Cost Management

Project and construction budgets, the cost management system, estimating at each design stage, value analysis, cost monitoring, schedule of values, change order cost control, forecasting and the final cost report.

5 minutes 5 Questions

Cost Management is one of the core practice areas within the Certified Construction Manager (CCM) body of knowledge, as defined by the Construction Management Association of America (CMAA). It encompasses the processes a construction manager uses to plan, estimate, budget, finance, fund, manage, an…

Concepts covered
Quantity Survey Based EstimatesSchedule of Values and Payment Request EvaluationProject Budget Versus Construction Budget and EscalationConceptual Budgeting MethodsEstimate Types by Design StageLife-Cycle Cost Trade-Off StudiesProject Feasibility StudiesCost Forecasting and Earned ValueCost Management Plan and Cost PlanningValue Analysis and Value EngineeringCost Monitoring Reports and the Final Cost ReportParametric and Range EstimatingChange Order Cost EvaluationBid Analysis and NegotiationCash Flow Schedules and Funding Methods
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CMAA CCM - Cost Management Example Questions

Test your knowledge of Cost Management

Question 1

Which of the following best describes the purpose of an owner's cash flow projection derived from the construction progress schedule?

Correct Answer: Forecasts when funding must be on hand to meet expected payments

An owner's cash flow projection takes the scheduled timing of activities and their costs and turns them into an expected payment curve. This shows when funds must be available so the owner can meet progress payments without shortfalls or idle capital.
Setting the contract sum is wrong because that amount comes from the bid or negotiated agreement, not from a forecast. Measuring earned value is wrong because earned value compares actual performance against the baseline, while a projection only looks forward. Fixing monthly billing amounts is wrong because what the contractor may bill depends on work actually completed and approved under the schedule of values.
Key concept: cash flow forecasting for owner funding planning.

Question 2

For a water treatment plant, the construction manager runs a range estimate on the $42.0 million base estimate. The simulation, in current dollars, returns P50 = $44.5 million, P80 = $47.2 million and P90 = $49.0 million. The base estimate falls near P25. The owner's policy sets the construction budget at 80% confidence, escalated to the midpoint of construction. The midpoint is two years away, and escalation is 4% per year, compounded. What construction budget should the construction manager recommend?

Correct Answer: $51.1 million

The budget is the P80 value of $47.2 million escalated two years at 4% compounded: 47.2 × 1.04 × 1.04 = 47.2 × 1.0816 ≈ $51.1 million.
$49.1 million escalates the P80 value for only one year instead of compounding to the midpoint. $48.1 million escalates the P50 value, which gives only 50% confidence and misses the owner's 80% policy. $53.0 million escalates the P90 value, which sets the confidence level higher than policy requires. The $42.0 million base estimate near P25 is a distractor.
Key concept: probabilistic budgeting means choosing the required confidence percentile from the range estimate, then escalating it with compounding to the midpoint of construction.

Question 3

During design development of a courthouse renovation, the construction manager facilitates a value engineering workshop with the architect, engineers and the owner's facility staff. Within minutes of opening the session, participants start listing cheaper finishes, lighter mechanical systems and alternate roofing products, and several want to vote on which substitutions to adopt. The study is meant to follow a structured job plan and lower cost while preserving what the owner needs. What should the construction manager have the team do FIRST?

Correct Answer: Have the team define the required function of each building element

Value engineering follows a structured job plan in which the information and function analysis phase comes before any creative or evaluation work. Defining what each building element must do, often as a verb-noun pair, keeps the substitutions from cutting what the owner actually needs.
Brainstorming more options belongs to the creative phase, which only works once functions are defined. Otherwise it simply adds more unanchored ideas. Ranking materials by initial savings skips function and ignores life-cycle cost, which turns the study into cost cutting. Pricing substitutes against the cost model is evaluation and development work that comes later.
Key concept: function analysis as the foundation of the value engineering job plan.

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