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    Project Management & Leadership Skills

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  • Название: Project Management and Leadership Skills for Engineering and Construction Projects
  • Автор: Benator, Barry.; Thumann, Albert.

Project Management and
Leadership Skills for
Engineering and
Construction Projects
Barry Benator, P.E., C.E.M.
Albert Thumann, P.E., C.E.M.

i

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ii

Project Management and
Leadership Skills for
Engineering and
Construction Projects
Barry Benator, P.E., C.E.M.
Albert Thumann, P.E., C.E.M.

THE FAIRMONT PRESS, INC.
Lilburn, Georgia

MARCEL DEKKER, INC.
New York and Basel

iii

Library of Congress Cataloging-in-Publication Data
Benator, Barry.
Project management and leadership skills for engineering and construction projects/Barry Benator, Albert Thumann.
p. cm.
ISBN 0-88173-430-6 (electronic)

1. Facility management. 2. Project management. I. Thumann,
Albert. II. Title.
TS183.3.B45 2003
658.5--dc21

2003044869

Project management and leadership skills for engineering and construction
projects by Barry Benator and Albert Thumann
©2003 by The Fairmont Press. All rights reserved. No part of this
publication may be reproduced or transmitted in any form or by any
means, electronic or mechanical, including photocopy, recording, or
any information storage and retrieval system, without permission in
writing from the publisher.
Published by The Fairmont Press, Inc.
700 Indian Trail, Lilburn, GA 30047
tel: 770-925-9388; fax: 770-381-9865
http://www.fairmontpress.com
Distributed by Marcel Dekker, Inc.
270 Madison Avenue, New York, NY 10016
tel: 212-696-9000; fax: 212-685-4540
http://www.dekker.com
Printed in the United States of America

10 9 8 7 6 5 4 3 2 1
0-88173-430-6 (The Fairmont Press, Inc.)
0-8247-0999-3 (Marcel Dekker, Inc.)
While every effort is made to provide dependable information, the publisher, authors,
and editors cannot be held responsible for any errors or omissions.

iv

Contents

Preface .................................................................................................... vi

Acknowledgment ................................................................................. ix

Chapter 1 Overview of Project Management .............................. 1

Chapter 2 Staffing the Project Team ............................................ 13

Chapter 3 Fundamentals of Scheduling ..................................... 29

Chapter 4 Computer Tools for Project Management ............... 37

Chapter 5 Technical, Schedule, Financial Management ........... 53

Chapter 6 Cost Estimating ............................................................. 73

Chapter 7 Leadership Fundamentals ........................................ 101

Chapter 8 Effective Communications ........................................ 141

Chapter 9 Economic Decision Making ...................................... 149

Chapter 10 Contract Planning Essentials .................................... 185

Chapter 11 Commissioning Construction Projects ................... 199

Chapter 12 Case Study: Microbial Abatement

of a Moldy Hotel ........................................................ 215

Bibliography and References .......................................................... 225

Index .................................................................................................... 227


v

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Preface

A project can be defined as a large or important item of work,
involving considerable expense, personnel, and equipment. It is
typically a one-time endeavor, with a specific result or end-state
envisioned. Examples of projects in the engineering and construction fields could include the upgrade of a building’s heating, ventilating, and air-conditioning system, the design and construction
of a new building, relocation of a manufacturing plant, or a comprehensive energy audit.
A project is distinguished from ongoing business activities by
several characteristics:
Uniqueness. A project is typically a specific mission (design
and build a new building or plant, upgrade a computer installation) as contrasted with ongoing business functions such as accounting, human resources, purchasing or manufacturing which
are performed on a day-in, day-out basis, ideally with increasing
productivity.
Duration. A project tends to be of finite duration with a defined start date and a planned completion date. Day-to-day business functions such as human resources, information technology
support, accounting, word processing are typically in place before
a project starts and will continue after the project is concluded.
People. People assigned to a project may come from any part
of an organization or from outside the organization, and depending on the scope and budget of the project, may include engineering, construction, financial, scheduling, cost estimating and other
professionals who can make the project a success. When the
project is completed, these professionals will likely move on to
other projects or back into line functions within the organization.
A project also shares several characteristics with ongoing
business activities:
Budget. A project, like most line functions, has a budget.
vii

Whatever the project is, the project manager will be responsible
for managing his or her project to an on-time, technically sound
result within the project budget.
People. A project is much more than engineering calculations
or construction schedules. It involves people—nothing happens
on a project without good people making it happen. The project
manager will be involved in some or all of these people functions
of project management—selecting, training, coordinating, leading,
coaching, rewarding, disciplining, and supporting. A project manager deals with people all the time. If you are not willing to at
least try to fulfill this responsibility, you should return his book
now and get your money back. If you enjoy working with people
or are willing to try, this book will help you succeed.
Relationships. Related to the people aspect of project management is the project manager’s responsibility to manage relationships associated with the project. Internally, these include the
people in your company who are members of your project team,
your boss, your peers and supporting departments within your
own company. Externally, they include your customer’s people
associated with the project, as well as any subcontractors and
vendors who may be associated with the project.
Is Project Management for you? Is this book for you?
Do you take to the challenge of bringing together multiple
and diverse resources to complete an engineering or construction
project on-time, within-budget and to the customer ’s satisfaction?
Are you are a successful engineer or construction manager seeking overall project responsibility? Do you enjoy working with
people and helping them succeed through teamwork? Do you
seek the professional opportunities and financial rewards of leading projects to successful conclusions?
If you answered yes to one or more of these questions, then
this book is for you. It will give you, in straightforward and practical terms, information and guidance that will help you succeed
in the real-world of engineering and construction project management. Let’s get started!
Al Thumann, P.E. CEM
Barry Benator, P.E., CEM
viii

Acknowledgments

The authors wish to acknowledge James A. Bent who coauthored Project Management for Engineering and Construction which
this reference is based upon.
The authors also wish to express our gratitude and appreciation for the contributions of the following individuals whose insightful comments and input helped enhance the relevance of this
book for our readers.
Seth Benator, R.A.

Bill Brockenborough, P.E.

Rich Brown, Ph.D.

Barbara Erickson

Ken Forsyth, P.E.

Shirley Hansen, Ph.D.

Bob Hough, P.E.

Yasser Mahmud

Terry Niehus, P.E., CEM

Doug Weiss, P.E.


ix

Overview of Project Management

1

Chapter 1


Overview of

Project Management

Barry Benator

I

f one word could describe the essence of project management
it is responsibility. The project manager (PM) is responsible
for all that happens on a project. This doesn’t mean the project
manager should or could do everything associated with the
project; it does mean the PM owns ultimate responsibility for the
project, regardless of who is on the project team and regardless of
the obstacles encountered along the way to successful completion.
In other words, the buck stops with the project manager. If that
sounds like an awesome responsibility, then you have grasped the
concept of what it means to be a project manager. For many
people, it’s an exciting challenge. Because, in addition to the large
responsibilities of project management, there are numerous rewards for successful project managers. This book will help you
meet those responsibilities and attain the rewards of becoming a
successful project manager.

REWARDS

OF

PROJECT MANAGEMENT

There are a number of rewards associated with being a successful project manager. Listed below are a just few of them.
1

2

Project Management and Leadership Skills



The satisfaction of pulling together a diverse group of people
from different organizations and creating a high performing
project team that accomplishes the project’s mission.



The reward of helping these people perform their responsibilities and achieving success for themselves and the project.



The reward of increased profits and enhanced cash flow to
your company



The reward of a satisfied and appreciative customer.



The reward of repeat business from that customer.



The reward of new business from other customers based on
positive recommendations from your satisfied customer.



The reward of enhanced career opportunities for you and
your project team.

Good project managers are one of the few job functions
which continue to be in demand by companies in almost every
business sector. Good project managers have a bright future ahead
of them. This book will help you achieve that brighter future.

THE PROJECT MANAGER’S RESPONSIBILITY
The technical knowledge and skills required to be a successful engineering or construction project manager are wide-ranging,
but the good news is you don’t need to be an expert in all of them.
In fact, you don’t need to be an expert in any of them; you do,
however, need to have engineering or construction experience.
However, as important as this technical experience is, even more
important is the will and commitment to take on the overall responsibility for your projects. The fact that you are reading this book
is a strong signal of your commitment to learn and practice good

Overview of Project Management

3

leadership and management skills, which will help you fulfill
your project management responsibilities and succeed as project
manager.
A typical engineering or construction project will have many
of the following disciplines associated with it:








Electrical
Mechanical
Process
Structural
Architectural
Civil
Cost estimating








Financial/accounting
Purchasing
Legal/contractual
Insurance/risk management
Purchasing
Drafting/Computer
Aided Design

The project manager’s responsibility is to manage the financial,
technical and schedule requirements of the project in such a manner as to bring the project in on-time, within budget and with a
technical quality that meets or exceeds the contractual performance specifications.

SKILLS

OF A

SUCCESSFUL PROJECT MANAGER

While experience in engineering and construction is important, the critical skills you need to be a successful project manager
(PM) are not technical. They are leadership and management
skills—skills that will help you lead and manage the project in
such a manner that the project’s objectives are achieved.
While there are a number of definitions for leadership and
management, we will use the following for the purpose of discussing project management in this book:
Leadership—the process of influencing individuals or groups to
accomplish an organizational goal or mission

4

Project Management and Leadership Skills

Management—the process of planning, organizing, directing and
controlling a project or activity
Often the exercise of leadership and management overlap,
but the general meaning and intent is typically clear, so there is no
need to become overly academic about these terms. As a general
statement, leadership implies a people-based set of activities such
as communicating, coaching, setting a personal example, providing recognition and feedback, supporting, etc. while managing
tends to imply a more systematic set of activities such as planning,
organizing, directing and controlling.

PLANNING

THE

PROJECT

Perhaps the best way for us to obtain an overview of the
project management process is to look in detail about how to plan
a project. Then in subsequent chapters, we will delve into specifics
about each of the skills and activities associated with turning a
project plan into a successful project.
In the author ’s experience of managing more than 300
projects and teaching more than 200 workshops on project management and leadership, one of the activities project managers
tend to like the least and avoid the most is planning. Reasons
vary but they seem to fall in the realm of “planning is not
fun.” Engineering project managers and construction managers
tend to enjoy doing things—designing, coordinating, negotiating,
installing, solving problems, etc. Planning, on the other hand,
requires a more contemplative, long-term view of the project,
and may encompass planning for activities that are “over the
horizon” in terms of when they will occur. It requires more
thinking than doing and often receives insufficient attention because it’s not hands-on or immediate in its urgency. Yet, good
planning is a cornerstone of a good project. Careful planning,
along with good execution, almost always leads to a successful
project. Poor planning, on the other hand, even with good ex-

Overview of Project Management

5

ecution, may lead to a successful project, but often one that is
fraught with crises, stress and loss of opportunities because the
PM and his or her team were bailing out the project instead of
looking ahead for other opportunities.
So, what are the ingredients of a successful project plan?
Details vary from project to project, but the following elements are
part of virtually every good project plan.
Deliverables
What are the deliverables and when are they due? A deliverable is anything specified in the contract that the engineer, construction firm, vendor or supplier has agreed to deliver to the
customer. Examples of deliverables include specifications, drawings, cost estimates, project schedule, equipment, buildings, systems, training, etc. In the planning phase of a project, it is
important to identify these deliverables, when they are due, and
who has prime responsibility for each deliverable (the PM has the
overall responsibility for each deliverable). Oftentimes a table that
extracts from the contract all the specific deliverables is a good
vehicle for getting everyone on the same page as to what is to be
delivered and when. See Figure 1-1 for an example of such a deliverable table.
Resources
You will need a variety of resources to lead and manage
successful projects. You will need:


People—from your firm, your contractors, your consultants,
your vendors and your customers.



Technology—computers (for scheduling, budgets, word processing, calculations, drafting, project tracking, progress reports, e-mail, etc.), communications equipment (phones,
pagers, faxes, etc.), Personal Digital Assistants (PDAs), etc.



Budget—a clear picture of financial resources available to
complete the project.

6

Figure 1-1. List of Deliverables (Example)
——————————————————————————————————————————
Deliverable

Prime Responsibility

List of Deliverables

Project Manager

Project Schedule

Project Manager

Bore Samples Report

ABC Soils Firm

10% Drawings

Cognizant Engineers/Architects

30% Drawings

Cognizant Engineers/Architects

60% Drawings

Cognizant Engineers/Architects

60% Specifications

Cognizant Engineers/Architects

60% Cost Estimate

ABC Cost Estimating Firm

90% Drawings

Cognizant Engineers/Architects

90% Specifications

Cognizant Engineers/Architects

90% Cost estimate

ABC Cost Estimating Firm

Date Due to
PM/Customer

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

Project Management and Leadership Skills

——————————————————————————————————————————

Cognizant Engineers/Architects

100% Specifications

Cognizant Engineers/Architects

100% Cost Estimate

ABC Cost Estimating Firm

Complete Set Design Documents

Project Manager

Complete Bid Package

Project Manager

Announce Procurement

Project Manager/Customer

Pre-Bid Meeting

Project Manager

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————

——————————————————————————————————————————
——————————————————————————————————————————

Overview of Project Management

100% Drawings

——————————————————————————————————————————

——————————————————————————————————————————
——————————————————————————————————————————
——————————————————————————————————————————
——————————————————————————————————————————

7

8

Project Management and Leadership Skills



Equipment—earth movers, cranes, electrical, mechanical, etc.



Internal Accounting Support—accounting reports, invoicing, payments to contractors and consultants, etc.

Resource Conflicts
Your plan should anticipate potential resource conflicts, and
to the best extent possible, indicate how these conflicts will be
managed. Typical resource conflicts include those listed below.
Subsequent chapters will discuss these issues in detail.


People—good people are always in demand, and it is extremely rare that your ideal project team will just be waiting
around for you to tap them on the shoulder and give them
the privilege of working on your project. They may be working on other projects, on a company task force, on vacation,
or not even hired yet. Coming up with a plan to handle these
people resource conflicts that meets your needs and the
needs of your company will be crucial to the success of the
project.



Technology—with the steady dropping of prices for technology (computers, printers, phones, etc.) technology conflicts
are becoming rarer. However, in a cash flow-tight environment, this can be a challenge for a project manager. Alternatives can include rental, borrowing from other projects or
borrowing from a pool of technology equipment in your firm,
etc.



Equipment—equipment conflicts can range from earth moving equipment to portable offices to portable potties.

Seasonal Impacts
Seasonal impacts to your project need to be reflected in your
project plan. The seasons can affect your project in a number of
ways.

Overview of Project Management

9



People—In Winter, people catch colds and the flu, and they
miss work. In the Summer, they take vacations. In either case
they are not available to work on the project. Sometimes they
are snowed in at home or out of town. Similarly, in some
locales, hurricanes can be anticipated to halt or slow down
productivity on a project. The prudent project manager will
plan for an appropriate number of vacation days, sick days,
snow days, hurricane days, etc. and factor that into his or her
project schedule. It is not difficult to approximate the number
of non-work days that will take place due to these factors and
it should be done.



S
ite—Weather can affect the ability to perform work at the
construction site. Again, this can be anticipated and estimates
made for so many non-work days due to site conditions.

Budgets
Whether you work for a for-profit, nonprofit or government
organization, there will be a budget for your project. You will be
responsible for preparing the budget if you are the PM at the initiation of the project, and for managing to the budget if you are
the PM during the project’s execution. The level of complexity of
the budget should be commensurate with the overall complexity
of the project.


Scoping—To prepare a good, realistic budget, it is important
to break down or scope-out the work effort into phases, tasks
or whatever you prefer to call specific units of work. This is
performed by analyzing the project’s statement of work (also
called scope of work) and identifying the costs and revenues
associated with each phase of the project.



Budget Tools—Use a financial management tool to prepare
your budget. This can be a specialized computer program
specifically made for project financial budgets and analysis or
a customized spreadsheet that you can use to develop your

10

Project Management and Leadership Skills

budget. The power and complexity of the program you use
should be commensurate with the scope and dollars and risk
of the project.
Schedule
A project always has a planned end date. To help ensure that
the end date coincides with the actual completion of the project, a
detailed schedule must be prepared. This schedule must list key
phases, tasks, and milestones. It should also list who is responsible
for performing these tasks or meeting the milestones and show
dependency relationships among tasks.
Scheduling Tools
Your schedule should be computer based. As with the
budget tools, you can select a dedicated project management
program such as Microsoft® Project, SureTrak Project Manager®,
Primavera Project Planner® or another appropriate project management program. You can also choose to develop a spreadsheet-based schedule management tool. The actual choice
should be based on the complexity of the project and the capabilities of the scheduling program. One caution: use of a computer-based scheduling program should not be a “wag the dog”
situation where so much time is spent updating and tweaking
the scheduling program that it takes valuable time away from
other important project management activities.
Agreement
Once you have completed the project planning steps discussed in this chapter, it is crucial that you have the various
project team members “sign off” on their commitments to signify
agreement with what they are going to do and when they are
going to have it done. This can be in the form of a contract, a
signed program plan, a set of minutes with a signature sheet or
some other vehicle that establishes a firm commitment by the
project team members that they will honor their commitments to
the project plan.

Overview of Project Management

11

But Plans Change, Don’t They?
Sure they do. And your project plan with all its elements at
various times will need to be revised to reflect real-world conditions and “changes on the ground.” This, however, does not mean
a schedule should be revised just because of a problem or hitch on
the project. Good project managers solve and work around the
great majority of problems without changing a due date, an end
budget or quality standards.
On the other hand, a change in project scope or a natural
disaster could change deliverables, dates, dollars, etc. which could
justify a revised project plan.
The Design of This Book
The design of this book is straightforward. In each of the
chapters that follow, we provide specific, practical, real-world information that will help you learn and use effective project management and leadership skills. These chapters will expand on the
topics discussed in this overview chapter. As you read each chapter, contemplate how you will use the information contained
within it to help you be a better project manager/leader. If you are
managing a project now, you will pick up valuable tools to help
you right now. If you are slated to be a PM on an upcoming
project, this book will help you when you pick up that project.
What happens after you complete this book is up to you. You
are in charge of your own management and leadership behaviors.
This book will help you succeed. Your colleagues will help you
succeed. And your own experience in applying the principles
contained in this book will help you succeed as a project manager.
We wish you the very best in your project management career.

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Staffing the Project Team

13

Chapter 2


Staffing the Project Team

Barry Benator

T

here are a number of important factors that contribute to
a successful project, but if one had to single out the most
important factor, it would be people. Good people always
find a way to make things happen—to overcome the many challenges inherent in any engineering or construction project. The
project manager’s ability to influence who is assigned to his or her
project can have a significant impact on the success of the project.
And over many projects, that influence can range from very little
(e.g., he or she inherits the project team members and must forge
a successful team with the people given to him/her), to being told
he or she can pick the best people for the job at hand.
Typically, however, the actual amount of influence the project
manager has in selecting his or her project team falls somewhere
between these two extremes. As a result, the project manager must
employ a number of different strategies to obtain the best people
for his or her project, consistent with the overall objectives of the
organization. In lining up people for the project team, the project
manager must be flexible, persuasive and assertive. Determining
which of these characteristics to call upon at any particular time in
the staffing process requires a nice sense of judgment that you will
develop as you employ the principles identified in this chapter.
The successful PM will invest the time necessary to assemble the
best project team that the constraints of the project and the organization will allow.
13

14

Project Management and Leadership Skills

WHOM

TO

SELECT

The Right Type of Expertise
The people whom you select for your project team will depend on the nature of the project. Since you are reading this book,
you are now either a project manager or construction manager or
someone who aspires to become an engineering or construction
project manager. Whichever category you fall into, you will want
to select the right engineering disciplines, construction trades, and
support staff that will best help you lead and manage a successful
project.
Typical engineering and construction projects include some
or all of the following engineering disciplines, construction trades
and support staff:









Electrical
Mechanical
Process
Civil
Structural
Plumbing
Energy Engineering
Architecture









Financial/accounting
Purchasing
Legal/contractual
Insurance/risk management
Cost estimating
Purchasing
Drafting/Computer Aided Design

Each project, with its own unique requirements, will determine how many and which types of these or other skills will be
required to perform a successful project.
The Right Type of People
After you have determined what type of expertise is required
for your project, you will want to find good people who possess
the right kind of expertise needed on the project. This is where it
is critically important that you do as much homework as possible
on potential project team members.
Assuming you have some say in who will be assigned to
your project (and you almost always will have some input as to

Staffing the Project Team

15

who will be on your project team—it just varies as to how much
input you will have), you want to request the best possible people
for your project. The best electrical engineer, the best draftsperson,
the best electrical installer, the best heating, ventilating, air conditioning mechanic, etc. Good people solve problems before they
become problems, because they typically do things right the first
time.
Below are some things you can do to identify the best people
for your project team.


Your own experience. If you have worked with someone
previously and know he or she performs good work, this is
the best recommendation you can have because it’s first
hand.



Ask your boss. Your boss, unless he or she is new in the job,
will be able to suggest good people for your project team. In
a recent engineering project managed by Barry for a client, he
relied heavily on his client (to whom he reported) for staffing
recommendations which turned out very well.



Recommendation of colleague or friend. Ask people you
trust whom they might recommend for the job. A good recommendation from a trusted colleague is very valuable, especially if that person knows the type of work to be performed
better than you.



Recruit from outside your organization. If there is no one
within your organization whom you can recruit to fill an open
project team slot, you may need to hire a person from outside
your organization. The open position may be one requiring an
experienced engineer, craftsperson, CAD operator, etc., or one
which could be filled by a new college graduate, trade school
graduate, union training program graduate or other entry
level person. Special care must be taken in the recruiting process to ensure compliance with federal, state and local regulations governing recruiting and hiring. Otherwise, you could

16

Project Management and Leadership Skills

end up with a lawsuit on your hands (just what you and your
company don’t need!). Recruiting from outside the organization is the riskiest of the staffing options and will be discussed
in considerable detail in next section.

STAFFING FROM
OUTSIDE THE ORGANIZATION
Recruiting and hiring good people is one of the most challenging tasks of a manager. Oftentimes, all you start with is a oneor two-page resume that is designed to highlight the best in a
potential candidate. Weaknesses are rarely mentioned. But before
you even have a resume in hand, you need to reach out to potential candidates and make them aware you have a job opening you
need to fill.
Recruiting
Depending on the size of your organization you will want to
work closely with your human resources department (HRD) to
have them help you find the right people for your project. If you
have an HRD, by all means use it; if not, you will likely do most
of the recruiting effort on your own. Either way, the steps in this
section will help you find and hire the right people.
1.

Create a job description for the position you are seeking to
fill. List the duties and responsibilities of the position as well
as the skills required to successfully perform in that position.
Make it job-specific and leave out attributes such as gender,
age, race, physical appearance, etc. which have no relevancy
to the actual job and which could lead to a lawsuit. See Figure 2-1 for an example job description template.

2.

Identify your sources for the position you are seeking to
fill. Figure 2-2 provides a listing of potential sources. You can
use these to help kickstart your search for that “right” em-

Staffing the Project Team

17

Figure 2-1.

Example Job Description for Project Electrical Engineer

————————————————————————————————

The selected candidate will be responsible for performing the duties of
project electrical engineer on building design and construction projects.
Duties. Responsibilities include:

P
reparation of building electrical calculations, specifications and
plans;


L
iaison with internal and external project team members to prepare
an integrated design meeting customer requirements;



Liaison with the customer to understand customer needs and
wants;



Participate in design reviews and other meetings with customer,
other design team members and construction firms;



Review and evaluate electrical contractor bids for accuracy, suitability, price and constructability;



V
isit job sites and ensure electrical systems are being installed as
designed and in accordance with good construction practices;



Overnight travel and weekend work: approximately 25-35%;



O
ther duties that may be assigned.

Education/Skills/Advantages:

Degree in electrical engineering from an accredited college or university, or equivalent work experience


F
ive years experience in design of building electrical systems, including load calculations, lighting calcs, familiarity with common
building codes, and other related building design requirements



F
ive years experience in field review of building construction practices



Excellent verbal and written communication skills



T
eam player—seeks to support the team mission whenever possible



P
rofessional Engineer—Electrical license a plus

18

Project Management and Leadership Skills

ployee for the job. Your actual approach will depend on your
specific needs, the size of your human resources department,
and other factors unique to your organization.
Figure 2-2. Search Sources and Methods
————————————————————————————————
External Sources of
External Methods
Potential Employees
for Recruiting
————————————————————————————————
• Employment agencies/
• Advertising (radio, television,
recruiters
Internet, newspaper, trade journals)
• Temporary agencies/
job shops
• Job fairs—Open houses
• Professional and trade
associations
• Colleges and universities
• State agencies

• College placement offices
(including minority colleges to take
advantage of the business benefits
of having a diverse workforce to
serve a diverse customer population)

• Former employees
• Employee referrals
————————————————————————————————

3.

Receive and evaluate applications/resumes. After advertising the open positions, you or your HRD will begin to receive
a lot of resumes. Often, and especially in a tight job market,
you will receive resumes from people who do not remotely
fit your position description. If possible, use HRD to
prescreen the resumes before they send any to you. Some
organizations will have an HRD person review the applications/resumes and send to you only those candidates that
appear to warrant your further review. This will free you to
concentrate on revenue-producing activities for the company

Staffing the Project Team

19

if you are a for-profit firm or other mission-related activities
if your organization is nonprofit or governmental.
In evaluating resumes, use a system with which you are comfortable. Your organization may have a system already in
place which you are required to use. If so, understand that
this system may seem over the top in terms of detail required,
but it may have the benefit of protecting you and the organization from equal employment opportunity (EEO) or discrimination suits. You may choose to use a matrix to evaluate
and rank potential candidates based on their resume. Whatever system you use to rate the candidates, ensure it is based
on bona-fide job requirements. After your initial review, we
recommend putting the resumes into three stacks:
— Follow-up by you or HRD
— Possibles—if the Follow-up list does not produce a desirable candidate
— Return to HRD for a no-thank-you letter
Whichever method you use, you will arrive at a list of people
who have made the second cut (the first being the ones that
HRD reviewed and sent on to you).
4.

Call the people in your follow-up stack. To further winnow
out potential interview candidates, we recommend you call
the candidates in the follow-up stack and discuss their interests and capabilities as related to your open position. You can
use this call to clarify any issues the candidates may have
and reiterate potential show-stopper job requirements such
as travel or irregular hours (“The job requires about 50%
overnight travel. Will that be a problem?” or “The job will
require some evening, weekend and night work. Will that be
a problem for you?”). This phone call will help you avoid
wasting your and the candidate’s time in a face-to-face interview when you and the candidate already know he or she

20

Project Management and Leadership Skills

cannot meet a fundamental requirement of the job. If your
call results in this knowledge, thank the candidate for his or
her interest in your organization and wish him or her well in
their job search. Then process the resume in accordance with
your organization’s policies.
Note: Throughout the life-cycle of the hiring process, ensure
you and others in your organization respect the confidentiality of the candidate. Obtain the candidate’s written permission to verify information on the resume or job application
and hold in confidence that information.
5. Setting up the interviews. Now that you have completed
your phone screening, you are ready to invite the candidates
in for an interview with you and 2-3 members of your project
team. Set up a convenient time and place for you and your
interviewee/candidate. Although typically held at your office, an interview can take place almost anywhere—restaurant, airport, hotel lobby or conference room, convention, etc.
Wherever the interview is held, ensure there are no avoidable
interruptions, the interviewee is comfortable and sufficient
time is allowed—4-6 hours is typically enough time for a visit
to the organization, with about 45-90 minutes per interview. Be
respectful of the interviewee’s time and don’t keep him or her
waiting longer than necessary to see the next person.
6.

Preparing for the interview. In order to ensure you gain the
information you seek from each interview, you should plan
carefully how you will conduct the interview. This includes
reviewing the Position Description of the job you are seeking
to fill and preparing questions that will help you determine
how well qualified a particular candidate is for that position.
In preparing your questions, keep in mind that typically the
best indication of a person’s future performance is his or her

Staffing the Project Team

21

previous performance. So you will want to develop questions
that will help you evaluate how well the candidate has performed in previous situations typical of the ones he or she
will face in your workplace. This is called “behavioral interviewing” because it focuses on the candidate’s behaviors
rather than fuzzy indicators such as gut feel or hypothetical
questions that may only reflect how good the interviewee is
at saying what you want to hear.
We recommend you use the STAF technique in formulating
your questions and the candidate’s answers. STAF means:

Situation

Task

Actions

Final result
The way you use this technique is to ask behavioral-type
questions that are related to your job needs. For example, you
might ask a candidate for a mechanical engineering position:
“Mary, your resume says you have performed several DOE 2.1 energy
analyses. Tell me about one of those analyses.” Tell me about the Situation (e.g., customer and facility), the Task (e.g., run three scenarios for
different HVAC systems), the Actions you took (Actions are what people
do—e.g., plan takeoff, data entry, ran the program for the three scenarios,
evaluated the results and recommended/selected the optimum HVAC
system), and Final Results (e.g., selected an HVAC system that met load
requirements and resulted in lowest life cycle costs for the customer)
Note: In the above example, the items in parentheses are prompts you
might use to help the candidate give you a complete answer. Allow the
candidate time respond to your questions—remember, you have spent
time preparing behavioral interview questions and have a good idea of
what information you are seeking. The candidate may have never been
asked these questions. So, allow the candidate sufficient time to recall a
specific instance which he or she can relate to you. You should record the
responses to your questions on a form similar to the example shown in
Figure 2-3 or another document that you can review at a later date.

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Project Management and Leadership Skills

Figure 2-3. Example Interview Form
————————————————————————————————
Job Title

_____________ Name of Job Applicant __________________



Introduce yourself: name, job title, your relationship to job being
considered



Establish rapport (Easy questions—traffic, weather, etc. Offer coffee, soft drink, water, etc.)



Describe the interview process (Establish the framework for the
interview. “We’re getting together to talk about the position of
mechanical engineer. I’m going to be taking notes as we go along.
It’s just my way of making sure I get all the information so that I
can make a fair evaluation. I hope that won’t bother you.” “You
should feel free to take notes also.” “Feel free to ask questions about
the job or our organization whenever you think it’s appropriate”
“We’ll spend about __ minutes together,” etc.)



Explore background (Tell applicant about job, ask questions about
application or resume, and discuss general information. “Why
don’t you describe your current situation or a typical day”)
E.g., Describe the job and related requirements. Job hours, dress
code, wear beeper, on-call 24 hours, 50% travel, etc. Have you ever
done that? Would you have difficulty doing or arranging that?
Explore applicant’s resume and job application. To encourage frank
responses, use subtle TORC (Threat of Reference Check)—”John,
when I call your prior supervisor and ask about your performance
on your current or previous job, what will he or she tell me?” Or,
“Mary, when I call your school, is this the right school and is this
the right degree?”



List knowledge and skills needed for this job.
(Continued)

Staffing the Project Team

23

Figure 2-3. Example Interview Form (Continued)

————————————————————————————————
Knowledge (What knowledge is important?)
e.g., B.S. Mechanical Engineering

e.g., Uniform Building Code

e.g., PE license—mechanical (desired)

e.g., DOE 2.1 or Trace Energy Program

e.g., Spreadsheets

Skills (What skills are important?)
e.g., HVAC load calculations

e.g., Specification preparation

e.g., Problem solving

e.g., Field construction supervision

e.g., System layout for draftsperson

e.g., Excellent Oral and Written Communications

e.g., Run DOE 2.1 or Trace Analyses



Develop behaviorally based interview questions for these areas.

Knowledge/Skill Area #1: Problem Solving
Question: “Mary, your resume says you are a good problem solver. Tell
me about an instance where you were successful in solving a tough
problem on one of your projects.” Tell me about the Situation (e.g., customer and facility), the Task (e.g., the specific problem you were facing),
the Actions you took (Actions are what people do—e.g., specifically the
steps you took to resolve the problem), and Final Results (e.g., resolved
a conflict, in a timely manner, between your firm and a subcontractor
that threatened to delay the project).
Note: In the above example, the items in parentheses are prompts you
might use to help the candidate give you a complete answer.
Allow for silence while the candidate contemplates your questions. Remember, you spent considerable time and effort thinking about and pre-

(Continued)


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Project Management and Leadership Skills

Figure 2-3. Example Interview Form (Concluded)

————————————————————————————————
paring behavioral interview questions, so you have a good idea of what
information you are seeking. The candidate, on the other hand, likely has
never been asked these questions. So, give the candidate sufficient time
to recall specific instances which he or she can relate to you. You can
record his or her responses to your question in the spaces below.
You should develop several questions that reflect the requirements of the
job and give you a good picture of the candidate’s ability to perform in
the position you have open. To ensure you are protected from allegations
of unfair interviewing, ensure you ask the same initial questions to every
candidate. Your follow-up questions can be structured to fill in any gaps
in their responses.
Situation:
Task:
Action:
Final Result:
Comments/Rating:

Acceptable:
Unacceptable:
Note: This form indicates just one example of a STAF type question. Your
form should have several such questions that reflect the key points you
want to discuss in your interview. It is not uncommon that your interview form for any particular position would be several pages long and
have several knowledge area questions and/or skill-related questions.
————————————————————————————————

Staffing the Project Team

25

You should develop several questions that reflect the requirements of the
job and give you a good picture of the candidate’s ability to perform in
the position you have open. To ensure you are protected from allegations
of unfair interviewing, ensure you ask the same initial questions to every
candidate. Your follow-up questions can be structured to fill in any gaps
in their responses.

7.

Conducting the Interview. Now that you have identified the
candidates you will interview and have arranged a mutually
convenient place and time, you will want to continue the
careful approach to the interview process that you have already started.
There are several purposes of a job interview:


Help you and your organization decide if this person is
a good fit for the job



Help the interviewee decide if the job and organization
are good fits for him or her



Foster a positive picture of the organization to those
inside and outside the organization

Accomplishing these goals is not difficult. It’s basic common
sense and courtesy. In bullet form, here is a checklist of things
you and your organization should do to help ensure they are
achieved:


Ensure the interviewee is given good directions to the
interview location. Provide a map if appropriate or suggest an Internet web site to obtain directions and a map.



Help out with flight, car and hotel arrangements.



B
rief the receptionist that you are expecting “John Doe”
and ensure he or she knows how to reach the person
within your company who will take charge of the inter-

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Project Management and Leadership Skills

viewee first. This is a critical point in the interview process. The authors have seen too many bad starts to interviews caused by an organization dropping the ball
because no one at the organization knew the interviewee
was coming that day, or simply forgot. It’s not a good
way to start off a potential relationship.


Follow a procedure similar to that presented in Figure 23. Feel free to enter this figure into your word processor
to use as a template to help you conduct a good interview that meets your needs and is considerate of the
interviewee’s legitimate interests also. We recommend
you modify it to meet your specific staffing needs.



A
t the conclusion of the interview, ensure the candidate
knows how to file an expense report (if not already done
so while at your office), thank him or her for their interest in your organization and for coming to talk to you
about the open position. Let them know about when
they can expect to hear from you about your decision.
Also, encourage them to call or e-mail you if they have
any follow-up questions that may have arisen subsequent to the interview.



Follow your organization’s normal process to extend an
offer to the top candidate. Hold off sending no-thankyou letters to the others who interviewed, in case you do
not land the top candidate, and you need to move down
the priority list to make another offer.

Benefits of the STAF Questioning Technique
1. It is difficult for an individual fake or color information on
past experiences or details when you pin him or her down
for exact information on these details. The candidate soon
understands that “facts” are wanted in the interview—not
hypothetical responses.

Staffing the Project Team

27

2.

The best indicator of future performance is past performance. The STAF technique ensures you ask each candidate the same job-related questions that deal with actual
previous actions by the candidate that will help you decide
if those actions would be appropriate for the position you
are seeking to fill.

3.

Using the STAF technique with a written interview form
(e.g., Figure 2-3 tailored for your open position). You
should use this form with every candidate to help avoid
allegations of unfair interviewing practices (e.g., an interviewee claiming you asked softer/easier questions to another person than you did to him or her). Or if such
claims are made, you will be in a position to defend yourself and your organization that your interview process was
fair and nondiscriminatory.

STAF Questioning Technique Follow-up
Often you will receive partial or vague answers to some of
your behavior questions. The following are examples of followup questions that you can use to tie-down responses.
1.
2.
3.

4.

Action—”Under those conditions, exactly what did you
do?”
Final Result—”So what was the outcome of your actions?”
“What was your role in that effort” (to tie-down the
candidate’s role in a group effort or to draw-out a person
who is shy or is concerned that he or she will be seen as
someone trying to hog the credit if he or she talks about
his or her role in detail)
“When that happened, what did you do?”

