Integrated Cost & Schedule Control

The importance of cost and value management in projects today has become increasingly more complex with the increase in complexity of society. A hundred years ago we used commonsense to manage business’s projects without the complexity necessary today to manage large corporate projects. Managing costs increase efficiencies, and creating and enhancing value of any project. Over 65% of hardware and software development in high tech companies reports 65% were significantly behind schedule, over budget, or failed to deliver in terms of expected performance. (Venkataraman, 2008)pg. 2.

            Effective project cost management must be having clear and complete key features for its success. You must have a careful analysis and identification of project needs and scope, thorough planning of the project, identification of key areas of opportunities that may influence the project, development of alternatives for exploiting the identified opportunities for improved value. (Venkataraman, 2008) pg. 9. The methodology for cost management can solve project problems is called earned value management (EVM)

            EVM provides a method to identify the elements in the course of a project’s lifecycle from identification and conceptual development to project planning, project execution, and project termination. Identification of various elements will enable the project manager to deal with the cost impact and value contribution of a project.  A project must have project planning from concept to release to manufacturing by having an effective (WBS) work breakdown structure. A work scope document will outline the project objectives and requirements.

            During the course of project scope definition document there are elements of the definition that includes project objectives, deliverables, milestones, technical requirements, and limits and exclusions.  Without a scope of definition there is a lack of clear distinction of task, standards, specifications, and approval procedures, lack of coherent structure, pattern or chronological order. (Venkataraman, 2008)pg. 29. The scope project definition leads to the development of a work breakdown structure (WBS).

            The importance of the work packages to support the creation and use of the WBS is due to the development of a framework that presents the scope of the entire project in a progressive series of events that are derived from project planning. The WBS provide the basis for estimating and determining project costs and budgets, the mechanism for tracking project performance, cost, and schedule. The basis for determining the resourced needed to accomplish the scope of definition for the WBS by providing a mechanism for generating a project schedule and status report. WBS has two methods: top-down or bottom-up approach to total work breakdown. (Venkataraman, 2008) pg. 46.

            The breakdown of any WBS project must have checks and balances for cost estimation in the scope of change and configuration management to manage the cost of each phase of the project.  Low initial cost estimates, unanticipated technical difficulties, lack of or poor scope definition, specification changes, and various external factors such as inflation, interest rate, and environment issues can affect the framework and cost scheduling. The project costs include cost of labor, cost of materials; along with direct and indirect costs which include overhead. There are recurring costs, such as labor and material, variable costs, expedited costs or crash costs when you are attempting to accelerate a projects completion. When you are trying to factor all the costs involved in a project you have to make feasibility estimates, definitive estimates, and comparative estimates to get an accurate evaluation of the estimated total costs before a full-scale design of the WBS and its relations to project budgeting.

            Project management and a project budget are essential to the earned value management (EVM) process. Having a time-phased project with is an effective tool for cost control, as it will allocate costs across both project management activities and the anticipated time during which the budget will be utilized. Tracking charts and the development of a project contingency budget will help keep the cost of a project to its projected amounts. When you have an allocation of contingency funds, there is a safety net to take into consideration unknown factors that may not have been anticipated during the initial WBS and subsequent cost estimation process. Project cost control after the initial cost estimation and contingency plans are in place must monitor the progress of the project and the funds relative to their constituent allocation for project evaluation and control.

            Project evaluation and control system measures the project progress and performance by giving advance warning of potential problems relative to cost overruns, materials problems, and other resources needed during the course of the project. Project Control process has four elements that must be in place. They include baseline plan, measuring progress and performance, comparing actual performance against plan, and taking corrective action. (Venkataraman, 2008) pg. 106. The comparative analysis will utilize the cost estimations, work breakdown structure, and quantitative measurement of the projects performance.

            EVM in its implementation with project managers utilizing WBS to match their projects complexity should be able to handle any size of project or complexity there in.  It is interesting to see from the stand point of a design engineer how many of these management tools can be utilized when estimating the time necessary to design a new product. It is based upon prior experience with other projects, the timeline, cost analysis, and S-curve of a project to formulate a realistic schedule with a margin of redesign. This will help establish the cost of designing the project and time necessary to create the necessary drawings and create a bill of materials to release to manufacturing. Whether you are design a product or developing an ad campaign for a  new clothing catalog, EVM is a critical tool for gauging and forecasting project health, thereby keeping the costs with a realm for reality, steering clear of project problems, and hopefully achieving repeated project success.

            The EVM technique for managing projects integrates the basic requirements called planned value (PV), earned value (EV), and actual costs (AC). A proposed approach (EEVM) integrates both EVM and cash flow analysis through an individual analyzing system for accurate managerial decisions not only limited to the achievement of SPI and CPI. (Bagherpour, Boston: May/Jun 2011. Vol. 25, Iss. 3; ) Cost control is always a potential problem on any project, if over budget it can affect the performance and project lateness.

