Time-phasing the project budget is as core to project controls on construction projects as pasta is to Italian food. Or hockey is to a Canadian winter. Time-phasing is so central to project controls, that in 4castplus there are five different time-phasing plans that can be setup on a single project. Actually, there are 10 – but in this article we’re mostly going to talk about one really important one.
One of the most important functions of project controls and cost engineering, is the ability to accurately forecast remaining costs-to-complete on a construction project. With the new Resource Forecasting tools in 4castplus, project controls professionals can now achieve ultimate accuracy and take full control of how projects are forecasted.
Several decades ago, organizations used to manage all their finances using big paper-based ledgers, where they’d spend much of their day “doing the books”. These large ledger books worked for hundreds of years, however it would be a challenge to find any modern company today that runs their business on paper-based accounting methods.
You thought you had your project all wrapped up when, SURPRISE, vendor invoices just keep coming in. Whoops, things didn’t go as well as you thought. The costs on your project keep soaring, and you have to keep updating your project reports to your superiors.
Why Vendor Invoices Keep Coming In
This happens because vendors rarely invoice you at the time they completed the work, or delivered the materials. The problem is, if you wait until vendors invoice you to show the cost on your project, then you’re in for a lot of surprises.
With the hundreds of people entering data into the system every day, what are the chances that a day will ever go by when all the data is entered perfectly – without a single mistake?
Why the WIP Report is so Important
In addition to effectively managing the costs and schedule of your project, it’s critical to stay on top of your Work in Progress or WIP. WIP is critical to monitor. You, your CFO and your investors need to know just how profitable your project is, how much of the project has been funded by your customer, and how much has been financed by you. Combining WIP information with project profitability and performance metrics, will give you a complete picture of the financial health of your project or your program.
Accelerate Your Cash Flow
You’ve spent considerable time and effort in running your projects well. You make sure that your customer is kept very happy during project execution, and you’re expertly handling the multitude of challenges that come along with a complex project. Your project is going well, your customer is happy. But you still can’t seem to get paid on time. Why is that?
The challenge with any construction project budget that doesn’t utilize the advantages of time-phasing, is that the project manager won’t know exactly when money is anticipated to be spent on the project. And neither will the CFO.
When asked about where their project stands against initial budget and schedule, most project managers will have a pretty good idea. They’d be able to tell you something like, “We’re running quite close to budget”, or “We’re almost half done”. However, without the tools and tracking to provide sufficient substance to those statements, gut-feel assertions like that are often dangerous guesses that can lead to cost overruns and delays. Earned Value Management provides the tools and techniques to tell a project manager where he or she really stands in their project. It can not only report on how much over/under budget or ahead/behind schedule a project is; it can also inform a PM as to how a project is trending, so as to better predict schedule and cost remaining to complete their project. This provides the project manager a solid grounding on current status along with a good estimate of projected final results & timing.