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COST

SEPTEMBER 2010

ENGINEERING

The AACE International Journal


OF COST ESTIMATION, COST AND SCHEDULE CONTROL,
AND PROJECT MANAGEMENT

IN THIS ISSUE
CERTIFICATION PAPER
Risk Management
A Developing Field of Study and
Application

TECHNICAL ARTICLE
Steel Fabrication Costs in China

PRESIDENTS MESSAGE
Truly International

EXECUTIVE ARTICLE

THE 2010-2011 BOARD OF DIRECTORS

Emotional Fitness at Work


Creating a Positive Workplace

AACE INTERNATIONAL
SECTION AWARDS
AACE INTERNATIONAL
BULLETIN
Section News From
Around the World

RISK MANAGEMENT ISSUE


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

COST

ENGINEERING

ESTABLISHED 1958

The AACE International Journal


OF COST ESTIMATION,
COST AND SCHEDULE CONTROL,
AND PROJECT MANAGEMENT

Headquarters

Vol. 52, No.9/September 2010

209 Prairie Avenue, Suite 100

Managing Editor - Marvin Gelhausen - mgelhausen@aacei.org


Graphic Designer/Editor - Noah Kinderknecht - nkinderknecht@aacei.org

Morgantown, WV 26501
ph: 800.858.COST

fax: 304.291.5728

CONTENTS
Board of Directors ............................3
Presidents Message ..........................3
Executive Article................................6
Professional Services Directory......26
Index to Advertisers ........................26
AACE International Bulletin ........27
2010 Section Awards ......................28
How to Submit Section News........31
In Memoriam ................................31
AACE International Bookstore ......32
2010-2011 Organization Chart ......34
Article Reprints and Permissions ..35
Calendar of Events ........................36

ON THE COVER:
The 2010-2011 AACE International Board of Directors
took their oaths of office at the annual business meeting, which was a part of the Annual Meeting in Atlanta
June 27-30. Names for the individual photos match the
Board of Directors list published on page 3 of this issue.
The current board of directors is also shown on the
cover in a group photo.

Risk ManagementA Developing Field of Study and Application

Alan J. Chilcott, CCE


We are confronted by risk every day, yet we manage our lives with a greater or lesser degree of success by, perhaps subconsciously, taking risk into account. On a major construction project, whether it be at the feasibility
study, budget authorization, bid stage or implementation stage, the question of taking risk into account comes
down to a matter of acting responsibly on behalf of stakeholders, whether they be the investors, the workforce
of the company involved, or any other affected parties. The authors main objective, as one involved in the
training of cost engineers and planners, was to address the issue of risk management from the point of view of
theory, practice and illustrative case studies. This initial study has served to indicate that, while there is substantive agreement on basic principles, there are areas of continuing development requiring further and continuous study in order that the topic can be taught in a clear and applicable manner.

Steel Fabrication Costs in China

18

Stephen ONeill and Limor Rozmarin


As its economy develops, China is moving from the manufacturing of small consumer goods into larger, sophisticated products, such as fabricated structural steel. Contractors bidding on fixed-price contracts rely on
lower quotes for Chinese steel products. However, our case study indicates that the true cost of steel fabrication
in China may not be as low as Chinas basic labor rates suggest, and owners may find themselves paying higher
prices than expected for change orders. A Monte Carlo model was developed to forecast the labor cost of steel
fabrication for a bridge, to compensate the fabricator for change-order work, and to allow the projects management to assess acceleration alternatives. It takes into account current Chinese national and local labor laws,
company benefits, and work schedules. The model results support the use of a two-thirds rule of thumb to
estimate Chinese steel fabrication costs at two-thirds of the US costs. This article is reprinted from the 2010
Transactions..

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

Cost Engineering (ISSN: 0274-9696/10) is published monthly by AACE International, Inc, 209 Prairie Ave., Suite 100, Morgantown, WV 26501 USA. Periodicals postage paid at Morgantown, WV, and at additional mailing office.
POSTMASTER: Send address changes to AACE International; 209 Prairie Ave., Suite 100, Morgantown, WV 26501 USA. Customer #7012359 (APC), Publications Mail Agreement No 40624074, Return undeliverable Canadian addresses
to PO Box 503, RPO West Beaver Creek, Richmond Hill, ON L4B 4R6. Single copies: US$8 members/ US$12 nonmembers (both + shipping), excluding special inserts available to AACE members only. Subscription rates: United States,
US$65/year; all other countries, US$82/year. Overseas airmail delivery is available at US$99. Subscriptions are accepted on an annual-year basis only. Copyright 2009 by AACE International, Inc. All rights reserved. This publication
or any part thereof may not be reproduced in any form without written permission from the publisher. AACE assumes no responsibility for statements and opinions advanced by the contributors to its publications. Views expressed
by them or the editor do not necessarily represent the official position of Cost Engineering, its staff, or AACE International, Inc. Printed in York, PA, USA. Cost Engineering is a refereed journal. All technical articles are subject to
review by a minimum of three experts in the field. To submit a manuscript for peer review, please e-mail it to editor@aacei.org. Cost Engineering is indexed regularly in the Engineering Index., Cambridge Scientific Abstracts, by
EBSCO Publishing, and in the ABI/Inform database. Cost Engineering is available online, via the ProQuest information service; on microform; electronically on CD-ROM and/or magnetic tape from Bell & Howell Information and
Learning, PO Box 1346, Ann Arbor, MI 48106. Photocopy permission: Authorization to photocopy articles herein for internal or personal use, or the internal or personal use of specific clients, is granted by AACE International, Inc.,
provided that the base fee of US$4.00 is paid directly to Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923 USA. Telephone: 978.750.8400. For those organizations that have been granted a photocopy license by
CCC, a separate system of payment has been arranged. The fee code for users of the transactional reporting service is ISSN-0274-9696/02 US$4.00. This permission to photocopy does not extend to any Cost Engineers Notebook,
AACE Recommended Practices supplements, or membership directories published in this magazine and/or special inserts. Payment should be sent directly to CCC. Copying for other than personal or internal reference use without
the express permission of AACE is prohibited. Address requests for permission on bulk orders to the editor. ADVERTISING COPY: Contact Network Media Partners., Executive Plaza 1, 11350 McCormick Road, Suite 900; Hunt Valley,
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and also assume responsibility for any claims arising therefrom made against the publisher. The publisher reserves the right to reject any advertising that is not considered in keeping with the publications mission and standards.
The publisher reserves the right to place the word advertisement with copy which, in the publishers opinion, resembles editorial matter. All advertising accepted for publication in Cost Engineering is limited to subjects that directly
relate to the cost management profession. Current rate card available on request. COST ENGINEERING DEADLINES: Submissions for Cost Engineering must be received at least 7 weeks in advance of the issue date. Send to: Editor,
209 Prairie Ave., Suite 100, Morgantown, WV 26501 USA. Deadlines do not apply to technical papers.

AACE International
Board of Directors
President
Stephen O. Revay, CCC CFCC
Revay and Associates Limited, Canada
403.-777-4900
e-mail: president@aacei.org
President-Elect
Michael R. Nosbisch, CCC PSP
SM&A, CA
949-975-1550
e-mail: preselect@aacei.org
Past President
Mark G. Grotefend, CCC
Jacobs Engineering, WA
425-233-7417
e-mail: pastpres@aacei.org
Vice President-Administration
Alexia A. Nalewaik, CCE MRICS
QS Requin Corporation, CA
213-399-1373
e-mail: vpadmin@aacei.org
Vice President-Finance
John J. Ciccarelli, PE CCE PSP
Deloitte FAS, PA
212-436-2038
e-mail: vpfinance@aacei.org
Vice President-TEC
Ken Cressman, CCC EVP
Environmental Chemical Co, CO
709-219-8526
e-mail: vptec@aacei.org
Vice President-Regions
Andy Padilla, ECCC
505-362-2633
e-mail: vpregions@aacei.org
Director-Region 1
Ginette Basak, P.Eng
Nexen Inc., Canada
403-699-6649
e-mail: dirregion1@aacei.org
Director-Region 2
John C. Livengood, CFCC PSP
ARCADIS, DC
202-669-1360
e-mail: dirregion2@aacei.org
Director-Region 3
Asoka K. Pillai, CCE EVP
Savannah River Remediation, LLC, GA
803-208-0054
e-mail: dirregion3@aacei.org
Director-Region 4
Duane R. Meyer, PE CCE
Hixson, Inc., OH
513-241-1230 x 620
e-mail: dirregion4@aacei.org
Director-Region 5
Martin Darley, CCC FRICS
Turner & Townsend Energy, TX
713-457-9400
e-mail: dirregion5@aacei.org
Director-Region 6
Julie Owen, CCC PSP
Los Angeles County Metropolitan
Transportation Authority, CA
213-922-7313
e-mail: dirregion6@aacei.org
Director-Region 7
Philips Tharakan Mulackal, CCE MRICS
Johnson Controls, Dubai, UAE
+91-476-287-2898
e-mail: dirregion7@aacei.org
Director-Region 8
Tetsuya Yonezawa, CCE
Toyo Engineering Corporation, Japan
+81-47-4541582
e-mail: dirregion8@aacei.org
Executive Director
Dennis G. Stork
304-296-8444
e-mail: dstork@aacei.org

PRESIDENTS MESSAGE
Stephen O. Revay, CCC CFCC, President

Truly

INTERNATIONAL
A
s one of the seven faithful readers of
this column you know that this message was written some time ago. It was
actually written shortly after returning from
our very successful Annual Meeting in Atlanta. Given the economy leading up to the
conference, attendance was spectacular at just
over 700 people.
If you were one of those 700 people you
likely heard our Past President Mark Grotefend read out the names of some of the countries that were represented at our meeting. I
should not have been so impressed as we
have, after all, members in 84 countries. Nevertheless, I was impressed with that list, so I
have decided it to share it with you. The following is the list of countries besides Canada,
my home country, and the US that were represented at our Annual Meeting:

Australia;
Brazil;
Chile;
France;
Gabon;
Germany;
Ghana;
Indonesia;
Iran;
Italy;
Japan;
Korea South;
Malaysia;
Monaco;
Netherlands;
Nigeria;
Norway;
Panama;
Qatar;
Russia;
Saudi Arabia;
Switzerland;
Trinidad and Tobago;
United Arab Emirates;
United Kingdom; and
Venezuela.

As of mid June 2010, almost 25 percent


of our 6,926 members were outside of North
America. Some of our technical documents
have been translated in Chinese, Japanese,

and Russian. We are currently exploring the


possibility of translating our documents into
French. We are most definitely the Association for the Advancement of Cost Engineering International.
There are a number of reasons why we
are reaching so many people world wide. One
reason is, of course, the Associations decision
to allow people to download, for free, the
TCM (Total Cost Management Framework:
An Integrated Approach to Portfolio, Program and Project Management) and the 34
Recommended Practices listed in my July
message. Allowing them to be available is one
thing, but what is much more important is the
quality of the document, and that is where we
shine. There are a number of technical associations that are larger than ours. Where we
stand heads above everyone else is the quality
of our technical products and our certification
program.
One of the consistent comments heard in
Atlanta was the quality of the technical presentations and supporting material. The Technical Board worked hard last year and
continues to work on increasing the quality of
the technical presentations and supporting papers. As part of that effort the Technical Board
will work with the authors to improve the
quality of their material and on site at the Annual Meeting with their presentations. The intent of the Technical Board is not only to
provide our members with better quality, but
also to mentor those who need guidance in
preparing technical material and/or making
presentations.
If you have submitted an abstract for the
Annual Meeting in Anaheim, June 19 to June
22, 2011, make sure you read all the information available on our website about the new
requirements. They are fairly detailed and will
most certainly be useful.
Let me conclude by going full circle and
talk about our Annual Meeting, more specifically, next years at the Disneyland Hotel in
Anaheim, California. The location makes it
ideal to combine the conference with a family
vacation. If schooling permits, have the family
join you during the conference, or if not, at
the end of the conference.
Now is the time to start planning for next

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

year; it promises to be another great meeting with truly exceptional


technical material. One always talks about networking, but in this
case we are talking about the opportunity to meet people from all
over the globe who share common interests.
I would also like to take this opportunity to thank all the sponsors and exhibitors for their participation in our Atlanta meeting.
Your contribution to our conference is one of the key reasons for
its success. I look forward to seeing you again in Anaheim.
Faithful seven, I look forward to also seeing you there, and of
course all the rest of you who may inadvertently have come across
this message.
In closing, I can be reached at president@aacei.org if you wish
to comment favorably (and/or unfavorably) on the services provided
by our Association and/or the direction of our Association.

LEADERSHIP RETREAT
October 2, 2010 at the Magnolia Hotel
Houston, Texas
A Leadership Retreat is planned for October 2, at the Magnolia Hotel in Houston.The retreat is open to the public. For additional information, visit www.aacei.org; or e-mail info@aacei.org;
or call 1-800-858-COST. An online brochure is posted with information on the various sessions and the guest speakers.
Sponsors include DRMcNatty & Associates, Inc., MLM Project Services, Inc., Venters Consulting, LLC., the Women in Project Controls Committee, the Diversity Task Force, Young
Professionals, the Houston Gulf Coast Section, Nevada Section,
and Southern California Section.

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

EXECUTIVE ARTICLE
Barton Goldsmith, Ph.D.

EMOTIONAL FITNESS

AT WORK
CREATING A POSITIVE WORKPLACE

T
1

hese ten tips will help you create and maintain the positive
workplace habits we all want to see and be around.

Recognize your co-workers for their commitment and caring. The number one motivator of people is recognition.
Saying to a teammate that you recognize their efforts to
make your working relationship great is the best motivator you
could give to her or him. Letting someone you love know that
they have added to the team by being their best is one of the
highest compliments you can give. Make sure you get some
for yourself as well.

Share in creating a positive and emotionally comfortable working environment. Satisfaction cannot thrive
in a negative environment. If you have developed a
downer work-style, where no one tries to lift their co-workers
out of the doldrums, it prevents everyone from finding emotional and even physical comfort and that will lower productivity. Keeping it positive helps everyone in the workplace
enjoy their jobs more.

