IPA Institute Project Controls Best Practices Webinar

Project Management Best Practices
Project Controls Best Practices

CONFIDENTIAL
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The IPA Institute - a Division of IPA, Inc.
LEARNING OUTCOMES
Project Controls
Define project controls
Identify Project Control Best Practices that drive
improved project outcomes
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Project Management Best Practices Roadmap
Define the Business Stake
Team Development
Contracting Strategies
Construction Safety
Project Controls
Value Improving Practices
Front-End Loading Details
Introduction to Front-End Loading
Risk Analysis and Mitigation
Accurately Measure Effectiveness
Define Project
Controls
Project Control Best
Practices
Project Controls Index
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Project Control Objectives
Project control has two primary objectives
Regulation of results through alteration of
activities
Stewardship of organizational assets
Control costs money to implement
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The Philosophy of Project Control and
Cost Engineering
Cost Engineering:
Cost, schedule and resource analysis, planning,
estimating, forecasting, control, and change
management practices
The word engineering reflects the linkage of cost
and schedule skills with specific technical
knowledge
Owner cost engineers work jointly with design
engineers to optimize project scope and improve its
business value
Project Control:
The control practices of cost engineering,
including tracking, monitoring, and evaluating the
project, are aimed at minimizing deviations from
plan as the project advances through execution
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Control vs. Monitoring
Project control is often confused with monitoring
Monitoring is passive
Control is active
Planning without action is just watching
There is no control without authority
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Total Project Control System
Schedule
Control
Total Project
Control System
Scope
Control
Cost
Control
Quality
Control
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Project Control at Work
Build a baseline plan
Track actual performance against plan
Collect data on actual performance
Analyze data for comparisons with plan
Document variances
Use data to develop forecasts of likely final outcome
Inform stakeholders of changes
Search out the Whys of variances
Make adjustments based on forecasts and trends
Feed results back into system to improve future projects
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Team Development
Construction Safety
Project Controls
Define Project Controls
Practices
Project Controls Index
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Research Findings on Project Control
IPA has identified a set of owner project control
practices that drive improved project outcomes
These practices do not represent a complete
control process or system
Practices add value and reflect real owner
commitment to project control
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Project Control Best Practices
Organized by Project Phase
Front-End
Loading
Execution Closeout
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
Use physical
progressing
Report status
frequently by
discipline
Develop and
maintain an owner
historical
cost/schedule
database
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12
Front-End
Loading
Execution Closeout
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
Use physical
progressing
Report status
frequently by
discipline
Develop and
maintain an owner
historical
cost/schedule
database
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An Integrated and Resource-Loaded
Schedule Is Important for Project Control
An integrated, resource loaded schedule has all project phases
integrated into a single master schedule that includes:
Provides a framework for planning the project
Identifies critical activities, relationships, and constraints that
drive project schedule duration
Functions as a communication tool
Is required to integrate cost estimate with the execution approach
Pulls project execution planning elements into a single model
Becomes the owners window on the project
Definition
Detailed Engineering
Procurement
Construction
Shutdown/Turnaround
Commissioning and Startup
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Front-End
Loading
Execution Closeout
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
Use physical
progressing
Report status
frequently by
discipline
Develop and
maintain an owner
historical
cost/schedule
database
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Negotiate Strong Audit Rights on
ALL Contracts
Audit rights should be obtained for
Cost reporting
Electronic schedule updates
Physical progress
Audit privileges and procedures must be well documented
in Invitations to Bid (ITBs) (can be established for lump-sum
turnkey projects as well)
Once established, audit rights must be immediately and fully
exercised or they will be effectively lost
Field Auditing:
Field representatives from owners project control group must
be assigned to check fabrication, construction, and installation
contractors to verify that they are following prescribed cost
and schedule reporting procedures
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Front-End
Loading
Execution Closeout
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
Use physical
progressing
Report status
frequently by
discipline
Develop and
maintain an owner
historical
cost/schedule
database
