failure

innovative extras to the end product can add more value than what is consumed by the extra effort; if convinced of higher value received, the customer may be prepared to pay for it; smaller profits per item (or project) with higher throughput (more projects) can generate a higher total profit; most, if not all, project decisions have a financial implication, a scheduling implication, or both. However, commonly available financial and schedule/implementation modeling tools are available to determine the effect of decisions; even apparently "schedule only" changes have financial applications for both the customer and the project manager. For the customer the longer time-to-market of a highly profitable

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product may be the most expensive item of all; • appropriate use of technology can • reduce costs; and • pricing can be based on value delivered and therefore does not always need to be market related. • The services marketing sphere—the service-profit chain, according to Lovelock offers the following [8]. • • • •

profit and growth are stimulated primarily by customer loyalty; satisfaction is influenced by the value • of services provided to the customer; value is created by satisfied, loyal, and productive employees; and employee satisfaction in turn results primarily from high-quality support • services and policies that allow them to perform.

As noted above, all but the smallest projects should however be executed in terms of a financial model. This would take • the guesswork out of many project decisions • The Ideal Project To summarize, for a new project to be successful it must result in the following. • •

•

• •

•

•

•

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a satisfied end customer; a profitable product for the customer (or at least the customer must be in a position to develop profitable products as a result of the project); and the execution of the project must have been profitable for the project management organization.

whether a natural or a taught leader does not matter; maintain excellent relations with the customer and keep him fully informed of all aspects of the project, and maintain integrity to ensure a trusting relationship; on all project decisions take note of financial implications of decisions— make extensive use of schedule and financial modeling to determine the full impact of the decision, because information empowers the project team; communicate extensively— make full use of technology, e-mail, intranet and internet, to keep all project participants informed, and do not neglect verbal communication; make utmost use of service delivery techniques, treat periodic project meetings as critical service encounters, invite complaints, and pay special attention to the fast and effective resolution of these complaints; make the customer's life easy—it will add to his perception of receiving value; the project team mainly delivers the project service, so look well after these persons and ensure they are properly supported and operate within an empowering environment.

5.

6.

7.

8.

9.

10. 11.

12. 13.

14.

contracts (QS), Paper 3722, Level 3, Block A, (2000). College of Estate Management, (CEM)(2), Diploma In Surveying, Lecture notes on management information and quality systems, Papers 0965, Level 3, Block A, 2000. Howarth A, Arbitration (UK)— Contradiction in the Role of Architects, (Nov. 4, 2002). Levitt, Theodore. After the Sale is Over, Harvard Business Review paperback No 90056, (1995): 64. Lovelock, Christopher H. Services Marketing—People, Technology, Strategy, (Fourth Edition). Prentice Hall, 2001. Meredith, Jack R. and Samuel J. Mantel Jr. Project Management—A Managerial Approach, New York: John Wiley & Sons Inc., 2000. Nobbs, R. Architectural Schizophrenia, Building, (Oct. 25, 2002): 56 Perrault, E.D, E.J. McCarthy, Basic Marketing—A Global and Managerial Approach, 12th Ed, Richard D Irwin, (1996). Ruskin and Estes, Anonymous, 1995. Shenhar, A.J., O Levy, D. Dvir, Mapping the Dimensions of Project Success, Project Management Journal, (1997): 5-13. Smith N.J, Engineering Project Management, Second Edition, Blackwell Science, (2002). Verzuh, Eric, The Fast Forward MBA in Project, Management. New York: John Wiley & Sons Inc., publishers, 1999.

