Recommended Practices As of June 10, 2012

Details of the AACE RPs at the date of June 10, 2012
COST ENGINEERING TERMINOLOGY

(Rev. May 3, 2012)
AACE International Recommended Practice No. 10S-90
TCM
General Reference
Framework:
REQUIRED SKILLS AND KNOWLEDGE OF COST ENGINEERING
(Rev. May 11, 2012)
AACE International Recommended Practice No. 11R-88
TCM
General Reference
Framework:
MODEL MASTER'S DEGREE PROGRAM WITH EMPHASIS IN COST
ENGINEERING
(Rev. November 1990)
TCM
General Reference
Framework:
RECOMMENDED METHOD FOR DETERMINING BUILDING AREA
(Rev. November 1990)
AACE International Recommended Practice No. 13S-90
TCM
7.3: Cost Estimating and Budgeting
Framework:
RESPONSIBILITY AND REQUIRED SKILLS FOR A PROJECT PLANNING
AND SCHEDULING PROFESSIONAL
(Rev. September 19, 2006)
TCM
7.2: Schedule Planning and Development
Framework:
PROFITABILITY METHODS
(Rev. July 16, 2008)
TCM
3.3: Investment Decision Making
Framework: 6.1: Asset Performance Assessment
Scope
This Recommended Practice (RP) of AACE International defines specific practices for
determining the profitability of investments. The methods offered are general, since not
all profitability techniques can or should be included in an RP. In its broadest sense,
profitability is a measure of value added. Increased profitability thus reflects greater
economic good for society. There is no economic progress without profitability.
Purpose
This RP is intended to provide broad guidelines, not standards, for profitability methods
that most seasoned practitioners in most industries would consider to be reliable and
would generally endorse. Profitability methods with less general applicability, e.g., the
revenue requirement technique used by electrical utilities or the benefit-cost ratio used in
the public sector, are not included in this RP.
Background
Profitability methods are critical tools for assessing asset performance and making
effective investment decisions. These processes are central to portfolio and program
management in that selecting the right capital or maintenance projects can be as
important to enterprise success as effectively executing any particular project.
CONDUCTING TECHNICAL AND ECONOMIC EVALUATIONS: AS APPLIED
FOR THE PROCESS AND UTILITY INDUSTRIES
(Rev. April 1991)
TCM
3.2: Asset Planning
Framework: 3.3: Investment Decision Making
COST ESTIMATE CLASSIFICATION SYSTEM
(Rev. November 29, 2011)
TCM
Framework:
COST ESTIMATE CLASSIFICATION SYSTEM: AS APPLIED IN
ENGINEERING, PROCUREMENT, AND CONSTRUCTION FOR THE PROCESS
INDUSTRIES
TCM
Framework:
The Cost Estimate Classification System provides guidelines for applying the general
principles of estimate classification to asset project cost estimates. Asset project cost
estimates typically involve estimates for capital investment, and exclude operating and
life-cycle evaluations. The Cost Estimate Classification System maps the phases and
stages of asset cost estimating together with a generic maturity and quality matrix that
can be applied across a wide variety of industries.
17R-97 provides a generic methodology for the classification of project cost estimates in
any industry, while 18R-97 provides extensions and additional detail for applying the
principles of estimate classification specifically to project estimates for engineering,
procurement, and construction (EPC) work for the process industries.
An intent of the guidelines is to improve communication among all of the stakeholders
involved with preparing, evaluating, and using project cost estimates.
ESTIMATE PREPARATION COSTS: AS APPLIED FOR THE PROCESS
INDUSTRIES
(Rev. June 19, 1998)
TCM
Framework:
This recommended practice presents benchmark information on the costs to prepare cost
estimates (for engineering, procurement, and construction) in the process industries. It
includes qualitative and quantitative lessons that cost engineers and estimators can use to
benchmark their cost estimating experiences against. The data on preparation costs was
used to develop a parametric cost model that can be used to estimate the cost of preparing
estimates. The effort or cost to prepare a cost estimate is a secondary characteristic of a
cost estimate classification. This Recommended Practice supports AACE Internationals
Recommended Practice 18R-97 Cost Estimate Classification System - as Applied in
Engineering, Procurement, and Construction for the Process Industries.
PROJECT CODE OF ACCOUNTS
(Rev. January 27, 2003)
TCM
7.1: Project Scope and Execution Strategy Development
Framework: 7.2: Schedule Planning and Development
This guideline establishes the basic principles of codes of accounts (COA) for projects in
any industry. It examines key characteristics including usage, content, structure and
format and describes benefits of establishing standard COAs. Topics such as activitybased costing and work breakdown structures as they relate to COAs are addressed. The
issues of properly defining a WBS and how it should be structured are outside the scope
of this guideline. COAs are applicable to all phases of the asset life cycle, however, this
guideline specifically addresses the project execution phases of asset design development
through to start of normal operation.
A project code of accounts is a coded index of project cost, resource and activity
categories. A complete COA includes definitions of the content of each account code and
is methodically structured to facilitate finding, sorting, compiling, summarizing, defining
and otherwise managing information the code is linked to. The information is used to
support total cost management practices such as cost estimating, cost accounting, cost
reporting, cost control, planning and scheduling. Other names used for COAs are coding
matrices, coding structures, charge accounts, asset or material classification accounts,
value categories, cost elements, work breakdown structures, resource breakdown
structures and activity breakdown structures.
PROJECT CODE OF ACCOUNTS: AS APPLIED IN ENGINEERING,
PROCUREMENT, AND CONSTRUCTION FOR THE PROCESS INDUSTRIES
TCM
7.1: Project Scope and Execution Strategy Development

This guideline is an industry-specific addendum to AACE International's generic
guideline for project code of accounts (Recommended Practice No. 20R-98). This
document describes recommended practices for codes of accounts (COA) as applied to
engineering, procurement, and construction (EPC) projects in the process industries.
"Process industries" are those with facilities whose main function is to perform a process.
This includes chemical, petrochemical, hydrocarbon, pulp and paper, pharmaceutical,
power generation, thermal, metallurgical, assembly, fabrication, and other processing.
The primary characteristic of these industries, as it relates to codes of accounts, is that
process or manufacturing equipment is the core or primary physical component of the
facility. Equipment differentiates these projects from commercial construction and
infrastructure where the core component is a structure, from software development
projects where the core component is programming code, and so on.
COAs are applicable to all phases of the asset life cycle, but this guideline specifically
addresses the EPC for creation, modification, or termination of a process facility. This
guideline does not apply to code of accounts to support ongoing operations of process
facilities. Properly defining a work breakdown structure (WBS), and other project
structures, and deciding how they should be structured are outside the scope of this
document.
A project code of accounts is a coded index of project cost, resource, and activity
categories. A complete COA includes definitions of the content of each account code and
is methodically structured to facilitate finding, sorting, compiling, summarizing, defining
and otherwise managing the project information that is linked to the code. The
information is used to support total cost management practices such as cost estimating,
cost reporting, cost accounting, planning, and scheduling. Refer to 20R-98 for a more
complete description of the principles of COAs.
DIRECT LABOR PRODUCTIVITY MEASUREMENT: AS APPLIED IN
CONSTRUCTION AND MAJOR MAINTENANCE PROJECTS
(Rev. April 26, 2004)
TCM
9.2: Progress and Performance Measurement
Framework:
This recommended practice of AACE International describes a direct method to measure,
monitor and optimize construction and maintenance project labor productivity. The
method described is statistical sampling of the work process, or: work sampling. The
work process is made up of steps and activities that take input resources, add value, and
produce the completed project. Understanding the capability of the process, or
'management system,' to produce efficiently is important for project planning and control.
Sampling is a cost-effective way to provide information about the performance of the
work process, i.e., about 'how' the work is done, and how to do it better. Work sampling
complements conventional project management methodology, which typically tracks
'what' work is done.

