Module 6 Project Cost Planning and Control

6.1 Introduction

Project cost and control system (PCCS) and primary evaluation technique is earned value analysis (EVA) make use of Project variance analysis reporting (PVAR) reviewing two cycles of the PCCS separately

 

Planning cycle

Concerned with budgeting and cost planning

 

 

Control cycle

Considers cost monitoring and control including suitable reporting systems

6.2 Project Cost Planning and Control Systems

6.2.1 Introduction

Cost planning         breaking total project down into individual element or work packages and assigning realistic estimate cost.  Standard practice to develop cost limits for different levels of work.  Cost are then rolled up.  Provides a cost ‘map’ for the project

Cost control  ensuring that the cost limits established by cost play are adhered to wherever possible.

6 Main stages involved:

1.      Monitoring on-going actual expenditure against cost limits

2.      Identifying any variances that occur

3.      Identifying the reason for any variances

4.      Taking appropriate corrective action

5.      Monitoring to ensure that the corrective action resaves the variance

6.      Taking further corrective action as necessary

Cost planning and cost control function work together but are fundamentally different in approach

Cost planning         essentially a strategic project function in that it establishes aims and objectives before work actually starts.

Cost Control is tactical or reactive function intended to monitor and control in order to ensure project strategic cost objectives are met.

6.2.2 Cost Planning and Control as a Concept

Work breakdown structure (WBS) estimated and priced.  Sets up a budget plan individual packages have target cost identified by an account code system.  Actual cost charged against each packaged related to budgeted costs part of monitoring process.  No direct time measurement involved.  Time does affect performance of the cost control system regulates the rate of expenditure characteristic of expenditure and projected cash-flow curves.

Time and cost planning process linked and use the same basic work-package elements as derived in the initial development of the project WBS

Top down strategic process, after which three aspects divided and separate, planning and control systems are developed for the specialized control of each aspect.

 

6.2.2.2 Cost Planning and Control as Management Function

Involves establishment of cost targets – success criteria.  Variance analysis used determine how close actual performance is against planned performance.  Deviation from plan

 

6.2.2.3 General Requirements of a Cost Control System

Cost control depends on accuracy of the budget plan – number of important prerequisites

6.2.3 Types of Control System

6.2.3.1 Introduction

Three primary types of control system

6.2.3.2 Cybernetic

Operates and different levels,

Low-level process use pre-set information, basis for analysis while higher order systems use more advanced processes main differences between lower and higher order systems lie in:

Low level cybernetic control is typical for simple response mechanisms

Mid-level cybernetic control more complex or where greater degree of flexibility and response required. Decision making process relies on analysis, case is still directed by analysis but the analysis considers multiple variables.

System includes range of pre-set responses , external factors are also interactive.

Micro computer or advanced processor to carry out the level of analysis.  Much greater degree of response flexibility than low-level systems.  Can only operate within the limits set by the design of the control system itself.  Only operate within a range of pre-programmed responses

High-level cybernetic control process allow the system to move beyond any level of pre-programmed response  Replaces the database of pre-set responses with reasoning process are fully interactive.  Interact directly with the environment and bypass the reasoning process.

Human brain uses control systems at all three levels.

Examples of cybernetic control system as related to project teams:

1 Lowlevel cybernetic control systems:

• detecting time and cost variances;

• adjusting likely final time and cost estimates to allow for detected variances;

• reprogramming the project schedule following change.

2 Midlevel cybernetic control systems:

• adjusting estimates to allow for increases in individual cost rates;

• establishing the individual cost of change notices and variations;

• allowing the use of provisional and contingency sums.

3 Highlevel cybernetic control systems:

• generating original tactical solutions to discovered programming problems;

• updating the risk profile of the project following change;

• developing a strategy for required negotiations.

