Project Cost Controls

What is a CPI Forecast

Before I get started on the details, I’ll give you a quick definition: A CPI Forecast allows project controls professionals to predict the performance of their project using a subjective CPI value rather than the calculated CPI that’s determined based on past performance. In case you’re wondering what that all means, I’ll go on to explain.  First, CPI stands for “Cost Performance Indicator" (or Index). It’s a standard EVM metric, and is calculated using the following formula: CPI = Earned Value (EV) / Actual Cost (AC) A CPI Forecast is a mechanism for providing a subjective view on the standard calculation. Using EVM for calculating the remaining costs to complete on a project – like ETC and EAC – typically use the project’s latest Progress Measurement as the basis for that calculation. This is effectively using past performance to predict the future.  What it’s saying is, for example, “Judging from where you’re at right now, your project is underperforming at a performance index of 0.8.  With that performance to date, your ETC will be $X.” While this is important information for project analysis and forecasting, users often need an alternative way to view these projections. It may be the case that there are very good reasons for the poor performance to date, and corrective action has been taken – so that the performance metric of 0.8 might be misleading. Or maybe, unforeseen circumstances had dragged performance for a while, and things are looking better now for the remainder of the project. To give you an example, let’s say that the first 6-months of a project occurred during winter; when progress moves slower than it does during the spring & summer.  A project manager wouldn’t want to

Do You Really Need That Cost Code?

Project Cost Code Planning – such a love/hate relationship we have with cost codes.  Project controls professionals can spend endless hours discussing, debating and tweaking the required codes for their project.  Understandably so, as there can be so many layers of complexity of how to design the right code structure. We get many questions from companies about what code structure is the right structure for them, and we spend a great deal of time working with them to help define it.  We often get asked if there’s a standard coding structure they can just lift from some standards body and simply use it. Or if we have one they can use, or what do other companies use, etc.  Unfortunately, there’s no single source where a robust project-level code of accounts is fully defined for public or paid-for access for every industry.  There are, however, some standards and samples that have been defined for a variety of industries published by, for example, the AACE (http://www.aacei.org/) and CSI (http://www.csinet.org) which can provide you a significant jump on defining the system that best fits your business.  You’ll need to be a member, but well worth it. Here are a few teasers that give you the idea: http://www.aacei.org/toc/toc_20R-98.pdf www.aacei.org/toc/toc_21R-98.pdf http://fire.nist.gov/bfrlpubs/build99/PDF/b99080.pdf It hurts me to tell you this, but beyond resources like that, you’re likely going to have to bear down, get into it, and define your own coding structure. However, I do have some good news for you.  If you’re using a cost management system, your coding efforts can be significantly simplified. And that’s because a software system that understands concepts like a Cost Breakdown Structure, Resource Codes, Discipline Codes, Material Codes, etc. – can do a tremendous amount

What’s the Difference between Estimate-to-Complete and Forecast-to-Complete

Predicting the future is what we’re all about. But when do you use ETC versus FTC – and what’s the difference? Everyone gets nervous when they’re in the dark with how things are going on their project. Collecting real-time information on activities and costs is a big piece of the “Where are we at?” questions, but how do you take that data and leverage it to answer the “Where are we going…” questions? Forecasting the near future and long-term outcomes on projects is a critical function for project controls professionals.  To accomplish this, it’s important to first understand the two main methods for preparing and calculating a forecast: Using historical performance indicators Manual predictions of remaining effort Notice that I didn’t include “Remaining Budget” as a forecasting metric. And that’s because, simply taking total project budget and subtracting costs-to-date, does not provide a reasonable forecast. It doesn’t take into consideration any new information or productivity challenges that can significantly influence the remainder of the project. To dive deeper into these two forecasting methods, let’s drill-down into each of these to understand the difference. Performance-based Forecast – ETC Performance-based forecasts are the standard Earned Value method.  It takes the historical project performance and determines a productivity ratio based on that performance (CPI). It then uses that ratio to calculate how the rest of the project will play-out if you continue to perform at that level.  So, if you’ve been under-performing, you’ll end up over budget and behind schedule if you continue at that pace. And vice versa. It’s a bit like how your car’s computer calculates remaining distance. If you have a reasonably new car, it’ll have screens on the dashboard showing

4castplus e-LEM Solutions – Vendor Portal

Tracking Daily Costs from the Jobsite is challenging enough when you're tracking your own people. What about when you have to track your Vendor LEM costs as well? Getting all the daily cost data together from multiple sources can be a time-consuming and error-prone undertaking if you don't have a software solution to automate the process. 4castplus eLEM solutions for Vendor Tracking simplifies and streamlines the gathering and processing of daily jobsite costs. Check out the brief presentation below to get a glimpse of the new Vendor LEM Tracking and Portal. I think you're going to be amazed. 4castplus e-LEM vendor portal from 4castplus

That Crucial Bond between Project Controls and Project Procurement

On any major project there will be strong ties between Project Controls and Procurement to ensure there is sufficient budget to cover the requisitioned and committed costs issued onto purchase orders. The importance of this relationship can't be understated! Keeping a project on plan requires careful monitoring to make certain that the project's expenses are kept within budget. 4castplus provides the intrinsic links between procurement and project controls to enable a close bond between these two groups. This connection is described briefly in the explainer presentation below. If you have any thoughts on this, please feel free to leave a comment below and let us know what you think. Understanding the relationship between Budget and Procurement in 4castplus from 4castplus