Sampling provides project managers, supervisors, and the workforce with objective
feedback re: the efficiency of the work process (not of individual workers, which is part
of the foreman's job): and the ability to respond quickly to adjust. In addition, it provides
a measure of management's ability to effectively plan, coordinate, and control project
execution. Analysis of the sampling data allows for prompt removal or reduction of
roadblocks, optimizing the construction work process through redesign and innovation.
Streamlining the work process ensures that performing productive work is made more
convenient for the workforce, ensuring that, at all times, crafts and technicians have all
the necessary tools, materials, parts, supplies, information, supervisory support and
personal needs readily available. Work sampling, properly applied, recognizes that
productivity results from an optimal work process, i.e., from 'managing smarter,' not from
people working harder.
Construction labor productivity is a measure of work process efficiency. It can be defined
as the ratio of the value labor produces to the value invested in labor. Productivity
increases as needed labor resources are minimized and wasted efforts eliminated from the
work process. This definition and the practice covered here treats productivity as a direct,
absolute measure to be optimized.
IDENTIFICATION OF ACTIVITIES
(Rev. May 3, 2007)
TCM
Framework:
This recommended practice is for use by the project team members involved in the
schedule planning process for any project type and in any industry. Many individuals
contribute in the identification of activities, and having an experienced planner coordinate
the process improves final quality and adds value to the planning process.
As a recommended practice of AACE International, identification of activities in
schedule planning and development provides guidelines for the conversion of scope
definition to specific activities and tasks required to complete a program or project.
Identification of activities is a key planning step that takes place early in the schedule
planning and development process which also includes estimating durations, determining
and defining resources, and identifying external project constraints.
The scope definition of a program or project is generally described in various planning
and technical documents, databases, or other deliverables. To begin the planning process,
information in the scope documents must first be translated into manageable activities.
For example, the scope may include the installation of a length of pipeline. Installing that
pipeline may require designing, procuring, cutting, welding, erecting, and inspection
activities. This process of expanding the high level scope or functional definition into the
detailed work required for completion is the practice of "identification of activities".
DEVELOPING ACTIVITY LOGIC

(Rev. March 26, 2004)
TCM
7.2 Schedule Planning and Development
Framework:
As a recommended practice of AACE International, development of activity logic (also
called network logic) in planning and scheduling provides guidelines for the sequencing
of activities in a logical way generally before duration estimating can be performed.
Logic is generally determined before durations are considered. Logic development
methods include precedence diagramming, or arrow diagramming methods. Logic is the
set of activities and dependency relationships between them. Logic dictates the planned
sequencing of activities. A network diagram is often used to illustrate the logic.
Planning and scheduling are not the same. Planning is determining how the work will be
done, while scheduling is the analysis and calculation of start and finish dates.
Logic enables the combination of activities to be arranged in one of the aforementioned
formats so that a completion date can be established. Logic also enables backward passes
to arrive at optimal overall schedule duration.
This recommended practice is for use by project team members involved in planning
process, a continuation of activity identification process (reference TCM Framework
section 8.2). As in identification of activities, many individuals contribute to the
development of activity logic. Having an experienced planner coordinate the process
improves final quality, and adds value to the planning process.
ESTIMATING LOST LABOR PRODUCTIVITY IN CONSTRUCTION CLAIMS
(Rev. April 13, 2004)
TCM
6.4 Forensic Performance Assessment
Framework:
This Recommended Practice focuses on identification of various methods for estimating
lost labor productivity in construction claims. Often the claim is the result of one or more
change order requests that cannot be fully resolved to capture their full and final effect on
the entire project cost and schedule. Specifically, this Recommended Practice examines
the issue in terms of claims for cost recovery of lost productivity. Therefore, the purpose
of the Recommended Practice is to
Identify Lost Productivity Estimating Methodologies: That is, survey as many of

the various methodologies employed in litigation throughout North America as
can be identified;
Rank Order the Methodologies: That is, based on reliability, professional
acceptance, case law and construction claims literature, rank the identified
methodologies from most to least reliable with respect to documenting estimating
damages in claim situations. While it may not be possible to state with certainty
which methods are absolutely most or least reliable, it can be stated that under
certain sets of circumstances some methods are generally considered more

reliable than others. (CAUTION: This Recommended Practice was prepared on
the basis of the author's understanding of Canadian and U.S. case law. It is
recommended that anyone preparing a lost productivity claim seek appropriate
legal advice on the methodology to be used. This is especially true if the claim is
being pursued under national law other than Canada or the United States.)
Define and Discuss Each Methodology: That is, discuss the method and how it is
employed. Also, when possible, discuss the strong and weak points of each
method;
Identify Selected Studies Applicable to Each Methodology: Herein, identify as
many studies and professional or technical papers as possible which will help the
practitioner in learning more about and/or employing a particular method.
It needs to be noted that this Recommended Practice does not define in detail how one
should properly perform the various analytical methods identified herein. The
Recommended Practice gives a brief description of each method only in an effort to help
claimants properly identify the method. That is, different claimants may have differing
nomenclature for the same methodology. In this case, the brief description of each
method is intended to help overcome this situation.
SCHEDULE CLASSIFICATION SYSTEM
TCM
Framework:
This recommended practice (RP) is intended to serve as a guideline, not a standard. As a
recommended practice of AACE International, the intent of the guideline is to improve
the understanding and the communication among stakeholders involved with preparing,
evaluating, and using project schedules. Various enterprises often misinterpret the quality
and value of the information available to prepare schedules and the various methods
employed during the scheduling process. It is understood that each enterprise may have
its own project scheduling processes and terminology, and may classify schedules in their
own particular ways. This guideline provides a generic and generally acceptable
classification system that can be used as a basis of comparison. If an enterprise or
organization has not formally documented its own schedule classification system, then
this RP guideline can be used to provide an acceptable basis.
This recommended practice introduces a schedule classification system, which provides
the guidelines for applying the general principles of schedule classification to project
schedules. A schedule classification system maps the phases and stages of scheduling
with a generic maturity and quality matrix that can be applied across a wide variety of
industries. It is intended to be applied to any schedule in any industry, and across all
stakeholders including government and academia.
A separate recommended practice provides a guideline for describing the specific use of
schedule levels to project schedules. Schedule levels provide the details necessary to
recognize the characteristics of each of the schedule levels for the purposes of
communicating, executing (controlling and monitoring) and reporting the specific details
of the project. Schedule levels consider reporting requirements for each of the
stakeholders and the appropriate amount of information necessary for effective
communication and decisions.
This recommended practice has been developed such that it:
Provides common understanding of the concepts involved with classifying project

