One of the top great challenges that faces project owners as well as contractors is how to convert their approved cost estimates into budgets that can be monitored, evaluated and reported at the required cost breakdown structure (CBS) levels. For a project owner, there are different budget versions that will be derived from the approved cost estimate. Those include the budgets at concept, schematic, design and construction stages although only the latest version will be set at the approved project budget.
Regardless of the tool or application used in quantifying the project’s scope of work and developing the project estimate, there will be always cost items at which the cost estimate will be established. As a minimum, each cost item will include a code, description, unit of measure, unit price, currency, quantity and total price which is calculated by multiplying the unit price by the quantity. Of course, other details such as cost type (Labor, Material, Equipment, Subcontract, etc.), Manufacturer name, Project Schedule Activity, BIM object ID, WBS level, Bid Package ID and other data fields can be also added to those cost items. Nevertheless, to enable converting a cost estimate into a budget that can be monitored, evaluated and reported on, there is always the need to assign the cost breakdown structure (CBS) level associated with the cost estimate. Further, if the estimate was done by a Contractor, then there is also the need to assign the Bill of Quantity (BoQ) or Schedule of Values (SoV) item number to each cost estimate line item. This will be needed to create the bid price or selling price to be quoted to the project owner.
For an organization, the cost breakdown structure (CBS) levels are usually standard across their complete projects’ portfolio as this will become the basis not for monitoring, evaluating and reporting the project budget but also the basis for procuring and managing contract commitments and incurred actual cost against those commitments as well as non-commitment incurred actual cost. The cost breakdown structure (CBS) levels will be also aligned with the cost account ledger used by the organization’s financial or accounting systems. The level of details of a CBS depends on each organization’s requirement for the level of control to address another key challenge of tracking, monitoring, evaluating and reporting the overall cost performance status of their capital construction projects.
Using a Project Management Information System (PMIS) like PMWeb, converting an approved cost estimate into a budget is available as one of the default functions. In addition, the conversion will be done using the cost breakdown structure (CBS) levels defined by each organization. This will enable to immediately address the challenging requirement of converting the approved cost estimates into budgets that can be monitored, evaluated and reported at the required cost breakdown structure (CBS) levels.
Nevertheless, for this conversion to be done in the format that an organization requires, first there is a need to define the cost breakdown structure (CBS) levels needed to establish the required control level. PMWeb cost account module allows defining up to 16 cost breakdown structure (CBS) levels, each 10 digits long. For each cost breakdown structure (CBS) item, PMWeb allows assigning the cost account number of the accounting or financial application associated with the CBS item. This is a key if PMWeb will be integrated with the accounting or financial application used by the organization’s head office.
Another recommended practice is to create a centralized cost data of all cost items that are used in developing the cost estimate. Those cost items will be common to PMWeb as well as the cost estimating tool or MS Excel used by an organization in developing their cost estimate. By standardizing the cost items database, the organization can define the cost breakdown structure (CBS) item associated with each cost estimate item. In addition, this standardizing will enable to capture the purchase history of those cost items if they were part of commitment contract. This will be a much needed for material and equipment purchases.
A third requirement that could be needed if the cost estimate will be aligned with the project schedule. This will add the need to associate each cost item with the relevant project schedule activity. The project schedule could be created in Primavera P6, MS Project or PMWeb scheduling module. If the schedule was created in Primavera P6 or MS Project, then there is a need to import the schedule to PMWeb using the default function, Link Schedule.
Whether the project cost estimate was created using PMWeb cost estimate module or imported from any third-party cost estimating system or tool for which it will be saved in a MS Excel file format, PMWeb will be the only repository to capture all cost estimate revisions for all capital construction projects that an organization has. When those cost estimates are approved, they will become the basis to automatically generate the project budget thus addressing the great challenge of converting a cost estimate into a budget. In addition, PMWeb also allows generating budget adjustment, procurement bid packages and commitment contracts from the approved cost estimates. This will ensure that they all have the same cost estimate data source.
PMWeb budget module will capture the budget converted from the approved cost estimate. The budget will summarize the cost details of the cost breakdown structure (CBS) items that were associated with the cost items in the estimate. This will enable the creating the budget spending projection curves which can be either created manually or by defining the start and finish dates of each budget line item and selecting the spending plan curve. Another option would be to create the budget spending plan using the assigned project schedule activity along with the selected spending plan curve.
In case there is a requirement to associate the project budget with the funding sources that had been authorized for the project, this is also possible to be done for each budget line item. Of course, the funding sources and authorized funding will be captured in their relevant modules in PMWeb.
After approving the baseline budget, all adjustments to the budget will be managed using PMWeb budget request module. This module will be used to manage all additions, omissions and transfers that be applied for the approved baseline budget. For transfers, there is also the option to allow transfers between different projects.
Similar to all other business processes managed in PMWeb, supportive documents that are usually associated or required for each cost estimate, cost items, budget and budget requests business processes’ transaction can be attached to their relevant templates. It is highly recommended to add details to each attached document to better explain to the reader what is being attached and viewed. In addition, links to other relevant records of other business processes managed in PMWeb can be also linked to the records of those change order related business processes.
It is highly recommended that all those supportive documents, regardless of their type or source, get uploaded and stored on PMWeb document management repository. PMWeb allows creating folders and subfolders to match the physical filing structure used to store hardcopies of those documents. Permission rights can be set to those folders to restrict access to only those users who have access to do so. In addition, PMWeb users can subscribe to each folder so they can be notified when new documents are uploaded or downloaded.
To ensure that the submit, review and approve dates of each cost estimate, budget and budget requests business processes’ transaction submission are captured, a workflow will be assigned to each one of those business processes. The assigned workflow will map the submit, review and approve tasks, role or roles assigned to each task, task duration, task type and actions available for task. In addition, the workflow could be designed to include conditions to enforce the approval authority levels as defined in the Delegation of Authority (DoA) matrix.
When any of the cost estimate, budget and budget requests business processes’ transaction is initiated, the workflow tab available on the relevant template will capture the planned review and approve workflow tasks for each transaction as well as the actual history of those review and approval tasks. The captured workflow data will include the actual action data and time, done by who, action taken, comments made and whether team input was requested.
Similar to all other business processes managed in PMWeb, the information captured in the cost estimate, cost items, cost breakdown structures, budget and budget requests business processes can be reported on in any desired form or format. For example, one of the ready out-of-the-box reports is the Anticipated Budget Per Month report. The report will detail the budget line items which will be grouped by the defined cost breakdown structure (CBS) levels. The report will display the total budget amount and the planned budget spending for each project period. Usually, the report will display the information for each fiscal year. The report will also include a histogram that will summarize the planned budget spending for each project period.
About the Author
Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with 40-year service record providing project management, project controls services and project management information system to over than 200 projects with a total value in excess of US $100 Billion. Those projects included Commercial, Residential, Education and Healthcare Buildings and Infrastructure, Entertainment, Hospitality 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 in topics relating to Project Management, Strategic Project Management and Project Management Personal Skills. Over the past 40 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 550 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 Association for the Advancement of Cost Engineering (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.