Project Estimation

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

Should you Adopt Standards for Project Controls and Procurement?

I was visiting a client yesterday helping them get started with some new projects they were planning. They’re a fairly new client and are still working through some of their internal processes with respect to how they’re going to take full advantage of this enterprise software they've just adopted. They were engaged in a very productive, but heated dialogue about how to manage this transition. The challenges they face are similar challenges that most companies would in this situation, so I thought it’d be worth writing about. To start with, they’re a mid-sized EPCM that is growing fast and taking on bigger and more complex projects. They’d long outgrown the spreadsheets they had been using for project management, project cost controls, procurement and estimating. It was a critical business choice for them to adopt a robust software system that’s designed to take on those activities – otherwise they would have been severely limited in their ability to grow. Still, despite adopting powerful technology, they still had some decisions and challenges to tackle.  As the director of projects put it, “This software will do everything we need and much more. It’s great, we’ll have lots of room to grow to take advantage of its full capability. The problem we have is: us. We pose our own biggest risk to ourselves. We need to establish the processes and the rules and standards so that we don’t create a big mess in this software.” It was good to hear him say that because it’s a message we continuously reinforce with clients new and old. As the consultant in the room, I often try to take the role of helping facilitate the conversation towards people discovering the answer themselves.

New Live-Link with Microsoft Project

  Get Real-Time Schedule and Cost Synchronization   Press Release To view the original press release, please click here: http://www.prweb.com/releases/4castplus-scheduling-2013/03/prweb10527903.htm   The new 4castplus real-time integration with Microsoft Project brings seamless, One-Touch connectivity between cost and schedule. With a fully cost-loaded schedule that includes budget, actual costs, work progress and earned value metrics, project managers achieve complete project control.   Time and Cost on any project are the two biggest factors influencing a successful outcome. The 4castplus Microsoft Project Live-Link brings this harmonious relationship to a whole new level.   Calgary, Alberta March 19, 2013 4castplus today announced the release of the highly anticipated Live-Link with Microsoft Project. With the new Project Live-Link, project managers can make time and cost changes on the fly, then synchronize budget and schedule in a single click. Many companies large and small depend on MS Project for critical project scheduling activities. They also depend on 4castplus for critical project cost management software solutions. These can now be combined together in a live synchronization to enable the best of both worlds.   There’s no single software solution on the market that can do an effective job of managing project schedule and project costs all in the same tool. With the new Microsoft Project Live-Link from 4castplus, both are now integrated in a highly-connected real-time environment. Organizations can finally eliminate the cluster of wasteful spreadsheets and the need to copy data from one place to the next. Both 4castplus and Microsoft Project can be open at the same time and changes are updated in real-time.   Even without MS Project, 4castplus merges budget with schedule to deliver planned value vs. actual cost vs. earned value on a real-time basis. 4castplus, however, can't

Are we nearing the end of Cost Reimbursable?

Get Ready for Convertible Price Projects   When we see quotes like this from the Globe and Mail, “Investors are increasingly applying pressure on oil companies to trim their investments in oil sands projects,” it becomes clear that a change in how we do business in Alberta is on the horizon.  If the investment community is losing faith in our ability to extract oil at a reasonable and predictable cost, our industry is in serious jeopardy. There is a shift underway. Cost overruns on construction projects aren’t uncommon of course, and the oil and gas industry in Alberta has not been an exception. It has in fact shown to have one of the worst records for budget overruns of any energy geography in the world. There are a number of underlying challenges that have contributed to this unfortunate track record; but one of the primary culprits has to do with the predominantly cost-reimbursable contract culture that exists in Alberta. This culture creates a challenging environment for projects to stay on budget. The nature of these contracts suggests that there is compensation for all costs incurred plus a rate uplift, with little to no risk absorbed by the contractor for when projects are extended or when they aren’t executed at maximum efficiency.   When the cost-risk is so lopsided like that, the owners face having to bear all the added cost of any inefficiencies, productivity issues and errors that occur with any contractor or engineering firm on the project. There can be dozens of contractors and engineering firms (EPCM) on a project, and with the way contracts are currently structured, everyone just passes their problems up the food chain (even the best, most efficient contractors).  Nobody’s

