CPE Project Management & Engineering Economics Flashcards

In engineering economics, what is 'internal rate of return' (IRR)?

Answer: The discount rate at which a project's NPV equals zero

IRR is the discount rate that makes NPV equal to zero; projects are accepted when IRR exceeds the company's hurdle rate (minimum acceptable return).

What is a 'change order' in a capital construction project?

Answer: A formal document modifying the original scope, schedule, or cost of a contract

A change order is a mutually agreed-upon amendment to the contract that adjusts scope, price, or schedule when work differs from the original agreement.

Which project delivery method is described as 'Design-Build'?

Answer: A single contractor is responsible for both design and construction under one contract

In Design-Build, the owner contracts with a single entity responsible for completing both design and construction, reducing coordination risk and potentially shortening schedules.

What does the '80/20 rule' (Pareto principle) suggest when applied to plant maintenance costs?

Answer: Roughly 20% of equipment typically accounts for 80% of maintenance costs

The Pareto principle predicts that a small fraction of assets usually drives the majority of maintenance expenditure, guiding prioritization efforts.

In cost estimating, what is a 'contingency allowance'?

Answer: A budget reserve for undefined scope or unforeseen conditions within the known project scope

Contingency is an allowance within the project budget to cover unknowns within the defined scope; it is not a slush fund for scope additions.

What is the purpose of a 'pre-startup safety review' (PSSR) before commissioning new plant equipment?

Answer: Verify that equipment has been installed correctly and safely before introducing hazardous materials or energy

A PSSR is a systematic check required by OSHA PSM (29 CFR 1910.119) to confirm construction matches design intent and safety systems are operational before startup.