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PG 06 Capital PR
PG 06 Capital PR
PG 06 Capital PR
Project Guide 06
Document History
Author/
Date Issue Reason for change Reviewer Approver
Contributor
Aligned with ORM/ORP &
06 May 09 A P. Bowman N. Wright H. Mes
issued for cross-business use.
Update to align with the
21 Dec 09 B Project Management P. Bowman N. Wright H. Mes
Standardisation Program
The approved copy of this document is held in iPMS by the PTP-G group. All paper copies
are uncontrolled. Not subject to EAR-No transfer of Technology.
Project Guide 06 – Capital Project Cost Management
Table of Contents
1 Introduction 3
1.1 Objective 4
1.2 Terminology 5
1.3 Scope and Deviation Process 5
2 Application 6
3 Cost Management & Management of Change Organisation & Plan 7
3.1 Project Cost & Schedule Management Plan 7
3.2 Project Cost & Schedule Management Organisation 7
3.3 Project Cost and Management of Change tools 8
3.4 Project Cost & Schedule Management Review 9
4 Cost Mgt & Mgt of Change Activities per Project Phase 10
4.1 In the Identify & Assess Phase 10
4.2 In the Select Phase 10
4.3 In the Define Phase (BDP and BDEP) 11
4.4 In the Execute Phase 11
4.5 For Close Out Reporting 13
5 Cost Management and Management of Change 14
5.1 Degree of Cost Management 14
5.2 Project Cost & Schedule Management Plan (PCSMP) 15
5.3 WBS – Work Breakdown Structures 15
5.4 Cost Breakdown Structure (CBS) 17
5.5 Cost, Time and Resource Sheet (CTR) Development and Management 17
5.6 Budget Management 20
5.7 Management of Change 21
5.8 Commitments 23
5.9 Cost Risk Analysis 24
5.10 Contingency Management 25
5.11 Value of Work Done 26
5.12 Earned Value Management 28
5.13 Cost and Cash Forecasting 29
5.14 Cost Management of Contracts, Incentives & Claims 32
5.15 Cost Recovery 33
5.16 Revenue Costs and Capital Expenditure Recording 33
5.17 Payment Control and Invoice Processing 33
5.18 Foreign Exchange 37
5.19 Cost Allocations 37
5.20 Cost Reporting 37
5.21 Project Completion 38
5.22 Cost Data Collection and Feedback 38
6 References 40
6.1 Acronyms and Glossary of Terms 40
6.2 Project Standards and Guides: 40
6.3 Project Cost & Schedule Management Procedures 40
6.4 Other References 41
Appendix A. Example CTR sheet. 42
Appendix B. Typical Capital Project Cost Report OC1 43
Appendix C. Typical Management of Change Document 44
Appendix D. Typical Project Progress and Cost Report 45
Appendix E. Typical Project VOWD & Expenditure Curve 46
Appendix F. Total Project Overall Finance Picture 47
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Project Guide 06 – Capital Project Cost Management
1 Introduction
Project Guide 06 Capital Project Cost Management is one of a series of guidance documents
that form part of the Opportunity Realisation Process (ORP). Application of the ORP is
mandatory and provides for a standardised Governance, Assurance and Delivery process for
capital projects undertaken by Shell Group Companies, Affiliates and Joint Ventures where
Shell takes the lead project management role. The Project Standards (PS), Project Guides
(PG) and Value Improvement Practices (VIP) are an integral part of the project assurance
and delivery processes.
This PG supports Project Standard PS6 in providing detailed guidance on the application of
the mandated Project Cost Management processes, activities and deliverables.
This PG also acts as a handbook for Project Management, Project Services and the Project
Teams on how and when to execute the cost management activities, and also specifies the
contents and level of detail for the deliverables. It should be used through appropriate phases
of the project development to provide guidance for performing cost management. In addition,
it will assist in creating an awareness of relevant aspects of the project development and
implementation process and in transferring knowledge on the subject to other parties, such
as project sponsors, stakeholders, contractors, etc.
The application of professional project cost management processes and toolkits is essential
to the overall success of any organisation that manages a project or a series of projects
through all its realisation phases.
This guide should be seen as the beginning of understanding cost management and the
management of change processes but is not intended to be a full cost management manual.
This guide assists in creating an awareness of relevant aspects of the project controls
processes and in transferring knowledge on the subject to other parties, such as project
sponsors, stakeholders, contractors, etc.
The strong relationship between Cost Management, Management Of Change, Capital Project
Scheduling (PG04), Capital Project Contracting & Procurement (PG05) must be recognised
to deliver high performing projects. Therefore PG06 must not be read in isolation. This
simplistic interface diagram shows some of the key touch points between the functions after
the FID.
Group Investment Project P50 Progress
Work Remaining
Proposal - Budget and Target Updated
Performed work
Record Schedule Schedule
Degree of
control Cash
Cost Call
WBS/CBS/OBS Commitment VOWD Cost to
Forecast
MoAuthorities Records Records Complete
Contract Records Business
Strategy Plan
Commodity
Contract Contract Invoice, Costs by
Design Placement Service Entry CBS
External Contingency
Influences Management
Project Reporting (P&T, PE&S, Gov, Venture Partner, Project Manager, Finance, etc)
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Project Guide 06 – Capital Project Cost Management
The interface between Capital Project Cost Estimating (PG03) and cost management in this
guide is threefold:
The project has to be sanctioned on an initial baseline cost estimate converted into the
Work Breakdown Structure and CTR’s for cost control.
The output of the commodity costs from the cost breakdown coding are the foundation for
future estimating
The Management of Change requires Total Installed Cost (TIC) cost estimating to ensure
the benefits of the change are fully understood prior to approval
The goal of creating the proper project control criteria is to:
Assist in executing a project in the most efficient and economical way.
To inform management at any point in time during the project about the actual status of
the project, both in cost and time, so that, if required, corrective actions can pro-actively
be prepared and ultimately exercised in a timely fashion.
Project Cost Management is not just about juggling facts, figures and numbers against
statistical data. It requires professional and skilful observation, judgment and interpretation,
based on experience in the office and in the field. Consequently, project cost engineering
practitioners need to be educated and trained accordingly.
It is imperative to recognise that simply reporting cost information is not controlling.
Controlling includes the setting up, authorising, monitoring, forecasting and reporting, as a
total package. Financial control (not covered in this PG) is different in that it focuses on
payments and accounting controls, whereas project control concerns progress measurement
and cost and schedule forecasting.
All project control systems and criteria should be set up and agreed in the early stages of the
project, which is in Select and Define. In Execution it will become more difficult to change
without causing a major impact on the outcome of the project.
