Article #136 b Monitoring, Evaluating, and Reporting Contractor’s Target Profit During the Construction Project Delivery Part 2

Managing the Project Cost

A commitment will be created for each subcontractor and supplier which will include the agreed prices for the outsourced scope of work. The commitment agreement will include the payment terms and conditions for the approved work in place. Some Contractors might also consider having commitment contracts for their internal business units like a plant, ready-mix, material purchase, and others who will be involved in the project delivery.

All changes to commitment agreements whether they are potential or anticipated changes, approved, pending or disputed changes will be captured in PMWeb. All supportive documents need to be attached to the change order as well as related records and emails need to be linked to the change order. The status of the change order will be changed depending on the actions taken in the workflow assigned to the change order form. A change order could have an impact on the commitment agreement value as well as the performance period. It should be noted that all commitment changes need to be reflected in the project budget. Approved changes will be accounted for in the approved budget requests whereas all potential, pending, and disputed changes will be accounted for in the pending budget requests.

At the end of each financial period or progress period, a progress invoice will be submitted for the approved work in place. The percent complete for each line will be the percent complete value for the associated project schedule activity. The approved progress invoice represents the actual cost incurred by the Contractor for the works completed under each commitment agreement.

For other actual costs incurred that are not part of a commitment contract, those will be captured using the PMWeb miscellaneous invoices module. The details of all such expenses will be captured in the invoice form along with all supportive documents. Again, the workflow will be used to formalize the submission, review, and approval of those invoices.

The cost of the Contractor’s resources, management, labor, and non-labor will be captured from the PMWeb timesheet module. Those are the resources that are not part of any commitment contract or miscellaneous invoices. Usually, each crew supervisor will capture the details of all labor, and if needed equipment resources, spent on the project. The pay type for reported resource hours against each scheduled activity and cost breakdown structure could be regular, overtime or premium. This will help in determining the actual cost for the reported resource hours. Timesheets would usually have workflows to formalize the approval of the reported hours.

The sum of the period’s work in place, miscellaneous invoices, and cost of resources will represent the total actual cost incurred by the project at the end of each financial period. The estimated cost at completion will equal the sum of the actual cost to date and the estimate to complete calculated earlier in the budget section.

Actual Cost Data for Other Data Sources

Although PMWeb has all the modules to capture the project’s actual cost, some Contractors might opt to use their existing enterprise applications to capture some of those costs. For example, some Contractors might have their Human Resources and Time Attendance applications to capture the cost of labor resources charged to the project. Further, they might also use their ERP or accounting application to capture the actual cost of plants and equipment resources. In addition, some contractors might decide to manage subcontract agreements and purchase orders in their ERP applications. For those instances, PMWeb provides different options to enable contractors to integrate PMWeb with their ERP application to give the needed profitability reporting.

The project owner can adopt the same approach, assuming a real estate developer. The difference would be that for revenue contracts, those will be the actual assets sale and long-term lease agreements. As for the commitments, those will be the contract agreements with the project management consultant, engineering consultants, site supervision consultants, prime contractors, and key vendors. The budget should be aligned with the commitments and non-commitment costs needed to deliver the project and the project contingency.

Assessing the Project’s Profitability

The project’s profitability will be assessed using three different metrics. The target profit metric is based on the variance between the original awarded income contract value and the approved budget to deliver the project; the current profit/loss status as of today’s metric is the variance between the income contract amount invoiced to data and the actual cost incurred to date, and the third metric will be the projected profit/loss at project’s completion which is the difference between projected income contract at completion (revised contract plus all pending and disputed change orders) and the forecast cost at completion.

About the Authorfounder

Bassam Samman, PMP, PSP, EVP, GPM, is a Senior Project Management Consultant with over 35-year service record providing project management and controls 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, and Telecommunication and Information Technology projects. He is thoroughly experienced in 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 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 over 250 project management and information systems articles 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 six years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP), an Earned Value Professional (EVP) from the American Association of Cost Engineers (AACE), and a Green Project Management (GPM).

Bassam holds a Master’s in Engineering Administration (Construction Management) with Faculty Commendation, From George Washington University, Washington, DC, USA, Bachelor in Civil Engineering – from Kuwait University, Kuwait, and has attended many executive management programs at Harvard Business School, Boston, USA, and London Business School, London, UK.


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