Project management can be likened to an orchestra (project) where a conductor 15. (project manager) directs every participant (player/professional) to play his/her tune (deliverable) as expected of him/her, to the satisfaction and delight of the audience (external customers) and all involved Technical Articles - Each month, Cost Engineering journal publishes one or more peer(internal customers). ◆

For a new project the following is REFERENCES recommended. 1. Baccarini D, The Logical Framework Method for Defining Project Success, as far as possible, always work in the Project Management Journal; 30, 4 customer's interest; 25-32. turn customer orientation into the project management organization's 2. Bergren, C., J. Soderlund, C. Anderson. Clients, Contractors and competitive advantage; Consultants: The Consequences of always maintain a long-term Organizational Fragmentation in outlook—this project is important, but Contemporary Project Environments, the aim is to get many future projects. Project Management Journal, 32, 3 know the technical aspects of the (2001): 39-48. project, and, just as importantly, know the business background to the 3. Belout, Anonymous, (1998). 4. College of Estate Management project; (CEM) (1), Diploma In Surveying, the project manager must be a strong Lecture Notes on construction leader to convey the mission—

Cost Engineering Vol. 47/No. 5 MAY 2005

reviewed technical articles. These articles go through a blind peer review evaluation prior to publication. Experts in the subject area judge the technical accuracy of the articles. They advise the authors on the strengths and weaknesses of their submissions and what changes can be made to improve the article.

ARTICLES AVAILABLE - Articles from previous editions of the Cost Engineering journal may be purchased through the AACE International Online Bookstore, www.aacei.org. The cost per article is US$7.50 for nonmembers and US$5.00 for members of AACE International. If you are interested in purchasing additional copies of articles appearing in this issue please refer to the Article Reprint and Permissions information on page 43.

Cost Engineering Vol. 47/No. 5 MAY 2005

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Cost Engineering Vol. 47/No. 5 MAY 2005

TThe Bulletin he AACE International Bulletin Atlanta Section Anthony Dixon of IAC was the speaker at the Atlanta Section’s March meeting. He provided an update on the MH Jackson International Terminal project. At the April 13 meeting, Dr. Khalid M. Siddiqi, chairman of the Southern Polytechnic State University, spoke on, “Opportunities in Construction Management Education.” He worked on development of a strategic technology policy for the US Army’s global readiness, worked with the US Army Environmental Policy Institute, has experience with project planning and monitoring, served as a consultant on World Bank projects and was the director of a master plan for Karachi, Pakistan, a city of over 10 million people. Cascade Section The Cascade Section was treated to an excellent presentation on the water infrastructure rebuilding program in Iraq and the extreme conditions facing this effort in a war zone. Les Brown, Human Resource Director, IDC - previously assigned as HR Director for the CH2M HILL/Parsons, Joint Venture in Baghdad, was the speaker. It was truly a most informative and enlightening presentation. The Cascade Section holds it's regularly scheduled dinner meetings on the second Thursday of the month through June at the University Place in downtown Portland. In April, the topic wase a panel discussion on, The Cost of Building Green, Does It really Cost Less? This was a joint meeting with ASPE. For further information, refer to the Section’s website at www.aacei-cascade.org or contact our President, Rob Edgerton at 503-423-3998 x22119.

Central Savannah River Area Section The Central Savannah River Area (CSRA) Section had a joint April meeting with the American Society of Mechanical Engineers - CSRA Chapter. The meeting included an excellent presentation, by Donald McDonald, PE PSP, on senior management review of project CPM schedules. Mr. McDonald's presentation also covered various aspects of design engineering and construction management that contribute to cost efficiency and overall project success. Included in the discussion were various valuable tools that are available to ensure efficient project management and effective multi-disciplinary communication. The goal of the presentation focused on what level of detail is necessary to communicate; analysis of trends and control recommendations; communication details to prove analysis and recommendations; and understanding internal and external elements of scheduling. The CSRA Section hosted an EVP/PSP Workshop in Augusta, Georgia on Saturday, May 5. This proved an excellent opportunity for participants to prepare for the certification exam for the AACE International Earned Value Professional (EVP) and/or Planning & Scheduling Professional (PSP) certification. Professionals who obtain certification achieve industry recognition and increase the value of their work to their clients and their employers. Chicago Midwest Section The Chicago Midwest Section met April 18 in a joint meeting with ASPE, the American Society of Professional Estimators. The meeting program looked at the estimating process that W.E. O’Neil Construction used in bidding on such projects as a fountain at Millennium Park and the relocation of a submarine at a museum. The Chicago Midwest Section will hot its annual seminar program on Friday, May 20. The theme will be, “Champions of Project Controls, 2nd edition. Contact Don Giegerich at [email protected]. Chinook-Calgary Section About 150 Chinook-Calgary and PMI members and guests heard Jamie Cool of Kildrummy do a presentation at the Telus Convention Centre in March on using standardization to assist in training new participants in cost estimating, scheduling and project management reporting. Such new participants will be better able to continue in cost engineering as the current 48- 50 year old experienced workers reach retirement age. Submitted photo