Make your working relationships meaningful strive to


create something worthwhile. Everyone wants to be part
of something greater than they are. Whether its contributing to your company, community, or the world, doing it
as a team will add depth and a sense of higher purpose to your
life. This has the effect of making you feel that being with your
company has helped others.

Be responsible for your actions. If you make a mistake


own up to it sooner rather than later and always do it
completely. This gets it out of the way of your business
relationships and creates greater success because no one has
given the problem time to fester and grow. Problems left unattended have puppies. In other words when you are not responsible for your actions, it creates more problems.

Be accountable for your commitments. When you make


a promise keep it. Not remaining faithful to your word
erodes the trust necessary for a working relationship to
not just stay alive, but to thrive. Once you break your word,
your team mates or customers may have difficulty believing
you will be there for them the next time.

Balance the work and the rewards. Trade off duties with
co-workers every now and then, it will help your teammates feel your respect their contribution. If you get recognized make sure you also recognize the other members of

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

your team even if they didnt do as much as you. Giving them


this respect will help all of you be a tighter, more respectful
and efficient team.

Help each other grow and learn. Encourage co-workers


to take care of themselves by getting educated and working on new projects. People who are not growing do not
feel good about themselves and this will cause them to feel
they are bringing less into the company. When someone feels
less than, they are not able to contribute in a positive manner.

Give your co-workers the opportunity to be their best.


When you know your teammate takes pride in certain
tasks or parts of themselves support her or him in succeeding at those activities. The last thing you want to do is to
make those you work with on a daily basis feel that you dont
respect their efforts. Remember that greatness in any one area
leads to greatness in all areas.

Understand your team members motivation and


stresses. If you know that your teammates have difficulty
talking with the accountant, dealing with the phone
company, or other tasks of the business, take on that responsibility. If they respond to certain forms of communication,
be sure you know how they like to be communicated with and
use those techniques. Trying to motivate someone in the same
way you like to be motivated may not work for him or her. Do
nice things for no reason (for example I keep a few little gifts
stashed so I can give them to team members when they reach
a milestone or have a success.) Greet your team members with
enthusiasm when you see them at the end of the day and add
some spontaneity to the workday with little celebrations.

10

Keep it interesting. Perhaps the most difficult part


of having a deep conversation with someone you
work with on a daily is getting the process started.
Most people open these conversations with little preparation
because they can no longer contain their emotions. When this
happens sometimes things are said that the speaker may regret
afterward. It is wise to think before you talk, especially about
issues that may have an emotional charge, so a little internal
processing beforehand may be your most valuable tool. Processing your feelings before you lay them on your teammate
will help you deliver them in the most appropriate manner,
and will help your issue resolution discussion go much easier.
Once you experience having a positive conversation about a
difficult subject, the next ones will not seem as daunting.

The techniques above are specifically designed to help facilitate the necessary thinking required to produce and maintain
healthy workplace habits. You don't need to use them all, try the
ones that are easiest for you and see how they work. Understanding
the need for feeling satisfied and contributing to that necessity in
your work life will make everyone in the company happier people.
These tips will help you maintain a fulfilling business relationship,
and will prevent your team members from feeling that they cant
get no satisfaction.
ABOUT THE AUTHOR
Award winning psychotherapist, syndicated columnist and
radio host, Barton Goldsmith, Ph.D., is an internationally recognized counselor, author and speaker, who has appeared on and
been interviewed and quoted by all the major television networks,
numerous radio shows as well as national magazines like Cosmopolitan and Family Circle. Since 2002, his weekly column, Emotional Fitness, which is syndicated by Scripps-Howard News
Service, runs in The Ventura County Star, The Chicago SunTimes, The Orange County Register, The Detroit News, The
Cincinnati Post, The San Diego Union-Tribune and over 250
other newspapers giving him a readership in the millions. In addition, his popular monthly business column has appeared in over
200 other publications. Dr. Goldsmith also hosts a weekly radio
show on the most award-winning station in Southern California,
KCLU/NPR, with 80,000 listeners in Los Angeles, Ventura and
Santa Barbara.

Books Available for Review


E-mail editor@aacei.org to volunteer
to write a book review on any of the following:

Construction Project Scheduling


and Control, by Saleh Mubarak, is a
456 page hardcover, is in its second
edition. Published by John Wiley &
Sons, Inc. with a 2010 copyright.
ISBN 978-0-470-50533-5.

Construction Purchasing & Supply


Chain Management, by W.C. Benton Jr., and Linda F. McHenry, is published by McGraw Hill. The 242 page
hard cover has a 2010 copyright.
ISBN: 978-0-07-154885-4.

CPM in Construction Management,


by James J. OBrien and Fredric L.
Plotnick. The 711 page hardcover is
in its seventh edition has a 2010 copyright. ISBN: P/N 978-07-163662-9 of
set 978-0-07-163664-3. Includes CPM
software on CD-ROM.

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

CERTIFICATION PAPER

Risk ManagementA Developing


Field of Study and Application
Alan J. Chilcott, CCE
ABSTRACT: We are confronted by risk every day, yet we manage our lives with a greater or lesser
degree of success by, perhaps subconsciously, taking risk into account. On a major construction
project, whether it be at the feasibility study, budget authorization, bid stage or implementation
stage, the question of taking risk into account comes down to a matter of acting responsibly on
behalf of stakeholders, whether they be the investors, the workforce of the company involved, or
any other affected parties. The authors main objective, as one involved in the training of cost
engineers and planners, was to address the issue of risk management from the point of view of
theory, practice and illustrative case studies. This initial study has served to indicate that, while
there is substantive agreement on basic principles, there are areas of continuing development
requiring further and continuous study in order that the topic can be taught in a clear and applicable manner.
KEY WORDS: Bid, budget, contractors, feasibility study, owners, and risk management

e are confronted by risk every


day, yet we manage our lives
with a greater or lesser degree
of success by, perhaps subconsciously, taking risk into account.
On a major construction project,
whether it be at the feasibility study, budget
authorization, bid stage or implementation
stage the question of taking risk into account comes down to a matter of acting responsibly on behalf of stakeholders,
whether they be the investors, the workforce of the company involved or any other
affected parties.
The authors main objective, as one involved in the training of cost engineers and
planners, was to address the issue of risk
management from the point of view of theory, practice and illustrative case studies.
This initial study has served to indicate that,
while there is substantive agreement on
basic principles, there are areas of continuing development requiring further and continuous study in order that the topic can be
taught in a clear and applicable manner.
It has been observed that, the fact that
project management has been formally
practiced for more than half a century
might lead one to believe that most projects
would be completed within budget, within
schedule, and that the deliverables should
meet all requirements. Although the knowhow to do so exists, project managers still
fail to meet this three dimensional goal
[11]. Many project managers use risks as
an excuse for project failure. If risks were
the cause of failures, then it would be im-

possible to find high risk projects that were


completed on time, within budget, and
that satisfied all requirements, yet, such
projects do exist [11].
Harold Kerzner observes that in the
1980s, reasons for project failure were
quantitative: ineffective - planning, scheduling, estimating, cost control, and projects
being moving targets. During the 1990s,
the view changed to being qualitatively oriented: poor - morale, motivation, human
relations, productivity, and lack of employee commitment. These still hold true,
to some degree today, but the major component of planning failure is inappropriate
or inadequate risk analysis [6].
Risk refers to those dangerous activities
or factors that, if they occur, will increase
the probability that the projects goals of
time, cost, and performance will not be
met.
In the construction industry three
commonly accepted, main goals for the
success of any project are:

Cost to complete within budget.


Time to complete within target
schedule. And,
Performance to meet design output
and all quality criteria [6].

Each of the above must be considered,


but on a specific project, each may have a
different priority. The ranking process in
the risk management plan must therefore
be able to take this into account. For example a project may be schedule driven if

early start up is paramount. A nuclear


waste treatment project may be performance driven as technical failure cannot be
tolerated.
One of the ways of handling risk is by
means of a contingency allowance in the
estimate. Certain risks can be covered by
contingency but there is always a balance
to be struck as too much contingency can
kill a project in terms of the owners feasibility study a showing an inadequate return on investment or the contractors
chance of being awarded the contract being
severely jeopardized.
Definitions
It is appropriate to first define some
terms involved namely risk itself together
with the umbrella term risk management.
Project risk is an uncertain event or
condition that, if it occurs, has a positive or
negative effect on at least one project objective, such as time, cost, scope, or quality
[8].
It should be noted that in this definition the project objectives are considered
to comprise four areas whereas other
sources generally quote three and do not
include scope.
The level of uncertainty associated
with an outcome. In programs/projects
there are typically three components of
risk: - technical, schedule and cost [4.]
A project risk may be defined as any
even that prevents or limits the achievement of your objectives as defined at the
outset of the project and these objectives
may be changed as the project progresses
through the project life cycle [1].
Several definitions of Risk Management have been put forward as follows:
The processes concerned with identifying, analysing, and responding to, uncertainty (throughout the project life cycle). It
includes maximizing the results of positive
events and minimizing the consequences
of adverse events [1].
Risk management is the act or practice of dealing with risk. It includes planning for risk, assessing (identifying and
analysing) risk issues, developing risk handling strategies and monitoring risks to determine how they are changed.[6]
Standards
Apart from the references consulted
there is a very substantial body of information published by various organizations and

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

there are also standards such as [11]:

PMBOK Risk Mgt Process. Project


Management Institute revised the
Guide to the Project Management
Body of Knowledge (PMBOK) in 2004.

Australian/New Zealand Risk Manage- RISK MANAGEMENT PLANNING


The first step for an organization is to
ment Standard AS/NZS 4360 [11].
British Standards Guide to Managing establish a risk management plan and procedure which will define the company polRisk. (BSI), BS 6079-3:2000 [11].
icy. This must be a dynamic process as
improvements should regularly be made

Figure 1 The Risk Management Process


10

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

based on experience and new developments. At this stage the prerequisites in


terms of input data, the process which is to
be used and the personnel who will be involved are all addressed in a formal document.
The prerequisites will vary according to
the phase of the project. This will certainly
include historical data from previous proj- Table 1 Typical Allocation of Numerical Values to Probability of Occurrence
ects and at the implementation phase all of
the usual data involved in project control
such as work breakdown structure, and performance data.
Following the initial planning process,
there are five generally recognized steps in
the risk management process itself. The titles given may vary somewhat, those selected are given below with alternatives in
brackets [1, 11].

Risk Identification a system to ensure all risks are identified.


Risk Analysis (quantification or assessment) a method of comparison and
ranking.
Risk Quantification a qualitative and
then quantitative assessment of the effect of the likely effect on the project.
Risk Mitigation (Response) addressing various ways in which the risk can
be handled. And,
Risk Monitoring and Control - ongoing assessment of success and maintaining continual awareness.

Figure 1 is a representative summary of


the steps involved. Where there are alternatives for the names these are shown in brackets. Included here, for completeness, is the
step of risk management planning itself but
once in place the process involves five steps
with a feed back loop of updating the plan
based on experience.
RISK IDENTIFICATION
Having drawn up the risk management
plan the first step in the actual process is to
identify all of the risks. As in cost estimating, the aim is to identify all of the costs for
the simple reason that otherwise something
vital may be omitted from the estimate, so
it is with risk. The process must be comprehensive. Use must be made of all of the
project information available at the particular phase of the project.
It must also be noted that certain risks
will prevail for the life of the project for
example the external risks such as flood,
earthquake and disease. Other risks will no

Figure 2 Qualitative Risk Analysis Chart

longer apply as the project progresses. For


example ground conditions once all foundations have been completed then the risk
of encountering rock or the need for additional piling no longer exists. Any remaining contingency which may have been
allowed for this becomes potential profit.
The next step is to identify the risks.
Broadly there are two main categories of
risks which may be encountered, business
risks and project risks. A list of possible specific risks under each heading now follows:
AACE International has identified two
basic categories of risk: external and internal
[10], a much abbreviated summary of which
is as follows:

Internal Risks the company can control the occurrence and can mitigate impact.

External Risks the company cannot


control the occurrence but can mitigate the
impact.

Natural hazards: flood; earthquake.


New or revised government regulations: environmental; import/export issues.
Market conditions: state of economy;
customer demand.
Acts of deliberate intent: sabotage; terrorism.
Contractor/vendor performance: quality; claims; bankruptcy.
Financial: currency fluctuations; infla-

tion; cash flow problems.


Legal: contract problems; patent rights.
Technical: new unproven technology.
And,
Disease.

Management problems: lack of policies/procedures; poor definition of


roles; management turnover.
Schedule delays; management problems; unrealistic schedules; labor shortages; poor scope definition; stoppages.
late deliveries; lack of access; labor
shortages.
Cost overruns: management problems
and schedule delays; claims; unrealistic
budget; inadequate procedures.
Technical and quality problems: shortage of experienced design personnel,
new technology; poor design. And,
Soil conditions.

What are the tools used to assist in the


process of identification? As in the case of
estimating and planning, historical data
should play a key part. It is thus vital that
risk has its own section in the Project
Close-out Report. This should contain a

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

11

full account of the history of the project


from initial planning for risk to lessons
learned. The level of specific project information will vary according to the phase but
will include the scope of work, estimates,
schedules. The contract document is considered to be a key in risk management i.e.
responsibilities of owner and contractor
must be clearly defined and thereby risk allocated.
At this stage what is commonly referred
to as a risk register is prepared [8]. This
register records all of the risks identified and
becomes the document which is updated
with the additional information form the
further stages described below.
RISK
ANALYSIS
(ASSESSMENT
/QUANTIFICATION)
Risk analysis involves giving consideration to each of the risks identified and thereafter using structured methods and
procedures in order to rank them so that
they can be reduced to a manageable number for mitigation, monitoring and control.
Various tools and techniques are available comprising of:

brainstorming (appears to be the most


widely used);
structured interviews;
Delphi technique;
document reviews;
information gathering techniques;
Risk checklists;
assumption analysis; and,
diagramming techniques [7].

