Answer: Forecasting, Forecasting and Forecasting!
There are many tasks that a cost engineer undertakes, but ultimately their role is to ensure that the “Estimate at Completion” column on the monthly cost report reflects the best estimate of what each contract line item, each commitment, each engineering task, etc will ultimately cost when it is complete. This includes the necessary interface with the schedule, so that each item also represents when it is due to be complete.
The Estimate at Completion is usually calculated as either “Committed costs + Costs to go” or “Incurred costs + Costs to go”. But what does “Costs to go” really mean? How do you set the project up to enable valid “Costs to go” to be calculated?
The “Costs to go” is the measure of the work still left to be done to finish each project line item, the summation of which represents the total cost to go for the project. To ensure that you are able to calculate an accurate “Cost to go” value, the project must be set up with this in mind. Understanding the need to be able to measure progress and calculate the costs to go will enable the Cost Engineer to forecast work items effectively, and most importantly accurately. Seeing the oncoming traffic ahead of time will help you avoid nasty surprises. Once the crash has happened, you can only clean up the mess, which will always cost you more time and money.
So how do you create an environment for forecasting?
Firstly, the project budget must reflect the entire approved Scope of Work, the Execution Strategy and the Project Schedule in terms of Quantity, Resources and Costs by WBS and workpack. This provides the basis for change management which enables the capture of design, execution strategy and other changes and is calculated and reflected in the “Costs to go”. Any gaps in the budget will cause issues down the track, so it is important that the Cost Engineer liaises with the entire Project team to ensure nothing is left out.
Secondly, any commitments made or work packs awarded must be directly compared to the budget to calculate variances, on the basis of scope for scope. This includes quantities, resources and costs. Remaining work for the committed works are reflected in the “Costs to go” column.
Thirdly, measuring progress on the basis of work done, compared to the work to be done, allows performance and productivity analysis which can then be projected as work effort to complete and expressed as costs to go.
“Work to go” x “The cost rate for that work” = “Costs to go”
Another factor to consider is that poor performance on lump sum items will indicate a potential for variations or claims. If these are anticipated, then make the allowance in the costs to go.
If a project is set up to enable cost engineers to forecast effectively, then project managers will have the necessary information to minimize risk and steer the project away from danger. Which can only be a positive thing.
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