Final Thoughts on Interviewing
Good interviewing skills are just that—skills. The more
they are practiced, the better you will get at it. You should approach interviewing as an important task of project manage-

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Project Management and Leadership Skills

ment. Plan for it, do it, evaluate how well you did and make
adjustments to do it better next time. The rewards for this effort
will be new hires who will be the best people to help you succeed in managing your project.
Next Steps
With your interviews completed, you will want to meet with
your HRD representative and the members of your interview
team. The objectives of this meeting are to: 1) Compare notes, 2)
Discuss qualifications of the candidates based on your behavioral
interviews, and 3) come up with a short list of candidates whose
references you will check. Checking references can take 30-60
minutes per reference check, but it is a crucial element of the hiring process. Do not omit it.
If possible, check three references for each person on your
short list. We recommend you develop a reference check form that
you can use for each reference check you make. Develop this form
in cooperation with your HRD representative to ensure your questions comply with EEO and other legal requirements, and do not
pose a risk of a discrimination charge against you or your firm.
After you have completed your reference checks and discussed
with your selection team all of the information associated with
each candidate, it is time to do a final ranking, and work with
your HRD to extend an offer of employment to the candidate that
best meets your requirements.
If you have followed the guidance in this chapter, you can be
confident that you will select qualified people for your organization.
Final Thoughts on Staffing
We began this chapter by pointing our that of all the important factors associated with a successful project, people heads the
list. Good people make things happen, even in the face of difficult
obstacles. It is for that reason that this chapter has provided considerable detail on how to staff a project for success. Good people
make the project a success—that makes you a success!

Fundamentals of Scheduling

29

Chapter 3


Fundamentals of

Scheduling

THE ROLE OF THE
PROJECT MANAGER

AND

SCHEDULING

T

he project manager plays an important role in project scheduling. The development of a realistic schedule is crucial to
the project’s overall success. The project manager needs to
establish checkpoints and milestones to insure the project is kept on
track. Insuring that the overall project is completed on time is critical to a project manager’s success The importance of completing a
project “on-time” has great financial consequences. Many clients
include in their contracts a “bonus” or penalty depending on the
projects overall completion date.
The purpose of this chapter is to review the fundamentals of
scheduling which provide the basis for today’s project management software programs.
Computer tools for project management are discussed in
Chapter 4.

CRITICAL PATH METHOD (CPM), PROGRAM
EVALUATION & REVIEW TECHNIQUE (PERT)
AND GANTT CHART
CPM, PERT and Gantt Charts are various methods used to
manage project schedules. This chapter will focus mainly on the
Critical Path Method of Scheduling.
29

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Project Management and Leadership Skills

The Critical Path Charts are similar to PERT Charts and are
sometimes referred to as PERT/CPM.
On the other hand a Gantt chart is a matrix which lists on the
vertical axis all the tasks to be performed. The horizontal axis is
headed by columns indicating task duration.

HISTORICAL BACKGROUND
CPM scheduling was developed in the late 1950’s. It was
introduced to the industry as a tool to improve planning and
scheduling of construction programs. Concurrent with industrial
development of CPM, the U.S. Navy introduced a similar method
of scheduling called PERT. PERT is an acronym for Program
Evaluation and Review Technique. The Navy developed this
method to evaluate and monitor progress of the Polaris Missile
Program. The major difference between CPM and PERT is that
PERT is a more probabilistic approach that lends itself to activities
for which there is little or no historical experience, whereas CPM
uses historical information for establishing durations. Subsequent
development led to a considerable amalgamation of the two methods.
It was not until 1967 that James Kelly developed the techniques of CPM as used today. He used digital computer techniques developed by Rand Corporation and applied them to a
complex construction project for DuPont Corporation. This resulted in completion of a project well ahead of schedule.

OBJECTIVES

OF

CPM

Figure 3-1 lists the objectives of CPM scheduling. As seen
from the figure, CPM can be used as a logic tool for decisionmaking. It provides a means for planning, scheduling, controlling
and presenting alternate courses of action. It also provides a visual means of communication to Project Management and an or-

Fundamentals of Scheduling

31

ganized approach to implement a schedule program. CPM scheduling can be carried out manually or with a computer program.
A major problem with the CPM computer programs can be
the number of activities. Very large networks became the norm
during the 1960’s. Size, not quality, became a dominant factor and
computer scheduling methods became more important than the
scheduling program itself. Theory replaced practicality and, as a
result, quality of scheduling deteriorated.
It was not until the mid-1970’s that a proper balance of computer method and size of networks was achieved. Experience has
shown than 10,000/20,000 activity networks are costly, unmanageable and inefficient. Careful prior evaluation of criticality and networks with a maximum of 5,000 activities have proven effective.
Figure 3-1. Objectives of CPM
—————————————————————————————
• Plan
• Communicate
• Schedule
• Organize
• Control
• Implement
—————————————————————————————

TERMS

AND

DEFINITIONS

Figure 3-2 lists terms and definitions of typical CPM schedules. Brief definitions of each are covered with further explanations to follow.

ARROW DIAGRAMS VS. PRECEDENCE
DRAWINGS VS. TIME-SCALED DIAGRAMS
Figure 3-3 shows three methods of drawing CPM diagrams.
Each has its pros and cons.
Arrow Diagramming, at present, seems to be the most popular method. This probably stems from the fact that it was the first

32

Project Management and Leadership Skills

Figure 3-2. Terms and Definitions

—————————————————————————————

Activities (arrows)

An item of work, with or without its duration.

Nodes (events)

Start and finish points of an activity.

Arrow Diagram

A Network showing a logical sequence of activities and events which are graphically shown as
arrows and nodes.

Restraints

Limiting activities that prevent other activities
from starting. They are non-time consuming and
are referred to as “dummy” or dependent activities.

Critical Path

The longest duration chain in a Network.

Early Start (ES)

As implied this is the earliest time that work can
begin on a given activity.

Late Start (LS)

The latest time that a given activity can start
without affecting the overall project duration.

Early Finish (EF)

The finish achieved by starting a given activity
at its Early Start and achieving the estimated
duration of that activity.

Late Finish (LF)

The latest time that an activity can finish without affecting the overall Project Duration.

Float

Spare time available to activities not on the Critical Path.

Total Float

The amount of spare time available to an activity
if all preceding activities are started as early as
possible and all following are started as late as
possible.

Free Float

The spare time available to an activity when all
activities in the chain are started as early as
possible.

—————————————————————————————


Fundamentals of Scheduling

33

method to be developed and computerized. It is also easier to
associate with time and flow of job activities.
A major difficulty to arrow diagramming is the “dummy”
activity. Learning the significance and proper usage of “dummies”
requires time and experience. The arrow diagram is also cumbersome to modify.
The second method is Precedence Diagramming. As shown,
the activities are on nodes. Length and direction of the arrows
have no significance as they indicate only the dependency of one
activity on another. This method is commonly referred to as “Activity-on Node.”
This method has received wider acceptance over recent
years. Its primary advantage is that it eliminates “dummy” activities. It is also easy to modify. Since there are no events in
the “Activity-on Node” diagrams, it is difficult to use milestones in the network; therefore, visual aspects of precedence
networks are poor. As there is no dateline, it is also very difficult to view overall status.
Both methods are acceptable, however, arrow diagrams
continue to have the slight edge because of early acceptance
and familiarity.
The third method, showing a time-scaled network, is just a
more “visual” tool of the arrow diagram. It is not designed as a
tool for detailed control, but a technique to present overall schedules to management. It gives a quick and simple picture of the
schedule as it relates to time, activity interfaces and criticality.

SIMPLE NETWORK
Figure 3-4 illustrates a simple network of an arrow diagram.
There are three activities: A, B and C. They can be defined as follows: A is the beginning activity; B follows A but cannot begin
until A is complete; and C is the final activity following the
completion of B. As shown, there is a logical sequence of work
starting from left to right.

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Project Management and Leadership Skills

Figure 3-3. CPM Drawing Methods


Fundamentals of Scheduling

35

Figure 3-4. Simple Network
Problem 3-1: Network Development
In order to develop a network, the following example illustrates the steps involved. Given the data as indicated in Figure 35, draw an appropriate network.
Activities must follow in a logical sequence.
Analysis
First, read through the given data and note that this in a nineactivity network. Activity A is the first activity and Activity I is the
last.
Figure 3-5. Network Development Problem
—————————————————————————————
Given:
1) Activity B follows activity A
2) Activity A is the beginning activity
3) Activity C follows activity A
4) Activity C precedes activities E & F
5) Activity D follows activity B
6) Activity G follows activities D & E
7) Activity F precedes activity H
8) Activities G and H precede activity I
9) Activity I is the last activity
Draw the appropriate network.
—————————————————————————————

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Project Management and Leadership Skills

Figure 3-6 shows the completed network diagram. Networks
become more complex as activities are added and durations are
established for each activity. Activity durations can be in days,
weeks, or months; therefore, it is essential to determine from the
outset the time scale. Logical sequence and durations for each
activity can be determined by past experience or by work content
in relation to available resources. This determination should
evolve from consultation between the scheduler and appropriate
construction and engineering personnel. It is important that an
operating group concur with the schedule development, accept it
as their schedule, and make a commitment to operate as per the
plan and schedule. Work sequence can then be checked and durations assigned to each activity.
Today the project manager can evaluate complex schedules
using a wealth of software available.

Figure 3-6. Network Development Solution


Computer Tools for Project Management

37

Chapter 4


Computer Tools for

Project Management

Barry Benator

O

ne of the challenges a project manager must face is how
to keep track of the many elements of project management, including tasks, milestones, dependency relationships, schedules, people, costs, deliverables and progress toward
interim and final goals. Until the 1980s, these tasks were often
performed by hand with a calculator and a hand-drawn Gantt (or
bar) chart or by a computerized project management program
requiring a mainframe or minicomputer system. All of that has
changed. There are now powerful computerized project management (PM) programs that can be run on personal computers costing less than $1000. The actual PM programs themselves may cost
less than $100 for limited low-end products that can only handle
schedules and graphics, to $500 to several thousand dollar programs that not only provide timely and accurate schedule information, but also powerful resource and cost tracking capabilities.
We introduce computer tools for project management at this
stage in the book because a large part of the mission of a project
management program is to assist in scheduling and keeping track
of tasks and milestones. So it follows naturally after the previous
chapter on the fundamentals of project scheduling. However,
many good project management programs do so much more than
deal with scheduling issues alone.
37

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Project Management and Leadership Skills

HOW DO I KNOW WHAT PROGRAM

TO

BUY?

Like any issue related to a software purchase, the most relevant
question is “What do I need and what do I want it to do?” Buying
a powerful program costing several thousand dollars that can
handle a $100,000,000 construction project may be just what is
needed if your project is that complex. On the other hand, if your
project is in the $500,000-$10,000,000 range, a project management
program costing around $500 might be more appropriate. For
lower project budgets, a spreadsheet program with simple graphics may be your best tool. The key thing to remember is to find
and use a program that fits your project, not one that is either so
elementary you waste time and money performing a number of
project control tasks outside the program, or so complicated that
you spend more time figuring out how to use the program than
letting it help you manage the project.
Some of the key issues that separate the low-end, inexpensive
programs from full-powered project management programs are
how well they perform in the following areas:





Initial setup—Creating the project plan
Tracking progress
Reports
Ease of use versus power and sophistication

By looking at a program with respect to these areas, you can
determine if the program will meet your project management requirements.
The first step in finding the right program, as noted earlier in
this chapter, is to take a long, hard look at just what your requirements are. The more clearly you have in mind what your needs
are, the easier it will be to select the right software. The points that
follow highlight key features you need to consider. In addition to
these features, you will also want to go to the Internet and look at
unbiased reviews of project management programs. In addition,
talk to users of the programs you are considering to obtain firsthand, unbiased input about the programs you are considering.

Computer Tools for Project Management

39

INITIAL SETUP—

CREATING THE PROJECT PLAN

Typically, a project manager starts with an endpoint in
mind—a design is completed, a building is ready for occupancy,
a plant is built, etc. There is a budget, of course, but in planning
a project, PMs tend to think initially in terms of a schedule of tasks
and milestones. The project management programs you want to
consider are ones that make planning the project relatively easy, so
you actually use it, and powerful enough that it acts as a valuable
tool to help you bring the project in on time and within budget.
Activities and Scheduling
Entering the Project Plan
The way you enter the project plan into the program and the
ease of changing the plan will have a direct effect on how much
use you get out of the program. When entering the project plan,
you must define all the project activities. Most of the programs
have you build your plan by listing the project activities down the
left side of a Gantt or bar chart. You then fill in a form for each
activity to identify its duration, the required resources and any
activities that precede it.
A few programs let you create your project as a network first,
actually drawing the boxes for each activity and the connecting
lines that show their sequence. You may prefer one method of creating a project plan over another, but what is important is the ease
with which you can create the plan and make changes to it. Some
programs make it difficult to add or delete activities once the plan
is created. As any experienced project manager knows, projects
rarely go exactly as planned. So the first consideration is to make
sure the program makes it easy to create the plan and change it. If it
fails this test, you will be less likely to use it and thus take advantage of the benefits project management software has to offer.
Full Precedence/Relationship Capability
A second important feature to check for is how well the program

40

Project Management and Leadership Skills

can represent the relationships among the activities and milestones that make up the project. When you enter the activities you
also specify their sequence and precedence; that is, how the activities or milestones depend on each other and which must be done
before others can begin.
As a minimum, the program must be able to contain all the
project activities, and calculate and show the project’s critical path.
The critical path is the sequence of activities and milestones which
must be completed on time if the project is to be completed on
schedule. Another way of saying the same thing is any delay of
any task or milestone on the critical path will delay the project.
Beyond showing the critical path, a program can be judged
by how well it depicts the precedent relationships among the activities. Some programs only allow a finish-to-start relationship
among activities, which means a subsequent activity can start only
after a previous activity is finished.
Finish-to-start is a common relationship among activities, but
you may also frequently have activities that depend on each other,
but overlap to some extent. With these activities, the finish-to-start
relationship does not accurately apply. So if you have program
that allows only for finish-to-start relationships, you must decide
either not to show the relationship as it should be or to artificially
break down the activity into subactivities so they fit into the finish-to-start mode. This means you are having to adjust your work
pattern to meet the program’s needs rather than the other way
around.
The ability to handle full precedence relationships is a key
difference between programs. Determining the number and type
of precedence relationships a program is capable of should be an
important test of any software you consider. After all, you want
the software to accommodate your project management needs, not
the other way around.
Limits on Number of Activities
Many of the less expensive programs have a maximum number of activities that can be entered into the program. This maxi-

Computer Tools for Project Management

41

mum may be well below your needs. If your activities appear to
come close to the maximum allowed by a program you are considering, you may want to look at a different program, one that will
have the capacity to allow you to enter all of your planned activities
into the program with room for additional activities, if needed.
WBS Capability
Equally important for some managers is the ability to identify activities in a work breakdown structure (WBS) format. A
WBS as it applies to project management programs is the capability of assigning ID codes to each task in the project, from the highest level main tasks all the way down to the lowest level subtasks.
An example of a partial work breakdown structure for a design
project is shown in Figure 4-1. Note: Only the electrical and mechanical subtasks are shown for illustrative purposes, In an actual
project, all relevant disciplines would be shown and in sufficient
detail to allow the PM to grasp the details of the project.
Figure 4-1. Example Partial Work Breakdown Structure
ABC Hospital Addition

Architectural
ABC.01

Civil
ABC.02

Structural
ABC.03

Source: SureTrak Project Manager

Electrical
ABC.04

Mechanical
ABC.05

Distrbtn.
ABC.04.1

HVAC
ABC.05.1

Lighting
ABC.04.2

Plumbing
ABC.05.2

Emrgncy.
Power
ABC.04.3

Central
Plant
ABC.05.3

42

Project Management and Leadership Skills

A WBS allows the project manager to report and summarize
project data at different levels of detail. For instance, a PM could
ask the software program to provide all costs to date for the mechanical engineering discipline or architectural discipline and
compare to budget numbers.
After defining the project activities and determining their
relationships, you will want to schedule their start and finish
dates and identify any other scheduling constraints individual
activities may have. A distinguishing feature of some better programs is that you can assign specific start to finish dates to individual activities.
Another important issue is that some programs require that
you first specify a project start date before the program will schedule the project. But, of course, you may have a project for which
all you know is the deadline, the required finish date. Fortunately,
some programs let you schedule the project by entering the finish
date first. The program will then calculate backwards from the
finish date to obtain the appropriate calendar dates for each
project activity.
Schedule Display
How the schedule is displayed can also be important. For
example, can the schedule be presented in various units, such as
months, days and hours? And if you have a very long project, can
the schedule be summarized so the entire project can be graphically represented on a single page? (While this may useful at
times, the scale may be such that the print is too small to read
comfortably.)
Resource Allocation
After breaking the project down into tasks and their relationships, you will need to identify available resources and allocate
them to the project tasks. Surprisingly, there are several programs
that do not allow for realistic resource identification and allocation, even though the ability to assign resources to a project is
essential to effective project management.

Computer Tools for Project Management

43

Programs that allow for the assignment of resources usually
make it a two-step process: (1) you first specify all project resources and their associated costs; (2) you then allocate them to
the various tasks.
Assigning Resources
A key thing to look for in a program is the degree of discrimination allowed in identifying the assigning resources. Software
programs vary widely with regard to resource management, and
it is well worth a close look to see if the program can meet your
specific needs.
The number and type of resources you can assign to a task is
the first consideration. Some programs let you identify and assign
only one or a few resources per task.
More powerful programs let you assign codes to each resource so you can further break down each type of resource; for
example, ME1 = level 1 mechanical engineers; ME2 = level 2
mechanical engineers; etc. The program can then produce reports
that are sorted based upon any given resource type or subtype.
For example, you could print out a histogram, or resource allocation chart, for all level 1 engineers assigned to Subtask ABC.05.1.
Assign Partial Resources
The ability to assign partial resources to an activity is another
valuable feature of some programs. You may be able to assign a
percentage of a resource to a task, which is a common need in
projects. If the program does not allow partial assignment of resources to a task, you will have to artificially break down the task
so it matches the resources allocated to it. This may be an acceptable accommodation if the program meets your needs in other,
more important ways. Still, if you have to do this, the program is
forcing you to meet its requirements instead of meeting your requirements.
Many programs let you distinguish between conventional
resources, such as labor and equipment, and expendable resources, such as cash. When a program lets you make this distinc-

44

Project Management and Leadership Skills

tion, you can usually allocate the cash as an expendable resource
and then produce cash-flow reports.
Resource Leveling
Resource leveling is the process of smoothing out the use of
resources over time so you can meet whatever constraints you
have on resource availability. Some of the better programs let you
specify limits to resources, and the program will then automatically calculate the best use of the resources over time within the
given limits.
Many times a project or certain activities in a project are resource-driven; that is, the availability and use of resources are of
overriding importance. Using a program that does resource leveling can save a lot of time and effort when you are trying to juggle
schedules to optimize the use of resources.
Assigning Costs
When you define a resource, most programs let you specify
its cost per unit of time. Then, when the resource is assigned to
project tasks, the total costs are calculated and kept track of by the
program. Usually a program will let you assign only one rate for
any given resource. To have multiple rates for a resource you
would need to identify it as a different resource for each rate (e.g.,
Engineer 1, Engineer 2 and so on).
Another valuable feature of some programs is the ability to
assign a cost to an activity and specify that the cost accrue at the
beginning or end of the activity. Many programs do not give you
this choice when assigning costs, and automatically prorate the
cost over the duration of the activity. But sometimes this is not the
way costs actually accrue. This may not be a show-stopper relative
to purchasing the program but it is a factor to consider when you
are evaluating different PM programs.

TRACKING PROGRESS
Showing actual progress of a project against project plan is
one of the things that separates many low-end programs from

Computer Tools for Project Management

45

their more powerful competitors. Some low-end programs require
you to change the planned schedule in order to show actual
progress. This leaves no baseline plan against which you can compare actual progress.
Far better are those programs that display, usually on a Gantt
chart, planned and actual progress. You enter the actual progress
or percentage of completion for each activity. And the result, a
graphic comparison between actual and planned progress, can be
a valuable tool for managing the project. This actual vs. planned
capability should also carryover to costing if that is important to
you.

REPORTS
Reports of the project plan and project status are some of the
most valuable tools a program can provide. A software program
can make updating project reports quick and easy. And to the
benefit of all, it is becoming the norm that programs provide both
tabular and graphical reporting capabilities.
The various programs offer a full range of reporting capabilities, but there are certain reports you will want your program to
produce:


Gantt (or bar) chart—This favorite shows each project activity
as a horizontal bar extending along the project timeline. The
Gantt chart should also show milestones (key dates) and.
preferably, planned activity progress versus actual progress.
It is helpful if the program allows for depiction of precedence
relationships among the tasks.



Network Diagram (PERT chart)—the network diagram should
show all project activities and their precedence relationships.



Activity schedule—This report may go by various names, but
it is a tabular listing of all project activities with their earliest

46

Project Management and Leadership Skills

and latest start and finish dates. It also shows how much
float, or slack time, each activity has.


Resource reports—At a minimum; you will want a tabular listing of all resources and their assignment to activities. Resource histograms, vertical bar charts showing assignment of
resources over time are also valuable.



Cost reports—A detailed breakdown of planned and expended project costs is a minimum requirement. More powerful programs will calculate and graph out earned-value as
the project progresses. An earned value graph compares
project completion with costs expended. These reports will
also show the estimated cost to complete the project.

Examples of computer-generated reports from Primavera
Systems, Inc.’s SureTrak Project Manager program are presented at
the end of this chapter. These are but a few of the many reports
that it and others in its class can generate.

EAST OF USE VERSUS
POWER AND SOPHISTICATION
In software there often is a tradeoff between the program’s
ease of use and its power and sophistication. Many project management programs are extremely easy to learn and use, but are too
simplistic to manage real-life projects. They might be appropriate
for creating the schedule for a relatively small project (say, less
than 50 activities), but are inadequate for handling the size, budget and resources of a larger project, which could comprise tasks
and milestones numbering in the hundreds or more.
On the other hand, some of the more powerful programs
may be so difficult to learn and to use that they are often not used
at all.
Fortunately, there are a number of programs that are both
easy to use and very powerful. It just takes some time and re-

Computer Tools for Project Management

47

search to find the best one for your project management needs.
Several programs which offer the project manager a balanced
combination of ease of use and power include Primavera Systems,
Inc.’s SureTrak Project Manager and Primavera Project Planner and
Microsoft Corporation’s Microsoft Project.
The quality of the program’s training may be one of your
most important considerations. This will be true if the people who
will be using the software are not themselves experienced project
managers or familiar with project management techniques. In that
case, you will want the program to have a good training tutorial
and very clear documentation.

IN CONCLUSION
The program features discussed in this chapter provide useful criteria for comparing programs and judging their capabilities.
The most important thing is to take a hard look at your project
management requirements and determine the minimum capabilities a program must have if it is to meet your needs.
Think about what you want the program to help you with
most. Do your projects tend to be of a certain sort and have special
requirements? For example, is account management and cost control always a primary consideration? If so, you want a program
that will let you put in enough detailed cost information that you
will have full cost tracking capability.
On the other hand, after a close look at the nature of your
projects, you may realize they are primarily schedule intensive.
For example, if most of your projects involve meeting strict deadlines (and many engineering and construction projects fall into
this class), you should look first at those programs that provide
excellent schedule tracking and related reports.
The power and capacity of a program might be your driving
consideration. If you are the master scheduler for a large project
that is made up of many other projects, you will want to look at
those programs that allow unlimited tasks and speed in process-

48

Project Management and Leadership Skills

ing, keeping in mind as well the hardware requirements.
Along this same line, some projects, especially federal government projects, have very specific reporting requirements. Even
though federal projects amount in dollar volume to a large piece
of the project management pie, only a few project management
programs actually meet federal reporting requirements specifications. So if your projects have to meet these requirements, you
need to factor this into your software requirements.
Or, again, if less experienced staff will be the primary users
of the program, good training and documentation and ease of use
can be a major consideration.
And finally, you will want to consider the program cost and
how to justify its purchase. The best method for justifying a
program’s cost is to determine what your project management
requirements are and to judge the value of the program on the
extent to which it gives you the tools you need to better manage
your projects. After a close look at your requirements you may
decide that $1,000 for a program is a small price to pay for the
power and sophistication it can deliver. At the same time it would
be hard to justify paying a few hundred dollars for a program that
lacks the capability to truly help in managing your projects.
Making the effort to find the right program can yield significant dividends to the serious project manager. And with so many
programs now offering full project management capability at a
personal computer price, you won’t have to look too far before
you find the right one for you.

Figure 4-2. Example of an Activity Listing for a Basic Energy Audit Project
Act

Description

ID

Original Remaining

Early

Early

Total

Duration

Duration

Start

Finish

Float

0

0

06JAN03

1d

1d

06JAN03

0

0

07JAN03

Resource
%

Budgeted
Cost

————————————————————————————————————————————————————
1000

Start Project

1010

Kickoff Meeting

1020

Begin Data Collection

1030

Review Utility Bills

5d

5d

07JAN03

1040

Review Drawings

5d

5d

1050

Conduct Field Survey

15d

15d

1060

Data Collect. Complete

0

0

1070

Preliminary ECO Ident.

5d

5d

1080

ECO Calculations

15d

1090

LCC Calculations

1100

Calculations Complete

1110

0

0

0

0

0

0

13JAN03

10d

0

Engineer

2,000

07JAN03

13JAN03

10d

0

Coop Stu, Engineer

3,000

07JAN03

27JAN03

0

0

Coop Stu, Engineer, Sr. Engr

27JAN03

0

0

28JAN03

03FEB03

0

0

Engineer, ProjMgr, Sr. Engr

15d

04FEB03

24FEB03

0

0

Coop Stu, Engr, ProjMgr, Sr. Engr

5d

5d

25FEB03

03MAR03

0

0

Engineer

0

0

04MAR03

03MAR03

0

0

Prepare Draft Report

5d

5d

04MAR03

10MAR03

0

0

Engineer, ProjMgr

5,400

1120

Brief Client

1d

1d

11MAR03

11MAR03

0

0

Engineer, ProjMgr

1,080

1130

Prepare FInal Report

5d

5d

12MAR03

18MAR03

0

0

Engineer, ProjMgr, Sr. Engr

5,600

1140

Project Complete

0

0

18MAR03

0

0

————————————————————————————————————————————————————
06JAN03

Engineer, ProjMgr, Sr. Engr

0

1,560

————————————————————————————————————————————————————
————————————————————————————————————————————————————

0

————————————————————————————————————————————————————
————————————————————————————————————————————————————

19,200

————————————————————————————————————————————————————
————————————————————————————————————————————————————

0

Computer Tools for Project Management

————————————————————————————————————————————————————

3,900

————————————————————————————————————————————————————

27,300

————————————————————————————————————————————————————

4,000

————————————————————————————————————————————————————
————————————————————————————————————————————————————

0

————————————————————————————————————————————————————
————————————————————————————————————————————————————
————————————————————————————————————————————————————
Source: SureTrak Project Manager

0

49

————————————————————————————————————————————————————

50

Figure 4-3. Example of a Gantt Chart Showing Dependency Relationships for a Basic
Energy Audit Project

Project Management and Leadership Skills

Source: SureTrak Project Manager

Basic Energy Audit Project

Computer Tools for Project Management

Figure 4-4. Example of a PERT Chart for a

51

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Technical, Schedule, Financial Management

53

Chapter 5


Technical, Schedule,

Financial Management

Barry Benator

T

he essence of effective project management is to manage
the technical, schedule and financial elements of a project
to a successful conclusion, resulting in a profitable project
for your firm and a satisfied customer who wants to do business
with you and your company in the future. As an engineering or
construction project manager, this is what you are expected to do.
This chapter provides specific guidance on how to effectively
accomplish these tasks. If you follow this guidance, you will enhance your results in these areas. But it is important to understand
that effective technical, schedule and financial management is not
a one time event. As project manager, you must continually keep
your hand on the rudder to ensure the project is headed in the
right direction. Specific practices for effective technical, schedule
and financial management are presented in the following sections
of this chapter.

THE ROLE

OF

COMMUNICATIONS

The first step in effective technical, schedule and financial
management is for you, the project manager, to continually emphasize the importance of meeting the customer’s and your firm’s
technical, schedule and financial management expectations. Say53

54

Project Management and Leadership Skills

ing it one time is not enough. You don’t want to be a broken
record, but you do want to reinforce the importance of meeting
technical, schedule and financial targets at every reasonable opportunity.
You can and should initiate communications about your expectations at your first project team meeting. Typically this meeting would be held after you have been designated as the project
manager and one or more of your project team members have
been assigned, but it can be held anytime. When I use the expression project team, I am referring to both internal and external team
members (members of your firm, contractors, consultants, vendors, etc.).
At this meeting, you will want to explain very clearly your
standards for the project. You might even want to hand out a
paper containing your project management principles, and then
review the contents of the paper with the project team. You could
draw upon the principles presented in this and other chapters of
the book to prepare your handout.

EFFECTIVE TECHNICAL MANAGEMENT
Accountability at All Levels
While you as PM have overall project responsibility and accountability, in managing the technical performance of the project,
it is important that you hold project team members accountable
for their technical performance. How you will do this involves the
skills of leadership and management, some of which you will
acquire using the principles presented in this book, others you
will acquire through appropriate courses and/or guidance from a
friend or mentor.
This issue of accountability is crucial. Whether it is a design
analysis, a CAD drawing or a construction schedule, the PM must
ensure the project team members understand their responsibility
and accountability for fulfilling their commitments on the technical portion of the project. It should be communicated that missing

Technical, Schedule, Financial Management

55

commitment dates or not meeting quality standards is unacceptable. This does not mean you fire or replace a project team member who makes a mistake or get angry with that person, especially
if he or she alerted you ahead of time that there is a problem.
Rather, you want to support and coach those persons to help them
meet their commitments in the future.
A good guide for you to follow in determining if a person can
truly be held accountable for a specific task is to ask yourself the
four questions below. If you can answer yes to all four of these
questions, then it’s fair for you to hold that person accountable.





Does the person know what he or she is supposed to do?
Does he or she know how to do it?
Does he or she have the authority to do it?
Does he or she receive coaching and feedback on their performance?

Codes and Standards
A significant technical management issue is compliance with
appropriate codes and standards. This is, or should be, a contractual item. The technical issues here are not only ensuring your
design complies with the appropriate codes and standards, but
first to determine what are the appropriate codes and standards.
Code and standard authorities may be international, national,
state and local. Listed below are just a few of the code and standard authorities you may need to consider for your project.
ASHRAE—American Society of Heating, Refrigerating and Air-Conditioning Engineers
IESNA—Illuminating Engineering Society of North America
ICBO—International Conference of Building Officials
BOCA—Building Officials and Code Administrators International Inc.
SBCCI—Southern Building Code Conference International Inc.
ICC—International Code Council

56

Project Management and Leadership Skills

NFPA—National Fire Protection Association
NCSBCS—National Conference of States on Building Codes and Standards
ASTM—American Society for Testing and Materials
ANSI—American National Standards Institute
BOMA—Building Owners and Managers Association
NAHB—National Association of Home Builders
UL—Underwriters Laboratories Inc.
HUD—Department of Housing and Urban Development
ADAAG—Americans with Disabilities Act Accessibility Guidelines

In some cases, codes and standards will conflict with each
other. As PM you are responsible for sorting all this out and providing appropriate guidance to your design team so they know
the standards upon which they should base their design. Work
with experienced engineers, construction managers and code officials to resolve code conflicts. Be aware that even in the absence
of specific codes in your contract or design documents, your firm
is responsible for designing and constructing a facility using the
care and skills normally exercised by qualified companies in your
field.
Technical Review Meetings
It is important to hold periodic and as-needed meetings with
your project technical team. This will help ensure your technical
team knows what your expectations are, that appropriate
communications across disciplines are occurring and that you
know how well your team is producing technical results. A routine project meeting frequency of one meeting every week or two
is reasonable unless events dictate a more frequent schedule.
Use these meetings to assess how the project is proceeding
technically, give participants an opportunity to voice any con-

Technical, Schedule, Financial Management

57

cerns, identify potential conflicts and plan work-arounds to avoid
or mitigate those conflicts. You can also use these meetings to test
the information you are being given for rationality and soundness.
It is very important to go into the meeting with an agenda
that lets everyone know what is to be covered, who is responsible
for presenting or leading that part of the meeting and the length
of time each person will have to cover their particular topic. You
will also want to have a Postmeeting Action Plan that will help
everyone know what is expected to happen after the meeting. An
example agenda format is presented in Figure 5-1. You can use it
as a point of departure to develop your own, tailored meeting
agenda. An example of a Postmeeting Action Plan is presented in
Figure 5-2.
Figure 5-1. Example Agenda

————————————————————————————————
ABC University
Project Status Meeting
February 10, 20__, 8:30a-11:30a
Participants:
Our Firm
Bob Project Manager
Jane Assistant Project Manager
I.

II.

III.

MEP Consultants
Alice Project Manager
Phil Assistant Project Manger

Current Project Status
A. Overall Project Status Bob
B. Results of Agency Review Jane
C. MEP Status Alice

20 minutes
20 minutes
30 minutes

Client Concern Issues
A. Old Concerns Bob
B. New Concerns Jane

20 minutes
20 minutes

New Issues
A. Our Firm Jane
B. MEP Consultants Alice

45 minutes

IV. Summary/Post Meeting Action Plan Bob
15 minutes
V.
Schedule Next Meeting Bob
10 minutes
————————————————————————————————


58

Project Management and Leadership Skills

The times listed in the agenda should be considered targets,
not absolutes. You should manage the meeting so that relevant
information is covered but time is not wasted on unnecessary
tangents. All parties should have a copy of the agenda several
days prior to the meeting so everyone knows what they are responsible for. Bring extra copies to the meeting for last minute
meeting attendees and lost agendas.
Use the following Postmeeting Action Plan form, illustrated
in Figure 5-2 and tailored to meet your specific needs, to ensure
follow-up of the issues and commitments discussed in your technical review meetings.
Figure 5-2. Postmeeting Action Plan

————————————————————————————————
Meeting Topic:
Meeting Date/Location:
Chairperson:
ACTION ITEMS
What

Responsible
Person

When
Due

Comments

Issues Discussed/Decisions Reached:
———————————————
———————————————
———————————————
———————————————
Next Meeting Scheduled for: _____________________________________
Date/Time/Location
List of attendees attached. Recipients of this Action Plan attached.
————————————————————————————————

Technical, Schedule, Financial Management

59

The Postmeeting Action Plan form is best filled in real-time
during the meeting. At the end of the meeting, you will want to
review it with the meeting participants, make any appropriate
changes and then make copies to give to each person before they
leave the meeting. You might also want to follow-up with meeting
minutes that expand upon this “quick look” meeting documentation form.
You can use this Postmeeting Action Plan to follow-up and
manage the results expected from the project team members who
attended the meeting.
Use Teammate Talent
Another means to enhance technical quality is to encourage
project team members to seek out their fellow colleagues for advice
and counsel on difficult technical issues. As PM you need to foster
the belief that asking for help is a strength, not a weakness. You
can underline this point by modeling the expected behavior.
Seek advice and guidance from your own team members and
other PMs on difficult technical and PM issues. Consult your boss
and friends. In other words, no one knows it all—neither you,
your engineers, your CAD team members, your construction
managers, etc. If you seek help from others on your PM issues,
your team members will be more at ease in doing so themselves,
and that will have the effect increasing technical performance on
your project.
Sanity Checks
Use your experience as a project engineer or construction
manager as a sanity check or “sixth sense” to evaluate information
from your project team members, especially members with whom
you have not previously worked. (I recall working with a consultant who commented midway in our project that it won’t be too
long for the “all-nighters to begin.” When I inquired as to what he
meant by that, he informed me on his previous projects the project
teams always held several all-night work sessions prior to delivering the design documents to the customer. I then calibrated the

60

Project Management and Leadership Skills

consultant that I expected him to meet his commitments in a
manner that did not require anyone else on the team to work all
night just because he was.).
Sometimes long days or even overnighters may be necessary
due to unforeseen circumstances. Often times, however, they are
the result of inadequate planning and attention to quality in the
first place. By staying in touch with your project team members
individually and at meetings, you can develop that sixth sense
that will help you realize someone on the project team needs help
or there is an impending danger to the project. What you don’t
want to do is ignore potential problems, hoping they will go
away—they won’t.

