practical project cost control for large complex projects
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© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Project Value Delivery
PRACTICALCOST CONTROL
FORLARGE, COMPLEX PROJECTS
Jeremie AverousDecember 2014
Version 0
2© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
More details about the topics of this presentation in our
Cost Control Handbook
An Advanced Project Management book published in Singapore!
Project Value Delivery
W e E m p o w e r O r g a n i z a t i o n sT o b e R e l i a b l y S u c c e s s f u l i n
E x e c u t i n g L a r g e , C o m p l e x P r o j e c t sDiscover more on
w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Project Soft PowerUnleashing Value
from YourLarge, Complex
Projects
Project Health Check
Project Coaching
Organizational maturity
Team effectivenessIntercultural leadership
Advanced project trainingProject Startup support
Project Recovery
Advanced risk management
Project Control and Reporting
Support systems integration
Convergence planning
Remote sites integration
Leadership development
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Introduction
Introduction1: Cost Control in Projects
Why Cost Control is different from AccountingInterfaces with Project ControlProfile & career of Cost Controllers
2: PVD Cost Control Golden Rules3: Forecasting Principles
Quantity-based ForecastingProductivity-based Forecasting
4: Reflecting forecasts in Project ReportingSensitivities (Achievable vs Prudent)Contingency Management
5: Time-phasing of cost and Financial reporting
6: Cost Control ForensicsConclusion
5© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
• What is Cost Control all about?
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What is Project Cost Control?
• Something (secret) that is done by Finance• Registration of invoices from vendors and booking
timesheets• Trying to figure out how to squeeze everything in the
budget (anybody knows what the budget is?)• Approval of invoices to pay vendors• A back-office function that is on another floor• Etc.
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To run like clockwork, there is a lot more to Project Cost Control than what you might think!
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Introduction
Project cost control’s purpose is to maintain an accurate forecast at a specific phase of the project, based on all the information available at the time the forecast is made.
The objective is to allow proper decision-making by the Project Manager.
The remit of Cost Control is thus essentially different from the usual remit of Accounting.
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
COST CONTROL BASIC DEFINITIONS AND CONCEPTS
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BudgetCommit-
ment
InvoicedAmount
Forecast
ActualCost
Cost To Complete
ETCEstimate
To Complete
Accruals
ForecastVariance
Cost Management basic definitions
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The Project Cost Model
Project Cost Model
-Breakdown Structure-time-phased-Source currencies
Monthly Project Performance Report(EAC, fixed FOREX)
Financial P&L Reports (POC, variable FOREX)
Commitments
Progress
Reforecasts
Management of Change
Cash flow model(by currency & entity)
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Part 1:Cost Control in
Projects
Introduction1: Cost Control in Projects
Why Cost Control is different from AccountingInterfaces with Project ControlProfile & career of Cost Controllers
2: PVD Cost Control Golden Rules3: Forecasting Principles
Quantity-based ForecastingProductivity-based Forecasting
4: Reflecting forecasts in Project ReportingSensitivities (Achievable vs Prudent)Contingency Management
5: Time-phasing of cost and Financial reporting
6: Cost Control ForensicsConclusion
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Starting a Project is like leaving on an
Intercontinental journey
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The sea make look calm but it will still get rough
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The Three Fundamental Questions
WHERE ARE WE?(ARE WE ON COURSE?)
WHERE ARE WE GOING?
WHAT DO WE NEED TO DO TO BE BACK ON COURSE?
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In Manufacturing,the future is
an extrapolationof the past
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In Projects,the future
needs to bere-forecast
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Cost Control is not Accounting
TWO DIFFERENT DISCIPLINES THAT NEED TO WORK TOGETHER
COST CONTROL ACCOUNTING / FINANCE
- Focus on the future- Understands the business- Follows commitments
- Focus on project end point
- Focus on the past- Same for any business- Follows invoicing and
payment- Variable exchange rates- Cash flow management- Focus on reporting period
end point (PoC accounting)
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Usual failure mode observed in the field of Cost Control
• The Urgent takes over the Important!
