3/2/2017 DigitalTransformationforTheEnterpriseProjectManagementOffice(EPMO)ProjectCostManagementPart2|BassamSammanPMPPSPEVPG

Digital Transformation for The Enterprise

Project Management Oice (EPMO)
Project Cost Management Part 2
Published on March 2, 2017

Bassam Samman PMP PSP EVP GPM 9 1 1

Sustainable Digital Transformation For the Enterprise Project Mana

Inpartoneofthedigitaltransformationfortheenterpriseprojectmanagementofficefor
projectcostmanagementwehaveaddressedhowtoestablishthecostbreakdown
structure(CBS),createtheprojectcostestimateanddevelopandmaintaintheproject
budget.Thiswasfollowedbyprojectprocurementmanagementwhichdetailedhowto
transferpartoftheprojectscopeofworktootherorganizationstodeliverasoneofthe
availableresponseactionstoreducetheprojectsriskexposure.Thisaddressedthe
projectmanagementprocessesofprequalification,invitationtobid,biddingandbid
analysis,awardofcontracts,changeordersandactualcostusingprogressinvoices.Part
twooftheprojectcostmanagementwilladdresstheremainingprocessesofproject
funding,earnedvalueanalysisandmanagingtheprojectcost.

ProjectFunding

Thefundingofprojectscouldbefrominternalorexternalsources.Regardlessofthe
fundingsource,theEPMOneedstokeepofwhatwillbethefundingsourcesavailable
foreachproject,fundingrequestsandfundingauthorizations.PMWebPMISwill
capturethedetailsofallfundingrecordsneededforeachusingtheFundingRecord
documenttemplate.Thetemplatewillprovidedetailsifthisfundingsourceislimitedto
aspecificprojectorpartoffundingforaprogramoraportfolioofprojects.Inaddition,
itwillprovidedetailsonthedifferentfundingsourcesthatareavailableforthis
particularproject.Thosefundingcanbespecifictocertainworkbreakdownstructure
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(WBS)levelsorjustfortheprojectanoverall.Itisforthisreasonthatgreatcareshould
begiventodevelopmentoftheprojectWBSasitwilleventuallybebasisfor
establishingthestrategyonhowtheprojectwillbedelivered,howitwillbefunded,
whowillbeinvolvedindeliveringwhatamongmanyotherimportantdecisions.

Knowingthefactthatthefundingforaprojectcouldbeusedinfullorpartiallyaswell
asitcouldbeusedinphases,thenthisbringstheneedtohaveanotherdocument
templatetocapturetheactualFundingRequests.FundingRequestsallowstheproject
teamtoaddandsubtractfromtheavailableprojectfundingindiscretetransactionsthat
maintainaclearaudittrailandthatmayberoutedforapprovalusingPMWebworkflow
steps.

ThethirddocumenttemplatetocompletetheneedsofprojectfundingisFunding
Authorizationswhichallowstheprojectteamtodocumentthereleaseoffundstothe
project.Similartothefundingrecordsandfundingrequestsdocumenttemplates,the
fundingauthorizationdocumenttemplatemaintainsthesamelevelofgranularityonthe
sourcesoffundsaswellastowhichprojectWBSlevelitwasappliedagainst.

EarnedValueAnalysis

Oneofthekeyrequirementsformanagingtheprojectcostandwhereitdiffersfrom
accountingpractices,istopredictwhatwillbethecostoftheprojectatcompletion.
Thisrequirestheprojectteamtoanalyzethepastperiodsperformancetocomewitha
realisticforecastfortheremainingperiods.ThisrequireshavingtheBudgetat
Completion(BAC)andPlannedValue(PV)fortheanticipatedbudgetspendingatthe
currentperformanceassessmentperiod.Inaddition,theearnedvalueassessmentneeds
theActualCost(AC)incurredbytheprojectuptothesameperformanceperiod.Thisis
theactualcostofapprovedworkscompletedtodatewhichiscapturedbythemonthly
progressinvoices.ThethirdneededparameteriswhatisknownastheEarnedValue
(EV)whichistheBudgetAtCompletion(BAC)foreachbudgetlineitemmultipliedby
thePercentCompleteforthesamelineitemusedtocalculatetheActualCost(AC).
ThosevalueswillenablethecalculateoftheearnedvaluemetricsofScheduleVariance
(SV),CostVariance(CV),SchedulePerformanceIndex(SPI)andCostPerformance
Index(CPI).

Basedonthosecalculatedmetrics,thentheearnedvaluemethodwillalsocalculatethe
EstimateToComplete(ETC),EstimateatCompletion(EAC)andVarianceAt
Completion(VAC)metrics.Nowthevalueofthosecalculatedmetricswillassumethat
thebalanceoftheprojectscopewillbedeliveredaswasoriginallyplannedandthe

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projectteamshouldnotdoanyadjustmentstotheestimatedcosttocompetethebalance
oftheprojectscope(ETC).Inmanycases,thisissimplynottrue.Basedontheanalysis
ofthepastperiodsperformanceandhowthiscouldimpacttheremainingscopeaswell
aswhatadditionalinformationhadbecomeavailable,theprojectteammighttoadjust
theforecasttocompletetheremainingscopetoprovideamorerealisticvaluethanjust
assumingtheremainingcosttocompleteequalsthebalancebudgetavailableto
completethesamework.