EFFECTIVE SCHEDULE MANAGEMENT
Communications
The first step in effective schedule management is for you,
the project manager, to continually emphasize the importance of
meeting the customer’s and your firm’s schedule. Saying it one
time is not enough. You need to reinforce the importance of meeting schedule milestones at every reasonable opportunity.
One way to avoid late deliverables is to have periodic schedule review meetings. These can be combined with the technical
review meetings previously discussed. At these meetings you will
want to inquire about upcoming key dates and listen carefully to
identify potential problems. Clues that you may have an impending problem include someone being sick or out of the office for a
family crisis, a departure of a key project team member, a supplier
strike, etc. Start planning work-arounds that will help mitigate the
impact should any of these possibilities come to pass.
Achieving Buy-in to the Schedule
It is a fact that people demonstrate a greater ownership and
commitment to a project schedule when they have had an opportunity to have an input to that schedule. As PM, you will want to

Technical, Schedule, Financial Management

61

include as many project team members as possible when you are
setting up the project schedule. Then have the people responsible
for their particular part of the schedule sign off on their commitments so there can be no misunderstandings as to what they have
committed to.
Set Early Milestone Dates
To help you manage the schedule, set up a time buffer, similar in concept to leaving sufficient space between the car ahead of
you on the highway to avoid an accident if he/she stops suddenly.
Try to set early milestone dates so that you will have time for
review of key work products and have sufficient time to modify
them before the actual deliverable dates specified in the contract.
These early due dates will also allow for things that might go
wrong; e.g., a faulty analysis, an illness on the part of a key team
member, departure of a key team member, a crisis requiring the
need to share a key team member with another project.
Use Computer-Based Scheduling
We have already discussed the benefits of computer-based
scheduling (Chapter 4). Whether you use a customized spreadsheet, an in-house program or one of the commercially available
programs such as Primavera Systems, Inc.’s SureTrak Project Manager® or Microsoft® Project or some other program, computer-based
programs can help you stay on schedule. They can track your
progress against plan and help you spot early on whether the
project is in danger from a scheduling point of view. Once you
know you have a potential schedule slippage, you are then in a
position to take timely action to avoid the delay, or at the minimum, let your boss and customer know what is happening and
what you are doing about it. This will show that you are on top
of the situation and doing your best to minimize any slippage.
Don’t Let Chronic Late Performers Slide
It is fact of project management life that while most people
are committed to delivering what they promise when they prom-

62

Project Management and Leadership Skills

ised it, sometimes you will have on your project team a person
who is frequently guilty of missing committed dates. You will
need to exercise judgment on how to best handle each situation,
but you will want to ensure that frequent offenders are counseled
and steps taken to avoid late performance in the future.
Don’t be afraid to ask project team members directly if they
will meet their schedule commitments. Be sensitive to problems
they may have and work with them as much as possible to help
them meet their commitments. However, their commitments are
their commitments, and they should bring to bear all possible
resources to deliver on their commitments.

EFFECTIVE FINANCIAL MANAGEMENT
This is the Bottom Line
The most technically sound project, completed well within
schedule has not fulfilled all the requirements of effective project
management if it does not meet its financial targets. Even allowing
for the uncertainties inherent in an early-stage R&D project or
first-of-a-kind project, where costs are difficult to predict, you as
PM are responsible for managing the project to a within-budget
conclusion.
Project Control System
To effectively manage the financial part of your project, it is
important that you become intimately familiar with the project
control system used by your firm. The reports and information
provided by these systems typically yield a wealth of information
about the project’s financial health. Sometimes these reports can
be a challenge to understand, but you need to do whatever it takes
to understand them so you can determine if your project is on
track with respect to its budget. Once you understand how the
reports are generated and what the various entries mean, it will be
easy for you to use them as an effective tool to help you manage
the financial element of the project.

Technical, Schedule, Financial Management

63

Labor Cost Management
Labor charges can be the most significant cost element of a
project, particularly with a design or energy audit project. As with
the other responsibilities of project management, it is critical that
you as project manager frequently reiterate to project team members the importance of controlling internal labor costs. If the
project team members know that internal cost control is important
to you, they are more likely to make it a priority for themselves.
Because you have prepared a budget and know what to expect in the way of project progress versus labor hours required to
attain that progress, you are in an excellent position to determine
if the labor costs charged to your project are reasonable compared
to value received. If you determine that you have been overcharged compared to a previous commitment to deliver a product
at a specified cost (or labor hours), then you should negotiate with
the charger to reach a reasonable accommodation. This accommodation may involve removing some or all of the out-of-budget
hours charged to your project. You’ll want to be reasonable about
this negotiation because there may be good reasons (e.g., unforeseeable complexities, late or incomplete input from another engineer, etc.) that the charger put more hours on the project than you
anticipated. If there are, then you will want to obtain agreement
from the charger that in the future he/she will talk with you prior
to overcharging the project on any particular task.
Sometimes you will be hit with excess labor charges because
a charger needed a place to put hours on his or her timesheet, and
you may find that you have been the “lucky” person to receive
them. To avoid this, you should question any hours that do not
appear reasonable or that do not have good value associated with
them. Do it tactfully, avoid accusations and simply inquire as to
what tasks the hours were applied and what was accomplished
for those hours.
Another thing to watch out for is an accounting glitch, especially when a paper timesheet is transcribed into a computer program. Sometimes through a mistaken entry, charges can end up on
your project when they belong to another project. Here, as before,

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Project Management and Leadership Skills

you will want to carefully review the periodic project control reports you will receive (or generate yourself if that is how you
work) and ensure invalid charges are removed from your project.
Once it becomes clear to all parties that you are checking
project financial reports carefully and requiring invalid charges to
be removed from your project, the incidences of invalid charges
appearing on your project financial reports will be reduced.
Subcontractor Cost Management
Many projects use subcontractors, consultants and vendors
(all referred to as subcontractors in this book). As project manager
you will want to control subcontractor costs as tightly as you
control other project costs.
Ways to do this include:


Let your internal teammates know that controlling subcontractor costs is as important as controlling other costs.



Seek multiple subcontractor quotes or use subcontractors
with whom you have a good relationship and who you know
will give you a quality product or service at a fair price.



Checking into new subcontractor references is a good way to
determine if the sub you are evaluating will likely be a good
project team member. Experience has shown one of the best
indicators of future performance is past performance. So do
your homework.



T
reat your subs with fairness and respect. Negotiate services
and prices that provide you and the sub with a fair balance
of quality, cost and service.



Carefully check the math and work claimed by the subcontractor. If your contract with the subcontractor requires you
to reimburse your sub for equipment ordered, ask to have
copies of the order form and receipt by the vendor attached
to the invoice.

Technical, Schedule, Financial Management

65



Pay only on original invoices approved by the PM. Do not
pay from faxes, photocopies or e-mails. This will help minimize the possibility of multiple invoices being paid for the
same work.



Do not approve a partial payment of an invoice (except retention). If a subcontractor invoices you for $10,000, but has only
accomplished $7,000 of work, reject the invoice and require
the subcontractor to submit a new, accurate invoice for
$7,000. If you were to approve only $7,000 of the $10,000
requested, then the subcontractor’s accounting department
will show $3,000 as an unpaid receivable and will be calling
you and/or you accounting department asking why/when
the $3,000 will be paid. In their eyes, your company is not
paying its bills, which isn’t the case. While rejecting the invoice outright and requiring submittal of the correct invoice
may seem like overkill, it will ultimately provide the smoothest and proper practice for both companies.



Check your project control system to ensure the subcontractors invoices you approved for payment are accurately reflected in the system.



Check your project control system to ensure that another
project’s subcontractor costs did not land on your project. It
is very easy to key in an incorrect project number that puts
incorrect charges on your project. By the same token, be a
good teammate and if you do not see a subcontractor charge
that you expected, inquire what happened and maybe you
can save another project manager a little grief as he/she tries
to sort things out.



Be prepared to help a subcontractor get paid if its invoice
gets lost in your accounts payable (A/P) system. Sometimes
a correct and valid invoice may get lost in your A/P system.
If this happens, be a good team partner and help shake loose

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Project Management and Leadership Skills

payment for the sub. It’s not only the right thing to do; it’s
also one thing you can do that will earn loyalty and good
performance from the sub.
Controlling Travel Costs
Travel costs can be a significant cost element of a project
depending on the location, type and length of the project. As with
the other responsibilities of project management, it is critical that
you as project manager frequently reiterate to project team members the importance of controlling travel costs. If project team
members know that controlling travel costs is important to you,
they are more likely to make it a priority for themselves.
Here are some proven techniques for minimizing travel costs:


Don’t travel unless absolutely necessary. With almost universal access to e-mail, faxes, conference calling and internet
conferencing capabilities, much business can be conducted
without traveling. Use these capabilities to conduct business
while saving on travel costs.



U
se the Internet to find low-cost travel options.



Combine missions into one trip. It is not uncommon to have
clients in the same locale (i.e., same city or nearby). By scheduling visits to each using the same airfare, you can save
hundreds of dollars each trip and thousands of dollars on
each project.



U
se advance purchase to save 25-50 % or more off full fare
tickets. This requires planning (there’s that word again), but
it’s well worth it. Our experience is that the majority of
project trips can be planned 14 days or more in advance
which means huge dollar savings for your project. And if you
can combine a Saturday night stay-over with a 14+ day advance purchase you can save even more (at the time of this
writing, a regular nonstop round-trip Atlanta-Los Angeles
airfare ticket costs $2015. A 14 day advance purchase ticket

Technical, Schedule, Financial Management

67

with Saturday night stay-over costs $311. This is an 85% savings off the regular, nondiscounted airfare!)


Even if your return plans are uncertain, you can make the
advance purchase with a planned return date. Then if your
plans change, it often times costs a lot less to change the return date than to buy an unrestricted ticket. Airline polices
regarding ticket changes are continually evolving, so ensure
you provide the most up to date information to your project
team members.



A
void upgradable restricted air fares. Although less costly
than unrestricted fares, they typically cost more than nonupgradable restricted fares. An exception to this rule might
be a cross-country or international flight where the benefits to
the firm and the traveler are worth the extra cost.



A
irplane departure times can also make a big difference in
airfares. A departure two or three hours one way or the other
can significantly affect ticket prices. You may be able to make
the situation a win-win between the project finances and the
person traveling by compensating the traveler in some way
for the inconvenience of an earlier or later flight time than
ideal.



D
rive or take the train. With security procedures more stringent than ever before (resulting in increased time to get
through the airport), it may make sense to drive to the site
rather than fly.

Controlling Shipping Costs
An often overlooked aspect of project financial management
is control of shipping costs. Too often projects incur expensive
overnight shipping costs because the items to be shipped (e.g.,
drawings, specs, design analyses, etc.) were not ready in sufficient
time to permit less expensive two-day, three-day or longer shipping periods. Over the course of a multi-month or multi-year

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Project Management and Leadership Skills

contract, unnecessary shipping costs can amount to thousands of
dollars that come right off the bottom line.
An excellent way to capture these dollars is to negotiate overnight shipping costs with your client and then manage your
project tightly enough to be able to use two or three day delivery
schedules. The difference in cost between overnight shipping and
the longer shipping times goes directly to the bottom line as profit.
Another way to save on shipping costs is to negotiate special
shipping rates with several reputable carriers. Depending on your
volume of shipments, your firm may be able to negotiate rates that
are less than half of published rates. And don’t think you need to be
a large volume shipper to negotiate attractive shipping rates; many
engineering and construction firms have already taken advantage
of negotiated shipping rates. Again the result is enhanced profits.
The one thing that all of the above recommendations have in
common is that they will happen by good project management.
You will want to ensure your project team members understand
the necessity of timely deliverables completion so lower cost shipping delivery dates can be used.
Controlling Printing Costs
Another cost of a project that can be controlled is printing.
Particularly certain design projects, where one original design
analysis package and set of specs can be several inches thick, and
with “D” and “E” sized drawings numbering in the hundreds or
thousands, printing costs can be significant. Here are proven
methods to reduce such costs.


Negotiate with local printers for lower rates than their published rates. If you can give the printer something of value,
like your steady business, the printer will often provide you
with lower printing costs.



If you do the majority of your design work in your home
office but have an on-site presence at your client’s facility,
consider e-mailing the files or shipping compact discs (CDs)
containing the files to your local office and have them repro-

Technical, Schedule, Financial Management

69

duce the files locally. Then you can hand deliver them and
save on shipping costs.


For drafts of prints, consider using “D” size prints if they
show sufficient detail. This can be the difference of a dollar or
more savings per page compared to “E” sized prints.



If volume warrants, consider an in-house copy center. Some
firms have put in place their own copy center to handle large
volumes of specs and plans, reaping concomitant savings in
the process. A straightforward economic analysis will help
you determine if this is a good option for you.

Effective Cash Flow Management
Effective project financial management not only includes the
cost control measures we have previously discussed, it also includes the very real importance of collecting the hard cash needed
to run your company. An accounts receivable (A/R) entry in your
firm’s ledger is certainly a desirable thing; it adds to your bottom
line in the accounting sense, but converting it into hard cash is the
ultimate objective of any organization.
Below are effective and proven ways to enhance the cash
flow of your organization.


The best time to begin setting up your project to have a favorable cash flow arrangement is right at the beginning—in the
contract. We recommend the following terms be incorporated
into the contract, or at least be requested. Actual negotiations
may yield something less than these, but you will almost
certainly do better than if you don’t seek them and leave
them to chance.
— Start-up or mobilization payment
— Progress payments tied to work completed and equipment ordered
— Biweekly invoicing with net 15 days payment terms
— Provision for 1.5% per month interest for payment beyond 15 days

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Project Management and Leadership Skills



Learn your customer’s invoicing and payment process and
do it the way they want it done. If necessary, meet with your
customer’s accounting representative to ensure you understand how to prepare your invoices in such a manner that
they will flow through your customer ’s accounts payable
(A/P) process smoothly. It is incredible how many payments are delayed and how many invoices must be resubmitted because the firm did not prepare the invoice in
accordance with the customer ’s instructions. This means
you as the PM must set up a proper invoicing procedure
and ensure all invoices are prepared properly.



P
rovide the required backup information (e.g., timesheets,
equipment purchase proof, etc.) that will make it easy for the
customer’s representative to check off that you have submitted a valid invoice and authorize it for payment. One caution:
do not provide more backup than required, or the customer
may come to view the additional information as a new requirement.



Ensure your invoice is submitted to the right person or office.
In some cases this will be the customer’s project manager. In
other cases it will be to your customer’s accounts payable
(A/P) department or other designated department. In some
cases, you may submit your invoice to the A/P office, but
also submit an informal invoice to your client’s PM so he or
she can begin a preapproval review of it.



Call your customer several days after you submit your invoice to ensure it did not get lost or misplaced—it happens.



Submit your invoice as soon as possible. Every day you delay
submitting your invoice is one more day you will be delayed
in receiving payment. And it’s one more day your firm will
be paying financing charges to cover the A/R generated by
your invoice.

Technical, Schedule, Financial Management



71

Get to know the A/P people who handle your invoice. Visit
them on one or more trips to your client’s site. Let them get
to know you as a person. Thank them for their help in getting
your firm paid in a timely manner. Remember them with
holiday cards. Congratulate them on good news—promotion,
birth, etc.

Invoicing is not a “fire and forget” evolution. Once your invoice leaves your company, it is important that you track it and
insure it is in the right channel for payment in a timely manner.
I am aware of a firm that had a “days receivable outstanding”
period of 80 days, which was 78% longer than their targeted 45
days receivables outstanding period. This occurred because no
one at the company followed up on invoices after they were
sent out. As a result, invoices got lost in the customer’s accounts
payable process, were put in the “pay later” stack, sat in the
wrong pile, etc.
One project manager instituted a simple follow-up process to
track his receivables that resulted in a dramatically shortened receivables payment period of 36 days. The process included the
following steps:


Phone call several days after sending the invoice to ensure it
was received and was in the proper format



Follow-up phone calls to track it thorough the customer ’s
A/P process



Quick action to correct any glitches on the invoice to keep it
moving through the A/P process

The most important aspect of this process is frequent vigilance and follow-up to keep the invoice moving until it is paid to
your company. Don’t hesitate to call upon your customer project
manager for help in freeing a stuck invoice. If you have done a
good job managing the project and making him or her look good,
he/she will be glad to help you.

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IN CONCLUSION
This chapter has provided you with many techniques, ideas
and solutions for managing the technical, schedule and financial
elements of your projects. Note that these techniques, ideas and
solutions are not exotic, difficult to understand concepts, but
rather specific, real-world actions that you can take right now to
manage your projects to a high quality, on-time, within budget
conclusion.
We presented two meeting forms that we suggest you enter
into your word processor and then modify to reflect formats that
best suit your particular project management needs. We also recommend you develop a set of project management guidelines
based on this chapter that you can handout to your project team
members so they have in writing your project management philosophy.
Remember, project management is not a fire and forget evolution. You will always need to keep your hand on the rudder to
steer it to a successful conclusion. How much effort you exert on
the rudder at any one time will depend on the people on your
project team and the particular issues facing the project at that
time.

Cost Estimating

73

Chapter 6


Cost Estimating

THE ROLE OF THE PROJECT MANAGER
AND COST ESTIMATING

T

he project manager plays an important role in development of the overall estimate of the total costs of the
project. In addition the project manager develops checkpoints to ensure the overall project is completed within budget.
The project manager usually develops the budget in conjunction
with a cost estimating department.
The purpose of this chapter is to review how to estimate a
project’s costs in conjunction with other engineers, construction managers, financial staff and a cost estimating department if available.

GENERAL
a)

Quality of Estimate
This chapter on estimating of engineering/procurement/construction (EPC) is roughly divided into conceptual and detailed
estimating. The general range in the quality of these two phases of
estimating is about 40% to 10%, respectively. The measure of the
quality of an estimate is usually categorized by the amount of
contingency that is contained in the estimate. For example, a 10%
estimate would have a 10% contingency. Due to the high development cost and the time necessary to produce a 10% quality estimate, most companies approve the funding and full execution of
EPC type projects at the ± 20% estimate quality. It is possible, in
the “specialist equipment” areas and building industry, to produce 10% quality estimates from preliminary design information.
73

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Project Management and Leadership Skills

The accuracy of estimates varies considerably and is largely
dependent on the quality of the estimating program and experience of the estimator. Quality also can be controlled to a substantial extent, by increasing or decreasing estimating manpower and
time. The relationship is not linear. Appropriate, modest investments of time and resources will, usually, provide capital cost
estimates of acceptable reliability. Further improvement becomes
increasingly expensive, with only modest improvements in accuracy, resulting from substantial expenditures of time and resources. A point is soon reached where estimate quality is almost
completely controlled by problems of forecasting economic conditions, local project conditions and quality of project performance.
No significant improvement in estimate quality can be made
thereafter, except by incorporation of actual design and cost information as it develops.
b) Purpose(s) of Estimates
Owner and constructor estimates are prepared at various
stages of project development. They have two major purposes:
1.
2.

To establish cost levels for economic evaluation and financial
investment.
To provide a base for cost control as the project develops.

This second purpose of “project control” is often ignored by
“professional” estimators as they perceive their only purpose is to
develop a quality estimate. In such cases, the resulting estimate
may be of a high quality for investment purposes, but of a low
quality from a project execution/control point of view. As most
conceptual estimating bases are structured on a system basis,
rather than on an area basis, it requires considerable effort at an
early estimating stage, to develop an estimate on an “area” basis
that, in turn, maximizes the “controlability aspect.”
Even though a contractor’s first early estimate can be of a
lesser quality than an owner’s estimate, it is recommended that a
contractor provide an estimate early, after a contract award. This

Cost Estimating

75

very quickly establishes a base for contractor cost control and
should provide the contractor with a sense of commitment and
responsibility for the financial basis of the project.
Due to the lack of time, it is probable that this early conceptual estimate would be a capacity-cost or curve-type estimate for
direct costs with indirects on a percentage basis. Even though
lacking time, the contractor should be encouraged to put as much
quality (definition) into the estimate as possible, as this estimate
may become the control base for the project.
The “appropriation” estimate, prepared by the owner, is on
the same basis as the contractor’s estimate, but statistically broken
down into further detail so as to provide a checking basis of the
contractor’s first estimate.
The following could be the further breakdown:
• Itemized equipment list: material cost and labor man-hours
• Bulk materials: material costs and labor man-hours by category

O
ff-site systems: material costs and labor man-hours
• Home office costs and engineering man-hours

F
ield indirects: material costs, labor and staff man-hours
• Owner costs: capital and expenses

E
stimating allowance: risk analysis
The statistical development of man-hours provides information for overall scheduling and manpower resource evaluations.
c)

Typical Estimating Categories
The following estimating methods or systems are the ones
most commonly used:
1. Proration, Budget, Rough Order or Magnitude, etc.
2. Cost Capacity Curves
3. Equipment Ratio (curves)
The above methods are generally in the “Conceptual” category.
4. Quantity/Unit Cost
This last method is generally referred to as a detailed cost estimate.

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Project Management and Leadership Skills

PRORATION ESTIMATES
This method takes the cost of a similar, previously built facility, and “prorates” the cost for the new facility, based on changes
for project conditions, capacity, escalation, productivity, design
differences, and time. This method is based on some historical
data and a lot of statistical relationships and assumptions. It is,
therefore, not very accurate and is generally around ±40%.

COST CAPACITY CURVES (OVERALL)
An historical data base is developed for similar plants where
the total cost is related to capacity. This method is usually more
accurate, generally around ± 30%, but does depend on the quality
of the data base.
This method is also used, at a lower level of detail, for individual pieces of equipment and/or process/utility systems.
The above two conceptual estimating systems are generally
used to give a quick and early indication of required investment
level. The resulting evaluations are only used for “budget” purposes and investment possibilities. The information is not sufficiently accurate to make firm investment decisions. Sometimes
investment decisions are made on this preliminary information,
where economic viability is not the first priority. Projects to meet
environmental standards, “stay in business” criteria, or R&D programs would fall into this category. Another purpose of these
“early” estimating programs is to provide technical and economic
information on investment and resource requirements to advance
the technical basis and estimating quality to a higher level. Thus,
many projects are funded on a partial or phased approach.

EQUIPMENT RATIO (CURVES)
This method calculates the costs of “bulk” materials, such
as concrete, electrical, structural, piping, etc., as a percentage of

Cost Estimating

77

the major equipment cost. Ratio methods can be used only with
an appropriate data base. The accuracy of this method is generally ± 20%. This quality of estimate is usually the minimum requirement for a “full investment” decision of an EPC project.
This “appropriation” estimate for an EPC project should be
produced after completion of conceptual design and process selection and would be an update of the conceptual estimate prepared
during feasibility studies.
The following would be the design/scope basis:
• Overall process flow diagrams
• Heat and material balances
• On-site and off-site facilities and layouts (power, steam, air,
electricity, water)

P
reliminary plot plans/building layouts
• Equipment list—by size and category

P
reliminary execution plan/organization/resources/schedule
• Completed survey of appropriate estimating data
This would be an equipment and bulk ratio estimate for direct labor and material costs. Indirect costs would be factored
from direct costs. A further statistical breakdown would be made
to develop engineering and construction man-hours for scheduling and resource evaluation.

QUANTITY UNIT/COST ESTIMATES
This method is the most accurate, generally ± 10%, but it can
be costly and time-consuming, as detailed takeoffs must be made
of all labor and material units in the system. This method requires
that engineering be sufficiently advanced so that accurate material
quantity takeoffs can be produced. It also requires detailed historical data for applying unit man-hour rates and monetary costs to
the estimated quantities.
This last, general category is usually referred to as a detailed

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Project Management and Leadership Skills

cost estimate.
This estimate can be developed only when the process design
has essentially been completed. It will also require a significant
amount of detailed engineering to be completed so that bulk
material takeoffs can be developed for civil work, mechanical,
piping, electrical, etc.
The following would be typical for an EPC project:
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)
m)
n)
o)
p)
q)
r)
s)
t)
u)
v)
w)
x)
y)

Approved process descriptions—feedstock and product
slate
Licensor engineering (schedule A package)
Approved flow sheets
Heat and material balances
Approved process piping and instrumentation diagrams
(PIDs) (process and utilities)
Approved plot plans
General specifications
Equipment specifications and data sheets
Completed site-soil survey and report
Site development and grading drawings
Underground piping and electrical layouts
Concrete foundation layouts
Above-ground piping layouts
One-line electrical drawings
Milestone schedule
Detailed project-owner conditions and requirements
Project-owner conditions and requirements
Environmental and governmental requirements
Equipment quotations—transportation costs
Bulk material takeoffs
Labor cost-productivity data
Layouts for construction temporary facilities
Organization charts (project, engineering, and construction)
Personnel schedules and manpower histograms
Construction equipment schedules

Cost Estimating

79

A detailed estimate would be quantity based with separate
unit costs for material, labor, and man-hours. Construction would
be based on an area breakdown rather than on the “system” basis
of a conceptual estimate. This estimate could be an updated,
trended version of the first conceptual estimate and subsequent
updates or a completely separate exercise. In most cases, it would
be a separate exercise, as the format and work breakdown structure would be different and more detailed than that of a conceptual estimate. In particular, the construction estimate would be on
an area basis with takeoffs by work units and man-hour unit rates.
Apart from “trend” updates, this estimate breakdown could
be sufficient to control costs to completion of the project. This
estimate could be developed about 6-8 months after contract
award, on an EPC reimbursable type project, as this amount of
time would be required to provide an adequate completion of
detailed engineering.
The most significant element of a high quality estimate is the
maximizing of quantities and minimizing of factors and statistical
relationships.

“FUDGING”

THE

DETAILED ESTIMATE

Many companies have a policy that requires a detailed 10%
estimate before the project appropriation will be approved. These
same organizations, typically manufacturing companies, also require that the project be started “yesterday.” Manufacturing and
plant management are able to “insist” on these conflicting objectives. These two objectives are incompatible. In most cases, the
practical resolution of this management inconsistency is for the
estimate to be “fudged.” This is to say, the estimate shows a 10%
contingency, “below the line,” with a similar amount of money
“buried above the line” in individual categories where the risk is
deemed to be the greatest. Whereas this “process” meets the company financial approval policy, it, nevertheless, provides a poor
basis to execute and manage the project. From a project manage-

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Project Management and Leadership Skills

ment viewpoint, it is poor practice. It is also quite common for
such companies to execute projects on a “crisis management”
basis. In most cases, this type of approach will increase the capital
costs of their projects. However, this may increase the economic
return as the product can reach the marketplace at an earlier time.

PROJECT MANAGEMENT
ESTIMATING RESPONSIBILITY
As many companies have a formal estimating section, the
relationship between the estimator and project manager should be
clearly defined and properly understood by all parties.
The project manager should “direct” the estimate(s) development, approve the estimate(s) prior to issue, and ensure the
estimate(s) properly reflects:
a)
b)
c)
d)
e)
f)
g)
h)

Project objectives and their priorities
Design scope and design specifications
Maximizing of quantities and minimizing of factors (numbers of drawings and construction work units)
Correct evaluation of design and labor productivities
Current project and site conditions (access, congestion, etc.)
Proposed execution plan/contract strategy
Schedule requirements (economic versus acceleration)
Adequate contingency evaluation

As can be seen from the above “definition,” the project manager is actively involved in the development of the estimate and
is responsible for the final product.

DEVELOPING
a)

OR

CHECKING

AN

ESTIMATE

Scope Review
To ensure that the scope definition is of the required quality,

Cost Estimating

81

the estimator/project manager should make a detailed review of
all basic design documents, their revision numbers, and dates of
issue:
1)
2)
3)
4)
5)

6)

Check that all major equipment is included and is listed by equipment number.
Review all items shown on plot plans, flow sheets, PIDs, and equipment lists to ensure their inclusion in the estimate.
Equipment and system capacities, flow rates, temperatures, and
pressures should be checked for deviation.
Check that owner costs are to be included, or shown separately.
Evaluate deviations in the scope, design, or estimating basis from
those assumed in the earlier estimate and include these on a “puts
and takes” list.
Specialist engineers assigned to the project should review and
verify the design scope.

b)

Project Conditions Review
Prior to developing the line-by-line details of the estimate, an
overall evaluation should consider the following.
1)

Project location considerations, i.e., site characteristics (high
winds, weather, soil conditions) and local affiliate-governmental practices or regulations.
Schedule, i.e., start of engineering, start of construction, mechanical completion, and milestone dates.
Labor basis, e.g., subcontract or direct hire.
Economic outlook.
Contracting mode and execution plan.
Estimate is compatible with contract conditions.

2)
3)
4)
5)
6)
c)

Reviewing Significant Overall Relationships
A comparison should be made of significant relationships
including:
1)
2)

Engineering man-hours per piece of equipment.

Construction man-hours per piece of equipment.


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Project Management and Leadership Skills

3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)

Ratio of direct field man-hours to engineering man-hours.
Contractor’s home office and engineering cost as a percent
of total cost.
Contractor’s fee as a percent of total cost.
Indirect construction costs as a percent of direct labor cost.
Percent breakdown of engineering man-hours by prime
account.
Percent breakdown of construction man-hours by prime
account.
All-in engineering man-hour rate.
All-in field man-hour rate.
Escalation allowances for material and labor.

Productivity factors for engineering and construction.

Currency exchange rates (for overseas purchases).


d) Major Equipment and Material
The cost of major equipment can be established by actual
quotations or from historical data. The method depends on the
type of equipment involved and its relative cost. For example,
quotations should be obtained for large compressors, but small
mixers may be estimated from catalogues or estimating manuals.
1)

2)

Developmental (or growth) allowances for “Fast Track”
projects: Estimates based on vendor quotes, catalogue prices,
or initial inquiries should include an allowance for future
increases in scope. Costs can rise as much as 15% from an
original purchase price as a result of design changes. Verify
that the estimate has included an appropriate design allowance (typically 5-10%) for future changes. Based on the general specifications and detailed equipment specifications and
data sheets, evaluate as follows.
Vessels (towers, reactors, drums): Check unit costs; adjust for
size, material, shop versus field fabrication, operating temperature-pressure, metallurgy, number of manholes and platforms, internals required, and the need for
insulation-stiffening rings and lifting lugs.

Cost Estimating

3)
4)

5)
6)

7)

8)

83

Heat exchangers: Check the cost per square foot of useful
transfer surface.
Heaters and furnaces: Check the cost per British thermal unit
of heat absorbed. Evaluate the degree of prefabrication prior
to field erection.
Boilers and superheaters: Check the cost per pound of steam
generated.
Pumps: Check the cost per horsepower. Pumps of similar
capacity can vary greatly in price depending on type and
materials of construction. It is important to know all special
service requirements and design characteristics.
Storage Tanks: Check the cost per barrel capacity and the cost
per pound of fabricated weight. Ensure that tank foundations
are adequate for duty and soil conditions.
Evaluate project-schedule conditions which could influence
prices, e.g.:
i. Market conditions
ii. Purchasing preference/plant compatibility/maintenance costs
iii. Schedule acceleration (premium costs)
iv. Escalation/currency exchange rates
v. Freight, duties, taxes
vi. Size of order/quantity discount

Use a “cheapest source” program for guidance on the source for
a worldwide purchasing program.
e)

Bulk Materials: Quantities and Costs Evaluation
1) Concrete:
i. Spot-check design quantities for large equipment foundations
ii. Average cost per cubic yard installed (with rebar,
formwork, excavation, and backfill)
iii. Quantity of rebar, formwork, excavation, and backfill
per cubic yard of concrete.

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2) Roads and paving: Cost per square foot installed—overall
areas from plant layout.
3) Underground piping and sewers:
i. Total linear feet from drawing layout
ii. Location and number of manholes
iii. Cost per linear foot of installed piping, including excavation, backfill, manholes and sumps.
On large projects, underground quantities are often underestimated.
4) Miscellaneous concrete work: Ensure sufficient requirements for cooling tower basins, API separators, pipe sleepers, culverts, and particularly road and electrical crossings.
5) Fireproofing:
i. Check the cost per area of surface fireproofed.
ii. Ensure adequate allowance for cutouts and rework.
6) Buildings, structures: Review individual costs for the substructure, heating, ventilation, air conditioning, plumbing,
and lighting as a function of the floor area and total cost.
Look at all-in square-foot costs of building.
7) Site preparation:
i. Review grading and site preparation; check costs per
cubic yard.
ii. Check soil conditions, i.e., type, frost depth, de-watering, sheet piling, and draining requirements.
iii. Consider possible underground obstructions.
On large grass roots projects, earth-moving quantities are
often underestimated.
8) Piling:
i. Check the all-in cost per linear foot (including mobilization and demobilization) and the type of piles (e.g., precast, in situ, or timber) and the cutting of pile caps.
ii. Check who does the layout work (the prime contractor
or a subcontractor?).
9) Fencing and railroads (usually subcontracted):
i. Total linear feet.
ii. All-in subcontract installed costs.

Cost Estimating

85

10) Piping estimating methods: Following are four method’s of
preparing a piping estimate. The specific method would
depend on detail and accuracy of the estimate.
i. “Estimating by Length Method.” This method is based
on historical data and assumes an average number of
fittings and flanges for a “standard” piping configuration. Costs would be on a unit length basis by pipe size
and schedule. Fabrication would be separated from field
installation. It is necessary to add only the cost of valves,
pipe supports, testing, etc. to arrive at a total direct cost
for the piping system. Care should be taken to check
allowances for unusual complexity of piping arrangements (especially on-site units or revamps).
ii. “Estimating by Weight Method.” In this method, piping
materials are assumed to have a value approximately
proportional to their weight. Pipe is assigned a cost per
pound for material and a number of man-hours per ton
for fabrication and erection. Adjustments should be
made for unusual materials and labor productivity for
the plant location.
iii. “Estimating by Ratio Method.” This method calculates
piping as a percentage of the major equipment cost.
Ratio methods can be used only with an appropriate
data base. This is not a very accurate method and is
usually applied to conceptual estimates.
iv. “Estimating by Unit Cost Method.” This method is more
accurate but is costly and time-consuming as detailed
takeoffs must be made of all labor and material units in
the system. This method requires that engineering be
well advanced before accurate takeoffs can be produced.
It also requires detailed historical data.
v. “Piping Estimate Review.” Examine the method and
extent of takeoff by sampling line takeoffs, and compare
actual quantities and costs with estimate. Review the
basis of fabrication, impact of special materials, etc. Also
check the following:

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A. Total linear feet and total weight as a function of
plant capacity and plant area.
B. Overall cost of pipe, fittings, valves, and flanges to
total cost of piping material.
C. Separately, compute the cost per ton for material,
prefabrication, and erection of both small- and
large-bore piping.
D. Cost per foot of pipe tracing (steam or electrical).
11)

Electrical: In estimating electrical work, a schedule of the
number and size of motor drives is a basic requirement.
Motor control center and power distribution items usually
constitute a major part of the electrical work. Since their
prices can vary considerably, budget prices should be obtained from potential suppliers. The cost of power cable
should be estimated in reasonable detail. A plot plan layout is useful in assessing quantities, while material unit
prices may be estimated from historical data. Minor, miscellaneous services, such as emergency lighting, fire
alarms, intercoms, power outlets, and telephone systems,
can be assessed approximately or represented as an allowance. Plant lighting may be estimated on an area or unit
length basis. A gross estimate of electrical work based on
horsepower can be inaccurate. The estimate should take
into consideration local electrical codes and area classification. Climatic conditions may require a different type of
cable and hardware, and therefore could affect cost.
i. Electrical estimate review. Review the motor list against
the equipment list and the single-line diagram.
Also check the following:
A. Overall cost of the power supply related to the total
horsepower or thousands of kilowatts.
B. Cost of the power supply per motor related to the
size of the motor.
C. Lighting cost per square foot, per linear foot, etc.
D. Cost of grounding related to the area covered.

Cost Estimating

87

12) Instrumentation estimating methods: The following are
those generally used:
i. Factor estimating. With an adequate data base, instrumentation can be factored relative to the installed major
equipment cost. Additional points for consideration are
the following:
A. Local electrical and environmental codes.
B. Degree of computer control.
C. Does the plant need clean, dry air? If so, an instrument air compression system may be required.
ii. Estimating by instrument loops. Instrument costs are
estimated at a cost per loop. This can be done by using
previous return data to establish costs for typical loops
based on instrument type and materials of construction
and multiplying these by the number of estimated loops
in the system. Loop configurations should be developed
by the instrument engineer.
iii. Total installed cost per unit. In this method, instruments
are priced from a preliminary list by means of quotes,
catalogue prices, or past data. Auxiliary material and
installation costs (e.g., tubing, wiring, racks, supports,
testing, etc.) are assessed for each instrument based on
past experience and judgment.
iv. Detailed estimating. This is the most accurate approach
and requires a detailed instrument list. This can be
priced from past data or quotes. Labor man-hours for
each instrument are added. Instrument tubing and wiring should be established by detailed takeoff. Auxiliary
material and labor cost can be taken as a percentage of
the total instrument cost.
v. Instrument estimate review. Examine process and instrumentation diagrams for numbers-complexity of instrumentation. Check for conflicts between owner and
contractor specifications. Also review the following:
A. Interface between scope of work for additions to
existing plants.