1.1 Objective
Project Cost Management and Management Of Change control processes are key elements
of Project Management with the primary objectives of:
Setting of Work Breakdown Structures and underlying Cost, Time and Resource sheets
(CTR’s) that meet the degree of cost control required by the project services manager
for the assets to be developed;
Setting of the Cost Breakdown Structures for cost analysis of commodities used in the
assets;
Setting of project cost targets, the monitoring and reporting against these targets;
Maintaining transparency of the compiled commitments, VOWD and cost forecasts;
Managing project changes and their impact on the cost forecasts of the project;
Strictly controlling cost through pro-active measures;
Ensuring commitment, expenditure and invoice values are only authorised within the
approved project Manual of Authorities;
Breaking down of the final capital value into fixed assets;
Closing out the project and providing cost feedback by commodity into the project
estimating database for future estimating purposes.
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Project Guide 06 – Capital Project Cost Management
1.2 Terminology
The terminology used in project controls is key to understanding the information being
presented on a project.
COST MANAGEMENT
The management of cost related activities achieved by collecting, analyzing, evaluating, and
reporting cost information used for budgeting, estimating, forecasting, and monitoring costs.
These cost activities are performed on a baseline of scope, cost, schedule and quality.
MANAGEMENT OF CHANGE
Change control is the process that ensures that all changes made to a project’s baselined
scope, cost, schedule, and quality objectives or agreed benefits are identified, evaluated,
approved, rejected or deferred
More expansive terminology
The standardised Shell terminology, drawing from the most common industry definitions,
used in the Cost Management and Management of Change processes is fully documented in
the Glossary of Terms supporting the project control procedures. The glossary URL is
included in Section 6 References.
The scope of the Project Controls Guide covers the management of costs and project
change during all phases of a project.
The Project Manager or Business Opportunity Manager should, in consultation with the
Project Services Manager, the Contract Manager, Asset Development Manager and the
Operating Company (location manager) and Project Finance Manager, define the degree of
control required during the select, define and execute phases of the project as early in the
lifetime of a project as possible. This degree of control will be documented in the Project Cost
& Schedule Management Plan for the project, a document that gets updated as the project
moves through each phase and is a subset of the approved Project Execution Plan
supporting the Group Investment Proposal (GIP).
Deviation from this Guide
This document is a guide and therefore not mandatory but highly recommended for all
projects whether mega, large or small. However the Project Standards and the short
standard statements included in Section 2 of the project controls procedures are mandatory
for projects over $ US 100 million. This guide aids the project team deliver the mandatory
requirements.
Any deviations from Project Standard 06 – Capital Project Cost & Schedule Management will
need approval by the relevant authority level, as defined in the Quality Management Systems
of the relevant project or business.
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Project Guide 06 – Capital Project Cost Management
2 Application
The activities presented in this guide are applicable to all capital projects. It covers
Greenfield, Brownfield, Revamp, New Venture, On-shore and Offshore projects. The
principles and methodology apply equally to small, simple projects as well as to large,
complex projects. The application of the Project Guide needs to be adapted to suit the risk
profile of the project, the degree of scope and cost control as determined by its size,
complexity, location and business environment.
The means of achieving fit-for-purpose application of the project Standard is through an open
discussion with the Project management team and project engineers guided by the Project
Services Manager. At this point, the risks and sensitivities of the project are reviewed and
appropriate application of the cost management and management of change processes
agreed. The outcome of this discussion is documented in the Project Cost & Schedule
Management Plan (PCSMP). The project team prepares the draft, fit-for-purpose PCSMP,
which is reviewed and updated in open discussion and approved by the relevant authority
level.
Issues and factors taken into account in this discussion include:
Degree of complexity and novelty of the project
Maturity of the location project delivery processes
Experience, competence and availability of resources
Level of stability and supportive social and political context
Any high risk issue (e.g. hazardous process, new technology, social unrest or
environmentally sensitive location)
Specific scope issues (e.g. Brownfield/Greenfield, onshore/offshore)
Joint venture issues with different assurance requirements
Projects where project stages are combined.
Schedule-driven projects
Level of Turnaround/Shutdown Integration
Size of project
Project Implementation Model
Business Environment
Commercial and Economic Environment, Compliance with local regulations
Lessons Learned from previous projects
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Project Guide 06 – Capital Project Cost Management
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Project Guide 06 – Capital Project Cost Management
Reporting on a regular basis to project management and liaising where required in this
context with the other disciplines in the project team and in Company’s organisation
Managing the interface with Company organisation, the Business and Joint Venture
partners as far as costs, insurance, taxation, custom duties, legal, etc. are concerned
Setting up and managing systems to control the Owners costs, the project contingencies
and if applicable, the project’s incentive scheme
Carrying out time and cost risk analyses if and when required
Review the cost baselines (benchmarks) on an ongoing basis
Coordinating all cost matters with the business, such as capital investment, pre-
operational costs, fees, expenditure phasing, currencies, etc.
Ensuring, if applicable, that the accounting systems between Company’s joint venture
partners enable proper control of the cost sharing between the partners
Verifying Contractor’s invoices
Participating in reviewing scope changes, extra work authorisations, change orders and
the like; carrying out estimates in this context if and when required
Developing the Estimate at Completion at monthly intervals during the project
Participating in identifying, recording and resolving financial/contractual disputes and
matters relating to insurance in liaison with the loss adjustor
Preparing and managing the asset register for the project
Developing and implementing cost management procedures for operation by the project
team
Providing the project team timely with adequate cost information and assist technical
project team staff on matters related to cost issues
Coordinating all manpower planning activities of the project team and for the organisation
of the Contractor, from a costing point of view
Being the focal point for the preparation and issuing of the monthly progress report
Participating in the regular cost and steering committee meetings
Maintaining such cost records as will be required for the compilation of the final project
close out report
Executing of financial controls on the Contract invoices, contracts and invoices from
vendors, subcontractors and erection contractors, disbursement and financial
reconciliation of the joint venture partners accounts
Focal point for providing project feedback into the project cost and schedule databases
Holding the secretary-ship of the project’s Contract Board and Change Control committee
The job descriptions of both project services manager and project control engineers should
be compiled in line with the above. For smaller projects, some of the above activities will not
be required and the job description should be tailored to suit.
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Project Guide 06 – Capital Project Cost Management
worldwide benchmarking and the comparison of commodity cost data from an up-to-date
central database. This will create a cost efficient starting point for all cost estimating and
contractual negotiations. For projects on Brownfield existing sites the existing local systems
and “fit for purpose” tools can be used.
The project team and the running organisation of the Company should ensure that
synchronisation of systems should take place at the outset of the project.
Owner and Contractor(s) alignment should be sought as far as control software is concerned.
It is not recommended to force Contractor into using Company owned systems, as this will
unavoidably lead to duplication of work and inefficiency. As stated earlier in this guide, it is
much more efficient to let Contractor make use of his standard systems and to agree a
simple translation key between Contractor’s systems and Owner’s requirements. If, for a
specific purpose, the Contractor needs to apply an Owner’s system, this should be made
clear in the Invitation to Bid of the project.
