CM 2

SUMMER MIDTERM EXAM

**RESIDENTIAL BUILDING**

____ addresses the housing needs of a society. Housing construction takes many forms: ==**i**==^^**ndividual homes, apartments, condominiums, townhouses, and prefabricated units** such as modular and manufactured homes.^^

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_______ construction is __typically funded by private individuals or developers for their own use or for sale.__ Builders of individual homes generally fall within one of three categories:

* they are custom builders constructing one-of-a-kind homes for specific customers on specific lots
* they are single-family small-volume builders who build 25 or fewer homes a year,
* or they are single-family production builders who build more than 25 homes a year.

**COMMERCIAL BUILDING**

This sector of the industry primarily addresses the needs of __**commerce, trade, and government and makes up about a third of the total construction market.**__

This is the category that includes ^^***banks, schools, office buildings, hotels, shopping malls, religious facilities, baseball stadiums, theaters, universities, amusement parks, hospitals, courthouses, government buildings, and other facilities where people gather.***^^

These projects may range in size from a small medical office to large high-rise office buildings to state-of-the-art biotechnology facilities. The building costs are significantly higher than with residential construction, and the project duration is much longer. It is not uncommon for a ____ project to last three years or more.

**HEAVY CIVIL CONSTRUCTION**

This sector of the industry impacts all of society in a very big way. Often referred to as __**horizontal construction,**__ the __**heavy civil sector includes roadways, bridges, tunnels, dams, airports, and railways.**__

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Basically, any work that is associated with infrastructure, transportation, and how we move about involves the heavy civil construction market. Similar to the industrial sector, ____ are complex, usually expensive endeavors that take special engineering know-how.

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This market is huge and growing larger every day. The need for building and rebuilding of our nation’s roadways, airports, sewage plants, and bridges is great. These projects are typically designed by civil engineers, and often the construction management team has a strong background in civil engineering as well construction firms are generally very large operations that can offer opportunities nationally and internationally. However, the sector of the industry is difficult to enter because of the huge capital outlay required for entry, not to mention the specialized knowledge required to be successful

**INDUSTRIAL CONSTRUCTION**

This sector of the industry is highly specialized and requires firms with vast resources and significant construction and engineering expertise. The number of contractors qualified to work within the __ sector is limited. The project types included in this category are defined primarily by the production activities that occur within the facility. __***Manufacturing plants, electrical generating facilities, oil refineries, pipelines, steel mills, and chemical processing plants***__ are all examples of ___ construction projects.

**ENVIRONMENTAL CONSTRUCTION**

Although some people may lump ______ construction under the heavy civil category, it is unique enough to have its own classification, especially considering the increase in market share that this sector is currently experiencing and probably will for some time to come.

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Generally, this sector of the industry is comprised of projects that improve the environment, ^^**maintain public health, and contribute to a community’s quality of life**^^. **Think clean water, sanitary sewers, and waste management.** And although these projects may not seem very glamorous at first glance, in reality, they represent one of the most vital sectors of the industry and one that demands a significant investment in order to sustain our communities.

**CONSTRUCTION ECONOMICS**

Like pure economics, its mainstream equivalent – is concerned with the __**allocation of scarce resources.**__

**OPPORTUNITY COST**

The value of the __**alternative forgone**__ by choosing a  particular activity.

**PROCESS GROUP / KNOWLEDGE AREA**

A __**logical grouping of project management**__ processes to achieve specific project objectives.

**INITIATING PROCESS GROUP**

Those processes performed to __**define a new project or a new phase of an existing project**__ by obtaining authorization to start the project or phase.

**PLANNING PROCESS GROUP**

Those processes required to establish the __**scope of the project, refine the objectives, and define the course of action**__ required to attain the objectives that the project was undertaken to achieve.

**EXECUTING PROCESS GROUP**

Those processes performed to __**complete the work defined in the project management plan**__ to satisfy the project requirements.

**MONITORING AND CONTROLLING PROCESS GROUP**

Those processes required to __**track, review, and regulate**__ the progress and performance of the project; identify any areas in which changes to the plan are required; and initiate the corresponding changes.

**CLOSING PROCESS GROUP**

Those processes performed to __**formally complete or close the project, phase, or contract**__.

