Or give it to CONJECT.

They know how to do it.

2

Cost management of construction projects does not require magic but – as always – the devil is in the detail. The complexity mainly results from the multitude of contractual partners and relationships, invoices, approval statuses and cost codes. Even in smaller projects you often have to deal with hundreds of invoices and hundreds of cost codes.

How can you control all activities during budgeting, awarding and invoicing and achieve the financial goals of the project in an efficient way?

The simple answer: With IT-based cost management processes!

This guide shows you how to design and implement these processes. It will help you to

• gain an overview over the approach of how to implement a cost management system and• make a first inventory of the required content.

We will introduce you to specific and field-tested methods and tools.

Comment:Are you mainly working with Excel or other spreadsheet software? Are you unaware of the underlying problems and/or the benefit of a professional cost management system? If the answer is yes, we recommend you consult our health guide for construction and real estate processes, “Exceleritis Realis Estatis”.

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THE ULTIMATE GUIDE TO COST MANAGEMENT

COMPLEX THINGS MADE EASY

The following four symbols describe the areas that we will work on in order to achieve the best result possible for your cost management system:

REPORTS

PROCESSES

STRUCTURES

INTERFACES

Follow our instructions and we promise to provide you with a definitive cost management system.

ADVICE

HINT

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DELIVERABLES AND SCHEDULE

We start with the reports. After all, the desired output determines which information we need in the cost management system. Subsequently, we work on processes, structures and interfaces.

At the end of each week, all deliverables of an area will be visible. There-fore, the entire phase of conception will require four weeks if you have to do it alongside your daily work routine.

If you can dedicate all of your time to this undertaking you can finish it all in just a few days.

Starting Point

Processes

Process List

Process Charts

Reports

Report List

Report Designs

Structures

Costr Structure

Budget Structure

Roles and Rights

Interfaces

Interface List

Interface Definitions

Week 1 Week 2 Week 3 Week 4

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INSTRUCTION – PART 1 STARTING POINT

Initially, we have to thoroughly analyse the current situation and the associated problems. That sounds simple but can be tricky as various interest groups are involved in finding a common so-lution. Typical parties involved are board members, commercial managers/directors, controllers, project managers, project assistants and accountants. Every party has different expectations regarding a software solution due to their different responsibilities and tasks.

We recommend describing the starting point in a compact and written format. You can only define and realise a clearly outlined solution if all involved parties are aware of the problems that will be addressed.

1REP OR T S

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The result of your analysis could look like this.

SITUATION

• ABC plc is currently using Excel for the cost control of its property development projects..

• The main financial system is SAP.

PROBLEMS

• Separate cost management outside of the main system: No data security, no audit trail, no direct access.

• Projects have to be aggregated manually in Excel because there is no central system for control.

• This involves a high manual effort and risks of wrong data entries and calculations.

• External partners can hardly be integrated in the process due to the high manual effort.

SOLUTION

• Central cost control system that is integrated with SAP.

Example REP OR T S

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Take a pen and describe your current situation. Which problems are you facing at the moment? Which challenges are lying ahead of you? Do you already have a solution in mind?

Maybe you find it useful to structure the problems based on the areas of reports, processes, structures and interfaces.

SITUATION

PROBLEMS

SOLUTION

REP OR T S Now it’s your t ur n!

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REPORT LIST

Reports are the fundamental outputs of a cost management system. They help monitor activities and take decisions. There are numerous reports that represent the varying information needs of the diverse participants of a property development.

Initially, we have to inventory all the reports that you need to control your projects.

The following example shows some of the most frequently used reports which you may also use, although perhaps with a different name?

NAME DESCRIPTION RECIPIENT FREQUENCY

Cost Report Columns: Budget, Committed, Change Orders, Invoices, Payments, Forecast

Rows: Only costs • Level of detail: lowest level

Executive Board Weekly

Cost Report Bank Columns: as Cost Report • Rows: Only costs • Level of detail: lowest level Bank, Investors Monthly

Cost and Income Columns: as Cost Report • Rows: Cost and income

Level of detail: highest level

Executive Board Weekly

Cashflow Columns: Months from beginning to end • Rows: Cost and income

Level of detail: highest level

Controlling, Accounting Weekly

Contract Overview Overview over all contracts including contract date and amount „Working report“

Project Manager

Weekly

Changes List List of all change order including approval status, amount applied/certified „Working report“

Project Manager

Weekly

Invoice List List of all invoices including terms and payment information „Working report“

Accountant

Daily

Example

Frequently asked questions in this area:• What are your internal information needs?• Which information has to be communicated in which form to external recipients?• Which status reports have to be presented how often?• Which “working reports” do your colleagues require to do their daily work?