A fundamental concept is that the magnitude of the risk can be expressed as a combination, or product, of the probability of an
event or situation occurring and the seriousness of its consequence (or impact) if it does
happen, in terms of a negative effect on one
or more of the key project goals of cost,
schedule and performance(Steyn ). Simply
stated:
Risk = Probability x Consequence
The risk analysis step involves gathering
as much information about the risk as possible and making a best possible assessment
of probability of occurrence and level of
consequence or impact. As stated, this must
take into account all three aspects of cost,
schedule and performance.
The following two stages are then involved, the first to rank the risks in order of

12

Figure 3 Potential Cost Savings, Relative to Design Stage [3]

magnitude and the second to quantify the for probability is proposed, see table 1 [11].
For the consequence/level of impact asimpact and make necessary allowances in
pect the following numerical values may be
the cost and schedule.
used [11]:
Qualitative Risk Analysis
In the qualitative analysis one relatively For Cost:
0 No effect on cost;
simple technique uses descriptive words
3 Cost increase < 10 percent;
such as low, moderate and high to de5 Cost increase < 25 percent, but >
scribe both the probability and the conse10 percent;
quence of each risk. A matrix such as that in
7 Cost increase < 50 percent, but >
figure 2 can then be constructed and each
25 percent; and,
risk fitted into the appropriate square [4]. In
10 Cost increase > 50 percent.
this way, the low risks can be eliminated
from further study unless further investigaAlternatively actual values can be used.
tion is considered necessary in particular instances (for example where the basis for
For schedule:
assessment is unsure.
0 No effect on schedule.
In order to help decide into which box
1 Delay of element schedule but no
of the matrix the risk should be placed the
project delay.
following definitions may be used [8].
3 Delay if intermediate milestone,
but no end date delay.
High Risk likely to cause significant,
5
Delay in completion date of < 3
serious, disruption in schedule, increase in
months.
cost, or degradation in performance, even
7 Delay in completion date of < 6
with special attention from the contractor
months but > 3 months.
and close government monitoring.
9 Delay in completion date of < 12
Moderate Risk can cause some dismonths but > 6 months. And,
ruption in schedule, increase in cost or
10 Delay in project of > 12 months.
degradation in performance, but special attention from the contractor and close govAlternatively, percentages can be used.
ernment monitoring can probably
overcome the difficulties.
Non-linear scales may be used for exLow Risk has little potential for causing disruption in schedule, increase in cost ample to ensure that risks with low probaof
occurrence
but
high
or degradation in performance; normal ef- bility
fort from the contractor and normal govern- impact/consequence do not get overlooked.
ment monitoring can probably overcome
Quantitative Risk Analysis
the difficulties.
Having made a qualitative assessment
Alternatively, or as a further refinement, and selected the risks for further consideranumerical values can be applied to both the tion, the aim of this stage is to quantify the
probability and the consequence. The impact in order to determine an estimated
product of these provides an immediate nu- cost or duration which has the required
merical ranking. According to Herman probability of being underrun.
Assuming that a point estimate has
Steyn and his co-authors, in the Australian/New Zealand Standard (Aus- been made for the cost of an item or the
tralian/New Zealand Risk Management schedule duration this cost/duration is subStandard AS/NZS 4360) a five point scale jected to review by relevant experts. Using

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

whatever historical or other data is available


a decision is made as to the minimum
value and maximum value. A view is
then taken of the most likely value which
is then used in the estimate or schedule.
The difference between the original point
value and the most likely value is recorded
as the contingency for that activity.
At this stage statistical analysis, using
proprietary software, may be employed
which, using the minimum, maximum,
and most likely values, as a more sophisticated method of obtaining costs or durations
which will provided any desired probability
of under-run (confidence level). The difference between the point value estimated and
the value required to provide the desired
level of confidence is then the contingency.
In this regard, it is important that the cost
estimate should always be compiled without adding any risk factors (i.e., contingency) [9].
An example of such software is @RISK
which can be used in conjunction with Primavera. Such software uses, among others,
the Monte Carlo technique. The software
then makes use of random sampling to produce probabilities for a range of values. The
user enters the values mentioned above and
runs the software based on a choice of probability distribution curves. Figure 5 shows
one of the typical outputs.
Two types of probability curves are
commonly used, which are shown in figures
3 and 4 [4].
The uniform probability curve (see figure 3) can be used in cases where the range
is known with some certainty, but where the
relative likelihood of a value within the
range is not known, for example in the case
of a conceptual estimate.
The triangular distribution (see figure
4) is the most frequently used shape in project risk assessment
In all of the above case, the shape may
not be uniform around the mean value.
Generally, there is a tendency to be skewed
to the right as there is usually less certainty
about the upper values than the lower.
The other, more useful, form in which
the results can be shown is in terms of cumulative probability. Using such curves
the desired probability of under-run value is
decided upon and the point value of cost or
duration read off from the curve. The difference between this value and the original
expected value is then the contingency required to reduce the risk to the desired probability level. A typical output for a total

Figure 4 Triangular Distribution Curve

project in this form is shown in figure 5 [4].


In figure 5, assuming the point estimate
was $128 million, the probability of underrun is 50 percent. If a probability of underrun of 85 percent is required, then a cost of
$132 million would have to be used. It must
however be remembered that contingency
does not change the accuracy of an estimate, but rather increases the probability of
underrun while decreasing the probability
of overrun [2].
In terms of schedule risk, one of the
dangers of using the critical path method is
that all attention is focused on the critical
path, or those paths which are near to critical. High risk paths may however exist
which are not initially critical or close to
critical. Schedule risk analysis, using statistical techniques, can reveal such situations
and cases where, for example, activities on
the critical path have a narrow range of possible durations, whereas the high risk activities may have a broad range. This is
illustrated in figure 6 [4].
Path A has a small range of likely durations, whereas path B indicates a higher risk
having a wider possible range.
Two activities may have the same average duration, one may be riskier than the
other. Based on their standard deviation.
A brief mention is made here of a more
recent approach, termed critical chain
project scheduling [11]. This approach
recognizes the fact that there is a tendency
to waste any reserves, be it money or time.
Hence, projects can fail even though reserves were built in at the outset.
The principle of this method therefore
is that the baseline schedules with which
the members of the project team are issued
exclude any contingency. The critical
chain method involves the elimination of
deadlines on individual activities and only
the project manager is aware of contingency
which is termed a buffer. Since contingency is not added at activity level the over-

all contingency is reduced. Thus there is


less likelihood for wastage when pooled.
Only the project manager makes commitments on the deadline/delivery dates. Removing the fear of not meeting a deadline
motivates an estimate with no built in contingency. This avoids cumulative contingency being added at different stages and by
different people.
RISK MITIGATION
Risk mitigation is involved with considering ways in which the risks selected from
the risks analysis stage will be responded to
or addressed. There are four generally accepted options (various alternative terminology is used, which is shown in brackets):

avoidance (elimination);
reduction (mitigation);
acceptance; and,
transfer (deflection).

These will now be described more


fully.
Avoidance: Under this heading, sometimes a further alternative is quoted, namely,
prevention. This involves taking steps
which will mean that the risk is no longer
encountered. An example may be to
change a design from a novel, relatively untried piece of machinery, to one for which
a track record has been well established.
Reduction: Here the aim is to reduce
the probability of occurrence and/or impact,
which was assessed in the analysis stage. For
example, it may be decided to purchase a
critical item of equipment from a supplier
who quotes a higher price, but shorter delivery time, in order to reduce the risk of a
schedule delay.
Acceptance: It is accepted that the
event or situation may occur. If considered
necessary a contingency may be allowed in
the estimate. Such cases may be allowances

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

13

for mistakes in design, estimating, rework to


meet quality standards, etc.
Transfer: Transfer all or part of the risk
to a third party. Here there are several options depending on the nature of the risk:
Contract sub contract the work to an
organization with the required expertise and
resources. A comment by the author is made
here regarding this form of transfer of risk. A
rule should be that risks that are impossible
to eliminate or reduce should not be transferred to a third party with a view to this having been a solution without repercussions.
Even if the repercussions are not direct, they
may be indirect, such as a contractor who
takes on such risks going bankrupt which
in itself is a high risk from the point of view
of impact on the project.
Insurance usually statutory for things
such as worker injury/third party claims. Can
also be applied to such risks as equipment
transport. However, it is unlikely that consequential loss would be insured.
Hedging - for possible currency fluctuations hedging can be used where currency is
bought forward at an agreed rate. This cost
should be capable of being established as part
of the cost estimate.
Retention holding a portion of the
contractors payment against performance
Bonding - transferring risk to a bank
but with cost implications which must be included in the estimate
All of the above options will generally
add to the project cost. There is usually
therefore a need to carry out a cost/benefit
analysis. It may be more cost effective to accept all or part of the risk rather than to take
expensive steps to eliminate or transfer.
Harold Kerzner provides some guidelines which may be adopted in terms of evaluating the relative merits of various risk
mitigation techniques which are [6]:
Strategies may be evaluated on following
basis:

Figure 5 Typical Cumulative Probability Result

Can it be feasibly implemented?


What is expected effectiveness?
Is it affordable?
Is time available to develop? And,
What effect will there be on technical
performance?
RISK MONITORING AND CONTROL
The final step is that of monitoring and
control of the identified/assessed risks. This
is an ongoing process which must be applied
throughout the project, similar to that of cost,
schedule, and performance monitoring and
control (i.e., checking actual performance
against the plan and incorporating changes).
The tenets of early detection and prompt remedial action equally apply.
Some of the established systems of
earned value and regular updating of the critical path network will form an integral part
of the information needed in order to specifically monitor risk.
Risk re-assessment should be done as
part of the monthly or quarterly status report.
Some activities will have been completed,
therefore the risk no longer applies. Some
will be partially completed, therefore the risk
is reduced to the work outstanding on that activity. Scope changes must be assessed for
risk at the time of preparation. It may be that
new information has come to light on future

Table 2 An Example of a Typical Risk Monitoring Schedule/Risk Register


14

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

activities which could change the original


risk analysis. The updated assessment of risk
should be part of every status review [4].
APPLICATION
Contractors and Operating Companies
Brief interviews were held with several
companies in the process industry three
contracting organizations and two owner organizations. In each case, the aim was to obtain some insight into current practice
compared to the theory presented in the foregoing sections.
It was found that risk management was
given varying degrees of attention, but that
the principles adopted corresponded to those
summarized in the foregoing sections. Useful input was however obtained which highlighted the need for further investigation and
clarification.
These are summarized as follows:
Risk vs Issue
A point which was stressed by more than
one of the participants was that it is common
to find that practitioners fail to differentiate
between risks and issues. It was stated
that, by definition, issues are events or situations for which occurrence is a certainty,
whereas risks are associated with events or situations which are uncertain. Issues are dealt

with through normal project control procedures, whereas risks must be addressed from
the point of view of their uncertainty.
Examples were provided as follows:
Examples of Risks:
Currency fluctuation.
Late delivery of long lead time equipment.
General strikes, go slow, work to rule.
Poor channels of communication considered as a huge risk.
Communication.
Shortage of personnel with appropriate
skills a major difficulty in the global
project environment.
Communication and cultural issues also a very real issue in todays global
project environment. And,
Lack of trained personnel a major
source of risk in todays world.
Examples of Issues:
Inflation based on historical trends it
is almost 100 percent certain that it will
occur.
Inspection delays, access to worksite
not risks as should be part of the routine
monitoring and control system.
Climatic conditions. And,
Environmental impact.

Figure 6 Variation in Duration

is shown in table 2. The table is simplified,


as the full table provides separate columns
under impact for time, cost, quality, and
safety. Of interest here is that safety is allocated separate consideration over and above
the typical cost, time, and performance objectives.
Risk Analysis Stage
In terms of the matrix used for risk analysis, it was recommended by one of the participants, that in the qualitative risk analysis
step a 5 x 5, rather than a 3 x 3 matrix should
be used to provide a greater spread of results.

within schedule, and meet performance requirements [11].


Mozal Aluminum Smelter [7]
This project comprised the design, procurement and construction of a 250 000 t/a
aluminum smelter in Mozambique on the
east coast of the African continent. Mozambique is a country with very little infrastructure (following a 20 year period of war). The
project was executed in a period of 25
months (vs a 31 month schedule) and was
built below its budget of US $1.3 billion.
The main challenges which involved
risk were:

Norms For Acceptable Probability of Underrun


Differing various views were held on
this, varying from 85 percent to as high as 95
percent (i.e., contingency would be determined on the basis of the selected probability
of underrun). This however is very much dependant on company culture and is project
specific.

Current Trends
Emphasis is now being placed on turning risks into opportunities or positive events.
An example would be where an owner can
purchase materials in bulk across multiple
projects being simultaneously executed. In
terms of risk sharing, there is also a trend to a
more open book situation between owner
and contractor with regard to risk. Risks are
openly discussed and allocated/accepted in
accordance with whoever is considered to be
able to handle most cost effectively. For example, in terms of currency fluctuation, an
owner is far more likely to have the contacts
and expertise to manage this than the contractor, and would accept this risk. This
avoids the contractor having to include significant contingency/or possibly sustain a serious loss which could affect project
performance.

Risk Register
This is generally adopted at completion
(although a different name may be used) as
the means of recording all risks, which have
been identified, and tracking through the
various stages, until the risk is no longer applicable.
A simplified version of such a document

Case Studies
As an illustration of certain of the prin-
ciples advanced above, two examples are
shared from recent projects, information on
which is in the public domain (websites).
The first is an illustration of the point
made in the introduction that high risk projects can be completed within budget and

Another author has made the point that


at the stage of risk identification, one should
not be too prescriptive or selective in what
risks are risks, and what are issues [5]. At
the analysis stage however, the point is made
that if a probability of occurrence of 100 percent is assigned, then it is no longer a risk,
but an issue [5].

Diseases malaria and HIV/AIDS.


Lack of skilled labor.
Government regulations.
Language barriers.
Implementing first world standards of
safety and quality in a third world country. And,
New infrastructure needed road construction/improvement (including clearing of land mines from existing), power
supply, potable water supply, plant water
supply, construction village for expatriates, housing for plant operators.

Steps taken to mitigate these risks, included the following.

Training scheme for locals - US $3.5


million spent - 9 000 jobs created, 5 500
Mozambicans trained (70 percent of
total workforce).
Education and training in AIDS and
malaria prevention.
Steps taken to prevent malaria infection
on site and immediate surroundings
together with clinic/hospital facilities
for treating.