**PROJECT INTEGRATION MANAGEMENT**

Includes the processes and activities to __**identify, define, combine, unify, and coordinate**__ the various processes and project management activities within the Project Management Process Groups.

**PROJECT SCOPE MANAGEMENT**

Includes the processes required to ensure the project includes __**all the work required, and only the work required**__, to complete the project successfully.

PROJECT SCHEDULE MANAGEMENT

Includes the processes required to manage the __**timely completion**__ of the project.

**PROJECT QUALITY MANAGEMENT**

Includes the processes for incorporating the __**organization’s quality policy regarding planning, managing, and controlling project and product quality requirements**__, in order to meet stakeholders’ expectations.

**PROJECT RESOURCE MANAGEMENT**

Includes the processes to __**identify, acquire, and manage the resources needed**__ for the successful completion of the project.

**PROJECT COMMUNICATIONS MANAGEMENT**

Includes the processes required to ensure timely and appropriate planning, collection, creation, distribution, storage, retrieval, management, control, monitoring, and __**ultimate disposition of project information**__.

**PROJECT RISK MANAGEMENT**

Includes the processes of __**conducting risk management planning, identification, analysis, response planning, response implementation, and monitoring risk**__ on a project.

**PROJECT PROCUREMENT MANAGEMENT**

Includes the processes necessary to __**purchase or acquire products, services, or results needed from outside**__ the project team.

**PROJECT STAKEHOLDER MANAGEMENT**

Includes the processes required to identify the __**people, groups, or organizations**__ __**that could impact or be impacted by the project**__, to analyze stakeholder expectations and their impact on the project, and to develop appropriate management strategies for effectively engaging stakeholders in project decisions and execution.

**COST**

__ are established, targeted, and controlled by __***means of an estimate or budget***__. As the work progresses, expenditures for materials, labor, equipment, and subcontracts are tracked and measured against the estimates. The fundamental goal is to maintain within or below budget parameters. The construction manager who can minimiz*e* ___ while maximizing overall value to the owner will optimize the cost dial.

**TIME**

As the saying goes, __ __**is money**__. For many projects, the speed with which the building can be brought on line is more important than almost any other factor. __ is ***monitored and controlled by a detailed schedule, breaking each item of work down into its component part***s.

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Once all of the purchasing, fabrication, installation, and construction steps are identified, a time element is assigned to each step. The goal is to complete each of the work items within the time frame assigned. The construction management team that can guarantee the schedule and actually beat it is invaluable to the owner.

**QUALITY**

__ is the __***grab bag***__ that covers all the aspects of the building not addressed by the other five values, such as aesthetic impact, user perceptions, appropriateness of building materials, and so on.

__ is monitored and controlled by a variety of means, including ***specifications, punch lists, inspections, tests, and user surveys***. Special care must be taken to establish appropriate measures early in the project to focus attention and effort on the quality expectations of the team.

**SAFETY**

No matter how valuable a facility or structure may be, it is never more valuable than the health and welfare of the people who build and use the building.

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Care must always be taken to ensure that the building process and the building itself do not create unacceptable hazards to workers or users. These hazards range from risks during the building process , e.g., falls, accidents, injury, and death) to risks from the completed buildings, e.g., toxic gases, biohazards, and structural failure. __ is best monitored and controlled proactively by ***identifying potential risks*** and ***taking prudent steps to mitigate those risks***.

**SCOPE**

is monitored and controlled by __**means of an architectural program**__, which identifies the ***space needs and tracks complianc***e of the building design with those needs. An optimal scope outcome would match the end user’s needs to the facility design over the life of the building with no gaps in between. The ultimate goal is high end-user satisfaction.

**FUNCTION**

The best project teams try to meet all of the functional requirements of the end-user group. An optimal outcome would satisfy their short- and long-term needs, allowing for sufficient flexibility to adapt to changes in the market.

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__ is monitored and controlled by means of __**process flow diagrams and utilization analyses,**__ which document the efficiency of the processes that will be performed in the completed facility.

**THEORY OF CONSTRAINTS**

A way to __***solve problems inherent in your project***__ that are preventing you from achieving more of your goals. Part of TOC is the methodology called the __***thinking process,***__ which is made for complex projects with many interdependencies.