            There have been known problems and challenges in cost control on major utility project in Canada. There has been cost overrun on mega projects such as with power transmission projects. The two mega transmission projects were analyzed and highlighted similarities of work practices and control over the project cost. The harsh work environments and climate have an impact on the slow progression of such a project in the harsh Canadian winters when working conditions are below zero, and getting materials to the job site can be a challenge. (Gharaibeh, May 2011.) The materials, climate, working conditions, isolated areas, are all factors that can easily be overlooked when dealing with mega projects of such a scale.

            The structuring of mega-projects is a challenge to the cost engineer who must balance between complexity, design entities, contract strategies, and procurement methodology. The characteristics of a mega-project over $1 billion would include infrastructure projects that this country is in desperate need of repair to the bridges, dams, highways, power generation plants, desalination plants, and more waste treatment plants for an ever growing population. By having an effective WBS system and CBS (Cost Breakdown Structure) such megaprojects can be manageable.  The WBS elements and cost management system is a strategy necessary to the WBS where a (GMP) Guaranteed Max Price strategy is important to the vast number of people and resources that are often expended on such massive projects. There are four values to consider, Soft Cost, General conditions, Hard Costs, and Owner Contingency. Besides cost management and WBS the civil engineering and strategy of science is essential to the project. A project manager must account for the environment, weather, terrain, and proper materials that must be used to as a component to the cost structure. If inferior materials or bad engineering cost into one of these mega-projects such as a dam, disastrous results can occur down the road. When low cost, poor materials and construction techniques are used on a road project near the ocean, the road would be washed out in the next rain storm due to poor project management and WBS incorporation to the geological site study that must be made during the scope definition phase of the project. (Verveniotis, 2008.) Case studies have shown that there are hundreds of bridges in the United States that violate many civil codes and are considered old and unsafe which are in current use today. Other countries have similar problems such as China, India, and Saudi Arabia in maintaining cost management due to their vast number of megaprojects of skyscrapers and residential boom.

            Surveys in Saudi Arabia have investigated project overhead cost practices. They have found the project overhead cost varies considerably, depending upon project size, type, location, the consultants involved. The amount of project overhead ranges 10 and 30 percent or more of the sum of material, labor, and equipment cost.  Average spending in Saudi Arabia on the construction sector, including operation and maintenance contracts, has dropped to only 8.7 percent of the gross product in the last 5 years. There is intense competition, declining profit margins, and shrinking market shares. Contractor’s perception of overhead costs has changed due to implementation of project cost overhead analysis, competitive bidding on projects and better implementation of estimating project overhead costs on these mega-projects where billions of dollars can be spent on one development. (Sadi A Assaf, Apr 1999. Vol. 41, Iss. 4; ) The vast profits of Saudi Arabia due to gasoline price manipulation at $4.00 is giving record profits to the United Arab Emirates and Saudi Arabia, attracting numerous American corporations to Saudi Arabia to share in the windfall profits by these nations as such cities as Dubai with an gross domestic product in 2008 was US $82.11 billion.

            Dubai with its effective risk management strategy realizes that oil and gas reserves won’t last forever and are embarking on capital spending on new product introduction of computer wafers. A new Silicon Valley is being created as a Dubai Silicon Oasis with a free zone technology park for semiconductors, microelectronics, and other electronic-base companies set up for future advanced communications services.  Hundreds of U.S based electronics corporations are taking effective project management approach to go to Saudi Arabia because of the global economic conditions, significant competition, competitive pricing practice, increased industry consolidation. One day we may all have a Sauditel processor in our computer instead of Intel due to their potentially lower costs in the foreseeable future. (Presswire, 2006)

            The global effective change management can be seen on a national and global scale as our governments work in a power global commerce environment. The United States should have foreseen the development of third world countries into world democratic powers that we now share a significant portion of the world GNP. As India, China, and the Middle Eastern countries profit by outsourced labor and technology, those countries incorporate that technology into the economic and political system enabling them to become world powers, competing head to head with the once all powerful United States. As we outsource technology and jobs to the world, those countries slowly take away all engineering, manufacturing jobs until sometime in the future when everyone in the world will make the same wages in the distant future.

