Having the Business Intelligence (BI) Insight To Your Valuable Projects Data Cost Management © 2014 CMCS Understanding The Project Cost Management Documents Earned Value Budget Performance Analysis Investment Profit and Loss Statement Cashflow Analysis Contract (Revenue) Commitments (Cost) Budget Funding • Contract between the • Subcontracts and Purchase • Internal Budget Versions • Funding and Financing Contractor and Project Orders Between The • Planned Budget Spending Agreements Owner or the Project Contractor and • All Budget Adjustments • Authorized Funding Owner and the Buyers. Subcontractors, Suppliers, and Transfers Spending Internal Business, etc. • All Contract Change Orders • Forecast To Complete • Funding Requests • All Contract’s Payment • Anticipated Commitment Analysis Using Earned Requests Spending Value Metrics • All Actual Payments • All Commitments Change Against Approved Payment Orders Requests • All Commitments Progress Invoices • All Actual Payments Against Approved Progress Invoices • All Miscellaneous Invoices © 2014 CMCS Why It Is a Must To Manage Project Budget? . Regardless of the project type, size, nature, location among others, every project has an approved budget that should not be exceeded without the formal approval of the project owner. For a Project Owner or Investor, The Project Budget represents the total investment (CAPEX and OPEX) that the Project Owner is willing to invest in the project. It includes in addition to all direct and indirect cost associated with delivering the project, contingencies, reserve, marketing expenses and other overheads. Whereas for a Contractor, The Project Budget represents the total amount he will target spending on executing the project’s scope of work as per the awarded contract. This covers all direct and indirect cost associated with delivering the project, contingencies, reserve and other overheads. The awarded contract value includes the Contractor target profit for delivering the project. Unlike the Budget line items which must reflect the planned cost for executing the works, the Contract line items could be front loaded or unbalanced to reflect the Contractor’s strategy for wining the project. © 2014 CMCS Why It Is a Must To Manage Project Budget? . The budget for each line item needs to be spread over it is associated project schedule duration to provide the Planned Value (PV) or Budget Cost for Schedule Work (BCWS). The approved budget could be subject to revision and adjustments. To maintain the integrity of the project budget, all revisions and adjustments to the project budget must be done through a formal process known as Budget Requests. This will ensure that every budget change had been reviewed and approved by management. In addition, it will ensure that there be a detailed trail of all those changes. The project budget provides three of the inputs needed for Earned Value Analysis, which are Budget At Completion (BAC), Planned Value (PV) or Budget Cost for Schedule Work (BCWS) and Earned Value (EV) which equals the BAC multiplied by the Schedule % Complete at the end of specific period. Therefore, managing the Project Budget in any project is a must and needs to be done in a transparent and accountable format to ensure that the project allocated investment is formally maintained and approved by the authorized stakeholders. © 2014 CMCS Budget At Completion (BAC), Planned Value (PV) or Budget Cost of Work Scheduled (BCWS) and Earned Value (EV) Planned = $500K : Data Date Earned = $300K 1300 1300 1200 1200 1000 1000 Budget at Completion (BAC) 800 800 600 600 In $1,000’s 400 Target CompletionDate 400 200 200 1 2 3 4 5 6 7 8 9 10 11 Months Why It Is a Must To Manage the Project Contracts? . Managing contracts in a project is a must process for project owners who have elected to procure contracts and purchase orders to deliver part or all of the project scope of work. A contract is a legally binding document. Therefore, all terms and conditions in the contract must be met. You cannot choose not to do something required in the contract and any changes to the contract must be approved by both parties and a formal change to the contract must be issued to be effective. To have a contract, there should be an offer or bid and acceptance by the project owner. When procuring goods or services, the type of contract that governs the deal can make a significant difference in who bears the risk. There are three broad contract categories: Fixed Price or Lump Sum Contracts, Cost Reimbursable Contracts and Time And Material (T&M) Contracts. Construction contracts usually include advance payment guarantees, performance bonds, insurance, warranties among others. The project owner needs to keep track of those time- sensitive documents issued against