Article 594 How Can Project Owners Accurately Estimate, Monitor, Evaluate and Report Their Own Organization Costs Allocated to the Project Capital Construction Projects Delivery?

Project owners who are actively involved in delivering their capital construction projects portfolio understand that their own organization costs allocated to those projects can be very high when compared against the overall budget cost of those projects. Those would include the direct cost of the professional resources assigned to project management, engineering, commercial, procurement, quality, health and safety, project controls, site management, legal, marketing, sales and others. In addition, it includes indirect cost that are usually associated with operating overhead expenses such as those for office rent, utilities, insurance, general office equipment, local transportation, regional and international travel, etc.

Those direct and indirect costs vary by each stage of the capital project delivery life cycle which might take five to ten years to complete. This is due to the fact that the project team members and other individuals assigned to each stage do vary depending on the requirements of each stage and the role that the project owner organization will play during those stages. The same will also apply to the indirect expenses.

Using a project management information system (PMIS) solution like PMWeb, this can be easily achieved as all required business processes are readily available out of the box. To start with, the capital project owner needs first to have a complete understanding of the project life cycle and its stages. This will include the start and finish dates of each stage as well as the key tasks and deliverables needed to manage the execution of each stage. PMWeb schedule module will be used to capture those details of the overall project life cycle stages. The master schedule can be created directly in PMWeb or if needed can be imported from Primavera P6 or MS Project.

The next step is to estimate the direct cost of labor and non-labor resources that the project owner own organization needs to manage the tasks and deliverables for each life cycle stage. To have a better visibility of the labor resources required at each stage, it is highly recommended to create an organization chart to map the resource roles and assigned responsibilities for each stage.

PMWeb organization chart module will be used to create the organization chart for each project life cycle stage and then associate the needed resources to each role. Those labor resources will be defined in PMWeb labor resources module. For non-labor resources, those will be defined in PMWeb equipment resources module.

The next step would be to determine the needed labor and non-labor resources deployment levels, that is full time or part-time and to what extent. Those requirements will be estimated for each project life cycle stage taking into account the organization chart defined for the project owner team who will be responsible for managing the stage. Although the common practice would be to assume that those labor resources will be deployed at regular pay rates, nevertheless, PMWeb also allows to determine those rates can be also deployed at overtime or weekend rates. The estimate for each resource requirement stage will be assigned the cost breakdown structure (CBS) or cost account level that this estimated cost will be associated with.

As for the indirect costs associated with the project owner own organization cost required to manage the capital construction delivery, PMWeb cost estimate module will be used to estimate those costs. Similar to all other estimate templates created in PMWeb, all those indirect cost items will be detailed into their unit price, quantity and unit of measure to enable calculating the total cost of each item.

The direct cost estimate for the resource requirements for each project life cycle stage and the indirect cost associated with those stages will become the basis for establish the budget for the project owner own organization cost required to manage the capital construction delivery. This budget will be captured at the cost breakdown structure (CBS) or cost account level assigned for project owner own organization cost.

To ensure that there is a commitment by the project owner organization to control the actual direct and indirect costs for managing the tasks and deliverables of each project life cycle stage, a commitment record will be created. The commitment record will represent the amount estimated by project owner organization for the direct and indirect costs required to manage the tasks and deliverables of each project life cycle stage. On monthly basis, the actual cost incurred against the detailed direct and indirect line items will be captured. This will become the basis for reporting the actual cost incurred against the project owner organization estimate to manage the tasks and deliverables of each project life cycle stage and the balance to complete each item.

To ensure that the actual direct cost associated with the consumed labor and non-labor resources are formally captured and documented, it is highly recommended to use PMWeb timesheet module to capture the details of those spent hours. The timesheet module will enable defining if the actually spent labor resource hours were spent during normal working hours for regular pay or weekend, overtime or holiday pay types.

Although PMWeb allows the organization to directly report from the timesheet module on the non-commitment actual direct cost, nevertheless, it is highly recommended to document this cost in the commitment progress invoice. Those timesheets will be linked to the progress invoice to provide the needed justification to what has been charged as actual direct cost for the project owner organization own team.

PMWeb potential change order module will be used to capture any potential changes identified that could impact what was originally estimated for the direct and indirect costs required to manage the tasks and deliverables of each project life cycle stage. The reported potential changes will be subject for detailed review in accordance with the workflow assigned to this business process.

If a potential change is approved, then it will become the basis for generating the change order to adjust the estimated commitment for the project owner own organization management cost.

Whenever there is an approved change to the estimated cost for project owner own organization, the project’s baseline budget needs also to be revised by issuing a budget request. To ensure that all changes to the project owner own organization commitment have the required budget adjustment record, PMWeb change event module will be used to combine the approved budget with the approved change or changes to the project owner own organization commitment.

Similar to all other business processes managed in PMWeb, the project team can attach all supportive documents to each business process template detailed above. 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 also 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 managing the business processes detailed above, a workflow needs to be added to each template to map the submit, review and approve tasks, role or roles assigned to each task, task duration, task type and actions available for task. The workflow can be configured to include the approval authority levels as set in the Delegation of Authority (DoA) document.

When a transaction for any of the business processes detailed above is submitted for review and approval, 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 500 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.


Contact us