55418123 project cost control

7/29/2019 55418123 Project Cost Control

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PROJECT COST CONTROLPROJECT COST CONTROL

ESTABLISH AUTHORITY LEVELS TOESTABLISH AUTHORITY LEVELS TO

•SANCTION THE USE OF FUNDSSANCTION THE USE OF FUNDS

•APPROVE AUTHORIZATION OFAPPROVE AUTHORIZATION OF

EXPENDITUREEXPENDITURE

•AUTHORISE CONTRACT STRATEGY ANDAUTHORISE CONTRACT STRATEGY AND

CONDITIONSCONDITIONS

•SPECIFY INDIVIDUAL LEVELS OFSPECIFY INDIVIDUAL LEVELS OF

AUTHORITY AUTHORITY TO ISSUE PURCHASE ORDERS,TO ISSUE PURCHASE ORDERS,

FINALISING CONTRACTS,FINALISING CONTRACTS,

APPROVING EXPENSES ETC.APPROVING EXPENSES ETC.



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Basis forpaying thecontractor

Type of contract

Owner’sdegree of

projectcontrolneeded

Productdefinitionrequired

Contractor’s

risk Moti-vation

Performance

Time

- Turnkey

- Lump sum

- Bill of qty.

& sch. rates- Target Price

- Fee +Rembrs.

day-work rates

- Cost plus

Least

Highest

Highest

Least

Highest

Least

Highest

Least

CONTRACT STRATEGY & RISK CONTROLCONTRACT STRATEGY & RISK CONTROL



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PROJECT COST REPORTINGPR

OJECT COST REPORTING1.1. COMMITTED COSTS:COMMITTED COSTS: Total value of all Total value of all

works and expenses contained inworks and expenses contained in

contracts and purchase orders awarded contracts and purchase orders awarded

to third parties. In case of reimbursableto third parties. In case of reimbursable

or measured works contracts, committed or measured works contracts, committed costs are in relation to defined scope of costs are in relation to defined scope of

work.work. 2.2. PROJECT EXPENDITUREPROJECT EXPENDITURE:: Total cost of Total cost of

work done, goods received and of work done, goods received and of services used, whether or not these haveservices used, whether or not these have

been paid for. This includes accruals &been paid for. This includes accruals &

provisions. provisions.

3.3. OUTSTANDING COMMITMENTS:OUTSTANDING COMMITMENTS: Total Total

costs committed minus project costs committed minus project



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PROJECT COST REPORTINGPR

OJECT COST REPORTING

4.4. ESTIMATE TO COMPLETE:ESTIMATE TO COMPLETE: Is the best Is the best

estimate that can be made at any givenestimate that can be made at any given

time of remaining costs not already time of remaining costs not already

reported as expended or committed,reported as expended or committed,taking into account the current project taking into account the current project

scope and performance trends to date.scope and performance trends to date.

5.5. ESTIMATED FINAL COST:ESTIMATED FINAL COST: It is committed It is committed

costs to date plus the estimate tocosts to date plus the estimate tocomplete.complete.

6.6. EARNED VALUE:EARNED VALUE: Total of budgeted cost Total of budgeted cost

for the work progress to date.for the work progress to date.



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HOW PROJECT MANAGER CAN INFLUENCE COSTSHOW PROJECT MANAGER CAN INFLUENCE COSTS

PROJECT COSTPROJECT COST

• EVALUATE ALTERNATE DESIGN CONCEPTSEVALUATE ALTERNATE DESIGN CONCEPTS• AVOID EXCESSIVE SAFETY FACTORSAVOID EXCESSIVE SAFETY FACTORS• AVOID & CONTROL EXTRA REFINEMENTSAVOID & CONTROL EXTRA REFINEMENTS• USE CONTINGENCY BUDGET ONLY FOR INTENDEDUSE CONTINGENCY BUDGET ONLY FOR INTENDED

PURPOSE & NOT FOR SCOPE CHANGE.PURPOSE & NOT FOR SCOPE CHANGE.• PROVIDE ADEQUATE TIME FOR ‘PRICE-SHOPPING’PROVIDE ADEQUATE TIME FOR ‘PRICE-SHOPPING’

IN PROJECT SCHEDULE.IN PROJECT SCHEDULE.• INCORPORATE SCOPE CHANGES ONLY ONINCORPORATE SCOPE CHANGES ONLY ON

CLIENT / MANAGEMENT APPROVAL ANDCLIENT / MANAGEMENT APPROVAL ANDALLOCATION OF REQUISITE FUNDS / TIMEALLOCATION OF REQUISITE FUNDS / TIME

• PLAN FOR INFLATION – PROVIDE FOR “PRICEPLAN FOR INFLATION – PROVIDE FOR “PRICE

PROTECTION” & “ESCALATION”PROTECTION” & “ESCALATION”





FINANTIAL EXPENSESFINANTIAL EXPENSES

•REDUCE INTEREST COST BY PLACINGREDUCE INTEREST COST BY PLACING

ORDERS AS LATE AS POSSIBLE.ORDERS AS LATE AS POSSIBLE.

•MAINTAIN “ZERO” NET CASH POSITIONMAINTAIN “ZERO” NET CASH POSITION

BY PROPER STRUCTURING OF PROGRESSBY PROPER STRUCTURING OF PROGRESS

PAYMENTS & CASH RECEIPTS.PAYMENTS & CASH RECEIPTS.

•ENSURE RAPID PROJECT ACCEPTANCE BY ENSURE RAPID PROJECT ACCEPTANCE BY

EARLY COMPLETION & COMPLIANCE TOEARLY COMPLETION & COMPLIANCE TO

RELEASE RETENTION MONEY OR STARTRELEASE RETENTION MONEY OR START

EARLY PAYBACK.EARLY PAYBACK.





TAX EXPENSESTAX EXPENSES

•ENSURE PROJECT COMPLETION WITHINENSURE PROJECT COMPLETION WITHIN

SPECIFIED ACCOUNTING PERIOD TO TAKESPECIFIED ACCOUNTING PERIOD TO TAKE

INVESTMENT RELATED TAX BENEFITS.INVESTMENT RELATED TAX BENEFITS.•AVOID PROJECT SCHEDULE DRIVEN BY AVOID PROJECT SCHEDULE DRIVEN BY

INFLUENCES EXTERNAL TO PROJECT’SINFLUENCES EXTERNAL TO PROJECT’S

FUNDAMENTAL OBJECTIVESFUNDAMENTAL OBJECTIVES

•USE ‘PERCENTAGE OF COMPLETION’USE ‘PERCENTAGE OF COMPLETION’PROCESS FOR ACCOUNTING OF REVENUES.PROCESS FOR ACCOUNTING OF REVENUES.•SUPPORT THE MANAGEMENT INSUPPORT THE MANAGEMENT IN

ACHIEVING FAVOURABLE P & L BY ACHIEVING FAVOURABLE P & L BY

ADJUSTING PROJECT SCHEDULESADJUSTING PROJECT SCHEDULES




COST CONTROL CURVE

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

C u m u

l a t i v e % B u d g e t e d

C o s t

ACWP

BCWS

BCWP (EV)

TIMED

ELAY

COST OVERRUN

55418123 project cost control

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