Invoice processingPaymentsAngry vendorsCash managementFinancingFinancial reporting
ForecastingTrend analysisIdentification of trends on
actual commitments
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Common “maturity’ observations when no strong Cost Management
• Costs for internal resources as actual costs instead of standard rates– Extreme complication of cost tracking
• Commitments are not tracked – only invoicing– Invoicing without commitments– Poor control on project bottom line because of
invoicing delays• Poor consistency with project execution strategy
and forecast schedule• No support to PM in scenario planning
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The Cost Controller profile
• A good Cost Controller is not necessarily someone with an accounting profile
• Graduate engineers are often very successful
• An excellent path towards Project Controls and Project Management roles.
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The Cost Controller profile
• Business skills:– understanding of contractual arrangements,– understanding of the project activity
• Process skills: able to design, implement and improve information gathering processes, and the adequate Breakdown Structure
• Technical skills:– knowledge of database basics, how to write requests
and reports;– knowledge of the dedicated Cost Control tool
• Leadership skills: ability to influence project parties to provide the required information at the right moment and to devise accurate cost forecasts
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We Can Deal with Bad News, We Can’t Deal With Surprises
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Get out of your seat toget the information
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Where are the COMMITMENTS?
20M$ oversight over 3 months
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INVOICES TAKE FOREVER TO ARRIVE.DON’t COUNT ON THEM TO KEEP CONTROL
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Make sure you know where you’re going!
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Don’t end your journey like this… and pennyless!...
29Page 3-Dec-14 29© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Part 2:PVD Cost Control
Golden Rules
Introduction1: Cost Control in Projects
Why Cost Control is different from AccountingInterfaces with Project ControlProfile & career of Cost Controllers
2: PVD Cost Control Golden Rules3: Forecasting Principles
Quantity-based ForecastingProductivity-based Forecasting
4: Reflecting forecasts in Project ReportingSensitivities (Achievable vs Prudent)Contingency Management
5: Time-phasing of cost and Financial reporting
6: Cost Control ForensicsConclusion
30© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
PVD Project Cost Control 14 Golden Rules
• The main objective of Cost Management is toenable the Project Manager to take decisions based on an accurate description of the project financial situation, derived from the organization’s current knowledge and understanding of reality.
14 Golden Rules
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Cost Control Golden Rules 1/5
• Accountability: Budget Owners are accountable for their budget (including forecast and time-phasing). PM retains ultimate accountability. Cost Control supports and challenges
• Forecasting focus: The primary focus of Cost Management is accurate and realistic Forecasting along with prompt Reporting
• Maintenance of the reference ‘Project Cost Model’: the basis for all financial assessments, modelling and reporting of the Company’s Forecasts and results on the Project
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Cost Control Golden Rules 2/5
• Project Scope & Schedule consistency: Main Contract (plus any Change Orders), and latest project schedule. Includes comprehensive understanding of the Main Contract term.
• No surprises: Variances should be exclusively caused by triggering events and not by internal oversights
• Candidness principles: cost acknowledgment and reporting must be candid and reflect actual understanding of reality
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Cost Control Golden Rules 3/5
• Immediacy principle: reflect significant new costs as soon as they are anticipated even if a detailed assessment is not yet available
• Timeliness of reporting: produce the relevant reports on time
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Cost Control Golden Rules 4/5
• Commitment tracking focus: Project Cost Management is responsible for ensuring that systems, processes and procedures are in place to identify and track Commitments for all Cost Allocations and categories.
• Prudence principle for Estimated at Completion Forecast: includes recognizing Costs as soon as they are probable and not recognizing Revenues until they are certain
• Realism principle for ‘Achievable’ Forecast: Project Cost Management reports what is realistically achievable, both with respect to final Costs and final Revenues
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Cost Control Golden Rules 5/5
• Accuracy over precision: cost updates should be accurate but not necessarily precise
• Data integrity principle: Project Cost Management ensures the integrity and consistency of the cost and Accounting data in the Project’s Forecast and Cost
• Cost reconciliation principle: project cost model and accounting are compared on a monthly basis
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Cost Control Golden Rules
• Golden Rules will be explained throughout the presentation
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Part 3:Forecasting Principles
Introduction1: Cost Control in Projects
Why Cost Control is different from AccountingInterfaces with Project ControlProfile & career of Cost Controllers
2: PVD Cost Control Golden Rules3: Forecasting Principles
Quantity-based ForecastingProductivity-based Forecasting
4: Reflecting forecasts in Project ReportingSensitivities (Achievable vs Prudent)Contingency Management
5: Time-phasing of cost and Financial reporting
6: Cost Control ForensicsConclusion
38© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
39© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
The Three Fundamental QuestionsWHERE ARE WE?