**TRIPLE CONSTRAINT**

A model of the constraints __***inherent in managing a project***__. Those constraints are threefold (cost, scope & time)

**COST**

The __**financial constraints of a projec**__t, also known as the “__*project budget”.*__

**SCOPE**

The __**tasks required to fulfill the project’s goals**__

**TIME**

The __**schedule for the project**__ to reach completion.

**VALUE TRIPLE CONSTRAINT (VTC)**

There is a __***relationship that guides all projects.***__ It is relentless and honest. We can work against this relationship to our disadvantage or we can work to improve this relationship to our advantage. That relationship is …

 **PROJECT COST**

The __**total funds needed to monetarily cover and complete**__ a business transaction or work project.

**DIRECT COST**

Costs that can be __***directly related***__ to producing the products and services of the project.

**INDIRECT COST**

Costs that are __***not directly related***__ to the products or services of the project, but are indirectly related to performing the project.

**RESERVES**

Are __***monetary values included in a cost estimate to mitigate cost risk***__ by allowing for future situations that are difficult to predict.

**CONTINGENCY RESERVES**

Allow for future situations that may be __partially planned__ for (sometimes called __**KNOWN UNKNOWNS**__) and are included in the project cost baseline.

**MANAGEMENT RESERVES**

Allow for future situations that are __**unpredictable**__ (sometimes called __**UNKNOWN UNKNOWNS**__)

**COST-BENEFIT ANALYSIS**

A systematic approach to estimating the __**strengths and weaknesses of alternatives**__ used to determine options which provide the best approach to a***chieving benefits while preserving savings.***

**CASH FLOW**

A measure of __***how much cash a business brought in or spent in***__ total over a period of time.

**COST S-CURVE**

Refers to ***a chart that is used to describe, visualize, and predict the performance of a projec***t or business overtime.

**CONSTRUCTION INDUSTRY**

The **branch of manufacture and trade** is based on the __*building, maintaining, and repairing structures*__. This includes drilling and solid mineral exploration.

4\.337 million

The construction industry continues to **provide job opportunities**, employing on average a total of ___ workers.

**TYPICAL S-CURVE**

Resources are ***allocated in the* __*middle part*__ *of implementation***.

**FRONT-LOADED S-CURVE** 

Resources are **allocated in the** __***early part***__ ***of implementation.***

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Application: For small projects, repetitive projects.

**BACK-LOADED S-CURVE** 

Resources are **allocated in the** __**last part**__ **of implementation.**

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Application: Complex projects.

**CASH INFLOW**

The **net** __**cash amount coming**__ into your business that you ***have available for a period of time***.

**CASH OUTFLOW**

The __**net cash amount that is going out**__ of your business because you are ***paying someone else or another entity***.

**EARNED VALUE MANAGEMENT**

A __**methodology that combines scope, schedule, and resource measurements**__ to assess project performance and progress.

**EARNED VALUE ANALYSIS**

An __**industry-standard method of measuring a project’s progress**__ *at any given point of time, forecasting its completion date and final cost, and analyzing variances* in the schedule and budget as the project proceeds.

**EARNED VALUE**

The **measure of work performed** expressed in terms of the __**budget authorized for that work**__.

**PLANNED VALUE**

That portion of the __**approved cost estimate**__ **planned to be spent on the given activity during a given period**.

**ACTUAL COST**

The total of the cost __**incurred in accomplishing work**__ on the activity in a given period.

**EARNED VALUE**

The __**value of work**__ actually completed.

**EARNED SCHEDULE**

An extension to the theory and practice of EVM. __**replaces the schedule variance measures used in traditional EVM**__ (earned value − planned value) with ES and actual time (AT).

**LIFE-CYCLE COSTING**

A technique for estimating the __**total cost of ownership of an asset over its lifetime**__ which assists the decision-makers to make more informed decisions with respect to the acquisition and management of assets.

**PURPOSES OF LIFE-CYCLE COSTING**

* To be an effective engineering tool for use in design, procurement, and so on. This was the original intent.
* To be applied proactively in cost accounting and management.
* To be a design and engineering tool for environmental purposes

**ACQUISITION COST**

Includes __***R&D, Recurring investment and non-recurring investment***__ costs.