 

6.2.3.3 Analogue Control

Appropriate for smaller elements or work packages

Widely used in computers – ‘yes’ ‘no’ questions.  Depending on the answer system directs to another ‘yes’ ‘no’.  process of elimination

When faced with complex problem, natural  human reaction is to:

Set straightforward outcome criteria for individual work packages possible to set:

Analogue Control system tend to operate where there are rigidly defined time, cost, and performance limitations

 

Rigid time limits

Penalties related with late completion

 

 

Rigid cost limits

Often with public works project can be contained with set cost limit

 

 

Rigid performance limit

Quality of the product is paramount example pharmaceutical research company

 

6.2.3.4 Feedback Control

Post-project evaluation and feedback.  Involves assessment of completed projects with intention of feeding back any lessons learned to future projects.  Essential to learn from past experiences in order to improve future project strategy. 

Use of formal reporting system.  -Post occupancy evaluation review (POER) review involves detailed evaluation of the finished product including detailed feedback from users.

 

6.2.3.5 The General Design of a Control System

Number of important consideration taken into account:

In addition good control system should:

6.2.4 Costs and Allowances

6.2.4.1 Introductions

Cost planning and control system must allow for costs that are likely to be encountered during the course of a project.

6.2.4.2 Cost and Allowances Classification

Costs that may or may not be incurred during the project

 

Fixed and variable cost

Incurred irrespective of the level of activity Fixed cost tend to form the major part of projects indirect (or overhead) costs. Variable costs are those that are incurred at a rate that depends on the level of work activity.  These are usually direct costs.

 

 

Direct and indirect cost

Direct costs are the costs directly attributable to the job or project takes- include labour, materials, equipment changes directly related to carryout the takes.  Indirect cost spread over a project

 

 

Measured works

Backbone of a cost plan.  Work and identify individual unit prices for carrying out individual sections of work.

 

 

Contingencies and reserve

Allowances for contingencies in some form of reserve.  Can occur for number of reasons cover undefined additional costs

  • Poor scope definition
  • Design error
  • Poor activity planning
  • Poor resource estimating
  • Production mistakes
  • Untried methods
  • Changes in environment

Amount of contingency added will depend of many factors including

  • Type of project
  • Performance of company and project team
  • Soundness of technology
  • Reliability of subcontractors
  • Experience

10% is not unusual

 

 

Fluctuations

Direct result of inflation.  Easy to predict short-term rises in labour, material, equipment cost.  Most standard contract allow for a fixed price contract with fluctuations.

 

 

Prime cost and provisional sum

Sums agreed or provisionally agreed with specialist or nominated suppliers or subcontractors

Nominated suppliers usually paid through the main contractor payment is identified

 

 

Direct payment

Supply company carry out their agreed works and invoice the client directly not paid through the contractor at any time

 

 

Bonds and warranties

Level of provision required.  Bond covers contractor performance up to practical completion and hand-over

Warranty or guarantee covers the quality and reliability of the finished product after hand-over

 

 

Exchange Rate and currency fluctuation

Sensible to pay supply and subcontractor in own currency, estimating to nominate a project currency using a well-chosen exchange rate

 

 

Insurance

Typical insurance risks include

  • Fire (within limits)
  • Flood
  • Lightning
  • Impact of aerial devices or objects dropped there from
  • Ionizing radiation

Events that cannot be reasonably foreseen by either party

6.2.5 Life Cycle Costs

6.2.5.1 Introduction

Life cycle costs that are likely to affect the project:

Further ahead you look the more difficult it is to forecast cost of individual element accurately.  Greater margin of error cost plan attempts to predict costs in distant future.

Life cycle costing (LCC) process of attaching costs to individual life-cycle stages.  Overall cost incurred in the ownership of a product, structure or system over its entire life span.  Includes costs that have traditionally been ignored during the planning cycle.  It is long-term strategic cost planning feasibility, conceptual analysis, development, prototype, design, logistics, support, manufacturing, testing, demolition and disposal costs.

 

6.2.5.2 Objectives of Life Cycle costing (LCC)

Decisions made during the early stages of design process invariably have an impact on longer-term performance in the later stages.  Running costs and maintenance costs for any mechanical product.  Primary objective of LCC to help the project manger and client identify and evaluate the economic consequence of their decisions.

 

Typical Life-Cycle Phases (6)

  1. Inception – client identifies a requirement
  2. Feasibility stage – feasibility study and conceptual phase are where design is first initiated and developed level where basic approval obtained
  3. Detailed development stage – outline proposal report issue of production information drawings
  4. Production stage – production of product
  5. Project termination and system operation and maintenance stage – project has been completed and it becomes operational
  6. System divestment stage – decommissioned or switched off some way terminated.

