Project Cost Management Lesson 2

Project Cost Control

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 PCM Lesson 2: Cost Control

• Why “Control Cost”?, What does it really mean? and How?

• Continuous risk management
• Basic Cost vs Budget Principals
• Importance of Forecasting
• Budget Management
• Key Differentiators of InEight Control
• Maintain Multiple Budgets and Forecast, Integrations, Real time Insight
• Discovery questions to ask that lead to our differentiators
• Discovery Role play Exercise
• High level Brief Demo of Control Solution
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 Cost Control Basics

It all starts here…

• Cost Structure
• All project cost are charged to some form of coding structure
• Every transaction that occurs on a project must be coded so cost knows where
to hit (Think it needs a bucket to go in)
• The structure may be governed at a corporate level or setup differently for every
project
• Initially budget gets allocated to the cost structure from the estimate
• If the estimating cost structure differs from the desired execution cost structure the
estimate gets “conformed” (Think moving dollars from one bucket to another,
redistributing, or rolling up cost)

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 Example Cost Structures
Standard Description
Code 1100 Project Management
00 Overhead
10 Commercial Cost 1200 Quality Assurance
20 Job Related Overhead
30 Operational Support 1300 Internal Engineering
40 Contingency
50 Removals and Demolition
2100 External Engineering
51
52
Grading
Civil Utilities
2200 Proprietary Equipment
53 Aggregates and Paving 2300 Fabricated Mechanical
54 Temporary Work
58 Routine Maintenance 2400 Steelwork
60 Deep Foundations
61 Concrete 2500 Electrical Equipment
62 Metals
70 Piping
2600 Off Site Construction
71 Mechanical Equipment
72 Water and Wastewater Equipment
2700 Travel
73 Startup and Performance Testing 2800 Transport & Freight
74 Process Insulation
80 Railway 2900 Onsite Construction
81 Electrical, Instrumentation, Transmission and Substation
82 Waterway and Marine Construction 3100 Load Commissioning - Indirects
83 Building
84 Offshore Fabrication
3200 Load Commisioning - Directs
85 Shafts and Tunnels
86 Mining
4100 Operational Spares
87 Misc Specialty Work 5100 Commisioning Spares
88 Engineering
90 Construction Equipment 6100 Long Lead Item Spares
91 Discipline Services, Tools and Supplies
92 Direct Estimated ST&S 7100 Special Tools
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 Example Cost Structures

• Can range from Project XYZ

Very Simple to Labor
Very Detailed Material
Indirects
Overhead Expenses
Subcontracts
Supplies
Equipment

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 At the Start of a Project

Cost Codes Total Cost To Date

***Only the lowest level codes
can be charged to.
Cost/Budget at higher
levels is just a summation
Current Budget: $$$ & Manhours
Cost Structure Hierarchy

6
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 During Execution of Project

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 Earned Value

• Most Basic Definition: Budget at Completion x Actual % Complete

Lets say we are 1.3% complete with erecting light weight steel
$351,962.08 x .013 = $4,575.51
Now we can compare spent $4,329 with earned $4,575.51
Are we on track to make or lose money?
Are we projected to come in under budget of over budget?
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 Earned Value

• Most Basic Definition: Budget at Completion x Actual % Complete

What if we are only 1.2% complete with erecting light weight steel
$351,962.08 x .012 = $4,223.55
Now when we compare spent $4,329 with earned $4,223.55
Are we projected to finish over or under budget?

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 Earned Value

How many of you can look at this and tell me if you are
1.2% complete or 1.3% complete?

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 Earned Value

Neither can they!!

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 Earned Value

• Earned Value $$$= Actual QTY Complete x Budget unit cost

• Earned Value Hrs= Actual QTY Complete x Budget Mhrs/unit

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 How is Earned Value Used?

• Cost vs Budget
• Schedule performance

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 How is Earned Value Used?

• Cost vs Budget
• Schedule performance
• Forecasting Financial Outcome at Completion

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 What is Forecasting?

