Project Value Delivery Updates

How to Use Cost Reconciliation to Improve Control on your Project

Aug 31, 2014PVD admin2 CommentsWhite Papers

While Accounting and Cost Control functions and processes should be separated (as described in White Paper 2014-02), it is essential to reconcile very regularly the data from these two processes to ensure that your project is under control. In our new White Paper 2014-06 we expose the principles of this reconciliation and the best practices that need to be followed to get the most out of this useful process.

This figure shows the basic principles of reconciliation and the different costs to be considered.

Reconciliation with accounting will give an indication of the quality of the cost tracking on the project (which forms the basis for the forecast). Reconciliation needs to be performed on a monthly basis at the Work Package level, the lowest level of the Cost Breakdown Structure. This is feasible through the consistent implementation of the Cost Breakdown Structure in both the Cost Control and Accounting systems. The difference between Actual Cost and Invoiced Cost values in accounting shall be examined to detect whether the Actual Cost basis is indeed a sound basis for forecasting. Any excessive difference needs to be explained.

A proper reconciliation process allows to benefit fully from these two independent control systems to increase assurance that the project is effectively under control. It needs to be implemented regularly and its conclusions need to be traced. The Project Manager, without being involved in the details, must keep abreast of its results and of possible identification of issues related to project controls that might have been detected. Understand more in our new White Paper 2014-06 “How to Use Reconciliation between Cost Control and Accounting to Improve Control on your Project” how to benefit fully of the reconciliation process!

Find all these principles of Project Cost Control exposed in a comprehensive manner in our new Handbook, Practical Project Cost Control for Project Managers (now published – click on the link to see it on Amazon!)

Announcing a New Senior Partner and a New Branch in France

Aug 24, 2014PVD adminCompany updates

As part of our global development, we are particularly pleased to announce the joining of a new Senior Partner and the opening of a new office in France. Ingvar Skogland, an experienced Project Director on large, complex projects is our new Senior Managing Partner for Europe.

Ingvar has more than 16 years of experience in the Oil & Gas Industry whereof 14 years as a Project Manager during which he has successfully delivered projects in Norway, West Africa and Australia. His experience ranges from fast track Engineering, Procurement, Construction and Installation (EPCI) projects in the North Sea to deepwater field developments involving Steel Catenary Risers in Malaysia via ERP system and process change management. Ingvar holds degrees in Master in Science in Mechanical Engineering and Master in Management.

Ingvar’s relevant experiences include:

Project Director for a 400MUSD+ Lump Sum EPCI contract led the project from tendering through successful completion of the critical phases;
as Deputy Project Director for a 800MUSD+ lump sum EPCI contract for an Oil Major, contributed significantly in establishing a robust project organisation that successfully delivered the project;
extensive experience in leading teams during tendering and negotiation of EPCI contracts ranging up to several billion dollars;
the proven ability to create effective multicultural teams and lead them to success;
developing enhanced Management Reporting and Key Performance Indicator processes and systems in close cooperation with executive management;
improving Project Management and Control Processes and Procedures.

Ingvar Skogland is a Norwegian citizen. He is married, has two children and lives in Nice, France.

We are excited by Ingvar’s contribution to Project Value Delivery and its clients. With the creation of our new European entity, we expect to be able to respond better to the support needs of the large, complex project industry. Contact us at contact@ProjectValueDelivery.com for any inquiry!

How to Design a Proper Cost Breakdown Structure for Project Execution

Aug 3, 2014PVD adminWhite Papers

The effectiveness of Project Cost Control lies very much in the design and implementation of a proper Cost Breakdown Structure that is fit for purpose. In our new White Paper 2014-05 we explain what the important characteristics of such a breakdown structure are, and how it should be implemented in projects.

Make sure that your Cost Breakdown Structure responds to your needs in terms of focus and magnification!

For example, contrary to what many think, more details is not necessarily better and the Cost Breakdown Structure must find the right compromise when it comes to its size and level of detail. It shall then be spread throughout the organization’s systems to ensure a comprehensive and effective usage. The thorough maintenance and implementation of a proper Cost Breakdown structure in all the relevant systems and processes is then essential when it comes to Project Cost Control.

Discover further in our new White Paper 2014-05 “How to Design a Proper Project Execution Cost Breakdown Structure” what are the 15 key parameters to take into account to design the best Cost Breakdown Structure for your project!

Our New Practical Cost Control Handbook is Published (exclusive links)!

Jul 13, 2014PVD adminUncategorized

We are very proud to announce that our new book, the Practical Cost Control Handbook for Project Managers, has just been published. We are very pleased to make this handbook available to all the project management community after having produced it for a while as an internal handbook for a few clients, selling more than 1,000 copies already.

