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Slide 1 - AACE International

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  • This presentation highlights AACE International’s newest product, the Total Cost Management Framework . It was first published in 2006, but it was 10 years in the making. It now provides the structure for all AACE Technical products and it provides business management and educators with a “go-by” framework from which to build effective processes. You may be surprised given its title, but the TCM Framework has been called the world’s first integrated process for portfolio, program, and project management. You will find out why in the coming slides.
  • The TCM Framework is a series of integrated, annotated process maps. For the first time, it ties all the Cost Engineering skills and knowledge areas together into a single process and it establishes Cost Engineering as a unique discipline that supports business and project management alike. Whatever your job (cost engineer, scheduler, planner, estimator, project manager, project control engineer, value specialist, etc.) you will find all the elements of your area of practice in the TCM process. While it is “all there”, it is not organized by anyone’s particular function; readers need to step up to a higher level to view and understand total cost management.
  • Before we go further, we need to dispel a preconception that in TCM “cost=money”. In TCM and Cost Engineering, cost includes money, time, and resources of all types. While TCM may sound like a buzzword, its called TCM for good reason; It covers the planning, measuring, and control of the totality of company resources invested in assets and projects over their total life cycle. It covers all asset and project types. So, what could be a better name than TCM? It was also specifically developed to be industry-generic (i.e., it works as well for IT assets and projects as for construction.) Finally, because it does cover the totality of managing everything invested in assets and projects, it happens to be Industry’s first integrated process for portfolio, program and project management.
  • This slide shows TCM as analogous with a cookbook. In the analogy, the skills and knowledge of Cost Engineering are the ingredients; TCM being the recipe with you as the cook (hopefully a not a messy one ). Another analogy is that TCM is a roadmap, and the skills and knowledge of the profession are the all places you must visit on the way to your destination. The pie (or the place you are going) represents the end result: better profitability on your asset and project investments.
  • Even if TCM was never used by business (for which it was designed), AACE would still need it to organize and structure its product development and services. Professionals that are educated and certified in TCM-based AACE technology can be assured that “it all works together” for the benefit of their employer’s bottom-line. The TCM roadmap or recipe show how each and every skill and knowledge is tied to the others, and all are tied back to business strategy and objectives.
  • The slides that follow will go into a little more detail into three areas; 1) the benefits you can expect from applying TCM in your place of business, 2) the basis and structure of the TCM process maps, and 3) a few ways you can apply TCM. There are 27 process maps in the text that range from summary to detailed in content and we do not cover each one in this introductory presentation. However, we hope to give you enough insight to make it easier for you to follow and apply the text in your own study time.
  • As mentioned, the TCM process helps you manage your asset portfolios, your programs (or groups of related projects) and individual projects. The benefit of applying a TCM-based process is ultimately improved profitability (or whatever the strategic objective of your place of business is—profitability applies to most). Management of each project, program, and asset in your portfolio will be aligned and integrated because they are all tied back to the same business strategy and objectives.
  • As with the term “costs”, we need to dispel some other misperceptions. One is that Cost Engineering is synonymous with Project Control or that it is a subset of Project Management. In fact, Cost Engineering, as applied in TCM, covers not only projects, but capital asset management as a whole. In fact, projects and project management and control then are a subset of TCM. The ultimate “customer” of TCM is business management, or the owner and operator of the enterprise’s assets. Project managers are customers of the project control half of TCM, wherein projects are a means of creating, modifying or otherwise affecting the asset base over its life cycle.
  • To summarize, TCM covers more than just projects, but also how you plan, measure and control the investment of your company’s limited resources in all its assets (and the investment may not involve performing a project). It does this all in alignment with business strategy and objectives. TCM is also more than just a mile-high view; it includes 3 summary processes and 24 detailed sub-processes covering each and every skill and knowledge area of Cost Engineering.
  • Ultimately, to justify the time we are all investing in this presentation, we must answer the questions, “So what does this mean to me”, “what am I supposed to do with it”, or “how does this help my company”. The next slides will hopefully provide you with enough understanding of what TCM is that the answers to the rest of the questions will be apparent.