(ARE WE ON COURSE?)
WHERE ARE WE GOING?
WHAT DO WE NEED TO DO TO BE BACK ON COURSE?
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
FORECASTING FUNDAMENTALS
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© Project Value Delivery, 2013
Accurate,not Precise
Precise,not Accurate
Should the forecast be precise or accurate?
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• “Dead Reckoning”
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Useful definitionsExternal Resources (Supply-Chain)
Procurement
Subcontracting
Purchase Order
Subcontract
Bulk, Standard Equipment
Services
Complicated Equipment(Purchase Order)
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2 main types of Forecasting
BULK & STANDARD MATERIAL
SERVICES, SUBCONTRACTS
Quantity-based
Remains to CommitVsCommitted
Productivity based
Estimate to CompleteVsEstimate at Completion
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• What are the conditions for good forecast??
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Conditions for Forecast Quality
• Committed Budget Owners– Each Work Package to have ONE Budget Owner– Avoid Padding of budgets by Budget Owners
• Adequate communication between project parties– A good cost engineer/controller seeks
information and does not remain at his/her desk
• Appropriate Breakdown Structure– Relevant granularity and fit with project
execution structure– No need of high level of detail
• Don’t follow cost at Engineering CTR level
47© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Forecast for Revenue
• Recognition of Revenue in Forecast for Variation Orders follows very strict rules– No recognition when VO is not signed– Some organizations allows exceptions but:
• require the highest levels of approval• Requires scope of work approval by Client• Needs to be accepted by auditors
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
BULK/ QUANTITIES FORECASTING FUNDAMENTALS
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Forecasting Bulk Quantities
Net MTO(Bill of Material)
FORECAST
Allowancefor Accuracies[Engineering]
Allowancefor MTO exclusions
[Engineering](maturity of MTO)
Supply factor& cuts, nesting[Procurement]
GeneralRisk & Opportunity
Contingency
Bulk allowance management
ERECTED
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Forecast for Bulk Procurement
• Everything is based on the right level of allowances– Be clear on allowances + contingency– Allowance for supply/nesting is supplier
and fabricator dependent!– Make sure receipt is done properly– Be clear on treatment of extra material
(take-back clause, scrap etc)
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
EARNED VALUE FORECASTING FUNDAMENTALS
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12h flight
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= COST
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We’ve been flying for 6 hours.We spent 50% of the fuel.Are we OK?
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
56© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
We’ve done half the way.We spent 40% of the fuel.Are we OK?
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Project Controls is a discipline by itself
• My cost is lower than expected: what does it mean?
• My physical progress is lower than expected: what does it mean?
• One risk was realized: what does it mean?
Earned Value Analysis
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Time
$Budget
today
AC
BCEV
Cost Variance (<0)
Schedule Variance (>0)
Forecast consideringFuture as in initial budget
Forecast consideringCost Performance Index
Earned Value Analysis:Forecasting using EVM
CPI=
SPI=
EVAC
EVBC
59© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
What can we take from Earned Value Analysis?
2 Legs to aSound Forecast
Quality of Commitments Tracking
Quality of Schedule Progress
data
Actual Physical Progress??
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Forecast Trick
• Investigate quality of forecast when progress on a work package is about 20-30%– Earlier: not enough trend– Later: too late!
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Advanced Earned Value
• Take into account that productivity changes with progress!– Typically productivity diminishes when progress
reaches > 80%• For good quality forecast:
– pinpoint deliverables that have been completed already
– measure productivity on completed deliverables to extrapolate to the rest of the project!
62© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Typical example of productivity decrease in engineering
• Example of causes:– Physical progress measurement standard optimistic– Rework on documents “AFC” (further revisions)– Review process more onerous than expected
Time in project
Engineering productivity
~100%
0%
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Cost Management basic concepts
Different configurations
(right or wrong?)
64© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Cost Management basic concepts
Budget
Commitment
Invoiced
EAC
ActualCost
WRONG!
65© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Cost Management basic concepts
BudgetCommitment
Invoiced
EAC
ActualCost
WRONG!
66© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Cost Management basic concepts
Budget
Commitment
Invoiced
EAC
ActualCost
WRONG!
67© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Cost Management basic concepts
BudgetCommitment
Invoiced
EAC
ActualCost
OKBUT
CAREFUL
68© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Cost Management basic concepts
Budget
Commitment
Invoiced
EAC
ActualCost
WRONG!
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
BREAKDOWN STRUCTURE ISSUES
70© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o mDesign the appropriate breakdown !
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What are the issues to take into account?
• Reporting• Client requirements,• Legal entities• In-/Out-country• specific costs that are early indicators e.g. airfreight
costs• Subcontracting strategy• Allowances to be split out • One WP should generally refer to one type of cost and
cost follow-up method.
72© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Breakdown Structure detail
Too little detailwill not allow
to graspthe project drivers
Too much detaildrowns the team
and removes agility
Effectiveness
OptimalBreakdown
DetailRange
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Project Control traps
74© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Project Control traps
Too much detail!Not enough time for analysis
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
KEEPING TRACK OF ALL VARIANCES
76© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Data Integrity:Variances traceability
• All Forecast Variances must be traceable– Cost control to maintain detailed (WP by WP)
register of all EAC variances to allow• Auditability trail,• Keeping the history makes it easier to hand over cost
control of the project to a new person if needed,• Allows to track discrepancies or budgets that would
need more attention by looking in the past at all variances introduced in the cost model.
• Repeated variances on a WP is an indicator of an issue to be investigated
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
WATCH FOR CONSEQUENTIAL COSTS
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Watch for consequential costs!
• While we have covered the different phases of a project, it is essential to always analyze if a Variance observed might not lead to other Variances:– Late engineering leading to claims and delays from
suppliers– Late procurement leading to extra transportation
costs (airfreight) and offshore standby– Late fabrication leading to offshore standby– Etc
• Always seek the root cause and examine if no Consequential Variances!
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Part 4: Reflecting Forecasts in Project
Reporting
Introduction1: Cost Control in Projects
Why Cost Control is different from AccountingInterfaces with Project ControlProfile & career of Cost Controllers
2: PVD Cost Control Golden Rules3: Forecasting Principles
Quantity-based ForecastingProductivity-based Forecasting
4: Reflecting forecasts in Project ReportingSensitivities (Achievable vs Prudent)Contingency Management
5: Time-phasing of cost and Financial reporting
6: Cost Control ForensicsConclusion
80© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
EAC and ‘Achievable’
• EAC - Forecast: PRUDENT P80• ‘Achievable’ from Sensitivity Analysis
FORECAST and ‘ACHIEVABLE’are both equally important
81© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Reforecasting for Revenue
Unsigned Change Order
CostEAC
CostRevenue
Sensitivities
82© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Forecast and Achievable
Forecast
Achievable
Single Project Accounting
Business Results
Expectations
83© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Reforecasting for COST
When you know something is going to happen to your cost forecast, don’t wait until you have got all your cost elements to reforecast!
Reforecast immediately (as soon as practicable) even if you have only an order of magnitude!
84© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Sensitivities: the right order
BEST
‘Achievable’
EAC - FORECAST
WORST
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
FORECASTING FOR CONTINGENCY
86© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
CONTINGENCY IS OWNED BY SENIOR MANAGEMENT
Contingency
Time in the project
Natural evolution of calculated (‘Monte Carlo’) for
contingency[based on ETC]
Contingency level as released by Senior Management
The area between the two curves is in effect Management contingency
Contingency evolution during project execution
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Contingency: Caution
• Releasing contingency to compensate for higher costs compared to the budget is not acceptable.
