Project Cost Planning & Control a * Cost control is the process of ensuring that the cost limits for each work package are adhered to at all times or wherever possible + This essentially involves 1. comparing actual expenditure against planned expenditure . identifying differences - working out reasons for the differences and - taking necessary actions to pull expenditure back into line SONProject Cost Planning & Control a + Time planning and cost planning run in parallel + Combining the two will enable identification of how each work package will * Cost + When it will start and > When it will finish + This will enable to track cost expenditures, and hence effective control, and steer project to successful resultsProject Cost Planning & Control sj + Usually cost estimates are developed at each level of work package + Cost planning is therefore the process of estimating how much each work element should cost and building or rolling up total cost based on each work package This will enable cost limits to be capped on each work element, package and in totalPlanned Costs, Actual Costs and g Variances ee The standard practice in project management is to estimate cost for different levels of work in the project Cost plan needs to show how much each work element needs to cost and when it should be spent Thus cost plan needs a time element + Thus a cost plan is a dynamic time related cost mapWBS Level 1 Level 2 Level 3 Level 4 Level 5Lost Planning and Cost Control SystemsCost Planning Stage + This includes > Pricing estimation » Establishing targets and budgets > Setting cost plan + The idea is to set the cost of the project in advance » In terms of how much each work package will cost » And when each expenditure will start and finish B)General Requirements for a Good Cost Planning F System ef It depends on the accuracy of the estimates + Thus a detailed understanding of the work involved is necessary + Carefully and thoroughly consider all the work packages + The SOW details most of the information + The cost estimation system must be reliable and accurate and the cost estimates must be realistic + The scope of the project must be clear=> General Requirements for a Good Cost Planning ey system 2 ; Cas + There must be a clear system of expenditure authorization + There must be disignated persons who will be in charge and accountable for expenditures inorder to control expenditures in accordance to plans + The cost control system must be flexible or dynamic + The design of the cost control system must be one that allows for rapid and frequent analysis of data so that the project manager is able to compare expenditures among various work packagesGeneral Requirements for a Good Cost Planning system « Variances should diminish with lapse of time + Use of reserves should be flexible= Types of Costs les! Costs that are likely to feature in the cost plan are: Fixed Costs Direct and Indirect Costs Standard range of project specific cost i. Labour, materials, equipment, fees for consultants, inspectors and local authorities i, Subcontractors and suppliers ill, Expenses * Travel costs, tools costs, accommodation etc iv, Overheads * Security, lighting, power, fuelCost Plan Cost headings + 1. Preliminaries + Project fixed costs for power security fehling. They usually are calculated as a percentage of total budgeted costs (say 3%) or an absolute value + 2. Prime costs * Costs agreed with specialists (suppliers of gensets or computers or special equipment) for a special deal + 3. Provisional sums + Sums estimated for work that is foreseen but cannot be clearly definied or quantified at the outset. For example, removing classic tiles, how many will be brocken is unknownCost Plan Cost headings 4 “D Dayworks : pay Tate items. Work that is wholly unforeseen and cannot be allowed beforehand. Most of minor or incidental and disruptive nature. Contractor ma give a percentage for dayworks. Normally split among labour, plant and matenals . Direct Payment Costs paid to authorities, utility companies such as BWB and ESCOM, MBS ahd. BCC dreclly Bnd novinreuen the contractor . Measured Works Costs related to individual pieces of works. They are quantified and measured in the bills of quantities. phey are resented in a standard approach in different industnes called Standard Methods of leasurement which describe the order. of presentation, the pesmement method. Each work package will have measured works foalsst Plan Cost headings Pald for specialist or professional services. They include project manager, design consultant, cost accountant, health and safety consultant, environmental compliance consultant and certifying bodies such as MBS and local authorities 3. Contingency and Reserves Provision for unforeseen additional costs inevitably Incurred due to unpredictable nature of projects caused by weather, errors, client changes, external changes. An allowance is made based on experience Mi.a —_ Cost Plan Cost headings ay > 10. Insurance * For fire, injury to persons, damage to adjacent property « 11. Performance Bonds and Sureties * A risk mitigation measure for contract default usually a specified sum paid Into a separate bank account for the duration of the contract which can be claimed if the contractor fails to perform the contract. It can be In the form of a promise by a bank to pay the client In the event of default. In return the contractor pays the bank the premium. A PB can be 5-10% of contract value + 12. Exchange Rate Losses/Fluctuations * Project with a time duration of two years or more are vulnerable to the effects of inflation and escalating costs— Project Cost Control — Earned Value Management io} » EVA is the standard approach to project cost control apart from variance analysis + The questions: 1, What time period in the project are we (6 wks) 2. How much work has been carried out in terms of percentage (say 70% ) i.e 700,000 This is EARNED VALUE 3. How much have we actually spent. Say 650,000. ACTUAL COST 4. Alsix weeks how much was the scheduled budget up to this point (600,000). PLANNED VALUEa Project Cost Control - Earned Value Management y t + CALCULATIONS - COST VARIANCE : EV - AC : 700 - 650 = 50 « This is the difference of what it has cost against what is should have cost . COST VARIANCE INDEX : EV/AC : 700/650 = 1.08 If CVI is positive, you have spent less than budget— Project Cost Control — Earned Value Management Les | SCHEDULE VARIANCE: the difference between budget of work achieved and budget of work planned up to now IN TERMS OF TIME SC: EARNED VALUE — PLANNED VALUE: 700-600 =100 This is a measure of production performance SCHEDULE VARIANCE INDEX: EV/PV : 700/600 = 1.16 If SV is positive the project is ahead of programfae Project Cost Control — Earned Value Management si « Consider the following « Project Budget $1,000,000 + Time of analysis 6 weeks + Schedule work to 6 weeks 6%, $600,000 « Actual work