REP OR T S

9

NAME DESCRIPTION RECIPIENT FREQUENCY

Which reports do you need for controlling your property development(s)? List them in the table below and describe their contents!

• When evaluating the frequency, think especially about the reports that can currently only be created with high manual effort. They offer the highest efficiency gains!

• Maybe you can identify a “master report” from which you can derive other reports by hierarchical structures and/or filters.

REP OR T S Dyed-i n-t he-wo o l Reports?

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REPORT DESIGNS

After completing the report list, you now have a good overview of the reports you need and the information included in them. Now it’s time to design these reports. Be sure to always use column headers! To avoid misunderstandings, the field certified should contain the same amount in the cost report as in the invoice list. If a deduction or discount is used, please label it accordingly. It may be worth creating a glossary.

This facilitates a swift introduction into your reporting for all project parti-cipants, both internal and external.

We want to show you three examples of essential reports. These are cost report, invoice and change list. As in previous chapters, they should give you some suggestions for your own deliverables.

Example REP OR T S

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REP OR T S

12

REP OR T S

Frequently asked questions in this area:• Are you categorising your projects (e. g. by region or usage) and thereby grouping them into portfolios?• Do you have to take different currencies into account?• How do you determine the forecast in your cost report? Do you have a defined algorithm for it or do you

manually enter an estimate?• How do the different approval statuses of contracts, changes and invoices influence your reports?• How do you deal with deductions and discounts in invoices?

We want to give you free reign when designing your reports. Hence, you don’t find a template here as we give you in other chapters.

Free reign? Be creat ive!

13

INSTRUCTION – PART 2 Process List

With report lists and report designs at hand, the outputs are defined. You can now dedicate yourself to the processes and determine how the collaboration between the various project participants and departments should be structured. Here we will walk you through the diffe-rent phases of cost management, record the single processes and name the active roles.

2P RO CESSES

Free reign? Be creat ive!

14

The following example shows the collaboration between project management, controlling and accounting from budgeting via awarding through to invoicing.

PHASE NAME DESCRIPTION ROLEBudgeting Create budget After project approval Project Management

Approve budget No awarding without approval Controlling

Approve budget No change of total budget Project Management

Increase/Decrease budget After approval executive board Controlling

Awarding Create contract After tender, before negotiation Project Management

Approve contract No invoice without approval Controlling

Create change order Directly after receipt Project Management

Approve change order No invoice without approval Controlling

Invoicing Enter invoice Assign to contract and enter date, invoice no. and amount applied for

Accounting

Check and sign off invoice After approval external project management company Project Management

Approve invoice Triggers payment Controlling

Enter payment Based on payment run Accounting

Example P RO CESSES

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• Only describe the main elements. The details will be carved out while designing the process charts.• For the overall controlling of key processes, we recommend you name a responsible person. This person can monitor deadlines and

discount agreements during the invoicing process.• It can be helpful to define inputs and outputs for each process. You then get an overview of which information has to be available

before a process and which information exists after a process.

Register the essential phases and processes in the table below. Describe them in a few words and name the role responsible for driving the process.

PHASE NAME DESCRIPTION ROLE

P RO CESSES Do your pr ocesses make your head spi n?

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PROCESS CHARTS

Based on the process list, you can now design the flowcharts for the key processes. In our opinion, the key processes are invoice approval as well as contract and change assignment because the majority of information is processed here. We recommend you illustrate the process charts as swim. In doing so, every role receives its lane (e. g. as column) in which their processes are listed. Arrows connect the process steps.

Thus, transitions between internal and external participants and between systems become visible.

The following process chart shows how the invoice approval could look for an invoicing phase. It also contains the integration of an external project management company.

Example

Accounting Project Management Project Management Controlling

Enter(in Excel)

Check /Forward

Check

Sign off

Sign off Approve

Enter

Book

Pay

Role, internal Role, external

Accounting-SystemPaper

P RO CESSES

17

Ready, steady, go! – Pr ocess C hartsP RO CESSES

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INSTRUCTION – PART 3 COST STRUCTURE

The cost structure is one of the key elements in cost management. It breaks down the costs (and very often the revenues) of a property development into single cost elements/accounts. Depending on project size and complexity there can be multiple cost structures in use at the same time. They then help to answer the different questions of the various people involved in the project. Cost structures can also be regarded as categories or views.