**SUSTAINING COST**

Includes __**scheduled and non-scheduled, facility usage and disposal**__ costs.

**ANALOGY MODEL**

Identifies a similar product or component and adjusts its costs for differences between it and the target product.

(1) depends on one single, dominant cost driver;

(2) is based on linear relationships between costs and cost drivers;

(3) uses an analogy (such as mass) as a driver. 

**PARAMETRIC MODEL**

Is based on predicting a product’s or a component’s cost either in total or for various activities by __***using several models describing the relationships between costs and some product***__- or process-related parameters.

(1) can use several parameters;

(2) rely on one or more nonlinear regression models;

(3)  essentially regression, or response surface, models that can be linear, quadratic, multidimensional.

**ENGINEERING COST MODEL**

Is used where there is __**detailed and accurate capital and operational cost data**__ for the asset under study.

(1) involves the direct estimation of a particular cost element by examining the asset component-by-component;

(2) uses standard established cost factors.

**COST ACCOUNTING MODEL**

It includes

* Volume-based costing systems
* Unconventional costing methods
* Modern cost management systems

**VOLUME-BASED COSTING SYSTEMS**

An __***umbrella term for all costing methods that rely on the distinction of variable and fixed costs***__ to determine the product costs. Because variable costs vary with the amount of output and only one single allocation base, it follows that the product costs strongly correlate with the production volume.

ATTRIBUTE-BASED COSTING

Provide a __**detailed cost-benefit analysis of customer needs**__ aimed at improving effectiveness.

FEATURE COSTING

Leads to a more d__**irect reduction of costs and an improvement of performance**__.

JUST-IN-TIME COSTING

Is __**oriented toward process and time**__, as measured by the cycle time.

TARGET COSTING

A system of profit planning and cost management that is __***price driven, customer focused, design centered and cross-functiona***__l.

STRATEGIC COST MANAGEMENT

Is remarkably close to the product life-cycle concepts. The __***value-added concept focuses on internal activities***__, while the v***alue chain focuses on external activities***.

**ACTIVITY-BASED COSTING**

A methodology that measures the __***cost and performance of activities, resources, and cost objects***__. Resources are assigned to activities, and then activities are assigned to cost objects based on their use. ABC recognizes the causal relationships of cost drivers to activities. ABC also adopts an attention- focusing, long-term, resource consumption orientation.

**ACTIVITY REDUCTION**

one of the key elements in continuous improvement. This implies that the __**elapsed time and effort required to perform activities must be reduced.**__

**ACTIVITY ELIMINATION**

based on the fact that __**changes in the production process or products can eliminate the need to perform certain activities**__. Many activities in an organization do not contribute to customer value, responsiveness, or quality (nonvalue-added activities).

**ACTIVITY SELECTION**

is applicable when a __***product or a production process can be designed in several way***____s__, with each alternative carrying its own set of activities and costs.

**ACTIVITY SHARING**

__***provides economies of scale***__ as the designer of a product or process can choose design alternatives that ***permit products to share activities***.

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 1 DEFINE THE SCOPE OF THE MODEL AND THE CORRESPONDING COST OBJECTS**

The scope should include as a minimum the objectives of the model, its system boundaries, and its perspective.

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 2 OBTAIN AND CLEAN BILL OF MATERIALS FOR ALL COST OBJECTS**

It is important that the BOM does not contain any overhead costs that are not volume related in order to reduce possible distortions to a minimum.

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 3 IDENTIFY AND QUANTIFY THE RESOURCES**

The objectives may include a complete life cycle, a decade, or another time frame, but the point is that we must include the relevant costs given the appropriate perspective.

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 4 CREATE AN ACTIVITY HIERARCHY AND NETWORK**

Every process within the system boundary is broken down into more and more detailed processes (activities), and thereby an activity hierarchy is created. The activities should be defined in enough detail to get reliable information.

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 5 IDENTIFY AND QUANTIFY RESOURCE AND ACTIVITY DRIVERS**

The purpose of resource drivers is to trace how the activities consume resources, while activity drivers are to trace how the cost objects consume activities. 

