What is Cost Engineering: Beyond Budgets to Building Success

Design and construction projects are dynamic. Costs can change rapidly, and project design can deviate at any moment, impacting planning, schedules, and budgets. Many companies have adopted cost engineering strategies to minimize risk and uncertainty throughout the construction process and ensure optimum costing and coordination of projects and programs.

In this blog, we explore what cost engineering is, why it’s important, tools and techniques that cost engineers use, and tips for starting a career in cost engineering.

Origins and History of Cost Engineering

Cost engineering originated as a project management practice in the 1950s in reaction to the increased complexity of building, construction, and infrastructure projects.

It was formally recognized in 1956 with the establishment of the Association for the Advancement of Cost Engineering (AACE International), which represents practitioners and drives thought leadership in the field.

In 2006, AACE published a Total Cost Management (TCM) Framework. The framework established a proven methodology for managing costs throughout the lifecycle of any construction project. It is a structured, annotated process map that explains each practice area of the cost engineering field in the context of its relationship to other practice areas including allied professions.

Fundamentals of Cost Engineering

Cost engineering involves the application of engineering principles and business acumen to enhance decision-making and reduce risks across the lifecycle of a construction project. Specifically, cost engineering helps builders and contractors understand the scope of a project and associated costs and avoid cost overruns.

Cost engineering services can benefit any sector that deals with complex projects and cost pressures, including government agencies (civilian and defense) and industries including automotive, commercial builders, civil engineering, oil and gas, chemical, manufacturing, healthcare, and more.

The Core Concepts

Cost engineering is an interdisciplinary practice that intersects the fields of project management, engineering, and business management. Think of it as an adjunct to the traditionally technical side of engineering, emphasizing the interplay between different facets of an engineered project, such as expenses, timelines, and resources.

Cost engineering encompasses a wide range of cost-related aspects of engineering and program management including cost estimating, cost analysis, cost assessment, schedule analysis, planning, and risk assessment.

Without the benefit of cost engineering, project owners and contractors may lack clarity in project planning and execution, which can jeopardize project timelines and budgets and make it difficult to respond to variables such as unexpected delays, price increases, or change orders.

Cost Engineering Techniques

Cost engineers use software and other industry tools and resources to collect, analyze, and share cost data.

Tools aside, choosing the appropriate cost engineering technique is critical. Techniques and methodologies can vary depending on several factors, including:

• The scope and complexity of the project
• Project phase and maturity
• Industry and project type
• Stakeholder requirements

Importantly, cost engineering incorporates lessons learned from previous project experience and data-driven insights to provide an early understanding of design and construction decisions and risks. With these insights, mitigative actions can be recommended to ensure successful project outcomes. For this reason, choosing a cost estimation method also depends on the skills and experience of the cost engineer.

Skills and Qualities of a Successful Cost Engineer

To be successful, a cost engineer must have strong analytical abilities, industry-specific knowledge, experience with cost estimating systems, and excellent communication skills. An understanding of professional engineering principles is also desired and many cost engineers have significant prior engineering experience.

Importance of Cost Engineering in Construction

Why is cost engineering important in construction? Consider the following:

Benefits in Construction Projects

Design and construction projects are dynamic. Expenses can fluctuate rapidly, and project designs can veer off course at any point, affecting project planning, timelines, budgets, and profitability. Cost engineering can help owners/builders prepare for risks and uncertainties using engineering techniques, practices, and skillsets to predict project progress and identify deviations from plans.

While projects can be cost-engineered at any stage, the earlier in the planning and design stages the better. This is where cost engineering creates the most value – making the best use of the available budget and resources.

But it shouldn’t end there. Construction project owners can keep their projects on track and within budget by applying cost engineering principles and methodologies across the entire project lifecycle.

While cost engineering offers numerous benefits in managing project costs effectively, a solid foundation in construction budgeting is indispensable. Explore our detailed guide on Mastering Construction Budgeting to ensure your projects are not just well-engineered but also financially sound.

Real-World Examples

Effective cost engineering can make the difference between the success or failure of a construction project. Organizations that embrace the benefits of cost engineering can meet mission objectives and complete projects on time, on budget, and to specifications.

Consider the U.S. Army Corps of Engineers (USACE). Acuity’s cost engineers have helped USACE navigate some of the most complex civil works projects and realize value-driven outcomes. For example, Acuity was part of a team that helped the government save millions off the original contractor’s proposed price for the New Orleans West Closure Complex – a floodgate project intended to reduce storm surge risk and ensure flood resiliency.

