TOTAL COST MANAGEMENTThe synergy between Cost Estimating and Project
Controls
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ReferencesBulk storageConstruction industryEPC(M)Food and NutritionGovernmentOffshoreOil & Gas industryHeavy industryPharmaceutical industryPetro-/chemical industryPower industryMining & Minerals
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Project Experience
One of the most important tools for an estimator is experienceDesire to improve capital cost estimating systems, tools, methodologies and practices. Data collection of project cost, schedule and scope information required in a structured formatMissing feedback loop during the execution phase in order to validate and/or improve
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Broken feedback loop
Many reasons can be identified:Disconnects exist between project management, estimating, planning and cost control, due to a lack of understanding of each other’s need which could disrupt a proper feedback cycleThe cost control baseline could lack the level of detail required to evaluate for instance compensation events during execution
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Synergy between Cost Estimating and Project Controls
It is time to establish synergy between Cost Estimating and Project Controls by working with pre-set visual performance indicators during project execution.
Should start by setting up a proper baseline conforming to all requirements of the stakeholders. Monitor project cost and schedule performance during Project Cost Control
Close-out phase
Class 1-2 CounterEstimate
Cost Control
Execution phase
Class 4 Study
Estimate
Class 3 Budget
Estimate
Class 5 ScreeningEstimate
“Close-out”Report
Class 2 Control
Estimate
Initiation through close-out phase
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Estimating the cost baseline
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Estimating the cost baselineEstimate classification
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Estimating the cost baseline Breakdown Structures
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Estimating the cost baseline Breakdown Structures
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Spending valuable time on things that matter
Handling, correcting, check-ing; 65%
Forecasting & Change Management; 10%
Controlling; 25%
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Forecasting – the link with estimating
The link with estimatingBetter integrationKeep the estimate aliveInvolvement estimator during project controls
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Forecasting – the link with estimating
The link with estimatingChanges based upon proper estimatingVisualize project developmentthrough time
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Project close-out
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Project close-out
Information of interest:
Cost Factors – for early phase estimating• Hand factors • Lang factorsCharacteristic values and metrics – concept studiesRealized hours – benchmarking estimating norms
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ProjectInitiation
ProjectPlanning
ProjectExecution
ProjectClosing
Equipment Factor methodologies
TIC factor
Quantitative estimating
GatherMetrics & Key
quantities
Develop characteristic values /
metrics
Project close-out
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Project close-out
What are important metrics?
Metrics used for quantitative estimating in order to determine the expected project quantities without having to involve a full design team to determine these quantities.For example:• Length of pipe per main equipment item : 150 m pipe / eq.• Number of fittings per length of pipe : 0,6 fitting / m pipe
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Project close-out
The purpose of this focus on cost metrics is to extend to cost engineering practices. By using these metrics and research findings, companies can improve their project and business results. These characteristic values will:• Support conceptual estimate• Support estimate reviews• Assess company performance against industry norms.• Support calibration and improvement of company tools and databases.• Improve asset cost evaluation and concept development
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Project close-out
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Objects
Project Structure
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PT
FT
Project Structure - objects
Metrics• @ 4.5” pipe• @ 150 m pipe per equipment• @ 0,9 - 1,2 Control valve per equipment• @ 5.5 Field instruments per equipment• @ 3 lighting fixtures per equipment
Cost database aligned with metricsCore metrics in estimating are often key quantities
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Key quantities
Essential basis for metric development:What is included in the metric – ISBL versus OSBLAnalyzing key quantities of projectsDevelop useful characteristic values• No relation: Length of Electrical cable per meter pipeDistinguish between different types of projectsDevelop and maintain cost database inline with composites supporting the characteristic values
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Key quantities
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Project metrics
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Project metrics
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Project metrics
Database system for project historical retrieval and analysis system
Always actual metrics by using Estimate at Completion QuantitiesSpecify companies needsBoth project metrics and project controls EVM metrics
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Project metrics
Improving the Quality of Earned Value information:
CredibleTimelySignificantAnalyzed (numbers don’t speak; analysts do)
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Earned Value ManagementExample Reporting
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Total Cost Management
Create synergy between estimating and project controlsAlign estimate requirements with project controls systemEmbed metrics reporting into your organisationInvolve estimating during forecastingDo not wait till project closure – you will be too late!