Project Owners and in particular in the private sector understand the criticality of ensuring that their project investments are completed within the approved budget. For them, projects are no different than other investments they undertake where the Return of Investment (ROI) along with other factors such as risk exposure determines their selection. Going over budget, or increasing the capital cost without an increase in the operations revenue could very much turn the project into a “Big White Elephant”.
This article continues and concludes the two earlier articles which explained the steps that project owners usually would follow to have better control on their project cost during the pre-contract and post-contract phases of the project life cycle. The pre-contract phase covered the processes of Cost Estimate, Project Budget and Procure Contracts while the post-contract phase covered Award Contracts, Change Management, Progress Invoices, Forecast to Complete and Closeout. This article will provide details on how to have a single version of the truth when it comes to reporting cost management across the complete project life cycle. The proposed integrated cost management process is aligned with the best practices of the Project Management Institute (PMI) Project Management Body of Knowledge (PMBOK).
The PMWeb Enterprise Project Management Information System (PMIS) software will be used throughout this article to detail how a single Commercial of the Shelve (COTS) platform can capture the details of all processes needed to manage the project cost and other related processes. PMWeb provides those involved in delivering the cost management processes with the following important functions:
- Pre-developed document templates to capture project cost management information
- Custom developed document templates to capture additional cost management information
- Link WBS and Schedule activities from the planning and scheduling application
- Capture all type of cost data including the support for multi-currency at line item level
- Document management repository all documents needed to support the cost management processes such as drawings, BIM models, material brochures and catalogues, material specifications among others
- Workflow to formalize the process of submitting, reviewing, sharing and approving project management processes
- Tabular and graphical reports to aggregate, summarize, sort and filter the information captured from the cost management processes
- Dashboards to summarize and analyze the cost management data to enable faster and better informed decisions on the project cost.
- Ability to import and export data to third party cost estimating and other cost management applications
- Integrate with all other best practice project management processes
- Web-enabled to allow team collaboration in developing the cost management processes
Single Data Source Platform
What makes PMWeb unique when it comes to reporting a single version of the truth on the cost management performance for a project, a program or a portfolio of projects is that all of the document templates used to capture the data from the different construction management processes across the project life cycle stages are all stored on the same platform. No data import, integration or input redundancy is needed.
Nevertheless, some organizations could have the requirement to export and import cost data among other type of data to third party software applications like Oracle EBS, MS Dynamics, SAP and others, then the PMWeb API Integration will be used to build this integration to facilitate this bi-directional automated integration. This integration will enable the organization to capture the complete data from the different sources and report on the same.
The Cost Ledger
The cost data captured from the different PMWeb cost management modules are stored in a single repository known as the cost ledger. For every cost transaction, the cost ledger provides the type of the transaction, which document was used for the transaction, the amount, the currency, the financial period, the date, status among many others. This granularity in capturing the cost data will enable creating the desired cost report reporting on data captured from different document templates.
In addition, PMWeb enables adding additional cost transaction to the cost ledger using what is known as a Journal Entry to avoid adding a document template that is not needed. The Journal Entry is used to reverse the value of an existing document template or add new values to the cost ledger.
One of the most important integrated cost management reporting is the Cost Worksheet which is a powerful report or analyzing the project’s finances. This is a tabular report that can be customized to capture cost data from the different data captured in the cost ledger which include project’s budget, time-phased budget per period, commitment, change orders, progress invoices, income among others.
The cost worksheet which can considered to be similar to a MS Excel template but with the main difference is that the content of the file is captured from the cost ledger. The cost worksheet in PMWeb allows adding new columns, adding formulas between the different data fields and ability to select data within time range from the project’s financial periods where only Cost Ledger transactions with a period between the selected financial periods will be included in the worksheet.
The online cost worksheet will enable the user to drill down to the source of each record from the cost database. The online cost worksheet can be grouped and sub-grouped based on the select cost breakdown structure or WBS levels. The cost worksheet can be also saved as a MS Excel to enable the user to do further analysis including what-if scenarios without affecting the original cost database.
The cost worksheet reports can be designed to capture the cost data from different projects to generate cost worksheet report at Program level as well as Projects Portfolio or Enterprise level.