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 6 IDENTIFY THE RELATIONSHIPS BETWEEN ACTIVITY DRIVERS AND DESIGN CHANGES**

We need to distinguish between two different design approaches. The simplest is when we want to select from several options. Here no relationships are needed since we are not interested in changing the design, only selecting.

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 7 MODEL THE UNCERTAINTY**

What is important to emphasize is that Monte Carlo methods, or simulation techniques, enable the most versatile handling of uncertainty.

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 8 ESTIMATE THE BILL OF ACTIVITIES**

To estimate the cost of an activity, the resource driver is multiplied by its consumption intensity. This is done for all the activities and then is summed up to produce the total cost of all the activities, which is the Bill of Activities (BOA).

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 9 ESTIMATE THE COST OF COST OBJECTS ANF THEIR PERFORMANCE MEASURE**

In Step 8 resources are traced to activities, whereas in this step activity costs are traced to cost objects. From this, it is evident that Step 8 is the first step in an ABC system, whereas Step 9 is the second step. 

ACTIVITY-BASED LIFE-CYCLE COSTING **| STEP 10 PERFORM MONTE CARLO SIMULATIONS AND RELEVANT ANALYSES**

Discuss some important engineering analyses that may greatly affect life-cycle costs and how to decide whether we should iterate the model implementation or not.

**COST UNCERTAINTY ANALYSIS**

A process of __***quantifying the cost impacts of uncertainties***__ associated with a system’s technical definition and cost estimation methodologies.

**BENEFITS OF UNCERTAINTY ANALYSIS**

* Establishing a cost and schedule risk baseline.  
* Determining cost reserve.  
* Conducting risk reduction trade-off analyses. 

 **RISK**

The __***probability of an unfavorable event***__ occurs

**UNCERTAINTY**

The __**indefiniteness**__ about the outcome of a situation.

**UNCERTAINTY MODEL**

Models where the __**true uncertainty is modeled as accurately as possible**__. The uncertainty distributions in uncertainty models give information with respect to how the uncertainty in the assumption cells affects the forecast cells. The sensitivity charts are employed to identify what information should be gathered to reduce the uncertainty in the model and what data are most uncertain.

**SENSITIVITY ANALYSIS**

An analysis method that is used to identify **how much variation in the input values for a given variable will** __**impact the results for a mathematical model**__**.**

**MONTE CARLO SIMULATION**

A model used to __***predict the probability of a variety of outcomes when the potential for random variables is present.***__

The simulation helps to explain the ***impact of risk and uncertainty*** in prediction and forecasting models.

A ***mathematical technique*****,** which is used to estimate the possible outcomes of an uncertain event.

Collaborative Process Institute

In 1996, a group of owners, architects, contractors, and engineers gathered in San Francisco __**to discuss common goals and opportunities for collaboration in the building industry**______. During their discussions, they came up with the best descriptors of the factors that need to be managed and controlled on a construction project in order to produce a successful outcome for the owner and all parties involved. They referred to these factors as the six dials of project value.

6 DIALS OF PROJECT VALUE

In 1996, a group of owners, architects, contractors, and engineers gathered in San Francisco to discuss common goals and opportunities for collaboration in the building industry (Collaborative Process Institute)__.__ During their discussions, they came up with the __**best descriptors of the factors that need to be managed and controlled on a construction project in order to produce a successful outcome for the owner and all parties involved**__. They referred to these factors as the _______.

UNCONVENTIONAL COSTING METHODS

under this costing method,

* ATTRIBUTE-BASED COSTING
* FEATURE COSTING

MODERN COST MANAGEMENT SYSTEMS

under this management system,

* ACTIVITY-BASED COSTING: 
* JUST-IN-TIME COSTING: 
* TARGET COSTING
* STRATEGIC COST MANAGEMENT

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RESOURCES

ABC CONCEPTS |

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___ are __**everything the organization uses to operate**__ and the measures is cost

ACTIVITIES

ABC CONCEPTS |

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___ are what are __**actually being done in the organization**__

COST OBJECTS

ABC CONCEPTS |

> ___ are the __**objects, products and customers**__

for which we want to separate cost, revenue and profit statements