schedules regardless of the type of enterprise or industry
Fully defines and correlates the major characteristics used in classifying schedules
so that enterprises may determine how their practices compare to these guidelines
Uses degree of project definition as the primary characteristic to categorize
schedule classes
Reflects generally accepted practices in the cost engineering profession
This classification guideline is intended to help those involved with project schedules to
avoid misinterpretation of the various classes of schedules and to avoid their
misapplication and misrepresentation. Improving communications about schedule
classifications reduces business costs and project cycle times by avoiding inappropriate
business and financial decisions, actions, delays, or disputes caused by
misunderstandings of schedules and what they are expected to represent.
DEVELOPING LOCATION FACTORS BY FACTORING: AS APPLIED IN
ARCHITECTURE, ENGINEERING, PROCUREMENT AND CONSTRUCTION
(Rev. October 19, 2006)
TCM
Framework: 10.4: Project Historical Database Management
This recommended practice provides a generic method of developing location factors in
support of the Total Cost Management (TCM) cost estimating and budgeting and
database management processes for construction related projects. The method applies to
construction projects of all types including buildings, infrastructure, utilities, process
plants, and so on. This generic method provides a basis for users to tailor their own
detailed process around their own needs and computing capabilities. Location factors are
used during preliminary project evaluations (i.e., Class 5 or 4 estimates). They are not
intended to be used when preparing appropriation-quality estimates (i.e., Class 3 or better
estimates).
FORENSIC SCHEDULE ANALYSIS
(Rev. April 25, 2011)
TCM
6.4: Forensic Performance Assessment
Framework:
The purpose of the AACE International Recommended Practice 29R-03 Forensic
Schedule Analysis is to provide a unifying reference of basic technical principles and

guidelines for the application of critical path method (CPM) scheduling in forensic
schedule analysis. In providing this reference, the RP will foster competent schedule
analysis and furnish the industry as whole with the necessary technical information to
categorize and evaluate the varying forensic schedule analysis methods. The RP discusses
certain methods of schedule delay analysis, irrespective of whether these methods have
been deemed acceptable or unacceptable by courts or government boards in various
countries around the globe.
This RP is not intended to establish a standard of practice, nor is it intended to be a
prescriptive document applied without exception. Therefore, a departure from the
recommended protocols should not be automatically treated as an error or a deficiency as
long as such departure is based on a conscious and sound application of schedule analysis
principles. As with any other recommended practice, the RP should be used in
conjunction with professional judgment and knowledge of the subject matter. While the
recommended protocols contained herein are intended to aid the practitioner in creating a
competent work product it may, in some cases, require additional or fewer steps.
IMPLEMENTING PROJECT CONSTRUCTABILITY
(Rev. May 20, 2009)
TCM
11.5: Value Management and Value Improving Practices (VIPs)
Framework:
Constructability is the integration of construction expertise into all phases of the project
to benefit cost, schedule, quality, and overall project objectives. The successful use of
construction knowledge and expertise improves for and probability of project success.
Constructability reviews (CRs) should be conducted at key points in the project life
cycle: in the planning phase, early in the design phase, prior to the procurement phase
and again prior to the mobilization phase for construction. CRs should hold true to the
designer's intent, and the design concept is easiest molded to good constructability early
in the design phase.
Constructability, as addressed in this RP, is applicable to projects in any industry in any
location (e.g., architectural, process plant, transportation, utilities, offshore, etc.) that
include construction work of any scope. In total cost management (TCM),
constructability is one of many value improving practices (VIPs) such as
manufacturability analysis; reliability, availability and maintainability (RAM) analysis;
and so on.[9] Constructability is also useful as a risk management practice that supports
risk mitigation. However, these other VIPs and risk management practices are not
directly included in this RP.
AACE is not the sole or even primary steward of recommended constructability practice;
there are several leading organizations included in the reference section. However,
constructability is a skill and knowledge area of cost engineering because, as a VIP,
constructability practices require the assessment of cost, schedule, risks and other project
attributes for which AACE is the leading organization. This RP highlights the role of cost
engineering in the practice.

This RP will discuss how to implement a constructability program in order to maximize
the positive impact on the project. It also provides project examples illustrating the
success of those properly implemented efforts. Integrating constructability into project
plans can result in better safety, lower costs, better productivity, earlier completion and
start-ups for ultimately better projects.
REVIEWING, VALIDATING, AND DOCUMENTING THE ESTIMATE
(Rev. May 12, 2009)
TCM
Framework:
Scope
This Recommended Practice (RP) of AACE International defines the basic elements of
and provides broad guidelines for the cost estimate review, validation and documentation
process. Estimate review and documentation is a step in the cost estimating and
budgeting process of the Total Cost Management (TCM) Framework. This RP is
applicable to all estimate types for any industry and is intended for those responsible for
and/or participating in an estimate review. Expert knowledge is not required to
understand or use this RP.
Purpose
This RP is intended to provide guidelines (i.e., not a standard) for reviewing, validating
and documenting estimates. Most practitioners would consider these guidelines as good
and reliable practices. It is recommended to consider using these guidelines where
applicable.
Background
Cost estimates typically represent a complex compilation and analysis of input from
many project stakeholders. To ensure the quality of an estimate, budget or bid, a review
process is required to ensure that the estimate meets project and organization
requirements. The project plan typically requires that the cost estimate:
Reflect the project strategy, objectives, scope and risks

Be suitable for a given purpose (e.g., cost analysis, decision making, control,
bidding, etc.)
Address the stakeholders financial and performance requirements
Ensure that all parties agree on and understand the estimates basis, content and
outcome, including the estimates probabilistic characteristics (e.g., range, cost
distribution, etc.).
DETERMINING ACTIVITY DURATIONS