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Owner Estimate Validation
Validation provides a quantitative check of the
cost estimate
Common approach is to compare ratios of
different cost categories with available data
Process requires estimate data from contractors
that support the validation process
Common sources of data include:
Comparison with actual cost of past projects
Comparison with past estimates or check
estimates
Comparison with relative cost metrics or ratios
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Sample Metrics for Validating Cost
Estimates
Ratio Types Some Sample Ratios
Cost : Cost
Percentage of Total Cost
Total Cost / Equipment Cost
Construction Labor Cost / Bulk Material Cost
Office Cost / Field Cost
Resource : Cost
Field Hours / Total Project Cost
Field Hours / Million Dollars of Equipment
Cost : Resource
Labor Cost / Number of Hours
Material Cost / Quantity of Material
Total Project Cost / Unit of Capacity
Resource : Resource
Craft Hours / Quantity of Material
Field Hours / Number of Pieces of Equipment
Engineering Hours / Design Drawing
Office Hours / Field Hours
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0.8
0.9
1.0
1.1
1.2
0 1 2
Reimbursable Construction Fixed Price Construction
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Weighted Index (for Effectiveness)
Estimate Validation by Owner Cost Specialist
Helps Ensure Competitive Lump-Sum Pricing
Data are for FEL held constant at Industry average level
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Front-End
Loading
Execution Closeout
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
Use physical
progressing
Report status
frequently by
discipline
Develop and
maintain an owner
historical
cost/schedule
database
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Maintain Estimators Independence
Ensure that estimators are free of undue bias
Managers can be biased toward a favorite project
or have a predetermined cost in mind
IPA has seen cases of underestimating because
of pressure from project team
IPA has also seen cases of overestimating
because the company has a punitive environment
for even minor overruns
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Front-End
Loading
Execution Closeout
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
Use physical
progressing
Report status
frequently by
discipline
Develop and
maintain an owner
historical
cost/schedule
database
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Estimate for Control
Too many estimates are prepared with the sole
objective of determining the number
Cost estimates must be structured to support
project control
Estimate must be organized so that all cost
categories are separate and can function as basis
for control
Project teams should establish code of accounts
early and across the project
Even for fixed-price contracts, an owner estimate
designed for control provides the best basis for
evaluating the contractors proposals
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Classic Approach
Schedule and Cost Developed Around WBS
Project Scope
Project
Schedule
Project Cost
Estimate
Project Controls
During Execution
WBS
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Benefits of a Common WBS
Each cost and schedule estimate should be
designed using a common work breakdown
structure and cost account breakdown
This benefits both deliverables
Facilitates cash flow analysis and earned value
analysis
Helps to ensure consistency between cost
estimate and project schedule
Facilitates resource-loading of project schedule
Provides consistent project controls
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Front-End
Loading
Execution Closeout
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
Use physical
progressing
Report status
frequently by
discipline
Develop and
maintain an owner
historical
cost/schedule
database
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Use Physical Progressing
Physical progressing is a method to measure
completion of work progress
Physical progressing system for control of
project progress is essential
Many project managers use informal methods
However, an objective method is more reliable
and provides better control
Instead of tracking costs as a measure of progress,
physical quantities or events are identified and
actual units completed are compared against plan
Enables project teams to ascertain where gaps
exist between amount of money spent and actual
scope completion
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Four Steps of Physical Progressing
Assign weighted value to an activity or group of
activities associated with some physical item or
event
Measure degree of completion by counting items,
quantities, or events
Determine overall progress by summing up the
achieved or earned value (degree of
achievement times the weighted value) for each
item, event, etc.
Divide earned-sum by total value of all items to
determine percent complete
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Guidelines for Progressing
Not every item must be weighted and measured
in physical progressing - some level of
aggregation or grouping of items is always
present
Estimated quantity and weighted-value must be
accurate and up-to-date
Do not bias the person responsible for measuring
progress
Even at authorization, the estimate needs to be
structured to support physical progressing
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Physical Progressing Reduces Schedule
Slip
-40%
-20%
0%
20%
40%
60%
No Progressing Yes, Not
Comprehensive
Yes, All Accounts
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y
Pr <0.05
+1 Std.
-1 Std.
