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HES6175 Project Costing - Module #4Project Controls

Module #4

Project Controls

HES5175 Cost EngineeringHES5175 Cost Engineering

HES6175HES6175 – – Project CostingProject Costing

Swinburne University of Technology

Authors: Laurence J Pole, Australian Cost Engineering Society & Colin Cropley, Crescent PSS

© AUSTRALIAN COST ENGINEERING SOCIETYA Technical Society of Engineers Australia © AUSTRALIAN COST ENGINEERING SOCIETY

A Technical Society of Engineers Australia2

Outline of LectureProject Controls:Project Controls:

The essential project management processes of :

planning, estimating, budgeting, schedule coordination, controlling, monitoring, forecasting, reviewing and reporting

to ensure completion of projects: on (or ahead of) time within budget.

© AUSTRALIAN COST ENGINEERING SOCIETYA Technical Society of Engineers Australia

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Outline of LectureTechniques and tools for Project Controls:Techniques and tools for Project Controls:

Work Breakdown Structure (WBS)Which represents:

project work to be done, and/or deliverable productsThese may be both tangible and intellectual

Earned Value Measurement (EVM)A method of measuring project progress:

What was planned to be done? How much has been achieved? Is the project under or over budget? Is the project behind or ahead of time?


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4.1 Project Controls

Project Controls involve:Project Controls involve:

applying cost engineering principles during project execution identifying trends in expenditure that vary from the control budget

Resources being controlled include: manhours, direct and indirect project costs, allowance and contingency budgets, and time.

Immediate remedial action for unfavourable trends, by: increasing the number of personnel or changing work hours and/or methods, increased control of material usage or wastage, changes to procurement sources, and increased management involvement.


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4.2 Work Breakdown Structures (WBS)

Definition:

“The purpose of a work breakdown structure (WBS)is to divide the program/project into manageable pieces of work to facilitate planning and control of cost, schedule and technical content.

A WBS is written early in program/project development.

It identifies the total work to be performed and divides the work into manageable elements, with increasing levels of detail.”

(NASA)


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4.2.1 WBS Upper Level Hierarchy

Building

Project

Cladding

& RoofingServices

Fitout

& FinishesStructure

Excavation &

Drainage

Concrete

Structural

Steel

Brickwork

Widows

Roofing

Fire

HVAC

Plumbing

Electrical

Partitions

Flooring

Joinery

Painting





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4.2.2 WBS Hierarchy - The 100% Rule

WBS includes 100% of the work defined by the

project scope and captures all deliverables – internal,

external, and

interim

in terms of the work to be completed, including project management.

Rule applies at all levels within the hierarchy:

the sum of the work at the “child” level must equal 100% of the work represented by the “parent”


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4.2.2 WBS Hierarchy - The 100%Rule

WBS should not include any work that falls outside

the actual scope of the project, that is, it cannot include more than 100% of the work…

100% Rule applies to the activity level.

The work represented by the activities in each work

package must add up to 100% of the work necessary to

complete the work package.

(PMI Practice Standard for Work Breakdown Structures)


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4.2.2 WBS Lower Level Hierarchy

Excavation &

Drainage

Excavate Basement Dig Drain Lines

Dispose of Excess FillInstall Perimeter

Drains


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WBS Aircraft Manufacture (NASA)


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4.2 WBS Structure

WBS structure is developed by first identifying thesystem or project to be built, then

subdividing it into increasingly detailed andmanageable elements (e.g., assemblies,

subassemblies, and components), or the aggregation into logical sets for management

control purposes (e.g., buildings and utilities)


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WBS Aircraft Manufacture (NASA)





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4.2 WBS Structure

WBS must be:

measurable and

verifiable (i.e., quality assurance)

independent of those responsible for the element's completion.

WBS provide a solid basis for:

technical,

schedule and cost plans and

progress status

incremental project performance assessment


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4.2 WBS Structure

WBS elements should have a title and anumbering system that identifies the:

level of the WBS element. higher-level element to which the element is linked

cost account number (if any) of the element.