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

15

Opportunities Exploited:
Positive steps where risks managed and
opportunities exploited:
Consortium formed - Owner, EPCM
contractor, Mozambican and South
African government.
Technology proven recently constructed similar project in South Africa,
70 percent of owner/contractor team on
that project were involved on the
Mozambican project.
Low cost/reliable source of electricity
from Cabora Bassa hydro-electric plant.
Agreement with electricity supply company (ESKOM) to link electricity price
to LME aluminum price [12].
Harbor location changed because of
foreseen problem of delays because of
high usage of originally selected harbor
spin off of lower road transport cost.
Site close to harbour for import of raw
material and export of product. And,
Government incentives very low tax
rate
Hanford Waste Treatment Plant [3]
Located in the South Eastern Washington State this project is concerned with the
treatment of radioactive waste material which
is leaking from underground containers.
The project was commenced in the year
2000, and is on-going. From an original
budget of US $4.2 billion, the estimate at
completion is now US $8.77 billion. This is
because of significant scope changes, and the
impact of unproven technology.
Areas of risk stemmed mainly from the
fact that the technology was unproven, and
that the material to be treated is extremely
hazardous. Major reasons for the increase in
predicted cost include the following.

Lack of experience in the field - engineers, suppliers, government departments.


First of a kind project.
Piloting of only part of the full process.
Very difficult and extremely hazardous
technology nuclear waste.
Significant scope changes production
capacity increased, seismic requirement.
And,
Changing regulations

It must be said that this project is indicative of the fact that cost and schedule for projects involving new and unproven technology
cannot be estimated to any degree of accuracy. What may have been a realistic contin-

16

gency of 100 percent or more would probably not provide an acceptable estimate to the
owner.
In the case of a nuclear waste project,
which must implicitly be technology, rather 2.
than cost or schedule driven, and especially
where the specific technology is unproven, it
may be more realistic to state that it will cost 3.
what it will cost and it will take as long as it
takes!
4.
CONCLUSIONS
From this necessarily brief investigation,
it is nevertheless possible to draw some con- 5.
clusions and highlight areas requiring further
investigation. It is evident that risk management is a developing subject, which is receiv- 6.
ing attention from authors and those working
in the project field. From the authors perspective of training of cost engineers, it has
served to highlight the need to carry out a 7.
much more in depth study so that the topic
can be better presented in keeping with latest
developments.
8.
Areas which require further investigation, include the following.

Planning & Control Techniques, 3rd


Edition. PROMATEC International
Ltd, Stratford upon Avon, Cape Town,
South Africa, 1999.
Dysert, Larry. Is Estimate Accuracy an
Oxymoron? Cost Engineering, January
2007.
Hanford
Project

website:
http://www.bechtel.com/PDF/WTP_wri
tten_testimony.pdf.
Humphreys, Gary C. Project Management Using Earned Value. Humphreys
and Associates Inc, 2002.
Kaliprasad, Minnesh, CCE. Proactive
Risk Management, Cost Engineering,
December 2006.
Kerzner, Harold, Project Management,
A Systems Approach to Planning,
Scheduling and Controlling. Wiley &
Sons Inc, 2003.
Mozal Project - website:
http:
http//www.pmi.org/pathfinders/articles/N
02JAN20.pdf.
PMBOK, A Guide to the Project Management Body of Knowledge, Third
Edition, Project Management Institute,
PA, 2004.
The definition or link between risk 9. Reid, Tony, Risk Management Isnt
and opportunity.
That All About the Contract? Project
The difference between risks and isControl, professional journal of the Assues. And,
sociation of Cost Engineers, Vol 45, No.
Possible addition of safety and scope
2, March 2007.
to the three, generally accepted, project 10. Skills and Knowledge of Cost Engigoals of cost, time, and performance,
neering, 5th Edition, AACE Internawhich are the subject of risk analysis.
tional.
11. Steyn, Herman; Gert Basson; Michael
Illustrations From Case Studies
Carruthers, Yvonne du Plessis; Birgit
Projects with numerous high risk eleProzesky-Kuschke; Deon Kruger, Stefan
ments can be successfully accomvan Eck and Krige Visser. Project Manplished, providing that risks are properly
agement - A Multi Disciplinary Apidentified, analysed, responded to, and
proach. FPM Publishing, South Africa,
monitored/controlled (with the proviso
2003.
that the technology is proven).
12. When Politics Kills: Malaria and the
Unproven technology is a key risk and is
DDT
story

website:
virtually impossible to quantify in terms
http://www.cei.org/PDFs/malaria.pdf.
of cost or contingency allowance in an
11. RECOMMENDED READING
estimate. And,
Risk associated with unproven technol- 1. Louw, Wynand, Project Control Tools,
iMEC (Pty) Ltd South Africa2002.
ogy cannot be transferred without reper2.
OBrien, James, J. and Frederic L, Plotcussions.
nick, CPM. Construction ManageACKNOWLEDGMENTS
ment, 5th edition, McGraw Hill, Boston,
The author wishes to register his thanks
1984.
and appreciation to those who gave of their
valuable time to assist with the Contractors ABOUT THE AUTHOR
Alan J. Chilcott, CCE, is a presenter
and Operators section of this article.
with ElPavo Training, in Flintshire, United
Kingdom. He can be contacted by sending
REFERENCES
1. Burke, Rory, Project Management, e-mail to: elpavo@absamail.co.za.

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TECHNICAL ARTICLE

PEER REVIEWED

Steel Fabrication Costs in China


Stephen ONeill and Limor Rozmarin
ABSTRACT: As its economy develops, China is moving from the manufacturing of small consumer
goods into larger, sophisticated products, such as fabricated structural steel. Contractors bidding
on fixed-price contracts rely on lower quotes for Chinese steel products. However, our case study
indicates that the true cost of steel fabrication in China may not be as low as Chinas basic labor
rates suggest, and owners may find themselves paying higher prices than expected for change
orders. A Monte Carlo model was developed to forecast the labor cost of steel fabrication for a
bridge, to compensate the fabricator for change-order work, and to allow the projects management to assess acceleration alternatives. It takes into account current Chinese national and local
labor laws, company benefits, and work schedules. The model results support the use of a twothirds rule of thumb to estimate Chinese steel fabrication costs at two-thirds of the US costs.
This article is reprinted from the 2010 Transactions.
KEY WORDS: Bidding, China, fixed-price contracts, labor rates, and steel fabrication costs

hina is a recognized world leader


in the manufacturing of low-cost
consumer goods. Everywhere in
the developed world, cell phones,
microwave ovens, and washing machines
say, Made in China. China is advancing
into the manufacturing of more
sophisticated products, and experts
indicate that it is only a matter of time
before China becomes a net exporter of
automobiles.
On the surface, China has clear price
advantages. The US Bureau of Labor
Statistics (BLS) reports that the average
Chinese manufacturing worker in
Shanghai was paid $1.87 per hour in 2002,
around 5.8 percent of the cost of the
average US factory worker [1]. In addition
to low wages, China has a seemingly
unlimited supply of labor, a stable political
environment, a large domestic market to
absorb production capacity, access to
seaports to promote trade with other
countries, a favorable foreign capital
investment policy, and less environmental
restrictions than the US.
The artificially low value of the
renminbi (Chinese Yuan) against the
dollar also kept Chinese goods highly
competitive in the world markets. Based on
these advantages, the myth of Chinese
price competitiveness would postulate that
China has a significant price advantage in
structural steel fabrication.
In a case study by the authors of this
article, a US contractor partnered with a
Chinese steel fabricator to win a major
bridge contract in the US. The contractor
cited that the deciding factor in winning

18

the bid was his use of the Chinese


fabricator to reduce costs. However, when
all the factors involved in sourcing steel
from China are considered, the true cost
difference between Chinese and US steel
fabrication is not as great as the Chinese
price competitiveness myth suggests.
After contract award, a Monte Carlo
Chinese Labor Rate Model (CLRM) was
independently developed to determine the
reasonable cost of Chinese labor for
pricing change orders and acceleration
options. Its results were verified against
actual project data. The model describes
the breakdown of Chinese labor costs,
which
include
taxable
earnings,
government social welfare benefits, and
company benefits, and computes the rates
for regular and overtime work. The model
results support a two-thirds rule of thumb
for estimating Chinese steel fabrication
costs. Under this concept, a Chinese steel
fabrication shop rate can be roughly
estimated
as
two-thirds
of
the
corresponding US shop rate.
The Two-Thirds Rule: a Hypothesis
Initially, the prime contractor
suggested pricing the Chinese fabrication
at two-thirds of the US cost. At first glance,
this value seemed too high because of the
common assumption that China is a lowcost manufacturer. However, supporting
this rule of thumb was the fact that at the
time of this study, the cost of steel
fabricated in Asia was typically quoted at
$1,500 per ton, while the cost of steel
fabricated in the US was about $2,500 per
ton. Since the price of the Chinese steel is

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

about 2/3 of the US steel, an initial


hypothesis was made that all the cost
components (materials, labor, and
overhead and profit) are 2/3 of the
comparable cost in the US. If a US shop
rate is $55-$75 per hour, under the twothirds rule, the Chinese shop rate would be
$36-$50 per hour. Since the basic labor
rate in China was presumed to be much
lower than 2/3 of that in the US, in order to
reach a shop rate labor component that is
2/3 of the US, the Chinese government
social welfare benefits and companyprovided benefits must be considerably
higher than the US benefits.
The Case Study
The bridge under consideration
consists of two orthotropic box girder spans,
each approximately 10,000 meters long.
The two spans are connected to a steel
tower by a self-anchoring suspension cable
system. Approximately 97 percent of the
steel in the structure, by weight, is
fabricated in Shanghai, China, and will be
shipped to the US in several voyages.
Methodology
The CLRM was developed as an
independent assessment tool of Chinese
labor rates. The methodology used to
develop the model includes five steps:
research, model construction, simulation,
verification, and revision. The first step was
to research the literature for Chinese labor
practices and cost information. Where the
literature did not identify a particular cost
item in sufficient detail, historical costs
and guidelines from international projects
were obtained. Once sufficient data was
gathered, the model tables and
calculations were developed. A Monte
Carlo simulation was run, and its results
were verified against data obtained from
the fabricator. The model was then refined
by using actual data to resolve anomalies
and add missing components.
The model uses the welder as a
representative trade of the work force
involved in the fabrication, since the work
progress is driven by the welding
operations. While laborers will be cheaper
and supervisors and engineers will be more
expensive than the welder, using the
welder rate was assumed to provide an
overall reasonable estimate of the labor
cost.
The model is based on four tables:
three input tables and an output table. The

input tables include a shift, overtime


multipliers, and hourly rates table (see
table 1), a total compensation components
table (see table 2), and a weekly work
schedule table (see table 3). The total
compensation hourly rate calculations (see
table 4) is the models output table.
The model uses four main cost
categories to calculate the total
compensation
hourly
rate:
the
independent variable the basic hourly
rate, and the dependent variables, namely
additional taxable earnings, government
social welfare benefits, and company
benefits. They are discussed in further
detail later in this article.
Since the model is a simplified
representation of the factors that comprise
the total compensation hourly rate, ranges
were used to fill gaps in the knowledge base
or to account for variability of the cost
component. Data ranges can also provide
flexibility in estimating the cost of labor in
urban areas versus rural areas, and in cities
within China.
The model uses a Monte Carlo
simulation to derive the expected, or mean
total compensation hourly rate. Each
Monte Carlo simulation runs numerous
(typically 1000) iterations. Each iteration
results in a probable hourly rate by
randomly selecting input values from the
probability distributions embedded in the
input tables. The results produce the
probability distribution of welder total
compensation hourly rate (see figure 2).
The entire probability distribution curve
represents 100 percent of the total probable
compensation rates plotted against their
probability of being exceeded.
The model results can be integrated
with other forecasts and actual data to
project the total fabrication cost and to
support management change order and
acceleration decisions. Cost professionals
can use the proposed model to make a
systematic assessment of the cost difference
between
US
and
Chinese-based
fabrication, to make informed purchasing
decisions.
Defining Earnings and Compensation
The CLRM adheres to the definitions
of earnings and compensation used in
the BLS international reports on hourly
compensation costs. Earnings are the
wages or earnings in cash or in-kind that
are paid to the worker [1]. Total earnings
are comprised of a base pay plus additional

Figure 1 Exchange Rates [4]

taxable earnings such as yearly bonuses.


The employee pays taxes on these earnings,
and they form the basis on which the
employer is required to pay government
social welfare benefits on behalf of the
employee. In addition to government
benefits, the Chinese employer typically
provides company benefits to the
employee, such as dormitories and meals.
The term total compensation refers to
the sum of earnings, government social
welfare benefits, and company benefits.

of 150 percent the regular rate, weekend


work at 200 percent, and holiday work at
300 percent. Because of statutory limits on
overtime, the model uses a multiplier of
300 percent for Sunday work, based on the
assumption that workers will need an
additional incentive to pick up an extra
shift.
The basic hourly rate for a welder
working a basic shift was set to $6, based on
information received from the fabricator
and verified by a local representative office
in Shanghai, China. The cost analyst must
use care in defining the basic hourly rate,
as it is usually already composed of one or
more pay components that are unique to
the fabricator. The welder is a well-trained,
highly-paid manufacturing employee. For
comparison, the minimum wage in
Shanghai was $1.14 in 2008 [8].
Table 1 lists the welder basic hourly
rate, as well as the shift and over time
multipliers used in the model. The input
name is the identifier used in the various
calculations in the output table.

