Cost Modelling: Another Dimension in Project Planning and Control

Dr Paul Wood

BMT Group

•  An international network of subsidiaries providing engineering, design and risk management consultancy

•  Wholly independent partner providing customers with access to expertise around the globe

•  Heritage of research and technology which drives significant ongoing investment in R&D and development of future talent

•  Formed in 1985 through Government privatisation of maritime research and technology organisations

•  Held in beneficial ownership for the staff

•  2011 turnover £140 million

•  1300 staff in 22 subsidiary companies (60 Offices) in 23 countries in Europe, North America and Asia

BMT Hi-Q Sigma Overview

•  A professional services company compromising of 90 consultants across offices in Bath, Basingstoke and London.

•  Operating across the Defence, Energy and Transportation sectors.

•  Achieved a turnover in 2011 of ~ £12M.

•  As an employee benefit trust with no manufacturing or supply chain interests, we provide truly impartial advice, assistance.

•  In the complex world which we know you face every day, our goal is simple and steadfast:

to bring clarity

BMT Hi Q Sigma Services and Capabilities

•  We help to deliver complex programmes through the integration of programme management and systems engineering.

We help you achieve clarity through:

•  Strategic guidance to organisations in the establishment and management of programmes

•  Interventions to optimise existing programmes/projects

•  Provision of quality people as interim support

Risk and Opportunity Management

Investment Appraisal

Project Controls and

EVM

Enterprise Architecture

Requirements Definition

Training and Mentoring

Business Planning and Forecasting

Business Process

Management

Portfolio Management

Planning and Schedule

Management

Feasibility Studies and

Due Diligence

Project Diagnostics

Strategic Guidance

Project Optimisation

Interim Support

Enabling Successful Programmes

Aim

1.  Identify the touch points between Cost Estimating, Scheduling and Project Controls.

2.  Understand the mutual benefits of interfacing the processes.

3.  Understand the long term benefits that can flow between similar projects.

Agenda

1. Cost Model Process/Techniques 2. Learning Cycle 3. Project Life Cycle 4. Touch Points between the processes 5. Common problems in Cost Modelling 6. Benefits of working together 7. Questions

Cost Model Process •  Agree Assumptions with customer

•  Identify Data Sources (with customer)

•  Data Collection (including risks)

•  Model Development

•  Model Verification & Validation

•  Analysis

•  Report

Project boundaries

Same sources?

Shared meetings?

Check schedule

Schedule

Analysis

Shared report?

Cost Model Techniques •  Top Down

•  Historical Trend Analysis

0

20

40

60

80

100

120

140

160

180

200

1890

18

95

1900

19

05

1910

19

15

1920

19

25

1930

19

35

1940

19

45

1950

19

55

1960

19

65

1970

19

75

1980

19

85

1990

19

95

2000

20

05

2010

20

15

2020

20

25

2030

20

35

2040

20

45

2050

20

55

2060

20

65

Cost (£M)

Cost (£M)

Linear (Cost (£M))

Cost Model Techniques •  Top Down

•  Historical Trend Analysis •  Analogy (“It is like one of these”) •  Parametric (Pattern backed up by statistics)

•  Bottom Up •  Cost and Resource Breakdown Structure (CRBS) •  Weight Groups – NES 163, Brown Book and ANEP 42 •  Expert Opinion •  Extrapolation (closer to Parametric (at the system level))

Learning Cycle

Planning

Doing

Reviewing

Learning From

Experience (LFE)

Vision

Project/Product Life Cycle

Concept Definition

Implementation Handover

Operations Disposal/ Termination

Time (not to scale)

Culture

Business Case

Project Plan

PPE/LFE

Project Life Cycle

Concept Definition

Implementation Handover

Operations Disposal/ Termination

Time (not to scale)

Culture

Business Case

Project Plan

PPE/LFE

Project Close Out

X XX

Project Activities Concept Definition Implementation Handover

Time (not to scale)

Culture

Business Case

Project Plan

Vision Planning Doing Reviewing

Learning From Experience

Top Down Bottom Up Actual Costs are Evolving

Cost Estimates Cost Knowledge

Cost Process

Scheduling/PMB Process

Develop Schedule Deliver against the PMB

Agree the PMB

Project Close Out

Learning Cycle

Learning Cycle (Reality)

Planning1

Doing

Reviewing

LFE Vision1

Planning2

Vision2

Touchpoints

Project Phase Cost Schedule PMB Concept Manhours are estimated Solution is unknown, high level

schedules (dates of phases) Not yet agreed for whole project

Definition More robust manhours available to aid schedule; Risk info available

Schedule can be built using estimated manhours from cost model

PMB agreed; Risk info included

Implementation Feedback on actual manhours and material costs from Project Controls

Controlled as PMB Project delivered against PMB; Known costs and manhours fed back to cost modellers

Handover Milestone activity Controlled as PMB Milestone activity

LFE Learns from the PMB Learns from the Manhour cost model data and PMB data

Confidence is given from the learning from previous projects

Culture Culture is changed from LFE

Data providers have the same culture that has been cultivated during the cost model data collection

The culture change engendered as the cost model and schedule has developed.

6. Common Problems (costs)

•  Collection of good data

•  Estimates based on estimates and not always documented (increases errors)

•  Risks are bolted on at the end of the process

•  Schedule is determined later

•  Lack of understanding of three point estimates and statistical analysis

•  Costs in wrong year creates inflation errors (a better understanding of the schedule would help!)

Benefits of working together •  Better understanding of common stakeholders

•  Build on culture change as the project progresses

•  Reduces stakeholder engagement time

•  Improved communication

•  Costs developed using manhours can be used to develop schedules (vice versa in the next project)

•  Reduces the overhead of project planning (robust data available)

•  Feedback loops can be used to make the cost model, schedule and PMB more robust on follow on projects

•  Helps build a robust database of project data

Thank you