Submitted photo

Guest speaker, Les Brown, above left, HR Director for CH2M HILL IDC, is shown with Cascade Section Vice-President, Greg Baker at the March dinner meeting of the Cascade Section. The program featured a presentation on the water infrastructure rebuilding program in Iraq.

Two Chinook-Calgary scholarship winners were recently honored. Shown at left are Yashie Sukhu (recipient), Cindy Striekland (Scholarship Director), and Sushil Peres-daSilva (recipient.)

Cost Engineering Vol. 47/No. 5 MAY 2005

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More than 80 members and guests attended the April Chinook-Calgary Section’s joint meeting with the quantity surveyors. The record attendance at the joint dinner meeting heard various definitions and discussions of contingency from owners, contractors and quantity surveyors. Although the percent contingency is always open to discussion on a project, owners still have to pay the costs of a project, in order to place a facility into production to generate revenue for a return on capital invested. Submitted photo

Chinook-Calgary Section’s April Dinner Meeting panel discussion was on “Contingency Management.” Participants, shown right from left to right, included: Trevor Smith, director of the local chapter of CIQS; John Croft, director project controls for Suncor Energy; Peter Ripley, President of the Chinook Calgary Section; and Ross Clark, manager of project controls for Bantrel.

East Tennessee Section The March 28 meeting of the East Tennessee Section was at the Outback Steakhouse in west Knoxville. The guest speaker was D. Wayne Loveday, Director of Plants and Collection System, Knoxville (TN) Utilities Board (KUB). He is responsible for operation and maintenance of KUB's wastewater treatment plants and water treatment plant, as well as the operation, planning and maintenance of the wastewater collection system totaling 1,200 miles. Mr. Loveday gave an very informative 30-minute presentation on KUB's recently begun 10-year project to upgrade a significant portion of the Knoxville, TN wastewater and stormwater system. There were 37 section members in attendance at this meeting (maybe our best-attended section meeting ever—we're checking our records). Three non-members pushed the total attendance that evening to 40. That's right, 40 !!! For further information about the East Tennessee Section, visit our website at http://www.aace-ets.org/. Genesee Valley Section The Genesee Valley Section will be providing a matching scholarship to a student from SUNY Environmental Science and Forestry at Syracuse NY. The presentation will be made at the May Section meeting. The section will be hosting a coffee hour at the New Orleans' meeting. This is the fifth year in a row the the section has provided sponsorship for the annual meeting. As always we challenge all AACE International sections, especially our wealthier fellow sections to follow suit and give back to the Association. The Genesee Valley Section made a $1000 donation to the Red Cross for tsunami relief effort. The Genesee Valley section approved of sponsoring a representative to the Annual Meeting from our BOD's. Attending the Annual Meeting is seen by the Section as a great way to bring cost engineering knowledge to our membership. The Board member will be reporting back, to both the Board and to the individual members at a section meeting, about what they learned at the Annual Meeting. Doug Leo conducted a full day seminar on conceptual and strategic estimating on April 20. All participants at the seminar