The cost dashboard is a multi-layered will capture and present the integrated cost management in the desired format by the project owner. It will usually reflect the cost data at three levels. Level 1 will be the overall cost performance of the project, level 2 will detail the information captured from the different document templates such as Estimate, Bids Procurement, Budget, Commitments, Change Management, Progress Invoices, Payments, Forecast to Complete and any other document template that the Project Owner has implemented to manage the project cost. For each displayed report, the report viewer can drilldown to the specific document template record used to capture the relevant project’s cost data. Of course, should the user have the proper security credentials they can record to the actual data entry form along with all attached documents. Those documents could be documents stored in PMWeb own document management repository, Aconex, MS SharePoint, Emails, documents on any other repository, hyperlinks to documents on the cloud and links to other PMWeb records from other PMWeb modules and not limited to the Cost Management module.
Cost Management Key Performance Indicators (KPIs)
The Cost Management dashboards depends on summarizing and analyzing the project’s cost data to compare the performance with best practice benchmarks, performance trends among others. The list of possible KPIs are extensive and depends on what the organization believe it is best for them to manage and direct the project’s successfully. The organization can set the target performance levels to indicate the favorable, acceptable and unfavorable performance.
KPIs for Cost Control
- # project cost performance index
- # project cost schedule index
- % budget allocated to budget spent ratio
- % of projects on budget
- % of projects on time and on budget
- % of projects without deviation of planned budget
- % project budget variance
- % projects on budget
- Cost-/benefit estimation %
- Deviation of planned budget
- Engineering costs as % of total installed costs (TIC)
- Project cost predictability
- Sum of costs of “killed” projects
- Total deviation of planned budget of projects
- Average amount of overspending on project budget
KPIs For Earned Value Management (EVM)
- # project schedule performance index
- Earned revenue to total expenses
- Schedule performance index (SPI)
- Schedule variance (SV)
- Actual cost of work performed (AC)
- Budget at completion (BAC)
- Budgeted cost of work performed (EV)
- Budgeted cost of work scheduled (PV)
- Cost performance index (CPI)
- Cost variance (CV)
- Estimate at completion (EAC)
- Estimate To Complete (ETC)
- Variance At Completion (VAC)
KPIs For Project Investment
- % of projects with non-positive ROI
- % of projects with pre-defined ROI
- % of projects without deviation of planned ROI
- % of projects without deviation of planned net present value (NPV)
- Return on investment (ROI)
- Deviation of planned ROI
- % of projects without deviation of planned break-even time
- Average deviation of planned ROI of projects
- Average project/program ROI
- Net present value (NPV)
- Average net present value (NPV) of projects
- Deviation of net present value (NPV)
- % profitable projects
- % successful projects
- Average deviation of planned net present value (NPV) of projects
- Modified internal rate of return (MIRR)
Project, Program and Portfolio Dashboard Reporting
Having a 360-degree status of the overall project’s performance requires reporting on the knowledge captured from other project management processes including schedule, risk and issues, documents among others. Similarly, if the project is part of a program of projects or a portfolio of projects, then again the knowledge from those projects need to be reported on.
Extract, Transfer, Load, Associate, Blend and Visualize
Organizations and in particular project owners might intentionally avoid integrating all of the cost data and other relevant data on a single platform due to corporate governance, Information Technology considerations and data security policy. For project owners in the public sector, certain aspect of the integrated cost management could be handled by other government entities.
To resolve this issue, a solution is needed to extract, transform and load (ETL) data from multiple data sources to become the input the for consolidated and integrated cost management reporting. Data sources could be from applications like PMWeb, Oracle Primavera P6, Oracle EBS, MS Dynamics, SAP, ESRI GIS among many others. The captured data from the multiple data sources will become the source for developing the integrated cost management performance dashboards.
The key development in recent data visualization solutions like Qlik, Tableau, iDashboards among others is what is known as “Data Association” rather than “Data Integration”. Multiple data sources need only to have some common fields for the association to happen so it can become possible to blend and visualize data. Some of the data fields that are usually used to associate data in a projects environment include:
- Breakdown Structures
- Projects Breakdown Structure (PBS or EPS)
- Work Breakdown Structure (WBS)
- Organization Breakdown Structure (OBS)
- Cost Breakdown Structure (CBS)
- Resources Breakdown Structure (RBS)
- Risk Breakdown Structure
- Document Breakdown Structure (DBS)
- Location Breakdown Structure
- Financial Periods or Progress Periods
- Other Common Attributes
- Project ID
- Life Cycle Stage
- Contract ID
- Project Manager
- BIM Object
- Asset ID
The data analysis and visualization solutions will enable using the data captured from the multiple data sources to develop new variables that are used to report the performance and status of a project, program or portfolio of projects.