3S T RUC T URES

Example

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Example

The following example shows three different cost structu-res. The costs are broken down by cost codes, funding and usage.

Every cost structure consists of a list of single cost elements/accounts. Here you can see the first level of the “cost codes” cost structure.

You can see that the cost codes cover costs and revenues and also consider the financing costs.

Role

Question

Role

Question

PROJECT MANAGER CONTROLLING

INVESTOR

Which trades do I have to award?

From which sources doe I fund the project?

How much do the retail areas cost?

Cost Codes

Usage

Funding

S T RUC T URES

NUMBER NAME100 Land

200 Demolition

300 Structure

400 MEP

500 External

600 Furnishings

700 Consultants

FIN Financing

800 Marketing

900 Other costs

IN RES Income Residential

IN RET Income Retail

Cost Code

Cost

Income

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Think of the different roles and questions surrounding the project status: Which cost structures/categories/views do you need for your project?

Role

Question

S T RUC T URES Are your c ost struct ures dr y-c leaned yet?

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Are your c ost struct ures dr y-c leaned yet?

Frequently asked questions in this area:• Do you only track costs, or revenues as well?• Do you have to consider financing costs?• Are you running the project cash flow as an account? (i. e. do you have to track cash flow by revenues or financial funds?)

Go through each and every cost structure and list the top level. You certainly have all the details in digital format. However, it makes sense to note down the top level here to get an overview.

NUMBER NAME

• The main benefit of using different cost structures is that reports within these structures can be received by the press of a button and are thus immediately available.

• A standardised cost structure that is used in each and every project has the key advantage that projects can be compared with each other and key performance indicators can be determined.

• Very often a unified and standardised structure of the developer is used as 1st cost structure and an individual, project-specific structure (e. g. proposed by the project management company) is used as 2nd cost structure.

S T RUC T URES Hur r y up! Don’t let t he i nk run dr y! ;-)

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BUDGET STRUCTURE

Before a project enters its intense phase the budget has already come a long way: From a first calculation – maybe on a napkin – feasibility analysis is on a high and/or very detailed level. When we talk about a budget, we mean the amount and structure it has after the investment decision. The budget structure is often derived from a cost structure.

Comment:For a lot of people, cost and budget structure is the same thing. Not for us and the reason for this is the consideration of multiple views (cost structures). Cost structures are mainly standardised lists of cost elements and accounts budgets, repre-senting the project structure and reflecting trades and work packages.

If multiple cost structures are used within a project they are merged in the budget structure as each budget line item has to be assigned to each cost structure. It is possible that budget line item has to be split between several accounts of a single cost structure, e. g. via a percentage distribution.

S T RUC T URES Example

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The following example shows the budget structure for the cost report from the chapter Report Designs.

Example S T RUC T URES

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You may already have a budget structure in Excel or another spreadsheet format so you can easily add additional cost structures. The empty template shows you an approximate framework.

Frequently asked questions in this area:• Are your budget line items work packages?• Are the budget amounts net or gross values?• Which VAT codes do you have to consider?• Do you have to split costs of single budget line items?

S T RUC T URES

ITEM NO. ITEM NAME AMOUNT NET COST STRUCTURE 1 COST STRUCTURE 2 COST STRUCTURE 3 COST STRUCTURE 4

1

2

3

4

5

6

7

8

9

Total

Make your budget struct ure cut-and-dr ied! Example

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Make your budget struct ure cut-and-dr ied! Example

ROLES AND RIGHTS

The organisational structure typically indicates the roles and rights of the people who are involved in the commercial processes. In this chapter it is sufficient to briefly name the roles, describe the main tasks and list the people involved.

This is an example showing two roles..

PROJECT MANAGEMENT

Enter and approve contractsEnter, check and approve invoices

Peter ProjectLaura Leader

CONTROLLING

Manage base dataManage budgets

Claus Control

Role

Tasks

People

S T RUC T URES

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Which cost management roles are relevant in your company? What are their key tasks? Which people are performing these tasks?

Frequently asked questions in this area:• Who has access to all projects? Who has access to particular projects?• Who is authorised to change the budget?• Who enters and approves contracts?• Who approves invoices?

