Friday, August 8, 2014

OPM - COST PLANNING & CONTROL

Method to estimate cost:

  • Parametric – use per unit rate
  • Estimate – from lowest to upper most level
  • Indexing – use previous cost + 10 % increase
  • Cost Capacity – Use previous project cost of different size
  • Factoring – Use cost for an item from previous project


Contracting:
  • Fixed Price
  • Targeted Cost – include risk and uncertainties, benefit and risk are shared 
  • Maximum Guaranteed price – Risk to contractor, benefit is shared
  • Easy Payback – cost and expenses reimbursed to contractor without profit
  • Cost Plus – Time and materials are reimbursed with agreed profit margin
  • Unit rate – based on work accomplished

Cost and Project Objectives:
  • Cost is one of the project objectives
  • Unless cost is controlled project objectives can be jeopardized
  • Cost, time and quality are interlinked. Cost control is most critical
  • Most poorly managed project have cost overrun 

Cost Control:

Who control cost?
  • Project manager must control spending and cost
  • Strong culture of trust and responsibility is crucial for cost control
When to Control cost?
  • Project cost spending is low at the beginning
  • As project progress complexity increases and control effectiveness reduces
Where to control cost
  • Cost are best controlled at source
  • Issues and problems are to be resolved before cost is incurred
  • Cost controller can be located on site
 How to control Cost? – use traditional variance analysis and Earned Value Analysis


Cost Collection:

Labor
  • Time sheet – normal delay in data collections and fed back to PM can cause be serious ( 3 weeks to reach PM)
Materials
  • Accurate data must record procurement of materials at issue of PO, at receipt of goods and at payment of invoice
  • Three stages collection gives more up to date indication on cost and spending information
Cost Codes
  • Cost codes helps detailing spending and improves control
  • Too much details can increase cost collections and slow action
Complete cost information data is mandatory for an effective cost control


SV = BCWP – BCWS
CV  =  BCWP  - ACWP

Performance indices gives dimensionless index with value less or more than 1.0
CPI  =  BCWP / ACWP

Where CPI = cost performance index

SPI  =  BCWP/ BCWS


Where SPI = Schedule Performance index

Performance indicator:

CPI > 1.0    Project is saving
      < 1.0    Project is over spending

SPI  > 1.0  Project is ahead of schedule
       < 1.0 project is behind schedule

  • Accuracy of performance indicator is dependent on the accuracy of cost data collection
  • Detailed data sheet indicating cost and schedule can be cumbersome and computer and software need to be utilized
  • Usually used for large projects due to administrative costs

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