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4.2 WBS StructureAdding a numbering system to the aircraft WBS elements

provides a management tool:


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4.2 WBS Structure

Project WBS follow a hierarchical level format

Where would you start with a Space Telescope?

Hubble Space Telescope (NASA) Hubble View of Saturn (NASA)


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4.2 WBS Structure Project WBS follow a hierarchical level format


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4.2 WBS StructureCriteria for a good Work Package system are :-

Completion criteria are defined

this package is completed when ‘this’ is done

Work Packages should be small and correspondto the level of desired control.

Work Packages are identified with a ‘verb + noun’e.g. “Design Pump Foundations”

Projects may have hundreds and even thousandsof Work Packages, unnecessary breakdown mustbe avoided.





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4.2 WBS Structure

WBS is a pr oject management tool:

provides a framework to categoriestechnical aspects of the project

defines the project in terms of hierarchically-related,

product-oriented elements and

work processes required

Each element of the W BS provideslogical summary points for

assessing technicalaccomplishments, and

measuring cost and scheduleperformance.


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4.3 Cost Codes

At project level for control purposes it is necessary toidentify various types of costs e.g.:

labour, construction equipment operation,

usage of materials,

usage of services, etc

Also to identify the work items on which those costswere/will be expended.


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4.3 Cost Codes

Cost Code - a structured system:

to identify and

separate the costs of undertaking numerousindividual work items

required to execute a Project.

A cost code should have a pyramid (hierarchical)structured. Most codes are numeric, some arealpha-numeric. (refer to module #4 notes)


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4.3 Cost Codes

Bill of Quantities and/or Schedules of Rates:(provided with mainly civil engineering tenders)

generally in a part cost code format

identifying the different work components in theProject.

may be detailed

(e.g. identifying in situ concrete by types & locations)

or very broad

(e.g. all reinforcing steel regardless of size, shape orlocation).


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4.3 Cost Codes

Schedules of Rates contract items for construction ofJindabyne Dam (Snowy Mountains Scheme).

Item Description Quantity Unit

60 Concrete in blockouts 13 m³

61 Concrete in adits 450 m³

62 Concrete in grout cap and miscellaneous f illing 1 000 m ³

63 Concrete in spillway walls 4 700 m³64 Concrete in spillway crest and slab 2 300 m³

65 Concrete in spillway piers, cantilever walls, etc 1 400 m ³

66 Concrete in spillway bridge 170 m³

67 Concrete in counterweights 50 m³

68 Concrete in minor structures 120 m³

Figure 4.3.1 Schedule of Rates Items for Dam Construction


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4.3 Cost Codes

The Jindabyne Dam SofR is not sufficient for an overall system. It was

neither comprehensive nor standard.

An organisation wide Cost Code system is needed to provideuniformity in:

planning,

scheduling,

estimating,

cost reporting, and

storage of information for future use.

Cost Code systems - need to be comprehensive to match the

organisation’s fields of activity.

Excessive detail should be avoided as it will create problemswith recording in the field.





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4.8 Progress Measurement

Progress measurement for the project commences at thebaseline plan that consists of:

the budget,

schedule and

Key Performance Indicators (KPI’s)

Baseline expressed as time phased budgets, derived byapplying cost budgets to activi ties in the baseline schedule.

An essential feature of project control good practice is that thebaseline documentation (Plan and Schedule) is saved andquarantined for future reference, after agreement with allstakeholders.


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The Project Budget should: Have a time phased revenue and cost expenditure derived from

and consistent with the WBS and Schedule,

Cover the entire Project, from Start to Completion,

Be reconciled against the Contract and the Tender or final bidestimates,

Identify time and cost contingency based on a formal riskassessment,

Identify Key Performance Indicators (KPIs), including cost,revenue, cash flow, major risks, plus any project specificperformance indicators.

Approved by Line Management as per their delegations.

Signed off by Project Manager.


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KPI’s are budgeted by period based on the baselineschedule and include at least the following:

1. Revenue over time

2. Costs over time

3. Contingency for risk

4. Schedule performance

5. Project specific KPIs


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Consists of regular application

of project costing to:

Monitor

Analyse

Forecast

Report

‘Earned Value’

a technique to measure value of work performedat a given time on a project


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What Do We Mean by Earned Value?

