Procedure Cost Control

Procedure for Cost Control | | | Table of Contents 1. Purpose 2. General 3. Responsibilities 4. Procedure 5. Flowchart 6. References 7. Attachments 1. PurposeTo establish a system whereby developments which affect the costs of the project are timely reported, thereby allowing for corrective action when adverse trends are detected, and to inform about funding requirements for the execution of the project. To establish a procedure to control flow of information which affects anticipated final project cost.This procedure shall be used in combination with the â€Å"Procedure for Project Variations† [1], the â€Å"Planning Procedure† [2] and the â€Å"Procedure for the Project execution Control system† [3]. 2. GeneralAt project start, generally a high level budget is available and in many cases underlaying details about estimated costs are also available. These documents, however, are in most cases not adequate for effective cost control. Therefore, this procedure req uires that in an early stage of the project a control budget is prepared, based on the available information and within the boundaries of the high level (AS SOLD) budget.Cost control within Company generally consists of the following categories:- Company Services (reimbursable Engineering, Procurement , Construction Management and outside services) also client cost reporting. – The investment cost reporting which includes all costs within the scope of the project (e. g. direct supplied materials, subcontracts, services including Company's services etc. ). – Company internal cost report which is limited to Company's services, including non reimbursable costs. The requirement for the first two categories largely depends on the scope of work for the project and the contract type.Regardless of the scope of work and the contract type, internal cost reporting will always be required. The cost reports shall as a minimum contain the following information:- Original budget. â⠂¬â€œ Current budget, being the sum of the original budget and the approved change orders. – Commitments to date. – Anticipated final, being the sum of the current budget, pending change orders and approved deviations from plan. Approved change notices which have not yet been converted into change orders are excluded from the anticipated final.They are reported in a change Order Register, which is part of the cost report. Cost forecasts shall be made regularly through sampling, trend analysis and bottoms up estimates to complete. Deviations from plan shall be made where cost forecasts at cost report line item level deviate from the current anticipated final. 2. 1 Company Services2. 1. 1 The Company services cost report includes manhours and costs of manhours, computer application, reproduction, communication, travel, outside services etc. The structure of the report has to be defined at the start of the project.Requirements for reporting in the client's code of account and grouping by client's work packages have to be carefully examined to determine the level of detail at which the costs are controlled. 2. 1. 2 In general the level at which costs are controlled should be of sufficient detail to allow for consolidation in both Company's project cost codes and the combination of client defined work packages and code of accounts. The selected level of detail must allow for reliable progress reporting in combination with reporting of the expended manhours as required for trend analysis.Too much detail generally results in reduced quality and is a waste of effort. 2. 1. 3 An â€Å"end of project breakdown† should be considered when the client requires to know the project cost in more detail than the level at which effective cost control is done. 2. 1. 4 To ease time phased budgeting and forecasting at discipline level, the cost control system should follow the work breakdown structure of the planning and project execution Control (PEC) system. 2. 1. 5 Based on the available information (budget, progress, actuals, schedule etc. , the cost engineer makes a forecast on final manhours and costs and reviews this forecast with the parties involved. For line items where the forecast deviates from the anticipated final a deviation of Plan is prepared. Only deviations approved by the project manager are included in the cost report. 2. 2 Investment Cost2. 2. 1 The Investment cost Report includes costs of Company's services at a consolidated level, direct supplied materials, subcontracts and any other costs which fall within the cost control scope. The structure of the report has to be defined at the start of the project.Requirements for reporting in the client's code of account and grouping by client's work packages have to be carefully examined to determine the level of detail at which the cost details are maintained. 2. 2. 2 In general, the level at which the cost details are maintained should be of sufficient detail, to allow fo r consolidation in both Company's cost codes and the combination of client defined work packages and code of accounts. The selected level of detail must allow realistic allocation of commitments and development of forecasted finals.Too much detail generally results in reduced quality and is a waste of effort. 2. 2. 3 An â€Å"asset breakdown† at the end of the project should be considered when the client requires to know the project cost in more detail, than the level at which effective cost control is done. 2. 