- Problem Definition
Too often the costs and schedule are treated as separate entities. Most of the reporting frustrations that planners and cost controllers face throughout the life of a project can be eliminated with the use of a cost loaded schedule. There are endless advantages of having a fully cost loaded schedule to which we will cover three here; assigning cost accountability, reporting Earned Value (EV) and assisting contract administration. All these aspects help to manage, forecast and report the health of the project.
2. Identify the Feasible Alternative
Once the WBS for the program is agreed upon you can easily assign a project manager to the relevant work package or packages. This will outline the works associated within the package and give a clear indication to the manager what individual activities are required in order to complete his works. From this they can evaluate what disciplines are involved, what subcontractors they will need and what the timeframes are to complete their package. These are all things that could be obtained from a non-cost loaded program.
3. Development of the Outcome for Alternative
A common problem on construction jobs is that the project manager does not have a good grasp of costs associated with their works. From the program, they can see the works falling behind so they call in extra resources to finish. The work is achieved on time but is well over budget due to the excess resources used. However suppose the program was cost loaded. Rather than provide the project manager with timescales and scope you would now be including cost, or shall we say assigning cost. This will give the manager the right information to manage their works within time and on budget. Now if the works fall behind, the manager has a clear indication to how much budgeted cost is remaining to complete the work. Senior management can now hold mangers accountable for costs and highlight exactly which areas are under or over budget. In multi-million pound projects, where the costs are too great for one individual to manage, this process of assigning cost accountability is a necessity and can be easily achieved with a cost loaded program.
- Selection of Criteria
Earned Value Management (EVM) is a valuable project management technique for measuring project performance. It is able to provide accurate forecasts by combining scope, schedule and cost. In order to use EVM one must be able to calculate Earned Value. Calculating Earned Value can be done in one of the following 3 ways.
- Percent-complete method: EV is the product of the fraction representing the amount of an activity that has been completed and the total budget for the activity. (WBS code 1.2.1).
- Milestone method: EV is zero until you complete the activity, and it’s 100 percent of the total activity budget after you complete it. (WBS code 1.2.2).
- 50/50 method: EV is zero before you start the activity, 50 percent of the total activity budget after you start it, and 100 percent of the activity budget when you complete the activity.
5.Analysis of the Alternative.
One thing you may notice is all of the above methods assume a budgeted cost is applied to each activity. With a non-cost loaded program this cannot be achieved. From the three methods above, the percent-complete method is the most accurate. It gives the percentage complete for an activity, hence providing the cost of work performed for that activity. One negative of this method is that is assumes a linear relationship between the two. This is not always the case; the costs of an activity may be heavily back-loaded – For example, the installation of raised tiles. This activity generally consists of 3 parts; clean/seal the surface, set out and install pedestals, install and grout floor tiles. The first two parts are not resource intensive however the final part requires greater resources and equipment. In this case we would back-load the cost to the activity, which can be easily done in planning software. However for the majority of construction activities a linear relationship between cost and progress works well. The advantage of a cost loaded program is that it uses this percent-complete method and automatically calculates the Earned Value. Therefore at any stage of the projects life you can use EVM and discover the health of your project. This has big implications when it comes to reporting time. It means you can provide the client more accurate financial information without the headache of trying to match costs with the program.
- Selection of the Preferred Alternative.
Most projects, while they may be reported as being successful, have lengthy litigation battles post completion. Compensation events, Request for Information and Early Warning Notices are all documents which can muddy the water between the original scope and the finished product. Having a cost loaded program helps to define and capture the initial scope and more importantly puts a price against these works. Therefore starting with this budget, it essentially draws a line in the sand and creates the projects initial baseline. As construction continues and contract documents are received, the project will stand in a much better position to create What If program and assess the cost implications. The cost loaded program can clearly show what was originally scoped compared to the variation. It helps to keep the two separated to ensure scope creep does not occur. This is just one way to assist the process of contract administration. Additionally, if the project goes into litigation the cost loaded program can be used as a reference to what was originally agreed. If maintained correctly it can be used as a historical sequence of events showing approved variations, extensions of time and their cost implications. This makes the process of digging out the project history much easier and clearer. A cost loaded program provides great benefit for the contract administration of a project.
7. Performance Monitoring and the Post Evaluation of Result.
A fully cost loaded program is a very beneficial tool in project management. As discussed, it can aid in all aspects throughout the projects lifecycle. It assists in assigning cost accountability, reporting Earned Value (EV) and contract administration. Senior management must be made aware of these advantages in order to implement it during the initial stages of a project. When correctly applied it will help to define, forecast and report on the health of the job.
- Duncan Haughty (2010). What is Earned Value? Retrieved September 18, 2014, from: http://cdn.projectsmart.co.uk/pdf/what-is-earned-value.pdf.
- Booz Allen Hamilton (2010). Earned Value Management Tutorial. Retrieved September 18, 2014, from: http://energy.gov/sites/prod/files/maprod/documents/EVMModule6.pd.
- Suketu Nagrecha (2002). An introduction to Earned Value Analysis. Retrieved September 18, 2014, from: http://www.pmiglc.org/COMM/Articles/0410_