Project Controls First Steps – Define Your Objectives

There’s a lot of talk about Project Controls out there. There's a growing awareness and momentum that's rapidly spreading throughout the world; and more and more organizations big and small are undertaking initiatives to insert Project Controls into the management of their projects. It's more than just a trend – the need is real, and follows decades of over-spending and lack of project visibility. As you can imagine, some companies embarking on a project controls initiative have a clear understanding of what that means, how to go about it – and have defined objectives as to what they intend to achieve. And some don't. For those that don't, this brief article is for you. It's intended to help you frame a few questions to get you started on the path of knowing how to make the next steps. For many companies, this momentum for project controls is driven from outside the organization. For example, from customer demand, or from vested stakeholder demand.  It’s common now, for example, for large projects to require contractors or EPCMs to demonstrate project controls practices in order to even bid on a contract. Of course, many companies just want to improve. Their momentum stems from an internal need to become better at what they do, and to differentiate their business. Whatever the impetus may be, the challenge any organization faces when embarking on a journey like this is: “How do we get started?”  The quick answer to that question is, “What do you want to achieve?”  I know that’s the kind of answer that’s not very helpful, so I’ll go on to explain to you what I mean. It’s easy to get paralyzed with uncertainty since

Field Capture Solutions from 4castplus

Linking Budget and Schedule – it’s a Challenging Task

One of the first principles of project controls is that the project budget has to be time-phased over the duration of the project. Here’s why: It’s not enough to simply know the total budget for a project – it’s critical to also know when that budget is planned to be spent. In other words, each quantity of material, labor hour or subcontractor service that’s planned for the project, is planned to occur at a particular time on the project. Some of these budget items happen over a time-span – like a service – and some happen at a point-in-time – like the delivery of some material. Together, all of these budget elements result in a budget timeline. That timeline is typically represented by a curve that plays-out over the life of the project. See the chart to the right. Click to Enlarge. S-Curve chart showing Budget over timeline along with Actuals, Earned Value and Estimate to Complete. There is more than one way to time-phase a budget of course.  Nevertheless, what project controllers most often do to put their budget on a timeline, is establish a healthy connection between the project budget and project schedule. In theory, this should be a fairly straightforward exercise since both budget and schedule have a work breakdown structure (WBS) in common.  As you’ve probably guessed however, theory is just theory and in reality it’s not that simple. Schedulers have a very distinct view of a project’s WBS as compared to estimators or cost engineers. Schedulers view the project from the perspective of activities, duration, milestones, dependencies and critical path. Their version of a WBS includes things like milestone tasks, progressing tasks and events. Things that

Jobsite LEM Tracking – What About Vendor Accruals?

All vendor expenses from the jobsite have to be on a purchase order right? Isn’t that how it’s supposed to work? Aren’t all projects so well planned and organized that there is a pre-issued PO for everything? Of course not. Even the most structured and planned projects have ad-hoc & unplanned purchases that happen at the jobsite almost daily. Other projects only issue purchase orders for a portion of the project; and the remaining vendor expenses just happen on the fly. Still other projects create no POs at all, and just give their field staff a stack of carbon paper Purchase Order Books they buy at Staples to record expenses as they occur. None of these scenarios are wrong of course – but as I’m sure you already know, the less pre-planned control you have over jobsite expenses, the more challenges you face with getting a good handle on project status and vendor accruals, amongst other things. In an ideal world, all vendor expenses should be controlled by issued purchase orders. These should be driven by the project budget – with committed costs recorded in the GL or procurement software, for every vendor cost: no exceptions. When expenses are recorded from a vendor, they should be recorded as an incurred cost against the original issued PO. This is the ultimate control because you know ahead of time all your budgeted and committed costs; and as your actuals are recorded, there is nothing that falls outside those committed amounts. There is full clarity around your accruals; and when the vendor invoices you, it’s an easy step to clear out that accrual. Even as change orders are approved, purchase orders are revised and committed amounts altered to

What’s the Difference between a Project Spend Forecast and a Project Cash Flow Forecast?

Cash moves at a different pace than activities. Maybe that seems obvious, or maybe you’re not sure what I’m talking about; but it’s an important distinction to understand in construction project management. When I first started working in project management, I had envisioned a job where I would spend my days walking around the construction jobsite carrying a big stick (not really) and telling people what to do. That appealed to me because I like organizing things and I get a kick of satisfaction when I see things moving along smoothly.  To be honest, I’m actually better at organizing others than I am at organizing myself. You’d only have to take one peek at the disaster in my garage to see that in action.  Anyway, the reality of my project management career has been that I’ve spent very little time at the actual jobsite, and most of my time with my face buried into schedules, budgets, cost projections, contracts and approving timesheets. Working with a smaller company managing big-ish projects, I had to learn quickly how to be a lot of things: a scheduler, cost controller, supply chain manager and the boss of a crew of people, all at the same time. If someone would’ve told me back then that “cash moves at a different pace than activities”, I would have stared blankly back at them thinking, “ya, so what?”  Because I didn’t really understand the full implications of that.  Budget, committed, actual, incurred, accrual, invoiced – I kept seeing words like this, but I considered them to be the domain of accounting and not project management. Oh, how wrong I was. To understand the difference between a Spend Forecast versus