2. 4 To ease the development of commitment ; expenditure curves, the investment cost control system and the planning system are preferably integrated to the extend that scheduled and actual dates for commitments can be obtained from the planning system at budget line item level.Therefore, the investment cost control structure should largely follow the work breakdown structure of the planning and project execution control (PEC) system. 2. 2. 5 The design development all owances (DDA) for outstanding commitments are to be reviewed periodically and shall be reduced over time when it becomes more certain that there are no further developments expected (e. g. vendor documents approved, inspection reports received etc. ). Grouping DDA for budget line items of the same account group into one DDA line item for that group, rather than including a DDA for each line item, is recommended.The cost report should show the value of the DDA or a back up report should be available. 2. 2. 6 For main equipment and for bulk materials the cost code is at least at requisition level. For subcontracts, the cost code is for small subcontracts at subcontract level and for larger subcontracts (e. g. mechanical subcontract) the cost code is at main category (pay item) level. 2. 3 Internal Cost Report2. 3. 1 The internal cost report shall be limited to Company's scope of work and will include for reimbursable type contracts the non reimbursable costs.The level of detail for th e internal cost report shall be established at project start, taking internal reporting requirements, such as the current cost outlook (CCO), the monthly project status report (MPSR) and executive summary report (ESR), into account. 2. 4 Cost Engineering Scope Document2. 4. 1 At job start the cost engineer issues the â€Å"cost engineering scope† which contains at a minimum the following information: * Scope of â€Å"work† to be covered by the project cost engineer. * Cost engineering deliverables, together with their frequency and timing. Report layouts and level of detail. * Project reporting period cut off dates. * Cost engineering staffing plan and cost engineering manhours. * Computer programs and methods to be used. * Anticipated involvement of estimating for the preparation of bottoms up estimates to complete and for the development of the control budget. * Planned dates for the first issue of the control budgets. * Distribution schedules. * Currency exchange ra tes and reporting currency. 3. Responsibilities3. Each project team member shall immediately respond when their input is required for reporting physical progress and to determine the anticipated finals as required for the cost report preparation and shall work towards minimizing the duration for execution of this procedure. 3. 2 The Project Manager is Responsible for:- Providing the cost engineer with information about the cost engineering scope of work, specific client and project requirements, â€Å"AS SOLD† budget and any underlaying estimate details and any other information required by the cost engineer to prepare the cost engineering scope document and the control budget(s). Approving the cost engineering scope, control budget(s), deviation from plans and cost reports(s). 3. 3 Lead Discipline Engineers are Responsible for:- Updating of material quantity forecasts after key engineering documents have been issued and for timely reporting of changes, in writing (â€Å"cha nge alert†), to the project manager. – Providing monthly updates on the physical progress of their discipline(s) and to review together with the project cost Engineer the manhour forecast. 3. 4 The Cost Engineer is Responsible for:- Maintaining the cost control system and for the timely preparation of the Period cost Reports. Expediting the Lead Discipline Engineers to ensure that they provide their timely input as required for cost control. – Comparison of vendor and subcontractor quotations with the control budget and underlaying detailed estimate and for detection of unit rate trends based on quotation and purchase order/subcontract unit rates. – Development and maintenance of planned and actual commitment versus expenditure reports from which the planned and actual cost Progress Curves are generated. . 5 The project buyer/subcontract engineer is responsible for timely input to the cost engineer of vendor quotations and purchase order/ subcontract Unit Rates. 3. 6 The project Accountant is responsible for informing the project cost Engineer about actual expenditures, currency exchange costs and invoice status. 4. Procedure4. 1 Company Services4. 1. 1 Provide Cost Engineer with the Required Information:At the project start, the project manager provides the cost ngineer with information about the cost engineering scope of work, specific client and project requirements, â€Å"AS SOLD† budget, any underlaying estimate details and any other information required by the cost engineer to prepare the cost engineering scope document and the control budget(s). 4. 1. 2 Prepare Cost Engineering Scope DocumentThe cost engineer prepares a document which lists the project requirements with respect to cost engineering and other relevant information as mentioned under item 2. 4. 1. 4. 