 

Additional Life-Cycle Phases more complex project might include the following

 

6.2.5.3 The Process of Life Cycle Costing

Most life cycle costing use common approach set out in the next five steps:

Establish the characteristic of the life cycle.

Establish cost for the complete lifetime of the project. 

 

 

Build a process cost model

Incorporate all information known about the processes cost, functional characteristic of input data, impact on performance

 

 

Calibrate the process cost model

Calibration is the process of adjustment that is necessary in order to ensure model is accurately measuring what it is supposed to measure

 

 

Input all relevant data

Accurate as the data that is input into it

 

 

Generate a life cycle cost and establish a strategy

Life cycle cost profile interpreted and appropriate strategic decisions. Running cost very high might decide design changes should take place now, increased development and production cost.  Balance between capital cost and costs-in-use delicate marketplace trade-off determine by consumer demand

 

6.2.5.4 Advantages and Disadvantages of Life Cycle costing

Number of advantages over traditional cost planning approaches:

Obvious disadvantages :

6.3 The Project Cost Control System

6.3.1 Introduction

A PCCS is a format for the development of cost plans and for mechanisms for monitoring and controlling actual expenditure with planned expenditure.

 

PCCS as a two-cycle system.

Cost planning cycle.

 This includes all aspects of pricing, estimating, establishing targets and budgets and setting up accurate cost plans.

 

 

Cost control cycle.

 This involves a number of separate phases. In its most simple form, a cost control cycle contains a work initiation mechanism, a methodology for observing and collecting cost data from the system (so that actual costs can be compared with targets), a comparison system and a reporting system. The reporting system initiates what is effectively a feedback loop. The report identifies areas within the project where there are cost problems. This report then acts as the basis for some form of corrective action.

 

Several cost-control cycle phases are generally recognized:

Phase 1 is cost planning

            Cost control and cost planning are intrinsically linked

6.3.2 The PCCS Planning Cycle

6.3.2.1 Introduction

Breaking the project down into manageable packages, attaching individual budget totals to these packages based on an estimate of likely costs involved.  Cost normally based on some form of historical or published data.

 

6.3.2.2. Estimating procedure

Two main approaches should undertake the estimating process:

1.A professional estimation number of

Advantages
Disadvantages

2. The project team

Advantages
Disadvantages

Estimating is not just about cost, linked with characteristics of the project:

 

Estimating Elements

Components

Other costs

 

Data Gathering

Several standard sources of estimating data

Estimator classified as follows:

 

Presenting the Estimate

Three generally recognized stages

 

6.3.2.3 Project Estimating

Depends on the accuracy of work measurement and reasonableness and accuracy of rate. Estimated costs must be accurate if budget plan to be realistic.

Cost estimates are prepared first and foremost to calculate the sales price, provide valuable input into host other activities including

Complexity varies from project to project, from industry to industry

Top-Down estimating

Senior management setting the overall project budget by estimating the overall project costs as well as significant sub project costs

Benefits of top down estimating:

Disadvantages of top down estimating:

 

Bottom-Down estimating

Relies on budget being developed upwards from individual activity level, each activity is estimated as accurately as possible in terms of labour and converted into a financial cost estimate

Benefits of bottom down estimating:

 

Disadvantages: of bottom down estimating

 

Iterative estimating

Based on negotiation.  Compromise between top-down and bottom-up estimating.  Element and package managers develop detailed action plans and corresponding estimates for the work responsible.  Action plans and estimates to senior management for approval.  End result should be an action plan and estimate that lies somewhere between the market-driven conservative estimate of the senior manager and the process-driven generous estimate of the operational manager.

 

Benefits of iterative estimating:

 

Disadvantages: of iterative estimating

 

Bidding Strategy and Estimate Reporting

Once project or work package approved in principle, next stage is to prepare the bid for approval by senior management.

