September  2004
  
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Control Solutions, Inc. - Minnesota

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Successful project control system and Project Cost Intro

 

  Al De Wachter
ICS Inc

PROJECT CONTROL has to do with the PRO-ACTIVE discipline of MAKING things happen. This is where a project manager exerts his influence to achieve the planned outcome.

This is part 2 of a series of commentaries that are intended to stir up ideas for the high-tech contractor. They consist of excerpts from “PLUG” or the “Plan Users Guide”, a practical catalyst intended to promote positive change in the automation contractor ‘s world. The complete series will be made available upon request after all modules have been published in AutomatedBuildings.com.

One must have sufficient information on hand to make intelligent decisions.  Better and more information normally means that better decisions can be arrived at.  In the case of our Project Control discussion, this implies that project data:

EasyIO The additional requirement is that a strong continuity must exist in all of the project's reporting systems, such that the WHOLE organization thinks and feels the same way.  This implies a strong connection between:

Considering that the accounting reports are something which by their nature are a MUST, it would appear that it would be a good idea to ensure that the accounting system reports satisfactorily in cost content, accuracy, presentation and timeliness.

If this approach reduces or removes the need for parallel manual systems then many people save a lot of time, and talent is freed up to perform jobsite tasks.  (ERP Systems!!)

Furthermore, the integration of the ESTIMATING, DESIGN, ACCOUNTING and PROJECT CONTROL information and reports is essential for the 'elegant', smooth and competitively successful operation.

Skeleton of the suggested Control System  In its most basic form, the 'contract flow' is as follows:

Control Solutions, Inc Additional notes:

Project Costs

Only a profitable organization can remain "on the scene", and employ qualified people in rewarding positions.  A company can only re-invest the anticipated profit margins if it employs a PROJECT COST CONTROL system that provides employees a framework to effectively control expenditures on contracted work.

 Project cost control may be broken down into these categories

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Each of these elements makes up a significant portion of contract costs.  To control “costs" we must have the means to know quickly what the cost should be, when the costs exceed the expected numbers, and find ways to change the situation before it’s too late.

Obviously, each of the cost categories can be further broken down in smaller elements.  For instance, 'material' may consist of several sub-categories or 'elements' such as Automation, Software, Pneumatic, Electric......

It will be shown that each cost category must be looked at slightly differently as related to cost control.

The common element in the control of all the cost categories, however, is PEOPLE getting a handle on what the costs SHOULD be, (by predicting, estimating or planning), and then Controlling the actual EVENTS through proper ACTIONS in such a manner as to meet or exceed the expected profit TARGET.

Basic Principles – Facility Automation versus other contracting

The principles of project control are well documented for the general Construction Industry. Many words have been put to paper over 'Project Control', 'Project Management', 'Cost Control' , etc.. The volumes of work directed at the subject offers a clue regarding the importance of these subjects, or more accurately, the importance of their benefits.

Some success has been achieved by selected companies or people in different contracting fields, but we must take care not to blindly import the practices of a different business without examining their chances for success in our business.

For indeed, the Mechanical or Electrical contracting industry is not identical to our own “high-tech” world.  They can often act as brokers, and ‘sub out’ the risk as much as possible, even though their scope is typically well defined in plans, specifications and custom.  The high-tech scope of Automation is less clearly defined, often vague and open to interpretation – perhaps not always by accident.  To be sure, there are a number of steps and principles that apply to our business as well as theirs.  However, there are important differences related to the amount of control, size of job crews and contract amounts that cause our needs to be somewhat different.  Also, due to smaller crew sizes, the amount of direct supervision given to installation personnel in the Facility Automation Industry may be lower than in the traditional contracting trades.

But although much has been written about "project control", the attempts to apply the lofty theories have not always been rewarded with great success.  Throughout the Facility Automation Industry, many examples can be found of projects gone sour.  The risks are great.

So, in addition to the construction industry's "standards", specific techniques may apply to our business.

In several instances, the Facility Automation Industry has approached the issue of Project Cost Control in a scientific manner, from a standpoint of 'by-the book' job planning and detailed cost control.

Reliable Controls A word about Estimate Quality

Under 'Good Estimate' conditions, financial failures may still occur that can often be traced to the lack of effective cost control by the 'project execution team'. On the other hand, under 'Bad Estimate' conditions, often a project has been successfully managed by the 'execution' team, and the contract's financial outcome was better than anticipated. 

We must immediately draw attention to the fact that a project's financial failure, or at the very least financial hardship, is virtually assured if the cost predictions (estimate) are unrealistic. However, within a certain area of reasonableness, the project profitability can be achieved, regardless of the moderately flawed estimate. 

We'll define the category of 'Reasonable Estimates':

A Reasonable estimate is one which is 'accurate' in its count of the quantitative cost elements such as devices, installation materials and lengths of pipe, conduit and wire, and has 'sensible' assumptions made about the intangible cost elements such as risks and labor contents.  'ACCURATE' can be defined as precise, without errors, and in the context of our estimates, is easily understood by all.  'SENSIBLE' is taken to mean that careful, realistic judgment based on standards and the estimator's or other person's experience be made when considering the likelihood of the risks or labor content involved.

(The term REALISTIC is used as it relates to PESSIMISM or OPTIMISM, both of which terms are enemies of all 'reasonable' estimates)

When estimates are 'Reasonable', a good 'Execution team' will have an opportunity to meet or even exceed the estimated profit, through the application of sound project and cost control measures.  However, failure to use proper measures may still result in financial failure.

 It is the goal of this Plan Users Guide (“PLUG”) to encourage people to adopt the proper application of these control measures, in order that they may meet cost objectives.

Good vs. Bad Project Control

GOOD project control is, quite simply, SUCCESSFUL project control.

While any attempt at project control is better than none at all, there are vast differences in success rates, depending on the methods employed.  The complexity, size, and other project-dependent factors have their own effect on the methods employed, and their relative success.

 What differentiates successful project control methods from the less successful ones?

The basic secret of effective project control, it seems, is rather subtle.  The word 'CONTROL' is defined in Webster's 1904 edition of the "Twentieth Century Dictionary of the English Language" as

To exercise such an influence over (something) as to guide, direct, manage, or restrain (it); to have under command; to check.

 ... Much has changed since 1904, but those basics remain intact.

CatNet Systems The key secret: 'CONTROL' is a PRO-ACTIVE activity.  It requires that an influence be exercised that positively affects the outcome. This means that the person seeking to control a project must take ACTION based on a well-reasoned plan, as opposed to REACTING to events after they have happened.  Control is not about fixing problems as much as about preventing problems and causing desired outcomes.

Notice that the definition does NOT refer to any form of 'historical' comparison of what happened versus what was expected; or actual versus estimate.

The difference between successful and unsuccessful project control, is that SUCCESS comes from the PRO-ACTIVE nature of the methods employed. Influence is exercised ONLY if an action plan is established BEFOREHAND, and progress monitored against the established standard.

Project Control Basics

We’d encourage you to establish the following control “basics to live by” in your company:

The PLUG guide is intended to deal with the principles associated with the Pro-active discipline of Project Control. However, there is a RELATIONSHIP between estimating, project control, and MIS cost reporting, which makes each one dependent on the others in a synergistic way.  That means, none of the three disciplines can really stand on its own; together, they produce a larger effect than the sum of the individual parts would seem to indicate.

Part 3 will deal with controlling costs.


About the Author

Al De Wachter has been active in the Building Automation industry for over 35 years.  He has held senior positions with leading companies in the field and is currently the president of Independent Control Specialists Inc.  Al has directed the development of advanced productivity software for Building Automation Contractors since 1990.

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