Exchange Rates
A recent BLS Chinese compensation
study reports that between 2002 and 2006,
compensation costs in renminbi (RMB) for
urban workers grew by an average of 12
percent per year. In addition, since 2005
the RMB is no longer pegged to the US
dollar, resulting in an even greater increase
in Chinese labor costs when computed in
dollars [2]. For simplicity, the exchange
rate used throughout this article is 7RMB
to $1 (refer to figure 1). The analyst should
take into consideration the effects of the
exchange rate and escalation on the basic Total Compensation Components
The 2002 BLS Manufacturing
hourly rate.
Earnings and Compensation in China
study reports an average hourly
Work Shifts and Hourly Rates
The basic work shift in China is an 8- compensation rate of $1.87 for Shanghai.
hour weekday shift. The model assumes This rate includes the worker earnings
that the worker can be assigned to a regular (basic pay and any additional taxable
shift or a swing shift. A swing shift begins earnings), as well as government social
later in the day and continues into the welfare and company benefits at a rate of
night (e.g. 4 p.m. to midnight) and is 53.8 percent. Government social welfare
estimated to pay a premium of 115 percent benefits have increased over the years [1],
of the basic hourly rate. The model selects and so did the benefits companies must
the expected shift regular or swing by a provide to reduce worker turnover, which
discrete distribution function, and the has been on the rise in China [9]. Our data
corresponding hourly rate is used as the suggests that the total benefits rate is now
basic hourly rate for the model between 64 percent and 105 percent of the
taxable earnings (table 2).
calculations.
Table 2 describes the various
According to the Chinese labor law [6]
weekday overtime should be paid at a rate components that the model applies to the

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

19

basic hourly rate to compute the total


compensation hourly rate. Low and high
ranges are used where uncertainty of the
exact value exists. The ranges should be
narrowed by the analyst as more
information about the fabrication facility is
obtained, as most of the pay components
vary by location and company policy. The
model uses uniform distribution functions
to solve for the expected values. If a most

likely value is known, a triangular


distribution function can be used.
Furthermore, adding correlation will
widen the spread of the results.
The compensation components from
table 2 are composed of the following
categories:

Table 1 Shift, Overtime Multipliers, and Hourly Rates

Table 2 Total Compensation Components


20

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

I. Additional Taxable Earnings


Additional taxable earnings is an
additional income paid to the employee on
top of the basic hourly rate, which
increases the basis on which the employer
pays government social welfare taxes and
company benefits. The additional taxable
earnings are typically comprised of:

Table 3 Weekly Work Schedule

Paid vacation and holidays. China has


10 days of statutory holiday and 11
days of public holidays, for a total of 21
days per year [11]. The model uses 8.4
percent of the basic hourly rate, which
corresponds to 21 days of paid leave.
The technical capability allowance is a
payment to the worker based on
performance
and
for
various
professional certifications earned.
And,
Mid-year and end-of-year bonuses.
Employees receive incentive bonuses
of 3 to 6 average monthly pay, plus
additional bonuses per management
discretion. The model uses a bonus
rate of 25 percent-50 percent of the
basic hourly rate.

II. Government Social Welfare Benefits


In addition to the employees earnings,
the employer is required to pay
government social welfare benefits, on
behalf of the employee, to the national or
local government. Most government social
welfare benefits are paid as a percentage of
a payment base. The employees
payment base is the average monthly salary
of the previous year, and the employer
payment base is the sum of all its employee
payment bases [7]. The payment base is
subject to lower and upper limits that are
beyond the scope of this model.
The model assumes government
benefits payment as a percentage of the
current year earnings, since the fabricator
will ultimately pay taxes based on these
earnings the following year, and needs to
be compensated for these accrued taxes.
Another assumption is that workers are
residents of the province, as the rules vary
for migratory workers. Note that although
the Shanghai government social welfare
benefits rates are known, the sample model

typically uses ranges of national rates so


that the results are applicable to other III. Company Benefits
Chinese employers typically provide
locations in China.
Common social welfare benefits in their employees with additional company
benefits that vary from one company to
China include:
another. Typical fabricator benefits
Medical insurance. Companies include:
typically pay 6 percent medical
insurance [10]. In Shanghai, the Accessorial PensionThis additional
pension is paid by the fabricator to
employer pays 10 percent of its
alleviate employee worries about
payment base as a basic medical
future insufficiency of the public
insurance premium and 2 percent for
social security pension fund.
local additional medical insurance
premium, for a total of 12 percent [7]. Education, Qualifications, and
Certification BenefitsWelders and
Pension. Companies pay between 19
other workers receive various training
percent [4] and 22 percent to an old
courses, some of which are taught by
age pension fund [11]. The pension
outside experts. The fabricator also
rate in Shanghai was 22 percent in
contributes toward engineers post2009.
bachelor and masters degrees at local
Unemployment
insurance.
universities and reimburses employees
Unemployment insurance regulations
for books and technical classes.
require the employer to pay 2 percent
Production
Tools,
of their payroll to an unemployment Small
Consumables,
and
Personal
insurance fund [4].
Protective EquipmentThis is the
Work-related injury insurance. The
cost to the company for small tools,
rate ranges from 0.5 percent in
consumables used in the course of the
Shanghai to 1 percent of the payment
work, and for personal protective
base in other locations [4].
equipment such as hard hats and
Maternity insurance. Similar to the
respirators.
injury insurance, the rate ranges from
0.5 percent in Shanghai to 1 percent Camp and Travel BenefitsWorkers
in China typically live in fabricatorof the payment base in other locations
sponsored dormitories in the vicinity of
[1].
the fabrication facility, and receive a
Housing public fund. Employers and
daily meal allowance. Travel benefits
employees contribute to a housing
include paid transportation to return
public fund. The funds are owned by
home for various holidays and festivals,
the employee himself, who can use
as well as local busses and ferries to
them to buy or rebuild a house for selfbring workers to and from work.
dwelling [12]. Nationally, the rate
Additional benefits include work
varies between 5 percent and 20
clothes, laundry facilities, added
percent [4]. The housing public fund
services during the hot months, and
rate in Shanghai was 5-7 percent in
recreational tours into the nearby city.
2009, which is the range used by the
model.
Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

21

Table 4 Total Compensation Hourly Rate Calculations

The Weekly Work Schedule


Table 3 lists the weekly work schedule
constructed by the model. The Chinese
labor law [6] sets the work day at 8 hours
per day, and no more than 44 hours per
week on average. Because of production
needs, employers can prolong the
permitted work hours after consulting with
the labor unions and the workers. Overtime
is then limited to no more than 1 additional
hour per day (or 3 hours in special cases),
and no more than 36 overtime hours per
month. Workers are guaranteed one day of
rest a week. In reality, many companies get
exemptions from the requirements [4]. A
small sample of project data indicated that
welders work about 20 overtime hours per
month, thus weekday overtime has been
limited to 5 hours per week in the CRLM.
To allow for occasional peak times, if more
than 4 hours of weekday overtime have
been worked, a 50 percent probability of
working an 8-hour Saturday shift has been
included in the model. If a Saturday shift
was worked, a 40 percent probability of
working on Sunday was included as well.
The Total Compensation Hourly Rate
Table 4 calculates the model output:
the total compensation hourly rate. The
various calculations shown use the input
names as listed in tables 1 through 3. The
sample outputs show the results of a single
iteration of the Monte Carlo simulation,
where a regular shift was worked, with 2.5
hours of weekday overtime and no
weekend work. The model uses a fixed

22

weekly shift schedule, i.e., if a swing shift is


selected in table 1, the worker will work
swing shifts the entire week. To compute
the regular weekday pay, the basic hourly
rate of $6 is multiplied by the expected shift
multiplier as selected by the discrete
function (100 percent for regular shift, or
115 percent for swing shift), and by the
corresponding overtime multiplier from
table 1 (100 percent for a weekday shift). A
similar computation is made for the
weekday overtime, Saturday, and Sunday
pay. The four pay components are then
summed, yielding the basic earnings. The
basic earnings are multiplied by the
expected additional taxable earnings rate
calculated in table 2, and the two earning
figures are summed to compute the total
taxable
earnings.
The
expected
government social welfare and company
benefit rates from table 2 are then applied
to the total taxable earnings to compute the
total compensation hourly rate before
markup. Markups will be applied per the
contract specifications, and are thus
outside of the models scope.
Model Results
Figure 2 shows the results of the
Chinese Labor Rate Model (CLRM) for
the welders. The curve shows 100 percent
of the possible rates resulting from the
Monte Carlo simulation, plotted against
their probability of being exceeded. The
expected (mean) total compensation
hourly rate before markup is $21.08. There
is a 90 percent probability of the hourly
labor cost being greater than $17.69 and 10

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

percent probability of it being over $24.89.


Note that although the probability of
exceeding the hourly rate appears to be
zero around $29, there is in fact less than 1
percent chance that the rate will be
exceeded.
It is important to note that the sample
model includes relatively little overtime
work: weekday overtime is limited to
maximum 5 hours per week, and only
about 10 percent of the Saturdays and 4
percent of the Sundays are worked in 8hour shifts. When used to evaluate
acceleration, which includes significant
amounts of overtime, weekend, and
holiday work, the models government
social benefits rates and company benefits
rates should be adjusted down, as some of
the benefits max-out at certain rates, and
certain costs (such as camp and travel) are
fixed and are assumed to be recovered by
the regular 40-hour week rates.
Shop Rates
To determine if the two-thirds rule
hypothesis is indeed applicable to
forecasting Chinese steel fabrication labor
costs, US and Chinese steel fabrication
hourly shop rates were developed (table 5).
The shop rates are composed of a labor
component the total compensation
hourly rate and an overhead and profit
component. A US welder basic hourly rate
of $24 was obtained from BLS data [3], and
a fringe benefits rate of 34 percent was
applied to the basic hourly rate to compute
a total compensation hourly rate of $33. A
total shop rate of about $74 per hour was

obtained from a recent, similar US project.


The overhead and profit of $41 is the
difference between the two rates. For the
Chinese shop, CLRM basic hourly rate
and total compensation hourly rate were
used. The Chinese overhead and profit
figures were estimated based on
information supplied by the fabricator.
Table 5 shows that the estimated
Chinese shop rate components are
approximately
two-thirds
of
the
comparable US shop rates, and that the
two-third rule of thumb can be used as a
starting point to assess Chinese fabrication
costs. Additional data from US and
Chinese shops is necessary to further assess
the reliability of the rule.
Additional International Support Costs
The Chinese shop rate savings are
offset by additional international support
costs that are yet to be fully quantified.
These costs are direct and indirect costs
incurred by the owner and the contractor
due to sourcing the fabrication work to
China. These include:

the weld. This process requires a much


larger fabricator workforce and also
increases the amount of the contractor
and owner inspection staff necessary to
achieve the required quality.
Added Shipping CostsShipping
time from China takes an average of
45 days [5]. The shipping time may
become critical if design changes are
made. Small items such as bolts can
be air freighted at substantial costs, but
larger items must wait for the next
scheduled shipping date or be
reworked in the US upon arrival. The
unloading of overseas marine cargo
can involve longshoremen and other
crafts, which are more expensive than
traditional methods used to transport
domestically-produced
material.
Shipping complete bridge sections
can also be more costly than shipping
raw materials, requiring special
bracings and additional inspections
upon arrival to the construction site.
Communication DifficultiesTimezone differences make it difficult to
reach key personnel to clarify issues,

discuss changes, or report progress.


Shop drawings require translation into
Chinese, and may require translation
to SI units to avoid any confusion.
Additional coordination meetings may
be required to ensure that the shop
drawing nomenclature is fully
understood. Letters and other
correspondence require similar
translation. In addition to the time lag
necessary to translate the documents,
the translated terms have different
connotation in Chinese and English,
resulting
in
confusion
or
misunderstanding. All of these issues
increase the domestic management
effort and costs to coordinate the work
in China, on both the owner and the
contractor side.
Limited Supply of Qualified
WorkersThe
inexhaustible
Chinese labor force is proving to be
another myth, as china is experiencing
a shortage of trained employees [9]
such as qualified welders. In some
cases, the shortfall is made up by
hiring expatriate workers from

Additional
Quality
Control
Fabricators in the US, Europe, and
Japan use sophisticated, automated
one-pass welding machines to achieve
the quality of the weld through the
required depth and length of the weld.
The Chinese process is semiautomated, and includes a first-run
through a machine, followed by
subsequent passes by hand to continue Table 5 US and Chinese Steel Fabrication Estimated Shop Rates

Figure 2 Distribution of Welder Total Compensation Rate before Markup


Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

23

neighboring Asian countries, such as


Japan and Korea, who are paid rates
similar to the US. The owner may pay
for some or all of these added labor
costs when changes to the contract
arise.
These
additional
costs
can
significantly narrow the price advantage
that the Chinese lower labor costs appear
to provide.
Conclusion

ur case study supports the twothirds rule hypothesis that


Chinese costs are roughly two
thirds of US costs for steel fabrication.
While the Chinese basic hourly rate is
about a quarter of the US workers, the
compensation components for Chinese
labor are much larger than in the US.
When additional earnings, government
benefits, and company benefits are added,
the Chinese total compensation hourly
rate increases to as much as two-thirds of
the US rate. The Chinese overhead and
profit base is also approximately two-thirds
of the corresponding US rate. The reason
may lie in the make up of the capital
facilities costs. In both Chinese and US
shops, the specialized equipment for
welding, cutting, and shaping steel is
usually imported from other countries;
thus the cost of that equipment is about the
same for both shops. The main difference
in the capital facilities costs will be the cost
to construct the buildings, and the cost to
maintain the buildings and equipment.
The apparent 33 percent savings
obtained by sourcing fabricated steel from
China is likely to be much smaller when all
the added international support costs are
considered for the base contract. Because
of a lack of pervious experience with largescale steel fabrication in China, an
accurate
predetermined
rate
for
international support costs cannot be
computed at this time. Therefore, a risk of
cost over-run must be added to any
budgetary figure for support costs. Other
Chinese fabrication risk factors that need to
be quantified include the effect of shipping
time on the project schedule, and the risks
inherent in the reduced time to implement
changes. Further analysis is necessary to
assess these additional expenditures so that
the full cost of Chinese fabrication can be
identified.