• The continuous estimation of total project cost at completion

• Based on performance to date, known risk and opportunities
• Typically done on a monthly basis
• Good (accurate) forecasting results in minimal variations month over
month

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 Forecasting Methods

• Forecasted Cost at Completion=

• Actual Cost to Date + (Qty Remaining x Forecasted Unit Cost)
• Forecasted Unit Cost can be based on:
• Budgeted Unit Cost
• A new estimate of the unit cost, referred to as Current Estimate
• Average Performance (the actual unit cost to date)
• Forecast can also be manually hard entered as
• Cost Remaining
• Total Cost at Completion
• Remaining unit cost

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 Importance of Forecasting
You can’t fix what you
don’t know!
People [Project teams] with
• Forecasting is about identifying areas goals succeed because they
of risk so they can be mitigated know where they’re going.
• It is also about finding areas of -Earl Nightingale
opportunity to exploit. Setting
financial goals.
• Project level forecast are rolled up to
drive corporate balance sheets.
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 How does InEight Control Help

VIEW BUDGET, CURRENT

USE MULTIPLE FORECASTING ESTIMATE, AND ACTUALS ALL
METHODS ON ONE SCREEN
that drives the most accurate forecast at
completion for the project to easily analyze data and forecast

COMPARE FORECASTS FROM USE FINANCIAL PERIODS TO

PREVIOUS PERIODS SYNCHRONIZE BUDGETS
and forecasts with your accounting system

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 Budget Management

Change Happens!

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 Budget Management

Reasons for a change in budget

• Owner Directed Change Orders
• Zero budget changes for differing construction
means/methods
• IE: Change for install in place to pre-fabricated ductbank
• IE: Change for self perform work to subcontract it out
• Engineering Changes

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 How does InEight Control Help

MANAGE ORIGINAL BUDGET, CONTROL TRACK COST TRENDS AND

BUDGET AND CURRENT ESTIMATE POTENTIAL BUDGET CHANGES
at any level of the project including WBS, line item, cost
code, contract and more

INTEGRATE BUDGETS WITH

YOUR ACCOUNTING SYSTEM
to streamline project startup
DOCUMENT BUDGET MOVES
AND BUDGET CHANGES

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 Budget Management

• Original Budget
o Snapshot of the project plan in its original state, prior to execution
o Baseline used for comparison as the project progresses
o You cannot edit your Original Budget values once locked
• Current Budget (Control Budget)
o Includes only project changes approved through a controlled process
o The sum of your Original Budget, plus or minus any approved changes
• Current Estimate
o Most up to date estimate of your work
o No required approval process or work flow
o Can use as a “sand box” to build out change orders and do what-if analysis

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 Key Roles Involved in Cost Controls
• Cost Engineering Manager, Project Controls Manager
• Responsible for the standard tools and processes for budgeting and forecasting
• Project Controller, Business Manager
• Accounting type background
• Heavy User of ERP system
• Project Engineer, Project Manager, Cost Engineer
• Responsible at the project level for cost projections, budget management
• Must explain month over month variations and manage the financial plan – less spreadsheet
manipulation by Control doing the hard work
• Needs input from discipline leads, other project team members- collaborative tool allows for
that
• Area/Division/Program Manager
• Not involved in the line item forecasting, but cares about the reporting
23 • Can see it all in one place, roll up and drill down into areas of concern
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 Questions to ask during discovery

• Where are you currently managing budgets?

• Are you able to track budget changes over the course of the project to compare vs as estimated
and vs control budgets?
• Do you have workflow capabilities to restrict who can make changes?
• Talk me through your current forecasting process?
• How often is the forecast analyzed and updated? Monthly? Quarterly?
• Do you have a standard process for forecasting? Or does it vary from project to project based on
the manager?
• How many team members are typically involved in the forecasting process?
• What means do you use to compare forecast variance month over month?
• How often are actuals reported for analysis? Monthly, weekly, daily?
• What information is required for company level reporting?

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 PCM Path to Competency
PCM Estimating

PROJECT COST
MANAGEMENT Budgeting and Forecasting
STAGE 1 STAGE 2 STAGE 3
 InEight University Estimate  Urban Engineers Estimate
 InEight Overview Lesson Implementation
 PCM Lesson 1: Estimating Course
 Practice with Estimate Recordings
Overview  Estimate API &
 PCM Lesson 2: Cost User Guide
 InEight University Control Installation Guide
Control Overview  Estimate Detail Design
 PCM Lesson 3: Course
 Practice with Control User PowerPoint
Integrations/ Touch Points  Control Detail Design
Overview Guide
 SE team demo recording PowerPoint
 Onboarding Demo Videos
of Estimate

Success Criteria: Success Criteria:

• Complete Mock Discovery Success Criteria:
• Certificate of Achievement • System Architecture /
Interview Integrations Test
from IU
• Successfully complete mock • Run successful
demo implementation with
• Present implementation support
methodology overview
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