The only non-negotiable Owner’s requirement should be the application by Contractor of the
Company’s work and cost breakdown structures.
Cost Management Tools currently available within Shell globally are:
Dassian DP010 – SAP ERP add-in cost management tool for all projects – (under testing)
PEMS – Developed jointly by Shell and Rider Hunt International (RHI) and the
recommended tool of choice for large projects (>US$ 100 million)
CCRT – Developed by Houston for EP and recommended for use on smaller and
medium sized projects
Spreadsheets – For small projects (<US$10 million) when this is more efficient than
setting up one of the above systems.
Change Control Tools currently available in Shell are:
Access database with no workflow (set-up for Kashagan project)
Various document/spreadsheet systems
Dassian DP010 – SAP ERP add-in Management of Change tool – (under testing)
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Project Guide 06 – Capital Project Cost Management
In line with the Opportunity Realisation Process (ORP) a project will be developed through
the following six Phases: -
Identify
Assess
Select
Define (BDP and BDEP sub-phases)
Execute
Operate
followed by Decommissioning & Abandonment
This document does not address the cost management during operations and abandonment,
however the principles still apply.
The following sections illustrate what the project must deliver for each phase to commence
the next.
Each phase has a gate review that must be passed to commence the next phase, see the
Project Guide on Assurance.
Project Standard 06 Project Cost & Schedule Management defines the mandatory Cost
Management and Management Of Change activities and deliverables for each Phase
Throughout the Identify and Assess phase of the project the main objective should be to
develop the project feasibility of a variety of development options to support the requirements
of the deliverables for the Order of Magnitude, Study and Budget estimates.
Cost management will be the predominantly Shell manpower (time-writing) and a few small
study contracts.
As there is no baseline scope Change management is not required on the projects but can
be an issue on the number of feasible options to be investigated in this phase. The team is
looking for feasible developments that will require further definition in the next phase.
It is recommended that during the last part of the I&A phase the scope of the select phase
and the costs of the Shell and contractor team to deliver the selected option will be
developed into a CTR catalogue.
During the Select Phase of the project close attention should be paid to the following:
Configuration of scope for Order of Magnitude and Study estimates
Compilation of log of development/growth/changes in scope
Sensitivity calculations regarding project factors, exchange rates, sourcing countries, etc.
Delivery of Order of Magnitude and Study estimates, including cost risk analyses where
appropriate
Initial setup of the WBS for the future phases of the work
Forecast and report expenditure in this phase
Cost control in Select set up systems, monitor and report for estimates and expenditures
Develop the CTR catalogue for the Define phase and draft CTRs for the execution of the
project defining the scope, cost, schedule activities and delivery ownership
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Project Guide 06 – Capital Project Cost Management
Integrated Level 1/2 schedule for the Define and Execution phases of the project, which
align with the costs included in the CTRs.
Cost risk assessment using the TECOP methodology
Monitor the costs of the team using time-writing to complete the deliverables on each
CTR .
During the Execute phase, Project Cost & Schedule Management should be executed as per
the systems as set up and agreed during the Define phase of the project and documented in
the Project Cost & Schedule Management Plan.
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Project Guide 06 – Capital Project Cost Management
It should be recognised and accepted that, during the Execute phase, the Managing
Contractor (where one exists) controls up to 75 % of the total project activities for and on
behalf of the Owner (Company).
It is recommended that the Owner does not demand a change in the control system of the
Contractor, as this will lead to an increase in cost and a decrease in quality. However, the
Contractor should be requested to fully conform to the Work Breakdown Structure, Cost
Breakdown Structure and any overhead allocation keys. The interface between the computer
systems of Contractor and Owner should be designed in such a way that Contractor’s cost
and schedule data can automatically be transferred in to the Owner’s control systems without
undue and unnecessary administrative activities.
It is imperative the Owner shall understand the differences in the definition between terms
used by the contractor and those of the owner so differences in reporting can be assessed
and understood.
Additionally in this phase there will be a number of issues on which both Contractor and
Owner should focus:
Check and analyse Contractor’s data and react contractually when required
Check and control regularly whether Contractor is following all the procedures and
obligations as agreed in the Contract.
Control the capital and pre-operational scope and expenditure
Execute the Project Cost & Schedule Management Plan
Often the pre-operational expenditure should be controlled separately from the capital
expenditure, i.e. by means of a separate Work Breakdown Structure.
It should also be realized that the finance department of the (future) operating company
should be responsible to ensure all project payments conform to the procedures of the
running/future organisation. For that reason the project team in general and the Project
Services Manager and Cost Engineer should work in close co-operation with the Company’s
finance department. Prior to project approval there should be agreement between the project,
the project services, the contract & procurement engineers and finance department on: -
Reports to be issued
Work Breakdown Structure and Cost Breakdown Structure
Interface between systems and split of responsibilities
Details of the asset breakdown
Breakpoint between Capital and Operating Expenditure
Financial and quality audits and the frequency thereof
Phasing of expenditure
The above (which is not an exhaustive list) should be agreed and captured in the project
procedures, which comply with the approved standard generic global project procedures, and
will be a reference in the Project Cost & Schedule Management Plan.
In case of smaller projects or a series of small projects, the execution will often be carried out
without a Managing Contractor. However it is recommended that all control processes as
mentioned earlier and detailed out later in this project guide are applied as for a large project.
Project Cost & Schedule Management reports, which should be produced by the project
services team during the Execute phase of a project are, typically:
Cost and Schedule progress report
Input for the monthly project progress report in accordance with the global procedure
shall be.
o Detailed analyses of schedule and cost status, including re-forecast and
recommendation by project control section to project manager
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Project Guide 06 – Capital Project Cost Management
o Cost (i.e. input in the OC1 format, see section 5.20), including S-curves and
status against main contract incentive scheme
o Contracts report
o Commitment report
o Payments report
o Issues, Trends and Change log
o Contingency rundown report
Monthly phasing report as detailed by project and group number per the Capital Project
Coding System or VOWD and expenditure, including actuals
Monthly phasing report by currency as detailed by project group number, including
actuals
Report on difference between original FID and actual spot exchange rates
It should be noted that the phasing reports are of high importance, since cash calls may need
to be arranged on a monthly basis in order to withdraw money from JV partners to pay
committed expenditures. Interest payments can be considerable and hence accurate cash
call forecasts are essential.
When the project premises have been met, the project should be financially closed out. The
closing out should conform to the Company’s procedures and the laws of the country in
which the investment has been made.
The main activities that should be carried out in this regard and the reports that should be
produced are:
Compilation of the financial close out report including all scope and cost data
Compilation of the Asset Breakdown conforming to the local requirements (e.g. financial,
legal, insurance, etc)
Cost Data-book – the final feedback of the project’s cost and schedule data into the
central database in accordance with the cost breakdown structure.