Median
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Tracking Physical Progress for
Lump-Sum Contracts
Tracking allows owners to recognize contractors poor
performance early, so team can take remedial action
Owner payments to contractors are usually based on work
progress
Tracking physical progress ensures that owner pays only for
actual work accomplished
Although owner is not able to directly track contractors
cost in lump-sum contracts, owner should be able to track
hours that contractor uses
Hours information can be used to gain insight on contractor
cost performance
Tracking physical progress for lump-sum contracts is as
important as for reimbursable contracts
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Front-End
Loading
Execution Closeout
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
Use physical
progressing
Report status
frequently by
discipline
Develop and
maintain an owner
historical
cost/schedule
database
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Report Status Frequently
Frequent and detail reporting of project status and
progress is an indication of good project controls
These reports require that all the pieces of effective
control are in place
Contractor can prepare the report, but owner must
establish reporting requirements
Owner must then evaluate and react appropriately to
report contents
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More Frequent Reporting Improves
Schedule Effectiveness
0.4
0.6
0.8
1.0
1.2
1.4
1.6
No Reports Monthly Reporting Biweekly Reporting
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+1 Std.
-1 Std.
Median
Pr <0.0001
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How Does Frequency of Status Reports
Accelerate Execution Schedules?
Frequent reports provide tool for keeping on
schedule by identifying schedule variations on a
timely basis
Without frequent reporting, delays in projects
may go unnoticed by the project system
Schedule benefit is strongest on reimbursable
projects, because this contracting strategy
places cost risk of schedule delays on the owner
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Front-End
Loading
Execution Closeout
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
Use physical
progressing
Report status
frequently by
discipline
Develop and
maintain an owner
historical
cost/schedule
database
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Why Keep a Historical Cost Database?
Owner should maintain a reliable, historical
project costs database
Used by cost specialists to validate future
estimates
Project manager and cost specialist have
responsibility to contribute back to the database
Action of asking for detailed cost proposals and
detailed final closeout data sends a message to
the contractor
Owners that follow these practices systematically
obtain more competitive proposals
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0.8
0.9
1.0
1.1
1.2
Owner Employee Focused On Data Owner Employee NOT Focused on
Data
+1 std. dev.
Mean
-1 std. dev.
Owner Historical Database Management Is
Correlated With Better Cost Effectiveness
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Pr <.005
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Team Development
Construction Safety
Project Controls
Define Project Control
Practices
Project Control Index
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Project Control Index (PCI)
Measure of owner project control practices
Focused on four key practices:
Estimate validated by in-house estimating
Physical progressing used
Progress status reports, detail & frequency
Owner project control specialist assigned
Measured on a single scale
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Index
PCI Measures Four Project Control
Best Practices
Has an in-house cost
specialist quantitatively
validated the estimate
(ensuring the estimate
is reliable and
competitive)?
Estimating for
Control
Control During
Execution
Is physical progressing being used, and
to what level of detail?
What is the frequency and level of detail
of project status reporting?
Is an in-house project control person
assigned during execution?
The practices measured by the PCI do not constitute a complete project control
process; they are proxy measures of a strong project control process
The PCI, measured on a single scale,
strongly correlates with project outcome metrics
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
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IPAs PCI Scale
Industry Average for Large Projects
Lead
Industry
Trail
Industry
Industry Average for Small Projects
We observe a positive correlation
between the PCI and IPAs FEL
Index for Projects
Industry Average for Large Projects (Best Practical FEL)
Industry Average for Small Projects (Best Practical FEL)
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0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
6 5 4 3 2 1 0
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PCI Correlates With Faster Execution
Schedules
Deficient Poor Fair Good
Pr < 0.0001
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-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0 1 2 3 4 5 6
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Project Control Practices Reduce
Execution Slip for Reimbursable Construction
Not Significant Effect for Lump Sum
Reimbursable Construction
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-10%
-5%
0%
5%
10%
15%
20%
25%
0 1 2 3 4 5 6
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Project Control Practices Reduce Cost Growth*
for Lump-Sum and Reimbursable Construction
Reimbursable Construction
Fixed-Price Construction
* Contingency use
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Project Control Is a Good Investment
1.3%
Project control function costs
range from 0.5 to 3 percent of
total project
Cost improvement from Best
Practices can range from 6 to 20
percent
IRR also benefits from schedule
improvement
Project Control as % of Total Project
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Andrew F. Griffith
Director of the IPA Institute
Email: agriffith@ipaglobal.com
Phone: +1 703-726-5375
Project Management Best Practices
Project Controls Best Practices

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