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B. Electronic-pneumatic requirements.
C. Total number of instruments related to the number
of pieces of major equipment.
D. Ratio of the cost of instrument piping and instrument wiring to the basic instrument cost.
E. Average cost of piping and wiring per instrument.
13) Insulation: Review requirements for heat conservation,
winterizing, cold insulation, and personnel protection for
equipment and piping. Analyze the cost of pipe insulation
as a factor of the total installed piping value.
14) Painting: Not normally large enough to justify a detailed
estimate. Review any prorated method and values allowed.
f)
1)

2)

Direct Construction Labor
Equipment installation (man-hours): A check of man-hours
requirement for equipment installation may be made as follows:
i. Man-hours; per material cost.
ii. Man-hours per weight and type of equipment.
iii. Man-hours per piece and type of equipment.
Bulk materials installation (man-hours): The following would
be major items to check:
i. Man-hours per cubic yard for excavation (machine,
hand, or weighted average).
ii. Man-hours per cubic yard for foundation concrete (including forming, pouring, reinforcing steel, and embedments). Review dewatering, sheet piping, and shoring
requirements for a civil program.
iii. Man-hours per ton of structural steel (for field fabrication and erection).
iv. Man-hours per ton or per foot of piping by size and pipe
schedule.
v. Man-hours per valve and specialty item.
vi. Man-hours per instrument installed (including cable,

Cost Estimating

3)

4)

89

termination and testing).
Productivity (man-hours): Depending on the quality of the
estimating base, the preceding man-hours would normally
then have to be factored for time and the location of the
project. A geographic productivity system is essential for a
quality estimating program. General items (handling, scaffolding, testing, rework, etc.) would be on a man-hour percentage basis for a detailed estimate and included in
man-hour rates for a conceptual estimate.
Labor costs: Review current labor agreements and conditions,
productivity factors, manpower availability, site conditions,
and project conditions. Review total man-hours as well as the
craft man-hour distribution:
i. Subcontract versus direct hire; what is covered in the allin subcontract wage rate, especially field indirects?
ii. Average wage rate.
iii. Inclusion of appropriate fringe benefits, taxes, and insurances.
iv. Allowances for premium pay on overtime and shift
work.

g)

Construction Indirect Costs
Where possible, ensure that estimates have dimensional
sketches showing layouts of temporary facilities which can then
be quantified for estimating.
1)

Temporary facilities: Review estimates for the following:
i. Temporary utility lines and utilities consumed during
construction.
ii. Temporary roads and parking and laydown areas.
iii. Fencing and security.
iv. Temporary buildings, furnishings and equipment.
v. Personnel transportation and equipment-receiving facilities.
vi. Erection-operation of construction camp, if required.
Most of these items would be estimated on a cost per foot

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and square foot basis.
Construction tools and equipment: Discuss and check the
methods used by the construction group in establishing
equipment requirements. Check the following:
i. List and scheduled duration of all major equipment.
ii. Small tools (normally estimated as cost per labor manhour or percent of direct-labor costs).
iii. Availability of equipment; start and termination of
rental period.
iv. Equipment maintenance, major and minor.
v. Equipment purchased; equipment rented and source.
vi. Review of cranage and heavy lift requirements.
vii. Construction equipment cost per direct-hire man-hour.
3) Construction staff: Examine the site organization chart and
assignment durations of personnel; also review the following:
i. Relocation costs, travel and living allowances, fringe
benefits and burdens, and overseas allowances.
ii. Total staff man-hours related to total labor man-hours.
iii. Supervision cost related to the construction labor cost.
iv. Average monthly rate for the technical staff.
4) Field office expenses: Review the estimates of field office
supplies, reproduction, telephone, telex, office equipment,
and consumables. These items are usually estimated as cost
per labor man-hour or as a percent of direct field costs.
2)

h) Home Office Costs
1) Percentage of project costs: This method requires considerable analysis of previous projects, but can provide a reasonable estimate of H.O. costs for a conceptual estimate.
Normally, H.O. costs would be expressed as a percentage of
the following bases:
i. Total “constructed cost” (i.e., material + labor + subcontracts + field indirects). A typical range would be 1015%.
ii. Direct material and labor (subcontractor or direct hire).
A typical range would be 18-22%.

Cost Estimating

91

2)

Engineering man-hours based on pieces of major equipment:
A typical range would be 1000-1500 man-hours/piece of
equipment. Factors may be applied to reflect size, complexity,
prototype, and revamp work. These man-hours will cover all
engineering and design man-hours. Man-hours for services
such as planning and scheduling, estimating, cost control,
and procurement are derived as percentages of engineering
hours.
3) Man-hours per drawing (or work item): This method requires
major completion of the process design so that a detailed
drawing list can be developed. It is necessary that PIDs, plot
plans, and equipment lists be available from which a total
number of drawings can then be estimated.
4) Reviewing home office estimate: Review the basis of establishing man-hours with the engineering group. Analyze the
following:
i. Man-hours per major piece of equipment.
ii. Man-hours per drawing using the estimated total number of drawings.
iii. Percentage relationship of discipline man-hours for abnormalities.
iv. Average all-in rate for total home office technical personnel.
v. Benefits, burdens, and overhead rates.
vi. Fee basis on reimbursable and cost-plus contracts.
vii. General specifications for conflict or “gold plating.”
viii. Service group estimates by organization chart, manning
schedule, and statistical relationship.
ix. New technology contingency for prototype design.
i)

1)
2)
3)

Contingency
The contingency or estimating allowance is usually a function of the following:
Design definition (process unit, off sites, revamps).
Estimating methods (data base and level of detail).
Time frame and schedule probability.

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4)
5)
6)
7)
8)

Project Management and Leadership Skills

New technology and prototype engineering.
Remoteness of job site; infrastructure requirements.
Engineering physical progress (percentage complete).
Material commitment.
Construction physical progress (percentage complete).
Determining overall estimate reliability is made more
difficult by the fact that some segments of a project may be
completely defined at the time of estimate, and others only
sketchily defined; some may be estimated by reliable methods and others necessarily are estimated by methods which
produce less accurate results, and so forth.
To cope with this, it is necessary to separately quantify
the degree of reliability of the sub-estimate for each of the
major independently estimated segments or units of an estimate as a whole. This can be done with the aid of guidelines
for classifying degree of definition and quality of methods/
data used. These, in turn, establish appropriate estimating
allowances and accuracy ranges for each of the segments.
When a project has been approved and work begun,
changes begin to take place in facility definition, estimating
methods, knowledge of project conditions, and forecast timespan. This entails successive re-appraisals of contingency. It
should produce a continuing reduction of estimating allowances.
Estimating allowances or contingency is defined as the
amount which statistical experience indicates must be added
to the initial, quantifiable estimate, in order that the total
estimate has an equal chance of falling above or below the
actual cost. This allowance is required to cover oversights
and unknowns, which on average, always results in final
project costs that are higher than initial quantifiable estimates. If required, estimating allowances may be modified to
produce greater or lesser overrun probabilities.
For any individual project in a series of projects, the
estimated cost including estimating allowance, will fall under

Cost Estimating

93

or over the actual cost of the project. A well-developed estimating system, when applied to a series of projects, produces
a pattern of under and overruns which approach “normal” or
bell-curve distribution. Overestimate and underestimate
amounts are determined by so many unrelated happenings
that the results resemble those obtained by chance. Major
systematic errors are eliminated in the development of an
estimating system, and analysis of departures from normal
distribution is one of the tools available for estimating system
improvement.
The error distribution of estimates produced by a given
organization at a given period in its development will have
a wider or narrower spread, or range, depending on factors
previously listed. A quantitative measure of this spread is
“accuracy range.” This is defined as the percentage range,
relative to actual project costs, within which eight tenths of
the estimates of a given quality will fall. Theoretically, one
tenth of such estimates will be outside the range on the high
side. One tenth will be outside the range on the low side.
When appropriate estimating allowances have been applied,
half the estimates will be over actual cost and half under, so
that average deviation will be close to zero.
In practice, most companies experience an average deviation which varies 10-20% from the zero level. This means
that for an 80% probability, the estimating program has a
built-in bias. In general, this is mostly a plus (overrun) bias in
the range of 10-15%. In simplistic terms, this means that the
estimating program has a +10-15% “accuracy range,” which
means that more projects (10-15% more) will overrun than
underrun, even with the inclusion of an appropriate contingency.
It is important therefore, that a constant analysis be carried out of the actual costs versus the estimate, so that such
biases can be detected and corrected.
These elements of contingency and accuracy are often
determined by a computer risk analysis program.

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j)

Escalation
Escalation is usually included as a separate line item or
is built into the estimate details. Either method is acceptable,
assuming that escalation rates and cost centroids have been
developed properly. Escalation rates for material and labor
costs should be separately identified. The “cost centroid”
technique and application of escalation rates is illustrated
with the technique found in the data section.

k)

Currency Exchange Conversion
As currency conversion rates can fluctuate widely over
the life of a project, it is recommended that one use the rate
established at the time of appropriation and track deviations
thereafter as a one-line item. Corporate and affiliate financial
groups should be consulted when establishing currency conversion rates for the estimate.

PRE-ESTIMATING SURVEY
Figure 6-1 shows the major items to be developed and/or
considered prior to developing the estimate.

ESTIMATING CHECKLIST
a)

General
In conjunction with the Pre-Estimating Survey, a comprehensive checklist can be a significant aid in insuring that all
appropriate details have been covered. The following is not a
complete list, but it will significantly assist with the following
major considerations:
1) Planning The Estimate
2) Cover All Items
3) Serve As A Base For Your Data Base
4) Particularly, Cover The Three P’s-Political-Procurement
Process Design

Cost Estimating

95

Figure 6-1. Pre-estimating Survey

—————————————————————————————

GEOGRAPHICAL AREA

OVERTIME

RECREATION FAC.

CLIMATE

PRE-FABRICATE ASSEMBLIES

SCHOOL

SITE ACCESS

SPECIFICATIONS

PERMANENT COMMUNITY

SOIL CONDITIONS

LOCAL CODES

SCHEDULE

EARTHQUAKE FACTORS

PROCUREMENT

INFLATION

SITE ELEVATION

ORIGIN OF MATERIALS

&

EQUIPMENT

OFFSHORE PLATFORMS

ESCALATION
CURRENCIES

ENVIRONMENT

EXPORT PACKING

FINANCING

ATTITUDE OF COMMUNITY

CONSTRUCTION FACILITIES

OVERSEAS PREMIUM

POLITICAL CLIMATE

TEMPORARY FACILITIES

COST OF LIVING

GENERAL BUSINESS CLIMATE

HOUSING

COST OF TRAVELING

PRIME CONTRACTOR

LOGISTICS

TAXES

JOINT VENTURE

COMMUNICATIONS

INSURANCE

IONIZED LABOR

WAREHOUSING

LEGAL ASSISTANCE

QUALIFIED LABOR POOL

GUARD SERVICE

GOVERNMENT AGENCIES

RECRUITING AND TRAINING

SITE FABRICATION FAC.

LETTERS OF CREDIT AND BONDS

LABOR PRODUCTIVITY

CONSTRUCTION EQUIPMENT

LABOR CONTRACTS

MEDICAL FACILITIES

LABOR COST

FOOD

&

CATERING

LANGUAGE PROBLEMS
LOCAL CULTURES

SANITARY FACILITIES

RETRO-FIT/REVAMP



HAZARDS-WORK LIMITATIONS








MEN
EQUIPMENT

SECURITY—CLEARANCE—PERMITS
HEALTH FACTORS
CONTRACT TRAINING
STANDBY ALLOWANCE

—————————————————————————————

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Project Management and Leadership Skills

b)

Political Considerations
These considerations can be broken down as follows:
1) Local, political and social environment
2) Regulatory, permitting requirements
3) Business environment
4) Tax structure; expense vs. capital costs allocation
5) Overseas—nationalistic/logistics/infrastructure

c)

Procurement Program Considerations
A careful review of the procurement program is essential, as
the equipment/material costs can be more than 50% of the
total cost. The following are typical considerations:
1) Quality Vendors List/Information/Experience of Suppliers
2) Domestic Vs. Worldwide Purchasing Plan
3) Import Duties, Taxes, Delivery Charges (company exception)
4) Currency Considerations and Exchange Rates
5) Vendor Servicemen Requirements
6) Plant Compatibility of Existing Vs. New
7) Ease of Maintenance/Operating Costs
8) Spare Parts Requirements
9) Inspection and Expediting Requirements
10) “Critical” Purchasing Plan (Schedule Priority)

d) Detailed Checklist for Estimating
1. Climate
• Arctic
• Humidity
• Temperate
• Temperature
• Prevailing Winds
• Winterization
• Storms
• Winters
• Snow Accumulation

Cost Estimating







97

Rain
Lost Days Due to Weather
Shelters Required
Special Method of Construction Necessary
Indoor/Outdoor Equipment

2) Earthquake Factors
3) Access
• Distance
• Roads/Water/Air/Railroads
• Conditions of Roads
• Clearance of Roads (Tunnels)
• Capacity of Roads & Bridges
• Ice Conditions
4) Offshore Facilities
• Water Depth
• Wind Forces
• Wave Forces
• Sea Floor Conditioning
• Soil Conditions
5) The Environment
• The Attitude of the Community
• Present & Future Zoning
• Other Industry in the Area
• Environmental Restrictions
• Environmental Impact Study
• Required Permits—Local—State—Federal—Others
• Legal Counseling
• Delays in Obtaining Permits & Associated Costs in
Terms of Escalation
• Requirements for Pollution Control for Noise, Air,
Water, Disposal of Waste, and Their Cost
• Consideration for Alternate Site

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6) The Political Aspect
• What is the political climate of the proposed site and
the prospect for future stability?
• Is the governing authority encouraging investment; is
it favorable to business; what is the tax structure?
• For an overseas project, to what degree are governments involved?
• For an overseas project, what are the terms of payment and are delayed payments probable?
7) Procurement
• What is the source of information about vendors
• Where are the vendors located
• How will equipment and material be transported
• Are there a minimum of three bidders available
• What is vendor reliability and experience
• What will be the origin of material and equipment
• For overseas, what are the import restrictions
• What is the import duty
• Is equipment available on reasonable delivery schedules
• What will be the terms and conditions
• Any discounts for large purchases
• Will purchase orders be firm, cost plus, or with specified escalation
• What are the warranties
• What service can a supplier provide during construction and operation, and at what cost
• Provisions for inspection and expediting
• Export packing requirements
• Spare parts and their costs
• In what currency will the purchases be made
• What is the exchange rate
• What will be the payment schedule
• Marshaling yards requirements
• Loading and unloading requirements

Cost Estimating





99

Lightering Demurrage costs
Higher costs due to congested harbors
Will trading companies be used

8) The Process
• What is the plant capacity
• What are the products
• What are the by-products
• Flow sheets available
• Utility flow sheets
• The plant layout
• Plant location
• Material specs—exotic-standard
• Mechanical specs: Pressures-temperatures-flows-corrosion
9) The Process
• Local code requirements
• State code requirements
• National code requirements
• Client/engineer’s specifications
• Architectural requirements
• Metric/English measurements
• Pollution control

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Leadership Fundamentals

101

Chapter 7


Leadership Fundamentals

Barry Benator

S

o far, we have talked about several important functions of
project management. We have discussed how to staff the
project team, the fundamentals of project scheduling, the
use of computer tools to assist in managing the project and how
to successfully manage the technical, schedule and financial elements of a project.
All of these functions are performed by people. Good people,
well led, always find a way to make things happen—to overcome
the many challenges inherent in any engineering or construction
project. The project manager’s ability to lead his or her people
effectively can have a significant impact on the success of a
project.
In this chapter we delve into the people aspects of project
management, and learn how to lead people in order to arrive at a
successful project. For many technical professionals, this is the
most challenging aspect of project management. Most technical
professionals go into engineering or construction because they
enjoy designing things, building things and solving problems.
However, as these same people grow in their organization and
seek project management responsibilities (or have these responsibilities thrust upon them), an increasing amount of their work will
involve leading others to accomplish the many project functions.
You may be one of those people.
Leadership can be an uncomfortable topic for some people,
especially technical project managers who may have extensive
101

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experience in being a doer, but precious little in being a person
who is responsible for leading others to get the job done. This
chapter will equip you with the fundamentals for being an effective leader in project management.

ARE LEADERS BORN

OR

MADE?

You sometimes hear people say “He [or she] is a natural born
leader.” That is true of some people—just as we hear of natural
born athletes, there are also some people who just have a gift that
encourages people to follow them.
Leadership skills, like athletic skills, in our population seem
to follow a Normal Curve distribution. (See Figure 7-1). There are
a relatively few natural born leaders, just as there are relatively
few natural born athletes. But here’s the good news—just as there
are a lot of good athletes who, while not born gifted with athletic
skills, work hard and become good athletes, the same is true with
leaders.
Almost anyone can become a good leader with hard work,
coaching and practice. This chapter will help you unlock the good

Figure 7-1. Normal Curve


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103

leader within you to succeed as a project manager and leader.
Remember, like any other job function, leadership proficiency
can be learned. And just as almost anyone can improve a skill
with practice, so can leadership skills can be learned and improved upon with practice.

MAKING SENSE

OF

ALL THOSE LEADERSHIP THEORIES

One of the challenges facing leaders today is that there are
numerous so-called “correct” leadership theories. A few of the
more well-known theories include:
Situational Leadership®
Participative Leadership
Autocratic Leadership
Theory X
Theory Y
One Minute Manager
Many, many more
And these are but a few of the many leadership theories that
you may have heard about.
In light of the large number of such leadership theories, it’s
no mystery why many leaders are confused as they try to make
sense of these often conflicting leadership concepts and apply
them in the real-world arena of the workplace.
Our position on business leadership theories and models is:
A theory or model is worthless
unless it can be applied in the real world

We believe for you as a project manager, this is the real test
of a useful business theory or model—can it be used to help you
be a better leader? This emphasis on practical leadership tools will
run throughout this chapter.

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OUTSTANDING LEADER MODEL
The model we will present in this chapter is based on a scientifically valid blind research study (McBer and Company, 1983)
that identified the characteristics and competencies of outstanding
leaders. The expression “scientifically valid” means that the research, which was based on interviews with more than 100 leaders, is valid for most of the population of leaders. This validity is
important because it separates this model from the many “sound
good, but don’t work” leadership theories of the week or flavors
of the month. It means that you can improve your performance as
a leader by effectively doing what the outstanding leaders do to
be successful.

Heads-up: Unlike Newton’s laws, Ohm’s law or other time-tested
laws of physics, people are difficult to predict with 100% accuracy. However, this model will help you increase your leadership
batting average. And that will help you be more effective as a
leader of your project team.

LEADERSHIP DEFINITION
We are going to be talking about leadership in this chapter, so
let’s go ahead and define what we mean by leadership. You will
see other definitions during your work career, but we’ll use this as
our definition. It will serve us now, and serve you well in your
career as a project manager.

Leadership—The process of influencing individuals or groups to
accomplish an organizational goal or mission.

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105

Key points:


Leadership is a process—it is not a one-time, fire and forget
evolution. To be an effective leader, you must continually
exercise good leadership skills. You don’t need to be perfect,
but you should always strive to apply sound leadership principles to your leadership efforts.



It involves influencing individuals or groups. Good leaders
are effective influencers of others because they know leaders
can’t do everything.



G
ood leadership is designed to accomplish an organizational
goal or mission. For you, that means leading your project team
and managing your project to a high quality, on time and
within budget conclusion with a customer who is happy with
that conclusion.

DEFINITION OF
LEADERSHIP COMPETENCY
We will be talking about leadership competencies in this chapter, so it would be a good idea to make sure we understand how
the word competency is used in this chapter.

Definition of Competency:
A competency is any knowledge, skill, behavior, attitude, or trait
that can be shown to distinguish reliably between effective and
less effective job performance.
In other words, a competency is what superior performers do
more often, in more situations, and for better results, than average performers.

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OUTSTANDING
LEADER COMPETENCY MODEL
The outstanding leader competency research identified a set
of skills, behaviors or indicators that the outstanding leaders performed or demonstrated that made them outstanding. The researchers then grouped them into the 11 competencies as shown in
Figure 7-2.
Figure 7-2. Outstanding Leader Competencies
—————————————————————————————
• Sense of Responsibility


Positive Expectations



Informed Judgment



Conceptualization



Use of Multiple Influence Strategies



Leader Influence



Conscientious Use of Discipline



Effective Communication



Planning



Initiative

• Monitoring for Results
—————————————————————————————
Details of each of these competencies are discussed in this
chapter. The skills, behaviors or indicators associated with each
competency are presented with the competency. To get the most
benefit of these competencies, you should read and think about
each behavior or indicator listed under the competency. Think
about the projects and teams with which you have been associated
and the leaders of those projects. Contemplate how you would
apply the competency and its associated skills/behaviors/indicators in situations you typically encounter in the workplace.

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Note: Outstanding Does Not Mean Perfect. The outstanding
leaders identified in the research were terrific leaders, but they
were not perfect. Even the outstanding leaders made mistakes. So,
as you apply these competencies, don’t expect perfection. You
will, however, become a more effective leader as you apply and
hone these competencies in your role as project manager.

THE OUTSTANDING
LEADER COMPETENCIES:
Sense of Responsibility
There were 11 competencies identified in the research. The
researchers noted that no competency was considered more important than another; however, listing Sense of Responsibility first
really hits the target about leadership—if the leader is not responsible, nothing else matters, because little else will happen, except
perhaps by accident.


Takes responsibility for own and team’s performance, including
failures or problems.

The outstanding leader has an almost palpable sense of responsibility toward his or her people and toward his or her
project. This leader is continually asking “How can we do things
better?” When things go wrong, he/she asks “What could I have
done to prevent this?” The outstanding leader does hold other
people accountable for their roles in the project, but he or she does
not automatically blame others when problems arise.


Takes responsibility for team’s reputation or image.

The outstanding leader seeks to build team morale and spirit
by striving for a strong positive team image. He or she plays up
positives; plays down negatives.
For example, if a person on the team or the entire team receives a compliment from a client or other person in the company,

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the outstanding leader (PM) would congratulate the person/team
publicly and note his or her (i.e., the PM’s) appreciation for their
good performance. If it is a big enough success, the leader might
inform a higher level leader and ask that person to congratulate
and praise the persons/team who were responsible for the good
performance. This has the effect of showing others what good
performance looks like, and instilling in everyone a sense of pride
and an enhanced motivation to perform well.
If something goes wrong, the leader focuses on resolving any
immediate problems first. Then, taking steps to avoid embarrassing anyone, he/she puts in place processes that will help avoid
similar occurrences in the future. This follow-up could include
additional training, ensuring the leader’s instructions and standards are understood and instituting procedures or other actions
that will help minimize the possibility that the same mistake will
happen again.


Takes responsibility for the safety and well-being of team members
in job-related activities.

The outstanding leader is concerned about and looks after
team members’ health and safety. This can include furnishing
safety equipment for the job, sometimes above and beyond OSHA
requirements, as well as other appropriate means to protect his or
her project team members. It might include contracting for additional security to accompany people to their car after dark or
paying for a taxi home after working late at night or on the weekend. As a result of the leader’s sincere interest in the work safety
of his or her members, he or she attains a higher level of support
and loyalty from his/her team members than would otherwise be
the case. Wouldn’t you feel a stronger sense of loyalty and commitment to a leader or firm that looked after your safety above
and beyond the minimum?


Takes actions to support the member’s responsibilities toward his/
her family.

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The outstanding leader understands team members have a
life outside of work. While the outstanding leader holds people
accountable for their work performance, he or she is supportive
when a team member has family needs. Examples include:
-

Time off for personal crises

-

Phone calls to check on a sick family member

-

Shifting work load temporarily to meet a temporary crisis

-

Thank you note to spouse or family thanking them for their
support of an associate during a period of long and/or hectic
work hours. An alternative form of this appreciation might
be a special effort at a company function such as a picnic to
praise the work of the associate to the spouse, child or other
family member of the associate.

You may think that some of these actions are coddling of
employees and that some will take advantage of you. Of course
there will always be a few employees who will try to take advantage of your good will. But the research shows that a large majority of employees truly appreciate this kind of support by their
leaders and tend to give that discretionary effort above and beyond the minimum necessary to hold their job. Think about your
own reaction if your boss showed you the kind of respect and
support we’re talking about here. Wouldn’t that motivate you to
give extra effort in your job?
As for the employees who do try to take advantage of your
efforts to implement this competency behavior, deal with them on
a case by case basis. You don’t need to buy-into any anyone’s
efforts to take advantage of your efforts to support your team. But
you also don’t want to spoil it for the good people by not implementing this competency behavior.
The bottom line is this competency pays BIG DIVIDENDS in
morale and commitment to the project and project leader.

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Positive Expectations about Their People
The outstanding leader starts out with a positive mindset
about his or her people. His or her positive expectations are based
on respect for people’s dignity and self worth. The expectation is
that when people are treated well they will do well. It’s not an
unrealistic pollyanna view of their people, but rather a positive
bias that is sensed by the team members and which tends to instill
a sense of wanting to live up to the expectations of the leader. The
following are ways in which outstanding leaders display positive
expectations toward their people.


Has a strong conviction that subordinates are valuable resources.

Good leaders listen to their people. They provide feedback to
people on their input. The outstanding leader understands that he
or she does not know it all. One outstanding leader put it this way
“I try hard, but I’m not God. I don’t have all the answers. Sure, I
make all the major decisions, but I take full advantage of the experience and ingenuity sitting out there.”
And when people are treated as intelligent adults with something to contribute, it builds their self-confidence, morale and
project commitment.


Acknowledges a person’s strengths as well as shortcomings (balanced perspective—avoids halo or dirtbag labels about people).

No one is all good or all bad. When a person has performed
poorly, it’s easy to condemn him or her overall. Similarly, one
good performance might produce the “halo effect”—the idea that
the person can do no wrong.
The outstanding leader takes a balanced approach to assessing people. He or she doesn’t hold well-intentioned mistakes
against persons (unless they are excessive). Similarly, the outstanding leader recognizes that the “star” performer may have
gaps in his or her skills and seeks to help fill those gaps through
training, coaching, etc.

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Directly expresses to people the belief that they can and will succeed.

When a leader is positive about his/her people—”Betty, I
know you’ll do a great job on this project”—it has the effect of
elevating the person’s performance to meet the leader’s expectations. The person is inclined to not let the leader down. Just think
about your own reaction to someone you respect who expresses
confidence in you. Don’t you want to live up to that person’s
expectations?
Informed Judgment
Even the best managed and led projects encounter bumps
along the road to success. Sometimes, it can be very stressful for
everyone, especially the leader. Some leaders react inappropriately
to setbacks by “tripping out on overload” and begin screaming,
pointing fingers and denigrating the people he or she thinks
caused the problem(s). Even worse, the leader may take out his/
her frustrations on anyone nearby. The outstanding leader on the
other hand tends to keep a cool head, press for the facts, strive for
objectivity and seeks to reach sound conclusions.


Forms opinions and makes decisions on information and the identification of available facts.

The outstanding leader doesn’t rush to judgment. He or she
is not a “screamer” and stays calm when others are crisising. This
ability to stay calm in stressful circumstances, when chaos and
confusion are swirling all around, promotes confidence in the
leader by his or her people and others around him/her. This results in everyone being able to focus their energies on finding the
best solutions rather than responding to the leader’s rantings or
finger-pointing.


Makes decisions or draws conclusions using data and information
from own and others’ experiences.

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While taking responsibility for his or her actions, the outstanding leader knows he or she doesn’t know everything, and
does not hesitate to obtain input from others. The leader encourages input from team members to help make better decisions. In
seeking this input, the outstanding leader may have to work hard
to build trust because some team members may have previously
worked for a screamer, and thus may be reluctant to give the
leader their input for fear of ridicule.
Over time, as you apply the principles in this chapter, you
will earn trust from your teammates that will allow you to overcome any reluctance people may have to give you their frank
input.
Conceptualization
This is what I call the “connect the dots” competency. It allows the leader to take different cues and organize them into
wholes (concepts). It allows the leader to see patterns and sort
relevant information from irrelevant information. The indicators
or behaviors associated with this competency are listed below.


Identifies multiple causes for an event, situation, or behavior (e.g.,
a late deliverable).

This indicator or behavior says that if something happens on
the project, the outstanding leader will seek more than just the
simple or seemingly obvious reason(s). An example might be a
person on your project team who seems to miss deadlines more
than you find acceptable. Instead of assuming that this person
does not appreciate the importance of deadlines or doesn’t care
whether he or she meets them at all, the outstanding leader will
dig into the “whys” of the unacceptable behavior. Reasons might
include a combination of the following:
— Person is overloaded with work
— Leader has not explained the importance of meeting deadlines
— Person has not been properly trained

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— Person is incompetent
— Person may be receiving late input from others
Whatever the reasons, the outstanding leader will utilize this
behavior or indicator to get to the bottom of the situation.


Interprets meaning of nonverbal cues—(a facial expression, a walk,
a slouch).

The outstanding leader looks behind words for true meanings and understandings. For example, the leader may ask a
project team member, do you understand the instructions?” The
team member may answer “Yes.” But the way she answered yes;
i.e., with a pause, furrowed brow, uncertain expression, suggests
the real answer is “I’m not sure.”
Because you know about this competency and spot the disconnect between the employee’s words and his or her body language, you might say something like “It doesn’t look like you’re
sure. Would you like me to explain it again or show you what to
do?” This can offer the employee an opportunity to ask for clarification without feeling like you will think he or she is slow.


Identifies trends in events or patterns of behavior.

This skill requires the ability to identify trends and patterns;
i.e., when things are improving or when things are going the other
way. The outstanding leader asks why, and begins to reinforce the
good, and identifying changes to fix the bad. An example of this
skill might be the results of your efforts to reduce shipping costs.
You notice that your team has successfully implemented a program to complete tasks earlier than before and thus be able to take
advantage of lower 2- and 3-day shipping rates. The outstanding
leader’s appropriate response would be to thank the team for their
efforts in reducing shipping costs and perhaps even taking them
to lunch or find some other ways of rewarding their positive contributions to the project.

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Another example of this outstanding leader behavior is when
the leader notices when something is not part of a trend or pattern. For example, a normally cheerful person appears troubled.
The outstanding leader would spot this, inquire as to what is
going on with that person and take appropriate action.


Identifies commonalities or patterns between old and new situations.

The outstanding leader is a good learner. He or she is able to
learn from the past and apply lessons learned from previous
events to new, but similar situations. In other words, the outstanding leader avoids reinventing the wheel.


Identifies key differences among situations or between opposing
viewpoints.

At the same time, the outstanding leader recognizes key differences among situations that may, on the surface, appear to be
the same. An example might be an increase in days receivables
outstanding (increased accounts receivables collection period).
The last time this occurred was because the accounting department was sending incorrectly formatted invoices to the client.
Instead of assuming this is the case again, the outstanding leader
would investigate what is happening in order to identify the actual reason(s) for the delay in payment. He or she might then find
that the customer has assigned a new accounts payable person for
your company and she has not received training on how to handle
your invoices. Appropriate action can then be taken in concert
with the customer’s PM to correct the situation.


Grasps and communicates ideas or situations through the use of
metaphors and analogies when appropriate.

“If we don’t fix this problem, the customer is going to walk.”
(In other words, we will lose the customer if we don’t fix the

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problem.) Unless physically handicapped, the customer can probably walk now, but to emphasize that the customer will walk
away “from us,” this would be an example of how the outstanding leader might utilize this competency behavior.
In the South, a common metaphor for letting a person know
that his or her reasoning does not ring true with the listener is
when the listener says “That dog won’t hunt.” In other words, “I
don’t buy your argument.”
Use of Multiple Influence Strategies
Recall that in our definition of leadership, influencing was the
operative word. The outstanding leader uses a number of strategies to influence those on his or her project team as well as others
within and outside the organization.


Establishes credibility as a leader by displaying own expertise and
professionalism—(competence).

The outstanding leader does not need to be the best at a
particular skill set (e.g., best engineer, best electrician, best mechanic), but he or she does need to be perceived as a competent
practitioner of the skill by his or her staff. This allows leader to be
accepted as a teacher or critic by his or her project team members.
It is important to understand that the longer one functions as
a project manager, the less technical expertise he or she is expected
to have. So don’t worry if your technical skills are not what they
used to be—your job now is to manage projects and lead people,
not be lead engineer or lead mechanic.


Leads by example. Influences by consciously modeling expected
behavior.

The outstanding leader understands that if others are to perform up to standards, the leader must model those standards and
expectations. In other words, the outstanding leader must walk
the talk. Everything the leader does is observed by his or her

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people. Even when the leader thinks no one is watching, people
are looking to him/her for guidance on how to act.
If you preach attention to detail or meeting commitments,
and yet you are loose on details or frequently miss your commitments, you can’t expect to inspire others to perform up to your
stated standards. They may do just the minimum to avoid disciplinary action, because they see you do not walk your talk.


Influences by appeal to higher purpose—(customer, team, company,
family).

“John, it’s important that you be respectful of our customers
or we may lose them. That would hurt career opportunities for not
only you but the entire team.” This is another influence strategy
that the outstanding leader can use to influence his or her people.
It brings in others in the lives of his/her people, and provides
additional motivations for his or her people to perform well.


Structures situation or environment to influence people’s attitude
or behavior—(more or less formal, as appropriate).

You may take over a low-performing team with a “don’t
give a hoot” attitude. As a result, you may decide that a formal,
structured environment may be appropriate. You set standards,
hold people accountable for their performance and take quick
action when standards are not met. It is likely that under these
conditions, you will not win “Most Popular Manager” accolades,
but you will in fact be sowing the seeds for a successful turnaround. In turn, you will build pride and positive morale as
people realize they are improving and becoming a high performing team. Then, after they start performing well, you may choose
to relax the environment to reward them for their improving
performance. (We recommend you read The Situational Leader or
attend a workshop on Situational Leadership® for additional information on this skill.)
Another thing you might do to structure an environment is to

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move out from behind your desk to talk to someone. You will
appear less intimidating and perhaps encourage the person with
whom you are speaking to be more at ease during the conversation.


Builds and maintains relationships—(customer, boss, other leaders,
etc.) for the purpose of accomplishing organizational goals.

You can’t succeed alone. No one can. The outstanding leader
builds supportive, trusting relationships up, down and across the
chain of command. He or she helps others achieve their goals and
as a result, when they need help, others are glad to help.
An example of how you might implement this indicator is
supporting another project manager who comes to you to borrow
a piece of equipment or use one of your best people for a task.
While it will require some adjustments on your part, you find a
way to help your colleague. Then when you need help (and you
will eventually), he or she will likely do most anything to help
you because you were there to help when he/she needed it.
Leader Influence
Similar to the previous competency, this one involves the
leader invoking his or her stature as project manager to influence
others in a very personal way. It can be considered “close-in” influence.


Leader visits shops or work areas, or otherwise makes self available
or visible with the express purpose of showing interest, concern, or
appreciation (MBWA).

The outstanding leader does not stay closeted in his/her office. Exactly the opposite, the outstanding leader gets out and
about to say hello to those in his or her group or team, thank them
for their work, ask about their family, etc. They practice MBWA:
“Management by Walking Around.” If they catch someone doing
a good job, they compliment them right then.

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This walking around time is also a great opportunity to ask
about family members of the people on your team or about other
coworkers. You might inquire about a sick child that you are
aware of, or how a spouse is doing in a new job. The key thing is
the outstanding leader is interested in his or her people beyond
the workplace and shows his/her interest using this competency
behavior.


Leader uses symbols to increase morale, loyalty, or a sense of belonging to the project or team.

This will vary with the individual team. Examples might
include a team golf shirt with company or team logo, baseballtype cap with logo, coffee cup with person’s name on it, etc.
Another way to effect this indicator is a classy welcomeaboard plan for new hires. Just think, how would you view a
company or leader who, when you reported for work on your first
day on the job, had your desk already set up, with basic office
supplies, a phone ready to go and a switchboard operator who
knows your name and extension. Add to that a balloon tied to the
chair welcoming you to the firm, and you have the makings of a
very excited employee who starts off with a very positive feeling
about you and your firm.


Leader publicly recognizes superior individual or group performance.

One of the most powerful ways a leader can influence his or
her people is to recognize and praise good work by his people.
Even improvement over previously unacceptable performance can
be praiseworthy. Praise is a powerful motivator and the outstanding leader is generous with it, WHEN IT IS EARNED. Praise when
not earned diminishes the value of it for everyone and ceases to
be a motivator.
How might this be actually performed in the workplace?
There are many ways—first of all a simple thank you for a good
result or even a good effort. Stopping by a person’s desk to let

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them know you heard from the client that they had solved a problem for the customer and you appreciate it. This kind of praise
gets around the workplace within microseconds, and has the effect
of motivating not only the person who performed the good deed
in the first place, but also his or her teammates who now know
they will be recognized for their good work.
Public attaboys/attagirls/attateams, promotion ceremonies,
award ceremonies, employee of the week/month, etc. are all ways
to recognize excellent performance. You have probably seen others. The point is don’t let good performance go unrecognized, even if
it is simply a sincere thank you in the hall. Of course, you will
want to keep a record of the good work by your people so you can
reward them at performance appraisal time.
You can increase the power of your praise when, for special
recognition occasions, you have your boss or a senior level leader
present the letter from the customer (or whatever other document
might be involved). Most leaders are glad to do this and it can be
an additional motivator for the individual receiving the recognition as well as others on the project team who see it rendered.


