55418123 project cost control
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7/29/2019 55418123 Project Cost Control
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PROJECT COST CONTROLPROJECT COST CONTROL
ESTABLISH AUTHORITY LEVELS TOESTABLISH AUTHORITY LEVELS TO
•SANCTION THE USE OF FUNDSSANCTION THE USE OF FUNDS
•APPROVE AUTHORIZATION OFAPPROVE AUTHORIZATION OF
EXPENDITUREEXPENDITURE
•AUTHORISE CONTRACT STRATEGY ANDAUTHORISE CONTRACT STRATEGY AND
CONDITIONSCONDITIONS
•SPECIFY INDIVIDUAL LEVELS OFSPECIFY INDIVIDUAL LEVELS OF
AUTHORITY AUTHORITY TO ISSUE PURCHASE ORDERS,TO ISSUE PURCHASE ORDERS,
FINALISING CONTRACTS,FINALISING CONTRACTS,
APPROVING EXPENSES ETC.APPROVING EXPENSES ETC.
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PROJECT COST CONTROLPROJECT COST CONTROL
Basis forpaying thecontractor
Type of contract
Owner’sdegree of
projectcontrolneeded
Productdefinitionrequired
Contractor’s
risk Moti-vation
Performance
Time
- Turnkey
- Lump sum
- Bill of qty.
& sch. rates- Target Price
- Fee +Rembrs.
day-work rates
- Cost plus
Least
Highest
Highest
Least
Highest
Least
Highest
Least
CONTRACT STRATEGY & RISK CONTROLCONTRACT STRATEGY & RISK CONTROL
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PROJECT COST CONTROLPROJECT COST CONTROL
PROJECT COST REPORTINGPR
OJECT COST REPORTING1.1. COMMITTED COSTS:COMMITTED COSTS: Total value of all Total value of all
works and expenses contained inworks and expenses contained in
contracts and purchase orders awarded contracts and purchase orders awarded
to third parties. In case of reimbursableto third parties. In case of reimbursable
or measured works contracts, committed or measured works contracts, committed costs are in relation to defined scope of costs are in relation to defined scope of
work.work. 2.2. PROJECT EXPENDITUREPROJECT EXPENDITURE:: Total cost of Total cost of
work done, goods received and of work done, goods received and of services used, whether or not these haveservices used, whether or not these have
been paid for. This includes accruals &been paid for. This includes accruals &
provisions. provisions.
3.3. OUTSTANDING COMMITMENTS:OUTSTANDING COMMITMENTS: Total Total
costs committed minus project costs committed minus project
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PROJECT COST CONTROLPROJECT COST CONTROL
PROJECT COST REPORTINGPR
OJECT COST REPORTING
4.4. ESTIMATE TO COMPLETE:ESTIMATE TO COMPLETE: Is the best Is the best
estimate that can be made at any givenestimate that can be made at any given
time of remaining costs not already time of remaining costs not already
reported as expended or committed,reported as expended or committed,taking into account the current project taking into account the current project
scope and performance trends to date.scope and performance trends to date.
5.5. ESTIMATED FINAL COST:ESTIMATED FINAL COST: It is committed It is committed
costs to date plus the estimate tocosts to date plus the estimate tocomplete.complete.
6.6. EARNED VALUE:EARNED VALUE: Total of budgeted cost Total of budgeted cost
for the work progress to date.for the work progress to date.
