For capital projects’ owners, having cost curves to monitor, evaluate and report the performance and status of those projects’ financial performance is of great importance. Mainly there will be three curves to manage assuming that the awarded contracts on those capital projects will be based on lump-sum contracts. In other words, there will be no cost variance for completing the agreed scope of work. The approved cost associated with the additional scope of work will adjust the project budget and commitment contracts. Accordingly, the curves that will be monitored, evaluated, and reported on are the planned budget spending, actual cost or earned cost for completed and approved works, and the forecast cash flow for the balance work to complete.
Using a Project Management Information System (PMIS) like PMWeb, capital project owners will have a single platform to capture the details of all records needed to generate those curves as well as produce the needed reports and calculate the required measures. This will be achieved by using PMWeb ready-to-use modules for budget, budget adjustments, progress invoices, miscellaneous invoices, and forecasts.
Cost Breakdown Structure
The cost breakdown structure (CBS) must be aligned with the work breakdown structure (WBS) which will be used to progressively elaborate a project’s scope of work and schedule. Therefore, the Cost Plan must be structured around a progressive breakdown structure like the UniFormat™ numbering system that enables elaborating the cost plan as it evolves during the project life cycle stages.
Accordingly, the cost breakdown structure will be created using the PMWeb cost accounts module. The CBS will include the four UniFormat™ levels. This will enable the project management team to elaborate the project cost as the project’s scope of work gets better defined and detailed.
Budget and Planned Budget Spending Curve
The budget represents the investment that has been approved by the capital project owner for the project under review. The budget will include all direct and indirect project costs as well as the allowance for contingency reserve. PMWeb budget module will capture the details of the approved budget as well as the planned spending plan for the project budget. PMWeb can maintain versions of all budgets created for the project but the final approved baseline budget should be based on the awarded commitment contract to ensure correct comparison as well as it should include the approved contingency amount. The planned budget spending plan will reflect the advance payment, advance payment recovery, retention, and retention release which are related to the award contract or contracts.
Adjusting the Baseline Budget
Any adjustments for the approved baseline budget will be captured using the PMWeb budget request module. Those could include funds transfers from one cost center to another, for example transferring funds from contingency to concrete works, as well as any adjustments that could result in increasing or decreasing the project budget. All those adjustments need to be posted to the relevant project period to ensure that the budget spending plan reflects the latest status. Similar to all other PMWeb modules, a workflow will be assigned to the budget adjustment to secure the needed reviews and approvals which will incorporate the approval authority levels.
Awarding Commitments Against the Approved Project Budget
PMWeb commitment module will be used to create a separate commitment for each commitment contract planned for the project as per the approved procurement strategy. The commitment module will be used to capture all potential change orders, change orders, progress invoices, and actual payment of approved progress invoices.
Managing Changes to Approved Commitments and Ensure Alignment with Budget Adjustments
PMWeb potential change order module allows all authorized project entities to submit change requests that they believe could have an impact on the awarded project commitment. The potential change order could be rejected or approved to become a change order for which it will be generated from the potential change order module.
In addition, the PMWeb change order module will be used to capture all changes that could impact a commitment contract. The change orders will be posted to their respective periods to ensure that the commitment cash flow is complete and correct. Similar to other PMWeb modules, supportive documents will be attached to the change order as well as a workflow can be assigned to ensure the required reviews and approval are carried out.
Ensure that there is proper alignment between approved change orders and budget adjustments. PMWeb change event module will be used. This module will list the change orders that are related to each budget request that could have increased or even decreased the approved baseline budget.
The Actual Cost Curve
The second curve will be the actual cost curve which will be captured from the PMWeb Progress Invoice module which will calculate the approved payment to be made to the contractors at end of each period. The actual cost will reflect the advance payment, payment recovery, retention, and retention release values when they are paid. The progress invoice will also include payments made against approved change orders.
In addition, the actual cost incurred by the project could be from non-commitment invoices. Those could include management expenses, purchase of land, and fees associated with permits among others. PMWeb miscellaneous invoices module will be used to capture those actual expenses. In addition, integration can be created with the organization’s ERP application to import those other expenses to the miscellaneous invoice module.
Further, project resources, labor, and non-labor, that are assigned to the project and are not part of a commitment agreement, the PMWeb timesheet module will be used to capture the spent hours of those resources. PMWeb allows setting different billing rates for those resources which could include regular, overtime, weekend, and holidays among others.
Balance To Complete Curve
PMWeb forecast module will be used to calculate the projection for the balance to complete which is the difference between the budget at completion (BAC) and actual cost (AC). This will be achieved by selecting the start and finish dates which will be aligned with the linked project schedule activity start and finish dates along with the spending projection curve. Of course, the balance to complete projection values can be manually added for each period. The balance to complete projection analysis will be performed at the end of each progress period.
Visualizing Real-Time Status of All Project Financial Transactions
PMWeb Cost worksheet module allows creating customized spreadsheets to detail the desired financial transaction values posted against each cost breakdown structure level. For example, the cost worksheet can be used to show the original approved baseline budget, approved budget adjustments, revised project budget, awarded commitments, approved commitment change orders, revised commitments, actual approved cost against commitment contracts, actual approved cost against non-commitments, total actual cost and balance to complete. The cost worksheet could also include formulas to calculate percentages as well as values.
Presenting the Cost Curves
Accordingly, the three cost curves that capital project owners must have to monitor, evaluate and report a real-time single version of the truth of their projects’ performance and status are the planned budget spending, actual cost, and balance to complete. Using PMWeb report writer, a report will be created to present those curves for the project duration. In addition, the report will show the variance between what was budgeted and the actual cost or earned value per period. The report will also display the schedule performance index (SPI) at the current period along with the total variance or schedule variance (SV).
About the Author
Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with more than 35-year service record providing project management and control services to over 100 projects with a total value of over US $5 Billion. Those projects included Commercial, Residential, Education, and Healthcare Buildings and Infrastructure, Entertainment and Shopping Malls, Oil and Gas Plants and Refineries, Telecommunication, and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training, and business development.
Bassam is a frequent speaker on topics relating to Project Management, Strategic Project Management, and Project Management Personal Skills. Over the past 35 years, he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe, and South America. He has written more than 250 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP), and Earned Value Professional (EVP) from the American Association of Cost Engineers (AACE) and Green Project Management (GPM).
Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA, and London Business School, London, UK.