Role

Tasks

People

Role

Tasks

People

S T RUC T URES Ro les: Don’t leave anybody high and dr y!

Role

Tasks

People

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Ro les: Don’t leave anybody high and dr y!

INSTRUCTION – PART 4 INTERFACE LIST

Interfaces help to transfer large quantities of information correctly and efficiently from one sys-tem to another. Hence, it is worth the effort to identify the areas in which a lot of data has to be exchanged on a recurring basis. In cost management, interfaces are most frequently realised for invoices and payments between the cost management system and the financial accounting system. Very often, creditor and debtor information is imported from the leading system.

The following tables shows an overview of the potential for an automated data exchange, based on our experience and example for listing and prioritising relevant interfaces.

4INT ERFACES

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Overview of the potential for an automated data exchange.

AREA INTERFACE DESCRIPTION IMPORTANCEInvoices Invoice Import Import of relevant invoice data (e.g. unique invoice

number, unique contract number, invoice type, ap-plied amount gross)

high

Payments Payment Import Import of payment information (e.g. unique invoice number, date, amount)

high

Contracts BoQ import Bill of quantity import of the contract high

Contract Import Import of relevant contract information (e.g. unique project number, creditor/debtor, contract type)

middle

Base data Company import Import of creditor/debtor information from the main financial system

low

Example INT ERFACES

Here is an example for listing and prioritising relevant interfaces.

AREA DESCRIPTION AUTOMATIC EXCHANGE POTENTIAL

Invoices Detailed tracking based on contract line items very high

Payments Documentation of payments of invoices very high

Base data Company information (creditors, debtors) high

Projects Project information as duration, categories project manager middle

Contracts Contract elements, line items and terms including budget coverage low

Budgets Budget breakdown structure based on single line items low

Cost Structure(s) Across projects, typical a one-time import from Excel very low

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• Talk to the various project participants and find out where and how routine work can be automated.• If you want to compile a cost-benefit analysis we recommend that you estimate and evaluate the continuously incurring effort for

routine work.

Which interfaces can help you most to reduce manual effort and to become more efficient? List those interfaces and briefly describe them!

AREA INTERFACE DESCRIPTION IMPORTANCE

INT ERFACES Inter faces? Up t he ir ons!

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INTERFACE DEFINITIONS

After listing the interfaces you can now work out the details. It is essential to define which fields have to be exchanged. In order to assign imported data correctly you have to specify a unique identifier.

When realising interfaces for invoices and payments you have to consider the different effects in terms of accounting. You have to agree how single invoices and progress payments and deductions and discounts have to be treated. Your accounting colleagues can help you here.

The following example shows the definition of an invoice export.

Example

FIELD DESCRIPTIONUID Unique Identifier. Technical counter. Important for assigning the payment at a later stage.

Invoice amount Invoice amount net

Retention Retention as defined in contract

Deduction Deduction as defined in contract or for a single invoice

Certified amount Amount to be paid

VAT code VAT codes applicable for country

Cost structure 1 Cost codes

Cost structure 2 Funding

Invoice date Date of the invoice

Due date Date when payment is due

Approval history List person, date and performed action

INT ERFACES

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Now define the interfaces that you need for your integrated cost management system.

Are your i nter faces crease-free?

• Look through your report designs. Maybe you can identify additional data that is relevant for the interfaces.• Don’t worry too much about technology at the beginning. The content is more important at this stage.

FIELD DESCRIPTON

INT ERFACES

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SUMMARY

We made it! You have created the structure for your cost management system and have also brought significant clarity into your processes!

The following deliverables are now finished:

» STARTING POINT» REPORT LIST» REPORT DESIGNS

» PROCESS LIST» PROCESS CHARTS

» COST STRUCTURE» BUDGET STRUCTURE» ROLES AND RIGHTS

» INTERFACE LIST» INTERFACE DEFINITIONS

You are now fully prepared for a software implementation.

The best thing is: It really works! We have implemented a significant number of cost management systems based on this method.

REP OR T S

P RO CESSES

S T RUC T URES

INT ERFACES

33

Space f or n otes or st ick f igures ;-)

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Space f or n otes or st ick f igures ;-)

35

Space f or n otes or st ick f igures ;-)

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VENICE | NOTTINGHAMWARSAW | THE HAGUE

ST. PETERSBURG | DUBAISINGAPORE | AUCKLAND

www.conject.com

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