Project Controls Management Blog: Project Cost Control It Really isn’t That Hard (A 7 Step Process)!
OK I am a huge Star Trek The Next Generation fan. Seeing all the old episodes on networks that play nothing but tv classics is kind depressing. These networks and episodes speak to me and say “HEY you are getting old!” LOL (Side Note: Jesus I just Googled when was the first episode of Star Trek TNG man I am REALLY getting old OMG).
Anywho (yes anywho); I liked watching Jean Luke Picard (JL), Warf, Data, Commander Riker and Jordi. They always faced a new problem and followed The Prime Directive (established process and procedures) to make it through their journey. JL followed The Prime Directive as much as he could, but only deviated from it when it was necessary, but he always returned back to The Prime Directive as soon as practical.
Properly controlling costs really isn’t much different. It really isn’t that hard, but the organization and cost analyst (CA) have to be discipled enough to follow the correct process i.e. “The Prime Directive”. There will be times you will have to deviate from the process, but as soon as practical you need to get back on the process.
Unfortunately, a substantial number of CA and project managers think that they can control costs by wiring it on a napkin (i.e. deviating from established processes and procedures from the beginning). What is even more scary organizations that are supposed to teach proper cost controls give certificates to these individuals for costing. This waters down the craft of Estimating and Cost Engineering. I have encountered many individuals who have these certificates and they feel empowered bc they have these certificates. However, they “could not cost control themselves out a wet paper bag with holes in it” to save their projects. And yes, I seen Project Controls Managers with this issue, (Side note how can you be a project controls manager but do not know that the estimate, control budget and current budget are not one in the same) but I digress…
Below is a quick guide of how to control cost.
1. Let the estimators estimate. Before the project is awarded the estimator and CA should be working together. I would suggest the 80% 20% rule. 80% of all costs and inputs should come from the estimator at this point. The estimator and CA should review the estimator’s inputs and the CA can provide historical data, past project insider information and other critical pieces of data to the estimator prior to handoff. This will help keep the estimate as tight as possible.
2. The handoff should occur as soon as possible. Handing off the estimate to the CA is very important. This handoff should be formal and should hand off all notes and assumptions of how the estimator arrived at their costs.
3. The handoff leads to the control budget for the CA and the project team.
4. Use software to help control your current budget. Certain software will allow you to go against best practices. Please be careful in making your selection. In a perfect world the software should track the estimate, Control Budget, the Current budget (Control budget plus and approved changes.)
5. Let the CA adjust the forecast ETC and EAC’s as they see trends or updated cost information based on procurement or PM’s input.
6. Record all actuals as they occur (this even includes accruals be sure to reverse them in accordance to the organization’s process and procedure).
7. Rinse and repeat.
See not that hard just follow the process. Now there will be some deviations based on the project and organizational needs that may occur in this seven-step process. BUT this is when you can deviate to ensure your project costs are as clean as possible, and that you are providing the organization and project the support they need.