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received PPG#13 Parametric and Conceptual Estimating as part of their registration. All Section members attending the Annual Meeting will be serving as presentation room hosts. The Section will be represented at the Section Orientation Meeting in New Orleans. New Jersey Section The February meeting of the New Jersey Section was on Feb. 16, at the KatManDu Restaurant in Trenton, NJ. Scotty Riemer, NJ section treasurer, was the host of the meeting, representing Joseph Jingoli and Son. Iftikhar Madni, CCE, NJ section president, was the speaker for the evening. He presented several cost engineering problems to the attendees. The goal of this session was to introduce the type of problems that are on the certification exam, work through solutions to those problems, and encourage people to begin the process of exam preparation. Gaurav (Gary) Lamba, PE, CCE, was acknowledged for recently his passing the certification exam. The March meeting of the New Jersey Section was on March 16, at the Lone Star Restaurant in Bridgewater, NJ. Brian Tighe, NJ section corresponding secretary, was the host of the meeting, representing Skanska USA Building Inc. Debbie Dempsey, NJ section vice president, and Mike Bolhofer, NJ section membership director, were the speakers for the evening. They presented several engineering economics problems to the attendees. The goal of this session was to introduce sample problems concerning the time value of money, and review the formulas, tables, and methodologies to solve such problems.

Submitted photo

Iftikhar Madni, CCE, New Jersey Section President, receives a certificate of appreciation from Debbie Dempsey, New Jersey Section Vice-President. Mr. Madni presented the Section’s February program on cost engineering problems as preparation for the certification exam.

Rocky Mountain Section The speaker for the March meeting of the Rocky Mountain Section was Ron Rowbottom, manager of health, safety and workers compensation at Ball Packaging Corporation. He spoke on the Costs and Value of Health and Safety in Impacting the "Bottom Line." Mr. Rowbottom looked at the cost potentials and the cost reduction impacts that derive from a proactive, realistic approach to health and safety. In addition, he overviewed the current health and safety landscape to look at both traditional and newer innovative approaches to providing a safe and healthy work environment.

Cost Engineering Vol. 47/No. 5 MAY 2005

HOW TO SUBMIT SECTION NEWS TO THE COST ENGINEERING JOURNAL All submissions should be e-mailed to [email protected]. Information may be included in the body of the e-mail or as an attachment. Microsoft Word files are the preferred format. All photos should be sent as PC tiff or jpg files at 300 dpi. If submitting at only 72 dpi, please send the photo as large as possible as conversion will reduce its size. Include the names and titles of each person shown in any photos.

Submitted photo

Ron Rowbottom talks about “The Costs and Value of Health and Safety in Impacting the ‘Bottom Line’” at the March meeting of the Rocky Mountain Section.

South Central California Section The newly formed South Central California Section conducted its first formal meeting on April 13. In addition to many of our founding members, a number of new people attended. This was quite an exciting event for all of those who worked toward board approval of the new section petition. A social hour with much networking and introductions was followed by dinner and the technical presentation. The speaker was Zartab Z. Quraishi, PE CCE, who is a director with C.A. Rasmussen, Inc. of Simi Valley, CA. He has 24 years of experience in the engineering and construction field, held responsible positions in planning, scheduling, estimating, claims analysis, litigation support, and teaches at UCLA extension. His presentation discussed the most acceptable method of performing construction project delay analysis. He also described some of the faulty critical path delay analysis techniques that have been employed. This presentation addressed both contractor and owner concerns with respect to delay.

Note on Section identification in submissions: In the write ups submitted to AACE International for the Bulletin section of Cost Engineering journal, as well as in Section newsletters and website articles, many times AACE International Sections are referred to as chapters. The correct reference should always be to a Section. AACE International does not have chapters. Please do not refer to Sections as chapters. Note on the listing of dates: If an event is during the month of publication, it will be listed as an upcoming event even if members will not receive their journal in the mail until after the listed event. The journal goes to press about a month in advance of delivery, the issue date is always the first of each month, and the electronic version should be posted by that date. AACE International reserves the right to edit all submissions and to refuse to publish any submissions determined by the editor or executive director to not meet the standards of the journal. Anyone with questions on submitting copy or photos may contact Managing Editor Marvin Gelhausen at [email protected], or Graphic Designer/Editor Noah Kinderknecht at [email protected].