Development of bid can be seen as progression through eight stages:

1.      Formulate a viable estimating strategy

Project schedule and master programme worked out in order ensure minimum cost meet minimum requirements of success criteria

Project work elements for work package, allowance for fees, overheads, contingencies.

Levels of contingencies depend on a number of variables, more progressed less opportunity for change.  Contingency allowance lower

Decision on estimating allowance, standard levels of or certain variable, pricing labor cost, in-house hourly rate,

Estimating process consists largely of calculating the total number of hours required for each team member and multiplying this by the agreed unit rate. Estimating and bid form part of an overall costing and pricing strategy.  Initial cost model and corresponding estimating strategy developed

 

 

2.      Make initial (order of magnitude) minimum realistic estimate

Initial minimum realistic estimate is first estimate based upon the planning and specification information provided

 

 

3.      Carry out any necessary preliminary refinement

Reducing the percentage allowed for overheads or contingency, trade-off analysis, develop alternative cost outcomes by varying the cost-time or cost-performance functions., adjust risk allowance (risk engineering), lowering the reserves and contingencies, Insurance risks reevaluated, omitted or reduced.

 

 

4.      Make realist (indicative) minimum estimate

What the project will cost generally an indicative cost based on the level of project information available at the time.  Circulated to relevant people.  The minimum realist cost is meant to be an accurate estimate of package or project will realistically cost, based on the individual costs involved. Include all direct and indirect costs and all hidden costs.  Reasonable provision for contingency and management reserve, unforeseen events

 

 

5.      Add for profit and risk

Margins to cover overheads and profit are added.   Minimum profit levels may be set by senior management, Minimum overheads directly set by company, Risk evaluated separately and would be quantified as part of refinement process.

 

 

6.      Compare overall price to projected cost limit

Established cost limit.  The overall price compared with whether competitive.  External applications, limit is not necessarily know, be aware of ballpark figure.

 

 

7.      Make subjective evaluation of bid success probability

Bid is considered and decision made proceed or not. 

Internal system – outside the organizational cost limit, decision made not to proceed, look at way of reducing cost, i.e. reduce resources, increase time limit, reconsider project logic phase approach, reduce units,

External system – two definite acquisition characteristics

1.       type (x) one-off project little follow-up potential, new-build or one-off maintenance project complete project at maximum profitability – based on realistic minimum cost baseline

2.      type (y) – acquisition related to good chance of more projects of same type, foothold in client organization so that more work will follow.  – Based on market forces

 

 

8.   Develop final (definitive) estimate

Final bid is submitted for consideration by client or by the appropriate approvals committee

 

6.3.2.4 Computerized Database Estimating System (CDES)

Assists in the preparing of estimates and budge plans for projects.  Person preparing description of work measured amount and type cost consultant to scan same quantity information directly from drawings and into computer

CDES works by linking together several different databases.  Each database contains a different type of information

Description Library

Descriptions of all different type of work are broken down with detail accurate pricing

12 Welding

12.1 Arc welding

12.1.1Arc welding, fillet welding

 

 

Pricing code and unit rate database

Works with the description library, price code individual components preset with appropriate figures, labour, equipment, material provide time allowance and unit cost. price code might allow ½ hour per linear meter e.g.

Welder: .5 hr /m @ 25.00 /hr = $12.50/m

Torch: .5hr/m @ 5.00 /hr = 2.50m

 

 

Other database elements

CDES to digitize drawings (project statement of work) enter series standard description include quantities work involved.  Produces overall cost estimate.  Allows for Cost Consulting

 

6.3.2.5 The Project Budget Plan

Planning cycle includes project cost control system (PCCS) Phase 1, planning process. A(planning and control system) Breaking down the project into separately controllable packages and then calculating a cost target or budget limit for each one.  Summarized in the corresponding package total for the next level up.  Sum total individual work packages budgets for the whole project. Project budget is another form of project plan.  Strategic project plan (SPP) overall strategy is developed from, and includes a number of specific individual plans.  Include the Project master schedule (PMS), Gantt charts, and quality plan so on.  Project master schedule. SPP also contains project cost plan or project budget/ Project budgets likely to be reviewed in boardrooms in a way time and resource schedules are not.  Overall cost performance is perceived as being the single most important performance indicator.  Project budget often requires heightened political as well as practical consideration.