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PROJECT COST CONTROLPROJECT COST CONTROL
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PROJECT COST CONTROLPROJECT COST CONTROL
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PROJECT COST CONTROLPROJECT COST CONTROL
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PROJECT COST CONTROLPROJECT COST CONTROL
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PROJECT COST CONTROLPROJECT COST CONTROL
HOW PROJECT MANAGER CAN INFLUENCE COSTSHOW PROJECT MANAGER CAN INFLUENCE COSTS
PROJECT COSTPROJECT COST
• EVALUATE ALTERNATE DESIGN CONCEPTSEVALUATE ALTERNATE DESIGN CONCEPTS• AVOID EXCESSIVE SAFETY FACTORSAVOID EXCESSIVE SAFETY FACTORS• AVOID & CONTROL EXTRA REFINEMENTSAVOID & CONTROL EXTRA REFINEMENTS• USE CONTINGENCY BUDGET ONLY FOR INTENDEDUSE CONTINGENCY BUDGET ONLY FOR INTENDED
PURPOSE & NOT FOR SCOPE CHANGE.PURPOSE & NOT FOR SCOPE CHANGE.• PROVIDE ADEQUATE TIME FOR ‘PRICE-SHOPPING’PROVIDE ADEQUATE TIME FOR ‘PRICE-SHOPPING’
IN PROJECT SCHEDULE.IN PROJECT SCHEDULE.• INCORPORATE SCOPE CHANGES ONLY ONINCORPORATE SCOPE CHANGES ONLY ON
CLIENT / MANAGEMENT APPROVAL ANDCLIENT / MANAGEMENT APPROVAL ANDALLOCATION OF REQUISITE FUNDS / TIMEALLOCATION OF REQUISITE FUNDS / TIME
• PLAN FOR INFLATION – PROVIDE FOR “PRICEPLAN FOR INFLATION – PROVIDE FOR “PRICE
PROTECTION” & “ESCALATION”PROTECTION” & “ESCALATION”
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PROJECT COST CONTROLPROJECT COST CONTROL
HOW PROJECT MANAGER CAN INFLUENCE COSTSHOW PROJECT MANAGER CAN INFLUENCE COSTS
FINANTIAL EXPENSESFINANTIAL EXPENSES
•REDUCE INTEREST COST BY PLACINGREDUCE INTEREST COST BY PLACING
ORDERS AS LATE AS POSSIBLE.ORDERS AS LATE AS POSSIBLE.
•MAINTAIN “ZERO” NET CASH POSITIONMAINTAIN “ZERO” NET CASH POSITION
BY PROPER STRUCTURING OF PROGRESSBY PROPER STRUCTURING OF PROGRESS
PAYMENTS & CASH RECEIPTS.PAYMENTS & CASH RECEIPTS.
•ENSURE RAPID PROJECT ACCEPTANCE BY ENSURE RAPID PROJECT ACCEPTANCE BY
EARLY COMPLETION & COMPLIANCE TOEARLY COMPLETION & COMPLIANCE TO
RELEASE RETENTION MONEY OR STARTRELEASE RETENTION MONEY OR START
EARLY PAYBACK.EARLY PAYBACK.
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PROJECT COST CONTROLPROJECT COST CONTROL
HOW PROJECT MANAGER CAN INFLUENCE COSTSHOW PROJECT MANAGER CAN INFLUENCE COSTS
TAX EXPENSESTAX EXPENSES
•ENSURE PROJECT COMPLETION WITHINENSURE PROJECT COMPLETION WITHIN
SPECIFIED ACCOUNTING PERIOD TO TAKESPECIFIED ACCOUNTING PERIOD TO TAKE
INVESTMENT RELATED TAX BENEFITS.INVESTMENT RELATED TAX BENEFITS.•AVOID PROJECT SCHEDULE DRIVEN BY AVOID PROJECT SCHEDULE DRIVEN BY
INFLUENCES EXTERNAL TO PROJECT’SINFLUENCES EXTERNAL TO PROJECT’S
FUNDAMENTAL OBJECTIVESFUNDAMENTAL OBJECTIVES
•USE ‘PERCENTAGE OF COMPLETION’USE ‘PERCENTAGE OF COMPLETION’PROCESS FOR ACCOUNTING OF REVENUES.PROCESS FOR ACCOUNTING OF REVENUES.•SUPPORT THE MANAGEMENT INSUPPORT THE MANAGEMENT IN
ACHIEVING FAVOURABLE P & L BY ACHIEVING FAVOURABLE P & L BY
ADJUSTING PROJECT SCHEDULESADJUSTING PROJECT SCHEDULES
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PROJECT COST CONTROLPROJECT COST CONTROL
COST CONTROL CURVE
0
20
40
60
80
100
120
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
C u m u
l a t i v e % B u d g e t e d
C o s t
ACWP
BCWS
BCWP (EV)
TIMED
ELAY
COST OVERRUN