IPA Institute-Project Controls Best Practices-Webinar

Project Management Best Practices
Project Controls Best Practices
LEARNING OUTCOMES
Project Controls
Define project controls
Identify Project Control Best Practices that drive

improved project outcomes
The IPA Institute - a Division of IPA, Inc.
CONFIDENTIAL
Project Management Best Practices Roadmap

Define the Business Stake
Accurately Measure Effectiveness
Introduction to Front-End Loading
Define Project
Controls
Team Development
Front-End Loading Details
Project Control Best

Practices
Value Improving Practices

Contracting Strategies
Project Controls Index

Risk Analysis and Mitigation
Project Controls
Construction Safety
CONFIDENTIAL
Project Control Objectives

Project control has two primary objectives
Regulation of results through alteration of
activities
Stewardship of organizational assets
Control costs money to implement
CONFIDENTIAL
The Philosophy of Project Control and

Cost Engineering
Cost Engineering:
Cost, schedule and resource analysis, planning,

estimating, forecasting, control, and change
management practices
The word engineering reflects the linkage of cost
and schedule skills with specific technical
knowledge
Owner cost engineers work jointly with design
engineers to optimize project scope and improve its
business value
Project Control:
The control practices of cost engineering,

including tracking, monitoring, and evaluating the
project, are aimed at minimizing deviations from
plan as the project advances through execution
5
CONFIDENTIAL
Control vs. Monitoring

Project control is often confused with monitoring
Monitoring is passive
Control is active
Planning without action is just watching

There is no control without authority
CONFIDENTIAL
Total Project Control System

Scope
Control
Quality
Control
Total Project
Control System
Cost
Control
Schedule
Control
CONFIDENTIAL
Project Control at Work

Build a baseline plan
Track actual performance against plan
Collect data on actual performance
Analyze data for comparisons with plan

Document variances
Use data to develop forecasts of likely final outcome
Inform stakeholders of changes

Search out the Whys of variances
Make adjustments based on forecasts and trends
Feed results back into system to improve future projects
CONFIDENTIAL

Define Project Controls
Team Development

Practices

Project Controls Index
Project Controls
Construction Safety
CONFIDENTIAL
Research Findings on Project Control

IPA has identified a set of owner project control
practices that drive improved project outcomes
These practices do not represent a complete
control process or system
Practices add value and reflect real owner

commitment to project control
10
CONFIDENTIAL
Project Control Best Practices

Organized by Project Phase
Front-End
Loading
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Execution
Use physical
progressing
Report status
frequently by
discipline
Closeout
Develop and
maintain an owner
historical
cost/schedule
database
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
11
CONFIDENTIAL

Front-End
Loading
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Execution
Use physical
progressing
Report status
frequently by
discipline
Closeout
Develop and
maintain an owner
historical
cost/schedule
database
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
12
CONFIDENTIAL
An Integrated and Resource-Loaded

Schedule Is Important for Project Control
An integrated, resource loaded schedule has all project phases
integrated into a single master schedule that includes:
Definition
Construction
Detailed Engineering
Shutdown/Turnaround
Procurement
Commissioning and Startup
Provides a framework for planning the project

Identifies critical activities, relationships, and constraints that
drive project schedule duration
Functions as a communication tool
Is required to integrate cost estimate with the execution approach
Pulls project execution planning elements into a single model

Becomes the owners window on the project
13
CONFIDENTIAL

Front-End
Loading
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Execution
Use physical
progressing
Report status
frequently by
discipline
Closeout
Develop and
maintain an owner
historical
cost/schedule
database
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
14
CONFIDENTIAL
Negotiate Strong Audit Rights on

ALL Contracts
Audit rights should be obtained for
Cost reporting
Electronic schedule updates
Physical progress
Audit privileges and procedures must be well documented

in Invitations to Bid (ITBs) (can be established for lump-sum
turnkey projects as well)
Once established, audit rights must be immediately and fully

exercised or they will be effectively lost
Field Auditing:
Field representatives from owners project control group must
be assigned to check fabrication, construction, and installation
contractors to verify that they are following prescribed cost
and schedule reporting procedures
15
CONFIDENTIAL

Front-End
Loading
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Execution
Use physical
progressing
Report status
frequently by
discipline
Closeout
Develop and
maintain an owner
historical
cost/schedule
database
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
16
CONFIDENTIAL
Owner Estimate Validation

Validation provides a quantitative check of the
cost estimate
Common approach is to compare ratios of
different cost categories with available data
Process requires estimate data from contractors
that support the validation process
Common sources of data include:

Comparison with actual cost of past projects
Comparison with past estimates or check
estimates
Comparison with relative cost metrics or ratios
17
CONFIDENTIAL
Sample Metrics for Validating Cost

Estimates
Ratio Types
Some Sample Ratios
Cost : Cost
Resource : Cost
Field Hours / Total Project Cost

Field Hours / Million Dollars of Equipment
Cost : Resource
Labor Cost / Number of Hours

Material Cost / Quantity of Material
Total Project Cost / Unit of Capacity
Resource : Resource
Percentage of Total Cost

Total Cost / Equipment Cost
Construction Labor Cost / Bulk Material Cost
Office Cost / Field Cost
Craft Hours / Quantity of Material

Field Hours / Number of Pieces of Equipment
Engineering Hours / Design Drawing
Office Hours / Field Hours
18
CONFIDENTIAL
Estimate Validation by Owner Cost Specialist

Helps Ensure Competitive Lump-Sum Pricing
Cost Effectiveness Index
1.2
1.1
1.0
0.9
0.8
0
Weighted Index (for Effectiveness)

Reimbursable Construction
Fixed Price Construction
Data are for FEL held constant at Industry average level

19
CONFIDENTIAL

Front-End
Loading
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Execution
Use physical
progressing
Report status
frequently by
discipline
Closeout
Develop and
maintain an owner
historical
cost/schedule
database
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
20
CONFIDENTIAL
Maintain Estimators Independence

Ensure that estimators are free of undue bias
Managers can be biased toward a favorite project
or have a predetermined cost in mind
IPA has seen cases of underestimating because

of pressure from project team
IPA has also seen cases of overestimating
because the company has a punitive environment
for even minor overruns
21
CONFIDENTIAL

Front-End
Loading
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Execution
Use physical
progressing
Report status
frequently by
discipline
Closeout
Develop and
maintain an owner
historical
cost/schedule
database
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
22
CONFIDENTIAL
Estimate for Control

Too many estimates are prepared with the sole
objective of determining the number
Cost estimates must be structured to support
project control
Estimate must be organized so that all cost
categories are separate and can function as basis
for control
Project teams should establish code of accounts
early and across the project
Even for fixed-price contracts, an owner estimate
designed for control provides the best basis for
evaluating the contractors proposals
23
CONFIDENTIAL
Classic Approach
Schedule and Cost Developed Around WBS
Project Scope
WBS
Project Cost
Estimate
Project
Schedule
Project Controls
During Execution
24
CONFIDENTIAL
Benefits of a Common WBS

Each cost and schedule estimate should be
designed using a common work breakdown
structure and cost account breakdown
This benefits both deliverables
Facilitates cash flow analysis and earned value
analysis
Helps to ensure consistency between cost
estimate and project schedule
Facilitates resource-loading of project schedule
Provides consistent project controls
25
CONFIDENTIAL

Front-End
Loading
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Execution
Use physical
progressing
Report status
frequently by
discipline
Closeout
Develop and
maintain an owner
historical
cost/schedule
database
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
26
CONFIDENTIAL
Use Physical Progressing

Physical progressing is a method to measure
completion of work progress
Physical progressing system for control of
project progress is essential
Many project managers use informal methods
However, an objective method is more reliable
and provides better control
Instead of tracking costs as a measure of progress,
physical quantities or events are identified and
actual units completed are compared against plan
Enables project teams to ascertain where gaps

exist between amount of money spent and actual
scope completion
27
CONFIDENTIAL
Four Steps of Physical Progressing

Assign weighted value to an activity or group of
activities associated with some physical item or
event
Measure degree of completion by counting items,
quantities, or events
Determine overall progress by summing up the
achieved or earned value (degree of
achievement times the weighted value) for each
item, event, etc.
Divide earned-sum by total value of all items to
determine percent complete
28
CONFIDENTIAL
Guidelines for Progressing

Not every item must be weighted and measured
in physical progressing - some level of
aggregation or grouping of items is always
present
Estimated quantity and weighted-value must be
accurate and up-to-date
Do not bias the person responsible for measuring
progress
Even at authorization, the estimate needs to be
structured to support physical progressing
29
CONFIDENTIAL
Execution Schedule Predictability
Physical Progressing Reduces Schedule

Slip
+1 Std.
Median
-1 Std.
60%
Pr < 0.05
40%
20%
0%
-20%
-40%
No Progressing
Yes, Not
Comprehensive
30
Yes, All Accounts
CONFIDENTIAL
Tracking Physical Progress for

