Three very important questions one must ask when initiating a project…
- Does the project have an adequate budget?
- Will the project come in on time and on budget?
- If not, who is going to pay for the extra costs incurred?
Cost Controls are essential in delivering a project in a cost-efficient manner and being able to forecast projected cost at project completion.
We apply the fundamentals of project management in our cost controls by initially creating a baseline budget. The budget is derived from the project cost estimate and as such is the baseline for tracking cost deviations and variances as the project progresses. We often provide additional stochastic analysis of cost estimates to evaluate contingencies and comfort levels.
We strive to provide visibility of the budgeted costs and how the estimates / budgets were determined for everyone involved in the management of the project to ensure the project team is on the same page.
Design-To-Cost (Dtc) – Cost Evaluation And Estimate Of Probable Cost
As the design documents evolve, we compare variances to previous estimates and prepare reasoning for the cost variances and possible path forward to mitigate cost risk for the project. We prepare Estimates of Probable Costs with the applicable markups such as soft costs, contingencies and price escalation.
Earned Value Management And Change Controls
We track such things as Earned Value to see if the project is staying true to the budget and planned burn rate.
Project controls become even more important when changes occur as a result of unforeseen conditions, scope change etc. Any time there are unforeseen expenditures, we document the cause of the changes and who is responsible for the extra costs.
With this on-going measurement of the cost and completion schedule, we can advise the management team of any potential issues completing the project on time and / or within budget.
If requested, we will also become involved in contractor dispute negotiations required to resolve the discrepancies.
Trending And Forecast Variances Are Important
With P&M involved in the monitoring of expenditures against the budget elements, we not only monitor actual costs to date, but build a comprehensive trending system that identifies and tracks all current and potential issues that can impact cost and / or schedule.
Then, in combination with the trending system, we are able to manage changes, forecast cost variances and determine the estimated cost at completion.
Probabilistic or risk based forecasting utilizes the Monte Carlo simulation methodology to determine the probabilistic outcome of the estimated cost at completion. This method typically provides a significant added value in providing accuracy, visibility and credibility to the cost controls process.