Closing out of all contracts including change orders and outstanding claims
Novation of open contracts from the project entity to the operating entity
Collection of all cost and schedule data for the Post Investment Review and Report
Agreement and Handover of capital funds to complete punch-list work and any post first
hydrocarbon drilling
In this regard reference is made to the Project Guide 12b - Project Close Out Report.
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Project Guide 06 – Capital Project Cost Management
As a result of the above issues the Project leadership team, guided by the Project Services
Manager, will need to give strong direction to the project team on the degree of work and
cost control required. This will be documented in the Project Cost & Schedule Management
Plan.
If the Project team are unsure of the capabilities of the contractor the team may wish to
control the work to a lower level of detail to ensure greater transparency of cost and work
performance. This level of control needs to reflected in the WBS, CTR breakdown which then
can be implemented through the type of contract.
The degree of the detail must be at a level that will also allow the desired metrics upon
completion of the project for estimating, cost recovery and benchmarking.
The conundrum of the project leadership team is that for every increase in the degree of
control required, the manpower needed to implement the control increases, however this cost
is small compared to the loss of work or cost control on a project
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Project Guide 06 – Capital Project Cost Management
During periods of strong competition between contractors their willingness to take on low
margin lump sum contracts means their only way the contractor can make more profit is via
claims for disruption and change. The project team must recognise that the contract has to
give them access to the information to defend against claims, for example impact of a
change on the critical path and total cost of a change including materials and implementation
and the impact on productivity performance, etc.
For Cost Management and the Management of Change, the appropriate sections in the
PCSMP will address each of the topics listed in Section 5 of this Project Guide and also
document the Project Services Organisation managing these activities.
The approved generic Project Cost & Schedule Management Plan procedure is listed in
Section 6 References.
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Project Guide 06 – Capital Project Cost Management
W o r k B r e a k d o w n E x a m p le
H a r d w a r e / A s s e t C o m p o n e n ts
A n a ly s is b y H a r d w a r e
A re a 1 A re a 2 A re a 3 A re a 4
F u n c tio n
D e ta ile d
w o rk w o rk w o rk w o rk
D e s ig n
P ro cu re m e n t w o rk w o rk w o rk w o rk
C o n s tr u c tio n w o rk w o rk w o rk w o rk
A n a ly s is b y F u n c tio n
C o m m is s io n in g w o rk w o rk w o rk w o rk
T h e w o r k s c o p e fo r th e b u d g e t & s c h e d u le
Since nearly every project has a different variety of assets or hardware items it is
impossible to have a standard WBS for a project.
The levels in the WBS hierarchy of a project of a variety of assets/hardware items on a mega
project may be 6 or 7 whereas a small project may have 2 at which the function is applied
which convert the asset into an item of work
Within the ERP system the SAP WBS is erroneous terminology since the structure refers to a
Business financial breakdown by Region and OU and not work.
Underneath the WBS structure the work is further broken down into CTRs. The concept is
the CTR defines the scope, the duration, the resources, the deliverables and the costs for
piece of work and is equivalent to a Network in the ERP system, see the section below on
CTRs.
The linkage of schedule and cost data for the submission of phased costs for Business
planning is vitally important. Therefore a one to one match between individual CTR cost and
the CTR activity in the Level 2 schedule is imperative, otherwise allocations will be needed.
The WBS enables the following:
Control of the work scope and associated budget;
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Project Guide 06 – Capital Project Cost Management
There is no one Shell approved CBS commodity structure at present, however there is a high
probability that Shell will align with the industry and Norwegian Standard – Standard Cost
Coding System (SCCS) Z-014 which specifies the Code of Resources for both Up and
Downstream projects. See References
Reporting by commodity costs at the various levels of the CBS hierarchy assists in
comparing costs, cost negotiations and benchmarking between projects.
This capability is key for the Category Managers to assess the cost changes of commodities
across regions or projects.
5.5 Cost, Time and Resource Sheet (CTR) Development and Management
A Cost Time and Resource sheet is the fundamental building block of a project budget, the
CTR Catalogue (compilation of all CTRs for All WBSs) when completed totals to the
requested funds in the Investment Proposal.
The CTR breakdown of the scope will not always align with the estimating breakdown of the
project because the CTR breakdown is used for work management and cost control
purposes. For example % factors for project management and insurance in an estimate need
to be separated as CTRs for project control.
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Project Guide 06 – Capital Project Cost Management
The phased cost estimate/forecast to deliver the work over the schedule duration of work
The resources to deliver this element
The deliverables to be completed to close out this element of work
A Shell CTR covering the design of Module A, at a high level, is in principle the same as a
Work Pack of subcontractor covering the welding of the cooling water system in module A at
a lower level. The difference is only in the depth of the detail.
This is the only way to exactly match duration, costs and resources to a scope of work and
importantly allocate costs and resources of a change to the correct asset of a project.
The example below shows a typical example of how the work of a mega project could be
subdivided into CTRs.
Every CTR should be ultimately identified by each of a WBS, OBS, CBS and GBS reference.
In order to identify these items in a consistent manner
Every project needs the costs to be reported on in a number ways, by asset, by organisation,
by geography, commodity type or by main function.
The following four structures can be imposed on the work in order to break it down into
manageable control elements:
The Work Breakdown Structure (WBS), which subdivides the asset into manageable
portions upon which a function (design, procure, construct, etc) is applied. This creates
an element of work that can be sensibly managed.
The Organisation Breakdown Structure (OBS), which should be created to cover the
organisational aspects of all activities or parts thereof, including contractors working on
the project. This aligns the owner with the particular element of work
The Cost Breakdown Structure (CBS), which is a fixed hierarchical structure of
commodity codes (groupings of account codes), applied to line item scope/costs for an
asset into a cost unit/norm useful to the estimators.
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Project Guide 06 – Capital Project Cost Management
The Geographical Breakdown Structure (GBS), which should be based on the logistical
aspects of the projects, e.g. the geographical location of the work and construction areas
Every CTR will identify through its coding or numbering system the linkage to the WBS, OBS,
CBS and GBS.
W B S - W o r k B r e a k d o w n S tr u c tu r e : W h a t?
O B S - O r g a n iz a tio n B r e a k d o w n S tr u c tu r e : W h o ?
G B S - G e o g r a p h ic a l B r e a k d o w n S tr u c tu r e : W h e r e ?
Figure 4.2.1
Breakdown structures should be developed and expanded as the work of the project
develops and passes through the project phases.
For effective cost control, it is essential for the estimating department, the project services
team, the contracts and procurement team and the finance department of the Company to all
make consistent use of the same cost codes developed for a certain project, enabling
compatibility in exchange of information from the various computerised cost recording
systems. When the cost control structure is being designed, the need for separate reporting
of contingency and currency fluctuations should also be taken into account.