  • TCM is at heart a quality management process. Each and every TCM process map is based on the PDCA quality management/continuous process improvement model (i.e., the Deming or Shewhart model). Before AACE published the TCM approach using PDCA in 1996, other project management models lacked a defining philosophy based on accepted quality management principles. Other models have since tied back to this basis; it only makes sense—it is the only real process model to have stood the test of time for more than half a century. If your company uses TQM, Six-Sigma, ISO9000, Business Process Reengineering (BPR), or just about any other management program with quality management roots, you will be pleased to know that TCM will support its goals. The next slide will discuss the PDCA model in more detail.
  • A key benefit of using PDCA as the “stem cell” of TCM (i.e., all 27 TCM processes grow out of it) is that PDCA supports both Continuous Improvement and Control. With PDCA, you establish a plan with budgets, thresholds, etc.; kick the work off properly; then measure performance. Finally, you assess that performance against the plan (and ultimately strategic objectives) and make either corrective actions to stay on plan (control) or you improve the plan as needed to achieve objectives (improvement). Another key benefit of TCM is that the processes are all integrated such that scope, cost, time, risk, value, and resources are each considered for their interrelationships. Each process map in TCM includes inputs and outputs from and to the other processes. Each assessment and planning step revisits the objectives, thereby keeping all processes aligned with business strategy. We will talk more about the integration later when we show examples of the actual TCM process maps.
  • As a two-dimensional diagram, the PDCA loop looks like it returns you to the same point you started. However, it is a three-dimensional concept; you keep advancing and improving your plans as the asset or project life cycle progresses. In this illustration, the center bar represents the life cycle of an asset over time. The spiral represents the fact that PDCA is a never ending process for managing costs over that life cycle. We could show the same diagram with the project phases in the center bar (e.g., appraise, select, define, execute, closeout). The concept is the same.
  • As we said, PDCA is the “stem cell” of TCM-all processes evolve from it. You can see the evolution or expansion of the process on this chart which is the highest level representation of the TCM process. On the left side, PDCA is employed by the “owner” to manage the costs of their portfolio of assets (represented by the “stack”). The performance of each asset is being planned, measured, and assessed. We call the “owner” side the Strategic Asset Management” (SAM) process. It can also be called the Portfolio Management process. If needed, projects or programs (i.e., related group of projects) may be implemented to create, modify or otherwise affect an asset. At project implementation, the process shifts to the right hand side to a process we call Project Control. Note the “recursive” nature of the process; Project Control is embedded in SAM; it is like looking at an image in facing mirrors, you see PDCA reflected again and again from the high level of the portfolio (managing the entire capital budget), through each program, and down to each project. Later, we will drill down into the details of the SAM and Project Control processes.
  • Before we look at more process maps, lets step back and look at the “book” and how it is organized in accordance with the process. (Preferably, each attendee to a presentation is provided with a copy; if so, you can ask them to refer to the table of contents). On this chart, you’ll see that chapters 3 through 10 of the text cover the PDCA steps of the SAM and Project Control processes (in the previous slide you may have noted that each process step was numbered with these chapter numbers). Each of these “functional” chapters includes multiple sections that cover the functional level processes (i.e., 24 processes for functions you’ll recognize like cost estimating, etc.). The Framework also includes “Basis” material including the high-level processes, and “Enabling Processes” that are general in nature and facilitate TCM functionality.
  • These are the Functional processes of the Framework. Each of the 24 sections has a process map and brief narrative describing the process and its inputs and outputs. Key terms and references are also provided. Because TCM is an “integrated” process built on PDCA, users will not find their entire “function” in one section. For example, “7.2 Schedule Planning and Development” includes only developing the schedule (integrated with other planning sections), but not schedule statusing (included in 9.2), schedule forecasting (10.2), and so on. To create an integrated TCM process, it is necessary to dis-integrate the traditional workplace silos. For example, in TCM, as a Project Control specialist you are expected to measure and assess both cost and schedule together (they are not independent)—it is a multi-functional, cross-trained, integrated approach.
  • Lets return to the process maps. This is a view of the Strategic Asset Management process at “level 2” detail. Note that each section of the Framework is now a step in the process (i.e., the text’s section numbers are shown). Again, the process follows the PDCA approach as represented by the underlying blue arrows. This SAM process is unique to TCM—you won’t find this in any other project management process, because it is not about managing individual projects. Its about managing asset portfolios and programs or project systems. Optimally, cost engineers need to help the operations and maintenance people monitor and assess the cost performance of the assets in their portfolio. Likewise, when the asset operation is not meeting objectives, cost engineers need to help the business people assess and plan alternatives to get better performance and profitability. Ultimately, the process ends up in making investment decisions which may or may not involve projects being implemented (decision may be to take a non-project action to change some aspect of the asset’s operation or use). SAM is also used to assess project “program” or project “system” performance; i.e., the results of groups of projects, or the corporation’s project system, are assessed as a whole from the owner business perspective to ensure they are collectively meeting business objectives in an integrated, effective way.