This project was part of an extensive portfolio of work that Acuity has performed to help USACE control the scope, cost, schedule, risk, and quality of civil works projects. In addition to providing estimating and scheduling support for hurricane protection systems along the Gulf of Mexico, Acuity has conducted a cost schedule risk analysis for shoreline protection in New York and provided project control support for emergency dam repairs in Iraq.

Future Trends and Innovations

Economic forces, supply chain challenges, sustainability goals, and competitive pressures have ramped up the need for owners and operators to identify risks and deliver savings early and often in the design/build process.

There’s no denying its value, but as business needs change so must the practice of cost engineering. Cost engineers must work faster and with greater agility and accuracy – no matter a project’s scale or complexity.

Promising innovations and trends include simulation and AI capabilities, as well as greater collaboration and alignment among stakeholders. For example, the use of cloud-based tools for cost estimation, construction scheduling, and cost management can empower cost engineers to generate more precise forecasts and improve cross-functional collaboration. These tools also enable automated workflows for immediate insights into potential schedule and cost deviations, allowing cost engineers to closely monitor the project’s financial status through dashboard views of project data.

As we look towards future trends and innovations in cost engineering, understanding the role of construction scheduling in project management becomes increasingly important. Ensure your projects are on the cutting edge by integrating the strategies found in our Construction Scheduling Techniques guide.

Role of a Cost Engineer

Let’s look at the role of a cost engineer and the skills and qualities required to be successful in this profession.

Responsibilities and Duties

It is the cost engineer’s responsibility to coordinate, direct and lead estimating efforts to ensure optimum costing and coordination of projects and programs in line with customer

expectations and manufacturing requirements.

To do this a cost engineer will perform several duties, including but not limited to:

• Define cost estimate scope: Define the project scope, time period, phases to be estimated, communication channels, and establish any boundaries for estimates or project requirements.
• Define assumptions or constraints: Identify any schedule or budget constraints, and how those will be resolved.
• Develop cost element structure: Identify everything defined in the scope to be costed.
• Collect and monitor data: Collect and monitor data, manage risks, identify a (if necessary) contingency plan, control changes and communication, measure and report on progress.
• Develop cost estimating relationships: Use cost data to develop formulas/equations entered into the cost model.
• Document approach: Provide documentation for each cost element, indicating sources of data, assumptions used and any other methodology or analysis.
• Customer review: Ensure that all expected costs have been properly presented to the customer for review/approval/acceptance of the estimate.
• Finalize cost estimate: Finalize the cost estimate. Maintain all files and data related to a project.

How to Become a Cost Engineering Professional (H2)

Interested in cost engineering as a career? Let’s look at what’s required and the opportunities afforded by this profession.

Education and Training

Cost engineers usually possess a degree in either civil engineering or business management. To advance into this position, most individuals have accrued four to six years of experience in a related field, often serving as project engineers, project managers, or engineers. Strong analytical abilities and effective communication skills are essential prerequisites for this role.

To help you chart a career path, consider obtaining a certification in cost engineering, through AACE International’s professional certification program. AACE International also offers a variety of continuing education courses on various cost engineering topics.

Career Path and Opportunities

Cost engineers are in demand. The projected job growth rate is 3% by 2028 with salaries increasing 8% in the last five years. The average salary of a cost engineer is $87, 901 (source).

Given the importance of job experience, look for chances to participate in construction ventures that prioritize cost engineering. Explore opportunities in major urban centers like Atlanta, Dallas, Denver, Houston, and Philadelphia, as well as burgeoning metropolitan areas such as Raleigh and Northern Virginia. Consider high-growth construction sectors where cost engineering is likely to be in demand, including hotels, healthcare and education facilities, critical infrastructure, and smart city construction.

Bringing It All Together: The Blueprint of Cost Engineering

Managing costs and mitigating risk throughout the project lifecycle is key to any successful construction project.

With accurate cost engineering services, project owners ensure their projects stay on schedule and on budget – even in the face of unpredictable economic headwinds and supply/demand challenges.

A career in cost engineering is a promising one. With high earning potential and experience gained across an exciting range of projects, you can develop and apply a wide range of skills. You can also learn about cutting-edge technology, project management best practices, standards, regulations, and other skills that can increase your value and advance your career.