Bureau of Engineering Project Delivery Manual

Chapter: Procedure: Revised:

4 PROJECT MONITORING AND CONTROL 4.1 CONTROL AND VARIANCE ANALYSIS

February 19, 2009

PURPOSE The purpose of this procedure is to discuss how Project Managers, Project Engineers, and Construction Managers can perform cost forecasting, cost monitoring, and variance analysis. REFERENCES N/A RESPONSIBILITIES Program Manager: The Program Manager must obtain approval from the approving authority, usually an Oversight Committee, for all requested changes in scope, budget, and/or schedule. Project Manager (PM): The PM is responsible for setting and monitoring the project budget, scope, and schedule. The PM must also assure that the project costs and budget are updated at appropriate points during the design process. The PM should also review these updates to ensure that scope creep is not occurring. As the client agency contact, the PM is also responsible for managing the design process so that additional client requests/requirements outside the project scope are minimized once the project budget and scope have been established. There are times when a scope revision is essential. For example, a change in scope may be necessary to comply with a code requirement or a regulatory permit requirement. In the case of an essential scope revision, the PM is responsible to (1) notify the Program Manager if the projects budget, scope, or schedule are being compromised; (2) work with the Project Engineer to identify work that can be deleted from the original scope to maintain the approved budget and schedule; (3) work with the Program Manager to obtain either additional funding or approval for scope reduction to achieve the budget; and (4) adjust the project scope, schedule, and budget based on the revisions approved by the Oversight Committee. Project Engineer (PE): The PE is responsible for designing the project in accordance with the approved scope but within the limits imposed by the project

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Bureau of Engineering Project Delivery Manual budget. If scope creep occurs that is not within the PEs ability to control, or if the schedule and budget are at risk for any other reason, the PE is responsible to notify the PM at the earliest possible moment. Construction Manager (CM): The CM is responsible to monitor project costs during construction, minimize change orders to the extent possible, and avoid any unnecessary change orders. In particular, the CM should monitor changes related to scope or owner initiated changes. The CM should update the change order information in UPRS on a regular basis. The CM is also responsible to notify the PM whenever a change is requested that appears to be unnecessary or not within the original project scope. Oversight Committee: Most capital programs have an Oversight Committee that has the authority and responsibility to approve a projects scope, budget, schedule, and any changes thereto. In such cases, the Oversight Committee is the approving authority. ATTACHMENTS / LINKS N/A PROCEDURE Background The need for cost forecasting and variance analysis is applicable to all phases of a project: Pre-Design, Design, and Construction. This control over project expenditures is not only a vital tool, but is necessary to see that total funding is both available to complete the project and in place for milestone payment dates. There are many tools that can be used for this monitoring, but the basic policy is to use only the tools needed to deliver the project for the lowest total cost. The object of a successful project is being able to deliver it for the lowest total project cost. Nothing will substitute for design quality to keep down the total project cost. Cost Control Cycle The PM should monitor the cost control cycle to make sure the project will be funded to completion. The first step in the process is estimating and budgeting. This begins with the authorization to start planning the project then performing a work breakdown structure to determine what subgroups and/or specialties will be required to complete the design. This is followed by creating subdivided work descriptions where the various tasks can be identified and quantified. Schedules are then made and each task is budgeted based upon standard templates or in some cases by negotiating with the group that will perform the work.

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Procedure 4.1 Control and Variance Analysis

Bureau of Engineering Project Delivery Manual The second step is to release the work to the working design groups and start spending the funds needed to perform the work. This is where the monitoring truly begins and the results are measured by cost, performance, and time to complete. This requires the regular review of expenditures to control costs and make adjustments as necessary. The PM should be proactive and step in whenever necessary to expedite the work flow and resolve problems quickly. All within budget projects have the same common features including thorough planning and concept of the work to be done. Also needed is a good work definition of the tasks involved and an accurate work breakdown structure. It is very important to have clear communication of the work scope with all parties involved and good estimating of time, labor, and costs. Within budget projects have quality designs, disciplined budgets, and control over the authorization to make expenditures. Other factors involved with successful within budget projects are the periodic re-estimation of time, performance, and cost to complete and frequent comparisons of actual progress and expenditures versus schedule and budget. It is also important to take immediate remedial actions based on problems uncovered in these comparisons. The PM should budget for contingencies, because unknowns almost always increase the cost and add time to the project. Management involvement is also vitally important to the success of a project. They need to be regularly informed of project status and be willing to assist should a problem arise. Cost Accounting System There is a critical need for accurate information on who is charging and how much to a project. The Bureau of Engineerings (BOEs) cost accounting system is based on work order numbers and task and subtask codes for each project. Every project has one work order number and some may have more than one. They are broken down into three layers of definition; phase identifier, task codes and subtask codes. The BOE breaks down tasks into Management and Administration, Concept, Pre-Design, Bid and Award, Construction, Post-Construction Commissioning, and Services. Each of these is further broken down into tasks and subtasks. The basic requirements for cost reporting are as follows: (1) a reasonable level of detail, (2) personal responsibility for data input, (3) input should be automated to the extent reasonable, (4) different levels of detail are needed for task leaders, PMs and management, and (5) the system should provide information often and regularly. Data from individual timesheets is entered into the Financial Management Information System (FMIS). FMIS is the official cost accounting system for the City. It is housed on the Citys mainframe computer and costs are entered by the Bureau of Accounting. The report formats are accounting-like and many types are available canned and ad-hoc. The system can provide information on every individual by name that charges to a projects work order number.