An example of the simplest form Earned Value:

During a project when a cost engineer verifiesthat the physical work claimed to have beendone by a contractor in a particular timeframehas actually been done before approving thecontractor’s invoice for payment.

i.e. Critical relationship between the actualcosts expended versus the physical workactually accomplished


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4.9 Earned Value Measurement

Applying Earned ValueA technique to report project performance by:

Integrating project Scope,

Schedule and

Resources

Earned Value Analysis is the most commonly used form ofproject performance management.

It involves calculating three key values for each activity andsumming these over the project schedule:

Planned Value (PV)

Actual Cost (AC)

Earned Value (EV)





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4.9.2 How Does Earned Value Work?

1. Create a baseline S-Curve, called the Planned Value (PV) curve:

Planned Value (PV) curve shows the project budget expenditureover time (if work proceeds in accordance with the program).


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Actual Cost (AC) is plotted each month against the Planned Value curveto see if the project has been spending money at the planned rate.This provides only half the picture.

Example:After 5 months

• Planned Valueexpenditure of $3.0Mwas expected• Actual spend was $2.0M

• Have we have fallen $1.0M behind programme? or• Have we done all the work we should have, but done it $1.0M cheaper ?

Earned Value Analysis is designed to answer these questions.


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Using Earned Value analysis, we look to understand how much weshould have paid for the work we have done to date. Each updateperiod (usually monthly) we look at the work that has been achieved,and what the budget was for completing this work. This is called theEarned Budget.

Example A:• We have done $2.5M worth ofbudgeted work for the $2.0M wehave spent, then we have saved$0.5M against budget so far.

• However we are still $0.5Mbehind the $3,0M worth of workwe had planned to complete bythe end of month 5.


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Example B:

If we have only done $1.8M worth of budgeted work for the $2.0M wehave spent, then we have overspent by $0.2M.Even worse, we are actually $1.2M behind where we had planned tobe by month 5, as shown:


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Information Recorded and Plotted on Graphs:

Planned Value (PV)The cumulative amount of a budget that was planned to be expended by the endof a reporting period. This is the time distribution of the project budget, Oftenreferred to as the project S-Curve.

Earned Budget (EB)The amount that was budgeted to perform the work that has been completed todate.

Actual.-Cost (AC)

The actual cost incurred and recorded in accomplishing the work performed todate.


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Analysis from Graphed Information :

Schedule Variance (SV)Difference between the Earned Budget and the Planned Value at a point in time.

SV = EB - PVSchedule variance is measured in dollars and is a measure of how far ahead orbehind schedule the project is.A positive schedule variance implies the project is ahead of schedule

Cost Variance (CV)Difference between the Earned Budget and the Actual Cost at a point in time.

CV = EB -ACA positive cost variance implies that the project is running under budget.

Programme SlippageThe time (days, weeks, or months) the program has slipped.Scaled off the plotted curves as the horizontal distance between the PlannedValue Curve and the Earned Value Curve.




© AUSTRALIAN COST ENGINEERINGSOCIETY A Technical Society of Engineers

Australia

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Summary:

Graphically Plotted Information:• Planned Value (PV)

• Earned Budget (EB)• Actual Cost (AC)

Calculated Values:• Schedule Variance (SV)• Time slippage• Cost Variance (CV)• Schedule Performance (SP)• Cost Performance (CP)• To Go Performance (TGP)

© AUSTRALIAN COST ENGINEERINGSOCIETY A Technical Society of Engineers

Australia

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EARNED VALUE MEASURESchedule Variance SV = EB - PVTime Slippage months from ‘S’ CurveCost Variance CV = EB – ACSchedule Performance SP = EB/PV

Cost Performance CP = EB/ACTo Go Performance TGP = (BAC-EB)/(BAC-AC)


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4.9.2 Project Tracking – Without Earned Value


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4.9.2 Project Tracking – With Earned Value


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