There is a growing demand across public sector entities to improve the efficiency and effectiveness of budget spending for capital projects. Those include projects for healthcare, education, housing, parks, roads, and infrastructure among others. Budget efficiency is measured in terms of the cost to build, also known as the input, the project deliverables, and also known as output. For example, assume that the budget cost to build a 100-bed hospital is US$ 150 Million; in other words, the cost per hospital bed will be US$ 1.5 Million. The efficiency of the project will be to compare the actual cost per bed to the planned cost per bed which should be by internationally or regionally accepted benchmarks. Of course, a project will have several deliverables for which the budget spending efficiency will be also measured against.
On the other hand, the budget effectiveness relates to the output compared to the final objectives to be achieved, i.e. the outcome or achievements. The outcome is often linked to socioeconomic objectives of the capital project and therefore may be influenced by multiple factors. For example, the outcome of the new hospital to be built is creating X number of new healthcare jobs, US$ XX spending on goods and services to generate greater economic activity, providing quality healthcare for adjacent neighborhoods among others.
Using Project Management Information Systems (PMIS) like PMWeb, governments can implement project management best practices to ensure budget spending efficiency and effectiveness for capital projects delivery. The first step that needs to be undertaken is to ensure that all capital projects that the government entity is considering funding are captured. PMWeb Project module will be used to capture the details of all those projects including the details of the strategic initiatives or programs that those projects relate to in a single repository.
Unlike commercial projects, the benefits associated with public sector projects must be considered from a socio-economic viewpoint. Those are usually in the form of revenue earned, cost savings, and direct employment created among many others. All assumptions made while valuing benefits must be specified and, where benefits cannot be quantified, a detailed description of those benefits is required. Benefits should be extended to cover the useful lifetime of a project under consideration.
PMWeb Form Builder will be used to create the Benefits Realization form which will be used to capture the details of the actual socioeconomic benefits realized from undertaking the project at the end of the benefits assessment period. The planned socioeconomic benefits for each reporting period will be captured in another form unless the same Benefits Realization form is modified to include planned and actual values for each period. Similar to all PMWeb forms, supportive documents can be attached as well as a workflow can be assigned to enforce formal review and approval of each benefit realization as well as incorporate the approval authority levels for those adjustments.
In addition, the costs associated with the construction, operation, and maintenance, and all other associated costs during the benefits realization period need also to be captured. The project’s cost estimate can be created using the PMWeb Estimate module where it can use the cost database captured in PMWeb Items module.
As an alternative, the PMWeb Estimate module can import the cost estimate from an MS Excel file format for which the cost estimate data can be exported from a third-party cost estimating software. Some of those cost estimating software application uses the Building Information Model (BIM) to determine the quantities of the different project components. This is what is also known as 5D. In addition, those cost estimating software applications usually can read cost data from third-party cost database applications like Dodge, RS Means among others.
The approved cost estimate will be the basis for generating the project’s budget baseline to the desired detailed level at which the budget will be managed, monitored, and controlled. The level of detail will be defined in the PMWeb Cost Account module which allows having up to 16 levels of control. The cost account levels need to be standardized across the complete projects’ portfolio to be undertaken by the government entity.
PMWeb Budget module will be used to capture the project baseline budget details. Each budget line item can be linked with the project schedule to identify the associated planned start and finish dates. In addition, a projection spending plan will be assigned to each budget line item. Although there are pre-defined projection curves for bell-shaped, front-loaded, back-loaded, and linear, there is also the option of manually distributing the budget line item.
Similar to other PMWeb modules, the attachment tab will be used to attach all supportive documents used in creating the project budget. It is highly recommended that all supportive documents are uploaded and stored into the PMWeb document management repository under a folder that will be titled Project Budget. In addition, links to other PMWeb records like meeting minutes among others as well as imported MS Outlook emails be linked to the project budget form.
To ensure the formal review and approval of the project budget, a workflow will be assigned to the budget form. This will enforce the needed accountability in submitting, reviewing, and approving the project baseline budget.
For adjustments and transfers after approving the baseline budget, the PMWeb Budget Request module will be used to capture those details. Similar to the budget form, supportive documents can be attached as well as a workflow can be assigned to enforce formal review and approval of each adjustment as well as incorporate the approval authority levels for those adjustments.