4castplus Delivers the Total Solution for Unit Price Construction Projects

Press Release To view the original press release, please click here: http://www.prweb.com/releases/2012/10/prweb10071600.htm   Managing Unit Price construction projects presents a tremendous number of unique complexities to both owners and contractors. With the latest Unit Price project additions to 4castplus, planning, estimating, tracking, reporting and billing on unit rate and unit progress is now streamlined into a single integrated solution.   4castplus has given us a solution that our industry has been crying out for. We've finally found the ideal answer to how we, and most of the construction world, manage construction projects. Calgary, Alberta (PRWEB) October 30, 2012 Jetsoft Group Inc., a leading global provider of business project software for Contractors, EPC (Engineering, Procurement, Construction Management), Owners and Services firms, today announced their release of a fully integrated Unit Price and Unit Progress Project Solution to their 4castplus Project Cost Management software. Some may call it “Re-Measurement” or “Schedule of Rates”, and some call it “Unit Price”. No matter what you call it, it is a very common contract type in the world of construction. 4castplus is the first software solution for construction projects to deliver comprehensive, end-to-end technology specifically designed around the distinct requirements of Unit Price contracts. With this strategic addition to 4castplus, contractors and owners will achieve tangible benefits such as:  Enhanced Unit-Based Planning: The whole work breakdown structure is now enriched with new properties for measurable units and quantities. Unit Cost / Unit Price Estimating. Full detailed construction estimating based on resource quantities – along with unit rates for cost and billing – can be intermingled to build accurate unit costs. Apply optional markup or overrides to determine unit price. View breakdown of unit cost and unit price by resource such as: Unit Cost

Tips and Tricks on Unit Price Contracts

Unit Price or Re-measurement contracts are a common way for owners to define the structure of how a project is to be quoted by contractors. This is especially true when there is uncertainty on the part of the owner as to the total quantity of each item that will be required to complete the project. A big part of the owner’s motivation for structuring it this way, is that they’re looking for a means to compare rates from the different quotes tendered. Using this technique, they can have an undetermined project size yet still compare vendor bids. With unit-price or re-measurement projects, the owner will provide a Bill of quantities (BOQ) to which the contractor is to quote against on a price-per-unit basis.  A BOQ item is an item of work that is stated and measured based on some unit amount; where a “Unit” could be, for example, “feet of pipeline” or “cubic yards of dirt” moved.  An example of a BOQ item could be, “Install 8,750 feet of pipeline”. The entire project is made up of many of these BOQ items, each with its own units and quantities.  The owner is primarily interested in seeing the price-per-unit for each BOQ item, along with the total project tallied up for a complete quote. As mentioned above, the quantities of the work at tender stage are deemed to be approximate and the actual volumes will be measured and paid as the work proceeds. This way of quoting, measuring and operating a project, is considered to be fair to both owner and contractor, as both are absorbing an equal amount of risk. As long as the contractor is good at figuring out his

Time Phased Budgeting For Cash Flow Visibility and Risk Management

Why would I need to time-phase my project budget? The challenge with any project budget that doesn’t utilize the advantages of time-phasing, is that the project manager won’t know exactly when money is anticipated to be spent on the project. And neither will the CFO. Time-phased budgeting allows project managers to allocate costs for project activities over the anticipated timeline in which those expenditures are planned to take place. Not just by using any old guess as to when things might happen – or by using some uniform, evenly distributed pattern – but by actually using real contractual agreements as to when items are planned to be paid for.  By doing this, the project manager is then armed with an accurate timeline that predicts project spend patterns. Time-phased budgeting does more than just uniting the project schedule with the project budget. Of course, uniting the two is the first step in a time-phased approach to project budgeting. Without first merging the two, budget and schedule have no interconnection, and are left to float along independently. By subsequently time-phasing a project budget, you’re then armed with extended capacity to further refine exactly when, during the anticipated schedule, certain expenditures will take place. This delivers a more accurate representation of cash outflow so that appropriate project financial planning can be undertaken. You’re also much better able to monitor budget vs. actual costs as the project progresses so as to gain clear insight into potential cost overruns (or, under-runs) and other cost controls capabilities. It may not be immediately obvious why all this matters, but to get a good reading on that, it really boils down to two things: Managing project Cash Flow Powerful