each contract. They need to be able to be alerted when the document expiry date hits a pre-defined threshold or issue a reminder letter for the issuing Contractor to remind him of re-submitting the updated policy. © 2014 CMCS Why It Is a Must To Manage the Project Contracts? . Changes in a contract are inevitable and can be initiated by any parties of the contract. Common causes for changes include Intent of documents not "reasonably inferable" and corrections required, Unknown conditions necessitate changes, Owner's requirements change, Changes in code or changes in interpretation of code, Specified product no longer available, Consider new product because of cost savings or other benefits, Specified product inappropriate, Adjust contract sum for difference in actual cost versus allowance, Estimated quantity of work for unit prices changes, Revision of unattainable requirement among others. A project should have a formal change process which will detail the steps for submitting, reviewing and approving changes as well as the approval authorities level. A change order is an instruction to contractor that authorizes addition, deletion, or revision in consideration of adjustment in contract sum/time. Changes Orders are required for Changes in Work that Affect Contract sum and/or Contract time. At the end of each month, the Contractor will submit a Progress Invoice for the completed works during the progress period. The Certified Progress Invoice amount is the Actual Cost (AC) or Actual Cost Of Work Performed (ACWP). © 2014 CMCS Why It Is a Must To Manage the Project Contracts? . Every project contract needs to be closed in a complete manner to ensure that all contractual obligations are met and released. When a project reached the handover stage, the project owner will start snagging out project work that is incomplete or needs to be rectified. Snag lists are issued to the contractor with estimated cost of work to be rectified and when it should be rectified. Failure to do so, the project owner can issue back charges (negative change orders) against the project contract. Those charges will be used to rectify this pending work. This will enable the project owner to prepare the final account payment which when signed by the two parties of the contract, will indicate that the project have achieved substantial completion. The Substantial Completion certificate will be issued by the Consultant upon completion of inspection. This certificates impact Warranties, Insurance, Maintenance, Utilities, & Security where Warranties will begin, Responsibility for security, utilities, insurance and maintenance will be passed to owner and Owner assumes responsibility for maintenance for occupied facilities. The Project Owner might accept that Retainage may be reduced if provided for by contract. © 2014 CMCS Why It Is a Must To Manage the Project Contracts? . Final Completion can happen when the contractor completes requirements of contract documents, contractor completes each punch list item, consultant verifies completion and contractor accepts final payment. It is common to use pre-defined project closeout checklists to formalize the final completion and handover. Therefore, managing Project Contracts in any project is a must and needs to be done in a transparent and accountable format to ensure compliance when it comes to processing changes, approving progress invoices, seeking substantial and final completion certificates and final project contracts closeout. © 2014 CMCS Budget At Completion (BAC), Planned Value (PV), Earned Value (EV) and Actual Cost (AC) Planned = $500K : Data Date Actual = $400K Earned = $300K 1300 1300 1200 1200 1000 1000 Budget at Completion (BAC) 800 800 600 600 In $1,000’s 400 Target CompletionDate 400 Current CompletionCurrent Date 200 200 1 2 3 4 5 6 7 8 9 10 11 Months Why It Is a Must To Implement Earned Value Management? . The earned value technique is becoming widely adopted by companies to report their project’s cost performance. It compares the cumulative value of the budgeted cost of work performed (EV) at the original allocated budget amount to both the budgeted cost of work scheduled (PV) and to the actual cost of work performed (AC). The Benefits of Earned Value Performance Measurement include Objective measurement of project performance in both cost and time, Forecasting of future performance, completion date and cost at completion based on past performance, Objective metrics for comparison of project performance across an organization, Development of appropriate budgets and baselines, Ensures that percentage complete of work packages is consistently measured and Focus on comparison between actual performance and budget. The Earned Value Performance Measurement uses the cost information generated