Initially project budget is developed from original cost estimates in project proposal, reviewed and adjusted until final version approved authorized limit for spending on project.  Modified once the actual costs of various work packages are established.

Sequence of preparation of the Project budget.

Develop ongoing estimated project budget as design progresses

Increasing estimating is carried out using CDES

Report on estimated cost each design reporting stage

Final pre-tender check

Statement of Work (SOW) starting point broken down into WBS that are individually costed / target maximum expenditures.

Cost consultants measure work in project directly from production information.  Measurement and quantification in accordance within Standard Method of Measurements (SMM) number of different formats. 

Final or baseline budget plan and overall project budget are therefore the end result of a series of internal estimate planning processes. Tempered by external influence of tenders, free to price for work.

 

Role of Project Budget.

Relates the forecast costs to particular project tasks.  Planning management, planning and decision-making tool.  May also be used for:

·        Baseline for project basis for subsequent earned value analysis

·        Developing project cost curves for each element and work package

·        Establish reference for variance analysis allowing performance of individual elements and packages to be assessed through course of project

·        Moderating spending of element and package managers

·        Generate the basic data for scenario analysis in trade-offs

·        Estimating likely effects of change notices and variation orders.

Strong psychological effects on project stakeholders. Motivation or demotivating.

 

Budget  Development and Layout

To be effective management tool, the project budget should contain at least:

·        Project objectives and activities in terms of measurable outputs

·        Financial resources allocated to achieve these objectives and complete activities

·        Clearly defined start and finish point of each activity

·        Facility to compare actual and planned performance details

6.3.3 The PCCS Operating Cycle

6.3.3.1 Introduction

PCCS operating cycle referred to as the cost and control system.  The operating cycle is the section of the PCCS that implements the estimating and budgeting sections of the planning cycle.  Monitors the actual expenditure against planned expenditure in order to generate cost variances.  Indicate if project running over or under cost.

 PCCS operating cycle comprises four phases

 

6.3.3.2 Phase 2: Work initiation

To control cost some form of controlled release of work.  Formal issue of a contract or through change control notices and variation orders or works order.  Project work order (PWO) and change notice or variation order (VO).  PWO describe  work cost centre to charge, cost accounting codes (CAC) based on project WBS

Variation order and works order document take numerous form,  Cost accounting codes predetermined and fixed budgets in order to work these have to be fixed and can be increased through some kind of formalized control system such as cost accounting variation notices (CAVNs)

 

6.3.3.3. Phase 3: cost data collection

Actual cost data are recorded entered into the system by individual work packages , data are compared with latest budget revision and variances are calculated.  Cost- data collection process is the generation of cost variance and schedule variance values.  Basis for evaluating performance of project and perhaps for corrective action

Milestone Monitoring  - EVA is based on milestone monitoring   - useful to plot milestone. Budget curve – simple way to monitor and predict performance trends – simple technique, disadvantages

Earned Value Analysis (EVA) –attractive method of project control because

Earned value work performed on project cost project estimator attached to work when project budget was defined.  Term ‘work’ refer to WBS element separate labour, plant, materials, fuel etc

EVA is a milestone monitor applied to

Cost variance difference between budget cost and actual cost value is taken as works actually completed.  Variance expressed as measurable effort and support effort.

Seven major considerations involved in variance analysis

Identify and validate variance

Wide range reason, time dependent good system make allowance for unpaid committed

 

 

Quantify variance

Allow variance within pre-set limit without generating alert, only alerts on significant variances

 

 

Determine source of the variance

Variance is significant import to determine causes and effects as quickly as possible.  EVA system able to abstract data straight forward provided

  • PMS is up-to-date
  • CDES is up-to-date
  • Dynamic links between the two systems are accurate
  • Efficient EVA system is used

 

 

Determine impact of the variance on the project as a whole

Determine potential impact negative impact on critical activity more dangerous then non-critical activity.  One variance requires much more urgent attention than the other

 

 

Determine impact of the variance on other elements and packages

Review dependency of delay on another work package, risk exposures, interdependencies percentages decide on a tactical response to variances.