24

node17256/Node17413/node17427/us
erobject6ai1952.html.
Shanghai Municipal Labor & Social
Security Bureau. March 24, 2008, The
Circular of Adjusting the Minimum
Hourly Wage Rate in Shanghai
Municipality Document No (24) 2008.
Accessed on January 23, 2010
http://www.12333sh.gov.cn/english/rul
es/rule/200812/P02008121059839203
7898.pdf
Unknown Author. March 27, 2006
How Rising Wages Are Changing The
Game In China. BusinessWeek.
Accessed November 24, 2009,
http://www.businessweek.com/magazi
ne/content/06_13/b3977049.htm
REFERENCES
1. Banister, Judith. August 2005 11. Unknown Author. December 22,
2008. Burden on Firms Eased to Save
Manufacturing
Earnings
and
Jobs ChinaDaily.com Accessed June
Compensation in China, Monthly
26, 2009. http://www.chinadaily.com.
Labor Review (August 2005): 22-40.
cn/cndy/2008-12/22/content_
2. Banister, Judith, and Erin Lett.
7326051.htm.
Chinas Manufacturing Employment
and Compensation Costs: 200206. 12. Unknown Author. October 13, 2009.
Employee Statutory and Public
Monthly Labor Review, (April 2009):
Holiday Entitlements Global
30-38.
Comparisons Worldwide Benefit &
3. Bureau of Labor Statistics, United
Employment Guidelines (WBEG)
States Department of Labor, May
Accessed
12
Dec.
2009.
2008 Occupational Employment and
http://www.mercer.com/summary.htm
Wages. Occupational Employment
?idContent=1360620
Statistics. Accessed on January 20,
13. Zong, Kelly, and Matthew McKee
2010 http://www.bls.gov/oes/current/
Employee Insurance Entitlements:
oes514121.htm.
What do employers need to pay?
4. China. Country Commerce Report.
Lehman, Lee & Xu Briefing Papers
Economist Intelligence Unit, New
Series. Accessed on November 23,
York, February 2009.
2009.
5. Engardio, Pete. May 13, 2009, Battling
http://www.lehmanlaw.com/
China on Price BusinessWeek
fileadmin/lehmanlaw_com/
Accessed November 13, 2009.
Publications/Briefing_Paper_Series/
http://www.businessweek.com/
Employee_Insurance_Entitlementsmanaging/content/may2009/ca
What_do_employers_need_to_pay.pdf
6. 20090513_648654.htm.
7. Labor Law of the Peoples Republic
of China 1995. Accessed on ABOUT THE AUTHORS
Stephen ONeill, is with Hatch Mott
November 23, 2009,
MacDonald
of Pleasanton, CA. He can be
http://www.lehmanlaw.com/resourcecontacted
by
sending e-mail to:
centre/laws-and-regulations/labor/
stephen.oneill@hatchmott.com
labor-law-of-the-peoples-republic-ofLimor Rozmarin is with the URS
china-1995.html.
Corporation
of Orinda, CA. She can be
8. Shanghai
Municipal
Peoples
contacted
by
sending e-mail to:
Government. March 28, 2008,
limor_rozmarin@urscorp.com
Decision of Shanghai Municipal
People's
Government
on
the
Amendment of the "Procedures of
Shanghai Municipality on Basic
Medical
Insurance
for
Town
Employees" (Decree No. 92) Accessed
on
January
27,
2010.
http://www.shanghai.gov.cn/shanghai/
The myth of Chinese competitiveness
is that China, with its inexhaustible supply
of low cost labor can beat almost any other 9.
country in terms of price in the
manufacturing sphere. China is highly
competitive in labor intensive, low-end
manufacturing operations, but it is not as
competitive in capital intensive operations,
such as steel fabrication. China is
experiencing a shortage of skilled
employees required for steel fabrication,
and market trends indicate a steady 10.
increase in the cost of Chinese labor,
which
diminish
Chinas
price
competitiveness in these industries.

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

hen new members join AACE


International, an attempt is made
to assign them to a local section. However,
this assignment is not always practical, as some members are not close to a section. These members are usually unassigned or at-large. CyberSection was
established to support all of our at-large or unassigned
membership.
The AACE International CyberSection is now
bringing the section experience to at-large and unassigned AACE International members. The goal of the
CyberSection is to provide an internet based experience for members to communicate, network, and meet
- much like that of a standard section. The CyberSection uses a combination of websites and internet communication tools to accomplish this goal. We are
constantly reviewing and testing new technology to improve. Your participation will help to hone and perfect
these tools and techniques.
For a number of years we have been using Yahoo
Groups to post messages and conduct meetings. As
new, cost-effective tools and support became available,
we moved under the AACE International umbrella and
adopted DimDim as our web conferencing tool.
Web conferencing allows us the ability to host presentations and discussions and to record them for future
viewing. Our CyberSection page, under Regions on
AACE Internationals main website, www.aace.org, has
been recently updated to reflect these new features and
enhancements.
CyberSection meetings are announced by direct email and forum postings. The meetings will be webhosted voice chat, via phone-in and internet voice. We
have the capability to make PowerPoint and PDF

presentations as well as desk-top sharing for


collaboration and roundtable discussions. Our
new communication tool is DimDim which requires
no software installation for participants. Since we do
not have a toll-free phone number, we suggest using a
headset with microphone combination for cost free participation. We have had only partial success using
Vista and FireFox, so we suggest using Internet Explorer 7.
Shortly, we will be contacting the unassigned and
at-large membership with an invitation to join the CyberSection, however, any AACE International member
is welcome to participate. If you have questions, comments, or would like to participate in helping CyberSection; please post at the www.aacei.org forums.
As SuperCost our CyberSection mascot says:
Stop by and say hello.

The AACE International CyberSection was


founded Aug. 23, 1999, as a standing committee reporting to the Vice President-Regions.

Dont have a local section, traveling or on assignment?


Feel free to visit our CyberSection webpage under AACE International Regions:

www.aacei.org/cyber
Sign up for the CyberSection forum and begin the on-line section experience.

PROFESSIONAL SERVICES DIRECTORY

Index to Adver tisers

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Cost Engineering

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ARES Corporation, back cover

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placing an ad in the Cost Engineering journal.
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Exhibit at the 2009 AACE International Meeting in Seattle, WA,
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EcoSys, page 5
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ORACLE/Primavera, inside front cover
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For additional information about the listed advertisers or about advertising with us, please
phone Keith Price at Network Media Partners, (410) 584-1966, or e-mail him at
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26

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

Order your PSP Certification


Study Guide at the
AACE International Bookstore
Visit the AACE International Online Bookstore at

www.aacei.org/bookstore/
The PSP Certification Study Guide
is intended to assist you as one step toward
successful Planning and Scheduling Professional certification. Each chapter contains sample exercises, which test your
knowledge of that chapter's concepts. Additional sample questions are provided in
an appendix.

THE AACE INTERNATIONAL BULLETIN


AACE INTERNATIONAL

SECTION

NEWS

Arizona Section
The Arizona Sections June meeting was at the Kitchells office
in Phoenix, AZ. Ten members and guests enjoyed a presentation
on, How to Prepare Daily Construction Reports, by the guest
speaker, Gordon Aronson, PE, president of Vision Consultants
LLC. Mr. Aronson talked about the legal aspects, purposes, and
content of daily reports for construction projects. He stressed the
importance of preparing the daily reports contemporaneously and
using them as a tool to document, communicate, and manage the
project.
At the conclusion of the presentation, Hannah Schumacher
presented a speakers certificate to Mr. Aronson, thanking him for
his time and contribution to the Arizona Section.
Section members welcomed Evan Bingham, one of the guests
who attended the presentation. Evan is a recent recipient of an
AACE International scholarship. He is a masters student in construction at ASU (Arizona State University). Also, the 2010 local
election results were announced.

Submitted photo

A group of some National Capital Section members are shown in front of


the McDonough Bolyard Peck booth at the Atlanta Annual Meeting. From
left to right are Niyi Lapido, Susan G. Seber, Eric Mortenson, Dan
Melamed, Cristina Sabolcik, and Charlie Bolyard, holding the Industry
Appreciation Award that was awarded to MBP at the Annual Meeting.

Niyi Lapido was presented with this years Outstanding


Woman in Project Controls Award; and
The NCS was also awarded as an Outstanding Section at the
AACE International Annual Meeting.

The National Capital Section is surprised and humbled to be


the recipient of so many awards in a single year! We sincerely hope
to continue our success in the coming year.
The Section is currently finalizing plans to hold meetings,
holiday parties, and other events throughout the 2010-2011 year.
We welcome anyone traveling through the Capital Region to attend our meetings. Anyone can easily find out what is happening
in the National Capital Section since we now have a website. We
fully encourage everyone to check out what is happening at the
National Capital Section at our new website: www.aacei-ncs.org.
Submitted photo

The Arizona Sections newly elected President, Hannah Schumaker, PSP,


presented a speakers certificate to Gordon Aronson, PE, following his presentation at the June 15, Arizona Section meeting.

National Capital Section


At the end of the year, the officers of the National Capital Section (NCS) agreed to continue their roles in planning activities
through the coming year. Many of the officers, as well as other
members of the NCS attended the AACE International Annual
Meeting in Atlanta, At the meeting, several of our members were
presented with awards:

McDonough Bolyard Peck won the AACE International Industry Appreciation Award.
Charlie Bolyard was honored as a Fellow of AACE International,

United Arab Emirate Section


The UAE Section has installed new officers and section board
members. These include: President Ms. Emelyn W. Martinez;VP
Administration, Y.S. Sivaram; Vice President Marketing and Membership, Ahmed Hassan; Vice President Technical, Maged AlHawary; Vice President Regional Affairs, Sony V Kurian; Vice
President Certifications and Examinations, Krishna Kumar; Treasurer, Hanifa Jain Alaudeen; Director Technical, Junaid Ahcom;
Director Certification and Exams, M.I. Mohammed Farzan; Director, Memberships, Vamsi Krishna Kolli; Director Administration (AlAin) Noushadali Kayalmadathil; Director Technical,
(Abudhabi), Sunil Kumar; Director Marketing Charles Fournier;
Director Technical, Syed Irfanullah Hussainy; and Past President,
Philips Tharakan.

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

27

AACE INTERNATIONAL SECTION AWARDS


Section Recognition Awards Scoring Categories Explained - The AACE International Section Recognition Award Program recognizes sections that have
demonstrated excellence in serving their membership and AACE International. Excellence is measured in terms of standards and goals set forth online
and in the Associations vision statement. Awards are presented annually at each Annual Meeting. The Outstanding Section competition has four award
levels: the Presidents Circle Award, 1,500 plus points; Outstanding, 1,000 to 1,499 points; Superior, 700-999; and Excellent, 400 to 699.

28

photo by Marvin Gelhausen

photo by Marvin Gelhausen

The Chinook-Calgary Section has received a Presidents Circle award.


Shown above, Deborah Clark-Shannon receives the award from Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

The Southern California Section has received a Presidents Circle award.


Shown above, Tom Ross, CCC PSP, receives the award from Mike Nosbisch,
CCC PSP, and Mark Grotefend, CCC.

photo by Marvin Gelhausen

photo by Marvin Gelhausen

The Atlanta Section has received an Outstanding Section award. Shown


above, James H. Jay Carson, CCC CEP, receives the award from Mike
Nosbisch, CCC PSP, and Mark Grotefend, CCC.

The Central Savannah River Section has received an Outstanding Section


award. Shown above, Kathlene M. Roberson, EVP, receives the award from
Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

photo by Marvin Gelhausen

photo by Marvin Gelhausen

The East Tennessee Section has received an Outstanding Section award.


Shown above, Joy M. Grubb, EVP, receives the award from Mike Nosbisch,
CCC PSP, and Mark Grotefend, CCC.

The National Capital Section has received an Outstanding Section award.


Shown above, Dan Melamed, CCC, receives the award from Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

photo by Marvin Gelhausen

photo by Marvin Gelhausen

The New Jersey Section has received an Outstanding Section award. Shown
above, Michael Bennink, CCE PSP, receives the award from Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

The San Francisco Section has received an Outstanding Section award.


Shown above, Julie Owen, CCC PSP, receives the award from Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

photo by Marvin Gelhausen

photo by Marvin Gelhausen

The Chicago-Midwest Section has received a Superior Section award.


Shown above, Robert B. Brown, PE, receives the award from Mike Nosbisch,
CCC PSP, and Mark Grotefend, CCC.

The Delaware Valley Section has received a Superior Section award. Shown
above, John Ciccarelli, PE CCE PSP, receives the award from Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

photo by Marvin Gelhausen

photo by Marvin Gelhausen

The Great Lakes Section has received a Superior Section award. Shown
above, James E. Krebs, PE CCE, receives the award from Mike Nosbisch,
CCC PSP, and Mark Grotefend, CCC.

The Metro New York Section has received a Superior Section award. Shown
above, John Ciccarelli, PE CCE PSP, receives the award from Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

29

30

photo by Marvin Gelhausen

photo by Marvin Gelhausen

The Nevada Section has received a Superior Section award. Shown above,
Neil Opfer, CCE CEP PSP, receives the award from Mike Nosbisch, CCC
PSP, and Mark Grotefend, CCC.

The Rattlesnake Mountain Section has received a Superior Section award.


Shown above, Julie Owen, CCC PSP, receives the award from Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

photo by Marvin Gelhausen

photo by Marvin Gelhausen

The St. Louis Section has received a Superior Section award. Shown above,
James E. Krebs, PE CCE, receives the award from Mike Nosbisch, CCC
PSP, and Mark Grotefend, CCC.

The United Arab Emirates Section has received a Superior Section award.
Shown above, Emelyn W. Martinez and Philips Mulackal, CCE, receive
the award from Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

photo by Marvin Gelhausen

photo by Marvin Gelhausen

The Upcountry South Carolina Section has received a Superior Section


award. Shown above, Donald McDonald, PE CCE PSP, receives the award
from Mike Nosbisch, CCC PSP, and Mark Grotefend, CCC.

The Arabian Gulf Section has received an Excellent Section award. Shown
above, Majed Al-Dossary, CCC, and Farouk Khory, CCE receive the award
from Stephen O. Revay, CCC CFCC.

