Areas of Control, Schedule and Cost Control

4.4 Areas of Control (time, cost and quality)

Project works under the constraints of time, cost and quality. So, the time, cost and quality serve as the key areas of project control. Therefore areas of control are:

1. Time (schedule) control.
2. Cost control.
3. Quality control.

The effective control system must monitor quality, cost and time in an integrated manner, not in isolation. For example, being within one’s time and fulfilling quality requirements serve no useful purpose if cost is overrun.

4.5 Project schedule control

Schedule control is related to controlling changes to baseline (target) schedule. Construction project rarely goes as planned, we expect deviation from baseline schedules. Baseline schedule is prepared by the contractor and approved by the client before starting work. In ill-planned projects, baseline schedule keeps on changing such changes may affect critical path so update schedule is necessary.

“An updated schedule is a revised schedule reflecting project information at a given date regarding completed activities, in progress activities, change in logic, cost and resource required and allocated at any activity level”. – Popescu and Charecrugam.

4.5a) Information required for updating schedule:

To update the plan at an intermediate stage of execution of project information like original network, stage in which updating is being done, new information and knowledge are required. It can be grouped under following two heads.

1. Past Information

• Work that has started, actual start date, percent completion and remaining duration
• Activities that are complete and completion date of each.
• Actual budget expenditure and resource consumption on each completed activities.

2. Future Information

• Activities that have been added along with other information about duration, time and cost.
• Any activities that have been removed.
• Activities that have been changed in duration, logic, resources etc.
• Schedule related change if any.

Following techniques can be used for effective schedule control:

• Work breakdown structure (WBS).
• Network Analysis (PERT/CPM).
• The line of Balance (LOB).

4.6 Project Cost Control: Methods and procedure (Earned value analysis)

Cost control is related to controlling changes to project budget. Cost control can be broadly defined as the process of controlling the expenditure in a project at all stages from its inception through its development.

Cost control must start right from the inception of the project because as the project advances chances of controlling cost through various cost control measures reduces.

Cost control implies good cost management, which must include

• Cost estimating
• Cost accounting
• Project cash flow
• Company cash flow
• Direct labor costing
• Overhead cost
• Others such as incentives, penalties and profit sharing

4.6.1 Elements of cost control

1. Observation: Regular observation on the resource (material, manpower, equipment) should be made.
2. Comparison: Observed data is compared with standards set.
3. Reasons for variance: Cause of deviation is known in this.
4. Correction: Controlling action is undertaken to bring the project back on track.

4.6.2 Methods of cost control:

1. Short term planning and control

Short term plan for week and days are prepared by breaking down the project into the much smaller project. As such plans are easy to monitor, evaluate and control and there is every chance project being controlled effectively.

2. Accounting method of cost control

a. Overall profit/loss account

In this profit/loss account is prepared after project completion and also reason are analyzed. This information is utilized for next project. Used for the small project only.

b. Unit costing

In this unit cost of each item is determined and compared with planned cost, to determine profit or loss. Profit/loss on valuation date

c. Profit/loss on valuation date

Profit/loss accounts are prepared for various periods after the project started. This method is used for large projects. This helps to determine the profitability of the project.

3. Project cost method: [ Earned Value Analysis (EVA) ]

• EVA is a way to measure the amount of work actually performed on a project (i.e., to measure its progress) and to forecast a project's cost and date of completion. The method relies on a key measure known as earned value.
• This measure enables one to compute performance indices for cost and schedule, which tells how the project is doing relative to its original plans. These indices also enable one to forecast how the project will do in future.
• Earned Value Analysis (EVA) is a tool that compares the value of work done with the value of work that should have been done.
• Earned value is the value of work done at a given point of time. EVA is often presented in the form of progress or S-curve diagrams.
• Earned value actually uses three data values, which are computed each week, month or whatever another period we wish to use. We use the term analysis date to refer to the date when three values are analyzed. Three values are:

a. Budgeted Cost for Work Scheduled (BCWS):

BCWS is the value of work that should have been done at a given point of time i.e. planned expenditure at a review date.

b. Budgeted Cost for Work Performed (BCWP):

It is referred as earned value. BCWP is the value of work done at a point of time.

c. Actual Cost for Work Performed (ACWP):

It is the amount actually expended in completing the work accomplished i.e. actual cost of work done at a point of time.

Using this definition following variance definition can be obtained;

• Cost Variance (CV)= BCWP-ACWP

If CV=0, right on budget

If CV>0, under budget.

If CV<0, cost overrun.

• Schedule Variance(SV)= BCWP-BCWS

If SV=0, right on schedule.

If SV>0, ahead of schedule.

If SV<0, behind schedule.

• Schedule performance index (SPI)= BCWP/BCWS
• Cost performance index (CPI)= BCWP/ACWP

Revised estimate of cost and duration can be found as follows;

• New duration estimate= Original time estimate/SPI
• New cost estimate= Original cost estimate/CPI

Bibliography:

IshwarAdhikari and Santosh Kr. Shrestha, “A text book of Project Engineering” 2011, Chandeshwori Publication, First Edition.

K. Nagarajan, “Project Management”, ISBN: 81-224-1340-4, New Age International (P) Limited, New Delhi, India, 2001.

E.R. Yescombe, “Principles of Project Finance” 2002, Yescombe-Consulting Limited.