  • At the risk of repeating ourselves, a key element of TCM and SAM is that it all starts with Business Strategies, Goals and Objectives that are translated into requirements that serve as the basis of planning. Again, the “pinch” point (i.e., make or break) in the process is investment decision making. Decisions must be based on the best measurement, assessment and planning information about the portfolios, programs and projects. In the next slide we’ll use decision making as an example of the detail level process maps in the TCM Framework.
  • Each block on the level 2 process map is itself a PDCA process. Zooming into the Investment Decision Making Process, you’ll note a “plan” step on the left. The work of each level 3 sub-process must itself be planned. In each process, you will find that planning is always supported by historical information (the asset and project historical database management process is a key “lynch-pin” element of TCM). Planning is followed by “do” steps. The process output is then assessed, evaluated or reviewed against the “plan”. The output of the process is then an input to other processes (including the historical database feedback loop). In SAM, the use of models is emphasized (as in the “decision model” in this case). You will note that many of the inputs/outputs have reference numbers (e.g., 6.3)—you will find the matching input/output in the referenced process map—all the maps could be assembled into a single master process map (a task that AACE will pursue in the future).
  • Now lets look at the Project Control level 2 process map. Again, it has a PDCA basis. It starts with objectives and requirements that are outputs of the SAM Project Implementation process step. The Project Control planning steps are iterative, concurrent, and integrated. Measurements are made and assessed against the plan, and the plan is modified as needed. Again, project historical database management is a foundation element. Information about the project is fed back to the SAM process via the database process.
  • Here is one detailed process in the Project Control process. This is the last example level 3 process map we will look at. The point is not to educate you about estimating or any other sub-process, but to again point out that each process starts with planning, goes through “do” steps, goes through review against the plan, and involves feedback through the project historical database management process. When companies use TCM as a “go-by” for improving their processes, few will apply TCM verbatim; however, the basic philosophies of PDCA, integration of processes, a foundation of historical information, and so on will serve as effective guides. It should be noted that the planning processes such as cost estimating are mapped only once in the text; however, the same process is used in both SAM and Project Control. The same estimating process applies generically.
  • When designing or applying a “functional” processes, there are common considerations that apply to each process. For example, the inputs/outputs in each TCM sub-process are information; therefore, Information Management is a critical element that “enables” the process to work effectively. This and other over-arching considerations regarding society, people, quality, value, and EH&S are covered in the 6 sections of the Enabling Processes chapter as listed here. One point to note is that TCM is both a quality and value management process. In terms of quality, those who need to meet International Standards Organization (ISO9000) or similar requirements will find TCM to be a great process model to build on.
  • Ultimately, to justify the time we are all investing in this presentation, we must answer the questions, “So what does this mean to me”, “what am I supposed to do with it”, or “how does this help my company”. The next slides will hopefully provide you with enough understanding of what TCM is that the answers to the rest of the questions will be apparent.
  • TCM is a process map. So, of course, the main use of TCM for business is as a model for developing or improving their own processes. At many companies there is some sort of quality management program being followed such at TQM, Six Sigma, or ISO9000; each program involves having defined processes. If your organization is re-organizing and undergoing business process re-engineering (BPR), you will also need model processes. By understanding TCM, you will be able to build processes for asset and project cost management at your organization. A key is to make sure the processes are integrated and tied back to business strategy; if you let each function develop their own processes, you will be disappointed. TCM is not a “how-to”; when you are developing specific “procedures”, you will need to refer to more specific texts or AACE’s Recommended Practices. Some of these are listed in the Framework sections (keep in mind that some of these references may not always agree with TCM content).
  • Just as the TCM Framework will guide and structure AACE’s development of education and certification products and services, academic and training institutions, companies and consultants can use it to guide and structure their programs. One of the objectives of TCM was to establish the basis for Cost Engineering as a recognized discipline for which an undergraduate degree could be granted (TCM provides Cost Engineering with a unified purpose, structure, approach and syntax). Keep in mind that TCM is by nature multi-functional/multi-skilled; it is best suited for training those with over-arching capital management, project or program management, project controls, or similar responsibilities where cost, time, risk, value for assets and/or projects must be considered in an integrated way. However, it is also useful for pointing out to specialists (e.g., estimators, schedulers, etc.) that their work function does not exist in a vacuum and shows how they must work in concert with the other disciplines. Again, TCM is not a “how-to” with specific procedures for specialists.