TCM
Framework:
This recommended practice (RP) for Determining Activity Durations is intended to
provide a guideline and a resource, not to establish a standard. As a recommended
practice of AACE International, it provides guidelines for the project scheduler to
determine schedule activity durations and understand the limitations and assumptions
involved in such determination as part of the total cost management (TCM) project
planning, scheduling forecasting, and change management processes (7.2).
This recommended practice provides information about determining the original
durations for activities for developing the project schedule and general considerations
related to the establishment of remaining durations while updating the project schedule.
Specific considerations regarding the topic of establishing the activities remaining
durations for schedule performance assessment are not within the scope of this RP.
Therefore the information presented here generally applies to determining original
activity durations; and general considerations for the establishment of remaining
durations be provided only as appropriate.
This recommended practice offers methods for determining original activity durations
through the analysis of past project data with anticipated future performance data. It also
incorporates an iterative effect-analysis of constraints on activity duration.
BASIS OF ESTIMATE
(Rev. July 28, 2010)
TCM
Framework:
AACE Internationals Total Cost Management (TCM) Framework identifies a basis of
estimate (BOE) document as a required component of a cost estimate. As a
Recommended Practice (RP) of AACE International, the template outlined in the
following sections provides guidelines for the structure and content of a cost basis of
estimate.
In the TCM Framework, the BOE is characterized as the one deliverable that defines the
scope of the project, and ultimately becomes the basis for change management. When
prepared correctly, any person with capital project experience can use the BOE to
understand and assess the estimate, independent of any other supporting documentation.
A well-written BOE achieves those goals by clearly and concisely stating the purpose of
the estimate being prepared (i.e. cost study, project options, funding, etc.), the project
scope, pricing basis, allowances, assumptions, exclusions, cost risks and opportunities,
and any deviations from standard practices. In addition the BOE is a documented record
of pertinent communications that have occurred and agreements that have been made
between the estimator and other project stakeholders.
DEVELOPMENT OF COST ESTIMATE PLANS AS APPLIED IN

INDUSTRIES
(Rev. June 12, 2009)
TCM
Framework:
Purpose
This recommended practice (RP) of AACE International (AACE) is a guideline for
development of cost estimate preparation plans for engineering, procurement and
construction (EPC) projects in the process industries. The purpose of a cost estimate
preparation plan (herein referred to as estimate plan) is to establish and communicate
how the preparation, development, review and approval of the estimate will be
completed.
Background
AACE Internationals Total Cost Management (TCM) Framework section 7.3.2.1 Plan
for Cost Estimating and Budgeting highlights the need to develop estimate plans. This
RP delineates industry specific practices for development of an estimate plan as they are
applied to EPC projects in the process industries. (A future AACE International RP will
provide a guideline for development of a generic cost estimate plan.) Cost estimating in
the hydrocarbon processing industries (e.g.; chemical, refining, petroleum production
facilities, etc.) has evolved to a relatively advanced state over more than four decades of
application. These industries have developed many common practices and identified
industry-specific best practices through benchmarking and knowledge-sharing. The
practices reflected in this document are a result of compiling notes made by industry
practitioners, lessons learned and publicly available documents.
Scope
With reference to the TCM Framework, this document addresses the steps before and
after the Plan for Estimating and Budgeting step to the extent necessary for an effective
estimate plan. This document is primarily focused on estimates prepared for project
sanction purposes of land-based facilities. Typically, project sanction is based on a Class
3 estimate. Estimate plans for other classes of estimates may be adapted from this
document. The basic principles are applicable to all contracting strategies and asset
owner (herein referred to as owner) configurations. For example, contracting strategies
may be in the form of reimbursable engineering with fixed price procurement and
construction and/or EPC alliances, etc. Owner configurations may include self-perform,
partnerships with a named operating company or consortiums responsible for managing
the project/program and so on. Some key principles are:
Preparation of an estimate plan helps to ensure successful estimate completion in

an effective and timely manner.
Engaging key stakeholders in the estimate planning process prior to the start of
the estimate development process, improves the likelihood of meeting estimate
objectives.
The estimate plan defines what information is required from who and when.
An approved estimate plan provides a duly authorized basis to proceed with the
estimating effort, clarifies requirements and responsibilities.
SCHEDULE LEVELS OF DETAIL -- AS APPLIED IN ENGINEERING,

PROCUREMENT AND CONSTRUCTION
(Rev. March 20, 2010)
TCM
Framework:
Purpose
This recommended practice (RP) is intended to serve as a guideline, not a standard for
owners and contractors to establish a common frame of reference and understanding
when describing the level of detail for any construction project schedule. This RP
identifies four schedule formats based on level of detail, and provides descriptions of
schedule levels and the intended use of these schedules by project participants.
Background
This recommended practice provides descriptions of the schedule levels methods with the
intent to improve the understanding and communication among project participants and
stakeholders involved with preparing and using project schedules. This recommended
practice (RP) describes the schedule level methods that are prevalent in the construction
industry today for reporting and communicating project schedule plans, results and
forecast or "to-go" data to respective stakeholders. This RP excludes "turn-around
projects", and does not necessarily apply to line of balance or linear scheduling
applications.
DOCUMENTING THE SCHEDULE BASIS
(Rev. June 18, 2009)
TCM
Framework:
Scope
This recommended practice (RP) provides an outline and describes a format for the
various elements of information that may be included in the schedule basis document.
This RP describes the important elements of schedule information that may be included
to document the basis and assumptions of this project management tool. This
recommended practice includes a checklist in the appendix that can be used to confirm
that all elements of the basis document have been considered. The schedule basis is a
document that defines the basis for the development of the project schedule and assists
the project team and stakeholders in identifying any key elements, issues and special
considerations (assumptions, exclusions, risks/ opportunities, etc.). The project schedule
represents the complete logical time-phased representation of the project plan. The
schedule basis document may accompany the submittal of the project baseline schedule.
The schedule basis further substantiates the confidence and degree of completeness of the
project schedule in order to support change management, reconciliation, and analysis.
This document also doubles as a tool for assisting any personnel who are transitioning
into the project and may be used in claims situations to illustrate a change of scope.
Purpose
This AACE International recommended practice is intended to provide a guideline, not to
establish a standard for documenting the schedule basis for the planning of projects. This
recommended practice is written and intended primarily for use on construction projects
by the project team members and stakeholders involved in the planning and scheduling of
the project work activities. These RP guidelines may be applicable to many other types of
projects. The focus of this recommended practice is on documenting the necessary
elements of the schedule basis. Many project individuals and groups contribute to the
planning and development of the project schedule. By documenting the schedule basis,
the project team captures the coordinated project schedule development process, which is
by nature unique for most construction projects. This improves the final quality and adds
value to the project baseline schedule, which serves as the time management navigation
tool to guide the project team toward successful project completion. The schedule basis
also is an important document used to identify changes during the schedule change
management process.
Background
The requirement to document the basis of the schedule has been an established procedure
for several years with many large corporations, and some federal agencies. This
recommended practice describes the important elements of schedule information that may
be included to document the basis and assumptions of this project management tool.
PROJECT PLANNING - AS APPLIED IN ENGINEERING AND
CONSTRUCTION FOR CAPITAL PROJECTS
(Rev. December 8, 2011)
TCM
3.1 Requirements Elicitation and Analysis
Framework: 3.2 Asset Planning
4.1 Project Implementation
7.1 Project Scope and Execution Strategy 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
8.1 Project Control Plan Implementation
This recommended practice (RP) to project planning provides guidelines developed
primarily for engineering and capital construction projects.
AACE International Recommended Practices are intended to provide guidelines, not to