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Bureau of Engineering Project Delivery Manual Actual project charges are downloaded from FMIS monthly into UPRS. The PM should check the UPRS actual charge data monthly, investigate incorrect charges and secure corrections. The UPRS actuals are necessarily summarized into total project charges. If the PM or PE question the charges, they can request more detailed information from the FMIS system by contacting the Administration Services Division. Common Causes for an Over Budget Project The causes for an over budget project can be found in any phase of the project. In the Planning Phase it starts with no or limited alternatives assessments. Then poor estimates will result in poor budgets and an inadequate work breakdown structure will leave out costs. The environmental assessment is a great example of this problem. Never assume that it will be a simple exemption or negative declaration, because a surprise full Environmental Impact Report (EIR) could cost years times and expense. Other over budget causes in the planning phase are having no plan for expected, but yet unidentified problems, over optimism with time, budget or effort and an unrealistic appraisal of the capability of existing staff to perform the work needed. In the Design Phase a common cause for over budget projects is scope creep (See Procedure 4.3) where additional features or extras are requested by the client during the design process. Other causes are poor tracking of planned versus actual costs, not understanding the customers requirements and unauthorized charging to the project. Problems in the design phase can also be caused by an inadequate Quality Assurance/Quality Control (QA/QC) plan, failure to design to budget, and not understanding what constitutes the 100% design package. The most common causes for an over budget project in the Construction Phase are poor design (Quality was not Job No. 1.), unclear specifications (Clarity was not Job No. 2), or lack of control over owner initiated changes. Other causes are the failure to resolve disputes and negotiate change orders in a timely manner and having an adversarial versus a partnering attitude with the contractor. Partnering is the best approach to resolving issues during construction and thus constructing the project at the least possible cost. The Post Construction Phase contains potential factors that can cause an over budget project. The first is simply a slow closeout. This could be caused by asbuilts not being completed, change order issues not resolved and final change orders not issued, Office of Contract Compliance (OCC) problems with contractor wages and the subcontractors used, or not completing the lessons learned report in a timely manner. Finally, simply failing to close the work order can allow unexpected stray charges to be made to the project. Total Project Cost Estimating

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Procedure 4.1 Control and Variance Analysis

Bureau of Engineering Project Delivery Manual The PM is responsible for the total project cost estimate. This total project cost estimate must include everything. This means construction, delivery costs, right-of-way, build out, permits, contingencies, escalation, and allowances. The PM must always use estimating contingencies, escalation to mid-point of construction, and construction or budget contingencies when estimating the project budget. In addition there are the delivery costs which include planning, pre-design, design, and specialty services (such as environmental, Geotech, structures, real estate, architecture, process, electrical, mechanical and instrumentation and control). Also, the costs of bid and award, construction management, inspection, close out, and other Department costs and consultants must be estimated and included into the total project cost. The total project cost means the TOTAL. The only unknown is possible litigation and hopefully that will not occur. The Total Project Cost should be the budget amount. This total project cost is the amount that should be quoted when discussing the project. When requested the construction cost or the City Engineers estimate of a project, always qualify that amount for what it is. In some cases it may be prudent to state the total project cost as well. This will help to eliminate confusion, unrealistic expectations and questions at the completion of the project. Tools for Project Monitoring The PM needs to balance the tools to be used based on the actual needs of the project. It is BOE Policy to use monitoring control tools when it is likely they will assist in delivering at the lowest possible total cost. It is not cost effective to use every monitoring tool where their application will have minimal useful value and increase the total project cost. The basic cost monitoring tools include UPRS and other cost forecasting tools that may be developed for a specific project. UPRS is the BOEs Uniform Project Reporting System. UPRS drives the Program Master Schedules, provides geocoding information to the GIS Database, provides the basis for the Work Program Resource Requirements (WPPR), and provides the fundamental data on project scope, budget and schedule. The information available can help the PM track project charges and their sources, the object being to locate problems and make corrections and revisions. Cost forecasting is important at any phase of a project. The PM must be able to recognize the progress being made on the project and the amount of the budget that has been expended. There must also be funds in place and available to make progress payments, especially in the case of authorized bonds to be sold to raise capital. The following tools or methods can be used in cost forecasting: a. Earned Value Earned value is an estimate of the value of the work performed to data. The earned value can then be compared to that actually expended. If earned value is greater than expended value,

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Bureau of Engineering Project Delivery Manual then the project is ahead of its actual expenditures. On the other hand, if earned value is significantly less than expended value, the project may be in trouble and might not finish within its allocated budget. The point is that it is important to review the work progress to assure that it is moving at the same pace as the expenditures. b. Cost to Complete Cost to complete is a new estimate of the work to be done and the cost to do it in a particular phase of a project at a specific point in time. This analysis will help to determine if the remaining funding will be sufficient to complete the project or if a surplus might be possible. Variance Analysis Variance analysis is the difference between the cost to complete and the remaining budget or the difference between earned value and expended value. Variance analysis can be a useful tool to determine if the project is on budget; if corrections to method or scope are needed; or if additional funding must be appropriated. In cases where additional funding will be required the PM must discuss the situation with the Program Manager and be ready to meet with the Oversight Committee to explain what will be required.

c.

RELATED PROCEDURES Procedure 3.4 - Defining Scope Procedure 4.3 - Managing Scope Creep Procedure 7.5 - Preparing the Pre-Design Report Procedure 9.2 - Developing the QA/QC Plan

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Procedure 4.1 Control and Variance Analysis