It is available worldwide through all online bookshops, and is also available as a Kindle version! Here are the links to Amazon.com for the paperback version and for the Kindle version.

This must-have practical handbook for Large, Complex Projects originated in the trenches of actual project execution.
It is not a heavy and detailed bible, but rather a practical reference for project practitioners to understand the principles and traps of Cost Control and Forecasting and be able to raise the right challenges to their teams.
Proper Cost Control and Forecasting must support the Project Manager’s decision making; unfortunately, that is still rarely the case. This handbook explains how to better implement these key processes, thereby improving significantly the odds of maintaining projects under control and taking the right decisions at the right time.

As followers of Project Value Delivery, here is an exclusive link to the table of contents and index and to the foreword and introduction.

Don’t wait to discover our new Practical Cost Control Handbook!
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Project Value Delivery’s 14 Project Cost Control Golden Rules

Jun 29, 2014PVD admin1 CommentWhite Papers

Project Cost Control is a specific discipline that requires following a set of principles. We have distilled those principles down in a set of Golden Rules that can be easily be used as a reference – and as a way to check if your Project Cost Control process and setup indeed responds to the basic requirements that will ensure that your projects remain under control. These Golden Rules are detailed in our new White Paper 2014-04.

In all cases it is important to always remember that the main objective of Project Cost Control is to enable the Project Manager to take decisions based on an accurate description of the project financial situation, based on the organization’s current knowledge and understanding of reality.

The Golden Rules cover:

Accountability
Forecasting focus
Maintenance of a Project Cost Model
Cost, Scope and Schedule consistency
Immediacy Principle
Candidness Principle
Timeliness of reporting
No surprises
Commitment tracking focus
Prudence principle for the Estimate at Completion
Realism for the ‘Achievable’ forecast
Accuracy over Precision
Data integrity
Cost reconciliation

How do you fare when it comes to these basic rules? Discover the details of these rules in our new White Paper 2014-04 “The 14 Cost Control Golden Rules”

How to Properly Control Client-Induced Changes in Your EPCI Project [new Expert Corner Paper]

Jun 22, 2014PVD admin3 CommentsExperts' Corner papers

Contractors lose on average 5 to 7% of the Contract value due to undetected additional requirements requested by their Client.

Changes cannot be fully avoided during project execution, but they should be minimized to avoid disturbing the execution. One major practical concern is the amount of changes that can be created by the Client, and which are too often not acknowledged. This leaves the Contractor in a sometimes difficult conundrum. Yet it is essential for the Contractor to remain protected because a significant value can be at stake. Our new Expert Paper by Herve Baron examines some good practices that should be implemented by Contractors to protect themselves.

One of the main issues is Non-acknowledged changes that come in the form of comments on deliverables, requirements transmitted “candidly” via letters, records in minutes of meetings, informal communication (oral, emails etc.). The Paper gives some useful strategies that need to be implemented with discipline to avoid uncompensated scope creep.

Maintain your position in the case of non-acknowledged changes – read our new Expert Corner’s Paper “How to Properly Control Client-Induced Changes in Your EPCI Project” by Herve Baron!

If you would like to raise your contractual awareness further and practice on real cases, join the author’s hands-on Contract Management Training. The next session will be held on October 20-21, 2014, in Jakarta. For more details and to register, please visit: www.rhenindo.com.

What Differentiates Project Cost Control for Large, Complex Projects

Jun 8, 2014PVD adminWhite Papers

Project Cost Control is a discipline applicable to all projects. Its criticality and the complication of its implementation will vary significantly with the size of the project, its international nature, and the number of different contributors (which relates directly to the project’s intrinsic complexity). In our new White Paper 2014-03 we examine what are the critical aspects of Large, Complex projects in the field of Cost Control and how leading international project-driven organizations resolve these particular challenges.

Running more abacus (or excel spreadsheets) in parallel will not resolve your project cost control issue on large projects!

As consultants we often visit companies that have the ambition to take on large, complex projects (or, even worse, have contracted or have been contracted for such a project) but do not have this minimum infrastructure in place. This leads to wide-open gaps that inevitably translate into loss of control. Examples include:

US companies which systems are often purely in USD without the possibility to include any other currency and take on an international project,
Companies that believe they can control a billion dollars project with an Excel spreadsheet,
Or, companies do have cost tracking systems for past cost but no real data-base Cost Control system including forecast data, i.e. cannot maintain a full project cycle cost model of the project.

In fact, the ability to deal with native currency, time-phasing and multi-entity is also a highly discriminating parameter when dealing with large, complex projects.