Submitted photo

On April 13, Zartab Z. Quraishi, PE CCE, shown left, presented the first program at the newly formed South Central California Section. Mr. Quraishi is a director with C.A. Rasmussen, Inc. of Simi Valley, CA. Submitted photo

To celebrate the first formal meeting of the newly formed South Central California Section, a drawing was conducted for a copy of the newly revised ‘Skills and Knowledge of Cost Engineering.’ Meeting facilitator Daniela Andrade is shown presenting the prize to winner Melvin Earley.

Cost Engineering Vol. 47/No. 5 MAY 2005

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Cost Engineering Vol. 47/No. 5 MAY 2005

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Cost Engineering Journal, Volume 47/Number 5, May 2005

Readers of the Cost Engineering journal can purchase copies of selected articles that are published with an AACE International reference number at the end of the article. Articles can be delivered in print form or in Adobe Acrobat (PDF) format. Please refer to the AACE International reference number when contacting our Publications Sales department. To Order Contact: AACE International Publications Sales at [email protected] Reprint Prices: Quantity Member/Non-Member 1-9 copies $5.00/$7.50 10-49 $4.50/$7.00 50-79 $4.00/$6.50 80-99 $3.50/$6.00 100-499 $3.00/$5.50 To Contact Us AACE International 209 Prairie Avenue, Suite 100 Morgantown, WV 26501 USA Phone: 304.296.8444 Fax: 304.291.5728

Pages 14-19

Pages 22-25

Design/Build Selection Process — Art or Science?

Using Earned Value Management Indexes as Team Development Factor and a Compensation Tool

Talal Abi-Karam, PE CCE The Design/Build method is an innovative project delivery system that is revolutionizing the delivery of private and public works projects. Advantages include a reduced project delivery time, costs, and reduced claims. The selection of a Design/Builder in the public works sector is a complex process that has required a number of US states to modify their procurement laws, state statutes, and licensing laws. Although Design/Build is one of the most popular integrated alternative delivery methods, it does not have well-established contractor selection procedures. The selection of a Design/Builder can be based solely on qualification, solely on price, or a combination of price/qualification. Even with qualificationbased selection (QBS), the selection process may be subjective, since various state agencies (DOT's) and municipalities have different selection criteria for pre-qualifying and evaluating bids of the perceptive Design/Build teams. This article examines the various selection methods of Design/Build teams in the public works sector. It addresses the legal framework for selecting Design/Build teams, including qualification-based selection (QBS), selection criteria, and weighting of criteria.

Reprint 21068

For Information On Other Reuse Requests If you are seeking permission to copy, quote, or translate into another language any material from any issue of the Cost Engineering journal, please contact our Managing Editor, Marvin Gelhausen at [email protected]

Victoria A. Flores, CCE and Gary E. Chase The objective of this article is to present the main components of the development of a project team and the motivational characteristics inherent to team work. It also looks at an interrelation proposal between the earned value analysis and team development through the SPI and CPI indexes. These are obtained by tool use and team development models and the compensation and reward in the project. This reduces the subjectiveness of humans resource in the project evaluation. The article presents a brief report about team development and compensation policies, as well as an introduction to the earned value concept, aiming to align the approached concepts.

Reprint 21069 Pages 28-34

The Goalposts for Project Success Have Moved — A Marketing View P.S. Kupakuwana and G.J.H. van der Berg Traditionally, a successful project was seen as one in which the triad of time, budget, and specification was complied with at a profit. Current project literature places more emphasis on customer satisfaction as a fourth important success parameter. This article discusses project management services and focuses on what constitutes project success. This type of project is named the new project in this article and a set of new project rules is arrived at. The article also takes a services marketing view and examines the customer's motivation in appointing a project manager.