1. Approved by Project ManagerThe approved cost engineering scope document shall be the basis for the work of the cost engineer for the remainder of the projec t. 4. 1. 4 Develop Control Budget(s) for Company ServicesThe project cost engineer converts with, when required, the support of the estimating department the detailed estimate into a control budget. The cost details are consolidated and amended as required at a control level. The control level shall be at sufficient detail to allow for meaningful control and shall allow for timely and cost effective trending, progress measurement and collection of actual costs.A general consensus with all parties involved about the work breakdown structure should exist prior to the actual conversion takes place. 4. 1. 5 Approved by Project ManagerThe project Manager shall approve the control budget which than becomes the â€Å"original budget† of the project. 4. 1. 6 Approved Change OrderAdjustments of the budget require an approved change order once the control budget has been approved. Details of each Approved change order are recorded separately at control budget level, thereby maintaining a complete back-up of the approved changes.The approved change orders together with the â€Å"original budget† form the â€Å"current budget†. 4. 1. 7 Company Services Expended Costs & Manhours and Invoice StatusFollowing the monthly cut off, the project accountant shall provide the cost engineer with information about all expended manhours, manhours costs and other costs of Company services. Preferably at control budget line item level, or at a more detailed level which allows for consolidation at control budget line item level. For reimbursable type projects, the project accountant shall not only provide internal costs, but also the costs to the client at the same level of detail.The project accountant shall inform the cost engineer in detail about any delayed cost bookings or provisional bookings. Furthermore, the project accountant provides the invoice status information as required for the executive summary report. 4. 1. 8 Physical Progress at Control Budget Leve lFollowing the monthly cut off, the planning engineer provides the cost engineer with physical progress information (percentage complete) at control budget line item level for engineering and subcontract work. The progress information must have been reviewed with the disciplines involved prior to passing it on to the cost engineer.It is preferred that the engineering physical progress is obtained from the â€Å"project execution control† system (PEC). 4. 1. 9 Cost ForecastByanalyzing the available information about budget, actuals and physical progress and using historical data, the cost engineer makes a forecast about the final project costs at budget line item level. When there are indications of major deviations from the current anticipated finals, a bottoms up detailed estimate to complete might be required to generate a reliable forecast.Towards the end of the project the forecast should be based on â€Å"punch list† items to be completed. The cost engineer shall review these forecasts with the disciplines involved. 4. 1. 10 Approved Deviation from PlanThe cost engineer prepares a deviation from plan for budget line items which forecasted costs deviate from the current anticipated finals and for which the project manager expects that management action will not result in maintaining the current anticipated finals. 4. 1. 1 Update Anticipated FinalsThe cost engineer updates the current anticipated finals only based on approved deviations from plan, approved change orders and pending change orders for which the client has already approved the change notice. 4. 1. 12 Investment and Company Services Cost Report(s), Project Cost Report and Cost NarrativesThe cost engineer prepares following the period (monthly) cut off the Company services cost reports (internal and client reports) and the investment cost report, taking the latest information into account.The combined reports, together with the commitment versus expenditure report, the currency con version table and any other reports or curves that are required for the project from the project cost report. Together with the report, the cost engineer provides a narrative which describes the period highlights. Furthermore, the narratives should include major developments which have come to light during the last period, but for which time did not allow for the preparation of a deviation from Plan. These late developments are to be included in accordance with the procedure in the next cost report. . 1. 13 Approved by Project Manager and Cost Reports Issued. The project manager approves the project cost report after which it is distributed by the cost Engineer in accordance with the distribution schedule as defined in the cost engineering scope. 4. 2 Investment Cost4. 2. 1 Develop Control Budget for Investment Cost. The project cost engineer converts with, when required, the support of the Estimating department the detailed estimate into a control budget. The cost details are conso lidated and amended as required at a control level.The control level shall be at sufficient detail to allow for meaningful control and shall allow for timely and cost effective trending, allocation of commitments and assessment of estimates to complete. A general consensus with all parties involved about the work breakdown structure should exist prior to issuing the control budget for approval to the project manager. 