Project Management Best Practices - ipaglobal.com · Project Controls Define project controls...

Project Management Best Practices

Project Controls Best Practices

CONFIDENTIAL2The IPA Institute - a Division of IPA, Inc.

LEARNING OUTCOMES

Project Controls

Define project controls

Identify Project Control Best Practices that drive

improved project outcomes


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


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


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


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


Total Project Control System

Schedule

Control

Total Project

Control System

Scope

Control

Cost

Control

Quality

Control


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




Team Development


Construction Safety

Project Controls






• Define Project Controls


Practices

• Project Controls Index


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


Project Control Best PracticesOrganized by Project Phase

Front-End

LoadingExecution 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



Front-End











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 owner’s “window” on the project

•Definition

•Detailed Engineering

•Procurement

•Construction

•Shutdown/Turnaround

•Commissioning and Startup



Front-End











Negotiate Strong Audit Rights onALL 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 owner’s 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



Front-End











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


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


0.8

0.9

1.0

1.1

1.2

0 1 2

Reimbursable Construction Fixed Price Construction

Co

st

Eff

ecti

ven

ess I

nd

ex

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



Front-End











Maintain Estimator’s 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



Front-End











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 contractor’s proposals


Classic ApproachSchedule and Cost Developed Around WBS

Project Scope

Project

Schedule

Project Cost

Estimate

Project Controls

During Execution

WBS


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



Front-End











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


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


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


Physical Progressing Reduces Schedule Slip

-40%

-20%

0%

20%

40%

60%

No Progressing Yes, NotComprehensive

Yes, All Accounts

Exe

cu

tio

n S

ch

ed

ule

Pre

dic

tab

ilit

y

Pr < 0.05

+1 Std.

-1 Std.

Median


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 contractor’s 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



Front-End











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


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

Execu

tio

n S

ch

ed

ule

Eff

ecti

ven

ess I

nd

ex

+1 Std.

-1 Std.

Median

Pr < 0.0001


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



Front-End











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


0.8

0.9

1.0

1.1

1.2

Owner Employee Focused On Data Owner Employee NOT Focused onData

+1 std. dev.

Mean

-1 std. dev.

Owner Historical Database Management Is Correlated With Better Cost Effectiveness

Ave

rag

e C

os

t E

ffe

cti

ve

ne

ss

Pr < .005




Team Development


Construction Safety

Project Controls






• Define Project Control


Practices

• Project Control Index


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


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


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

Defi

cie

nt

Po

or

Fair

Go

od

IPA’s 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 IPA’s FEL

Index for Projects

Industry Average for Large Projects (Best Practical FEL)

Industry Average for Small Projects (Best Practical FEL)


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

Execu

tio

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ch

ed

ule

Eff

ecti

ven

ess

Ind

ex

Project Control Index

PCI Correlates With Faster Execution Schedules

DeficientPoorFairGood

Pr < 0.0001


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0123456

Pe

rce

nta

ge

Sli

p

Project Control Practices Reduce Execution Slip for Reimbursable Construction

Not Significant Effect for Lump Sum


Reimbursable Construction



-10%

-5%

0%

5%

10%

15%

20%

25%

0123456

Pe

rce

nta

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Co

nti

ng

en

cy U

se

d

Project Control Practices Reduce Cost Growth* for Lump-Sum and Reimbursable Construction

Reimbursable Construction

Fixed-Price Construction


* Contingency use



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


Andrew F. GriffithDirector of the IPA Institute

Email: [email protected]: +1 703-726-5375

Project Management Best Practices

Project Controls Best Practices

Project Management Best Practices - ipaglobal.com · Project Controls Define project controls...

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