FEATURED PAPER
By Pat Weaver
Melbourne, Australia
Introduction
Cost Engineering, defined as the application of cost estimating, cost management, and engineering economics to capital asset management, has a long history. This paper will chart the evolution of cost control from its beginnings as an accounting function, through to the emergence of Cost Engineering as a distinct discipline in the first half of the 20th Century.
The relationship between time and money has been recognized for at least 1500 years. The oldest recorded use of the phrase time is money is in the book Della Mercatura et del Mercante Perfetto[1] published in 1573 by Bernedetto Cotrugli. This book also described in detail the concept of double entry bookkeeping which reduced accounting errors. But while bookkeeping and accounting in mercantile trade is important, the items being bought and sold are tangible, and the price known.
The challenge facing everyone involved in commissioning and delivering a project is the product to be delivered is merely a concept that will be made real at some time in the future. Therefore, the cost of creating the project’s deliverables is uncertain, and the value of the deliverable when complete and handed over can only be assumed; the intended benefits may, or may not, be realized. Whilst this challenge is perennial, the expansion in the number of engineering projects built for commercial profit in the decades prior to, and during the industrial revolution brought the need for improved cost estimating and control into focus.
This paper traces the evolution of project cost engineering from its roots, through to the early 20th century when the concept of cost engineering was formalized, and on to the present time.
Fixed Price Contracting
The concept of fixed price contracts
From at least the 1st century BCE, the Roman State outsourced the majority of its public works. New projects, and the repair and maintenance of existing infrastructure, was undertaken by private contractors. State officials were responsible for awarding contracts and then ensuring that they were fulfilled by the contractor, according to the agreed terms[2].
An example of public contracting is provided by an inscription describing the maintenance of the Via Caecilia (one of the great highways of Roman Italy) during a period between 90 and 80 BCE. The inscription records that the urban quaestor[3] had engaged a number of contractors to complete sections of the project. As part of the process of ensuring public accountability, the distance and the nature of the work are specified for each contract, with a specific cost assigned. The quaestor and each of the individual contractors are named as personally responsible for the completion of their section of the works.
The process of public contracting means each of the contractors needed to be able to properly estimate the cost of the work they were tendering for, and when appointed, manage the costs of accomplishing the work effectively. Given the Roman Republic was some four centuries old at this time, and the Roman’s predisposition to importing ideas from other cultures, it is quite likely this form of contacting was much older and may have been used by other civilizations.
The alternative to public contracting was direct state control of the works. For example, the Great Pyramids and other structures in Egypt seem to have been built by paid workers (some conscripted to work during quiet periods in the agricultural year). The worker’s wages were paid in beer and grain, sourced from the State, and supervision was provided by appointed State representatives. In this situation, a reasonable estimate of the time and workforce need was still important, but there was less requirement for precision, the State granaries and treasury could accommodate any additional outlays…
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How to cite this paper: Weaver, P. (2022). The Origins and History of Cost Engineering; PM World Journal, Vol. XI, Issue III, March. Available online at https://pmworldlibrary.net/wp-content/uploads/2022/03/pmwj115-Mar2022-Weaver-origins-and-history-of-cost-engineering.pdf
About the Author
Patrick Weaver
Melbourne, Australia
Patrick Weaver, PMP, PMI-SP, FAICD, FCIOB, is the Managing Director of Mosaic Project Services Pty Ltd, an Australian project management consultancy specialising in project control systems. He is a Fellow of the Chartered Institute of Building, Australasia (FCIOB) and a Fellow of the Australian Institute of Company Directors (FAICD). He is a member of the the PMI Melbourne Chapter (Australia), as well a full member of AIPM, and the Project Management College of Scheduling (PMCOS).
Patrick has over 50 years’ experience in Project Management. His career was initially focused on the planning and managing of construction, engineering and infrastructure projects in the UK and Australia. The last 35 years has seen his businesses and experience expand to include the successful delivery of project scheduling services and PMOs in a range of government, ICT and business environments; with a strong focus on project management training.
His consultancy work encompasses: developing and advising on project schedules, developing and presenting PM training courses, managing the development of internal project control systems for client organisations, and assisting with dispute resolution and claims management.
In the last few years, Patrick has sought to ‘give back’ to the industry he has participated in since leaving college through contributions to the development of the project management profession. In addition to his committee roles he has presented papers at a wide range of project management conferences in the USA, Europe, Asia and Australia, has an on-going role with the PGCS conference in Australia and is part of the Australian delegation to ISO TC258.
Patrick can be contacted at patw@mosaicprojects.com.au or at www.mosaicprojects.com.au.
[1] Della Mercatura et del Mercante Perfetto (Commerce and the Perfect Merchant) 1573 Bernedetto Cotrugli. Hardcover reprints available from Amazon (in Italian) for $20: https://www.amazon.com/mercatura-mercante-perfetto-Benedetto-Hardcover/dp/B0799M1KT4
[2] Walker, D. H. T. & Dart, C. J. (2011). Frontinus—a project manager from the Roman Empire era. Project Management Journal, 42(5), 4–16. Source:
https://www.pmi.org/learning/library/ancient-practices-infrastructure-project-management-2229
[3] A public official in Ancient Rome who had charge of public revenue and expenditure.