The EPCm contractor (where one exists) will be required to submit his bid for the
implementation of the project in compliance with the Shell defined project Work and Cost
Breakdown structures. This will also apply to the activities of the subcontractor(s).
Costs included in CTRs
The cost estimate of each CTR will be developed in accordance with good estimating
practices in Project Guide 03. Each CTR will include for the baselined scope the: -
o Cost estimate of the designed quantities
o Allowances
o Exchange rate
o Escalation/Market
o Inflation
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Project Guide 06 – Capital Project Cost Management
Each of these costs should not be treated as a separate item for cost control purposes. They
should be incorporated in the relevant work breakdown CTRs of the Investment Proposal.
Owners Cost
Owner costs are costs covered in the separate CTRs within the total project budget.
Whenever possible the project management costs for separate assets should be segregated
to avoid allocations.
For further details reference is made to Project Guide 3, Capital Project Cost Estimating.
The approved generic CTR procedure is listed in Section 6 References.
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Project Guide 06 – Capital Project Cost Management
A Change is any modification to the agreed basis of the project as defined the relevant
baseline documentation.
Baseline documentation of the project includes any documents that specify details of the
asset design, development and operation.
A Change Proposal is a document that requests modification to the agreed basis of the
project as defined the relevant Base Documentation.
Reasons for Change Proposals can be classified into the following three categories:
Mandatory – an enforced change to comply with safety, regulatory or corporate
requirements;
Reactive – a change in response to a specific event;
Elective – a discretionary change that is of benefit to the project or to future
operations.
Scope management
Above all, changing the project scope, other than developing and defining the scope
throughout the Select and Define phases and carrying out the detailed engineering during the
Execute phase, should be discouraged in principle and by definition.
When at certain halt points the scope is fixed and frozen (the Baseline) under the
responsibility of the project team, a strict scope management should be applied in order to
safeguard the schedule, the cost and the quality of the project. It is obvious that unnecessary
and often late changes will lead to unacceptable problem situations in all three areas.
If major technical risks are ignored and not mitigated (engineering solution) in the design
phase then the later the introduction of the change the greater the cost of possible
deconstruction before construction and market price factors for accelerated deliveries.
During the total execution of the project, i.e. from the scouting/feasibility phase up to and
including the moment when sustained commercial quantities of on spec product flow into the
storage tanks, the project team has the responsibility to endeavour to take lessons learned
from other sites and project teams/organisations and the results from ongoing research and
development within the Group on board, if at all possible.
Clearly this must be exercised with extreme care regarding the premises of the project, i.e.
the schedule, the cost and the quality. This should be defined in the early stage of every
project in the project’s objectives and further detailed out in a professional scope change
procedure.
This is called Scope Management.
The management of change and deviation control procedures are required to keep a
complete overview of the number and the status of the changes.
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Approved changes should be reported as commitments, while pending changes, which are
likely to be approved, should be reported as uncommitted work in the cost forecast.
Project contingencies are added to the defined base scope to cater for any unknown that
could arise across the project. However, if these unknown scope items affect the Project
Manager’s approved budget, he would be fully entitled to call upon the authorising
organisation in order to request additional funds for these changes.
Change Management
The starting points of the change procedure should be:
o At approval of the project or part of the project, the baseline is considered to be
fixed when agreed by the Project Manager;
o During implementation pre-screening of changes must occur so unnecessary
changes are avoided;
o The change procedure is designed to assist the Owner’s project team in executing
professional scope management;
o A change can only be considered for approval by the project’s management if the
original scope definition appears to be
Unsafe;
Inoperable;
If there is a strong indication of project value improvement.
o Changes are only meant to take place and to be approved within the original
context of the project scope
o In order to obtain approval for a change all steps in the procedure must be taken.
It is essential for the expedient routing of the change to note that the Change Coordinator is
responsible to carry the proposal through the project organisation in order to gather the
required information and to obtain the necessary approvals:
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Project Guide 06 – Capital Project Cost Management
the definition of the proposed change. Subsequently the Contractor should obtain approval
from the Owner’s team, in line with the defined financial authorities, for the variation to
prepare the basic design and engineering package.
Upon this approval of the variation, the Contractor should prepare the basic design and
engineering package and a Budget cost estimate. The definition should be checked and
approved by the Owner’s team process coordinator and the construction/engineering
manager on technical and schedule aspects. The Cost Engineer should check the estimate
and the available funds in the appropriate project CTRs. In case of over expenditure the
appropriate Company procedure should be followed.
Implementation
Once the design package has been completed the variation for the implementation scope will
need approval. Depending on the value the variation may have to be approved by the project
Tender Board, within the framework of the project’s financial authorities.
If applicable, in case of an incentives contract, the target project budget and/or the target
work hour budget will need to be adjusted. Subsequently the EPCm Contractor should
implement the approved change.
Close Out
Following the implementation, the change should be closed out by confirmation by Contractor
and Owner’s team that the change has been implemented as per the design
5.8 Commitments
During the various phases of the project the cost engineer should assess commitments
monthly.
Please note the project definition of commitment is equivalent to assigned budget in SAP
terms. The term ‘Open Commitment’ in SAP equals the assigned budget less VOWD, so
zero at the beginning and end of a project.
Engineering
A monthly evaluation should be made of the committed value of the engineering work to be
performed.
In a lump-sum contract, this is simplified into summation of the original contract value plus
approved variation orders. In an hourly rates contract, an assessment should be made of
outstanding work and relevant office expenses, with a careful evaluation of the cost of
activities which are started after most of the engineering has been completed, e.g.
engineering liaison, field modifications, as-built drawings etc.
Materials (equipment and bulks)
The Commitment Report should give for each purchase order, arranged by selected code
numbers, the value of commitment and, where applicable, the estimated escalation. In
addition, the costs of delivery and handling should be included and recorded in the
appropriate accounts.
A record should also be kept of uncommitted work representing the estimated values of
purchase orders for which requisitions have been received or are expected, but which have
not yet been converted into purchase orders.
Onshore Construction, Fabrication and Hook-Up
Following the same principles as used in the Engineering and Procurement phases, the
engineer in charge of cost control establishes a commitment record for all construction
contracts, temporary facilities, supervision costs, costs of vendor specialists, construction all
risks (CAR) insurance, field procured materials and generally all items not covered by
Engineering and Material Procurement.
Erection contracts must be evaluated monthly. Variation and extra work orders, which have
been approved, are included in the commitment record (those still under negotiation are
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Project Guide 06 – Capital Project Cost Management
recorded in the value of uncommitted work). In this evaluation, the effects of escalation and
delays in construction programmes, which may cause additional costs, must be included.