• The engagement of the contingency ‘reserve’ is one of the ultimate responsibilities of the Project Manager
• At any time it is not permissible to release contingency below the calculated contingency.
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A BAD EXAMPLE ON A 36 MO PROJECT
Forecast RevenueForecast Total Cost (EAC)Forecast total Cost w/o contingency
Contingency is used (too early) to cover cost overruns
18 months
© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
PROJECT DYNAMICS
90© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
$
Time in the project
Project Forecast revenue
Late recognition of Change Orders create a second sudden margin improvement
Project Forecast cost
Project Contingency
Late release of contingency create a sudden margin
improvement
End of Integration/ Commissioning
Forecast Profit evolution during project execution
91© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
$
Time in the project
Achievable revenue
Achievable cost
Achievable profit evolution during project execution
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Part 5: Time-phasing of Cost and Financial
Reporing
Introduction1: Cost Control in Projects
Why Cost Control is different from AccountingInterfaces with Project ControlProfile & career of Cost Controllers
2: PVD Cost Control Golden Rules3: Forecasting Principles
Quantity-based ForecastingProductivity-based Forecasting
4: Reflecting forecasts in Project ReportingSensitivities (Achievable vs Prudent)Contingency Management
5: Time-phasing of cost and Financial reporting
6: Cost Control ForensicsConclusion
93© Project Value Delivery, 2014w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Forecasting and Time-Spread
• Forecasting must not just address the issue of Estimate-at-Completion forecast,
But also the forecast needs to be times-spread for each Work Package!
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 M13 M14
WP1 0 0 0 456 56 435 657 7658 878 9769 969 969 63 242
WP2 0 0 0 0 0 5456 646 6574 7547 765 989 1324 536 5477
WP3 4235 535 536 636 47 474 5687 58 6969 979 70 721 21545 3452
WP4 44 44 44 44 44 44 55 55 77 0 0 0 0 0
WP5 75 0 0 5536 74 7657 0 0 43 6326 0 0 0
TODAY FORECASTACTUALS
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Why is Time-Spread important?
For long projects, proper time-spread of cost & revenue is critical to the organization’s financial performance, and in particular to market anticipation (quarterly & yearly)
>> SHARE PRICE OF COMPANY!
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What is Percentage of Completion (POC) Accounting?
• PoC is the method chosen to report long projects lasting over several reporting periods
• PoC=
• Recognized Profit = PoC x Total Forecast Profit
Actual cost spentTotal forecast cost
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Cost POC and physical progress POC
• Cost POC and Physical progress POC are different– Cost POC is generally lower than Physical
progress POC
• If there is too much of a difference between cost POC and physical progress POC, INVESTIGATE!!
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What is PoC accounting?
Time
RevenueCost
Profit
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What is PoC accounting?
RecognizedProfit
Time
Profit
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Why should PM’s be concerned?
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PMs and PoC accounting
PM’s are supposed to focus on the ultimate performance of the project at completion
However, PM you need to be aware of the effect of :The variability of the reported project result
OnThe Company’s financial result
during the execution of the Project
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The main PoC accounting effects
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The amplification effect
PoC accountingamplifies
the impact of changesin project profit forecast
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The amplification effect
RecognizedProfit
Time
Profit
EVENT
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The amplification effect
RecognizedProfit
Time
Profit
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The delay effect
• Delay (slow progress) will impact significantly revenue recognition for a given period– significant impact on company’s forecast short term
financials
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The delay amplification effect
RecognizedProfit
Time
Profit
DELAY
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Part 6: Cost Control Forensics
Introduction1: Cost Control in Projects
Why Cost Control is different from AccountingInterfaces with Project ControlProfile & career of Cost Controllers
2: PVD Cost Control Golden Rules3: Forecasting Principles
Quantity-based ForecastingProductivity-based Forecasting
4: Reflecting forecasts in Project ReportingSensitivities (Achievable vs Prudent)Contingency Management
5: Time-phasing of cost and Financial reporting
6: Cost Control ForensicsConclusion
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The Three Fundamental Questions
WHERE ARE WE?(ARE WE ON COURSE?)