Communicates standards and expectations through consistent reinforcement of project and company standards (e.g., mission statement, core values.) These standards are reinforced in words, at
gatherings, at promotions, meetings, etc.

The idea behind this behavior is to use appropriate opportunities to restate and reinforce the company’s and your project
values and standards. For example, if someone is recognized because they received a letter of praise from a customer, in the ceremony presenting that letter, the leader could discuss how this
employee not only distinguished him or herself, but also reflected
the core value of strong customer service to your firm’s customers.
You could also note how this above and beyond performance will
help us receive additional work from that customer and good
recommendations from that customer as we try to attain additional work. This reinforces in everyone’s mind the importance of
the customer in our operations.

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Conscientious Use of Discipline
One of the more difficult things for a leader to do is hold
people accountable for results. Almost no one wants to be the
“bad guy.” We all would rather pat someone on the back for a
good job rather than discipline someone. But it’s an inescapable
truth that one facet of a leader’s job is to hold people accountable
for results and to enforce company standards.
This competency deals with the fact that the outstanding
leader will use discipline where warranted. But as the title of the
competency implies, it is discipline governed by conscience. It is not
wild raving tantrums or subtle psychological torture or attacks
on a person’s dignity (e.g., “John, you’re worthless.” or “Mary,
why can’t you do anything right?”). Rather it is the outstanding
leader’s attempt to help a person who is not performing well to
rise up and meet or exceed accepted company and your project
standards. It is also the leader ’s intent to let others on the
project team know that continued substandard performance will
not be tolerated. It does not take long for resentment to form
against the leader if project team members see an employee frequently falling short of performance standards and suffering no
consequences. They naturally feel “Why should I break my neck
covering for Jane’s poor performance when my leader knows
what is happening and won’t take appropriate action to correct
the matter?”
The power of a project manager to exercise disciplinary
power varies with each organization. In many organizations, the
project manager has no direct line control over his or her project
team members. In this situation, any discipline involved will
likely need to involve the individual in question’s direct supervisor. But regardless of the organizational relationship between
leader and the employee, the leader cannot escape the responsibility of ensuring his or her people perform their jobs up to standards. Hoping won’t make a discipline problem go away; the
leader needs to take appropriate action. Below are the behaviors
associated with outstanding leaders with respect to this competency.

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Enforces company and project standards.

The outstanding leader does not let standards be violated
with impunity. These standards could be related to the way the
customer is treated, the quality of his or her engineering calculations, the ability to meet project schedules, and so on. If standards
are missed, however, the outstanding leader does not come down
hard on the employee the first time or possibly even after several
times. Rather, he or she will coach and counsel the employee to
help that person succeed in their job. Often times the failure of an
employee to meet standards is not the fault of the employee.
Rather it is a result of a failure of leadership to ensure the employee is properly trained and led to success.


Despite a concern for the individual’s future, the outstanding leader
will exercise disciplinary power when harm to project or team appears likely.

While concerned about the individual, the outstanding leader
will not let one person harm the whole team or adversely impact
the customer or firm. If necessary, the outstanding leader will
remove the person from the team or project. This is a judgment
call and should not be taken without your boss being on board
and your human resources representative being consulted. Many
organizations have what is called a “progressive discipline policy”
that governs discipline matters. This typically includes verbal
warnings, written warnings, a final warning (in which the employee is specifically told that if his or her performance fails to
meet standards within a specified period of time, he or she will be
terminated from the organization) and ultimately, dismissal from
the company.
Effective Communication
It is impossible to lead people if they do not understand you.
Poor communication between the leader and his or her people can
lead to lack of understanding of the mission, values, standards

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and expectations of the leader and the organization. Take a moment to think back to the times when things did not go as well as
you or someone else thought they should. How many of these
instances can be traced to miscommunications? This is why this
competency appears on the list of outstanding leader competencies.
Listed below are the behaviors and skills associated with this
competency. Chapter 8 provides additional information about effective communication skills. You can use it to help you improve
your communication skills on the job and elsewhere.


Explains why, shares information, communicates the purpose of
decisions.

Research shows that people will give greater effort and commitment when they understand the “why” of a decision. Whenever possible, the outstanding leader will bring his or her people
on board with the “why” to gain greater commitment and support.


Takes steps to ensure that people absorb what is communicated to
them—(non-verbal cues, repeat-backs, observation).

The outstanding leader will use more than a simple “Do you
understand what I said?” to check for understanding. He or she
will look for understanding in the person’s eyes, asking for repeatbacks, monitoring their performance, etc. to ensure the communication has been effective.


Tailors communications to people’s level of understanding—(college educated, high school education, etc.).

The outstanding leader will tailor words, vocabulary and
phrasing to the education and training level of the people with
whom he or she is communicating. Some people are auditory
learners; some are visual learners, etc. The outstanding leader
knows how his or her people learn best and communicates in a
way that works best for each of them.

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Myers-Briggs Type Indicator® (MBTI®)—
An Effective Communication Tool:
One of the most effective tools for facilitating communication
and understanding between people is the Myers-Briggs Type Indicator (MBTI). Although not a part of the McBer and Company
research, the MBTI is a validated, research-based instrument that
has proven to be highly successful in helping individuals and
teams communicate more effectively with each other. We recommend you look into this powerful tool for your team and your
firm. Information can be found on the Internet or you can contact
the author for additional information.
Planning
One of the most boring things for many people to do is plan.
Very few managers jump out of bed each day and say “Hot dog!
I am so excited—I am going to be planning most of the day!” Did
you? You may smile at this thought, but planning is one of the
most important functions a leader can do. While it may not be as
fun and exciting as analyzing a building’s energy usage, designing
a mechanical system or receiving and installing a piece of equipment at a construction site, the outstanding leaders do it well. The
skills associated with this competency are presented below.


Plans beyond the demands of an immediate situation or problem.

The outstanding leader hates crises and looks ahead, way
ahead, to put plans and systems into place to avoid them. It’s
tough to eliminate crises, but you can reduce them and manage
them more effectively with sound planning.


Sets priorities.

The outstanding leader understands that not everything can
be a top priority. He or she uses his or her skills and those of his/
her people to set priorities, so that the right level of effort and
intensity is focused where it needs to be. Another way of saying
the same thing is first things first. In other words, the outstanding
leader first determines the right things to do, and then sets about
doing those things right. Everything can’t be number one priority.

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Identifies obstacles to progress and plans work-arounds.

Because the outstanding leader tries to stay ahead of the crisis curve, he/she identifies potential obstacles to mission accomplishment well before they become crises. For example, the
outstanding leader looks ahead to potential obstacles to mission
accomplishment, such as vacation schedules of key people, scheduled equipment shutdowns for maintenance, bad weather, etc.
The latter can affect a tight project schedule by reducing the workdays available to the project. In Florida, for instance, a planned 35 day “hurricane” work stoppage may be appropriate. In the
North, appropriate snow days might need to be factored into the
schedule.


Matches people to jobs to get the best performance.

Outstanding leaders seek to staff their teams, projects, or
departments with the right people. They know the strengths and
weaknesses of their people and assign them tasks that allow them
to accomplish the mission. They also assign tasks that stretch the
capabilities of their people so they can grow and help themselves
and the organization.
Another way of thinking of this skill is “Put the square pegs
into square holes and the round pegs into round holes.” Some
people are better at some skills than others. That’s why we have
mechanical engineers, electrical engineers, civil engineers, electricians, construction managers etc. Some people are better at details
than others. Some people work better with the customer than others. The outstanding project manager will seek to staff his or her
project with people that meet project needs and assign these
people to tasks best suited for their capabilities and interests.


Identifies, and lines up in advance, resources (programs, people,
funds) needed to achieve an objective.

Continually looking ahead, outstanding leaders actively seek
out the resources they need to accomplish their assigned

Leadership Fundamentals

125

mission(s). It could be a top programmer, a top engineer, the right
technology, etc. If resources are not available within the organization, the outstanding leader will look outside to meet his or her
resource needs. Whatever route the PM takes, he or she identifies
needed resources early and then takes steps to obtain them.


Develops an action plan to reach an objective.

The outstanding leader does not rely on “seat-of-the-pants”
planning. He/she puts together appropriate plans with tasks,
people, resources, timeframes, etc. to ensure the job gets done ontime and in a quality manner. In doing so, he/she consults with
the people who will have to carry out these plans to obtain their
input and commitment to accomplishing the plan. In addition,
he/she does not keep these plans secret—barring competitive or
other concerns, they are published so all who need to know are
informed about them.
Initiative
The outstanding leader is proactive. He or she doesn’t wait to
be overtaken by events—he or she makes the events.


Introduces new ideas or new procedures to the team.

The research found that the outstanding leader is not bound
by “we’ve always done it this way” type of thinking. He or she
seeks new and better ways of accomplishing the mission and
encourages others to do the same. He or she is quick to recognize
those who contribute to the team with good ideas and concepts.
This indicator might be demonstrated by the outstanding
leader soliciting ideas from his or her team on how to best solve
a problem, improve productivity, meet a schedule, deal with a
difficult customer, etc. It’s an understanding by the leader that he
or she doesn’t know it all, and values the input from his or her
team or people outside the team.


Shares good ideas or better ways to proceed with other teams.

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Project Management and Leadership Skills

The outstanding leader is a team player among his/her colleagues. He/she shares good ideas and procedures with his/her
fellow PMs and leader teammates. This, in turn, increases the level
of trust and teamwork between his unit and other units, results in
other PMs sharing their good ideas and raising the level of performance for all teams in the organization and benefiting the organization as a whole.


Acts quickly or immediately to resolve problems.

The outstanding leader does not let problems drag on. He/
she aggressively attacks problems to fix them before they turn into
crises.
Too many leaders let problems persist and “try to ignore
them away.” Unfortunately, most problems do not lend themselves to being ignored away. Yet these same leaders will complain
about the problems without taking appropriate corrective action.
The outstanding leader takes timely action to correct problems
and then moves on. As a result, the leader can focus his or her
attention on other important issues rather than continually being
dragged back to the same problems over and over again.


Persists in overcoming obstacles.

No good leader is a quitter. The outstanding leader is persistent in pursuing his or her goals! He/she will not be stopped by
obstacles in his/her path, and will go around them, over them or
through them to accomplish his/her goals. In addition, the outstanding leader instills this persistence in project team members,
so they learn to overcome obstacles in their work.
Monitoring for Results
Project managers are responsible for results. Outstanding
leaders use the following means to determine if they have
achieved the results they are seeking, and to identify actions necessary to attain the desired results.

Leadership Fundamentals



127

Gets out of the office, actively observes work progress, seeks and
collects performance information.

This indictor is as much an art as a behavior. The outstanding
leader does not stay closeted in his/her office or glued to the
phone or computer. He or she gets out and about, observes work
performance, talks to people (without spying on them) and gathers data and information on performance.


Evaluates performance.

With the data from the previous indicator, the leader evaluates performance. Did we meet goals? Why or why not? How
does customer feel about our performance? What can we do better
next time?
It’s a continual assessment of “how are we doing now, and
what can we do better?” An analogy might be setting a course in
a ship and then monitoring the compass to ensure we are on the
right course. Appropriate rudder is applied to ensure the ship is
traveling in the right direction.


Sees the information provided by own staff, customer, business
partners and other feedback as meaningful and useful. Acts on that
information to improve performance.

The outstanding leader values feedback that will help improve his project and/or improve his people. Even if the feedback
involves a criticism of the leader, he or she is not defensive, nor
does he or she “kill” messenger. The leader expresses appreciation
for that feedback and takes steps to implement the parts of the
feedback that will improve the project.

SUMMARY
We have presented the results of the Outstanding Leader
Competency research and have tailored it to the challenges you
face or will face as an engineering or construction project manager. It is important to understand that the information presented

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in this chapter is not based on the latest touchy-feely fad of the
week or flavor of the month. The information provided is based
on sound research about what outstanding leaders do that make
them so effective. The message is that if you do these things you
will be a more effective leader.

CASE STUDY
To help you put into practice the principles and competencies
we have presented in this chapter, a case study reflecting an actual
real-world work situation is presented in the pages that follow. In
the left column is the story pretty much as it played out in real life
(with names changed, etc.). On the right side of the case study are
horizontal lines indicating where you should write in the competency that was demonstrated (or in a few situations, poorly demonstrated).
The best way to benefit from this case study is to read the
case study through once or twice to get a feel for what is going on.
Then, using the information in this chapter (open book, because
life is open book), go ahead and write on the lines the
competency(ies) you believe are demonstrated in the text to the
left of the lines. Do this throughout the entire case study. To get
you started, we have filled in the competencies for the lines corresponding to the second paragraph, beginning “Betty met with
her new boss…”
When you have competed the exercise, you can look at the
Answer Key following the case study where a set of answers
(competencies) are presented. These competencies are based on
the actual competencies the leader (Betty) exhibited, the author ’s
experience, and input from others who have reviewed the case
study. Likely, your responses will be similar to ours, but do not be
overly concerned if you have some different ones. You may see
something we didn’t. After you have reviewed the answer key, go
back over your answers and this chapter. See if you can clarify in
your mind how Betty accomplished what she did and how she
utilized the outstanding leader competencies to be successful.

Leadership Fundamentals

129

—————————————————————————————

LEADERSHIP COMPETENCIES
CASE STUDY
(Refer to organization chart on last page as you read)
The Story

Competencies Exhibited

—————————————————————————————
Betty Johnson had been leading a group of
five engineers in Engineering Excellence,
Inc., an engineering consulting firm.
Recently she was asked to take on a new
assignment as Manager of Corporate
Administration for the company. In this
position, Betty would be responsible for
the corporate headquarters administrative
staff, the headquarters phone system, the
technical support of more than 250
computers in the company, and all legal
and contractual matters for the company.
Betty met with her new boss, Bill Dallas,
to discuss her new duties. Bill had a
reputation for being a good manager and
Betty’s meeting with him indicated he
would be very supportive in helping her
succeed. He told her that she had her
work cut out for herself—it seemed to him
that he was receiving complaints about
all her functional areas every hour-onthe-hour and sometimes more often. She
knew this was going to be a challenge.
After discussing her various duties with
Bill, she realized she had a tiger by the
tail. Where to begin first? Betty asked
Bill which should be her highest priority.
Bill said, smiling, “they’re ALL high
priority, but your highest priority has

Effective
Communications. (By
Bill), Positive
Expectations
——————————
Informed Judgment
——————————
Conceptualization___

——————————

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Project Management and Leadership Skills

to be straightening out the dismal
performance of the corporate administrative assistant (AA) group. Let me know
what I can do to help you.”
After completing her welcome-aboard
meeting with Bill, she set out to learn
more about the AA group. This group
was comprised of seven administrative
assistants (AAs) whose primary duties
were word processing for headquarters
staff. The group was led by an Administrative Supervisor. Betty talked to a number
of (internal) customers of the group and
learned that there was almost universal
disdain for the group in the company. The
AAs, who were the primary word processing resource for headquarters staff,
frequently missed deadlines, delivered
sloppy work product to their internal
customers, and feedback from both
clients and internal customers indicated
the receptionists were sometimes rude on
the phone. Betty took her Administrative
Supervisor out to lunch to get her input on
the situation.

——————————


——————————

——————————
——————————
——————————

——————————
——————————

The Administrative Supervisor, Lisa Wilson,
was not encouraging. She called the AA
——————————
group “the administrative staff from hell.”
——————————
(This troubled Betty because she tended to
——————————
think highly of people, but she held her
tongue so as not to intimidate Lisa or put a
damper on her willingness to communicate.)
Lisa then recounted a number of problems she
faced in trying to get them to perform—she
had counseled them, met with them, tried to
show them what to do, etc. Nothing seemed
to work. “Oh boy,” Betty thought, “this is

Leadership Fundamentals

going to be rough.” While Betty was unsure
of her plan as of now, she did know she
wanted to try to set a more positive tone
in the group,and asked Lisa to stop calling
her people“the administrative staff from
Hell.” Betty said, “I think they’re better
than that, and I want us to think of them
in a positive manner.”
After gathering all this information, Betty
spent some time sorting through the data.
She also drew upon her own experiences
with the AA group. Betty believed that
the group was comprised of basically good
people who, for whatever reason, were not
performing. She decided the next step was
to meet with the group and get the issues on
the table to get their side of the issues
before formulating a plan of corrective action.
Betty had Lisa set up a meeting with the
AAs to discuss goals, standards and performance expectations.

In the meeting with the group, Betty
said she was pleased to be associated
with the group. She told the members
that as a former customer of the group, she
knew they were good people, capable of
good work. She also told them that their
reputation in the company was not good
(and she saw several of the AAs nod in
agreement). She asked them what they
saw as the reasons for that. She was not
prepared for what she heard.
Almost simultaneously they started
complaining about the workload, the
unreasonable demands being placed on

131

——————————

——————————

——————————

——————————

——————————

——————————
——————————
——————————

——————————
——————————

——————————

132

Project Management and Leadership Skills

them, how nobody appreciated their
work, how demanding their customers
are, etc.—a real pity party. After letting
them vent, Betty sized-up the situation
and decided the way to handle this was
to obtain more information from them and
develop a plan of action as to where to
go from there. When things quieted down
in the room, she asked for specifics. Each
AA had a story to tell and Betty listened
intently. She asked questions to ensure she
understood what was being told to her.
During the discussion, a picture started
to form in Betty’s mind as to what this
was about.
Betty realized these AAs weren’t being
asked to do an unreasonable amount of
work. Their workload was typically a
steady level, with short periods of intense
activity and other periods of lighter
activity. The plain fact was these people
felt sorry for themselves, and were blaming
their customers and others for their
failure to perform. And, unfortunately, Lisa
didn’t seem to grasp this. (Betty decided
she would talk with Lisa later about the plan
to improve performance, but right now Betty
believed it was important to state clearly
what her expectations were for the group
and get them calibrated as to the standards
they would be expected to meet.)
After everyone had their say, Betty said
she understood how everyone felt, but
that “having talked with a number of
our customers, and having listened to the
group today, we need to do a better job of
serving our customers. This group is not

——————————

——————————
——————————

——————————

——————————

——————————
——————————

——————————

Leadership Fundamentals

133

overworked; we’re under-performing. And
——————————
we can do better—you can do better. I have
worked with each of you before, and have
——————————
seen the good work you can do, so I know you
have the ability to do it. Now we just need
to develop a plan to turn our performance
around and become consistently strong per——————————
formers. I’ll work with Lisa and she’ll work
with you to develop a plan and some milestones, so we can measure our performance
along the way. It will take hard work by
——————————
all of us, but I have confidence that this
group can become the best admin group
——————————
among all the companies in Atlanta.”
——————————
The meeting ended shortly thereafter.
After a very difficult three-month period
of training, providing people feedback
on their performance and holding people
accountable for standards, this group set a
new standard of performance. Assignments
were completed on-time, quality was
higher and improving, there was a strong
sense of customer service focus, and morale
——————————
had never been higher. The true measure of
——————————
their achievement occurred when three of
their most vocal critics told Betty after
a particularly difficult assignment, “this
was the best performance of the admin group
I have seen at our company in more
than two years.”
Throughout the come-back process, Betty
and Lisa met frequently with the AA
staff and gave them feedback on how
they were performing. When the group
was consistently performing up to high
standards, Betty and Lisa wrote memos
to each star performer (with copy

——————————

134

Project Management and Leadership Skills

to his/her personnel file) commending
each on his/her excellent performance and
quoting what the managers had said. The
group developed a strong sense of pride
and continued its top performance with
minimal supervision from Lisa.

——————————

—————————————————————————————

Case Study
Organization Chart

Bill Dallas
VP, Administration

Betty Johnson
Manager, Corp. Admin

Lisa Wilson

Michael Sykes

Cynthia Deal

Corp. AA Group Supv.

Tech. Support Supv.

Corp. Contracts Supv.

Admin Support Staff

Tech Support Staff

Contracts Support Staff

Seven Admin Assts.

Four Computer Jocks

Four Contr. Specialists

Leadership Fundamentals

135

LEADERSHIP COMPETENCIES
CASE STUDY—ANSWER KEY
(Refer to organization chart on last page as you read)
The Story

Competencies Exhibited

—————————————————————————————
Betty Johnson had been leading a group of
five engineers in Engineering Excellence,
Inc., an engineering consulting firm.
Recently she was asked to take on a new
assignment as Manager of Corporate
Administration for the company. In this
position, Betty would be responsible for
the corporate headquarters administrative
staff, the headquarters phone system, the
technical support of more than 250
computers in the company, and all legal
and contractual matters for the company.
Betty met with her new boss, Bill Dallas,
to discuss her new duties, Bill had a
reputation for being a good manager and
Betty’s meeting with him indicated he
would be very supportive in helping her
succeed. He told her that she had her
work cut out for herself—it seemed to him
that he was receiving complaints about
all her functional areas every hour-onthe-hour and sometimes more often. She
knew this was going to be a challenge.
After discussing her various duties with
Bill, she realized she had a tiger by the
tail. Where to begin first? Betty asked
Bill which should be her highest priority.
Bill said, smiling, “they’re ALL high
priority, but your highest priority has
to be straightening out the dismal
performance of the corporate administra-

Effective
Communications.
(By Bill), Positive
Expectations_______
Informed Judgment___

Conceptualization___

Informed Judgment,
Conceptualization___

Planning (Setting
Priorities)_________

136

Project Management and Leadership Skills

tive assistant (AA) group. Let me know
what I can do to help you.”
After completing her welcome-aboard
meeting with Bill, she set out to learn
more about the AA group. This group
was comprised of seven administrative
assistants (AAs) whose primary duties
were word processing for headquarters
staff. The group was led by an Administrative Supervisor. Betty talked to a number
of (internal) customers of the group and
learned that there was almost universal
disdain for the group in the company. The
AAs, who were the primary word processing resource for headquarters staff,
frequently missed deadlines, delivered
sloppy work product to their internal
customers, and feedback from both
clients and internal customers indicated
the receptionists were sometimes rude on
the phone. Betty took her Administrative
Supervisor out to lunch to get her input on
the situation.

Initiative,

Informed Judgment__


Informed Judgment__

Effective Communic._
Informed Judgment__


Initiative,

Informed Judgment__

Influence Strategy___


The Administrative Supervisor, Lisa Wilson,
Non-positive Expectawas not encouraging. She called the AA
tions (By Lisa)____
group “the administrative staff from hell.”
(This troubled Betty because she tended to
Pos. Expect. (Betty)__
think highly of people, but she held her
tongue so as not to intimidate Lisa or put a
damper on her willingness to communicate.) Effective Communica.
Lisa then recounted a number of problems she
faced in trying to get them to perform—she
had counseled them, met with them, tried to
show them what to do, etc. Nothing seemed
to work. “Oh boy,” Betty thought, “this is
going to be rough.” While Betty was unsure Conceptualization___
of her plan as of now, she did know she

Leadership Fundamentals

wanted to try to set a more positive tone
in the group, and asked Lisa to stop calling
her people “the administrative staff from
Hell.” Betty said “I think they’re better
than that, and I want us to think of them
in a positive manner.”

After gathering all this information, Betty
spent some time sorting through the data.
She also drew upon her own experiences
with the AA group. Betty believed that
the groupwas comprised of basically good
people who, for whatever reason, were not
performing. She decided the next step was
to meet with the group and get the issues on
the table to get their side of the issues
before formulating a plan of corrective action.
Betty had Lisa set up a meeting with the
AAs to discuss goals, standards and performance expectations.

In the meeting with the group, Betty
said she was pleased to be associated
with the group. She told the members
that as a former customer of the group, she
knew they were good people, capable of
good work. She also told them that their
reputation in the company was not good
(and she saw several of the AAs nod in
agreement). She asked them what they
saw as the reasons for that. She was not
prepared for what she heard.
Almost simultaneously they started
complaining about the workload, the
unreasonable demands being placed on
them, how nobody appreciated their

137

Effective Communica.

Positive Expectations

Informed Judgment___
Positive Expectations

Effective Communica.
Informed Judgment___
Planning__________

Influence Strategy,
Effective Communica.

Effective Communica.
Positive Expectations

Effective Communica.

138

Project Management and Leadership Skills

work, how demanding their customers
are, etc.—a real pity party. After letting
them vent, Betty sized-up the situation
and decided the way to handle this was
to obtain more information from them and
develop a plan of action as to where to
go from there. When things quieted down
in the room, she asked for specifics. Each
AA had a story to tell and Betty listened
intently. She asked questions to ensure she
understood what was being told to her.
During the discussion, a picture started
to form in Betty’s mind as to what this
was about.
Betty realized these AAs weren’t being
asked to do an unreasonable amount of
work. Their workload was typically a
steady level, with short periods of intense
activity and other periods of lighter
activity. The plain fact was these people
felt sorry for themselves, and were blaming
their customers and others for their
failure to perform. And, unfortunately, Lisa
didn’t seem to grasp this. (Betty decided
she would talk with Lisa later about the plan
to improve performance, but right now Betty
believed it was important to state clearly
what her expectations were for the group
and get them calibrated as to the standards
they would be expected to meet.)
After everyone had their say, Betty said
she understood how everyone felt, but
that “having talked with a number of
our customers, and having listened to the
group today, we need to do a better job of
serving our customers. This group is not
overworked; we’re under-performing. And

Effective Communica.
Conceptualization,
Informed Judgment___
Planning__________

Effective Communica.
Informed Judgment___
Conceptualization___

Conceptualization___

Conceptualization (by
Betty, not by Lisa)___

Effective Communica.
Planning to meet stds.

Effective Communica.
Effective Communica.

Leadership Fundamentals

139

we can do better—you can do better. I have

worked with each of you before, and have
Positive Expectations_

seen the good work you can do, so I know you

have the ability to do it. Now we just need
to develop a plan to turn our performance
Planning___________
around and become consistently strong performers. I’ll work with Lisa and she’ll work
with you to develop a plan and some milestones, so we can measure our performance
Effective Communica.
along the way. It will take hard work by
all of us, but I have confidence that this
Monitoring for Results
group can become the best admin group
Positive Expectations_
among all the companies in Atlanta.”
The meeting ended shortly thereafter.
After a very difficult three-month period
of training, providing people feedback
on their performance and holding people
accountable for standards, this group set a
new standard of performance. Assignments
were completed on-time, quality was
higher and improving, there was a strong
sense of customer service focus, and morale
had never been higher. The true measure of
their achievement occurred when three of
their most vocal critics told Betty after
a particularly difficult assignment, “this
was the best performance of the admin group
I have seen at our company in more
than two years.”
Throughout the come-back process, Betty
and Lisa met frequently with the AA
staff and gave them feedback on how
they were performing. When the group
was consistently performing up to high
standards, Betty and Lisa wrote memos
to each star performer (with copy
to his/her personnel file) commending

Monitoring for Results_
Conceptualization
(trend is up in
quality, customer
service and morale)

Monitoring for Results
Effective Comms____

Leader Influence
(Recognition)_______

140

Project Management and Leadership Skills

each on his/her excellent performance and
quoting what the managers had said. The
group developed a strong sense of pride
and continued its top performance with
\minimal supervision from Lisa.

Case Study
Organization Chart
Bill Dallas
VP, Administration

Betty Johnson
Manager, Corp. Admin

Lisa Wilson

Michael Sykes

Cynthia Deal

Corp. AA Group Supv.

Tech. Support Supv.

Corp. Contracts Supv.

Admin Support Staff

Tech Support Staff

Contracts Support Staff

Seven Admin Assts.

Four Computer Jocks

Four Contr. Specialists

Effective Communications

141

Chapter 8


Effective Communications

Barry Benator

C

ommunication: the imparting or interchange of thoughts,
opinions, or information by speech, writing, or signs
(Webster’s College Dictionary, 3rd Edition)

“I am so frustrated. I can’t get John to do anything I ask.”

“Betty is moving in slow motion again. I am going to tell her to
speed it up or else.”

BACKGROUND
As supervisors and managers we take pride in our ability to
solve problems. Give us a problem to solve and we are on it, now.
However, in our zeal to solve problems, we may not listen to a
person or group well enough to understand what the problem
really is. This can result in our trying to solve the wrong problem
and/or gaining a reputation as someone who doesn’t listen to
people.
141

142

Project Management and Leadership Skills

One of the most critical skills possessed by good leaders is
their ability to effectively communicate. Effective communication is
not simply talking clearly; it is, in many cases, and often more
importantly, listening effectively. By effective listening, we are
not referring to someone speaking and someone else simply hearing the words. Rather, effective communication often requires that
the listener understand the emotional content of the speaker ’s
words as well as the words themselves.
This is easier said than done. Throughout life we are told
to speak clearly, say what we mean, use proper English. Rarely
are we taught how to listen effectively. We are taught to listen
and understand words in their literal sense, but not to listen for
the emotional context in which they are spoken. We tend to listen to prepare a reply, instead of understanding what the
speaker is trying to tell us. Yet, it is through understanding the
emotional content of the words and what they mean to the
speaker that will allow you to unlock the effective communicator within you.

ACTIVE/EMPATHIC LISTENING
To be an effective communicator, it is important to understand how things appear to the speaker. We need to understand the
person who is speaking and what he or she is really trying to
convey. Often simply listening to the speaker’s words alone will
not do the trick.
Think about the times you have tried to convey your
thoughts or feelings to someone, and in spite of your best efforts,
they didn’t get it. You may have ended up frustrated or angry
with the listener because of it. Or perhaps you were listening to
someone and they told you that you “just don’t understand.” It
could have been a peer, a direct report or perhaps a spouse, child
or friend.
The listening skill that will help you be an effective listener
is called active listening or empathic listening. In this type of listen-

Effective Communications

143

ing, the objective is to seek understanding of the speaker ’s
words and feelings, so that you genuinely understand how that
person sees things. As put by Stephen Covey in Seven Habits of
Highly Effective People, seek to understand first, then to be understood.
In active or empathic listening, you listen with your ears,
your eyes, and your heart. Your objective is to understand how
the other person views a situation. By understanding the other
person’s point of view, you see the world as they see it and
you understand how they feel. As a result, you are in a better
position to respond to that person in ways that make sense to
him or her, not in ways that make sense to you. That’s one of
the big challenges in empathic listening—you need to work at
it in order to really understand the other person’s point of
view.
The good news is that research has shown you will have a
better chance of gaining trust and achieving more effective communications if you do try to understand the situation from the
other person’s world than if you focus on your own frame of
reference or own needs.
It Takes Courage
Empathic or active listening is so powerful because you
focus on the needs of the other person, not your own. And if
you do this in a genuine way, you will unlock the potential to
establish true effective communications. So how do you do
that? Can you learn how to be an effective listener? The answer
is an unqualified yes, if you are willing to apply a few proven
principles of effective listening and work at it—really work at it.
Make no mistake, developing good listening skills takes commitment and practice. It also takes courage. By being an empathic listener and understanding the other person’s point of
view, you run the risk of agreeing with him or her. But so
what? Maybe their idea or way of proceeding is better than
yours. If not, at least now you know how they see things and
can seek solutions that best meet everyone’s needs.

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Project Management and Leadership Skills

ACTIVE/EMPATHIC LISTENING SKILLS
It’s time to take this discussion out of the what and why and
start focusing on the how. How do we listen effectively? How can
we apply the principles of active listening? For one thing, the very
word active implies that you are working at listening, not simply
along for the ride.
Stop What You’re Doing
When you want to engage in effective listening, to really
understand what is going on with the other person and what is
being communicated and felt by the other person, stop what
you’re doing and give him or her your full attention. Don’t take
phone calls. Don’t type on the keyboard or connect to the Internet
(these can be seen in person and heard over the phone, and convey the message “you’re really not that important to me”).
By stopping what you are doing and giving full attention to
the person, you are sending a powerful message that he or she is
the most important person in the world to you at that moment.
That alone helps set a positive communicating environment that
fosters trust and openness, and conveys that you truly want to
understand what is going on with that person.
Look At the Person
Give the person face time in the literal sense as well as the
figurative sense. Make eye contact. Show concern and interest in
what the person is telling you.
Listen
Listen to the person’s words, tone, feelings. Focus on the message, not on whether the person is well-spoken or has an accent
different from yours. In today’s multicultural environment, you
will see and hear an increasing number of people who speak differently than you. You may have to work at it. Don’t think how
you are going to respond or solve the problem. Just listen—seek
to understand.

Effective Communications

145

Get Comfortable with Silence
The person may be telling you about a very private matter
(e.g., a harassment situation, death of a family member, or other
personal situation) and may need time to marshal his or her
thoughts and words. Usually the pause or silence only lasts a few
seconds or minutes, but it can seem like a lot longer. Don’t rush
the person. Avoid the temptation to fill in the blanks or complete
the person’s thought.
Don’t be Judgmental
You may be shocked at what you hear. You may disagree or
agree with what you hear. But reserve judgment while you are
listening. Remember, you are seeking to understand first. This is
about the person speaking and you listening, not your own values
or your own set of do’s and don’ts.
Be Encouraging
Let the person know you are listening by comments like
“Yes,” “I see…” or “Uh-huh” at appropriate times. Non-verbal
encouragement such as a nod or smile is also encouraging behavior on your part. This does not imply that you agree with the
person, but rather an acknowledgment that you are interested in
what the person is telling you and making it easy for him or her
to continue talking.
Restating in Your Own Words
To let the person know you have indeed heard and understood what he or she is saying, restate the other’s basic ideas in
your own words. “It sounds like you are upset because…” “If I
understand your position, you believe…” or “In other words, you
think we should take this approach because….” Pause to let the
speaker react. If you got it right, the person may say “yes and….”
Or if you are incorrect, the person can correct you right then so
you do know what he or she meant. Either way, you have listened
effectively in the sense that the person knows you want to understand and you have correctly captured the person’s content. This

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Project Management and Leadership Skills

allows the person to develop trust in you and more readily accept
your comments when you do offer guidance or support.
Restate, yes, but don’t start telling your own story about how
you dealt with a similar situation. (“Yeah, I remember when I was
faced with the same challenge…”) Active listening is about listening to the other person, not about you and your autobiography.
You may draw upon your own experience later on after you fully
understand the other person’s situation, but not while you are
seeking to understand the person’s own situation.
Observing and Reflecting Feelings
The emotions and feelings behind the words are often more
important than what is actually said. Look beyond the mere
words the speaker uses to understand what the person is feeling.
Listen with your eyes and heart. Show you understand the
person’s emotional status by reflecting your understanding of the
person’s feelings. “You sound pretty upset, John.” Or “How are
you today, Betty?” Betty answers, barely audibly, with her head
down, “Oh, I’m okay.” You sense all is not right with Betty, so you
might say, “Gee, Betty, you don’t sound like you’re okay.” Betty,
sensing a genuine interest by you, might reply “Well, actually,
everything is not all right. Last night I learned….” Sometimes, you
may not have a clue as to what the other person feels. So, you
might try, “How did that make you feel, Bill.” And then listen.
When the person believes you are genuinely interested in
him or her and develops trust in you based on that belief, you are
in a good position to understand what is going on with the person
and possibly help them. That help might be in the form of providing options for them to consider, referral to a professional counselor or other type of assistance. Often, just talking it out with an
empathic listener will help them see the best solution options for
them (and frequently, your organization).
When Can You Respond or Seek to Be Understood?
The effective/empathic listener can respond or seek to be
understood after you have applied the skills in this chapter to

Effective Communications

147

truly understand the other person. If you have succeeded in listening to and understanding the other person, then you will be in the
best position to offer your input and have it considered.
Make no mistake—empathic listening does take time, but not
nearly as much time as it takes to backup and correct misunderstandings that could have been avoided if you had listened actively and empathetically in the first place. The payoff for your
patience and skill in using active/empathic listening is a deeper
understanding of the other person and the ability to fashion solutions that meet the person’s needs, the organization’s needs and
your needs.
Okay, you’ve listened well.

Now you can solve the problem!!


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Economic Decision Making

149

Chapter 9


Economic

Decision Making

THE PROJECT MANAGER AND
ECONOMIC DECISION MAKING

A

thorough understanding of how to make decisions based
on the “return on Investment” is essential. The project
manager needs to guide the design team in optimizing
the performance of buildings and plants over their life. The “lowest” cost facility usually will result in the highest operating costs
which may result in a facility that has the highest life cycle costs.

LIFE CYCLE COSTING
When a plant manager is assigned the role of energy manager, the first question to be asked is: “What is the economic basis
for equipment purchases?”
Some companies use a simple payback method of two years
or less to justify equipment purchases. Others require a life cycle
cost analysis with no fuel price inflation considered. Still other
companies allow for a complete life cycle cost analysis, including
the impact for the fuel price inflation and the energy tax credit (if
available).
149

150

Project Management and Leadership Skills

USING

THE

PAYBACK PERIOD METHOD

The payback period is the time required to recover the capital
investment out of the earnings or savings. This method ignores all
savings beyond the payback years, thus penalizing projects that
have long life potentials for those that offer high savings for a
relatively short period.
The payback period criterion is used when funds are limited
and it is important to know how fast dollars will come back. The
payback period is simply computed as:

Payback period =

initial investment
annual after tax savings

(9-1)

The project manager who must justify energy equipment
expenditures based on a payback period of one year or less has
little chance for long-range success. Some companies have set
higher payback periods for energy utilization methods. These
longer payback periods are justified on the basis that:


Fuel pricing may increase at a higher rate than the general
inflation rate.