Thechartbelowisforaprojectthathasabudgetatcompletion(BAC)ofUS$1Million
andaplanneddeliverydurationof10months.Attheendofmonth5,theplannedvalue
(PV)ofthebudgettobespentwasUS$500,000,theactualcost(AC)ofworkinvoiced
wasUS$400,000andtheearnedvalue(EV)ofthecurrentprojectspercentcompleteof
30%wasUS$300,000.Thispercentcompleteof30%iswhattheprojectwassupposed
toachieveatthepastperformanceperiodwhichwasfourweeksago.

Accordingly,theprojecthasanegativeschedulevariance(PVEV)ofUS$200,000,a
negativecostvariance(ACEV)ofUS$100,000,ascheduleperformanceindex
(EV/PV)of0.6andcostperformanceindex(EV/AC)of0.75.Basedonthis
performance,theestimatetocompletetheremainingwork(BACEV)without
adjustmentforthepastperiodsperformancewillbeUS$700,000.Nevertheless,thisis
nottrueandtheprojectteamforecaststhatthecosttocompletethisremainingscopeof
workwillbeUS$1Million.Inotherwords,theforecastedprojectcostatcompletion
(AC+ETC)willnowbecomeUS$1.4Million.Thismeansthatthevarianceat
completion(BACEAC)willbeanegativeUS$400,000orinotherwords,theproject
willbeoverbudgetbyUS$400,000or40%towhatwasoriginallyanticipated.In
addition,ifthescheduleperformancetodateistakenintoconsideration,theproject
teamalsoanticipatesafourweekdelaytotheprojectcompletiondate.

AprojectmanagementinformationsystemlikePMWebwillusuallyhavetheForecast
documenttemplatewhichneedstobecompletedattheendofeachperformanceperiod
(financialperiod).Thedatacapturedinthisdocumenttemplatewillbeautomatically
extractedfromthebudget,commitmentandprogressinvoicedocumenttemplates
exceptfortheForecastToCompleteeachcostlineitem.Thistoensurethattheproject
teamisobligedtoreviewtheEstimateToCompleteforeachlineitemandverifyifan
adjustmentisneededornot.Inaddition,thepercentcompleteforeachlineitemneeds
tobeaddedasthelevelofdetailoftheforecastmodulemightdifferfromlevelofdetail
usedinreportingtheactualcost.

TheearnedvaluemetricsprovidetheEPMOwithveryimportantmetricsnotonlyto
reporttheprojectscostperformancebutalsotocomparethecostperformanceacross
thecompleteportfolioofprojectsthattheorganizationhas.Theearnedvaluedashboard

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canalsobedesignedtoshowthetrendsforthescheduleandcostvariancesaswellas
thescheduleandcostperformanceindices.

CostLedger

Similartoanycostmanagementsolution,thereisarequirementtohaveallfinancial
transactionsstoredinonesinglerepository.Notonlythiscanbeconsideredasanaudit
ofallfinancialtransactionsbutalsoallowstheprojectandtheEPMOteamtoanalyze
andvisualizethisfinancialinformationinanydesiredformandformat.Thechartbelow
isanexampleofhowthosefinancialtransactionsareautomaticallycapturedinPMWeb
costledger.

ReportingtheProjectCostStatus

Withthedifferentfinancialtransactionsthattakesplaceeverydayonanyproject,the
projectteam,EPMOandtheorganizationasanoverallneedtohavetocomplete
financialtransparencyreportsthatcanbetracedtothesourceofthereporteddata.This
canbeachievedbyaccessingtherealtimedatacapturedinthecostledger.Thecost
worksheetisthedocumenttemplateusedbyprojectmanagementinformationsystems
likePMWebtopresentthedesiredprojectscostdata.Itallowsaddingcolumnswhich
couldbeeitherfromthedefaultcostfieldsornewcolumnsforwhichthecontentwillbe
basedoncalculateddatafromthedefaultcostfields.Thedisplayedcostdatacanbe
furtherfilteredbythefinancialperiodswherethosetransactionswereincurredaswell
asthestatusofthedocumenttemplatewerethiscostdatawascaptured.Thestatus
couldbeeitherapprovedorpending.

Theprojectfinancialstatuscanalsobereportedingraphicalformattosummarizethe
overallprojectstatusintermsofbudget,commitments,earnedvalue,invoicedand
actuallypaid.Thedashboardwillusuallythescheduleandcostperformanceindices
trendsaswellastheprojectcontingencydrawdown.

Ournextarticleswillcontinuetoaddressthedigitaltransformationoftheenterprise
projectmanagementoffice(EPMO)bydetailinghowtheremainingprocessesofthe
projectmanagementknowledgeareasincludingquality,humanresources,
communication,riskandstakeholderareautomatedusingdigitaltransformationbest
practices.

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Bassam Samman PMP PSP EVP GPM

Sustainable Digital Transformation For the Enterprise Project Management Oice (EPMO)
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raj, chandrasekara subbiah 2h

Senior Manager (Apps one NA - PBS & CSG)
Good one, on budget and cost analysis.
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