establish standards. This recommended practice is intended to be a guide for the many
project team members involved in the planning and scheduling of their work process and
can be adapted for any type of project or program where planning is required.
This recommended practice is intended to focus on the elements of project planning:
who, what, where, when, and how. It also focuses on the actions required by members of
the project team in order to translate that planning effort into a useful project plan that
will serve as a management navigation tool to guide the project team to successful project
completion. This RP will focus on the actions required by the engineering and
construction project team AFTER the development of the clients business requirements,
business case, alternatives and assumptions.
CONTINGENCY ESTIMATING: GENERAL PRINCIPLES
(Rev. June 25, 2008)
TCM
7.6: Risk Management
Framework:
Scope
This Recommended Practice (RP) of AACE International defines the expectations,
requirements, and general principles of practice for estimating contingency, reserves and
similar risk funds (as defined in RP 10S-90) and time allowances for project cost and
schedule as part of the overall risk management process (as defined in TCM Framework
Section 7.6). The RP provides a categorization framework and provides a foundation for,
but does not define specific contingency estimating methods that will be covered by other
RPs.
This RP does not address the general risk management "quantification" steps as might be
used for screening or ranking risks in terms of their probability or impact. While the
quantification methods of contingency estimating may be similar to those used for
screening, the application often differs.
Purpose
This RP is intended to provide guidelines (i.e., not a standard) for contingency estimating
that most practitioners would consider to be good practices that can be relied on and that
they would recommend be considered for use where applicable. There is a broad range of
contingency estimating methodologies; this RP will help guide practitioners in
developing or selecting appropriate methods for their situation.
Background
This RP is new. It is based on discussions of the AACE Decision and Risk Management
committee. There is no one best way to quantify risks or to estimate contingency; each
method has its advocates. However, there is general agreement that any recommended
practice should be in accordance with first principles of decision and risk management as
described here.
RISK ANALYSIS AND CONTINGENCY DETERMINATION USING RANGE

ESTIMATING
TCM
7.6: Risk Management
Framework:
Scope
This Recommended Practice (RP) of AACE International describes the process known as
range estimating, a methodology to determine the probability of a cost overrun (or profit
underrun) for any level of estimate and determine the required contingency needed in the
estimate to achieve any desired level of confidence. The process uses range estimating
and Monte Carlo analysis techniques (as defined in RP 10S-90). The RP provides the
necessary guidelines for properly applying range estimating and Monte Carlo analysis to
determine probabilities and contingency in a reliable manner using any of a number of
commercially available risk analysis software packages.
The RP does not recommend any particular software. Rather it describes the factors that
the analyst must consider when using risk analysis software for probability and
contingency determination.
Purpose
This RP is intended to provide guidelines (i.e., not a standard) for risk analysis using
range estimating that most practitioners would consider to be a good practice that can be
relied on and that they would recommend be considered for use where applicable.
This RP is also intended to improve communication as to what the practice called "range
estimating" is. Many of the methods found in industry that are being called this are not in
accordance with this RP. Practitioners should always make sure that when someone uses
the term "range estimating", that they are talking about the same practice recommended
here.
Background
This RP is new. It is based upon the successful efforts of many companies to evaluate
project risk and contingency using the range estimating techniques originally developed
by Michael W. Curran[1,2,3]. Users should be aware that the principles outlined in this
RP must be rigorously followed in order to achieve the desired results. Failure to follow
the RP's recommendations will likely lead to significant misstatements of risk and
opportunities and of the amount of required contingency. In the great majority of cases,
contingency and bottom line uncertainty are understated when the RP's recommendations
are not followed.
It is AACE's recommended practice that whenever the term "risk" is used, that the term's
meaning be clearly defined for the purposes at hand. In range estimating practice as
described in this RP, risk means "an undesirable potential outcome and/or its probability
of occurrence", i.e. "downside uncertainty (a.k.a. threats)." Opportunity, on the other
hand is "a desirable potential outcome and/or its probability of occurrence", i.e, "upside
uncertainty." The range estimating process for risk analysis quantifies the impact of
uncertainty, i.e. "risks + opportunities".
RISK ANALYSIS AND CONTINGENCY DETERMINATION USING
PARAMETRIC ESTIMATING
(May 26, 2011)
TCM
7.6 Risk Management
Framework:
This recommended practice (RP) of AACE International (AACE) defines general
practices and considerations for risk analysis and estimating cost contingency using
parametric methods. Parametric methods are commonly associated with estimating cost
based on design parameters (e.g., capacity, weight, etc.); in this case, the method is used
to estimate contingency based on risk parameters (e.g. level of scope definition, process
complexity, etc.). This RP includes practices for developing the parametric methods and
models (generally empirically-based). Recommended practice 43R-08 provides example
process industry parametric models (including software) [12]. For scheduling
applications, there is less research and reference material available; therefore schedule
duration risk and contingency will be covered in future revisions of the RP.
RISK ANALYSIS AND CONTINGENCY DETERMINATION USING
PARAMETRIC ESTIMATING EXAMPLE MODELS AS APPLIED FOR THE
PROCESS INDUSTRIES
TCM
7.6 Risk Management
Framework:
Click here for Microsoft Excel Example Models for 43R-08