The “risk analysis” for not implementing energy utilization
measures may mean loss of production and losing a competitive edge.

USING LIFE CYCLE COSTING
Life cycle costing is an analysis of the total cost of a system,
device, building, machine, etc., over its anticipated useful life. The
name is new but the subject has, in the past, gone by such names
as “engineering economic analysis” or “total owning and operating cost summaries.”

Economic Decision Making

151

Life cycle costing has brought about a new emphasis on the
comprehensive identification of all costs associated with a system.
The most commonly included costs are initial in place cost, operating costs, maintenance costs, and interest on the investment.
Two factors enter into appraising the life of the system: namely,
the expected physical life and the period of obsolescence. The
lesser factor is governing time period. The effect of interest can
then be calculated by using one of several formulas which take
into account the time value of money.
When comparing alternative solutions to a particular problem, the system showing the lowest life cycle cost will usually be
the first choice (performance requirements are assessed as equal in
value).
Life cycle costing is a tool in value engineering. Other items,
such as installation time, pollution effects, aesthetic considerations, delivery time, and owner preferences will temper the rule
of always choosing the system with the lowest life cycle cost.
Good overall judgment is still required.
The life cycle cost analysis still contains judgment factors
pertaining to interest rates, useful life, and inflation rates. Even
with the judgment element, life cycle costing is the most important tool in value engineering, since the results are quantified in
terms of dollars.
As the price for energy changes, and as governmental incentives are initiated, processes or alternatives which were not economically feasible will be considered. This chapter will
concentrate on the principles of the life cycle cost analysis as they
apply to energy conservation decision making.

THE TIME VALUE

OF

MONEY

Most energy saving proposals require the investment of capital to accomplish them. By investing today in energy conservation,
yearly operating dollars over the life of the investment will be
saved. A dollar in hand today is more valuable than one to be

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Project Management and Leadership Skills

received at some time in the future. For this reason, a time value
must be placed on all cash flows into and out of the company.
Money transactions are thought of as a cash flow to or from
a company. Investment decisions also take into account alternate
investment opportunities and the minimum return on the investment. In order to compute the rate of return on an investment, it
is necessary to find the interest rate which equates payments
outcoming and incoming, present and future. The method used to
find the rate of return is referred to as discounted cash flow.

INVESTMENT DECISION-MAKING
To make investment decisions, the energy manager must follow one simple principle: Relate annual cash flows and lump sum
deposits to the same time base. The six factors used for investment
decision making simply convert cash from one time base to another; since each company has various financial objectives, these
factors can be used to solve any investment problem.
Single Payment Compound Amount—F/P
The F/P factor is used to determine the future amount F that
a present sum P will accumulate at i percent interest, in n years.
If P (present worth) is known, and F (future worth) is to be determined, then Equation 9-2 is used.

Figure 9-1. Single payment compound amount (F/P).


Economic Decision Making

153

F = P × (1 + i)n

(9-2)

F/P = (1 + i)n

(9-3)

The F/P can be computed by an interest formula, but usually its
value is found by using the interest tables. Interest tables for interest rates of 10 to 50 percent are found in this chapter (Tables 9-1
through 9-8). In predicting future costs, there are many unknowns.
For the accuracy of most calculations, interest rates are assumed to
be compounded annually unless otherwise specified. Linear interpolation is commonly used to find values not listed in the interest
tables.
Tables 9-9 through 9-12 can be used to determine the effect of
fuel escalation on the life cycle cost analysis.
Single Payment Present Worth—P/F
The P/F factor is used to determine the present worth, P, that
a future amount, F, will be at interest of i-percent, in n years. If F
is known, and P is to be determined, then Equation 9-4 is used.
P = F × 1/(1 +i)n
P/F =

1
(1 + i) n

Figure 9-2. Single payment present worth (P/F).


(9-4)
(9-5)

154

Project Management and Leadership Skills

Table 9-1. 10% Interest factors.
——————————————————————————————————
Singlepayment
compoundamount
F/P

Period
n

Singlepayment
presentworth
P/F

Uniform
series
compoundamount
F/A

Sinking-fund
payment
A/F

Future value
of $1

Present value
of $1

Future value
of uniform
series of $1

Uniform
series
whose future
value is $1

Uniform
series
Present value
with present
of uniform
value of $1
series of $1

(1 + i)n

1
(1 + i) n

(1 + i) n ± 1
i

i
(1 + i) n ± 1

i(1 + i) n
(1 + i) n ± 1

Capital
recovery
A/P

Uniformseries
presentworth
P/A

———————————————————————————————

(1 + i) n ± 1
i(1 + i) n

——————————————————————————————————
1
2
3
4
5

1.100
1.210
1.331
1.464
1.611

0.9091
0.8264
0.7513
0.6830
0.6209

1.000
2.100
3.310
4.641
6.105

1.00000
0.47619
0.30211
0.21547
0.16380

1.10000
0.57619
0.40211
0.31147
0.26380

0.909
1.736
2.487
3.170
3.791

6
7
8
9
10

1.772
1.949
2.144
2.358
2.594

0.5645
0.5132
0.4665
0.4241
0.3855

7.716
9.487
11.436
13.579
15.937

0.12961
0.10541
0.08744
0.07364
0.06275

0.22961
0.20541
0.18744
0.17364
0.16275

4.355
4.868
5.335
5.759
6.144

11
12
13
14
15

2.853
3.138
3.452
3.797
4.177

0.3505
0.3186
0.2897
0.2633
0.2394

18.531
21.384
24.523
27.975
31.772

0.05396
0.04676
0.04078
0.03575
0.03147

0.15396
0.14676
0.14078
0.13575
0.13147

6.495
6.814
7.103
7.367
7.606

16
17
18
19
20

4.595
5.054
5.560
6.116
6.727

0.2176
0.1978
0.1799
0.1635
0.1486

35.950
40.545
45.599
51.159
57.275

0.02782
0.02466
0.02193
0.01955
0.01746

0.12782
0.12466
0.12193
0.11955
0.11746

7.824
8.022
8.201
8.365
8.514

21
22
23
24
25

7.400
8.140
8.954
9.850
10.835

0.1351
0.1228
0.1117
0.1015
0.0923

64.002
71.403
79.543
88.497
98.347

0.01562
0.01401
0.01257
0.01130
0.01017

0.11562
0.11401
0.11257
0.11130
0.11017

8.649
8.772
8.883
8.985
9.077

26
27
28
29
30

11.918
13.110
14.421
15.863
17.449

0.0839
0.0763
0.0693
0.0630
0.0673

109.182
121.100
134.210
148.631
164.494

0.00916
0.00826
0.00745
0.00673
0.00608

0.10916
0.10826
0.10745
0.10673
0.10608

9.161
9.237
9.307
9.370
9.427

35
40
45
50
55

28.102
45.259
72.890
117.391
189.059

0.0356
0.0221
0.0137
0.0085
0.0053

271.024
442.593
718.905
1163.909
1880.591

0.00369
0.00226
0.00139
0.00086
0.00053

0.10369
0.10226
0.10139
0.10086
0.10053

9.644
9.779
9.863
9.915
9.947

60
65
70
75
80

304.482
490.371
789.747
1271.895
2048.400

0.0033
0.0020
0.0013
0.0008
0.0005

3034.816
4893.707
7887.470
12708.954
20474.002

0.00033
0.00020
0.00013
0.00008
0.00005

0.10033
0.10020
0.10013
0.10008
0.10005

9.967
9.980
9.987
9.992
9.995

85
90
95

3298.969
5313.023
8556.676

0.0003
0.0002
0.0001

32979.690
53120.226
85556.760

0.00003
0.00002
0.00001

0.10003
0.10002
0.10001

9.997
9.998
9.999

——————————————————————————————————

Economic Decision Making

155

Table 9-2. 12% Interest factors.

——————————————————————————————————

Singlepayment
compoundamount
F/P

Period

n

Singlepayment
presentworth
P/F

Uniform
series
compoundamount
F/A

Sinking-fund
payment
A/F

Future value
of $1

Present value
of $1

Future value
of uniform
series of $1

Uniform
series
whose future
value is $1

Uniform
series
Present value
with present
of uniform
value of $1
series of $1

(1 + i)n

1
(1 + i) n

(1 + i) n ± 1
i

i
(1 + i) n ± 1

i(1 + i) n
(1 + i) n ± 1

(1 + i) n ± 1
i(1 + i) n

Capital
recovery
A/P

Uniformseries
presentworth
P/A


———————————————————————————————

——————————————————————————————————
1
2
3
4
5

1.120
1.254
1.405
1.574
1.762

0.8929
0.7972
0.7118
0.6355
0.5674

1.000
2.120
3.374
4.779
6.353

1.00000
0.47170
0.29635
0.20923
0.15741

1.12000
0.59170
0.41635
0.32923
0.27741

0.893
1.690
2.402
3.037
3.605

6
7
8
9
10

1.974
2.211
2.476
2.773
3.106

0.5066
0.4523
0.4039
0.3606
0.3220

8.115
10.089
12.300
14.776
17.549

0.12323
0.09912
0.08130
0.06768
0.05698

0.24323
0.21912
0.20130
0.18768
0.17698

4.111
4.564
4.968
5.328
5.650

11
12
13
14
15

3.479
3.896
4.363
4.887
5.474

0.2875
0.2567
0.2292
0.2046
0.1827

20.655
24.133
28.029
32.393
37.280

0.04842
0.04144
0.03568
0.03087
0.02682

0.16842
0.16144
0.15568
0.15087
0.14682

5.938
6.194
6.424
6.628
6.811

16
17
18
19
20

6.130
6.866
7.690
8.613
9.646

0.1631
0.1456
0.1300
0.1161
0.1037

42.753
48.884
55.750
63.440
72.052

0.02339
0.02046
0.01794
0.01576
0.01388

0.14339
0.14046
0.13794
0.13576
0.13388

6.974
7.120
7.250
7.366
7.469

21
22
23
24
25

10.804
12.100
13.552
15.179
17.000

0.0926
0.0826
0.0738
0.0659
0.0588

81.699
92.503
104.603
118.155
133.334

0.01224
0.01081
0.00956
0.00846
0.00750

0.13224
0.13081
0.12956
0.12846
0.12750

7.562
7.645
7.718
7.784
7.843

26
27
28
29
30

19.040
21.325
23.884
26.750
29.960

0.0525
0.0469
0.0419
0.0374
0.0334

150.334
169.374
190.699
214.583
241.333

0.00665
0.00590
0.00524
0.00466
0.00414

0.12665
0.12590
0.12524
0.12466
0.12414

7.896
7.943
7.984
8.022
8.055

35
40
45
50
55

52.800
93.051
163.988
289.002
509.321

0.0189
0.0107
0.0061
0.0035
0.0020

431.663
767.091
1358.230
2400.018
4236.005

0.00232
0.00130
0.00074
0.00042
0.00024

0.12232
0.12130
0.12074
0.12042
0.12024

8.176
8.244
8.283
8.304
8.317

60
65
70
75
80

897.597
1581.872
2787.800
4913.056
8658.483

0.0011
0.0006
0.0004
0.0002
0.0001

7471.641
13173.937
23223.332
40933.799
72145.692

0.00013
0.00008
0.00004
0.00002
0.00001

0.12013
0.12008
0.12004
0.12002
0.12001

8.324
8.328
8.330
8.332
8.332

——————————————————————————————————

156

Project Management and Leadership Skills

Table 9-3. 15% Interest factors.

——————————————————————————————————

Singlepayment
compoundamount
F/P

Period
n

Singlepayment
presentworth
P/F

Uniform
series
compoundamount
F/A

Sinking-fund
payment
A/F

Future value
of $1

Present value
of $1

Future value
of uniform
series of $1

Uniform
series
whose future
value is $1

Uniform
series
Present value
with present
of uniform
value of $1
series of $1

(1 + i)n

1
(1 + i) n

(1 + i) n ± 1
i

i
(1 + i) n ± 1

i(1 + i) n
(1 + i) n ± 1

(1 + i) n ± 1
i(1 + i) n

Capital
recovery
A/P

Uniformseries
presentworth
P/A

———————————————————————————————

——————————————————————————————————
1
2
3
4
5

1.150
1.322
1.521
1.749
2.011

0.8696
0.7561
0.6575
0.5718
0.4972

1.000
2.150
3.472
4.993
6.742

1.00000
0.46512
0.28798
0.20027
0.14832

1.15000
0.61512
0.43798
0.35027
0.29832

0.870
1.626
2.283
2.855
3.352

6
7
8
9
10

2.313
2.660
3.059
3.518
4.046

0.4323
0.3759
0.3269
0.2843
0.2472

8.754
11.067
13.727
16.786
20.304

0.11424
0.09036
0.07285
0.05957
0.04925

0.26424
0.24036
0.22285
0.20957
0.19925

3.784
4.160
4.487
4.772
5.019

11
12
13
14
15

4.652
5.350
6.153
7.076
8.137

0.2149
0.1869
0.1625
0.1413
0.1229

24.349
29.002
34.352
40.505
47.580

0.04107
0.03448
0.02911
0.02469
0.02102

0.19107
0.18448
0.17911
0.17469
0.17102

5.234
5.421
5.583
5.724
5.847

16
17
18
19
20

9.358
10.761
12.375
14.232
16.367

0.1069
0.0929
0.0808
0.0703
0.0611

55.717
65.075
75.836
88.212
102.444

0.01795
0.01537
0.01319
0.01134
0.00976

0.16795
0.16537
0.16319
0.16134
0.15976

5.954
6.047
6.128
6.198
6.259

21
22
23
24
25

18.822
21.645
24.891
28.625
32.919

0.0531
0.0462
0.0402
0.0349
0.0304

118.810
137.632
159.276
194.168
212.793

0.00842
0.00727
0.00628
0.00543
0.00470

0.15842
0.15727
0.15628
0.15543
0.15470

6.312
6.359
6.399
6.434
6.464

26
27
28
29
30

37.857
43.535
50.066
57.575
66.212

0.0264
0.0230
0.0200
0.0174
0.0151

245.712
283.569
327.104
377.170
434.745

0.00407
0.00353
0.00306
0.00265
0.00230

0.15407
0.15353
0.15306
0.15265
0.15230

6.491
6.514
6.534
6.551
6.566

35
40
45
50
55

133.176
267.864
538.769
1083.657
2179.622

0.0075
0.0037
0.0019
0.0009
0.0005

881.170
1779.090
3585.128
7217.716
14524.148

0.00113
0.00056
0.00028
0.00014
0.00007

0.15113
0.15056
0.15028
0.15014
0.15007

6.617
6.642
6.654
6.661
6.664

60
65

4383.999
8817.787

0.0002
0.0001

29219.992
58778.583

0.00003
0.00002

0.15003
0.15002

6.665
6.666

——————————————————————————————————

Economic Decision Making

157

Table 9-4. 20% Interest factors.

——————————————————————————————————

Singlepayment
compoundamount
F/P
Period
n

Singlepayment
presentworth
P/F

Uniform
series
compoundamount
F/A

Sinking-fund
payment
A/F

Capital
recovery
A/P

Uniformseries
presentworth
P/A

———————————————————————————————
Future value
of $1

Present value
of $1

Future value
of uniform
series of $1

(1 + i)n

1
(1 + i) n

(1 + i) n ± 1
i

Uniform
series
whose future
value is $1

Uniform
series
Present value
with present
of uniform
value of $1
series of $1

i
(1 + i) n ± 1

i(1 + i) n
(1 + i) n ± 1

(1 + i) n ± 1
i(1 + i) n

——————————————————————————————————
1
2
3
4
5

1.200
1.440
1.728
2.074
2.488

0.8333
0.6944
0.5787
0.4823
0.4019

1.000
2.200
3.640
5.368
7.442

1.00000
0.45455
0.27473
0.18629
0.13438

1.20000
0.65455
0.47473
0.38629
0.33438

0.833
1.528
2.106
2.589
2.991

6
7
8
9
10


2.986
3.583
4.300
5.160
6.192

0.3349
0.2791
0.2326
0.1938
0.1615

9.930
12.916
16.499
20.799
25.959

0.10071
0.07742
0.06061
0.04808
0.03852

0.30071
0.27742
0.26061
0.24808
0.23852

3.326
3.605
3.837
4.031

4.192

11
12

13

14

15


7.430
8.916
10.699
12.839
15.407

0.1346
0.1122
0.0935
0.0779
0.0649

32.150
39.581
48.497
59.196
72.035

0.03110
0.02526
0.02062
0.01689
0.01388

0.23110
0.22526
0.22062
0.21689
0.21388

4.327

4.439

4.533

4.611

4.675

16
17

18

19

20


18.488
22.186
26.623
31.948
38.338

0.0541
0.0451
0.0376
0.0313
0.0261

87.442
105.931
128.117
154.740
186.688

0.01144
0.00944
0.00781
0.00646
0.00536

0.21144
0.20944
0.20781
0.20646
0.20536

4.730

4.775

4.812

4.843

4.870

21
22

23

24

25


46.005
55.206
66.247
79.497
95.396

0.0217
0.0181
0.0151
0.0126
0.0105

225.026
271.031
326.237
392.484
471.981

0.00444
0.00369
0.00307
0.00255
0.00212

0.20444
0.20369
0.20307
0.20255
0.20212

4.891

4.909

4.925

4.937

4.948

26
27

28

29

30


114.475
137.371
164.845
197.814
237.376

0.0087
0.0073
0.0061
0.0051
0.0042

567.377
681.853
819.223
984.068
1181.882

0.00176
0.00147
0.00122
0.00102
0.00085

0.20176
0.20147
0.20122
0.20102
0.20085

4.956

4.964

4.970

4.975

4.979

35
40

45

50


590.668
1469.772
3657.262
9100.438

0.0017
0.0007
0.0003
0.0001

2948.341
7343.858
18281.310
45497.191

0.00034
0.00014
0.00005
0.00002

0.20034
0.20014
0.20005
0.20002

4.992

4.997

4.999

4.999

——————————————————————————————————

158

Project Management and Leadership Skills

Table 9-5. 25% Interest factors.

——————————————————————————————————
Singlepayment
compoundamount
F/P

Period
n

Singlepayment
presentworth
P/F

Uniform
series
compoundamount
F/A

Sinking-fund
payment
A/F

Future value
of $1

Present value
of $1

Future value
of uniform
series of $1

Uniform
series
whose future
value is $1

(1 + i)n

1
(1 + i) n

(1 + i) n ± 1
i

i
(1 + i) n ± 1

Capital
recovery
A/P

Uniformseries
presentworth
P/A

———————————————————————————————
Uniform
series
Present value
with present
of uniform
value of $1
series of $1

i(1 + i) n
(1 + i) n ± 1

(1 + i) n ± 1
i(1 + i) n

——————————————————————————————————
1
2
3
4
5

1.250
1.562
1.953
2.441
3.052

0.8000
0.6400
0.5120
0.4096
0.3277

1.000
2.250
3.812
5.766
8.207

1.00000
0.44444
0.26230
0.17344
0.12185

1.25000
0.69444
0.51230
0.42344
0.37185

0.800
1.440
1.952
2.362
2.689

6
7
8
9
10

3.815
4.768
5.960
7.451
9.313

0.2621
0.2097
0.1678
0.1342
0.1074

11.259
15.073
19.842
25.802
33.253

0.08882
0.06634
0.05040
0.03876
0.03007

0.33882
0.31634
0.30040
0.28876
0.28007

2.951
3.161
3.329
3.463
3.571

11
12
13
14
15

11.642
14.552
18.190
22.737
28.422

0.0859
0.0687
0.0550
0.0440
0.0352

42.566
54.208
68.760
86.949
109.687

0.02349
0.01845
0.01454
0.01150
0.00912

0.27349
0.26845
0.26454
0.26150
0.25912

3.656
3.725
3.780
3.824
3.859

16
17
18
19
20

35.527
44.409
55.511
69.389
86.736

0.0281
0.0225
0.0180
0.0144
0.0115

138.109
173.636
218.045
273.556
342.945

0.00724
0.00576
0.00459
0.00366
0.00292

0.25724
0.25576
0.25459
0.25366
0.25292

3.887
3.910
3.928
3.942
3.954

21
22
23
24
25

108.420
135.525
169.407
211.758
264.698

0.0092
0.0074
0.0059
0.0047
0.0038

429.681
538.101
673.626
843.033
1054.791

0.00233
0.00186
0.00148
0.00119
0.00095

0.25233
0.25186
0.25148
0.25119
0.25095

3.963
3.970
3.976
3.981
3.985

26
27
28
29
30

330.872
413.590
516.988
646.235
807.794

0.0030
0.0024
0.0019
0.0015
0.0012

1319.489
1650.361
2063.952
2580.939
3227.174

0.00076
0.00061
0.00048
0.00039
0.00031

0.25076
0.25061
0.25048
0.25039
0.25031

3.988
3.990
3.992
3.994
3.995

35
40

2465.190
7523.164

0.0004
0.0001

9856.761
30088.655

0.00010
0.00003

0.25010
0.25003

3.998
3.999

——————————————————————————————————

Economic Decision Making

159

Table 9-6. 30% Interest factors.

——————————————————————————————————

Singlepayment
compoundamount
F/P

Period
n

Singlepayment
presentworth
P/F

Uniform
series
compoundamount
F/A

Sinking-fund
payment
A/F

Future value
of $1

Present value
of $1

Future value
of uniform
series of $1

Uniform
series
whose future
value is $1

Uniform
series
Present value
with present
of uniform
value of $1
series of $1

(1 + i)n

1
(1 + i) n

(1 + i) n ± 1
i

i
(1 + i) n ± 1

i(1 + i) n
(1 + i) n ± 1

(1 + i) n ± 1
i(1 + i) n

Capital
recovery
A/P

Uniformseries
presentworth
P/A

———————————————————————————————

——————————————————————————————————
1
2
3
4
5

1.300
1.690
2.197
2.856
3.713

0.7692
0.5917
0.4552
0.3501
0.2693

1.000
2.300
3.990
6.187
9.043

1.00000
0.43478
0.25063
0.16163
0.11058

1.30000
0.73478
0.55063
0.46163
0.41058

0.769
1.361
1.816
2.166
2.436

6
7
8
9
10

4.827
6.275
8.157
10.604
13.786

0.2072
0.1594
0.1226
0.0943
0.0725

12.756
17.583
23.858
32.015
42.619

0.07839
0.05687
0.04192
0.03124
0.02346

0.37839
0.35687
0.34192
0.33124
0.32346

2.643
2.802
2.925
3.019
3.092

11
12
13
14
15

17.922
23.298
30.288
39.374
51.186

0.0558
0.0429
0.0330
0.0254
0.0195

56.405
74.327
97.625
127.913
167.286

0.01773
0.01345
0.01024
0.00782
0.00598

0.31773
0.31345
0.31024
0.30782
0.30598

3.147
3.190
3.223
3.249
3.268

16
17
18
19
20

66.542
86.504
112.455
146.192
190.050

0.0150
0.0116
0.0089
0.0068
0.0053

218.472
285.014
371.518
483.973
630.165

0.00458
0.00351
0.00269
0.00207
0.00159

0.30458
0.30351
0.30269
0.30207
0.30159

3.283
3.295
3.304
3.311
3.316

21
22
23
24
25

247.065
321.194
417.539
542.801
705.641

0.0040
0.0031
0.0024
0.0018
0.0014

820.215
1067.280
1388.464
1806.003
2348.803

0.00122
0.00094
0.00072
0.00055
0.00043

0.30122
0.30094
0.30072
0.30055
0.30043

3.320
3.323
3.325
3.327
3.329

26
27
28
29
30

917.333
1192.533
1550.293
2015.381
2619.996

0.0011
0.0008
0.0006
0.0005
0.0004

3054.444
3971.778
5164.311
6714.604
8729.985

0.00033
0.00025
0.00019
0.00015
0.00011

0.30033
0.30025
0.30019
0.30015
0.30011

3.330
3.331
3.331
3.332
3.332

35

9727.8060

0.0001

32422.868

0.00003

0.30003

3.333

——————————————————————————————————

160

Project Management and Leadership Skills

Table 9-7. 40% Interest factors.

——————————————————————————————————

Singlepayment
compoundamount
F/P

Period
n

Singlepayment
presentworth
P/F

Uniform
series
compoundamount
F/A

Sinking-fund
payment
A/F

Future value
of $1

Present value
of $1

Future value
of uniform
series of $1

Uniform
series
whose future
value is $1

Uniform
series
Present value
with present
of uniform
value of $1
series of $1

(1 + i)n

1
(1 + i) n

(1 + i) n ± 1
i

i
(1 + i) n ± 1

i(1 + i) n
(1 + i) n ± 1

Capital
recovery
A/P

Uniformseries
presentworth
P/A

———————————————————————————————

(1 + i) n ± 1
i(1 + i) n

——————————————————————————————————
1
2
3
4
5

1.400
1.960
2.744
3.842
5.378

0.7143
0.5102
0.3644
0.2603
0.1859

1.000
2.400
4.360
7.104
10.946

1.00000
0.41667
0.22936
0.14077
0.09136

1.40000
0.81667
0.62936
0.54077
0.49136

0.714
1.224
1.589
1.849
2.035

6
7
8
9
10

7.530
10.541
14.758
20.661
28.925

0.1328
0.0949
0.0678
0.0484
0.0346

16.324
23.853
34.395
49.153
69.814

0.06126
0.04192
0.02907
0.02034
0.01432

0.46126
0.44192
0.42907
0.42034
0.41432

2.168
2.263
2.331
2.379
2.414

11
12
13
14
15

40.496
56.694
79.371
111.120
155.568

0.0247
0.0176
0.0126
0.0090
0.0064

98.739
139.235
195.929
275.300
386.420

0.01013
0.00718
0.00510
0.00363
0.00259

0.41013
0.40718
0.40510
0.40363
0.40259

2.438
2.456
2.469
2.478
2.484

16
17
18
19
20

217.795
304.913
426.879
597.630
836.683

0.0046
0.0033
0.0023
0.0017
0.0012

541.988
759.784
1064.697
1491.576
2089.206

0.00185
0.00132
0.00094
0.00067
0.00048

0.40185
0.40132
0.40094
0.40067
0.40048

2.489
2.492
2.494
2.496
2.497

21
22
23
24
25

1171.356
1639.898
2295.857
3214.200
4499.880

0.0009
0.0006
0.0004
0.0003
0.0002

2925.889
4097.245
5737.142
8032.999
11247.199

0.00034
0.00024
0.00017
0.00012
0.00009

0.40034
0.40024
0.40017
0.40012
0.40009

2.498
2.498
2.499
2.499
2.499

26
27

6299.831
8819.764

0.0002
0.0001

15747.079
22046.910

0.00006
0.00005

0.40006
0.40005

2.500
2.500

——————————————————————————————————

Economic Decision Making

161

Table 9-8. 50% Interest factors.
——————————————————————————————————
Singlepayment
compoundamount
F/P
Period

n

Singlepayment
presentworth
P/F

Uniform
series
compoundamount
F/A

Sinking-fund
payment
A/F

Capital
recovery
A/P

Uniformseries
presentworth
P/A


———————————————————————————————
Future value
of $1

Present value
of $1

Future value
of uniform
series of $1

(1 + i)n

1
(1 + i) n

(1 + i) n ± 1
i

Uniform
series
whose future
value is $1

Uniform
series
Present value
with present
of uniform
value of $1
series of $1

i
(1 + i) n ± 1

i(1 + i) n
(1 + i) n ± 1

(1 + i) n ± 1
i(1 + i) n

——————————————————————————————————
1
2
3
4
5

1.500
2.250
3.375
5.062
7.594

0.6667
0.4444
0.2963
0.1975
0.1317

1.000
2.500
4.750
8.125
13.188

1.00000
0.40000
0.21053
0.12308
0.07583

1.50000
0.90000
0.71053
0.62308
0.57583

0.667
1.111
1.407
1.605
1.737

6
7
8
9
10

11.391
17.086
25.629
38.443
57.665

0.0878
0.0585
0.0390
0.0260
0.0173

20.781
32.172
49.258
74.887
113.330

0.04812
0.03108
0.02030
0.01335
0.00882

0.54812
0.53108
0.52030
0.51335
0.50882

1.824
1.883
1.922
1.948
1.965

11
12
13
14
15

86.498
129.746
194.620
291.929
437.894

0.0116
0.0077
0.0051
0.0034
0.0023

170.995
257.493
387.239
581.859
873.788

0.00585
0.00388
0.00258
0.00172
0.00114

0.50585
0.50388
0.50258
0.50172
0.50114

1.977
1.985
1.990
1.993
1.995

16
17
18
19
20

656.841
985.261
1477.892
2216.838
3325.257

0.0015
0.0010
0.0007
0.0005
0.0003

1311.682
1968.523
2953.784
4431.676
6648.513

0.00076
0.00051
0.00034
0.00023
0.00015

0.50076
0.50051
0.50034
0.50023
0.50015

1.997
1.998
1.999
1.999
1.999

21
22

4987.885
7481.828

0.0002
0.0001

9973.770
14961.655

0.00010
0.00007

0.50010
0.50007

2.000
2.000

——————————————————————————————————

162

Project Management and Leadership Skills

Table 9-9. Five-year escalation table.
——————————————————————————————————
Present Worth of a Series of Escalating Payments Compounded Annually
Discount-Escalation Factors for n = 5 Years

——————————————————————————————————
Annual Escalation Rate
Discount ————————————————————————————————————————————
Rate

0.10

0.12

0.14

0.16

0.18

0.20

——————————————————————————————————
0.10

5.000000

5.279234

5.572605

5.880105

6.202627

0.11

4.866862

5.136200

5.420152

5.717603

6.029313

6.540569
6.355882

0.12

4.738562

5.000000

5.274242

5.561868

5.863289

6.179066

0.13

4.615647

4.869164

5.133876

5.412404

5.704137

6.009541

0.14

4.497670

4.742953

5.000000

5.269208

5.551563

5.847029

0.15

4.384494

4.622149

4.871228

5.131703

5.404955

5.691165

0.16

4.275647

4.505953

4.747390

5.000000

5.264441

5.541511

0.17

4.171042

4.394428

4.628438

4.873699

5.129353

5.397964

0.18

4.070432

4.287089

4.513947

4.751566

5.000000

5.259749

0.19

3.973684

4.183921

4.403996

4.634350

4.875619

5.126925

0.20

3.880510

4.084577

4.298207

4.521178

4.755725

5.000000

0.21

3.790801

3.989001

4.196400

4.413341

4.640260

4.877689

0.22

3.704368

3.896891

4.098287

4.308947

4.529298

4.759649

0.23

3.621094

3.808179

4.003835

4.208479

4.422339

4.645864

0.24

3.540773

3.722628

3.912807

4.111612

4.319417

4.536517

0.25

3.463301

3.640161

3.825008

4.018249

4.220158

4.431144

0.26

3.388553

3.560586

3.740376

3.928286

4.124553

4.329514

0.27

3.316408

3.483803

3.658706

3.841442

4.032275

4.231583

0.28

3.246718

3.409649

3.579870

3.757639

3.943295

4.137057

0.29

3.179393

3.338051

3.503722

3.676771

3.857370

4.045902

0.30

3.114338

3.268861

3.430201

3.598653

3.774459

3.957921

0.31

3.051452

3.201978

3.359143

3.523171

3.694328

3.872901

0.32

2.990618

3.137327

3.290436

3.450224

3.616936

3.790808

0.33

2.939764

3.074780

3.224015

3.379722

3.542100

3.711472

0.34

2.874812

3.014281

3.159770

3.311524

3.469775

3.634758

——————————————————————————————————


Economic Decision Making

163

Table 9-10. Ten-year escalation table.
——————————————————————————————————
Present Worth of a Series of Escalating Payments Compounded Annually
Discount-Escalation Factors for n = 10 Years

——————————————————————————————————
Annual Escalation Rate
Discount ————————————————————————————————————————————
Rate

0.10

0.12

0.14

0.16

0.18

0.20

——————————————————————————————————
0.10

10.000000

11.056250

12.234870

13.548650

15.013550

0.11

9.518405

10.508020

11.613440

12.844310

14.215140

16.646080
15.741560

0.12

9.068870

10.000000

11.036530

12.190470

13.474590

14.903510

0.13

8.650280

9.526666

10.498990

11.582430

12.786980

14.125780

0.14

8.259741

9.084209

10.000000

11.017130

12.147890

13.403480

0.15

7.895187

8.672058

9.534301

10.490510

11.552670

12.731900

0.16

7.554141

8.286779

9.099380

10.000000

10.998720

12.106600

0.17

7.234974

7.926784

8.693151

9.542653

10.481740

11.524400

0.18

6.935890

7.589595

8.312960

9.113885

10.000000

10.980620

0.19

6.655455

7.273785

7.957330

8.713262

9.549790

10.472990

0.20

6.392080

6.977461

7.624072

8.338518

9.128122

10.000000

0.21

6.144593

6.699373

7.311519

7.987156

8.733109

9.557141

0.22

5.911755

6.437922

7.017915

7.657542

8.363208

9.141752

0.23

5.692557

6.192047

6.742093

7.348193

8.015993

8.752133

0.24

5.485921

5.960481

6.482632

7.057347

7.690163

8.387045

0.25

5.290990

5.742294

6.238276

6.783767

7.383800

8.044173

0.26

5.106956

5.536463

6.008083

6.526298

7.095769

7.721807

0.27

4.933045

5.342146

5.790929

6.283557

6.824442

7.418647

0.28

4.768518

5.158489

5.585917

6.054608

6.568835

7.133100

0.29

4.612762

4.984826

5.392166

5.838531

6.327682

6.864109

0.30

4.465205

4.820429

5.209000

5.634354

6.100129

6.610435

0.31

4.325286

4.664669

5.035615

5.441257

5.885058

6.370867

0.32

4.192478

4.517015

4.871346

5.258512

5.681746

6.144601

0.33

4.066339

4.376884

4.715648

5.085461

5.489304

5.930659

0.34

3.946452

4.243845

4.567942

4.921409

5.307107

5.728189

——————————————————————————————————


164

Project Management and Leadership Skills

Table 9-11. Fifteen-year escalation table.
——————————————————————————————————
Present Worth of a Series of Escalating Payments Compounded Annually
Discount-Escalation Factors for n = 15 years

——————————————————————————————————
Annual Escalation Rate
Discount ————————————————————————————————————————————
Rate

0.10

0.12

0.14

0.16

0.18

0.20

——————————————————————————————————
0.10

15.000000

17.377880

20.199780

23.549540

27.529640

0.11

13.964150

16.126230

18.690120

21.727370

25.328490

32.259620
29.601330

0.12

13.026090

15.000000

17.332040

20.090360

23.355070

27.221890

0.13

12.177030

13.981710

16.105770

18.616160

21.581750

25.087260

0.14

11.406510

13.057790

15.000000

17.287320

19.985530

23.169060

0.15

10.706220

12.220570

13.998120

16.086500

18.545150

21.442230

0.16

10.068030

11.459170

13.088900

15.000000

17.244580

19.884420

0.17

9.485654

10.766180

12.262790

14.015480

16.066830

18.477610

0.18

8.953083

10.133630

11.510270

13.118840

15.000000

17.203010

0.19

8.465335

9.555676

10.824310

12.303300

14.030830

16.047480

0.20

8.017635

9.026333

10.197550

11.560150

13.148090

15.000000

0.21

7.606115

8.540965

9.623969

10.881130

12.343120

14.046400

0.22

7.227109

8.094845

9.097863

10.259820

11.608480

13.176250

0.23

6.877548

7.684317

8.614813

9.690559

10.936240

12.381480

0.24

6.554501

7.305762

8.170423

9.167798

10.320590

11.655310

0.25

6.255518

6.956243

7.760848

8.687104

9.755424

10.990130

0.26

5.978393

6.632936

7.382943

8.244519

9.236152

10.379760

0.27

5.721101

6.333429

7.033547

7.836080

8.757889

9.819020

0.28

5.481814

6.055485

6.710042

7.458700

8.316982

9.302823

0.29

5.258970

5.797236

6.410005

7.109541

7.909701

8.827153

0.30

5.051153

5.556882

6.131433

6.785917

7.533113

8.388091

0.31

4.857052

5.332839

5.872303

6.485500

7.184156

7.982019

0.32

4.675478

5.123753

5.630905

6.206250

6.860492

7.606122

0.33

4.505413

4.928297

5.405771

5.946343

6.559743

7.257569

0.34

4.345926

4.745399

5.195502

5.704048

6.280019

6.933897

——————————————————————————————————


Economic Decision Making

165

Table 9-12. Twenty-year escalation table.