In a Schedule of Rates - Unit Rates contract all units are measurable from drawings. This
means that a value can be calculated for each drawing or package of drawings issued to a
contractor, which should be entered as a commitment.
Onshore construction contracts are often, by necessity, based on incomplete scope definition
for the Contractor, e.g. material take-off, civil drawings and hook-ups of instruments may not
yet be fully detailed. Other undefined costs will usually arise between the dates of
Mechanical Completion and Ready for Start-up. This additional work consists of activities not
included in the usual scope of construction contracts such as acid cleaning, hot testing,
instrument calibration etc., or it may result from operators' requests for changes and
modifications to the plant as designed. The estimated value of the undefined work is part of
the uncommitted work. Call-off contracts are part of the uncommitted work, as long the time
sheets are not agreed. After agreement of the timesheets, that part of the value agreed will
change from uncommitted to VOWD. Time writing by company personnel is seen as a Call
off contract. Similarly here, the agreed and used time is VOWD, while the future time-writing
values are uncommitted work.
Fabrication of modules or offshore facilities, as well as hook-up activities, should apply
similar guidelines as those above.
The approved generic Commitments procedure is listed in Section 6 References.
The key deliverable of the risk analysis process is a quantification of the overall combined
impact of the risks and uncertainties on the project Base Cost Estimate and the Base
Schedule.
The concept of Nodal Bias in schedule risk analysis is important and is a key reason why
project schedules are frequently exceeded, particularly for more complex projects. The
phenomenon occurs when two or more (sets of) activities occur in parallel and each has a
logical link between its finish date and the following activities.
More information on Nodal Bias in schedules can be found in the project procedure in
references
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The probabilistic CSRA described in this procedure is a quantitative risk analysis technique
performed on both the Project Base Cost Estimate and the Base Schedule. CSRA provides a
P50 level (and other probabilistic levels if needed e.g. P10 and P90) for the cost and
schedule estimates by assessing the required cost and schedule contingency values.
Conversely, it can also be used to assess the probability of achieving a given cost or
schedule forecast.
The approved generic Cost & Schedule Risk Analysis procedure is listed in Section 6
References.
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Project Guide 06 – Capital Project Cost Management
The contingency will vary per individual project and for larger and, particularly, for mega or
“New Frontier” projects, the remaining required contingency should be established by means
of a formal risk assessment (e.g. by performing both a schedule and cost risk analysis) and
by making use of the project manager’s and control engineer’s experience.
Contingencies are reported in column 6 of the OC-sheet. The contingency forecast should
reduce with time as the work becomes committed and, ultimately, completed.
To provide some consistency and logic as to how the contingency is reduced over time,
contingency run-down curves can be used. The purpose of using this method is to keep from
retaining too much or too little contingency.
The formal transfer of the project manager’s contingency WBS to the under budgeted CTR
shall be performed using the Management of Change procedure to ensure transparency and
traceability.
A contingency run-down curve is simply a plot of contingency consumed over time. The
curve is plotted at the beginning of the project and is then used at each cost update to
determine how much contingency should be included in the forecast at that time in the
project. The curve starts at the contingency percentage that results from the probabilistic cost
estimate. The curve ends at a contingency of zero at the end of a project when all actual
costs are known. The shape of the curve in between depends on the expectation of how
uncertainty will decrease over time and should be based on the timing when the key risks
could occur.
The approved generic Cost Contingency procedure is listed in Section 6 References.
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Promptness of reports is absolutely vital for effective cost control. An exact calculation of
VOWD based on information a month old is of less use than less accurate calculations based
on yesterday's data.
In lump sum turnkey contracts, the contractor alone knows the true value of work done. It is
often difficult to get information on actual costs from the contractor as they are considered to
be commercially sensitive. A contractor should, however, be required under the contract to
report the percentage physical completion of each phase at CTR detailed level of:
o Design, engineering and procurement services.
o Materials arrived at site.
o Construction.
In addition, the contractor should provide the best estimate of the weighted value of each
phase in relation to the total contract value. The weighting should be agreed prior to the
commencement of each activity. From these data the composite physical completion
percentage can be calculated which, when applied to the known current contract value,
yields the total Value of Work Done.
VOWD for design and engineering
Different yardsticks may measure the physical progress of the various design and
engineering CTRs:
a) If a work only CTR is measured in terms of physical progress, which in general is
a yardstick combining the documentary evidence produced (rules of credit) and
the effort expended, the VOWD is determined by applying the percentage of
physical progress to the current estimated value of that CTR including any
anticipated variations;
b) Progress of other design and engineering services CTRs, such as computer
costs, traveling expenses, fees etc., are measured in monetary terms, which
eliminates the need for conversion.
It should be noted that in option (a) spent man-hours do not necessarily represent the actual
physical progress in terms of deliverables because working productivity and efficiency is
subject to variation. The latest actual productivity factor should be applied to determine
current accrual amounts for VOWD
It should also be verified whether each CTR remains technically unchanged, as part of an
item may have been reported as completed but, because of changes, has to be re-done. If
the progress of such an item is measured in man-hours, more man-hours will be required
than originally estimated and progress should then be related to the revised estimated man-
hours. Similarly, the ultimate net value should be re-estimated in line with the extra man-
hours required, should these be the result of changes that increase the contract value. In the
case of contractor's mistakes, which are not reimbursable, the hours expended should be
reduced by the number of hours required to re-do the work, resulting in a reduction of the
Value of Work Done.
For lump sum or target-type engineering contracts, the actual amount of the progress
payment released should be entered as VOWD, provided that this percentage does not differ
substantially from the measurement of physical progress. Where the difference is substantial,
the percentage of physical progress should be set against the lump sum or target contract
value and the result entered as VOWD.
In a lump sum agreement, the contractor will be asked to disclose earned man-hours to
report physical progress for EVM. The alternative (a) should be used, in which the weighting
of "deliverables" (rules of credit) has to be agreed prior to signing the contract. The project
management and support progress may not be progressing at the rate of element/document
production so should be segregated from the work progress.
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For hourly rates or cost-plus-fee contracts, it is recommended that the actual costs incurred
be entered as VOWD. The estimate of man-hours/costs to completion is reviewed by
measuring physical progress to obtain a current indication of productivity, and by then
comparing the actual consumption of man-hours to those originally estimated.
VOWD for procurement
The Cost Control definition of VOWD for a CTR relating to catalogued material purchase
orders is the value of material/goods received on site. Small offsite pipe or steel fabrications
etc, will have the VOWD credited on receipted delivery at the main construction site..
Larger equipment or offsite fabrication of manufactured equipment or pre-assembled
modules covered by a contract with interim stages or milestones should have the VOWD
assessed on a monthly basis.
Procurement costs consist of:
The purchase order value or applicable portion
Supplementary delivery cost such as freight, insurance and duties, in general reported
on the Material Receipt Sheet (MRS)
Material storage/handling at site (where applicable).