This recommended practice (RP) is an addendum to the RP 42R-08 titled Risk Analysis
and Contingency Determination Using Parametric Estimating. It provides three working
(Microsoft Excel) examples of established, empirically-based process industry models
of the type covered by the base RP; two for cost and one for construction schedule. The
example models are intended as educational and developmental resources; prior to their
use for actual risk analysis and contingency estimating, users must study the reference
source documentation and calibrate and validate the models against their own experience.
This RP summarizes three landmark empirically-based models; the Hackney model,
first presented in John Hackneys 1965 text Control and Management of Capital Projects
(later expanded on in 1992, and now an AACE publication-reprinted 2002), and the later
two RAND models. The RAND cost model is from 1981 research by Edward Merrow
et al. for which Mr. Hackney was a consultant. The RAND construction schedule model
is from 1986 research by Christopher Myers et al. building on the 1981 cost research.
These models posit plausible causal relationships between cost growth (i.e., contingency
usage) and schedule slip and various risk systemic drivers such as the levels of
development of process and project scope information and the level of process
technology. They present similar empirical and quantitative analysis of the reasons for
inaccurate estimates of capital costs and schedule duration and provide tools to improve
assessment of the commercial prospects of projects at early stages of scope development
and/or using advancing technologies. Prior to these models, the literature on the causes of
cost and schedule growth for process plants provided little consensus about the relative
contribution of various risk factors. Therefore, the authors of the source documents
measured the factors and statistically assessed their relative influence on cost and
schedule growth for process plant projects undertaken in North America. The results of
their work had a significant impact on the practice of cost engineering and the evolution
of project management phase-gate scope development systems (i.e., these studies are a
basis of AACEs RP on classification of cost estimates; RP 18R-98).
While this document attempts to summarize the basis of the models, it is highly
recommended that users review the source documents before using the tools as a basis for
their own study or development. Instructions for using the tools themselves are included
in worksheets.
RISK ANALYSIS AND CONTINGENCY DETERMINATION USING EXPECTED
VALUE
TCM
7.6 Risk Management
Framework:
practices and considerations for risk analysis and estimating cost contingency using
expected value methods. This RP applies specifically to using the expected value method
for contingency estimating in the risk management "control" step (i.e., after the risk
mitigation step), not in the earlier risk assessment step where it is used in a somewhat
different manner for risk screening.
SCHEDULING CLAIMS PROTECTION METHODS
(Rev. June 1, 2009)
TCM
8.1: Project Control Plan Implementation
Purpose
This recommended practice (RP) is intended to serve as a guideline, not establish a
standard for schedule claims protection. The RP is intended to provide the scheduling
practitioner with an overview of topics related to schedule delays as well as the various
schedule practices and procedures that should be considered when developing and
managing the project schedule. This RP will explain items to consider when creating and
maintaining a critical path method (CPM) schedule in order to be prepared for potential
delay claims. This RP begins by describing schedule delay terminology and outlining
potential causes and required actions related to schedule delays. The sections following
are related to some of the planning considerations recommended when developing a
project schedule, plus good practices related to the management and control of the
schedule throughout the project.
SCHEDULE CONSTRUCTABILITY REVIEW
(Rev. August 28, 2009)
TCM
Framework: 11.5: Value Management and Value Improving Practices (VIPs)
Purpose
This recommended practice (RP) is intended to serve as a guideline, not establish a
standard for schedule constructability reviews. This recommended practice describes the
schedule constructability review (SCR) process and some of the recommended planning
that should be considered when developing a construction project execution-phase
schedule. This recommended practice includes a suggested review process for the
construction project schedule. This RP was written as a stand alone document however it
can be used as a companion guideline with the AACE Recommended Practice 30R-03
Implementing Project Constructability.
IDENTIFYING THE CRITICAL PATH
(Rev. March 5, 2010)
TCM
Framework: 9.2: Progress and Performance Measurement
10.1: Project Performance Assessment 10.2: Forecasting
Purpose
This recommended practice (RP) for Identifying the Critical Path is intended to serve as a
guideline and a resource, not to establish a standard. As a recommended practice of
AACE International it provides guidelines for the project scheduler when reviewing a
network schedule to be able to determine the critical path and to understand the
limitations and assumptions involved in a critical path assessment. Such a determination
is a part of the total cost management (TCM) project planning, scheduling forecasting,
and change management processes.
TIME IMPACT ANALYSIS: AS APPLIED IN CONSTRUCTION
TCM
10.2: Forecasting
10.3: Change Management
This Recommended Practice for Time Impact Analysis (TIA) is intended to provide a
guideline, not to establish a standard. This recommended practice of AACE International

on TIA provides guidelines for the project scheduler to assess and quantify the effects of
an unplanned event or events on current project completion. While TIAs are usually
performed by a project scheduler and can be applied on a variety of project types, the
practice is generally used as part of the Total Cost Management (TCM) change
management and forecasting processes on construction projects.
SCHEDULE UPDATE REVIEW: AS APPLIED IN ENGINEERING,
PROCUREMENT, AND CONSTRUCTION
(Rev. August 14, 2008)
TCM
9.2: Progress and Performance Measurement
Framework: 10.3: Change Management
This Recommended Practice for Schedule Update Review is intended to provide a
guideline, not to establish a standard. As a recommended practice of AACE International,
this document provides guidelines for the project scheduler to create a professional
schedule update or assess the reasonableness of changes to be made in a schedule due to a
change of project status and progress. This recommended practice is associated with the
Total Cost Management (TCM) progress and performance measurement, and change
management processes on construction projects.
RECOVERY SCHEDULING - AS APPLIED IN ENGINEERING,
PROCUREMENT, AND CONSTRUCTION
TCM
10.2: Forecasting
Framework: 10.3: Change Management
This recommended practice (RP) for recovery scheduling is intended to provide a
this document provides guidelines for the project scheduler to create a professional
recovery schedule or assess the reasonableness of a recovery schedule necessary due to a
change of project status and progress that forecasts late completion.
ANALYZING S-CURVES
10.1: Project Performance Assessment
TCM
Framework:
This recommended practice (RP) for analyzing S-curves is intended to serve as a
analyzing S-curves provides guidelines for stakeholders of a project to evaluate the
current status and trends of a project in a simple graphical format.
S-curves are usually developed by a project scheduler or cost engineer and can be applied
on a variety of project types. The product is generally used as a project management
and/or total cost management (TCM) tool for graphic representation of project
performance.
The RP provides descriptions of S-curves with the intent to improve understanding and
communication among project participants and stakeholders when preparing and
analyzing graphics based upon project schedule information. The RP describes different
types of S-curves that may be generated from a schedule provided the proper information
is loaded into the schedule and the status of the information is maintained throughout the
duration of the project.
COST ESTIMATE CLASSIFICATION SYSTEM - AS APPLIED FOR THE
BUILDING AND GENERAL CONSTRUCTION INDUSTRIES
TCM
Framework:
As a recommended practice of AACE International, the Cost Estimate Classification
System provides guidelines for applying the general principles of estimate classification
to project cost estimates (i.e., cost estimates that are used to evaluate, approve, and/or
fund projects). The Cost Estimate Classification System maps the phases and stages of
project cost estimating together with a generic project scope definition maturity and
quality matrix, which can be applied across a wide variety of construction industries.
This addendum to the generic recommended practice (17R-97) provides guidelines for
applying the principles of estimate classification specifically to project estimates for the
building and general construction industries. It supplements 17R-97 by providing:
a section that further defines classification concepts as they apply to the building
and general construction industries;
a chart that maps the extent and maturity of estimate input information (project
definition deliverables) against the class of estimate.
As with the generic recommended practice, the intent of this addendum is to improve
communications among all of the stakeholders involved with preparing, evaluating, and
using project cost estimates specifically for the building and general construction
industries.
The overall purpose of this recommended practice is to provide the building and general
construction industry definition deliverable maturity matrix which is not provided in
17R-97. It also provides an approximate representation of the relationship of specific
design input data and design deliverable maturity to the estimate accuracy and
methodology used to produce the cost estimate. The estimate accuracy range is driven by
many other variables and risks, so the maturity and quality of the scope definition
available at the time of the estimate is not the sole determinate of accuracy; risk analysis
is required for that purpose.
This document is intended to provide a guideline, not a standard. It is understood that