To enable determining the actual cost incurred on the project, the PMWeb Commitment module will be used to capture the details of all contracts, subcontracts, and purchase orders that will be issued on the project to procure the different scope of services to build the project. Similar to all other PMWeb forms, supportive documents can be attached as well as a workflow can be assigned to enforce formal review and approval of the process as well as incorporate the approval authority levels when needed.
For each commitment agreement, potential, pending, approved and disputed change orders will be captured to ensure that the estimated cost of each commitment is current and reflects the true status of the project. Similar to all other PMWeb forms, supportive documents can be attached as well as a workflow can be assigned to enforce formal review and approval of the process as well as incorporate the approval authority levels when needed.
The actual cost incurred against each commitment agreement will be captured on monthly basis using the progress invoice module. The percent complete for each bill of quantity line item can be added manually or imported from the updated project schedule if the bill of quantity line items is linked to the project schedule activities. Similar to all other PMWeb forms, supportive documents can be attached as well as a workflow can be assigned to enforce formal review and approval of the process as well as incorporate the approval authority levels when needed.
The actual cost incurred on the project could also result from other non-commitment-related expenses. For those actual cost records, the PMWeb Miscellaneous Invoices module will be used. Similar to all other PMWeb forms, supportive documents can be attached as well as a workflow can be assigned to enforce formal review and approval of the process as well as incorporate the approval authority levels when needed.
Having access to the project’s baseline budget and all approved adjustments and transfers along with the actual cost incurred on executing the project to produce the project deliverables, the organization will be able to monitor, evaluate and report on the planned and actual project budget spending efficiency. The planned budget spending for each deliverable will be calculated by dividing the revised budget amount by the quantity of each deliverable whereas the actual budget spending will be calculated by dividing the project’s actual cost at completion by the quantity of each deliverable. This will enable in determining the budget spending efficiency index by dividing actual achieved spending efficiency by the planned spending efficiency for which a value of less than “1” will indicate unfavorable budget spending efficiency, the value of “1” indicates as planned budget spending efficiency while a value greater than “1” will indicate favorable budget spending efficiency.
For monitoring, evaluating, and reporting the budget spending effectiveness, first, there should be a need to select the key project deliverable that the budget spending effectiveness will be reported on. For example, for the hospital project, this could be the number of beds. Accordingly, the planned target value for each socioeconomic objective will be divided by the key deliverable value to provide the planned effectiveness value and the achieved value for each socioeconomic objective will be divided by the key deliverable value to provide the actual effectiveness value. This will enable in determining the budget spending effectiveness index by dividing actual effectiveness value by the planned effectiveness value for which a value of less than “1” will indicate unfavorable budget spending effectiveness, the value of “1” indicates as planned budget spending effectiveness while a value greater than “1” will indicate favorable budget spending effectiveness.
Another option for monitoring, evaluating, and reporting the budget spending effectiveness, is by dividing the planned target value for each socioeconomic objective by the revised budget value to provide the planned effectiveness value and dividing the achieved value for each socioeconomic objective by the project’s actual cost at completion to provide the actual effectiveness value. This will enable in determining the budget spending effectiveness index by dividing actual effectiveness value by the planned effectiveness value for which a value of less than “1” will indicate unfavorable budget spending effectiveness, the value of “1” indicates as planned budget spending effectiveness while a value greater than “1” will indicate favorable budget spending effectiveness.
The efficiency and effectiveness performance indices will be monitored, evaluated, and reported on using a scorecard report where each project will be displayed along with the approved budget at completion and the details of deliverables or output efficiency and details of objectives or outcomes effectiveness. The report will also include an average efficiency performance index and an average effectiveness index. The average value calculation could be based on equal or different weight values for each deliverable or objective. The report will have a filter to select projects by type which could be healthcare, education, housing, infrastructure, roads, and parks among others.
In addition, an X-Y chart can be also created to display the average efficiency performance index and average effectiveness index for each project. The size of the chart bubble will be based on the value of the budget at completion for each project. The color of the bubbles will depend on the project type which could be healthcare, education, housing, infrastructure, road, and parks among others.
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 controls services to over 100 projects with a total value over the 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, and 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.