to 6 works, 50% « Aclual cost $600,000 Calculate the Cost Variance and Schedule Variance, CV Index and SV \ndex o CV = EV-AC = 600 - 600 = -100 © SV-= 800-600 = 100 CV» S00/800 = 0.83 © SVi= 00/800 = 0.83, * THE PROJECT IS BEHIND SCHEDULE AND OVER COST— = oi Project Cost Control — Earned Value Management =\«) + The use of cost variance and schedule variance enables the project manager to have a picture of how the project is performing in terms of both time and cost + The cost variance and schedule variance can be tracked over time in a table + Graphs and charts can be plotted showing performance of the project + The two measures are efficiency indicatorsProject EVM Work Package Performance Data Earned Value Planned Value weet | 2") “ig atwork | (Scheduled | Cost | Schedule Cost Variance | Variance | Completed) | Oudget Todate} 1 | 10000 10000) 10000 0 2 25000 20000 3000 38000 33000 30000 1000 4 | doo 0000 40000 0 s | 43000 45000 0000 2000 6 __| sooo 35000 60000, $000,Project Cost Control — Earned Value Management sj . EVM also estimates the future performance of the project based on what is observed now . There are two parameters that would be vauable to be forcasted |.e. :. Total Future Cost of the project and 2. Estimated Time it will take to Complete the project*s] Project Cost Control — Earned Value Management estimates the Total Cost of the project at completion > = AC + BAC - EV<= Project Cost Control — Earned Value Management cs . Estimate Time to Complete = Original time estimate / SPI « Ifa project was planned to be carried out in) 2 mo and the SPI is 1.01 then the ETC is 12/1.01 or 11 © months « Corrective actions needs to be taken if there are serious cost and schedule performance problems in a project . EVM helps evaluate project progress and aids sound management decisionsTopic V ee Project Procurement Managementa) Project Procurement Management + Procurement generally involves some common phases Phase 1: Aims and objectives: strategy, whether long term contracts or short term contracts, reconciliation of projects objectives with organisational procurement strategies Phase 2: Awareness phase: tenders. Most org have approved list. of contractors, suppliers and subcontractors. Its difficult for new suppliers and contractors to enter into an approved list of suppliers until they establish a track record. Tender can be open or closedDefinition of Public Procurement * Public procurement is the function of government that involves using government resources or public funds to obtain goods, works and services to meet the needs of the government as it carries out its responsibilities to the citizens.* An acceptable system of government procurement must create a legal frame that has the objectives of achieving: Open, non discriminatory and Competitive through a transparent, objective and accountable procurement system* Public procurement is a system that consists of — Procurement laws and regulation — Procurement organisational structure (such as central procurement agencies like ODPP, procurement offices in user departments — Procurement methods (such as invitation to bid, request for proposals, request for quotations) — Procurement techniques (evaluation, negotiations, lifecycle costing — Procurement professionalismThe Principles that govern a Public Procurement System * Efficiency and effectiveness * Fairness * Openness * Competition * Transparency * Accountability * Redress* Public procurement is growing in volume and value in all regions and at all levels of development It is now generally recognized that a principal component of any economy is _ public procurement at national, regional and local levels* Thus a principled government law is necessary to promote: **Competitive “Efficient “Transparent procurement “lt is an essential component of a country’s overall economic development and prosperity“In addition international development partners and institutions view the reform of procurement laws as vital in fostering economic development and good governance. * Recognizing the enormous sums spent by governments for fulfillment of state needs even modest improvements in the country’s procurement system promise large rewards in terms of financial savings realized * For example it is estimated that up to 40 % of the recurrent transactions is spent on procurement of goods works and services.The Public Procurement Act * The Public procurement Act, passed in June 2003, came into effect on the 8'* August of the same year and together with the procurement Regulations and the Desk instruction, embraces the objectives of a good procurement system. * The Act provided the legal basis for public procurement system. * It sets out the organizational structure of the procurement system and establishes the basic principles, which all procurement rules and procedures must be consistent with. Me,"Provision of The Act The establishment of the Office of the Director of Public Procurement as a public office responsible for, the regulation, monitoring and oversight of public procurement in Malawi. Decentralization of procurement responsibility to procurement entities. The establishment of internal procurement committees (IPC) in all procuring entities.The Passing of Procurement Act * The establishment of a cadre of procurement professionals, to conduct procurement activities within the procuring units. * The principal that public procurement should be realized through open tender and the definition of five alternative methods of procurement with strict conditions for their use. * A framework of procurement rules designed to achieve fairness, transparency and value for money in public procurement.* A requirement for suppliers to meet qualification criteria in order to be awarded government contract. * The establishment of a mechanism for debarring suppliers for misconduct. * A requirement for both public officials, bidders and suppliers to adhere to ethical standards of conduct* Confirmation of the auditor generals role in auditing the procurement activities. * The right for bidders to seek administrative review of procurement decision by procuring entities which are in breach of the Act. i>,Functions of IPC The IPC has the following function: > Ascertaining the availability of funds to pay for procurement > Approving bidding documents, prior to their issue. > Managing public bid openings.» Approving evaluation reports, including contract award recommendations, prior to any contract being awarded. » Approving contract documents prior to their release » Approving any contract amendmentsREQUISITIONING UNITS/ USER UNITS — Requisitioning units are responsible for *s Initiating procurement requirements “Preparing technical specification of their requirements.The Five Rights of Purchasing and Supply * The Right Quality The Right Quantity Delivery to the Right Place Delivery/ Performance on Time At the Desired Price y Nes