 

 

Determine the extent to which tactical response is already underway

Significant variance usually develop over a period of time current variance is actual on-going variance that has been identified and addressed.  Difficult to remember which variance occurred previously and corrective measures put in place

 

 

Determine the range of possible outcomes of any corrective action

 

Identified and analyzed reason for variance, determine what corrective actions are available and what affect these likely to have.  Numerous trade-off scenarios, range of variables Include

  • Magnitude of variance
  • Availability of any time or financial reserves
  • Absolute minimum acceptable performance required of the element or package
  • Significance of the variance on the project as a whole

 

 

Earned value analysis make use of the following variables

Actual cost of the work performed (ACWP)

Actual cost in terms of payment or legal committed expenditure incurred in order to get the project to its current level of development

 

 

Budgeted cost of the works performed (BCWP)

Some times known as actual earned value represents budgeted cost that should have been required in order to get the project to its current level of development

 

 

Budget cost of work scheduled (BCWS)

Some times known as  planned earned value represents budgeted cost that should be required in order to get the project to any specified level of completion

Budgeted cost multiplied by the works scheduled percentage

 

 

Scheduled time for work performed (STWP)

Estimated time required to perform a defined amount of work

 

 

Actual time for work performed (ATWP)

Actual time taken to perform a defined amount of work

 

 

Cost Variance (CV)

Budgeted cost of work performance (BCWP) minus Actual cost of work performed (ACWP)

CV = BCWP – ACWP

Comparison of how much the work has cost in relation to what it was budgeted to cost

 

 

Schedule Variance (SV)

Difference between budgeted cost for the works performed  (BCWP)  minus Budgeted cost of work scheduled (BCWS)

SV = BCWP – BCWS

Measures the performance of the work in relation to budget

 

 

Budget at completion (BAC)

Sum of all the individual budgets (BCWS) that make up the whole project. Sometimes known as project baseline. What the project should cost in total

 

 

Estimate at completion (EAC)

Estimated total cost of the project sum of all direct and indirect costs to date plus work remaining.

EAC = ACWP + Estimated (ETC)

Updated estimate of total project cost, sometimes known as planned estimate approach

Expressed as budget at completion BAC as follows: EAC = BAC – CV

Expressed in terms of cost variance index (CVI):

Sometimes referred to as the current estimate approach

 

 

Variance at completion (VAC)

Is the difference between what the project should have cost (BAC) and what is expected to actually cost (EAC)

VAC = BAC - EAC

Example of EVA distribution

 

6.3.3.4 Phase 4: generation of variances

A variance is any cost or schedule deviation from a specific and predetermined plan. Next stage is to decide how to use them to define performance and to steer any necessary corrective actions.

 

Variance and Variance Envelopes

Permitted variances are usually larger in early stages of project, become smaller as the project progresses.  This is the original of the concept of a variance envelope

Analysis of variance envelope main application for monitoring and control of EVA.  Use CV and SV together to show cost and schedule performance of individual WBS to Access performance the two most common are by direct evaluation of the variances themselves or by conversion of variances to indices.

Upper / lower limit 10 – 15% at start of project diminish to 3 – 5% later stages, opportunity for change diminish as details become fixed and not able to change opportunity for change diminishes as a function of time and detail becomes fixed becomes more expensive to make changes and therefore fewer occur. 

Variance Interpretation

In general terms:

cost variance (CV) = BCWP ACWP

Therefore

BCWP > ACWP: work performed has cost less.

BCWP < ACWP: work performed has cost more.

BCWP = ACWP: work on cost plan.

And

schedule variance (SV) = BCWP BCWS

Therefore

BCWP > BCWS: works ahead of programme.

BCWP < BCWS: works behind programme.

BCWP = BCWS: works on programme.