4. 2. 2 Approved by Project Manager. The project Manager shall approve the control budget which than becomes the â€Å"original budget† of the project. 4. 2. Approved Change Order, Update Current Budget and Anticipated FinalsAdjustments of the budget require an approved change order once the control budget has been approved. Details of each approved change Order are recorded separately at control budget line item level, thereby maintaining a complete back-up of the approved changes. The approved change orders together with the â€Å"original budget† form t he â€Å"current budget†. The anticipated finals are updated to reflect the effect of the change order. Note that the anticipated finals may already have been updated at the time that the change order was issued for approval. 4. 2. Purchase Order/Subcontract PlacedPurchase Order and subcontract details at control budget level shall be made available for the cost engineer by the project buyer and the subcontracts manager. In particular information about options and other relevant information which will influence the final commitments is to be highlighted. 4. 2. 5 Update Commitment versus Expenditure Report and Forecast FinalThe cost Engineer shall regularly update the commitments versus expenditure report with purchase order and subcontract details. Furthermore, the project cost engineer shall evaluate the forecast finals to reflect the effect of the commitments.A design development allowance for outstanding commitments has to be included in the forecast finals at the time of commitment and subsequently reduced over time. 4. 2. 6 Issue of Key Engineering DocumentsThe lead discipline engineer shall review the material quantity requirements when key engineering documents (e. g. P&ID's, equipment summary sheets, MTO's, requisitions) are issued to determine whether forecasts require to be updated. Generally it will not be required to have documents which cover the complete scope of work.Comparing samples with the detailed estimate will generally be an adequate basis to determine trends in material and installation requirements. 4. 2. 7 Revised Quantity Forecast/Prepare Change AlertThe lead discipline engineer prepares a change alert and issues it to the project manager when he determines the need to revise the current material and/or installation requirement forecast. 4. 2. 8 Vendor Quotations/Purchase Order Unit RatesThe project cost engineer shall compare the unit rates obtained from vendor quotations and purchase orders with the unit rates in the detailed estimate. . 2. 9 Revised Unit Rates/Prepare Change AlertThe project cost engineer shall prepare a change alert and issue it to the project manager when he determines the need to change the current forecast finals as a result of change in the unit rates. 4. 2. 10 Approved by Project Manager – Approved Deviation from PlanUpon approval of the change Alert by the project manager, the cost engineer prepares a deviation from plan which reflects the changed unit rates or the changed material and/or installation requirements.This deviation from plan is approved by the project manager prior to incorporating it into the cost report. 4. 2. 11 Invoice Paid? Update Commitments Versus Expenditure Report. The cost engineer updates the commitment versus expenditure report with the expended amounts. Furthermore, the cost engineer ensures that any design development allowances for the corresponding budget line item is removed from the cost forecast when final payments have been made.All parti es involved, in particular, the project manager, the construction manager, the project buyer and the subcontracts manager, shall inform the cost engineer about (potential) claims or other costs for which the cost engineer might have to make reservations. 4. 2. 12 Cost ForecastBy analyzing the available information about budget, commitments and forecasts to complete and using historical data, the cost engineer makes a forecast about the final project costs at budget line item level. When there are indications of major deviations from the current anticipated finals, a bottoms up detailed estimate to complete might be equired to generate a reliable forecast. Towards the end of the project the forecast should be based on â€Å"punch list† items to be completed. The cost engineer shall review these forecasts with the disciplines involved. 4. 2. 13 Deviation form Anticipated Final? The cost engineer prepares a deviation from plan for budget line items which forecasted cost deviate from the current anticipated finals and for which the project manager expects that management action will not result in maintaining the current anticipated finals. 4. 2. 4 ContinuationThe Investment cost section of this procedure joins the Company services section at item 4. 1. 12. 5. FlowchartThe Cost Control Flowchart consist of the following interlinked sections:6. References | Document Number| Description| | 6. 1| CM-PE-313| Control of Project Variations| 2| 6. 2| CM-PE-910| Planning Procedure| 2| 6. 3| | Procedure for the Project Execution Control System (Later)| | | | | No Iframes | | | | Gadgets powered by Google| | ‘reliability is yet to become the most important characterstic of modern companies' home | privacy | legal