Reprint 21070

Cost Engineering Vol. 47/No. 5 MAY 2005

43

C of Events Calendar alendar of Events May 2005

June 2005

Center, Austin, TX

9-13 Comprehensive 5-Day Training

20-23 Ecobuild America the

Contact:www.energycongress.com

Program for Business Energy Professionals, The Association of Energy Engineers (AEE), Hyatt Rosemont, Chicago, IL

Environmental Systems Technology Conference & Exhibition, Ecobuild America, Disney’s Coronado Springs Resort, Orlando, FL

Contact: www.aeecenter.org/seminars

Contact: www.ecobuildamerica.com

15-17 PTI’s Fourth Annual Conference

23-26 AACE International Education Seminars, AACE International, New Orleans, LA

& Exhibition, The Post Tensioning Institute (PTI), Westin Tabor Center, Denver, CO Contact: www.post-tensioning.org

20 Annual Seminar- “Champions of Project Controls - 2nd Edition”, AACE International’s Chicago Midwest Section Contact: Don Giegerich e-mail: [email protected]

Contact: [email protected] www.aacei.org

26-29 AACE International’s 49th Annual Meeting, AACE International, New Orleans, LA Contact: [email protected] www.aacei.org

30-31 AACE International Education

23-25 Fundamentals of Indoor Air Quality: Core Skills for the Building Professional, The Association of Energy Engineers (AEE), Crowne Plaza Atlanta Buckhead, Atlanta, GA

Seminars, AACE International, New Orleans, LA

Contact: phone (770) 925-9633 fax (770) 381-9865 www.aeecenter.org

July 2005

23-27 Short Courses, The American Society of Mechanical Engineers (ASME) and the American Institute of Chemical Engineers (AIChE), Toronto, Canada and Houston, TX Contact: ASME Information Central phone 1-800 843-2763 or (201) 882-1167 fax (201) 882-1717 or (201) 882-5155 e-mail: [email protected]

29-31 Kuwait First Annual Value Engineering Conference and Exhibition, Promedia International, Kuwait Contact: www.kuwaitve.com

Contact: [email protected] www.aacei.org

16 AACE International’s 2nd Quarter (2Q) Certification Exam Contact: [email protected] www.aacei.org

25-29 12th ISPE/CE2005 International Conference on Concurrent Engineering:Research and Application (CE2005), the International Society of Productivity Enhancement, Renaissance Worthington Hotel, Fort Worth/Dallas, TX

20-23 ISEC-03 - Third International Structural Engineering and Construction Conference, Tokuyama College of Technology and ISEC, Tokuyama College of Technology, Shunan, Japan Contact:www.tokuyama.ac.jp/english/ind ex.html

November 2005 5-11 2005 ASME International Mechanical Engineering Congress and Exposition, The American Society of Mechanical Engineers (ASME), Walt Disney World Swan & Dolphin Hotel, Orlando, FL Contact:Kim Punter phone (212) 591-8258 e-mail [email protected]

April 2006 23-26 Ist ICEC and IPMA Global Conference on Project Management, The International Cost Engineering Council (ICEC) and the International Project Management Association (IPMA) , Cankargev dom, Congress Center, Lujubljana, Slovenia Contact:www.icec-ipma2006.org

Editor’s Note: Please submit items for future calendar listings at least 60 days in advance of desired publication.

Contact: www.ce2005.org

September 2005 14-16 World Energy Engineering Congress (WEEC), Association of Energy Engineers (AEE), Austin Convention

AACE International, 209 Prairie Avenue, Suite 100, Morgantown, WV 26501 USA phone: 304-296-8444 fax: 304-291-5728 e-mail: [email protected] or [email protected] website: www.aacei.org 44

Cost Engineering Vol. 47/No. 5 MAY 2005