Vendor Representative attendance (for specialist equipment)
The site warehouse, which receives the equipment and materials, functions as a focal point
for determining progress and value of work done. The engineer responsible for cost control
should maintain regular contacts with the Materials organisation and satisfy himself that the
issuing of MRS documents is prompt and accurate.
VOWD for construction
For each erection contract or sub-contract, physical yardsticks representing production
should measure the physical progress of construction work. The progress of construction
work should not be measured solely in terms of man-hours expended.
The measurement of costs by monthly valuation will again depend on the type of contract
form:
In lump sum or target construction contracts, a payment schedule may have been agreed
and this can then be accepted as VOWD. This implies that a regular check on physical
progress has to be carried out by estimating the quantity of work performed in
comparison with the payment due.
In a schedule-of-rates contract, the monthly valuations made by quantity surveyors,
based on actual quantities of work, should also be reassessed regularly according to the
latest information and revised estimates of total quantities of units required.
In an hourly rates or cost-plus-fee contract, the valuation of the monthly cost of labour,
staff, equipment and site establishment is taken as VOWD. Physical progress should be
counterchecked on a regular basis to allow the anticipated ultimate net value of work to
be reassessed regularly and EVM analysis to be performed.
The approved generic VOWD procedure is listed in Section 6 References.
The EVA process combines both cost and schedule and is based on analysing the variances
between actual, earned and planned cost of work performed.
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The ES process is only applicable to schedule and is based on analysing the variances
between the actual time and the planned time taken to reach the earned value.
EVM is a project control tool for performance monitoring and analysis. Corrective or recovery
actions based on EVM are key to the project success. This procedure only mandates the use
of EVA at the overall project level. However, greater benefit to the Project from EVA and ES
can be gained if the processes are also applied at lower levels within the project hierarchy. It
is therefore recommended that the processes be selectively applied to specific scopes of
work within the Project.
Generally, EVM formulae are more effective for control (i.e. give more meaningful results)
some time after the start date and some time before the end date of an activity or the entire
Project, typically in the 20 to 80 percent progress range. Close to start and end points the
formulae can be less accurate i.e. sensitive to the input data causing unrealistic fluctuations.
The basic requirements for EVM, which must be available at the start of a project phase, are:
A fully defined work scope with associated Work Breakdown Structure (WBS);
Budgets assigned to the WBS and phased at Cost Time Resource (CTR) level;
Detailed cost and schedule baselines;
Agreed method of performance measurement (rules of credit);
For the more detailed calculations please refer to the EVM procedure in Section 6
References of this document
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Project Guide 06 – Capital Project Cost Management
A commitment value cannot readily be established for funds allocated to cover travel,
accommodation and miscellaneous charges. These costs should remain under "uncommitted
work" until such charges are made where they should be directly booked as "Value Of Work
Done".
Appraisal of the value of uncommitted work is crucial to the preparation of the Estimate at
Completion. However, a comprehensive monthly appraisal of every individual CTR may not
be practicable or even useful, in which case appraisal should be:
a) Selective and discretionary;
b) Addressed to vulnerable/significant items.
The estimated cost of foreseeable scope and implementation changes should be included in
this amount.
In reimbursable contracts, actual productivity rates and trends, if available, should be applied
in order to predict the impact on final project cost.
A productivity tracking system should be developed as early as possible for engineering
activities and construction activities to forecast the value of uncommitted work.
During the assessment of risks it may transpire that there will be a minimum value of the risk
that will have to be paid. This minimum value will be treated as a known cost and included in
the base cost forecast to avoid double dipping between base and contingency forecasts. An
example could be a contractual claim where the Shell project team may feel a minimum of
$10 million is valid/justifiable (in the base cost forecast) but the team will defend the
contractor’s inflated remaining $90m (used in the contingency re-assessment).
The EAC and the changes in the EAC will be reported in the monthly cost report. The full
EAC should be updated on a regular monthly basis. The changes in the Estimate At
Completion must be logged so that the changes over the time of the project can be easily
tracked. The EAC is reported in the Overall Cost 1 (OC-1) Sheet (Appendix B) and is made
up of the following components at the reference date:
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The approved generic Cost & Cash Forecasting procedure is listed in Section 6 References.
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A claim by the Company on a contractor will normally originate from the latter's failure to fulfil
certain contractual conditions/requirements. It is in the Company’s interest to get closure on a
claim as soon as it arises with a full and final settlement, this is while the parties who have
the knowledge of the claim issues are still available. Procrastination by the Project team will
only lead to protracted negotiations at the end of the contract, when many issues will be
tabled by the contractor will try to sow confusion and make arguments that support the
interlinking of all the claims.
The approved generic Cost Management of Contracts procedure is listed in Section 6
References.
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Contract payments are made in accordance with the Contract's specific terms and conditions,
which should include an indication of the time between the completions of the work, the
submission of the invoice and the actual payment. The contract should also be explicit about
adjustment of payment in case of deviations from the contractual progress schedule and/or
agreed incentive schemes.
If invoice processing is done outside the financial systems of the company, an accounts
payable procedure has to be developed, including the interface to the accounting books of
the company.
Reimbursable and Cost-plus Contracts
Although reimbursable contract payments are straightforward, as the Contractor is paid at
cost for the services actually provided, the contract should, inter alia, clearly stipulate the
scope of the works, the documents which are required to support the invoices, the agreed
uplifts on actual work done to cover profit and overhead, the interval of invoicing, the time
between submission of invoice and actual payment and Company ‘s right to audit.
Schedule of Rates Contracts
Contractor is paid for his services against a schedule of rates that includes profit and
overhead. Where an agreed "bill of quantities" is involved, the basic contract price will be
fixed unless quantities change. Besides the requirements as listed in Section 4.7.1.1, the
contract should include an adjustment mechanism if the scope of work changes and an
adjustment mechanism to cover escalation. As far as the former mechanism is concerned,
a schedule of rates contract is often based on a range of, say, 25% deviation limits from the
agreed bill of quantities. Beyond these limits the contract is re-negotiable. In a design and
engineering contract a lower and upper limit of man-hours is agreed beforehand. The profit
and overhead portion of the rates should reduce (even to zero) as the number of man-hours
increases above a certain ceiling. As far as the escalation mechanism is concerned, for short
duration contracts the rates are usually fixed. Long-term contracts are subject to adjustment
after pre-agreed periods following mutually agreed published national or technical price
indices, specified in the contract.
Fixed price (Lump Sum) Contracts
General
Payments should not be significantly higher than is necessary to finance the Contractor's
actual expenditure, but the VOWD may be quite different from payments due under the fixed
payment schedule, especially for a lump-sum contract covering engineering, material
procurement and construction.
