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2. Project Cost Control




Cost control is the process of recording, analyzing, forecasting, and reporting project cost and revenue data and communicating deviations against project baselines to management to assist in minimizing project cost impacts and maintaining project profitability. Invariably, Client satisfaction is influenced by the Company’s ability to control project costs. Identification of project requirements is fundamental to the cost control process. Contractually specified financial considerations, reporting requirements, and risk assessments are significant


variables that impact client satisfaction and the projects financial execution. Developing, aligning and communicating the Work Breakdown Structure and Cost Breakdown Structure, and systems to meet these requirements and enable effective reporting, exception analysis, change management, and forecasting is a primary function of the Project Controls Team during the setup phase of the project.



2.1. Cost Baselines (Budgets)


The project's estimates and schedules define the Cost Control budget and time-phasing baselines. It is important that they are aligned with the project requirements and WBS/ CBS coding structures. Project Cost Control is based on the following standard budgets and forecast:


- Original Budget: The initial cost for the project work scope based on the Control Estimate as agreed to by both the Client and Company’s Management at the effective date of the Contract. The Original Budget is synonymous with Initial Approved Costs (IAC) Budget.


- Current Budget: Current approved budget for the contract scope, as agreed to by the Client and Company’s management. It is the Client Change Order adjusted budget and is synonymous with Control Budget and Client Approved Cost (CAC) Budget.


- Work Content Budget: The project progress and productivity budget as calculated by the current projected quantities at the estimated unit rates. It is synonymous with the Quantity Adjusted Budget, and Target Budget.


- Current Forecast: The anticipated costs at project completion. The Current Forecast is a reflection of the actual commitments and expenditures to date and the forecast of costs left to commit and spend. The Current Forecast is synonymous with the Estimate at Completion (EAC).



2.2. Cost Control (Accumulation of Actuals, Analysis and Trending)


During project execution, the Cost Specialist is responsible for maintaining data and coding integrity with other systems in the accumulation of progress, commitments, and expenditures, the maintenance of budgets and forecasts and management reporting. Procurement, time entry, financial and performance measurement systems must be reconciled to the Cost Control System to ensure this integrity of the cost and revenue reporting function. Project progress, commitment, and expenditure status are compared to the baseline plan and deviations and trends identified.


A comprehensive Forecast Plan to analyze quantities, unit rates, unit costs, and other costs must be established and agreed to with Company and Client’s management and then executed in a timely manner. Focus should be on the elements identified as high risk in the Risk Analysis and estimate assumptions and qualifications. The Cost Specialist is responsible for analyzing project deviations and trends for their causes and potential impacts. The analysis impacts and corrective action should be quantified and forecasted. At the end of each reporting period, project status (budget, progress, commitments, and expenditures), trends, and risks are communicated to management to provide a basis for corrective action.



2.3. Managing Change


The Project Manager is responsible for establishing the Project Change Management Team (PCMT), leading the development of the project specific Change Management Plan and the project execution of the Change Management process. Managing change starts with the communication and understanding of the project baseline and key reference documents. The focus of the project team on identifying changes and deviations from the plan on Deviation Requests (DR) or Project Deviation Notices (PDN) is essential to controlling change and accurate project forecasting.


Changes are reviewed and validated in PDN review meetings and sent to the Project Change Management Team for classification, authorization to proceed and impact quantification. Timely incorporation of PDN's as they are identified and acted upon is an essential element for accurate cost and schedule forecasting and financial performance analysis. Changes include those adjustments to scope requested by the Client (Client Change Orders) as well as in-scope Project Variances.


Deviation Requests (DR) or Project Deviation Notices (PDN): Used to identify, document and communicate changes to the project reference documents (contract, scope, execution plan, cost, or schedule) throughout the life cycle of the project. A detailed DR/ PDN register is initiated and maintained by cost control personnel to ensure that all DRs/ PDNs are listed tracked, and the status maintained and communicated to the PCMT. Project Deviation Notices do not change budgets or the forecast until they are approved as either a Client Change Order, or Project Variance.


Client Change Orders (CCO): A formal contract-related document for presenting to the client a change in the project contractual terms/ conditions, project scope additions/ deletions, and changes in the execution plan, cost or schedule that was requested or agreed to by the client.


Project Variances (PV): Used to document changes to the work content, and performance to plan adjustments. Project Variances include Work Content Variances arising from evolving scope/ quantities and Forecast Variances arising from unit rate, pricing, and resource productivity adjustments. The Project Manager approves and signs off each PDN as a CCO, or PV for the project. Depending on the magnitude of the change, other company management may be required to approve/ sign as well.


Client Change Orders are submitted to the Client for approval in accordance with the timing established in the project Change Management Plan. Disputed CCOs not approved in accordance with the project Change Management Plan are to be elevated to the appropriate company senior management for assistance in resolving.



2.4. Project Team Roles for Costs Control



Project Manager


Responsible for ensuring identification of the project's cost control requirements and proper management of all cost control functions, including establishing the baseline, change management, trending/ forecasting and initiating appropriate corrective actions as well as initiating check estimates.



Cost Control


The Cost Specialist is responsible for the timely collection and cost coding of commitments and expenditures, and the subsequent analysis of this data versus the budget/ forecast. They identify deviations from the plan/ budget and recommend forecasts based on their analysis/ trending, as well as administer the project Change Management process.



Project Team


Provide accurate and timely input from their respective areas of responsibility to Project Controls for up-to-date knowledge on the actual costs, management of change, identification of trends and corrective actions, and predictions of future costs.



Link to Section 1. Overview and Function of Project Controls

Link to Section 2. Project Cost Control

Link to Section 3. Project Planning and Schedule Control

Link to Section 4. Risk/ Contingency Management

Link to Section 5. Project Performance Measurement

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