each enterprise may have its own project and estimating processes and terminology, and
may classify estimates in particular ways. This guideline provides a generic and generally
acceptable classification system for the building and general construction industries that
can be used as a basis to compare against. This addendum should allow each user to
better assess, define, and communicate their own processes and standards in the light of
generally-accepted cost engineering practice.
INTEGRATED COST AND SCHEDULE RISK ANALYSIS USING MONTE
CARLO SIMULATION OF A CPM MODEL
(Rev. June 18, 2011)
TCM
7.6 Risk Management
Framework:
This recommended practice (RP) of AACE International defines the integrated analysis
of schedule and cost risk to estimate the appropriate level of cost and schedule
contingency reserve on projects. The main contribution of this RP is to include the impact
of schedule risk on cost risk and hence on the need for cost contingency reserves.
Additional benefits include the prioritizing of the risks to cost, some of which are risks to
schedule, so that risk mitigation may be conducted in a cost-effective way, scatter
diagrams of time-cost pairs for developing joint targets of time and cost, and probabilistic
cash flow which shows cash flow at different levels of certainty.
The methods presented in the RP are based on integrating the cost estimate with the
project schedule by resource-loading and costing the schedule's activities. The probability
and impact of risks/uncertainties are specified and the risks/uncertainties are linked to the
activities and costs that they affect. Using Monte Carlo techniques one can simulate both
time and cost, permitting the impacts of schedule risk on cost risk to be calculated.
These methods can be used both by the contractor and the owner. The contractor usually
has a more detailed schedule and understanding of resource allocations used to put the
costs into the schedule. The owner may use a more summary schedule and summary
notion of resources, but still is able to put the costs into the schedule at a summary level.
In fact there are many risks to the owner that do not affect the contractor as risks. Also,
the contractor will not know about some of the owner's risk, such as having insufficient
resources. In the case of joint venture owners the JV is often a marriage of convenience
of disparate organizations with risks arising from different goals and methods.
This RP is consistent with the Total Cost Management (TCM) Framework Section 7.6
Risk Management. In particular, the entry in the TCM Section 7.6.2.2 Identify and Assess
Risk Factors, highlights the fundamental "risk factors (or drivers) are events and
conditions that may influence or drive uncertainty (i.e., either opportunities or threats) in
asset or project performance." This RP uses the same approach, starting with the RP
section Simulating Using Risks as Drivers and illustrating the method in the case study.
ESCALATION ESTIMATING PRINCIPLES AND METHODS USING INDICES
(Rev. May 25, 2011)

