a) Typical Program
An accounting procedure is an integral part of cost control, as it specifies levels of approval, billing and payment procedures, banking arrangements, accounts numbering systems, and all functions necessary for financial reporting of the project.
The key function for cost control is the collection and timely reporting of commitments and expenditures. This information is necessary to track the status and progress of cost objectives and also provide a base for developing cost predictions.
An accurate and up-to-date report of commitments and expenditures is essential. Delayed payments or lost invoices can cause poor cost predictions. Many control techniques are based on unit costs and they can be greatly distorted if the cost to date is inaccurately reported or if the information is reported late. For smaller projects, an accurate accounting/cost report should be available no more than five days after the cut off period. For large projects, no more than ten days after the cut off period would be essential.
b) Project Accounting Group
An effective organizational arrangement is to establish a "project cost accounting group" within the general accounting department. This group would concentrate solely on the accounting for capital projects and report directly to project management. This arrangement almost always improves the effectiveness of the cost accounting function. It is sometimes difficult to establish this organization as accounting managers are "afraid" they will "lose" authority and, therefore, resist this approach.
EFFECTIVE TRENDING SYSTEM
a) The "Blackout Period"
A difficult time for cost control is during the transition from the feasibility estimate to the detailed estimate. This is often called the "blackout period," and the time interval on large projects can be longer than four to six months. During this period, many engineering decisions are made, without full recognition of the cost impact. Also during this period, it is absolutely vital that the design/estimating and cost control effort be totally integrated and coordinated, so that up-to-date information is available for good decision-making.
b) Owner Versus Contractor Trending System
On larger reimbursable projects, it may be necessary for an owner to maintain an independent trending program. Compared with a small owner project task force, a contractor's operations and organization tend to be cumbersome, inflexible, and slow to respond. In many cases, an owner trending program will be more current, accurate, and responsive to changing circumstances.
C) Typical Trending Situations
On reimbursable projects, major engineering decisions are usually initiated by owner engineers or approved by them. This generally occurs during the process design phase, and cost engineers should ensure that communication channels with all engineers constantly provide an accurate assessment of the developing design.
General design specifications and equipment specifications should be monitored for conflict and "gold plating." Where quantity takeoffs exist, they should be monitored for change.
All project changes, engineering specifications, scope, procurement, subcontract, etc., should be recorded as they occur or are considered.
Changes to the project execution plan should be included. These changes could be contractual, environmental, regulatory, or schedule oriented. Potential and approved trends should be reported, and appropriate cost estimates should be included.
Approved trends are those which have been formally authorized by the project manager. Potential trends would cover items verbally approved and items which the cost engineer, through discussions with task force personnel, believes are likely to occur. Potential changes should be shown separately from approved trends.
d) The Weekly Trend Meeting
Of the many meetings held during the execution of a project, it is the weekly Trend Meeting that is probably the most important. This meeting is not a decision-making meeting; it is an information gathering/sharing meeting. The project manager "chairs" the meeting with the project cost engineer acting as the secretary and attending are the key technical/services specialists. All current and potential influences, changes, extras and trends are reviewed and discussed. The key objectives of the meeting are the common sharing, gathering, communicating and coordinating of all project influences that are developing at that time. If there are no significant problems or influences, then the meeting will be of a short duration. Even if this is the case, the meeting should still be held so as to maintain the "discipline" of trending.
The "end products" of an effective project control program are accurate cost and schedule forecasts. The forecasts would generally consider:
a) Current trends of time and money b) Scope deviations, changes and claims C) Project conditions changes d) Changes to the project execution plan e) Rundown/usage of contingency Failure to meet contract conditions g) Engineering and construction progress/productivity h) Subcontract performance i) Equipment/material bid experience (under/over budget) j) Actual versus planned commitment levels
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.