Article #581 Work and Cost Breakdown Structures Based Monitoring, Evaluating and Reporting of Cost Performance on Capital Construction Projects

Project owners involved in delivering capital construction projects always have the requirement to monitor, evaluate and report project cost performance by either the Work Breakdown Structure (WBS) or Cost Breakdown Structure (CBS) levels. The Project Management Institute (PMI) Project Management Book of Knowledge (PMBOK) defines the Work Breakdown Structure as a “deliverable oriented hierarchical decomposition of the work to be executed by the project team.” Most of the times, the WBS will also incorporate the project life cycle stages to detail the deliverables within each stage. On the other hand, the Cost Breakdown Structure (CBS) is defined as the breakdown or hierarchical representation of the various direct and indirect costs as well as contingency and management reserves in a project.

The Cost Breakdown Structure (CBS) represents the costs of the different components or elements in the Work Breakdown Structure (WBS). The WBS is usually defined by the project management team whereas the CBS is usually defined by the finance or commercial department. Also, a WBS could be project specific whereas a CBS should be standardized across the complete projects’ portfolio.

The monitoring, evaluating and reporting the cost performance on capital construction projects requires managing a number of business processes for which the captured data will become the basis for this reporting. Those would include the cost estimate that will become the basis for establishing project budget baseline and all managing adjustments and transfers that the budget might be subject to. In addition, cost reporting will include the commitment contracts for all outsources scope of works and services. Those contracts will be aligned with the expenses included in the cost loaded schedules that each Contractor is required to provide. Reporting the cost of contracts also requires capturing the cost data captured in potential change orders, change orders, interim progress invoices and actual payments made against the approved progress invoices. Actual expenses or costs incurred on the project that are not associated with commitment contracts, will be also captured from miscellaneous invoices or journal entries which are usually for indirect expenses charged by the head office against a project.

Further, if there is a need to capture the estimated and actual cost of the project owner own resources required to manage the project delivery, then the resources manhours need to be estimated for each project life cycle stage and maybe to deliverables within each stage. The actual resource hours spent will be captured using timesheets for which they will be identified if those were regular pay, overtime pay, weekend pay or any other type of pay rates.

Therefore, to be able to monitor, evaluate and report project cost performance by either the Work Breakdown Structure (WBS) or Cost Breakdown Structure (CBS) levels is to ensure that each project cost record is tagged with its relevant WBS and CBS level. This could prove to be of great challenge to achieve if project cost management was not digitally transformed across the complete the projects’ portfolio that an organization has. The digital transformation of project cost management will ensure that the execution of each cost business processes is automated to ensure that the right data is captured, reviewed and approved by its assigned individual, interrelated with other relevant business processes, links to WBS and CBS is readily available, integration with project schedules is available, data for the complete projects’ portfolio is captured in a single data source, etc.

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Using a Project Management Information System (PMIS) solutin like PMWeb, those challenges can be easily overcomed. Nevertheless, first there is a need to define the CBS and WBS levels that will become the basis for the requried cost performance reporting. PMWeb cost account module which will be the basis for creating the cost breakdown structure (CBS) which will be used on all projects managed the organization. PMWeb allows creating up to 16 CBS levels for which the code for each level could be 10 digits long. In addition, PMWeb allows mapping the CBS levels to the organization financial account codes if those were not aligned with the CBS levels.

To improve the quality of the WBS based cost performance reporting, it is highly recommended that project owners to standardize the WBS levels to be used by Contractors in developing their project schedule. As a minimum, project owners can standardize the first four levels of a WBS to ensure the project life cycle stages, bid packages, building systems and key elements of building systems are common to all capital construction projects. Another advantage of having a standardizd WBS is that when a schedule is imported into PMWeb, those standard WBS levels and detailed WBS levels that are specific to each project will become readily avaiable to be used.

The next step is to import the expenses-loaded schedule created in Primavera P6 into PMWeb cost estimate module. This requires to first export the expenses loaded schedule to MS Excel and then import into PMWeb using the Detailed Import command to map PMWeb cost estimate fields into the MS Excel file field names. As a minimum, the imported data would include the project schedule activity identification, activity description, WBS level, activity value, expenses category which will be always “Contract” and vendor which will be the Contractor name.

