Project Controls Processes
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The document discusses the importance of project controls in managing financial resources and ensuring effective return on investment for projects. It emphasizes the need for accurate cost estimates and real-time information to make informed decisions and mitigate risks associated with cost overruns and schedule delays. Additionally, it outlines the project life cycle phases and the hallmarks of a good project controls process, such as data organization, real-time tracking, and effective reporting.
Project Controls Processes
- 2. Why do we need Project Controls? • Owner always has limited financial resources. • Owner wants to get the most out of the amounts of capital invested. • Financial decision to execute a project implies a given investment completed at a given time…the classic “return on investment model.” • Owner wants to know of problems in such a time to be able to take appropriate corrective actions. • In today’s business climate, “real time” information is essential to make better decisions. Owner’s Perspective Slide 1 of 2 -2 -1 0 1 2 3 n - 1 n $8m $7m $10m $60m $80m $75m $60m $60m Capital investment of $25 million over three year period . Positive cash flows (revenue streams) for “n” periods. Return on Investment Model
- 3. Why do we need Project Controls? • Return of Investment Model becomes successful when: – Estimated costs for capital outlays and future cash flows are accurate. – NPV (net present value) for future cash flows is greater than NPV of capital outlays. – Project Controls efforts are needed to ensure the actual capital outlays stay within the bounds of the estimate used in the Return on Investment Model. If cost overruns or schedule delays occurs, it can erode the financial benefit of the project. Owner’s Perspective Slide 2 of 2 -2 -1 0 1 2 3 n - 1 n $8m $7m $10m $60m $80m $75m $60m $60m Capital investment of $25 million over three year period . Positive cash flows (revenue streams) for “n” periods. Return on Investment Model
- 4. Project Life Cycle • Kerzner: “Every program, project or product has certain phases of development known as life-cycle phases.” • Project Management – A Systems Approach to Planning, Scheduling and Controlling, Harold Kerzner, PhD, 10th Edition, pg. 68 • Bennett: “Every project, not just those in construction industry, goes through a series of identifiable phases, wherein it is ‘born’, it matures, it carries through ‘old age’ and it expires.” • The Management of Construction – A Project Life Cycle Approach, F. Lawrence Bennett, PE, PhD, pg. 7 Aka Project Management Process
- 5. Examples of Project Life Cycles Oil & Gas Industry ImplementationDefinitionFeasibilityConceptual01 02 03 04 Choose the right project Develop the project right Deliver the project right Plan the work Start-up/ Close Out05 ExecuteDefinitionSelectAppraise01 02 03 04 Operate05 Work the Plan COMPANY A COMPANY B
- 6. Detailed Design Comm.Constr. Examples of Project Life Cycles Pharma Industry Slide 1 of 2 Basic DesignPre-Justify Front-end Loading CAPITAL MANAGEMENT PROCESS Plan the work Close Out DeliverApproveDevelopAllocation01 02 03 04 Asses05 Work the Plan PROJECT MANAGEMENT PROCESS 01 02 03 04 05 Justify Feasibility / Concept Design
- 7. Examples of Project Life Cycles Pharma Industry Slide 2 of 2 Feasibility Concept Gate (Capital Plan) Preliminary Design Detailed Design Construction Startup Commissioning Qualification Validation Project Turnover Gate (Project Close) Administrative Close FRONT-END PLANNING EXECUTION PROJECT CLOSURE
- 8. Project Planning & Control System Kerzner Perspective Source: Project Management – A Systems Approach to Planning, Scheduling and Controlling, Harold Kerzner, PhD, 10th Edition, pg. 413 Management of Change Management Decision-making Strategies, states of nature, payoff tables BudgetsSystem Reports Time, cost, performance, reliability, maintainability, effectiveness Time/Cost/ Performance Tracking Feedback Network Scheduling PERT/CPM Goals/Objectives System and company level Work Descriptions Specs, SOW, WBS Master Detailed Schedules Change procedure, review & approval of changes
- 9. Project Controls Process Hollmann Perspective
- 10. Hallmarks of Good Project Controls Process • Organization of data (structure) • Ongoing cost and schedule data collection systems that is near “real-time” • Establish appropriate baselines, with contingency, that considers possible effects of risks – Project targeting is doable; scope of project is what is needed • Application of earned value concepts • Sufficient time for trend analysis and developing forecasts – Going beyond reporting data, but also suggesting corrective actions • Effective Reports/Graphics (use of dashboards)
- 11. Owner’s Project Control Specialist View of Distribution of Time
- 12. Project Cost Forecasting Process Theoretical Best Practice Project Schedule Update Contractor Progress Reports Contractor Cost Reports Project Accounting Change Management System Part of Ongoing Project Controls Function on Project; Sub-Processes Interlinked Initial Cost Baseline Approved Change Orders Current Cost Baseline Cost Forecast Based on Above Analyses Vendor Invoices Contractor Invoices Payroll (timesheet systems) Project Purchasing (POs) & Contract Awards Resource Use During Reporting Period Starting Point for All Analysis Deviations that become trends Variation Analysis Trend Analysis Review Actual Costs Review Committed Costs Earned Value Analysis
- 13. THANK YOU Jerry Klanac Managing Director PMA Consultants info@pmaconsultants.com