Project Cost Management & the Project Life Span

How does project cost management vary with the project life span, and why?

 

First the Project Life Span (PLS)

As we have seen in Issacon #1012 & 1033-1035

·         Every well-managed project progresses through a number of distinct phases

·         Each phase results in more detailed information

·         About the project's scope, quality and timing

·         Like the other project management functions we discuss

·         The evolution of cost management similarly tracks the project life span

·         This evolution is discussed in the following pages

 

Concept Phase - 1

In the Concept Phase

·         Information about the project is sketchy

·         In outline only

·         Probably just key parameters

·         Sufficient for preparing a Business Case

·         Two estimates are required

·         Estimate #1: For the cost of Project Execution

·         Estimate #2: For the cost of conducting the next phase of Project Definition

 

Concept Phase - 2

·      Purpose of estimates 1 & 2

·         Estimate #1 determines whether the project is viable

·         And possibly its ranking in a program portfolio

·         This estimate is often referred to as

·         "An Order of Magnitude"

·         Its range is typically -25% to +75%

·         Estimate #2 supports budget approval for the next phase

·      PCM in this phase

·         Costs are collected as "expenses" and

·         Either saved for application against the project

·         Or, covered by operational funding

 

Definition Phase - 1

In the Definition Phase

·         Information is gathered from the stakeholders

·         The project scope is progressively refined

·         Through feasibility and other studies

·         An interim Estimate of Project Execution may be prepared

·         Some times referred to as a "Feasibility Estimate"

·         Its range is typically -15% to +25%

 

Definition Phase - 2

·      The purpose of the Feasibility Estimate

·         Is to ensure the project is still viable

·         And competitive in its portfolio ranking

·      Once all the studies are complete

·         Including all the project planning

·         The next level estimate is prepared

·         Often referred to as "Appropriation Estimate"

·         It supports the budget request

·         Included in the Project Charter funding application

 

Definition Phase - 3

PCM in this phase

·         Is conducted on two levels

·         Level 1: Actual costs collected for the current phase work

·         And tracked against this phase's budget

·         Like a project in its own right

·         Level 2: Periodic updates of the Feasibility estimate

·         Up to the time of arriving at an Appropriation estimate

 

Execution Phase - 1

    In the Execution Phase

·         The objective is to contain actual costs within the approved project budget

·         For the agreed project scope

·         Or obtain approval for a budget adjustment

·         If the project scope is revised

    If this phase includes a Design stage

·         Intermediate estimates should be prepared

·         Often referred to as

·         Design Review Estimates

·         With progressively tighter ranges

 

Execution Phase - 2

PCM in an Execution Design stage

·         Is also conducted on two levels

·         Level 1: Actual costs collected for the current stage work

·         And tracked against this stage's budget

·         Level 2: Periodic updates of the estimate for production work

·         Up to the time of arriving at a "Pre-tender estimate"

·         If the work is to be done under contract

·         Or, pre-project production work

·         If the work is being done internally

 

Execution Phase - 3

PCM during project Execution/Production

·         Since this is when major costs are incurred

·         PCM must be rigorous

·         The objective is to contain actual costs within the approved project budget

·         By regularly estimating the cost of the remaining work

·         Based on the latest productivity data

·         And making management changes

·         If the final total exceeds the total budget

 

Execution Phase - 4

Cost tracking of scope changes

·         If scope changes are called for

·         Requests for changes to the budget must be processed

·         So that a proper "basis for comparison" is maintained

 

Finishing Phase - 1

In general

·         The objectives are similar to the previous phase or stage

·         And PCM follows the same processes

·         However, PCM is often more difficult

·         As optimism gives way to realism!

 

Finishing Phase - 2

In particular

·         Alarm bells must be sounded

·         When serious overruns are encountered

·         It is often better to cut the project off

·         At the 99.9% completion point

·         And deal with the outstanding issues under a different financial arrangement