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

HOW TO SUBMIT SECTION NEWS TO THE


COST ENGINEERING JOURNAL
All submissions should be e-mailed to editor@aacei.org.
Information may be included in the body of the e-mail or as an
attachment. Microsoft Word files are the preferred format.
All photos should be sent as PC tiff or jpg files at 300 dpi.
If submitting at only 72 dpi, please send the photo as large as
possible as conversion will reduce its size. Include the names
and titles of each person shown in any photos.
Many times AACE International Sections have been
referred to as chapters. The correct reference should always be
to a Section. AACE International does not have chapters.
Please do not refer to Sections as chapters.
If an event is during the month of publication, it will be
listed as an upcoming event even if members will not receive
their journal in the mail until after the listed event. The
journal goes to press about one months in advance of the issue
date, which is always the first of each month, at which time the
electronic version should be posted.
AACE International reserves the right to edit all
submissions and to refuse to publish any submissions
determined by the editor or executive director to not meet the
standards of the journal.
Anyone with questions on submitting copy or photos may
contact:
Cost Engineering journal Managing Editor:
Marvin Gelhausen
mgelhausen@aacei.org.

US ARMY SUPPORTS MINORITY STUDENTS


FOR CAREERS IN ENGINEERING
Leann Yoder of JETS
This summer, 578 students, in grades 9-12 from throughout the
US, have participated in four-to-six week summer engineering camps
at nine university locations.
For the 25th year, JETS coordinated the US Army Research Office (USARO) funded program, UNITE, designed to engage historically underrepresented and disadvantaged youth in highly rigorous
academic courses and project-based learning to prepare them for engineering majors and careers. UNITE is part of the Army Educational Outreach Program (AEOP), which is comprised of
Army-sponsored research, education, competitions, internships and
practical experiences designed to engage and guide students and
teachers in science, technology, engineering and mathematics
(STEM) education.
The nine universities conducting the 2010 summer programs
were: Florida International University (July 5-July 30); Morgan State
University (July 17-August 7); New Jersey Institute of Technology
(July 6-August 5); New Mexico MESA (May 31-July 30); Savannah
State University (June 27-July 30); Texas Southern University (June
7-July 20); University of Delaware (June 20-July 16); University of Detroit Mercy (July 6-July 30); Xavier University Louisiana (May 31June 25).
Each of the nine programs are structured independently yet all
consist of learning opportunities that give participants the opportunity
to apply their talents in engineering through off-site field work, handson labs, expert lectures, team-based projects, and one-on-one instruction.

IN MEMORIAM
Arthur Stanley Edwards (1925-2004)
Word has been received that AACE International Emeritus member, Arthur S. Edwards, died in 2004. He was a resident
of Caringbah, New South Wales, Australia.
He had become a member of AACE on Dec. 10, 1974, and
was the first and founding member of AACE in Australia and initiated the Victoria Section which later became the Australian Section. It was chartered Jan. 28, 1978. He was also the first Australian
to achieve Certified Cost Engineer certification in 1978. He became an emeritus member in 1991.
In a 1987 letter, Mr. Edwards wrote that, I am and have always been proud of my membership in AACE and I have taken
every opportunity to promote the association throughout Australia.
He also wrote, I look forward to receiving Cost Engineering and
all the other technical data from around the world, which is a direct result of my membership in AACE, and keeps me up to date
in the profession.
His cost engineering and project management career spanned
back to 1954. He had been involved with major resource developments in Australia, including power stations, oil refineries, steel
works projects, aluminum refineries and smelters, chemical plants,
and other heavy engineering construction industry projects. On
these projects, he did a lot of piping work.
From 1954 to 1956, he had been a senior design engineer with
ICIAHZ. From 1956 to 1966, he was a chief estimator with Evans

Deakin Construction of Brisbane, Australia.


From 1966 to 1969, he was a contracts manager
with Wardrope & Carroll Construction and was
responsible for the preparation of all bids, as well
as contract management. From 1969-1971, he
was with Simon Carves Australia as a senior estimating engineer.
His duties included responsibility for control of the estimating staff
and he answered to the chief estimating engineer for the preparation of all bids submitted by the company. From 1971-1973 he was
with Evans Deakin as a chief estimator. He was with the New
South Wales Design and Construction Division and was responsible for all estimating and preparation of bids. In 1974, he was a
senior mechanical estimator in the project estimating department
of Thiess Brothers, a major general contractor in Caringbah, NSW,
Australia. He did the estimating and preparation of bids for projects
involving mechanical piping and structural steel. He retired in
1990, as the principal of his own consultancy firm.
His engineering qualifications were recognized as equivalent
to mechanical engineering certification by the New South Wales
Institute of Technology.
Since Arthurs death, his wife has also died. Information was
pulled from his AACE International file. No other obituary information was available.

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

31

AACE I nternational B ookstore


w w w . a a c e i . o r g
Skills and Knowledge of Cost Engineering, 5th Edition, Revised
Scott J. Amos, Editor, 2007
This updated and expanded guide for fundamentals is an excellent choice
for anyone interested in a concise reference to all aspects of the profession.
The new 5th edition includes 27 chapters on estimating, manufacturing
and operating costs, scheduling, planning progress and cost control, and
much more. This is a very useful book for those studying for the
certification exam. 450 pages
1545-01 paper version US$65.00 member/US$95.00 nonmember
1545-02 CD-ROM US$65.00 member/US$95.00 nonmember

CCC/CCE Certification Study Guide, 3rd Edition


Michael B. Pritchett, CCE, Editor, 2006
The AACE International CCC/CCE Certification Study Guide provides an
all-encompassing reference text to prepare for the exam. The CCC/CCE
Certification Study Guide provides background information on how to
become certified; gives those studying for the certification exam a single
reference text that includes theory, worked problems with answers,
references, and a full discussion of key topics; allows students to maximize
their study time; and provides a concise overview of the fundamentals of cost
and project management.
1820-35 paper version US$65.00 member/US$95.00 nonmember
1820-36 CD-ROM
US$65.00 member/US$95.00 nonmember

Cost Engineers Notebook


This CD-ROM is an important reference for any project or cost
professional. It includes data and procedures related to basic skills
and knowledge that all cost engineers should possess, extensive
material on capital and operating cost estimation, and papers in
four subject areas: cost control, planning and scheduling, project
management, and economic analysis and business planning.
4060-01CD-ROM
US$80.00member/US$120.00 nonmember
AACE International Recommended Practices
(Revised June 23, 2009)
Standard Cost Engineering Terminology; Cost Estimate
Classification System; Estimate Preparation Costs in the Process
Industries; Project Code of Accounts; Required Skills and
Knowledge of a Cost Engineer; Roles and Duties of a Planning and
Scheduling Engineer; Profitability Methods; plus many more.
4060-03 3-ring binder version
US$105.00 member/US$165.00 nonmember
4060-05 CD-ROM
US$85.00 member/US$125.00 nonmember
The Total Cost Management Framework
John K. Hollmann, PE CCE, Editor, 2006
4060-21 paper version US$65.00 member/US$95.00 nonmember
4060-20 CD-ROM US$65.00 member/US$95.00 nonmember

SPECIAL OFFER - Buy Both and Save!


Skills and Knowledge of Cost Engineering, 5th Edition, Revised and
CCC/CCE Certification Study Guide, 3rd Edition Combo
1820-98 US$115.00 member/US$170.00 nonmember
PSP Certification Study Guide, 1st Edition
Peter W. Griesmeyer, Editor, 2008
This study guide is intended to assist you in your study and review of the
overall topics as one step toward successful Planning and Scheduling Professional certification. The outline provides a listing of the terms you should
know & topics for which you should have a good understanding of how to
apply the concepts to solve problems. Each chapter also contains sample exercises, which test your knowledge of that chapter's concepts. Additional sample questions are provided in an appendix.
1820-37 paper version US$65.00 member/US$95.00 nonmember
1820-38 CD-ROM
US$65.00 member/US$95.00 nonmember
EVP Certification Study Guide, 2nd Edition
Ken Cressman, CCC EVP and Gary C. Humphreys, Editors, 2009
This study guide is intended to assist you in your study and review of the
overall topics as one step toward successful Earned Value Professional certification. The outline provides a listing of the terms you should know & topics
for which you should have a good understanding of how to apply the concepts
to solve problems. Each chapter also contains sample exercises, which test
your knowledge of that chapter's concepts.
1820-39 paper version US$65.00 member/US$95.00 nonmember
1820-40 CD-ROM US$65.00 member/US$95.00 nonmember
Cost Engineering
The international journal of cost estimation, cost/schedule control, project management, and total
cost management. Subscriptions are accepted on an annual basis. An automatic benefit of AACE
International membership, also available to nonmembers.
5060-07 US$65.00 (US)/US$82.00 (other countries) Please add US$99.00 for airmail
US$55 electronic subscription - see website for details

AACE International Transactions


2010
Transactions
5220-10
CD-ROM
US$90.00 member
US$115 nonmember

NOW
AVAILABLE

This must-have reference contains presentations featured at


the 2010 Annual Meeting in Atlanta, GA. The CD-ROM is
fully searchable.
2008-2009 Transactions CD-ROM
US$90.00 member/US$110 nonmember
2006-2007 Transactions CD-ROM
US$80.00 member/US$105 nonmember
2000-2005 Transactions (CD-ROM)
US$70.00 member/US$95.00 nonmember - each
1993-1999 Transactions - special price!
US$25.00 member/US$25.00 nonmember - each

The AACE International Professional Practice Guides (PPGs)


(PPGs) are a series of reference CDs
that consists of selected Cost Engineering articles, AACE International
Transaction papers, and other previously published documents to which
AACE has rights.

Price per PPG:


Member Price US$65.00
Non-Member Price US$85.00

Price for the PPG Package,


includes all 20 PPGs:
Member Price US$1005.00
Non-Member Price US$1305.00

PPG#1: Contracts and Claims, 4th Ed.


James G. Zack Jr., Editor, 2008
Covers: Contract Administration; Management of Construction Schedules; Schedule Control; Schedule Float Ownership; Cost Control; Management of Change; Cost Impacts;
Productivity Impacts; Management and Analysis of Delay;
Concurrent Delay Issues; Pricing of Delay; and more.

PPG#2: Risk, 2nd Ed.


Keith D. Brienzo, PE, Editor, 2007
Covers: Dictionary; Capital Investments; Cash Flow; Competitive Bidding; Contingency Analysis; Contracts; Cost Engineering; Currency Rates; Decision Trees; Economic Analysis;
Escalation; Human Factors; Manufacturing; Research & Development; Safety & Health; Schedule; Technological Risk;
and Value Engineering.

PPG#3: Cost Engineering in Aerospace and


Aviation
Sarwar A. Samad, Editor, 1998
Covers: Aerospace and Aviation.

PPG#4: Planning and Scheduling, 2nd Ed.


Trevor X. Crawford, CCC, Editor, 2006
Covers: Planning; Schedule Development; Schedule Management/Control; and Classics.

PPG#5: Earned Value, 2nd Ed.


Robert A. Marshall, Editor, 2007
Covers: Why Use Earned Value?; Basics of Earned Value;
Cost/Schedule Control System Criteria; Actual Physical Percent Complete; Productivity and Earned Value; Earned Value
Reporting; Applications of Earned Value Project Management; and more.

PPG#6: Construction Cost Estimating, 2nd Ed.


Dr. Douglas D. Gransberg, PE CCE, And Carla
Lopez del Puerto, CCC, Editors, 2006
Covers: Recommended Practices; Estimating Theory; Conceptual, Parametric, and Range Estimating; Estimating Factors and Indices; Estimating Material Costs and Quantity
Surveying; Estimating Labor Costs; Estimating Equipment
Costs; Subcontracting Costs; Estimating Overhead and Indirect Costs; Profit, Contingencies, and Mark-Ups; Estimating
International Construction Costs; and more.

PPG#7: Cost Engineering in the Utility Industries, 2nd Ed.


Dennis M. Thompson, Editor, 2007
Covers: Auditing; Cost Estimating; Cost Modeling;
Cost/Schedule Control; Generation Power Plant; Natural Gas
Industry; Nuclear Power Plant; Other Energy Related Topics;
Planning and Scheduling; Project Management; Utility
Rates; and Utility Property Valuation.

PPG#8: Contingency, 2nd Ed.


Kul B. Uppal, PE, Editor, 2005
Covers: General Topics On Contingency; Cost Estimating
and Contingency; Risk Analysis and Contingency; and Other
Related Topics.

PPG #10: Project Delivery Methods, 2nd Ed.


Dr. Douglas D. Gransberg, PE CCE, Tammy L.
McCuen, and Keith Molenaar, Editors, 2008
Covers: Design-Bid-Build (DBB) DBB Estimating, DBB
Scheduling, DBB Project Management; Construction Management (CM) CM Estimating, CM Scheduling, CM Project Management; Design-Build (DB) DB Estimating, DB
Scheduling, DB Project Management; International Project
Delivery; Constructability; and Partnering.

PPG #15: Life-Cycle Cost Analysis


Dr. Douglas D. Gransberg, PE CCE, and Carla
Lopez del Puerto, CCC, Editors, 2007
Covers: Life-Cycle Cost Theory; Life-Cycle Cost Methods, Determining Discount Rate; Estimating Capital Cost of Design
and Construction; Estimating Operating Costs; Estimating Salvage/Residual Value; Estimating Sustainability; Life-Cycle Cost
Risk Analysis; Life -Cycle Cost Case Studies; Life-Cycle Cost
Analysis in the International Context

PPG #16: Cost Engineering in the


Global Environment
Kul B. Uppal, PE, Editor, 2007
Covers: General Topics on International Projects; Applicable
AACE International Recommended Practices; Cost Estimating
Methodology; Risk and Contingency; and Miscellaneous Topics

PPG #17: Public Sector Estimating


Joseph L. Macaluso, CCC, Editor, 2007
Covers: Basis of Estimates; Labor Costs; Overhead and Profit;
Soft Costs; Bid/Estimate Reconciliation; and Change Orders

PPG #18: Green Building


Joseph L. Macaluso, CCC, Editor, 2008

PPG #11: Environmental Remediation, 2nd


Ed.Richard A. Selg, CCE, Editor, 2009
Covers: Environmental Remediation Planning and Scheduling
Methodology; Cost Estimating, Project Controls, Cost Modeling, and Reporting; Contingency Management, Risk Analysis,
and Environmental Regulations; Benchmarking and Lessons
Learned; Economics of Environmental and Waste Management; Cost-Effective Waste Minimization and Pollution Prevention; Design, Construction Practices, and Other Related
Topics.