Using Contingency to Manage Risk

  Contingency Management in Construction Projects 4castplus provides built-in contingency management so you can allocate a reserve of funds intended to help manage the risky (known and unknown risk) elements of construction projects. In this brief article I’m going to discuss how to use this contingency feature.   Management Reserve Also known as “Management Reserve”, allocating contingency is a commonly used strategy to cover off any project costs that were unanticipated or unknown at the time of project planning. This reserve of funds will appear as a separate item from the project estimate; and added together with the project estimate will result in the Total Project Budget. So,   Total Project Budget = Project Estimate + Contingency   The contingency reserve is automatically calculated along with the project estimate; and then displayed in various reports and dashboards. The management of that contingency is also cared for automatically by 4castplus as project tasks are completed. I’ll talk more about how all this works in the rest of this article.   Project Default and Task Override You can set the overall default contingency factor – as a percent – at the project level and then override that factor at the task level – also as a percent. So, in other words, if you want to set a default contingency as 15% for the whole project, and then go on to identify certain tasks that require a different contingency; you can override that 15% to be higher or lower for those tasks. Any tasks that you don’t override, will take their contingency from the default set at the project.  Click on the two screenshots below. Screenshot 1: Set default contingency at the project   Screenshot 2: Override default

Got projects going over budget?

You're Not Alone. Project cost overruns are common. Statistics will tell you that over 85% of projects go over budget. But Why? What are the mechanics behind project cost overruns and project schedule delays? Plenty of talented and experienced professionals engage in dialog about this very topic every day, and try to arrive at conclusions about how to stop projects from going over budget. In this article I’d like to shed some light on the underlying workings as to the root causes of cost overruns and schedule delays. In order to tackle the problem of how to eliminate overruns, it’s important to understand the main reasons why they happen. Obviously, there’s no one-sentence answer to these questions since every project is unique and the influences that trigger overruns can vary tremendously. Luckily, however, there’s been quite a bit of research and experimentation around this exact problem - since it is a pervasive issue that so many businesses, large and small, struggle with. As a result, there have emerged some key factors we can point to that are the major contributors to projects going over budget and suffering schedule delays. A lot of project managers and business owners have their own theories; and after a good deal of listening and reading, many will have you believe that it all comes down to one thing: Project Changes. Technically speaking project changes are arguably the biggest contributor to projects going over budget and blowing schedule deadlines, but for the purposes of this discussion, let’s leave Change and Change Management out of it. I’m saying that because I don’t believe changes are truly the root cause of cost overruns. I believe that if you approach a project anticipating that

Ask the ‘Where Am I At’ questions

Wanting to know where things are at during all stages of a project is a healthy thing to do. Whether you’re the owner, operator or customer, there’s no question that every day of your project, you’ll want to know if things are moving along as expected.   And you’ll want to know details; because whether you’re running a $10 million or a $100 million project, going 10% over budget is a lot of money. So you’d better be asking a lot of questions. Where are we at with our suppliers? Where are we at with the Cement Crews? Where am I at with those materials commitments? Where am I at with Task XYZ? Where am I at with cash, did we get paid from our last 2 invoices In this post, I’d like to touch on the top 4 things you’ll need to have in place in order to have easy access to answers on the “Where am I at” questions that flow through the veins of the project manager or financial professional.   The first thing you need is a Reliable Estimate The first part of answering ‘where are things at’ is knowing where you expected you should be at - which is all about Estimating & Planning. You need to have spent sufficient upfront effort in detailing the component parts of the project to determine cost and complexity. (I hopefully don’t need to convince anyone of the need to plan out projects – but you’d be surprised).  What’s key to point out though, is the importance of being able to determine costs down to the resource level. This is absolutely vital to estimating accuracy. If you’re only estimating at the task, or phase level, you’re really only guessing