  • AACE would like to say that the TCM Framework is an entertaining read, but it is not—it is full of complex, but not very entertaining diagrams (and its share of jargon). However, for those new to the business, or looking to broaden their perspective (e.g., a contractor wanting to better understand their owner client’s point of view, a specialist wanting to know how they fit in the bigger scheme, etc.) it is an excellent reference that summarizes in a compact form the integrated sum of the industry’s best knowledge and practice. It is suggested that readers start with Chapters 1 and 2; read those through. Then go to one or two specific process sections with which you are most familiar (e.g., estimating) and see if you can relate the text content with your experience. Then, armed with this understanding, you can tackle the less familiar material. We hope you will find it enlightening and educational.
  • The TCM Framework is planned to be a living document that the AACE Technical Board will revise as needed. The Technical Board asks that any comments or suggestions be sent to the email address shown. The editor and lead author, John Hollmann, would also be glad to field questions and comments on the entire text, or to make presentations of the material on behalf of AACE with suitable arrangements. Some of the key contributors have consented to including their contact information if you wish to contact them as well. The text is available in soft-bound and CD (in Acrobat .pdf) format; contact AACE International for more information of how to obtain copies. An html version is available online for AACE members. Thanks for taking the time to review or hear this presentation! We hope this helps you build better processes (and get better profitability) at your place of business. A PRODUCT OF THE TECHNICAL BOARD OF AACE INTERNATIONAL
  • Transcript

    • 1. The world’s first integrated process for portfolio, program, and project management! A Process For Applying the Skills and Knowledge of Cost Engineering Copyright © 2006 by AACE International 209 Prairie Avenue, Suite 100 Morgantown, WV 26501 USA
    • 2. TCM Is a Process For Applying the Skills and Knowledge of Cost Engineering
        • “… the effective application of professional and technical expertise to plan and control resources, costs, profitability and risks. Simply stated, it is a systematic approach to managing cost throughout the life cycle of any enterprise, program, facility, project, product, or service . This is accomplished through the application of cost engineering and cost management principles, proven methodologies and the latest technology in support of the management process .”
      AACE International’s Constitution
    • 3. Cost Is Everything
      • “ It costs time ”
      • “ It costs resources ”
      • “ It costs money ”
      • EVERYTHING
      • invested in assets and projects is a
      • COST
      • That is why it is called
      • TOTAL COST Management
      • (TCM)
    • 4. For Business, TCM is An Integrated Recipe for Managing Portfolios, Programs, and Projects in Alignment with Business Strategy ! Better Decisions Better IRR Effective Portfolios, Programs, Projects Assets Cost Engineering Skills & Knowledge Time Risk Cost Resources Better Control
    • 5. For AACE, TCM is a Framework For Its Technical, Education and Certification Products Recommended Practices (RPs) Professional Practice Guides (PPGs) Cost Engineer’s Notebook Skills and Knowledge (S&K) CCC CCE PSP EVP… T C M
    • 6. Presentation Outline
      • Understanding TCM
      Applying TCM TCM Benefits
    • 7. Top-to-Bottom Business Benefits
      • Profitable Asset Portfolios
        • Makes sure your resources go where they’ll get the best IRR/RONA/EVA
      • Integrated/Aligned Programs
        • Makes sure your projects are all integrated, aligned and coordinated
      • Controlled Projects
        • Makes sure each project gives business the results that were planned for
      … and, makes sure everything is aligned with Business Strategy!
    • 8. TCM Combines Asset and Project Life Cycle Management
      • Return on Assets is largely driven by practices used before projects begin
        • With TCM, owners understand and manage the costs of their asset base over the entire asset life cycle
      • Successful Projects are required if the planned return is to be achieved
        • With TCM, owners and contractors control the costs of their projects over the entire project life cycle
    • 9. TCM Has Breadth and Depth Strategic Functional Builds on AACE’s Depth: We Know How Things Really Work Builds on AACE’s Breadth: We Cover More Than Just Projects
    • 10. Presentation Outline
      • Understanding TCM
      Applying TCM TCM Benefits
    • 11. TCM Starts With a Simple Concept Plan-Do-Check-Assess (PDCA) Based on the time-tested Deming or Shewhart cycle. In essence, TCM is a quality management process.
