A Comprehensive Guide to Total Cost Management Framework by AACE - 5

Understanding AACE's Total Cost Management Framework

Introduction

AACE International has developed the Total Cost Management (TCM) framework, offering detailed process maps for asset and project management. TCM aims to integrate various skills and knowledge areas to support strategic asset management and individual project development.

Understanding the TCM Framework

The TCM process map is built upon the PDCA quality management model, illustrating Project Control as a Recursive Process within the Strategic Asset Management Process. The lifecycle of a strategic asset encompasses five key stages:

• Ideation: Determine an opportunity for a new asset or an improvement to an existing asset; research, evaluate, define, and develop potential solutions that address the opportunity; and select the optimal solution. 

• Creation: Create or otherwise implement the asset solution, typically through the execution of a project or program.  

• Operation: Deploy the new or improved asset into service, operation, or other use.  

• Modification: Modify, improve, or otherwise change the asset, typically through the execution of a project or program.  

• Termination: Decommission, retire, demolish, or otherwise terminate the asset from the enterprise’s portfolio.  

Interconnected Asset and Project Lifecycles

Throughout the asset lifecycle, various stages and processes often overlap and iterate. Assets typically undergo multiple modifications, spurred by ongoing ideation that leads to changes and improvements. These modifications are generally integrated through project execution.

Projects within the asset lifecycle serve as temporary endeavors for ideating, creating, modifying, and ultimately terminating an asset. It's important to note that the operational phase of the asset itself isn't categorized as a project. However, during the asset's operation, numerous projects may be initiated to maintain, modify, relocate, enhance, or otherwise improve the asset's utility. 

Lifecycle Phases of a Project

A project's lifecycle involves four phases:

1. Ideation: Assessing concepts, establishing project requirements, and defining performance goals.

2. Planning: Developing detailed project plans aligned with selected concepts and goals.

3. Execution: Implementing plans to achieve project objectives and performance goals.

4. Closure: Reviewing completed assets, documenting project insights for future use in planning, and handing over completed assets to customers.

Strategic Asset Management Process: Ensuring Enterprise-wide Efficiency

The Strategic Asset Management Process is a holistic approach applied at the enterprise level to oversee the entire strategic asset portfolio. Its primary concern revolves around managing the long-term economic return and profitability of an enterprise's complete asset portfolio. Business management consistently evaluates the asset portfolio to make crucial decisions: whether to develop new assets, modify existing ones (such as expansion or alteration), or retire/decommission assets. Due to limited funds available for asset investments, this process emphasizes the critical task of "selecting the right project."

• Guiding Investment Decision-making through Planning Processes -

• Transitioning from Strategic Management to Project Control -

• Assessing Asset Performance and Ensuring Alignment with Objectives -

• Continual Improvement and Adaptation through Benchmarking -

• Managing Changes and Learning from Experience -

Project Implementation and Asset Performance Assessment

This is an application at an individual project level to manage creating, modifying, maintaining, or retiring individual strategic assets. It is a process for controlling the investment of resources in an asset during project execution. Project Control is the recursive process cycle nested within the “do” step of the Strategic Asset Management Process Cycle. While Strategic Asset Management is always an ongoing activity for the enterprise, a project is a temporary endeavor with a defined beginning and end that the enterprise undertakes to create, modify, maintain, or retire an asset. Project control is focused on delivering an asset that meets all of the business objectives (budget, cost, performance, operability, safety, etc.) identified by strategic asset planning; it is about “doing the project right.” 

The project plans will be communicated to and implemented by the performing parties (the collective project team including contractors and supporting third parties). Performance assessment uses evaluative techniques to determine if the project progress and expenditure of resources (including time) vary from the baseline plans, which includes identifying both positive and negative trends or changing performance. Based on the performance assessment, forecasts for cost and schedule are determined and compared to baseline plans. The project control process is performed iteratively as the project moves through the various phases of the project lifecycle, from conceptual design through detailed design and final project execution and any final start-up or project commissioning activities.  

Outputs from Total Cost Management: 

Managed Asset Portfolio: The end products of the TCM process are new, modified, maintained, or retired assets that achieve the enterprise’s strategic performance objectives and requirements. Organizations will focus on customer needs and on the entire life cycle of strategic assets rather than on short-term functional considerations. 

Conclusion

AACE's Total Cost Management framework forms a comprehensive guide, integrating asset management and project management seamlessly. It enables efficient decision-making, resource allocation, and strategic planning to achieve organizational goals in asset and project management.