Almost always, not taking the time or making the effort to implement a proper set of processes and systems will inevitably lead to difficult situations later where the organization might not keep sufficient control over its operations, and forensic investigation might be required even in the midst of project execution to really understand the actual cost situation of the project. To avoid these situations, read our new White Paper 2014-03 “What Differentiates Cost Control for Large, Complex Projects”.

Why Accounting and Project Cost Control roles Should be Neatly Separated

May 25, 2014PVD adminWhite Papers

One of the most common misconceptions in the field of Project Cost Control is to believe that it is just an extension of Accounting – because it deals with money. Nothing could be furthest from the reality – Project Cost Control primarily requires a deep business understanding so as to be able to produce a sound forecast of the project situation at its completion. In our new White Paper 2014-02 we examine why there is such a difference in project environments and why Project Cost Control and Accounting should be neatly separated.

Dealing with $ numbers does not just involve accountants!

Financial forecasting is quite straightforward in most industries where the future is the repetition of the past, with a few tweaks. It can be safely left with accounting and usual financial analysis techniques. In projects, activities that are performed are unique. The discipline of Project Cost Control thus evolved as a specific requirement for projects so as to ensure that the Project Manager constantly has access to up-to-date cost information (Actual Cost) and to a proper forecast of the project completion based on sound business understanding.

The best way to keep control in projects is to create, from the beginning, a clear distinction between Accounting and Cost Control at the functional level, and make sure that any carry over work from Accounting, if unavoidable, is limited in scope and time. Our White Paper goes on to describe in detail how the duties can be split between Accounting and Project Cost Control. Read our new White Paper 2014-02 “Why Accounting and Cost Control roles Should be Neatly Separated in Project Organizations”!

Improve Project Forecasting by Taking Into Account Consequential Variances

May 11, 2014PVD admin2 CommentsWhite Papers

Project Forecasting (in terms of cost and/or schedule) is often not sufficiently comprehensive and this leads to unpleasant surprises. More than the actual forecasting issues related to a single type of activity, consequential variances between different project stages and activity types are often ignored or underestimated. In our new White Paper 2014-01 ‘How to Improve Project Forecasting: Taking Into Account Consequential Variances between Project Stages’ we investigate how to improve significantly project forecasting by dedicating sufficient attention to consequential variances.

Consequential variances are like bowling

A single event can have ripple effect through your forecasting sending flat to the ground

Consequential variances are particularly important as events in one area of the project can easily have rippling consequences on very different areas of the project. While re-forecasting taking into account direct effects is not always easy, considering consequential variances is often overseen. And these consequential effects are often those that have the most impact on the project forecast!

In general, the role of the Project Controls Manager, who has an overview on the entire project unfolding, as well as a keen understanding of the consistency between cost, scope and schedule, is central to a proper evaluation of consequential variances.

Identifying and evaluating consequential variances require sound business understanding and elaborate comprehension of the ripple effects of any particular change to the project program. It is key to maintaining a sound forecast of your project. Read our new White Paper 2014-01 ‘How to Improve Project Forecasting: Taking Into Account Consequential Variances between Project Stages’ to fully understand the issue!

Why You Need to Avoid As Much As Possible Intermediate Constraints in Project Execution [Updated]

Apr 13, 2014PVD admin2 CommentsWhite Papers

In project execution, flexibility and agility is a key success factor. Requiring the completion of intermediate deliverables adds constraints to execution, which can sometimes have significant negative consequences on project success. Whether prescribing or executing, avoid as much as possible to introduce intermediate constraints. Our new White Paper 2013-18 explains why, and what are alternatives.

Intermediate constraints can be a significant aggravating factor to projects facing unforeseen circumstances. Intermediate constraints are mostly an obstacle to flexibility. They can only be considered when they respond to certain characteristics.

In any case, introducing intermediate constraints almost certainly will have a consequence on the project cost during project execution. This cost can be evaluated from the risk of additional overall duration of utilization for those resources which are mobilized at the time of the intermediate constraint delivery.

Intermediate fixed constraints are often the scourge of project execution. They are often introduced by stakeholders or as a way to apparently control the project. Make sure to avoid as much as possible this trap – or, alternatively, make sure to get compensated fairly for the additional risk this creates to your project execution. Understand better this issue and how to approach it in our new White Paper 2013-18.

This post and the associated White Paper have been updated in April 2014 following discussions on this blog and on LinkedIn groups to change the terminology ‘intermediate milestone’ to ‘intermediate constraint’ and make our idea clearer. The ‘milestone’ terminology triggered a different understanding than the one really intended.