    • 12. TCM Attributes Continuous Improvement Every TCM process employs feedback and improvement! Integrated Every TCM process has P,D,C & A steps that are All linked back to business strategy!
    • 13. TCM Covers the Entire Asset and Project Life Cycle
    • 14. TCM: Level 1 Process Map Project Control is a Recursive Process Within the Strategic Asset Management Process Portfolio of Assets Portfolio of Projects (Programs)
    • 15. The Framework Is Organized By Process The Framework includes the Basis, Functional Processes, and Enabling Processes
    • 16. The Framework Functional Process Sections
      • II. STRATEGIC ASSET MANAGEMENT PROCESS
      • CHAPTER 3—PLANNING
      • 3.1 Requirements Elicitation and Analysis
      • 3.2 Asset Planning
      • 3.3 Investment Decision Making
      • CHAPTER 4—PROJECT IMPLEMENTATION
      • 4.1 Project Implementation
      • CHAPTER 5—MEASUREMENT
      • 5.1 Asset Cost Accounting
      • 5.2 Asset Performance Measurement
      • CHAPTER 6—ASSESSMENT
      • 6.1 Asset Performance Assessment
      • 6.2 Asset Change Management
      • 6.3 Asset Historical Database Management
      • 6.4 Forensic Performance Assessment
      III. PROJECT CONTROL PROCESS CHAPTER 7—PLANNING 7.1 Scope & Execution Strategy Development 7.2 Schedule Planning and Development 7.3 Cost Estimating and Budgeting 7.4 Resource Planning 7.5 Value Analysis and Engineering 7.6 Risk Management 7.7 Procurement Planning CHAPTER 8—PROJ. CONTROL PLAN IMPLEMENTATION 8.1 Project Control Plan Implementation CHAPTER 9—MEASUREMENT 9.1 Project Cost Accounting 9.2 Progress and Performance Measurement CHAPTER 10—ASSESSMENT 10.1 Project Performance Assessment 10.2 Forecasting 10.3 Change Management 10.4 Project Historical Database Management Each section has a process map and narrative that describes the process
    • 17. Plan Do Assess TCM Level 2 Process Map Strategic Asset Management Check
    • 18. Strategic Asset Management Deploys Business Strategy
    • 19. Each Block is a Working Level Process Map Example: Investment Decision Making
    • 20. TCM Level 2 Process Map: Project Control Plan Do Assess Check
    • 21. An Example Project Control Working Level Process Example: Estimating
    • 22. The Framework Also Covers “Enabling” Processes
      • 11.1 The Enterprise in Society
      • 11.2 People and Performance Management
      • 11.3 Information Management
      • 11.4 Quality and Quality Management
      • 11.5 Value Management and Value Improving Practices (VIPs)
      • 11.6 Environment, Health, & Safety Management
    • 23. Presentation Outline
      • Understanding TCM
      Applying TCM TCM Benefits
    • 24. How Business Can Use the TCM Framework
      • Use it as a guide for process development or re-engineering
        • A “go-by” that can be modified to suit each company's’ processes, phasing, org., lexicon, etc.
        • Can be applied in parts, but take care that the resulting process is integrated
      • Use it as a business reference
    • 25. How Educators/Trainers Can Use the TCM Framework
      • Use it to structure your programs
        • A “go-by” that can be modified to suit your institutions’ programs, lexicon, etc.
        • Can be used in parts, but its main value is in the integration of practice areas
        • Uniquely covers cost engineering as an integrated professional discipline
      • Use it as a course text or reference
    • 26. How Individuals Can Use the TCM Framework
      • Use it to broaden your perspective
        • Examples:
          • Contractors will better appreciate their owner client’s point of view
          • Specialists will gain understanding of how their field fits in the bigger scheme
      • Study it in pieces
        • Read Chapters 1 & 2 through
        • Then tackle other sections of interest
    • 27. Let Us Know What You Think!
      • To comment:
      • [email_address]
      • To contact the editor:
      • [email_address]
      • To contact key contributors: see text “Acknowledgments”
      • To obtain copies:
      • www.aacei.org/bookstore /
      • To read online:
      • www.aacei.org/ tcm /