In lump-sum contracts, it is not easy to measure procurement progress in terms of VOWD. It
is obvious that adopting the standard philosophy of VOWD at delivery at site cannot be
applied here. Contractor has to make stage payments, which causes the measured progress
to lag behind payment by a considerable period of time. For example progress, expressed as
a percentage, should therefore be calculated as follows:
If Contractor is not willing to report actual order values in a lump sum contract, then pre-
contract open-book estimate values could be used or weighted. Alternatively an elaborate
points weighting system could be used to relate various equipment items to one another and
to bulk materials.
Progress of equipment could then be reported as a percentage, as follows:
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Using the appropriate units of measurement, this formula can be applied to all types of CTRs.
It is important that both the payment schedule and the scheduled progress, in terms of
VOWD or any other progress measuring system, are stipulated in the contract. This enables
verification of whether goods and services have been supplied as scheduled before the
payment of any instalment is released.
Furthermore, in lump sum contracts it is advisable to provide for withholding payments or
parts thereof, if the difference between actual and scheduled progress is in excess of
a specified limit and for revising the payment schedule in the event of excessive deviation
from scheduled progress.
Payment By Milestones
For smaller contracts the fixed price is usually paid in instalments according to pre-agreed
milestones; for example 10% at contract award, 20% when all equipment delivered at site,
etc.
The payment schedule and progress milestones depend on the scope of the work and the
method of financing of Contractor's work. Fixed prices normally include interest.
The contract should clearly state the detailed defined scope of the work to be achieved at
each milestone, supporting documents for invoices, the procedures for initiating, submitting,
approval and payment of change orders, the schedule of deliveries to indicate the dates
when milestones are to be achieved, the incentive bonus or penalty clauses linked to the
delivery dates, as well as a facility whereby Contractor can claim compensation for escalation
and/or increased overheads and the time between invoice submission and actual payment.
Progress payment
In major contracts, payment is made in accordance with a fixed payment schedule related to
physical progress that is represented by the Value of Work Done (VOWD).
Progress payment or payment-by-payment schedule should allow close matching between
the Contractor's expenditure, payment and minimum interest charges. At the pre-contract
stage it is essential to agree how payment will be scheduled according to physical progress.
The progress measurement system should also be clearly defined. The contract should
clearly include the following:
o The defined scope of the work in detail
o The extent and detail of supporting documents for invoices and claims
o The procedures for initiating, submitting, approval and payment of change orders
o The payment schedule(s) for each project phase as appropriate
o The progress schedule(s) and the method of measuring the progress of each CTR
o The deviation range in which the agreed payment schedule will not change ( 10% of
scheduled progress up to 50% completion, and 10% of remaining scheduled
progress from 50% onwards to total completion is suggested as consistent with the
accuracy of most progress measurement systems)
o The adjustment mechanism to be applied, if actual progress is outside the agreed
range of tolerance. (See Fig 4.7.1 below)
o The timing of payment adjustments and the re-negotiation of the payment and
progress schedules. (Progress payments should be adjusted as soon as actual
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Project Guide 06 – Capital Project Cost Management
progress falls outside the allowable deviation if the trend is diverging and scheduled
progress re-negotiated after 3 months outside the allowable deviation)
o Payment time after invoice submission related to progress. For example, progress
achieved at end of July cut-off and formally submitted/agreed in mid-August would
initiate payment on 1st September.
Payment if actual progress lags behind scheduled progress could be:
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Project Guide 06 – Capital Project Cost Management
Figure 4.7.1
The approved generic Management of Invoices procedure is listed in Section 6 References.
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Project Guide 06 – Capital Project Cost Management
project completion, and expected over/under-expenditure. The cost review should comprise
the current status of the project milestones, the physical progress and the cost status against
the budget.
Cost control reports
The overall cost sheet OC1 (see Appendix B) summarises the status of the detailed CTRs in
a standard format. An example of the overall cost sheet is given in Attachment 1 of this
project guide.
The cost control report must include the following essential elements of the overall cost
picture including:
The OC-1 table
a. The Value Of Work Done (actual vs planned)
b. The commitments
c. Issues, Trends and Changes
d. The forecast expenditure
e. The Estimate At Completion
f. The Budget
g. The actual payment (excl. accruals) mandatory
h. $’s vs time
The Planned vs Actual cost curves
A Change Register
Risk Register
Contingency drawdown
The textual element of cost report should highlight critical areas; the differences compared to
the previous reporting date and elucidate the corrective actions taken if required.
The approved generic Project Cost Reporting procedure is listed in Section 6 References.
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Project Guide 06 – Capital Project Cost Management
benefit from the historic performance and commodity costs form the CBS commodity codes.
The project control organisation of a project plays a vital role in this regard, as it will act as
the focal point to gather and report the required information.
The feedback of data is required in four categories, being the input for the IPA benchmarking
throughout the project, the input into the project’s close out report, the setting up of the asset
break down structure for the operating Company and the input into a common project
database based on the Shell Commodity codes.
In this context reference is made to Project Guide 03, Capital Project Cost Estimating.
IPA benchmarking
IPA is used to perform external benchmarking both during Select, Define and post project
completion. As applicable, projects should undergo an evaluation near the end of the Define
phase, prior to authorisation, and also an evaluation at the completion of the projects. These
typically involve data collection interviews between IPA and the Shell project team.
IPA will determine the FEL Index (Front End Loading), which indicates how well the project
has prepared for the next phase.
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Project Guide 06 – Capital Project Cost Management
6 References
6.1 Acronyms and Glossary of Terms
The acronyms for the cost management processes are incorporated in the Glossary of terms
for the project control procedures procedure number PSM-I-U-001182-FA-6180-0004
In the table below are included the key acronyms used in this project guide
Acronym Expanded Version of the Acronym
PCSMP Project Cost & Schedule Management Plan
WBS Work Breakdown Structure
CTR Cost, Time and Resource
CBS Cost Breakdown Structure
Enterprise Resource Planning - directionally this is Global SAP for Downstream and
ERP
SAP Blueprint for Upstream
The Estimate at Completion = The base Cost Forecast + the forecast of the required
EAC
50/50 contingency to complete the scope of work
The procedures listed below are available on the Cost and Planning Toolkit web site under
the matured standards column in both word document format for configuring to the specific
project and in pdf format for the approved procedure
URL = https://sww-knowledge-epe.shell.com/teamsiep/livelink.exe/Open/37165431
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http://www.standard.no/en/sectors/Petroleum/NORSOK-Standard-Categories/Z-Stand-Cost-
Coding/Z-014/
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INITIATOR: DATE:
Description/Justification of Change
TITLE:
DETAILS:
HSSE
COST
SCHEDULE
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Project Guide 06 – Capital Project Cost Management
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Project Guide 06 – Capital Project Cost Management
Note: Site Current Estimate shown above is equivalent to Estimate At Completion in this
document
47