WHERE ARE WE GOING?
WHAT DO WE NEED TO DO TO BE BACK ON COURSE?
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What information?How do we make sense of it?
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What is Project Controls?
Project Controls is about buildinginformation sensors, and makingsense of the information.
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Cost Control Forensics:3 levels of maturity
• Level 1: quality of Commitments and Actuals– Actuals not Invoiced cost, comprehensive
commitments, cost breakdown structure• Level 2: quality of Forecast
– Consistency with project execution incl. time-phasing, allowances & contingency management, sensitivities, trends checking
• Level 3: support to decision-making– Ability to run scenario analysis
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Conclusion
Introduction1: Cost Control in Projects
Why Cost Control is different from AccountingInterfaces with Project ControlProfile & career of Cost Controllers
2: PVD Cost Control Golden Rules3: Forecasting Principles
Quantity-based ForecastingProductivity-based Forecasting
4: Reflecting forecasts in Project ReportingSensitivities (Achievable vs Prudent)Contingency Management
5: Time-phasing of cost and Financial reporting
6: Cost Control ForensicsConclusion
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HOWAre youtaking
decisions?!?
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Is that the way you are flying?
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Conclusion
Cost Control for Large, Complex, long duration projects requires– Structure– Consistency– Discipline
…shared by all the project team.
Cost Control is in charge of advising the project manager and making sure that the processes run reliably
Communicate with the team!
Invest yourself as much as possible at the start of the project – this will decide 90% of the outcome
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PVD Project Cost Control 14 Golden Rules
• The main objective of Cost Management is toenable the Project Manager to take decisions based on an accurate description of the project financial situation, derived from the organization’s current knowledge and understanding of reality.
14 Golden Rules
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Cost Control Golden Rules 1/5
• Accountability: Budget Owners are accountable for their budget (including forecast and time-phasing). PM retains ultimate accountability. Cost Control supports and challenges
• Forecasting focus: The primary focus of Cost Management is accurate and realistic Forecasting along with prompt Reporting
• Maintenance of the reference ‘Project Cost Model’: the basis for all financial assessments, modelling and reporting of the Company’s Forecasts and results on the Project
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Cost Control Golden Rules 2/5
• Project Scope & Schedule consistency: Main Contract (plus any Change Orders), and latest project schedule. Includes comprehensive understanding of the Main Contract term.
• No surprises: Variances should be exclusively caused by triggering events and not by internal oversights
• Candidness principles: cost acknowledgment and reporting must be candid and reflect actual understanding of reality
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Cost Control Golden Rules 3/5
• Immediacy principle: reflect significant new costs as soon as they are anticipated even if a detailed assessment is not yet available
• Timeliness of reporting: produce the relevant reports on time
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Cost Control Golden Rules 4/5
• Commitment tracking focus: Project Cost Management is responsible for ensuring that systems, processes and procedures are in place to identify and track Commitments for all Cost Allocations and categories.
• Prudence principle for Estimated at Completion Forecast: includes recognizing Costs as soon as they are probable and not recognizing Revenues until they are certain
• Realism principle for ‘Achievable’ Forecast: Project Cost Management reports what is realistically achievable, both with respect to final Costs and final Revenues
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Cost Control Golden Rules 5/5
• Accuracy over precision: cost updates should be accurate but not necessarily precise
• Data integrity principle: Project Cost Management ensures the integrity and consistency of the cost and Accounting data in the Project’s Forecast and Cost
• Cost reconciliation principle: project cost model and accounting are compared on a monthly basis
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Cost Control Golden Rules
• Golden Rules have been explained throughout the presentation
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Project Soft PowerUnleashing Value
from YourLarge, Complex
Projects
Project Health Check
Project Coaching
Organizational maturity
Team effectivenessIntercultural leadership
Advanced project trainingProject Startup support
Project Recovery
Advanced risk management
Project Control and Reporting
Support systems integration
Convergence planning
Remote sites integration
Leadership development
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More details about the topics of this presentation in our
Cost Control Handbook
An other Advanced Project Management book by Project Value Delivery
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