——————————————————————————————————
Present Worth of a Series of Escalating Payments Compounded Annually
Discount-Escalation Factors for n = 20 Years

——————————————————————————————————
Annual Escalation Rate
Discount ————————————————————————————————————————————
Rate

0.10

0.12

0.14

0.16

0.18

0.20

——————————————————————————————————
0.10

20.000000

24.295450

29.722090

36.592170

45.308970

0.11

18.213210

22.002090

26.776150

32.799710

40.417480

56.383330
50.067940

0.12

16.642370

20.000000

24.210030

29.505400

36.181240

44.614710

0.13

15.259850

18.243100

21.964990

26.634490

32.502270

39.891400

0.14

14.038630

16.694830

20.000000

24.127100

29.298170

35.789680

0.15

12.957040

15.329770

18.271200

21.929940

26.498510

32.218060

0.16

11.995640

14.121040

16.746150

20.000000

24.047720

29.098950

0.17

11.138940

13.048560

15.397670

18.300390

21.894660

26.369210

0.18

10.373120

12.093400

14.201180

16.795710

20.000000

23.970940

0.19

9.686791

11.240870

13.137510

15.463070

18.326720

21.860120

0.20

9.069737

10.477430

12.188860

14.279470

16.844020

20.000000

0.21

8.513605

9.792256

11.340570

13.224610

15.527270

18.353210

0.22

8.010912

9.175267

10.579620

12.282120

14.355520

16.890730

0.23

7.555427

8.618459

9.895583

11.438060

13.309280

15.589300

0.24

7.141531

8.114476

9.278916

10.679810

12.373300

14.429370

0.25

6.764528

7.657278

8.721467

9.997057

11.533310

13.392180

0.26

6.420316

7.241402

8.216490

9.380883

10.778020

12.462340

0.27

6.105252

6.862203

7.757722

8.823063

10.096710

11.626890

0.28

5.816151

6.515563

7.339966

8.316995

9.480940

10.874120

0.29

5.550301

6.198027

6.958601

7.856833

8.922847

10.194520

0.30

5.305312

5.906440

6.609778

7.437339

8.416060

9.579437

0.31

5.079039

5.638064

6.289875

7.054007

7.954518

9.021190

0.32

4.869585

5.390575

5.995840

6.702967

7.533406

8.513612

0.33

4.675331

5.161809

5.725066

6.380829

7.148198

8.050965

0.34

4.494838

4.949990

5.475180

6.084525

6.795200

7.628322

——————————————————————————————————


166

Project Management and Leadership Skills

Uniform Series Compound Amount—F/A
The F/A factor is used to determine the amount F that an
equal annual payment A will accumulate to in n years at i percent
interest. If A (uniform annual payment) is known, and F (the future worth of these payments) is required, then Equation 9-6 is
used.

F=A×
F/A =

(1 + i) n ± 1
i

(1 + i) n ± 1
i

(9-6)
(9-7)

Figure 9-3. Uniform series compound amount (F/A).
Uniform Series Present Worth—(P/A)
The P/A factor is used to determine the present amount P
that can be paid by equal payments of A (uniform annual payment) at i percent interest, for n years. If A is known, and P is
required, then Equation 9-8 is used.
n

1+i ±1
P=A×
n
i 1+i

(9-8)

Economic Decision Making

167

Figure 9-4. Uniform series present worth (P/A).
n

P/A =

1+i ±1
n
i 1+i

(9-9)

Figure 9-5. Capital recovery (A/P).
Capital Recovery—A/P
The A/P factor is used to determine an annual payment A
required to pay off a present amount P at i percent interest, for n
years. If the present sum of money, P, spent today is known, and
the uniform payment A needed to pay back P over a stated period
of time is required, then Equation 9-10 is used.

168

Project Management and Leadership Skills
n

i 1+i
A=P×
n
1+i ±1

(9-10)

n

i 1+i
A/P =
n
1+i ±1

(9-11)

Sinking Fund Payment—A/F
The A/F factor is used to determine the equal annual amount
R that must be invested for n years at i percent interest in order to
accumulate a specified future amount. If F (the future worth of a
series of annual payments) is known, and A (value of those annual
payments) is required, then Equation 9-12 is used.
A=F×

A/F =

i
n
1+i ±1

i
n
1+i ±1

(9-12)

(9-13)

Figure l9-6. Sinking fund payment (A/F).
Gradient Present Worth—GPW
The GPW factor is used to determine the present amount P
that can be paid by annual amounts A’ which escalate at e percent,

Economic Decision Making

169

at i percent interest, for n years. If A’ is known, and P is required,
then Equation 9-14 is used. The GPW factor is a relatively new
term which has gained in importance due to the impact of inflation.
P = A' × (GPW)in
1+e 1± 1+e
1+i
1+i
P/A' = GPW =
1
+
e

1+i

(9-14)
n

(9-15)

The three most commonly used methods in life cycle costing
are the annual cost, present worth and rate-of-return analysis.
In the present worth method a minimum rate of return (i) is
stipulated. All future expenditures are converted to present values
using the interest factors. The alternative with lowest effective first
cost is the most desirable.
A similar procedure is implemented in the annual cost
method. The difference is that the first cost is converted to an
annual expenditure. The alternative with lowest effective annual
cost is the most desirable.
In the rate-of-return method, a trial-and-error procedure is
usually required. Interpolation from the interest tables can determine what rate of return (i) will give an interest factor which will

Figure 9-7. Gradient present worth.


170

Project Management and Leadership Skills

make the overall cash flow balance. The rate-of-return analysis
gives a good indication of the overall ranking of independent alternates.
The effect of escalation in fuel costs can influence greatly the
final decision. When an annual cost grows at a steady rate it may
be treated as a gradient and the gradient present worth factor can
be used.
Special thanks are given to Rudolph R. Yanuck and Dr. Robert Brown for the use of their specially designed interest and escalation tables used in this text.
When life cycle costing is used to compare several alternatives the differences between costs are important. For example, if
one alternate forces additional maintenance or an operating expense to occur, then these factors as well as energy costs need to
be included. Remember, what was previously spent for the item to
be replaced is irrelevant. The only factor to be considered is
whether the new cost can be justified based on projected savings
over its useful life.

THE JOB SIMULATION EXPERIENCE
Throughout the text you will experience job situations and
problems. Each simulation experience is denoted by SIM. The
answer will be given below the problem. Cover the answers, then
you can “play the game.”
SIM 9-1
An evaluation needs to be made to replace all 40-watt fluorescent lamps with a new lamp that saves 12 percent or 4.8 watts
and gives the same output. The cost of each lamp is $2.80.
Assuming a rate of return before taxes of 25 percent is required, can the immediate replacement be justified? Hours of
operation are 5800 and the lamp life is two years. Electricity costs
7.0¢/kWh.

Economic Decision Making

ANSWER
A

A/P

171

= 5800 h/yr × 4.8 watts/lamp × $0.07/kWh
× 1 kWh/1000 wh = $1.94 savings/yr/lamp
= 1.94/2.80 = .69

From Table 9-5 a rate of return of 25 percent is obtained.
When analyzing energy conservation measures, never look at
what was previously spent or the life remaining. Just determine if
the new expenditure will pay for itself.
SIM 9-2
An electrical energy audit indicates electrical motor consumption is 4 × 106 kWh per year. By upgrading the motor spares
with high efficiency motors a 10% savings can be realized. The
additional cost for these motors is estimated at $80,000. Assuming
an 8¢ per kWh energy charge and 20-year life, is the expenditure
justified based on a minimum rate of return of 20% before taxes?
Solve the problem using the present worth, annual cost, and rateof-return methods.
Analysis
Present Worth Method
Alternate 1
Present Method

(1) First Cost (P)
(2) Annual Cost (A)
P/A (Table 9-4)
(3) A × 4.87 =
Present Worth
(1)+(3)


4 × 106 ×.08
= $320,000
4.87
$1,558,400
$1,558,400

Alternate 2
Use High Efficiency
Motor Spares
$80,000
.9 × $320,000
= $288,000
4.87
$1,402,560
$1,482,560
Choose Alternate with
Lowest Present Worth

172

Project Management and Leadership Skills

Annual Cost Method
Alternate 1
(1) First Cost (P)
(2) Annual Cost (A)
A/P (Table 9-4)
(3) P × .2
Annual Cost
(2)+(3)


$320,000
.2

$320,000

Alternate 2
$80,000
$288,000
.2
$16,000
$304,000
Choose Alternate with
Lowest Annual Cost

Rate of Return Method
P = ($320,000 – $288,000)

P/A =

80,000
= 2.5
32,000

What value of i will make P/A = 2.5? i = 40% (Table 9-7).
SIM 9-3
Show the effect of 10 percent escalation on the rate of return
analysis given the
Energy equipment investment
After-tax savings
Equipment life (n)

= $20,000
= $2,600
= 15 years

ANSWER
Without escalation:
A = 2,600 = 0.13
P 20,000

From Table 9-1, the rate of return is 10 percent. With 10 percent
escalation assumed:
P = 20,000 = 7.69
A 2,600

Economic Decision Making

173

From Table 9-11, the rate of return is 21 percent.
Thus we see that taking into account a modest escalation rate
can dramatically affect the justification of the project.

MAKING DECISIONS FOR
ALTERNATE INVESTMENTS
There are several methods for determining which energy
conservation alternative is the most economical. Probably the
most familiar and trusted method is the annual cost method.
When evaluating replacement of processes or equipment do
not consider what was previously spent. The decision will be
based on whether the new process or equipment proves to save
substantially enough in operating costs to justify the expenditure.
Equation 9-16 is used to convert the lump sum investment P
into the annual cost. In the case where the asset has a value after
the end of its useful life, the annual cost becomes:
AC = (P – L) * A/P + iL

(9-16)

where
AC
L

is the annual cost
is the net sum of money that can be realized for a piece of
equipment, over and above its removal cost, when it is
returned at the end of the service life. L is referred to as the
salvage value.

As a practical point, the salvage value is usually small and can
be neglected, considering the accuracy of future costs. The annual cost technique can be implemented by using the following
format:

174

Project Management and Leadership Skills

Alternate 1

Alternate 2

1. First cost (P)
2. Estimated life (n)
3. Estimated salvage value at
end of life (L)
4. Annual disbursements,
including energy costs &
maintenance (E)
5. Minimum acceptable return
before taxes (i)
6. A/P n, i
7. (P – L) * A/P
8. Li
9. AC = (P – L) * A/P + Li + E
Choose alternate with lowest annual cost
The alternative with the lowest annual cost is the desired choice.
SIM 9-4
A new water line must be constructed from an existing pumping
station to a reservoir. Estimates of construction and pumping costs
for each pipe size have been made.
The annual cost is based on a 16-year life and a desired return
on investment before taxes of 10 percent. Which is the most economical pipe size for pumping 4,000 hours/year?

Pipe Size

Estimated
Construction
Costs

8"
10"
12"

$80,000
$100,000
$160,000

Cost/Hour
for Pumping
$4.00
$3.00
$1.50

Economic Decision Making

175

ANSWER
P
n
E
i
A/P = 0.127
(P – L) A/P
Li
AC

8" Pipe
$80,000
16
16,000
10%

10,160
———
$26,160

DEPRECIATION, TAXES,
THE TAX CREDIT

10" Pipe
$100,000
16
12,000
10%

12,700
———
$24,700 (Choice)

12" Pipe
$160,000
16
6,000
10%

20,320
———
$26,320

AND

Depreciation
Depreciation affects the “accounting procedure” for determining profits and losses and the income tax of a company. In
other words, for tax purposes the expenditure for an asset such as
a pump or motor cannot be fully expensed in its first year. The
original investment must be charged off for tax purposes over the
useful life of the asset. A company usually wishes to expense an
item as quickly as possible.
The Internal Revenue Service allows several methods for
determining the annual depreciation rate.
Straight-line Depreciation. The simplest method is referred to
as a straight-line depreciation and is defined as:

±L
D= Pn
where
D
L

(9-17)

is the annual depreciation rate
is the value of equipment at the end of its useful life,
commonly referred to as salvage value

176

Project Management and Leadership Skills

n
P

is the life of the equipment, which is determined by
Internal Revenue Service guidelines
is the initial expenditure.

Sum-of-Years Digits
Another method is referred to as the sum-of-years digits. In
this method the depreciation rate is determined by finding the
sum of digits using the following formula,
N=n

n+1
2

(9-18)

where n is the life of equipment.
Each year’s depreciation rate is determined as follows:
First year

Second year

n year

D= n P±L
N

(9-19)

D= n ±1 P±L
N

(9-20)

D= 1 P±L
N

(9-21)

Declining-Balance Depreciation
The declining-balance method allows for larger depreciation
charges in the early years which is sometimes referred to as fast
write-off.
The rate is calculated by taking a constant percentage of the
declining undepreciated balance. The most common method used
to calculate the declining balance is to predetermine the depreciation rate. In the double declining-balance depreciation method, a
rate equal to 200 percent of the straight-line depreciation rate is
used.
Under other circumstances the rate is limited to 1-1/2 or 1/
4 times as great as straight-line depreciation. In this method the

Economic Decision Making

177

salvage value or undepreciated book value is established once the
depreciation rate is pre-established.
To calculate the undepreciated book value, Equation 9-22
used.
D=1± L
P

where
D
L
P

1/N

(9-22)

is the annual depreciation rate
is the salvage value
is the first cost.

Comparing Depreciation Methods
Depending on the depreciation method used, the charges
would vary.
SIM 9-5
Compare the depreciation charges for a $5000 computer with a 3year life, for the following methods: Straight Line Depreciation,
Sum of Years Digits and Double Declining Balance.
Answer
————————————————————————————————

Method

Year 1

Year 2

Year 3

————————————————————————————————

Straight Line
Sum of Years
Double Declining Balance

$1,666
$2,400
$3,300

$1,666
$1,600
$1,700

$1,666
$1,000
0

————————————————————————————————


Tax Considerations
Consult the accounting department for the latest Internal
Revenue Rules for depreciation and tax credits.
Tax-deductible expenses such as maintenance, energy, operating costs, insurance, and property taxes reduce the income subject
to taxes.

178

Project Management and Leadership Skills

For the after-tax life cycle analysis and payback analysis the
actual incurred and annual savings is given as follows.
AS = (1 – I) E + ID
where
AS
E

D
I

(9-23)

is the yearly annual after-tax savings
(excluding effect of tax credit)

is the yearly annual energy savings (difference

between original expenses and expenses
after modification)

is the annual depreciation rate

is the income tax bracket.


Equation 9-23 takes into account that the yearly annual energy savings are partially offset by additional taxes which must be
paid due to reduced operating expenses. On the other hand, the
depreciation allowance reduces taxes directly.
After-tax Analysis
To compute a rate of return which accounts for taxes, depreciation, escalation, and tax credits, a cash-flow analysis is usually
required. This method analyzes all transactions including first and
operating costs. To determine the after-tax rate of return a trialand-error or computer analysis is required.
All money is converted to the present assuming an interest
rate. The summation of all present dollars should equal zero when
the correct interest rate is selected, as illustrated in Figure 9-8.
This analysis can be made assuming a fuel escalation rate by
using the gradient present worth interest of the present worth
factor.
SIM 9-6
Develop a set of curves that indicate the capital that can be invested to give a rate of return of 15 percent after taxes for each
$1,000 saved for the following conditions:

Economic Decision Making

179

————————————————————————————————

1

Year

Investment

0
1
2
3
4

–P

2

3

Tax
Credit

Aftertax
Savings
(AS)

4
Single
Payment
Present
Worth
Factor

(2 + 3) × 4
Present
Worth

P/F1
P/F2
P/F3
P/F4

–P
+P1
P2
P3
P4

————————————————————————————————

+TC

AS
AS
AS
AS

Total

∑P
AS = (1 – I) E + ID
Trial-and-Error Solution:
Correct i when ∑P = 0

————————————————————————————————

Figure 9-8. Cash flow rate of return analysis.
1.
2.
3.
4.
5.

The effect of escalation is not considered.
A 5 percent fuel escalation is considered.
A 10 percent fuel escalation is considered.
A 14 percent fuel escalation is considered.
A 20 percent fuel escalation is considered.

Calculate for 5-, 10-, 15-, 20-year life.
Assume straight-line depreciation over useful life, 34 percent
income tax bracket, and no tax credit.
ANSWER

AS = (1 – I)E + ID
I = 0.34,

E = $1,000

AS = 660 + 0.34P
N

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Project Management and Leadership Skills

Thus, the after-tax savings (AS) are comprised of two components. The first component is a uniform series of $660 escalating at
e percent/year. The second component is a uniform series of
0.34P/N.
Each component is treated individually and converted to
present day values using the GPW factor and the P/A factor, respectively. The sum of these two present worth factors must equal
P. In the case of no escalation, the formula is:
P = 660 * P/A + 0.34P P/A
N
In the case of escalation:
P = 660 GPW + 0.34P * P/A
N

Since there is only one unknown, the formulas can be readily
solved. The results are indicated in the following chart.

N=5
$P

N = 10
$P

N = 15
$P

N =20
$P

———————————————————————————

e=0

2,869

4,000

4,459

4,648

———————————————————————————

e = 10%

3,753

6,292

8,165

9,618

———————————————————————————

e = 14%

4,170

7,598

10,676

13,567

———————————————————————————

e = 20%

4,871

10,146

16,353

23,918

———————————————————————————

Figure 9-9 illustrates the effects of escalation. This figure can
be used as a quick way to determine after-tax economics of energy
utilization expenditures.

Economic Decision Making

181

SIM 9-6
It is desired to have an after-tax savings of 15 percent. Comment on the investment that can be justified if it is assumed that
the fuel rate escalation should not be considered and the annual
energy savings is $2,000 with an equipment economic life of 15
years.
Comment on the above, assuming a 14 percent fuel escalation.
ANSWER
From Figure 9-9, for each $1,000 energy savings, an investment of $4,400 is justified or $8,800 for a $2,000 savings when no
fuel increase is accounted for.
With a 14 percent fuel escalation rate an investment of
$10,600 is justified for each $1,000 energy savings, thus $21,200 can
be justified for $2,000 savings. Thus, a much higher expenditure is
economically justifiable and will yield the same after-tax rate of
return of 15 percent when a fuel escalation of 14 percent is considered.

IMPACT OF FUEL INFLATION
LIFE CYCLE COSTING

ON

As illustrated by problem 9-5 a modest estimate of fuel inflation has a major impact on improving the rate of return on investment of the project. The problem facing the project manager is
how to forecast what the future of energy costs will be. All too
often no fuel inflation is considered because of the difficulty of
projecting the future.

SUMMARY

OF

LIFE CYCLE COSTING

Always draw a cash flow diagram on a time basis scale.
Show cash flow ins as positive and cash flow outs as negative.

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Project Management and Leadership Skills

Figure 9-9. Effects of escalation on investment requirements.
Note: Maximum investment in order to attain a 15% after-tax rate of
return on investment for annual savings of $1,000.

In determining which interest formula to use, the following
procedure may be helpful. First, put the symbols in two rows, one
above the other as below:
PAF (unknown)
PAF (known)

The top represents the unknown values, and the bottom line represents the known. From information you have and desire, simply
circle one of each line, and you have the correct factor.
For example, if you want to determine the annual saving “A”
required when the cost of the energy device “P” is known, circle
P on the bottom and A on the top. The factor A/P or capital recovery is required for this example. Table 9-11 summarizes the cash
analysis for interest formulas.

Economic Decision Making

183

Table 9-11. Cash Analysis for Interest Formulas.

————————————————————————————————


GIVEN
P
F
A
F
P
A

FIND
F
P
F
A
A
P

USE
F/P
P/F
F/A
A/F
A/P
P/A

————————————————————————————————


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Contract Planning Essentials

185

Chapter 10


Contract

Planning Essentials


I

t is essential that the administration and management of contracts results in reducing risks, maximizing cost savings,
minimizing claims, and improving economic return. These
results can only be achieved through effectively managing contract risks: developing fair contract documents, engaging in effective negotiating practices, and employing outstanding
communication skills.
The process of reaching a contract requires a specific sequence of steps. In taking these steps, the project manager must
make a series of choices between priorities for project objectives,
degrees of risk to be assumed by the contracting parties, control
over project activities, and the cost of achieving selected goals.
This process must first be fully understood by the project manager, then be tempered by experience, and finally be expanded
into the ability to reach a contract through the exercise of negotiating and communicating skills.
An excellent, simple-to-use reference on contracts is ASHRAE
Member’s Survival Guide—Contracts available from
www.ashrae.org.

WHAT

IS A

CONTRACT?

A contract is a mutual business agreement recognized by law
under which one party undertakes to do work (or provide a service) for another party for a “consideration.”
185

186

Project Management and Leadership Skills

Owner contracting arrangements would cover:


Contract Conditions Commercial Terms & Pricing Arrangements



Scope of Work (Technical)



P
roject Execution Plan

WHY HAVE

A

CONTRACT?

A written contract provides the document by which the risks,
obligations, and relationships of all parties are clearly established,
and ensures the performance of these elements in a disciplined
manner. In the owner situation, the contract is the means by which
the contractor can be controlled and ensures that the work and
end product satisfy the owner’s requirements.

PARTIES

TO THE

CONTRACT

Most projects are executed under a three-party contractual
relationship:


The owner, who establishes the form of contract and the general conditions.



The engineer, who can have the following three roles:
— Designer—carrying out the detailed engineering work,
and purchasing equipment and material on the owner’s
behalf
— Arbitrator—acting as the owner’s agent in administering the contract and deciding, impartially, on certain
rights of the parties under the contract
— Project manager-handling design, procurement, and
construction or construction management/services.



The contractor

Contract Planning Essentials

187

The normal contractual relationship among these three parties on a single project is for the owner to have one contract
with the engineer for design, procurement, and other services,
and a separate contract with the contractor for the construction
work. No contractual relationship exists between the engineer
and the contractor. This is usually referred to as a “divided or
split responsibility” arrangement. In an alternative arrangement,
called “single responsibility,” a general contractor is awarded total responsibility for the engineering, procurement, and construction.
The project manager must carefully decide on a specific contracting arrangement, as outlined in the section below on Contract
Strategy, and in Chapter 6, Planning.

CONTRACT RESPONSIBILITY
The project manager is essentially responsible for the contract
strategy, which is developed as part of the project strategy. However, the proposed division of work, contracting arrangements,
forms of contract, and bidders’ lists should be developed in conjunction with the company’s contracts department.
This combined responsibility of the project manager and the
contracts department in the contracting process can lead to inefficiencies, delays, and disagreements and can negatively impact the
project cost and schedule when there are organizational conflicts.
Close coordination and effective communications must exist between all groups to ensure complete agreement and commitment
to the proposed contracting program. This is particularly important in all submissions to contract committees and/or senior management.
The project manager must obtain agreement from the
company’s contracting department and insurance department before committing to contractual language regarding liability, indemnity, or insurance.

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Project Management and Leadership Skills

CONTRACT STRATEGY
As covered in the project strategy, the following would be
major considerations when developing a contract strategy for the
project:


When and how will the work be divided up?



H
ow will the division of work affect client/project team/
main contractor/vendor/subcontractor interfaces? (This division enables the project coordination procedures to be properly prepared.)



What type of contract should be used? Segment the project
into discrete work packages to facilitate management, and
subject the work packages to available resources. Consider
the contract philosophy, the type of contract best suited to the
project, contract interfaces, bid evaluation techniques, and
bid documentation. This enables the contract strategy to be
produced in liaison with the contracts department.



What roles are licensers and consultants expected to play?
This allows arrangements to be made for prequalifying suitable contractors, issuing invitations to bid, evaluating bids,
and making award recommendations.



A
re there potential conflicts of interest with other owner
projects in contractors’ offices, in vendors’ workshops, or
within fabrication yards? Such conflicts can have an impact
on the bidder’s list.



What is the availability of skilled labor? What is the industrial relations climate local to fabrication yards and local to
the construction site? Lack of labor can delete a contractor
from the bidder ’s list.

Contract Planning Essentials



189

What is the quality and availability of personnel to develop,
evaluate, and administer the required type of contract/contract conditions?

CONTRACTING ARRANGEMENTS
Engineering and construction contracts can be drawn in a
great variety of forms, depending on the contract strategy and the
financial resources of the contractor. The most successful contracts
have at least one element in common: thoughtful and thorough
preparation before the contract is let.
Contractual arrangements in construction are becoming increasingly more involved, which leads to the potential for significant added costs. Project complexity, and the changing and
increasingly costly legal and insurance environments, are major
reasons for considering whether better contractual arrangements
are possible. Contracts, of course, must be made early in the life
of a project. To do this while simultaneously providing for the
risks of uncertainties and gaining improved performance and innovation presents major challenges for owners and contractors
alike.

FORMS

OF

CONTRACT

There are three principle types of contracts: reimbursable,
measured (unit price), and lump sum. The following forms of
contract are typical of these types:








Cost Reimbursable (Time & Material)
Cost Reimbursable with Percentage Fee
Cost Reimbursable with Fixed Fee
Cost Reimbursable Plus Cost/Schedule Bonus-Penalties
Measured Unit Price (Mostly Construction)
Guaranteed Maximum Price
Lump Sum/Fixed Price

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Project Management and Leadership Skills

The objectives of cost, time, quality, risks, and liabilities must
be analyzed and prioritized, since trade-offs will probably be necessary in deciding the type of contract to be used.
Reimbursable Cost Contracts
These require little design definition, but need to be constructed in a way that allows expenditures to be properly controlled. The major advantage of a reimbursable cost contract is
time, since a contract can be established during the early stages of
a project. This type of contract does present a disadvantage to an
owner, however, since poor contractor performance can result in
increased costs, and the final costs are the owner’s responsibility.
Additionally, the final/total investment level is not known until
the work is well advanced.
Reimbursable cost contracts can contain lump sum elements,
e.g. the contractor’s overhead charges and profit, which is usually
preferable to a percentage basis for calculating these costs. Reimbursements may be applied to salaries, wages, insurance and pension contributions, office rentals, communication cost, etc.
Alternatively, reimbursement can be applied to all-inclusive
hourly or daily rates for time spent by engineers on the basis that
all office support costs are built into these rates. This form of contract is generally known as a fixed fee/reimbursable cost contract
and can be used for both engineering and other office services as
well as for construction work.
Such arrangements give the owner greater control over the
contractor’s engineering work, but the effect of reducing the lump
sum content of the contractor’s remuneration is to reduce its financial incentive to complete the work economically and speedily.
It also reduces the ability to compare/evaluate competitive bids,
since the comparison that can be made between contractor bids
involves only a small percentage of the project cost. It is possible
that the “best” contractor may not quote the lowest prices.


Requirements
a. A competent and trustworthy contractor

Contract Planning Essentials

b.
c.

191

Close quality supervision and direction by the owner
Detailed definition of work and payment terms covered
by lump sums and by “all-inclusive” rates



Advantages
a. Flexibility in dealing with changes (which is very important when the job is not well defined), particularly if
new technology development is proceeding concurrently with the design
b. An early start can be made
c. Useful where site problems such as delays and disruptions may be encountered
d. Owner can exercise control on all aspects of the work



D
isadvantages
a. Final cost is unknown
b. Difficulties in evaluating proposals-strict comparison of
the amount tendered may not result in selection of the
“best” contractor or in the lowest cost of the project
c. Contractor has little incentive for early completion or
cost economy
d. Contractor can assign its “second division” personnel to
the job and may make excessive use of agency personnel
and/or use the job as a training vehicle for new personnel
e. Owner carries most of the risks and faces the difficult
decisions

Target Contracts (Cost and Schedule)
Target contracts are intended to provide a strong financial
incentive for the contractor to complete the work at minimum cost
and time. In the usual arrangement, the contractor starts work on
a reimbursable cost basis. When sufficient design is complete, the
contractor produces a definitive estimate and project schedule for
owner review, mutual negotiation, and agreement. After agreement is reached, these become targets. At the end of the job, the

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Project Management and Leadership Skills

contractor’s reimbursable costs are compared with the target and
any savings or overrun is shared between the owner and the contractor on a pre-arranged basis. Similarly, the contractor qualifies
for additional payment if it completes the work ahead of the
agreed-upon schedule. The main appeal this form of contract has
to the contractor is that it does not involve competitive bidding for
the target cost and schedule provisions.


Requirements
a. A competent and trustworthy contractor
b. Quality supervision by owner (both technical and financial)



Advantages
a. Flexibility in controlling the work
b. Almost immediate start on the work, even without a
scope definition
c. Encourages economic and speedy completion (up to a
point)



D
isadvantages
a. Final cost initially unknown
b. No opportunity for competitive bidding for the “targets”
c. Difficulty in agreeing on an effective target
d. Variations are difficult and costly once the target has
been established—contractors tend to inflate the cost of
all variations so as to increase profit potential with
“easy” targets
e. If the contractor fails to achieve the targets, it may attempt to prove that this was due to interference by the
owner, or to factors outside the contractor ’s control;
hence, effective control and reporting is essential

Measured (Unit Price) Contracts
These require sufficient design definition or experience in

Contract Planning Essentials

193

order to estimate the unit/quantities for the work. Contractors
then bid fixed prices for each unit of work. The advantage is that
the time and cost risk is shared: the owner will be responsible for
the total quantities, and the contractors will have the risk of the
fixed unit price. A quantity increase greater than 10% can lead to
increases in the unit prices.


Requirements
a. An adequate breakdown and definition of the measured
units of work
b. A good quantity surveying/reporting system
c. Adequate drawings and/or substantial experience for
developing the Bill of Quantities
d. Financial/payment terms that are properly tied to the
measured work and partial completion of the work
e. Owner-supplied drawings and materials must arrive on
time
f. Quantity-sensitivity analysis of unit prices to evaluate
total bid price for potential quantity variations



Advantages
a. Good design definition is not essential—”typical” drawings can be used for the bidding process
b. Very suitable for competitive bidding and relatively easy
contractor selection, subject to sensitivity evaluation
c. Bidding is speedy and inexpensive and an early start is
possible
d. Flexibility—depending on the contract conditions, the
scope and quantity of work can be varied



D
isadvantages
a. Final cost is not known at the outset since the Bills of
Quantities have been estimated on incomplete engineering
b. Additional site staff are needed to measure, control, and
report on the cost and status of the work

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Project Management and Leadership Skills

Lump Sum/Fixed Price Contracts
In this type of contract, the contractor is generally free to
employ whatever methods and resources it chooses in order to
complete the work. The contractor carries total responsibility for
proper performance of the work although approval of design,
drawings, and the placement of purchase orders and subcontracts
can be monitored by the owner to ensure compliance with the
specification. The work to be performed must be closely defined.
Since the contractor will not carry out any work not contained in
the specification without requiring additional payment, a fully
developed specification is vitally important. The work has to be
performed within a specified period of time, and status/progress
can be monitored by the owner to ensure that completion meets
the contractual requirements.
The lump sum/fixed price contract presents a low financial
risk to the owner, and the required investment level can be established at an early date. This type of contract allows a higher return
to the contractor for superior performance. A good design definition is essential, although this may be time-consuming. Further,
the bidding time can be twice as long as that for a reimbursable
contract bid. For contractors, the cost of bids and the high financial risk are factors in determining the lump sum approach.


Requirements
a. Good definition and stable project conditions are essential
b. Effective competition is essential
c. Several months are needed for bidding and appraisal
d. Minimal scope changes



Advantages
a. Low financial risk to owner, maximum financial risk is
on the contractor
b. Cost (and project viability) is known before commitment
is made
c. Minimum owner supervision-mostly quality assurance
and schedule monitoring

Contract Planning Essentials

d.
e.

f.
g.

195

Contractor will usually assign its best personnel to the
work
Maximum financial motivation of contractor-maximum
incentive for the contractor to achieve early completion
at superior performance levels
Contractor has to solve its own problems-and quickly
Contractor selection (by competitive bidding) is fairly
easy, apart from deliberate low price

Disadvantages
a. Variations are difficult and costly—the contractor, having quoted keenly when bidding, will try to make as
much as possible on extras
b. An early start is not possible because of the time taken
for bidding and for developing a good design basis
c. The contractor will tend to choose the cheapest and
quickest solutions, making technical monitoring and
strict quality control by the owner essential; schedule
monitoring is also advisable
d. The contractor has a short-term interest in completing
the job and may cause long-term damage to local relationships, e.g. by setting poor precedents/union agreements
e. Bidding is expensive for the contractor, so the bid invitation list will be short; technical appraisal of bids by the
owner may require considerable effort
f. Contractors will usually include allowances for contingencies in the bid price and they might be high.
g. Bidding time can be twice that required for other types
of contracts
Conditions of the Contract
While the same risks/liabilities can be established for most
forms of contract, the price for those risks/liabilities can vary significantly, depending on contracting skills and the business environment/market place.

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Project Management and Leadership Skills

Typical Forms of Contract Used in the
United Kingdom and the United States
• United Kingdom
a. Institute of Civil Engineers—ICE—mainly for civil and
construction-only contracts
b. Federation Internationale des Ingenieurs-Conseils—
FIDIC—primarily for offshore and overseas work
c. Institute of Mechanical Engineers—IMech E—primarily
for design and erection of mechanical plant


United States
a. American Institute of Architects (AIA) mainly for engineering work and project/construction management;
the A/E usually functions as the owner’s “agent” on a
fee/reimbursable basis
b. The Associated General Contractors of America (AGC)
mainly for construction work and construction management; the contractor usually functions as an “independent contractor” on a lump sum/fixed price basis
c. The EJCDC forms of contract documents (issued jointly
by the NSPE, ACEC, ASCE, and CSI and approved by
the AGC), are often used by many engineering firms. In
addition, it is becoming more prevalent for an owner to
develop a form of contract that is specifically customized to fit its particular needs. Similarly, an engineering/
construction contractor may develop its own forms of
contract for use on projects in which it acts as the construction/project manager for the owner. There are at
least two basic options: (1) use one of the “standard”
contracts and customize it to fit a particular project, or
(2) use the “boiler plate” or “front-ends” developed by
the engineer/contractor for use on projects in which it is
responsible for preparing the bidding documents and
where the owner does not have its own.

Contract Planning Essentials

197

SUMMARY
It is possible to devise a form of contract with appropriate
terms and conditions to suit many different circumstances. Some
basic considerations leading to the best choice are:


Clear definition of each party’s contractual responsibilities.
Shared responsibilities are unsatisfactory, although they are
unavoidable in some circumstances.



The lump sum form of contract provides the best financial
risk for the owner, gives the contractor the maximum incentive for early completion, and produces the greatest benefit of
competitive bidding. Conversely, reimbursable contracts provide no such incentives. It is dangerous, however, to attempt
to use a lump sum contract if the essential conditions are not
satisfied-notably, a clear and complete definition of the scope
of work.



The owner must have the contractual right to exercise control
adequate to ensure the success of the project, but the temptation to assume excessive control should be resisted.



Control and responsibility go together-the greater the
owner’s control, the less responsibility is carried by the contractor.

One last point: the form of contract must be decided early in
the project development and the choice must be made known to
the engineers before they write the specifications. Obviously, the
specification will be much more precise and comprehensive if it is
to be used for a lump sum contract than would be required for a
reimbursable contract.

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Commissioning Construction Projects

199

Chapter 11


Commissioning

Construction Projects*

THE PROJECT MANAGER
COMMISSIONING

AND

I

n order to insure that construction projects meet the specification of the designers, it is critical that the project be commissioned. The project manager should insure that this step has
not been overlooked when completing the project. All buildings
which are LED certified by the U.S. Green Building Council require “commissioning.” This chapter will highlight commissioning strategies that the project manager needs to know.

COMMISSIONING

AND

RE-COMMISSIONING

What is the difference between commissioning and re-commissioning? Commissioning is a process associated with new construction, while re-commissioning is usually reserved for old or
existing facilities. The main goal of commissioning is to ensure
that the owner receives what was specified in the design documents, while the goal of re-commissioning is to restore the
facility’s performance to its initial design specifications, or to
make the systems work for the first time. In summary, both commissioning and re-commissioning are quality assurance programs
for the owner.
*Based on an article by Yousef Abouzelof published in Energy Engineering, Vol. 98, No. 4, 2001.
199

200

Project Management and Leadership Skills

REASONS

FOR

RE-COMMISSIONING

There are many reasons that entice owners, managers, and
engineers to consider re-commissioning of their facilities. The following are the most common reasons.


High energy consumption of the facility. This is usually a
good indication that the facility is not operating very efficiently. The HVAC system is dynamic in nature. The individual components get old and impact the operation of the
system. Adding independent, highly technical, and efficient
pieces of equipment over time does not guarantee a state-ofthe-art integrated system for the facility.