            A world economy where each country has its piece of the international manufacturing and technology pie. In the future I foresee each country will specialize in making one or more type of products that will sustain the world economy. Eventually cost and project management techniques will permeate every country in the world. As China uses sound project management and cost management techniques in South Africa. They are rebuilding Angola, Bosnia and the entire railroad infrastructure in exchange for rare earth materials, mineral resources such as coal, gold, iron ore, diamonds, and oil contracts. China will eventually control much of the natural resources in South Africa, United Arab Emirates, and Europe. As they expand their economic structure, the need for raw materials and resources are omnipresent to the expansion of the Chinese empire. China’s expansion into Africa is goal-oriented and well organized like a Work

Breakdown Structure or Value, and Cost Management program. The government of China is running like a well-oiled company with goals, objectives, and taking into all considerations of cost management, global expansion, as the China-Africa Development Fund has been opened in Beijing.  The PRC has created five free economic zones in Africa, the first in the copper belt in Zambia. (Anonymous, London: Jun 9, 2011. ) The United States theosophy at economics in another country is to send troops and bombs instead of economic aid in the form of building cities, railroad, water treatment plants, schools, expansion of farming and food production for each specific country, as the United States has failed to due to its poor organizational management, bad cost management of the economy, poor budget cost control. As we enter another year of the depression, we realize that the horrible governmental management of costs, project management, value management , earned value assessment, and configuration management  (CM), which is involved with implementation of large projects.

            Our local, state, and national government needs to be better in touch with configuration management, cost management, value management, if we are going to be effective with change control procedure and configuration control at a national and international level. (Venkataraman, 2008) Our government spends more time fighting over money in congress over who is going to get what monies from the national budget, instead of seeing our infrastructure of our entire nation has deteriorated due to the fracturing and constant disagreement, and disharmony in our government, which has lost its entire effectiveness like a country out of sync with itself and the people that it was supposed to be pledged to govern effectively. As China transforms from a communist country to a world democratic power, we find ourselves refusing to change and learn how to make Congress work effectively. Nothing has been accomplished in Congress over the last eight years or more, due to the fighting in this two party system. Without effective management leadership in Congress, like a CEO of a corporation, the focus and direction is like a ship at sea without a compass to chart the direction of our nation. The responsibility for responsible cost management and fiscal responsibility in any company or nation is due to its effectiveness during crisis management. We must understand the correlation between corporate management, business environment, and project management. We need to operate this nation more as a large corporation with the stockholders being the American people with their needs and desires to maintain an effective leadership structure and society.  

            I think changes in national supply chain management are at the core for our lack of competitive advantage in the marketplace with our neighboring countries.

We as a national corporation/country need to have more efficient consumer response, continuous replenishment, cycle time reduction, and vendor-managed inventory systems.

We need the adoption and implementation of total SCM-related strategies in the retail, and manufacturing industries. The entire supply chain, especially in global engineering, construction industry, has been plagued by poor quality, low profit margins, due to poor strategy in SCM in better managing the network of organizations that produce, and deliver various products. The United States, if it were to better manage supply chains on a national level would invest in better low cost transportation system,  energy production system, effective national food production with increased water treatment, and desalination plants to reduce national food production costs. If we run our nation more like a large corporation, with communications that listen to the people’s needs we can once again become a world power that is financially stable with a good credit rating. For the first time in history our credit rating has been lower to AA instead of AAA due to our fiscal responsibility. We as a nation or country cannot exist if we continue to spend beyond are means, incurring a $14 trillion deficit. The interest alone being paid to China, India, Saudi Arabia, and Switzerland is in the billions of dollars a date for interest along. Our country is like a very large nation which needs better cost management amongst other factors to reduce its fiscal liability and national debt.  The corporate lessons of cost and value management in projects should be practiced at national levels by our government officials to insure the economic survival of this country.

Works Cited

Avery, S. (2009, Feb 12). MRO sourcing goes global. Purchasing, p. 48.

Bagherpour, M. ( Boston: May/Jun 2011. Vol. 25, Iss. 3; ). AN EXTENSION TO EARNED VALUE MANAGEMENT. Cost Management. , p. 41 (7 pages).

Gharaibeh, H. (May 2011.). Problems and Challenges of Cost Control on Major Utility Projects in Canada. Cost Engineering, Vol. 53, Iss. 5; p. 14.

Presswire, M. (2006). NORTEL: Dubai Silicon Oasis Selects Nortel to Create Innovation- Driven Technology Institution; Latest Generation IP Data Network will benefit more than 10,000 users. Coventry.

Sadi A Assaf, A. A.-S. (Apr 1999. Vol. 41, Iss. 4; ). Project overhead costs in Saudi Arabia. Cost Engineering, pg. 33, 6 pgs.

Venkataraman, R. R. (2008). Cost and Value Management in Projects. John Wiley & Sons Inc.

Verveniotis, P. (2008.). Mega-Project Control: Effective Program, Project, and WBS Granularity Decisions. AACE International Transactions. , PM21 (5 pages).

Visitacion, M. (2007, October). Exemplary EVM at Lawrence Livermore Labs. Contract Management, pp. 47,75-77.

Visitacion, M. (2007, September)). Debunking commonly held EVM myths. Contract Management, 47,51-52.