 

These values can also be shown as indices:

Cost Variance Index (CVI) =

so that

CVI > 1.0: good

CVI < 1.0: bad

CVI = 1.0: ok

And

Schedule Variance Index (SVI) =

so that

SVI > 1.0: good

SVI < 1.0: bad

SVI = 1.0: ok

 

Example interpretations as follow:

CVI > 1.0, SVI > 1 Excellent: project is under cost and ahead on programme

CVI > 1.0, SVI = 1 Good: project is under cost and on schedule

CVI > 1.0, SVI < 1 Good/Bad: project is under cost and behind on programme

CVI = 1.0, SVI > 1 Good: project is on cost and ahead of programme

CVI = 1.0, SVI = 1 Good: project is on cost and on schedule

CVI = 1.0, SVI < 1 Bad: project is on cost and behind schedule

CVI < 1.0, SVI > 1 Good: caused by faster than expected work practice project is over cost and ahead of programme

CVI < 1.0, SVI = 1 Poor: project is over cost and on schedule

CVI < 1.0, SVI < 1 Very Bad: project is over cost and behind schedule

 

Example:

The Critical Ratio

‘alarm’ system that operates in association with the variance envelope is critical.  Alarm trigger itself often use critical ratio

The critical ratio uses EVA principles - includes consideration of both time and cost performance. This means that performance in one aspect is linked to performance in the other aspect.

Critical ratio will depend on extent to which the values of each element are greater or less than unity.  A good time performance may be associated with a poor cost performance.

Relative weighting to the time and cost elements can also be used example

Critical ratio values are plotted month by month through the project as a curve.  Curve dips below unity should evaluate the extent of the deficit and take action appropriate to the magnitude of the problem.  Also need to watch value s above unity.

Typical zone classification:

 

Zone A: Take no action

Contains minor negative variations that can be ignored

 

 

Zone B: Record and monitor

More significant negative variations that cannot be ignored

 

 

Zone C: Act immediately

Negative variance falls into this zone the performance is critical

 

 

Zone D: Emergency response required

Negative variance that are super-critical

 

 

Zone A1: Observe and note

Small positive variances

 

 

Zone A2: Investigate and correct

Large positive variances

·        Pessimistic estimating

·        Poor quality control

·        Poor supervision

·        Undetected errors and omissions

 

 

6.3.3.5 Phase 5: cost reporting

Project reporting is notoriously deficient for many reasons

In general reports should:

 

Timely well-written reports can:

 

Basic Report types

Routine Reports

Used routinely – regardless of project performance

  • Cost reports,
  • Schedule progress report
  • Quality report
  • Risk report

 

Development Review Reports

When review of project or development programme, 

Detailed review from time to time to establish developing and establish success criteria

 

 

Exception Reports

Highlight an exception, something out of the ordinary has occurred. 

Significant time or cost variance.

Subsequent of exception report would show corrective procedures i.e. exception log, on-going diary of problem & corrective action

 

 

Subject Specific report

Specific aspect detailed monitoring and control required.  Such as delays to completion date or critical activity.

 

 

Project variance and analysis Reports (PVAR)

Use EVS as the primary analysis tool address full range of relevant information from routine reporting to monitoring and control of specific problems

 

PVAR Reporting

Project variance analysis reporting (PVAR) generated directly from cost data assembled each month.  Report variance performance of the project as a whole and then moves down finer levels of detail according to WBS breakdown.  Produce CV and SV figures by work package. 

Typical PVAR show

·        Routine reporting information

·        Development progress and review information

·        Performance of each level of the WBS in terms of :

o       ACWP

o       BCWP

o       BCWS

o       CV

o       SV

o       EAC

o       ETC

·        Significant cost or schedule variances

·        Sources of such variances

·        Reason for such variance

·        Proposed responses together with individual responsibilities, action plans and time scales

 

Each problem cost centre, separate PVAR report generated showing

PVAR report summarizes performance for project as a whole for each layer of components WBS element.

May be illustrated with Earned value performance measure chart

Prerequisites are:

 

PVAR report sometime referred to as the ‘fishing rod’ approach

Project manager effectively holding the fishing rod adopts the shape and curve of the ACWP project in.

‘reel in’ pull rod back horizontally improve efficiency and performance

‘real-out’ level fishing rod less control

Pull back on rod effect of reducing overall project completion date although end point of rod may lift (EAC increase)

EAC reduced   need to reel-out allow time slippage to extend.

Height of rod decreases the overall EAC decreases

 

EVA can quickly and easily calculates