TCM
Framework: 7.6 Risk Management
This recommended practice (RP) of AACE International defines basic principles and
methodological building blocks for estimating escalation costs using forecasted price or
cost indices. There is a range of definitions of escalation and escalation estimating
methodologies; this RP will help guide practitioners in developing or selecting
appropriate methods for their definitions and situation. Other RPs are expected to cover
methods that do not involve indices, that cover specific examples of fully elaborated
methodologies for specific project situations, technologies, industries, and probabilistic
applications. Also, while the RP discusses the relationships of escalation estimating to
other risk cost accounts (namely contingency and currency exchange), dealing with those
costs is not this RPs focus.
Escalation estimating is an element of both the cost estimating and risk management
processes.
Like other risks escalation is amenable to mitigation, control, etc. However, this RP is
focused on quantification, not on escalation treatment (i.e., how it is addressed through
contracting, bidding, schedule acceleration, hedging, etc.) or control. In terms of cost
estimating, this RP covers practices applicable to all classification of estimates. The
examples in the RP emphasize capital cost estimating, but the principles apply equally to
operating, maintenance and other cost.
DEVELOPMENT OF FACTORED COST ESTIMATES - AS APPLIED IN
INDUSTRIES
(Rev. June 18, 2011)
TCM
Framework:
As identified in the AACE International Recommended Practice No. 18R-97 Cost
Estimate Classification System As Applied in Engineering, Procurement, and
Construction for the Process Industries, the estimating methodology tends to progress
from stochastic or factored to deterministic methods with increase in the level of project
definition.
Factored estimating techniques are proven to be reliable methods in the preparation of
conceptual estimates (Class 5 or 4 based on block flow diagrams (BFDs) or process flow
diagrams (PFDs)) during the feasibility stage in the process industries, and generally
involves simple or complex modeling (or factoring) based on inferred or statistical
relationships between costs and other, usually design related, parameters. The process
industry being equipment-centric and process equipment being the cost driver serves as
the key independent variable in applicable cost estimating relationships.
This recommended practice outlines the common methodologies, techniques and data
used to prepare factored capital cost estimates in the process industries using estimating
techniques such as: capacity factored estimates (CFE), equipment factored estimates
(EFE), and parametric cost estimates. However, it does not cover the development of cost
data and cost estimating relationships used in the estimating process.
All data presented in this document is only for illustrative purposes to demonstrate
principles.
Although the data has been derived from industry sources, it is not intended to be used
for commercial purposes. The user of this document should use current data derived from
other commercial data subscription services or their own project data.
DEVELOPING THE PROJECT CONTROLS PLAN
TCM
8.1 Project Control Plan Implementation
Framework:
This recommended practice is intended to serve as a guideline, not a standard. As a
recommended practice of AACE International, the intent of the guideline is to improve
the communication among stakeholders involved with preparing, evaluating, and using
project controls information. This recommended practice (RP) of AACE International
defines the overall development, implementation and management of a project controls
plan. This deliverable can be included as part of an overall project execution plan (PEP),
or considered a stand alone document that describes specific approaches that each
functional entity will use (engineering, procurement, construction, safety, quality, etc.).
The project controls plan describes specific processes, procedures, tools and systems that
guide and support effective project control. The plan is a narrative or qualitative
representation of the project control process, while the estimate, budget, schedule, etc.
represent the quantitative aspects. Organizations may use this RP to develop a fit-for-use
template as a model document, which is further customized for each specific project.
IDENTIFICATION AND QUALITATIVE ANALYSIS
(Rev. May 11, 2012)
TCM
7.6 Risk Management
Framework:
This recommended practice (RP) of AACE International defines the expectations,
requirements, and practices for identifying and qualitatively analyzing risk drivers as part
of the overall risk management process. It expands on TCM Framework section 7.6.2.2
Risk Assessment, sections a) Risk Identification and b) Qualitative Risk Analysis,
covering common practices and tools such as brainstorming, interviews, and checklists. It
also covers documentation for and the deliverables from the process step (e.g., risk
register). It does not cover quantification of risks or risk treatment planning.
In TCM, the risk management process is applied in the strategic asset management and
project control processes. In the strategic arena, the risk focus tends to be on the state of
the current asset, the business environment, and other issues that differentiate alternative
asset solutions (e.g. varying levels of scope definition). In project control, the risk focus
expands to more specific project conditions, plans, deliverables, and events affecting a
defined project scope while strategic risks remain. This RP is intended to be generic to
either any focus area and any project scope.
Risk identification may require skills and knowledge of behavioral psychology because
methods such as brainstorming and Delphi must deal with participant biases.
This RP is intended to provide guidelines, not a standard, for developing a process to
identify project risks and perform qualitative risk analysis that most practitioners would
consider to be practices that can be relied upon and that they would recommend be
considered for use. It provides a foundation for developing risk treatment plans as
described in RP 63R-11, Risk Treatment. Ideally, the risk management process provides
an opportunity for all stakeholders and contracting parties to work together and manage
project risk for their collective benefit. The implementation of all or part of this RP will
depend on the size and complexity of the project but the basic processes described should
be used in all cases.
This RP outlines the processes and practices but is not a detailed "how-to" in each case.
In that respect it will most benefit those that are new to risk management or to decision
and risk management professionals who want to refresh their knowledge of
recommended practices.
CPM SCHEDULE RISK MODELING AND ANALYSIS: SPECIAL
CONSIDERATIONS
(May 2, 2012)
TCM
7.6 Risk Management
Framework:
This recommended practice (RP) of AACE International defines general practices and
considerations for the various aspects of conducting a project schedule risk analysis using
a critical path method (CPM) network of activities and Monte Carlo methods to estimate
contingency and/or to understand the projects behavior in consideration of risk. This RP
does not present a standalone methodology, but is an extension of other RPs that present
CPM-based approaches to schedule risk analysis and contingency estimating. This RP
discusses key procedural, analytical and interpretive considerations in preparation and
application of a CPM model; considerations that were not covered in the broader
methodological RPs.
A quantitative schedule risk analysis is an important aspect of risk management on a
project. It can help project teams understand how project risks and uncertainty may
impact the project schedule and when key milestones will be achieved. The analysis
should be conducted by a skilled risk analyst. This analysis is typically performed during
project development prior to key approval points, but can also be used during project
execution to assess the current status of the project schedule risks.
Most schedule risk analyses utilize a CPM network as the base tool for conducting a
Monte Carlo type simulation of project schedule variability. The CPM model for risk
analysis must be properly constructed and realistically reflect how the identified risks
may impact the project activities and overall duration. The identified schedule risks may
be linked to the activities in the model in a variety of ways, depending on the software
used and user preference. Regardless of how the risks are linked to activities in the
software, the analysis needs to be based on a comprehensive list of schedule risks and an
understanding of how they may impact the project. Understanding the compromises,
assumptions and basis of the analytical methods and what the resulting schedule risk
analysis means are key to developing appropriate risk treatment plans, contingency
estimates, and making well supported value adding project decisions.
This RP is applicable to any industry or project where the CPM approach is used. It
addresses considerations for risk analysis as they relate to the CPM model and not to any
integration with cost risk analysis.
INTEGRATED COST AND SCHEDULE RISK ANALYSIS AND CONTINGENCY
DETERMINATION USING EXPECTED VALUE
(May 2, 2012)
TCM
7.6 Risk Management
Framework:
practices and considerations for integrated cost and schedule risk analysis and estimating
contingency using expected value methods.
This RP is intended to provide guidelines, not standards, for contingency estimating that
most practitioners would consider to be good practices that can be relied upon and that
would be recommend for use where applicable. There is a range of useful risk analysis
and contingency estimating methodologies; this RP will help guide practitioners in
developing or selecting appropriate methods for their situation.
This RP is an extension of 44R08, Risk Analysis and Contingency Determination
Using Expected Value, that addresses using expected value methods only for cost.
However, integrated cost and schedule methods are generally recommended; this RP for
expected value methods, or 57R09, Integrated Cost and Schedule Risk Analysis Using
MonteCarlo Simulation of a CPM Model, for CPMbased methods.
ESCALATION ESTIMATING USING INDICES AND MONTE CARLO
SIMULATION
(May 2, 2012)
TCM
7.6 Risk Management
Framework:
This recommended practice (RP) of AACE International defines basic principles and
methodological building blocks for estimating escalation using forecasted price or cost
indices while also addressing uncertainty using Monte Carlo simulation. The methods in
this RP are an extension of the principles and methods in RP 58R-10, Escalation
Estimating Principles and Methods Using Indices, from a probabilistic and
scenario/sensitivity viewpoint. This RP will guide practitioners in developing or selecting
appropriate methods for their definitions and situation. While this RP discusses the
relationships of escalation estimating to other risk cost and schedule accounts (namely
contingency), dealing with those cost types is not the focus of this RP. This RP assumes
that practitioners are already familiar with Monte Carlo simulation as typically applied in
spreadsheet applications.
Escalation estimating is an element of both the cost estimating and risk management
processes. Like other risks, escalation is amenable to mitigation, control, etc. However,
this RP is focused on escalation quantification, not on treatment (i.e., how it is addressed
through contracting, bidding, schedule acceleration, hedging, etc.) or control. In terms of
cost estimating, this RP covers practices applicable to all classes of estimates. Escalation
uncertainty is partly driven by schedule risk; therefore this RP also references AACEs
RPs on integrated cost and schedule risk analysis and contingency estimating. The
examples in this RP emphasize capital cost estimating and scheduling, but the principles
apply equally to operating, maintenance and other cost and time evaluations. While a
model such as that covered in this RP could be used for schedule optimization in
consideration of escalation, optimization is not covered here.
As with RP 58R-10, Escalation Estimating Principles and Methods Using Indices, this RP
recommends segregating escalation versus exchange rate impacts and their estimation for
projects with resources priced in currencies other than the base currency.

Recommended Practices As of June 10, 2012

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Details of the AACE RPs at the date of June 10, 2012

COST ENGINEERING TERMINOLOGY

Framework: 7.2: Schedule Planning and Development

'what' work is done.

DEVELOPING ACTIVITY LOGIC

Identify Lost Productivity Estimating Methodologies: That is, survey as many of

certain sets of circumstances some methods are generally considered more

Provides common understanding of the concepts involved with classifying project

Schedule Analysis is to provide a unifying reference of basic technical principles and

engineering in the practice.

Reflect the project strategy, objectives, scope and risks

DETERMINING ACTIVITY DURATIONS

ENGINEERING, PROCUREMENT, AND CONSTRUCTION FOR THE PROCESS

Preparation of an estimate plan helps to ensure successful estimate completion in

SCHEDULE LEVELS OF DETAIL -- AS APPLIED IN ENGINEERING,

AACE International Recommended Practices are intended to provide guidelines, not to

RISK ANALYSIS AND CONTINGENCY DETERMINATION USING RANGE

Click here for Microsoft Excel Example Models for 43R-08

guideline, not to establish a standard. This recommended practice of AACE International

This document is intended to provide a guideline, not a standard. It is understood that

(Rev. May 25, 2011)

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