PPG #12: Construction Project Controls


Dr. Douglas D. Gransberg, PE CCE, and James
E. Koch, Editors, 2002
Covers: Introduction to Construction project Controls; Cost
Control; Schedule Control; Quality Control; Document
Control; Computer Applications; and International Project
Controls

PPG #13: Parametric and Conceptual Estimating, 2nd Ed.


Douglas W. Leo, CCC, Larry R. Dysert, CCC,
and Bruce Elliott, CCC, Editor, 2004
Covers: Parametric/Conceptual Estimating; Classification;
Methodology; Capacity Factoring; Process and Non-Process
Industries; and Systems

PPG #14: Portfolio and Program Management, 2nd Ed.


Randy R. Rapp, PE CCE, Editor, 2007
Covers: Enterprise Management: General Imperatives and Concerns; Asset Requirements Elicitation and Analysis; Asset Planning
and Investment Decision-Making; Asset Performance Assessment
and Change Management; and Program Management.

Covers: Recognition of Affects and Economic Costs on the Environment; Formulating Ways of Addressing Green Building
Strategies and Associated Economic Costs; Specific Green
Building Strategies and Project Costs; Budgeting and Justifying
the Cost of Sustainable Practices; Evaluating Competing Sustainable Strategies: Using Value Engineering; Evaluating Competing Sustainable Strategies: Other Techniques

PPG #19: Leadership and Management


of People
John J. Hannon, CEP, Editor, 2008
Covers: Leadership; Teams; Leadership Roles; Motivation; and
Ethics.

PPG #20: Forensic Schedule Analysis


James G. Zack, Jr., CFCC, Editor, 2008
Covers: Recommended Practice No. 29R-03 Forensic Schedule
Analysis; Synopsis of Recommended Practice; Basics of Schedule
Delay Analysis; MIP-Observational Static Gross; MIP-Observational Static Periodic; MIP-Observational Dynamic Contemporaneous As-Is; MIP-Observational Dynamic Contemporaneous
Split; MIP-Observational Dynamic Modified or Recreated; MIPModeled Additive Single Base; MIP-Modeled Additive Multiple
Base; MIP-Modeled Subtractive Single Simulation; Non-CPM
Schedule Delay Analysis Techniques; General Schedule Analysis
Articles

PPG#21: Cost Engineering in the Process Industries


Kul B. Uppal, PE CEP, Editor, 2009
Covers: General Topics on Process Industries; Cost Estimating Methodology; Project Management; International Projects; Scheduling; Construction Activities; Risk Management;
Project Controls; and Applicable AACE International Recommended Practices.

AACE International Ordering Instructions


All orders must be paid in US or Canadian currency.
All orders must be prepaid.
All orders from countries other than the US or Canada must be paid for
by credit card or wire transfer.
All prices and availability subject to change without notice.
Make checks payable to AACE.
Allow 2 to 3 weeks for delivery.

To order by mail, send to: AACE International, 209 Prairie Ave.,


Suite 100, Morgantown, WV 26501 USA*
To order by phone, simply call 800-858-COST or 304-296-8444.
To order by fax, fax your order to 304-291-5728.*
Visit our secure Online Bookstore! www.aacei.org
*Please call for shipping and handling costs if ordering by mail or fax

Aurora-Edmonton
Bluewater (Sarnia, ON)
Bow River Calgary
Student
British Columbia
Chinook-Calgary
Concordia University
Ft. McMurray
Keystone (Saskatoon)
Montreal
Saskatoon Prairie
Toronto

DIRECTOR-REGION 1
Ginette B. Basak, P.Eng

Scott R. Longworth, CCC,


Chair
Dennis Read Hanks,
PE CCE, Co-Chair

MITTEE

CYBERSECTION COM-

SILVER FOX COMMITTEE


Robert E. Templeton, PE ECCE

NOMINATIONS
Mark G. Grotefend, CCC

AWARDS
Mark G. Grotefend, CCC

PAST PRESIDENT
Mark G. Grotefend, CCC

Baltimore Metro
Central Virginia
Connecticut/Nutmeg
Delaware Valley
Genesee Valley
Metro New York
National Capital
New England-Boston
New Jersey
Niagara Frontier

DIRECTOR-REGION 2
John C. Livengood,
CFCC PSP

INTER-ORGANIZATIONAL LIAISON
To Be Determined

ICEC REPRESENTATIVE
Stephen O. Revay,
CCC CFCC

GOVERNMENT LIAISON
Charles E. Bolyard, Jr.,
PSP CFCC
Osmond F. Belcher, CFCC

MEETINGS COMMITTEE
Trevor X. Crawford, CCC

PRESIDENT-ELECT
Michael R. Nosbisch,
CCC PSP

Alabama
Atlanta Area
Catawba Valley (Charlotte, NC)
Central Savannah River
East Tennessee
Emerald Coast
Greater Miami
North Carolina
(Raleigh-Durham)
North Florida
Palm Beaches &
Treasure Coast
Southern Polytech
State University
Tennessee Valley
Upcountry South
Carolina

DIRECTOR-REGION 3
Asoka K. Pillai, CCE EVP

DIRECTOR-REGION 4
Duane R. Meyer,
PE CCC
Chicago-Midwest
Great Lakes
Greater New Orleans
Kansas City
Northeast Ohio
Northern West Virginia
Pittsburgh
Southwestern Ohio
St. Louis
Tri-States
Wisconsin

YOUNG PROFESSIONALS
TASK FORCE
Tanner J. Courrier CCT,
Chair
M. Rendy Tendean CCT,
Co-Chair

DIVERSITY TASK FORCE


Logan Anjaneyulu,
CEP PSP, Chair
Krishna K. Shrivastava,
Co-Chair

WOMEN IN PROJECT
CONTROLS COMMITTEE
Kristy Kastner, PSP, Chair
Carla Thomas-Baksh CCT,
Co-Chair

V.P.-REGIONS
Andy Padilla, ECCC

Central Texas
Dallas-Fort Worth
Houston-Gulf Coast
New Mexico
Oklahoma
Palo Duro Canyon
Rocky Mountain
Valle Grande (NM)

DIRECTOR-REGION 5
Martin Darley, CCC
FRICS

TECHNICAL BOARD
Larry R. Dysert, CCC CEP

Alaska
Arizona
Capital California
Cascade
Hawaii
Idaho Snake River
Nevada
Rattlesnake Mountain
San Francisco Bay Area
Seattle
South Central California
Southern California
Spokane

DIRECTOR-REGION 6
Julie Owen, CCC PSP

EDUCATION BOARD
Peter W. Griesmeyer

GAPPS
Patrick R. Haggerty, CCC

CONSTITUTION AND
BYLAWS
Douglas W. Leo, CCC CEP
ADMISSIONS
Donald F. McDonald, Jr.,
PE CCE PSP

V.P.-FINANCE
John J. Cicarelli,
PE CCE PSP

V.P.-ADMINISTRATION
Alexia A. Nalewaik, CCE
MRICS

Stephen O. Revay, CCC CFCC

PRESIDENT

Arabian Gulf
Central India
Greater Cairo
Greater Russia
Jordan
Kuwait
Moscow
Nigeria
North India
Norway
Pakistan
South India
Southern African
Sudan
Ukraine-Chornobyl
United Arab Emirates

DIRECTOR-REGION 7
Philips Tharakan,
CCE EVP MRICS

Tim Boatwright, EVP

TIVES

CESB REPRESENTA-

CERTIFICATION EXAM
ADVISORY GROUP
Valerie G. Venters, CCC
M. Steven Franklin, CCE
George A. Whyle,
CEP EVP

John K. Hollmann, PE CCE CEP

AGEMENT

DECISION & RISK MANCERTIFICATION


TASK FORCE

CERTIFICATION BOARD
Valerie G. Venters,
CCC, Chair
William E. Bill Kraus
PE CCE, Co-Chair

V.P.-TEC
Ken Cressman, CCC EVP

Australian
Caribbean
Japan
Korea
Malaysia
Puerto Rico

DIRECTOR-REGION 8
Tetsuya Yonezawa, CCE

C3PM CERTIFICATION
BOARD
Patrick R. Haggerty, CCC

Madhu P. Pillai, CCC

INTERNATIONAL
MARKETING COMMIITTEE

Ronald M. Winter, PSP

NORTH AMERICAN
MARKETING COMMIITTEE

EXECUTIVE DIRECTOR
Dennis G. Stork

2010-2011 AACE International Organization Chart

ARTICLE REPRINTS AND PERMISSIONS


Cost Engineering Journal, Volume 52/Number 9, September 2010

Readers of the Cost Engineering


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

Pages 9-16

Pre-Construction Management by the Independent Cost Engineer


Alan J. Chilcott, CCE
We are confronted by risk every day, yet we manage our lives with a greater or lesser degree of success
by, perhaps subconsciously, taking risk into account. On a major construction project, whether it be at the
feasibility study, budget authorization, bid stage or implementation stage, the question of taking risk into
account comes down to a matter of acting responsibly on behalf of stakeholders, whether they be the investors, the workforce of the company involved, or any other affected parties. The authors main objective,
as one involved in the training of cost engineers and planners, was to address the issue of risk management
from the point of view of theory, practice and illustrative case studies. This initial study has served to indicate
that, while there is substantive agreement on basic principles, there are areas of continuing development
requiring further and continuous study in order that the topic can be taught in a clear and applicable manner.

Reprint 21750
Pages 18-24

Steel Fabrication Costs in China


Stephen ONeill and Limor Rozmarin
As its economy develops, China is moving from the manufacturing of small consumer goods into
larger, sophisticated products, such as fabricated structural steel. Contractors bidding on fixed-price contracts
rely on lower quotes for Chinese steel products. However, our case study indicates that the true cost of steel
fabrication in China may not be as low as Chinas basic labor rates suggest, and owners may find themselves
paying higher prices than expected for change orders. A Monte Carlo model was developed to forecast the
labor cost of steel fabrication for a bridge, to compensate the fabricator for change-order work, and to allow
the projects management to assess acceleration alternatives. It takes into account current Chinese national
and local labor laws, company benefits, and work schedules. The model results support the use of a twothirds rule of thumb to estimate Chinese steel fabrication costs at two-thirds of the US costs. This article is
reprinted from the 2010 Transactions..

Reprint 21751

For Information On Other Reuse Requests


If you are seeking permission to
copy, quote, or translate into another
language any material from any issue of
the Cost Engineering journal, please
contact our Managing Editor, Marvin
Gelhausen at mgelhausen@aacei.org

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

35

CALENDAR OF EVENTS
Vancouver Convention Centre
British Columbia, Canada

October 2010
2 Leadership Retreat,
AACE Internationals Women in Project
Controls Committee and the Houston
Gulf Coast Section of AACE International
Magnolia Hotel
Houston, TX
Contact: phone 1-800-858-COST
fax (304) 291-5728
info@aacei.org
www.aacei.org

3-5 CMAAs National Conference and


Tradeshow,
Construction Management Association of
America (CMAA)
Manchester Grand Hyatt
San Diego, CA
Contact: www.cmaanet.org

November 2010
12-18 2010 ASME International
Mechanical Engineering Congress,
the American Society of Mechanical
Engineers (ASME)

Contact: www.asme.org

February 2011
2-6 50th Annual Western Winter
Workshop, AACE International
San Fransisco Bay Area Sector
Pebble Beach Resort
Pebble Beach, CA
Contact: John Haynes, PSP
phone 925-913-7541
johnhaynes@hillintl.net
www.aacei.org/regions/2011www

June 2011
16-19 AACE International Education
Seminars, AACE International
Disneyland Hotel
Anaheim, CA
Contact: phone 1-800-858-COST
fax (304) 291-5728
info@aacei.org
www.aacei.org

19-22 AACE Internationals


55th Annual Meeting,
AACE International
Disneyland Hotel
Anaheim, CA
Contact: phone 1-800-858-COST
fax (304) 291-5728
info@aacei.org
www.aacei.org

23-24 AACE International Education


Seminars, AACE International
Disneyland Hotel
Anaheim, CA
Contact: phone 1-800-858-COST
fax (304) 291-5728
info@aacei.org
www.aacei.org
Editors Note: Please submit items for future calendar listings at least 60 days in
advance of desired publication.

WOULD YOU LIKE YOUR PROJECT OR SECTION ACTIVITY


FEATURED ON THE COVER OF THE COST ENGINEERING JOURNAL?
The Cost Engineering journal needs your help. We are always in need of submissions of potential cover photos for the monthly issues
of the journal. These can be photos of section tours of interesting project sites, photos from any of a wide range of construction projects that
your business or company is working on, to any number of other events or activities that would be of interest to AACE International members
and readers of the Cost Engineering journal.
The Cost Engineering journal does not pay for cover photos, so all submissions must be submitted free of charge. We are willing to
list the photographers name. If you take photographs at your section meeting, or if you enjoy amateur or professional photography as a hobby
or profession and want to submit entries for possible publication, just e-mail your submissions to: editor@aacei.org. Please include the following information in your e-mail: your name, the name of the photographer, and a brief description of what the photograph depicts.
For construction, renovation, or rehab projects you can also submit a write up about the project. We need to know the project name,
when it was started, when it is scheduled to be completed, and an overview of the project, its size, square footage, number of stories, room,
scheduled use, and any unique or special features. We need to know who the owner is, who is overseeing or supervising the project, and other
general information.
All submission are welcome but there is no guarantee of use or publication. AACE International reserves the right to decide whether
or not to publish and the decision will be solely at the discretion of AACE International headquarters and its staff. This is a great opportunity
for sections to get additional coverage for special events and programs. It is also an opportunity to promote your company and special projects
that are under way or that have been constructed around the world.
Any photos selected for cover publication will require submission of a high resolution (minimum 300 dpi) digital file. Because of the
size of these files, you may need to mail or ship the photo to AACE International headquarters at 209 Prairie Avenue, Suite 100, Morgantown,
WV 26501.
If you have any questions, please e-mail: editor@aacei.org

AACE International, 209 Prairie Avenue, Suite 100, Morgantown, WV 26501 USA
phone: 304-296-8444
fax: 304-291-5728
e-mail: editor@aacei.org
website: www.aacei.org
36

Cost Engineering Vol. 52/No. 9 SEPTEMBER 2010

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