This will enable the capital project owner to assign the cost breakdown structure (CBS) levels to each activity or estimate line item, breakdown imported expenses into separate cost estimate line items, add additional cost estimate line items for owner-supplied materials and equipment, third-party testing and inspections, installation cost by other vendors, etc., indirect expenses associated with the project and add the contingency reserve and even the management reserve if needed. In other words, the cost estimate will be the total capital project cost investment value that the project owner needs to control.

The approved cost estimate for the project investment will become the basis for generating two important documents. The first will be the project budget while the second will be the contract commitments which will be the basis for capturing all potential changes, changes, actual cost and actual payments made against the project investment. PMWeb budget module will aggregate the cost estimate data by the Cost Breakdown Structure (CBS) levels assigned to those values. Since PMWeb budget module also allows also to assign a project schedule activity to each budget line item, it is recommended that the project schedule to include summary level activities that are aligned with the Cost Breakdown Structure (CBS) levels. Of course, this is an option and not a must requirement as what matters most is the WBS level assigned to each budget line item.

Unlike the project budget, the generated commitments will be detailed to the project schedule activity level. Each line item in PMWeb commitment module will include the project schedule activity, WBS level, cost breakdown structure (CBS) level, work breakdown structure (WBS) level, expenses category which will be always “Contract” and vendor which will be the Contractor name.

Change management for the budget and commitments will be managed using PMWeb modules for budget request, potential change orders, change orders and change events. PMWeb budget request module will be used to manage all omissions, additions and transfers that the baseline budget will be subject to which will be the basis for the revised budget. PMWeb potential changes will be used to capture all anticipated changes to the awarded commitments which can evolve to become a change order or not. PMWeb change order module will be used to capture all pending, approved, disputed and withdrawn change orders. Those changes will become the basis for calculating the revised and projected commitments values. PMWeb change event will be used to align budget requests with change orders.

The commitment interim progress invoices for each commitment contract will be the bases for calculating the Earned Value (EV) which will be the same as Actual Cost (AC). PMWeb interim progress invoice allows importing the percent complete values of the updated schedule to calculate the earned value or actual cost of each line item. In addition, the payment tab on the progress invoice module allows capturing the details of actual payments made against the approved progress invoice. The actual payment details will be usually manually provided or automatically imported from the project owner ERP, financial or accounting system.

In addition to interim progress invoices, actual cost could be incurred from non-commitments. For example, PMWeb allows capturing other actual costs using the modules for miscellaneous invoices and journal entries. Similar to the progress invoice, the payment tab on the miscellaneous invoice module allows capturing the details of actual payments made against the approved progress invoice. The actual payment details will be usually manually provided or automatically imported from the project owner ERP, financial or accounting system.

For project owners that need the project cost performance reporting to also include the cost of their own project team that will be responsible for managing the capital construction delivery, PMWeb resource requirements will be used. This module allows estimating the level of effort needed by those resources for each project activity which could be for example a project life cycle stage or even a specific deliverable activity within a project life cycle stage. It should be noted that those are not the resources provided by the project management, design and supervision consultants as those will be considered as commitment cost similar to the commitment contracts of the different contractors and vendors who will be responsible for delivering the outsourced scope of work and services.

The resource requirement template allows assigning the start and finish date and time of each resource assignment, hours per day or level of effort percentage, type of resource hours cost (regular, weekend, overtime, etc.). This will automatically calculate the cost estimate of each resource requirement using the charge rates defined for each resource in PMWeb resources module.

The actual resource hours for the project owner team will be captured using PMWeb timesheet module. The module allows each individual or team leader to capture the actual hours spent by each resource on daily basis. Each entry will be tagged with its relevant CBS, WBS and project schedule activity. The captured hours can be reported as regular, overtime, weekend or any other pay type defined for the resources.

Although the input template for each business process should be comprehensive in the extent of the data fields needed to capture the required information, nevertheless, it is also very common that each transaction of each business process could include supportive documents associated with that transaction. PMWeb allows attaching those documents to each transaction of each business process template. 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 transactions or records of other business processes managed in PMWeb can be also added.

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 enforce transparency and accountability in reporting the performance of the different cost management business processes, a workflow needs to be added to the contract, periodical reporting and changes templates to 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 management 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.

About the Authorfounder

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.


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