Constant occupant complaints. High numbers of “too hot”
or “too cold” calls from the tenants usually raises the red flag
about the facility, especially when it encompasses an entire
floor or the whole building. It is well documented that up to
70 percent of all tenants’ complaints are about the HVAC
system. High tenant complaints may lead to vacancies and
the loss of revenue. Other issues like poor indoor air quality
may dictate a comprehensive evaluation of the facility.



Tenant retention. The inability to maintain occupancy in the
building, or to attract new tenants to the facility, may be the
most important reason for the owner to re-commission the
facility.



Maintenance staff complains. Difficulty in controlling, operating, and maintaining the equipment by the maintenance
staff is a good reason to re-commission the facility. Remember that the building engineer has the ultimate control of the
building’s mechanical system. All controls will be operated at
his level of understanding.



Protection of assets. Owners and facilities managers are interested in extending the life of their equipment and in protecting their investment in the physical facilities.

Commissioning Construction Projects

201

Re-commissioning is time consuming and expensive. No
manager will allocate resources to re-commission a well-tuned
facility. However, if the facility is experiencing any of the above
challenges, then re-commissioning may be the answer.

INITIATION OF A
RE-COMMISSIONING PROGRAM
Commissioning a new facility is very easy compared to recommissioning an old or existing building. For a new facility, the
design specifications are well documented. Mechanical and electrical control points, as well as other as-built plans, are readily
available. The sequence of operation is well defined. To re-commission an older facility you may lack some or most of these resources. For that reason data collection is crucial. The following is
a suggested list of what you may need.


Utility bills. Collect electric, natural gas, and any other energy bills. Contact the utilities and request a history of each
account for the past few years. Audit these bills and note any
spikes or gradual increases in consumption. An energy utilization index (EUI) may be needed, especially if you have
similar facilities on the same campus. The EUI will provide
information on the total energy consumption of the facility
per square foot per degree days.



Upgrade and retrofit records and as-built drawings. Obtain
copies of all the mechanical and electrical upgrades and retrofits. This will help determine what upgrades and retrofits
were undertaken on the initial mechanical system. Partial as
well as complete replacement of an entire system should be
clearly defined. This includes, but is not limited to, chillers,
boilers, heat exchangers, pumps, variable frequency drives,
variable air volume boxes, fan coil units, and cooling towers.



Out-sourced services contracts. Evaluate all the out-sourced
service contracts. Unfortunately, most service contracts are

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Project Management and Leadership Skills

signed with the owner expecting the most qualified technician of the service company to perform the job, while in reality most of the service work for the term of the contract will
be conducted by an apprentice. Note excessive repeat calls.


Review the PM program. If the facility has a preventive
maintenance (PM) program, then the program should be
evaluated. Maintenance staff is the best source on the effectiveness of the program. If more time is spent on reactive
than preventive maintenance, then total evaluation of the PM
program is needed. If the facility does not have a PM program, then the commissioner should help with the initiation
of a new program.



Review the sequence of operation. Every facility should
have a written, well defined sequence of operation. If there is
no documented sequence, the commissioner should meet
with the building staff to determine if there is an agreedupon sequence. The commissioner should test this sequence,
and if any changes are discovered during the testing, these
changes, along with the established sequence, should be
documented.



Tour the facility. Visit all the mechanical and electrical rooms
and note their condition. Special attention should be paid to
air handler rooms. Note the condition of the air filters, drip
pans, dampers, valves, and coils, as well as the mechanical
room itself. Note any override of equipment. Holding the
outside air dampers open with a 2 × 4 or by a wire hanger is
not considered the best indoor air quality control measure.



Check the Motor Control Center panels. While visiting the
electrical rooms, note the status of mechanical equipment on
the MCC panels. Remember, if a piece of equipment is in the
“HAND” position, then it is overridden and it will stay on
continuously, thereby consuming energy and increasing the
wear and tear on the equipment.

Commissioning Construction Projects



203

Note the operating status of equipment. During the tour of
the mechanical rooms, note if the chillers are partially loaded,
if a Variable Frequency Drive (VFD) is running at 60 Hz, or
if the boilers are on when the outside air temperature is in the
upper 80s or 90s. Remember, the more the commissioner uses
the word “WHY,” the more puzzled looks he will experience.

RE-COMMISSIONING CASE STUDIES
As an owner-developer-operator, Zions Securities Corporation established the re-commissioning program as a result of its
successful commissioning program. The intention of the program
was to look at every piece of equipment as a part of a total integrated system. For example, re-commissioning the heating system
would involve all the equipment associated with that system:
boilers, circulating pumps, heat exchanger, variable frequency
drives, expansion tanks, condensate tanks, de-aerator tanks, domestic hot water tanks, make-up water, induction units, steam
traps, water treatment, fan coil units, and the main heating coils in
the air handler. Of course, some of the buildings may have all
these components while others may have a selected few.
Case #1. Re-commissioning of
139 East South Temple Office Building
This 68,000 sq/ft 6-story office building was constructed in
the late 1920s. Over the years, the building went through many
space utilization changes; one example is from a movie theater on
some floors to office space. The windows were retrofitted with
new sealed frames, limiting the amount of fresh air being introduced to the building through the windows, frames, and cracks.
Over time, around 70 heat pumps were installed in all tenant
spaces, each with its own manual controls. The heat pumps operated 24 hours per day, 7 days a week. The heat pumps’ water loop
temperature was set at 72°F all year round. A small furnace provided the required heating for the water loop. A cooling tower and

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Project Management and Leadership Skills

a heat exchanger provided the required cooling.
The main reasons for re-commissioning this facility were the
high maintenance costs of the heat pumps and the desire to reduce
their run time. Tenant thermal comfort as well as retention were
the other influential factors. Re-commissioning was able to uncover the following deficiencies and correct them.


System pumps status. The water loop serving the heat
pumps had two circulating pumps. According to the building
engineer, both pumps were required to be on all the time. The
reason stated was, “it has always been done this way.” One
of the circulating pumps was turned off and for the last four
years the system has been operating “on one pump” without
problems. These pumps are being alternated at the start of
every month.



Furnace problems. The hot water supply was set at 90°F,
which was too low a setting for the boiler. The boiler coils
were plugged and the modulating valve that controls the
mixing of the building heat pumps’ loop and the boiler hot
water was not working properly. The boiler hot water supply
temperature was raised to 130°F and the modulating valve
was repaired. The boiler has been working very well ever
since.



Heat pump maintenance. The maintenance of the heat
pumps was out-sourced to a service company. After reviewing the maintenance records, it was clear that many of the
service calls were repeat calls of “low” or “high” Freon
charge. Frequently, these calls were on the same heat pump.
The service company was replaced and service calls were
drastically decreased.



Heat pumps’ controls. An audit was conducted on the heat
pumps to identify their locations and conditions. A new
building automation system (BAS) was installed that con-

Commissioning Construction Projects

205

trolled the heat pumps. An occupancy schedule was implemented that reflected normal business hours. The heat
pumps were turned off during evenings, weekends, and holidays. An after-hours charge program for tenant use was initiated and tenants were billed monthly for this service.
The BAS graphics simplified the monitoring and troubleshooting of the beat pumps.


Zoning problems. For many years, one of the first-floor tenants who was located above a ramp to a loading dock complained about cold space temperature. During winter months
cold air infiltrated this office and the large windows did not
help. All cracks were sealed and an electric baseboard heater
was installed under the windows. The start/stop operation of
the baseboard heater was controlled by the BAS. The tenant
complaints stopped.



Indoor air quality test. An indoor air quality test was conducted on all floors. All the readings were good.

Re-commissioning Results of 139 East
The re-commissioning of this facility resulted in lower energy
and maintenance costs, reduced run time on the heat pumps, as
well as a new revenue source to the owner. The re-commissioning
program was started in the 1997, for that reason all the kW and
kWh comparisons were based on the year before the re-commissioning started. Table 1 shows the electrical power saved by the recommissioning program.
Total kWh saved since 1996 was 226,569. Total kW saved
since 1996 was 1,222. Cost savings at 2.50 per kWh and $7.60 per
kW (current energy costs charged by Utah Power) are $14,951.43.
Other savings and revenue sources gained by the re-commissioning process were:


New revenue source. Additional revenue was created by
billing the tenants for their after hours usage of the HVAC.

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Project Management and Leadership Skills

Table 1. Electric Power for 139 East

————————————————————————————————


Year

kW

kWh

————————————————————————————————

1996
1997
1998
1999

5,551
5,322
5,120
4,989

1,162,546
1,148,147
1,054,548
1,058,374

————————————————————————————————



Reducing the run time on the heat pumps. By reducing the
run time, the wear and tear on the heat pumps was lowered
and the life expectancy was increased.

Please note that other systems were commissioned but not
included in this report, such as CCTV and fire systems. These
systems are beyond the scoop of this chapter.
Case #2. Re-commissioning of the
Temple View Center Office Building
This 48,284 sq/ft 8-story office building was constructed in
the late 1930s. During the early 1980s the entire building went
through a major renovation. New energy-efficient windows were
installed. Variable Air Volume (VAV) boxes were installed with
Direct Digital Controllers (DDC) controllers; however, these controllers were stand-alone, and every service call required a ladder
to connect to the DDC card at the side of the VAV box. Heating
was provided by a district heating service in the form of steam to
the building’s heat exchanger. Two hot water pumps circulated
the heated water to the heating coils of the VAV boxes. Each floor
was served by one cooling-only air handler controlled by a time
clock. A chiller with three separate compressors (80 tons) provided
cooling for the air handlers. Two full floors were vacant for many
years.
The main reason for commissioning was due to complaints
regarding tenants’ thermal comfort. When the building was fully

Commissioning Construction Projects

207

occupied, tenant calls increased drastically. Complaints of “too
hot” as well as “too cold” were frequent. Re-commissioning uncovered the following deficiencies and corrected them.


Hot water pumps tripping off. Every morning at 10:30 a.m.
the Variable Frequency Drive (VFD) that controlled the heating pumps tripped off. A power analyzer indicated a voltage
spike at the same time every day. Further investigating revealed that the power company changed substations at that
time. A new transformer was installed on the VFD that corrected the problem. This took care of most of the “too cold”
complaints.



Air handlers service. An audit of the air handlers revealed
that many of the cooling coils were dirty and plugged. All
were pressured cleaned. One air handler experienced low
chilled water flow through its coils. The inside of the coils
was chemically flushed to restore flow to its original design
specification. Damper service was conducted on all air handler and a few damper operators were replaced.



Cooling needs. The first week after the final two floors were
occupied, the “too hot” calls started coming when the outside
air temperature reached 90°F. The chiller was checked and
serviced and the cooling tower was cleaned. However, the
chilled water temperature was climbing even though the
chiller was running at 100 percent load. Conducting a load
test for the building reveled that another 20 tons of cooling
was needed to satisfy the cooling demand. A new chiller was
installed and the problem was corrected.



Building controls. The chiller as well as the air handlers were
controlled by time clocks. The VAV boxes had DDC controls
but were stand alone. A BAS was installed to monitor and
control the air handlers and the VAV boxes. The settings on
all of the VAV boxes were set the same.

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Project Management and Leadership Skills

Re-commissioning Results of
Temple View Center Office Building
By uncovering and correcting the deficiencies, the goal of
improving tenant thermal comfort was achieved and in addition,
one significant lease agreement was extended. Other systems, like
the fire system, were re-commissioned but not included in this
chapter.
Case #3. Re-commissioning of
Gateway Tower East
This 289,475 sq/ft 19-story office building was constructed in
the mid 1960s and is currently being remodeled. The three-pipe
system, one for heating, another for cooling, and the third for the
common return, is being replaced. Separation of the heating and
cooling system is being done in stages. The leaky induction units
around the perimeter of the building are being removed one floor
at a time. A new BAS has been installed in the building, replacing
the old pneumatic controls with DDC. The boiler plant has three
new boilers. New air handlers are being installed, with each air
handler supplying air to 2 floors. As soon as a floor becomes
vacant, the upgrade work begins.
The main reason for the current re-commissioning of this
building is to determine the proper installation, programming,
and performance of the newly installed systems. The following are
the current deficiencies uncovered and the steps taken to correct
them.


Boiler plant sequence of operation. The design specification
called for the two big boilers to turn off during summer time.
A small boiler was supposed to satisfy the domestic hot
water demand of the building. Re-commissioning of the
boiler plant indicated that the entire boiler plant stayed on all
year long because the water flow through the small boiler
was too high. A new small circulating pump and a control
valve were installed at the boiler and the water flow problem
was corrected.

Commissioning Construction Projects

209



Boilers cycling on and off. The boilers were cycling on and
off all the time. The “low fire” was set manually on the boilers’ control panel. All switches were turned to the correct
settings.



Domestic hot water shortage. The building has two domestic
hot water (DHW) tanks, one supplying floors 1-10 while the
second tank supplies floors 11-18. The tenants on the lower
floors complained that the DHW supply was out every day
by 10:00 a.m. The DHW tank had a 4-ft 2-cycle bundle, while
the design documents called for 6-ft 4-cycle bundle. The
bundle was replaced and the DHW supply problem was corrected.



Induction units and chillers protection. This building has a
3-pipe system, one for chilled water, another for hot water,
and a third for the common return. Since the induction units
use heating and cooling water, most of the mixing between
the chilled and hot water took place at the induction units.
The main induction unit’s modulating valve was leaking
through, causing more hot water to go to the chillers. In 1998,
the rupture disk on the chillers was ruptured twice due to
high water temperature in the evaporator. The cost to fix the
last rupture disk and add Freon to the chiller was nearly
$14,000. The modulating valve for the induction units was
replaced. A high-temperature alarm was programmed to the
BAS to alarm the building staff of the evaporative high water
temperature.



VFD running at 60 Hz. The VFD controller on the 6th floor
air handler, which was updated two years earlier, was running at full speed (60 Hz) all the time without being able to
satisfy the tenants. This particular air handler supplied air to
the 5th and the 6th floors. The air balance report indicated
high static pressure at the elbow of the duct work separating
the two floors. The duct work was corrected, which resulted

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Project Management and Leadership Skills

in increased air flow to the tenants on both floors. The VFD
speed is currently controlling at 35 to 40 Hz during the day.


Air handlers’ piping. The chilled water supply line was
piped backward to the cooling coils on three air handlers,
thus affecting six floors. The piping was corrected.



Chilled water flow. The chilled water flow was too low to
the air handlers. The VFD that controlled the chilled water
circulating pumps was set too low. The chilled water flow
had been set low due to the vacancies caused by the HVAC
remodeling, Upon the completion of the remodeling and new
tenants, nobody remembered to increase the water flow. The
water flow was corrected.



Cooling towers fill and equalizing lines. Four original cooling towers shared the same fill valve as well as an equalizing
line and worked in sequence. When a fifth tower was added,
the fill line was extended to the other towers but the equalizing line was not connected. Thus, every time the old towers
activated the fill valve, the fifth tower flooded over. A new
line was installed to equalize all the cooling towers. The
flooding problem was corrected.



Impact of the cooling towers on other systems. The cooling
towers serve two purposes: provide condenser water to the
chillers and provide free cooling through a heat exchanger to
the air handlers whenever the outside air temperature is below 38°F. The constant flooding of the towers resulted in
diluted and ineffective water treatment. The lack of good
water treatment caused the towers to start plugging, which in
turn plugged the condenser side of the chillers as well as the
heat exchanger. All these systems had to be opened and
cleaned in order to remove the scales.



Eddy current test on the chillers’ tubes. Since the scaling on
the condenser tubes of the chillers were difficult to remove

Commissioning Construction Projects

211

with regular cleaning brushes, more aggressive treatment
was used. The tubes were chemically cleaned which in turn
raised a concern about their integrity. An eddy current test
was conducted, and the tubes were fine.


Free cooling heat exchanger. The flooding of the cooling
tower and the lack of proper water treatment caused the heat
exchanger to scale and to lose its efficiency. The heat exchanger was opened and all the plates were cleaned. While
the heat exchanger was opened, more plates were added to
restore and increase cooling capacity.



Chiller plant controls. The building engineer manually operated and sequenced the chillers at the chiller plant. The delay
in switching between free cooling and mechanical cooling
during fall and spring was a constant source of complaints. A
new control system was installed on the chiller plant and
connected to the main BAS. In addition to controlling the
chillers, heat exchanger, and cooling towers, the new chiller
plant controls simplified the tenant after-hours cooling. With
a switch of a key, the tenants are able to start their floor air
handler and at the same time start the chiller if needed. The
tenants are now billed for all their after-hours usage.



BAS software maintenance. Re-commissioning uncovered a
serious problem with the software maintenance of the BAS.
Since the entire HVAC system is being upgraded one floor at
a time, quite a few pieces of equipment are being added,
replaced, or eliminated. Consequently, many control points
are either inactive or not connected to any equipment. However, these points were still programmed and were showing
status and temperatures on the front end computer since they
were never deleted from the controls system. The operation
staff was not sure which points were real and which were
not. A software maintenance audit was conducted on the BAS
and all deleted equipment were removed from the program.

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Project Management and Leadership Skills

This audit will continue until all renovations in this building
are completed.
Re-commissioning Results of Gateway Tower East
The re-commissioning of this facility resulted in the correction of many design, installation, and programming errors. In
addition, the power savings by properly controlling and cleaning
the chillers, the heat exchanger, and the cooling towers is very
apparent. In spite of the addition of three new air handlers, recommissioning still resulted in lowering chiller run time and energy consumption. Table 2 shows the electrical power saved by
the re-commissioning program when comparing 1997, the base
year, to 1998 and 1999.
Table 2. Electric Power for Gateway Tower East
————————————————————————————————

Year

kW

kWh

————————————————————————————————

1997
1998
1999

20,335
19,112
19,511

7,727,000
7,099,000
7,335,000

————————————————————————————————

Total kWh saved since 1997 is 1,020,000 and total kW saved
is 2,047. Cost savings at 2.50 per kWh and $7.60 per kW (current
energy costs charged by Utah Power) is $41,057.20.
Additional savings are expected since re-commissioning is
currently underway for this building. At this time, other savings
and revenue sources gained are:


Reducing the run time of the chillers. Before re-commissioning, chillers were turned on when the outside air temperature
was below 40°F. Presently no chillers are needed until the
outside air temperature is above 55°F.



Reducing the run time on the boilers. Before re-commissioning, the entire boiler plant was running all year long. Pres-

Commissioning Construction Projects

213

ently, a small boiler is on, June through September, thus reducing the wear and tear on the boilers.


New revenue source. Additional revenue was created by
billing the tenants for their after hours usage of the HVAC.

CONCLUSION
Re-commissioning should be used as an project management
tool to optimize performance, improve efficiency, and lower energy consumption. As demonstrated in the above case studies,
designing, upgrading, and installing management equipment
does not by itself guarantee performance or energy savings. Recommissioning allows energy managers, as well other professionals, to go back and verify that their designs, upgrades,
installations, and operations are working as intended.

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Case Study: Microbial Abatement of a Moldy Hotel

215

Chapter 12


Case Study:

Microbial Abatement of a

Moldy Hotel*

THE PROJECT MANAGER
AND MOLD REMEDIATION

T

oxic mold is a growing concern as several states require
remediation of this problem. The project manager faces
many challenges in finding solutions to microbial abatement as illustrated in this case study.
This chapter illustrates the multifaceted approach required
by the project manager. The reader is urged to contemplate how
to incorporate the principles of project management and leadership learned in this book to solve the abatement problem. Apply
the principles of sound planning and use the computer tools presented to manage the schedule and other challenging aspects of
this project.

ABSTRACT
A hotel constructed with an exterior insulation finish system
(EIFS) had problems with water penetration of the building shell.
This resulted in substantial mold growth in greater than 100
*Presented at 22nd World Energy Engineering Congress by Michael S.
Crandall, M.S., CIH, CIAQP
215

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Project Management and Leadership Skills

rooms in the ten-story hotel. Microbial abatement was completed
in about three months. Standard microbial abatement procedures
were used. These included containment with critical barriers,
airlocks, curtained doorways, the use of negative pressure, HEPA
filtration, and worker protection. The hotel configuration and
demands of this project created interesting abatement design
problems. The problems included a bathroom in every guest
room, abatement on multiple floors at a time, concurrent abatement and re-construction, and freezing temperatures. This presentation shows how these problems were dealt with to successfully
complete the project.

INTRODUCTION
A 10-story hotel in a small mid-western city in the U.S. was
constructed using the barrier exterior insulation finish system
(EIFS). The hotel was constructed in the late 1970’s. Since that
time, many buildings, commercial and residential, have been constructed using this system. In the 1990’s large-scale moisture problems have been discovered on buildings across the country as a
result of the inability of intruding water to escape the wall cavity.
Figure 12-1 is a typical barrier EIFS wall section. This hotel wall
was not built with the cavity insulation or vapor retarder as
shown in this figure.
In 1997 the hotel management hired a contractor to replace
the caulk sealant between the large EIFS panels on the hotel. The
winter of 1997 was the winter of an el niño weather pattern resulting in an unusually wet winter in the mid-west. In the spring of
1998, large areas of mold were appearing on the interior guest
room walls. Wind-driven rain may have penetrated the EIFS
through faults in the caulked joints and pinholes in exterior finish
and basecoat layers of the panels caused by erosion.
Over a period of several months, more and more guest rooms
were found to have moldy wallboard behind vinyl wall covering.
Eventually, over 100 rooms in the hotel were affected. Hotel man-

Case Study: Microbial Abatement of a Moldy Hotel

217

agement had an industrial hygiene consultant investigate the
problem. Environmental sampling identified several different fungal species growing on the wallboard, including Penicillium sp.,
Aspergillus sp., and Stachybotrys sp. Air levels indicated that some
of the spores from these molds were airborne. These are all molds
that can cause health problems like allergy, asthma, and potentially more severe lung disease to exposed people. These problems
eventually led to closing the hotel for exterior repair and mold
abatement in the fall of 1998.

MICROBIAL ABATEMENT
An abatement contractor was hired and microbial abatement
specifications were written. The abatement began on the 10th and
7th floors of the hotel in December 1998. It was completed in February 1999.
Microbial decontamination projects involve the disturbance
of hazardous materials. Disturbance of microbial amplification

Figure 12-1. Typical barrier EIFS wall section.


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Project Management and Leadership Skills

sites can literally release millions of spores into the air. It is important to choose the abatement contractor carefully. They should
know the basics of building containment systems, establishing
negative pressure enclosures, have good health and safety plans,
and a trained and reliable workforce. Appropriate training is required for respiratory protection, clean-up procedures, and potential health hazards associated with the microorganisms to be
removed. Many asbestos abatement contractors have made the
transition to microbial abatement because the work is similar and
their workers have much of the required training.
Proper remedial project design is critical to prevent potential
human and environmental impacts from the release of microorganisms. The first step in any microbial abatement project is the
elimination of the source of water/moisture. The microbial abatement specifications contain components for worker safety, decontamination protocols, and environmental protection.
Worker Safety
1. Comply with appropriate OSHA Standards, e.g. hazard communication and respiratory protection.
2.

Use appropriate respiratory protection, which normally includes full-face mask with HEPA cartridges. Use full-body
protection, e.g. TYVEK® coveralls with hood and foot protection.

Decontamination Protocols
1. Collect appropriate environmental samples to identify the
microorganisms present and to define the scope of work.
2.

Remove contaminated porous materials and debris.

3.

Dispose of all contaminated materials (waste may be regulated depending upon the substrate and local regulations).

4.

HEPA vacuum all vertical and horizontal surfaces.

Case Study: Microbial Abatement of a Moldy Hotel

219

5.

Wipe all non-porous surfaces with a cloth dampened with
water:bleach solution (10:1).

6.

Ventilate the area with clean air with at least 96 air changes
(i.e. 4 air changes per hour for 24 hours).

7.

Visually inspect the area and, if clean, conduct appropriate
clearance sampling (air spore counts, surface spore counts,
etc.).

Environmental Protection
1. Determine the need for regulated areas, negative pressure
containment systems, and occupant relocations.
2.

Shut down ventilation systems serving the work area and
install critical barriers. Seal all return air openings from the
area.

3.

Construct an appropriate work area containment system.
This system could be a simple regulated area with critical
barriers or a fully contained area with double layers of polyethylene sheeting on walls, floors, decontamination units,
and negative air filtration devices for depressurization.

4.

Employ a continuous pressure differential monitor between
the inside and outside of the contained area. The monitor
should have a printout of the pressure differential and an
alarm to warn of a loss of pressure differential. The target AP
should be -0.02 inches of water gauge.

5.

Control access to the regulated area.

6.

Double-bag or wrap all waste material and dispose through
the decontamination unit.

7.

HEPA vacuum all material removed from the regulated area.

8.

Collect environmental samples for quality control.

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Project Management and Leadership Skills

HOTEL PROJECT
The hotel was closed for repair and microbial abatement in
October 1998. Many rooms had up to 100 square feet of wall covered with mold. The worse areas were in rooms at the ends of the
building, but many rooms along both sides had significant damage. Figure 12-2 is a typical floor plan for the guest room tower.
Room furnishings not obviously affected by the mold were removed by workers wearing protective gear (coveralls and respirators) and placed in trailers. At the end of the abatement work, the
decision was made to replace all mattresses and upholstered sofas,
chairs, and loveseats. Room curtains were dry cleaned and then
stored.
The regulated area was an entire floor of the hotel. The entrance to the area was through an airlock constructed in the elevator lobby. This airlock was framed with 2 × 4 lumber and the walls
were two layers of 6-mil polyethylene. There was a three-flap
curtained doorway at each end of the airlock. This also served as
the decontamination area. Inside the regulated area, all doorways
that did not lead to a guest room and the ceiling were cleaned and
covered with a critical barrier, two layers of 6-mil polyethylene
sheeting taped at all edges and seams. All supply and exhaust air
grilles in the hallway and guest room baths were sealed with duct
tape. Guest room heater/air-conditioning units were removed and

Figure 12-2. Typical hotel floor plan.


Case Study: Microbial Abatement of a Moldy Hotel

221

the openings were insulated and sealed with plastic and duct tape.
Air filtration devices (AFDs) were connected to the outside
through these room openings. About fifteen AFDs were distributed across the floor to achieve the desired negative air pressure
inside the containment. A manometer at the entrance to the airlock
monitored negative air pressure inside the regulated area.
The decontamination procedure began with removing room
carpet, then stripping vinyl wall covering, followed by removing
contaminated material. Workers wore powered air-purifying respirators (PAPRs) with full-face pieces, hooded coveralls, and
gloves. Frequent cleaning with HEPA vacuums kept debris accumulation minimized.
The areas were cleaned following decontamination. All surfaces were thoroughly HEPA vacuumed. A brush was used to help
dislodge debris in cracks and crevices. Nonporous surfaces were
wiped with a cloth dampened with water and bleach (10:1) after
vacuuming. After a 24-hr ventilation period, the areas were
cleaned again.
The last stage of the project was clearance sampling. In this
project air samples were collected using Air-O-Cell® particle samplers. Ten-minute samples were collected at a flow rate of 15 liters
per minute. Samples were collected in ten guest rooms per floor,
the elevator lobby outside of the contained area for each floor, and
an outdoor location. Two samples were collected at each location.
The samples were analyzed using light microscopic techniques.
Spore counts indoors were compared to outdoor air.

PROBLEMS ENCOUNTERED DURING
ABATEMENT AND SOLUTIONS
The first problem to be solved was how to get clean replacement air to the abatement areas. The solution was to construct a
tunnel from the hotel lobby doors to the elevators. Two elevators
were enclosed inside the tunnel. Outdoor air could then travel up
the elevator shaft to the floors under negative pressure. All eleva-

222

Project Management and Leadership Skills

tor doors were sealed with critical barriers except for the elevator
doors to the abatement areas.
Within each room there were sources of microorganisms that
would not be removed as part of this abatement. These sources
needed to be addressed so that they would not interfere with the
clearance of the area after decontamination. One source was
moldy wallboard in the bathrooms and the other was moldy
wallboard that was the inner layer of the EIFS. Since the offending
moisture source would not be addressed in the bathrooms (condensed water from showers, overflowing toilets and sinks, etc.),
only deteriorated wallboard was removed and replaced. Other
wall areas of mold were cleaned by HEPA vacuuming and then
sealed with white pigmented shellac. The high alcohol content (60%) helped to denature the microorganisms.
The moldy inner EIFS layer was handled similarly, but none
of it was removed. The entire exposed surface was cleaned by
brush and HEPA vacuum, then coated with an anti-microbial
paint. As long as no moisture was introduced after coating, any
surface contamination under the sealant should be controlled.
There were a few problems that had to do with abatement on
two floors at a time. The outdoor air tunnel and two elevators
solved one problem. Because of time constraints, reconstruction
and demolition were also occurring simultaneously. Because the
floors under decontamination and cleaning were negatively pressurized, any type of debris from adjacent floors was an interferent
during cleaning and clearance sampling. A minimum one-floor
buffer zone was absolutely necessary. However, both construction
debris and demolition debris nullified cleaning and clearance
sampling at least once during the project. Every time the manager
had to pay for 25 to 50 additional clearance samples he was reminded that he could not get ahead of the abatement.
The more uncontrollable problem was the cold weather. Unit
ventilators had been removed from the 7th through 10th floors at
the outset of the abatement project. The abatement areas were
under negative pressure so all leakage was into the building.
When the temperatures dipped below freezing outside there were

Case Study: Microbial Abatement of a Moldy Hotel

223

thousands of feet of water pipe to be concerned about inside. To
make matters worse, the hot water recirculating pump broke
down. The abatement began on the 7th and 10th floors so that heat
could be introduced to the center and top of the guest room tower
as soon as possible. When these floors were cleared, new heating/
air-conditioning units were installed. The lower floors still had
heat because the second through fifth floors did not have any
mechanical systems removed yet.
Another problem with conducting abatement in cold weather
involved clearance sampling. The clearance criteria were to compare indoor air samples to outdoor air samples. The indoor
samples should be lower in total numbers of spores than the outdoor samples. The dominant fungal species in the indoor air
should be similar to those in the outdoor air. The marker species
(Stachybotrys in this case) should not be present. The problem in
cold weather is that with freezing temperatures and snow, which
there was plenty of, outdoor fungal concentrations get very low.
There was no good way to solve this problem. Reliance on someone experienced in the interpretation of sampling results and a
good cleaning crew minimized these effects.

CONCLUSION
This project was relatively complex and involved several
competing priorities. At times work was proceeding on EIFS repair, mold abatement, and building construction simultaneously.
The mold abatement part of the project was something new for
most of those involved. Problems such as those discussed here are
ordinary in all projects. Experienced workers and cooperation
were key elements in the success. In the end the hotel was back in
business on schedule.

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Bibliography and Reference

225

Bibliography and

References

BIBLIOGRAPHY AND REFERENCES
Benator, Barry. Leadership Excellence, Workshop and Manual, Association
of Energy Engineers, 2000. wwwaeecenter.org
Benator, Barry. Project Management Excellence, Workshop and Manual,
BENATECH, INC., 2001. www.benatechinc.com
Bent, James A. & Thumann, Albert. Project Management for Engineering and
Construction, 2nd ed., The Fairmont Press, 1994. www.fairmontpress.com
Fuller, Sieglinde A. & Petersen, Stephen R. NIST Handbook 135, Life Cycle
Costing Manual for the Federal Energy Management Program, US. Department of Commerce, 1995.
Hersey, Paul & Blanchard, Kenneth & Johnson, Dewey. Management of Organizational Behavior, 7th ed., Prentice Hall, 1996. www.prenhall.com
Hersey, Paul. The Situational Leader, Center for Leadership Studies, 1984.
www.situational.com
McBer and Company, Outstanding Senior Officer Competencies, A Report
Prepared for Navy Senior Officers, 1983.
Myers-Briggs Type Indicator® (MBTI®)—A Research-based Personality Instrument. MBTI Manual, Consulting Psychologists Press, 1998.
www.cpp.com
Nelson, Bob. 1001 Ways to Reward Employees, Workman Publishing Company, 1994. www.workman.com
Project Management Institute. Newtown Square, PA. www.pmi.org

225

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Index

227

Index

commitment 2

communication 53, 60, 122, 141

conceptualization 112

concrete 83, 84

conscientious use of discipline 120

construction

indirect costs 89

staff 90

tools and equipment 90

contingency 91

contract 185, 186, 188, 189

cost capacity curves 76

cost estimating 73

cost reports 46

costs 44

B
courage 143

balanced perspective 110

CPM 31

barrier exterior insulation finish

scheduling 30

system (EIFS) 216

critical path method (CPM) 29

boilers and superheaters 83

currency exchange conversion 94

boss 15

budgets 9

D
buildings 84

declining-balance depreciation 176

bulk materials 83

decontamination protocols 218

installation 88

deliverables 5

buy-in to the schedule 60

depreciation 175

design 11

C
detailed checklist for estimating 96

capital recovery 167

detailed estimating 87

cash flow management 69

direct construction labor 88

clearance sampling 221, 223

displaying expertise and profes
codes 55

sionalism 115

commissioning 199

A
accountability 54

action plan 125

active/empathic listening 142

activities 40

activity listing 49

activity schedule 45

activity-on node 33

after-tax analysis 178

agenda 57, 58

alternate investments 173

anti-microbial paint 222

appealing to higher purpose 116

arrow diagramming 31-33


227


228

Project Management and Leadership Skills

E
effective communication 121

electrical 86

empathic listening 142

encouragement 145

engineering/procurement/con-

struction (EPC) 73

environmental protection 219

equal employment opportunity

(EEO) 19

equipment installation 88

equipment ratio 76

error distribution of estimates 93

escalation 94

estimate reliability 92

estimating by

instrument loops 87

length method 85

ratio method 85

unit cost method 85

weight method 85

estimating checklist 94

expertise 14


F
factor estimating 87

fast track projects 82

fencing and railroads 84

field office expenses 90

financial management 62

finish-to-start 40

fireproofing 84

fuel inflation 181


G
Gantt (or bar) chart 29, 37, 45, 50

gradient present worth 168


H
heat exchangers 83

heaters and furnaces 83

home office costs 90

HRD 18

human resources department 16

I

influence 13

informed judgment 111

initiative 125

instrument estimate review 87

instrumentation estimating meth
ods 87

insulation 88

interview 25

form 22, 23, 24

investment decision-making 152

J
job description 17

job simulation 170

L
labor cost management 63

labor costs 89

leader influence 117

leaders

born 102

made 102

leadership 3, 101

a process 105

competency 105

definition 104

theories 103

leading by example 115

life cycle costing 149, 150, 151, 181

listen 144

lump sum/fixed price contracts

194


Index

M
major equipment 82

management 4

MBWA—Management by Walking

Around 117

McBer and Company 104

measured contracts 192

microbial abatement 216, 217, 218,

220

milestone dates 61

modeling expected behavior 115

molds 217, 220, 222

remediation 215

monitoring for results 126

multiple influence strategies 115

Myers-Briggs Type Indicator ®

(MBTI®) 123

N
network development 35


229

political considerations 96

positive expectations 110

postmeeting action plan 58, 59

powered air-purifying respirators

(PAPRs) 221

pre-estimating survey 95

precedence 39

diagramming 33

printing costs 68

procurement program consider-

ations 96

productivity 89

program evaluation & review tech
nique (PERT) 29, 30

project conditions review 81

project control system 62

project manager 1

project plan 5, 39

project team meeting 54

proration estimates 76

pumps 83

purpose(s) of estimates 74


O
outstanding leader competencies

107

Q
outstanding leader competency
quality of estimate 73

model 106

quantity unit/cost estimates 77

outstanding leader model 104

R
P
re-commissioning 199, 200, 201,

painting 88

203, 204, 205, 208

payback period method 150

recognizing and praising good

people 13, 14

work 118

percentage of project costs 90

recruiting 15, 16

persistent 126

reflecting feelings 146

PERT chart 45, 51

reimbursable cost contracts 190

piling 84

reports 45

piping estimate review 85

resources 5, 43

piping estimating methods 85

allocation 42

planning 4, 123

conflicts 8


230

Project Management and Leadership Skills

leveling 44

reports 46

responsibility 1, 3, 107

restating in your own words 145

rewards 1, 2

roads and paving 84

S
salvage value 173

sanity checks 59

schedule 10

display 42

management 60

scheduling 29

tools 10

scope review 80

seasonal impacts 8

sense of responsibility 107

shipping costs 67

silence 145

simple network 33

single payment compound amount

152

single payment present worth 153

sinking fund payment 168

site preparation 84

spreadsheet program 38

STAF 26, 27

staffing 16

standards 55

standards and expectations 119


storage tanks 83

subcontractor cost management 64

sum-of-years digits 176

symbols 118

T
target contracts 191

technical management 54

technical review meetings 56

temporary facilities 89

time value of money 151

time-scaled network 33

total installed cost per unit 87

tracking progress 44

travel costs 66

trends 113

U
underground piping and sewers 84

understand first 145

uniform series compound amount

166

uniform series present worth 166

V

vessels 82

W
WBS 41, 42

work breakdown structure (WBS)

41

worker safety 218