Lump-Sum Contracts
Tracking physical progress for lump-sum contracts is as
important as for reimbursable contracts
Tracking allows owners to recognize contractors poor
performance early, so team can take remedial action
Owner payments to contractors are usually based on work
progress
Tracking physical progress ensures that owner pays only for
actual work accomplished
Although owner is not able to directly track contractors

cost in lump-sum contracts, owner should be able to track
hours that contractor uses
Hours information can be used to gain insight on contractor
cost performance
31
CONFIDENTIAL

Front-End
Loading
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Execution
Use physical
progressing
Report status
frequently by
discipline
Closeout
Develop and
maintain an owner
historical
cost/schedule
database
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
32
CONFIDENTIAL
Report Status Frequently

Frequent and detail reporting of project status and
progress is an indication of good project controls
These reports require that all the pieces of effective
control are in place
Contractor can prepare the report, but owner must
establish reporting requirements
Owner must then evaluate and react appropriately to

report contents
33
CONFIDENTIAL
Execution Schedule Effectiveness Index
More Frequent Reporting Improves

Schedule Effectiveness
+1 Std.
Median
-1 Std.
1.6
1.4
Pr < 0.0001
1.2
1.0
0.8
0.6
0.4
No Reports
Monthly Reporting
34
Biweekly Reporting
CONFIDENTIAL
How Does Frequency of Status Reports

Accelerate Execution Schedules?
Frequent reports provide tool for keeping on
schedule by identifying schedule variations on a
timely basis
Without frequent reporting, delays in projects
may go unnoticed by the project system
Schedule benefit is strongest on reimbursable
projects, because this contracting strategy
places cost risk of schedule delays on the owner
35
CONFIDENTIAL

Front-End
Loading
Build an
integrated and
resource-loaded
schedule
Negotiate strong
audit rights
Execution
Use physical
progressing
Report status
frequently by
discipline
Closeout
Develop and
maintain an owner
historical
cost/schedule
database
Owner estimate
validation
Maintain estimator
independence
Estimate for
control
36
CONFIDENTIAL
Why Keep a Historical Cost Database?

Owner should maintain a reliable, historical
project costs database
Used by cost specialists to validate future
estimates
Project manager and cost specialist have
responsibility to contribute back to the database
Action of asking for detailed cost proposals and

detailed final closeout data sends a message to
the contractor
Owners that follow these practices systematically
obtain more competitive proposals
37
CONFIDENTIAL
Owner Historical Database Management Is

Correlated With Better Cost Effectiveness
+1 std. dev.
Average Cost Effectiveness
1.2
Mean
-1 std. dev.
1.1
Pr < .005
1.0
0.9
0.8
Owner Employee Focused On Data Owner Employee NOT Focused on

Data
38
CONFIDENTIAL


Team Development
Define Project Control

Practices
Project Control Index
Project Controls
Construction Safety
39
CONFIDENTIAL
Project Control Index (PCI)

Measure of owner project control practices
Focused on four key practices:
Estimate validated by in-house estimating
Physical progressing used
Progress status reports, detail & frequency
Owner project control specialist assigned
Measured on a single scale
40
CONFIDENTIAL
PCI Measures Four Project Control

Best Practices
Estimating for
Control
Has an in-house cost

specialist quantitatively
validated the estimate
(ensuring the estimate
is reliable and
competitive)?
Control During
Execution
Index
Is physical progressing being used, and

to what level of detail?
What is the frequency and level of detail
of project status reporting?
Is an in-house project control person
assigned during execution?
The PCI, measured on a single scale,

strongly correlates with project outcome metrics
The practices measured by the PCI do not constitute a complete project control
process; they are proxy measures of a strong project control process
41
CONFIDENTIAL
IPAs PCI Scale
Good
6.0
5.5
Lead
Industry
5.0
4.5
Fair
4.0
3.5
3.0
Industry Average for Large Projects (Best Practical FEL)

Industry Average for Small Projects (Best Practical FEL)
Industry Average for Large Projects
Industry Average for Small Projects
Poor
2.5
2.0
1.5
Trail
Industry
Deficient
1.0
0.5
0.0
We observe a positive correlation

between the PCI and IPAs FEL
Index for Projects
42
CONFIDENTIAL
Execution Schedule Effectiveness

Index
PCI Correlates With Faster Execution

Schedules
1.30
Pr < 0.0001
1.25
1.20
1.15
1.10
1.05
1.00
0.95
0.90
6 Good
4 Fair
2Poor
Deficient
0
43
CONFIDENTIAL
Project Control Practices Reduce

Execution Slip for Reimbursable Construction
35%
30%
Percentage Slip
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
6 Good
4 Fair
2 Poor
0
Deficient

Not Significant Effect for Lump Sum
44
CONFIDENTIAL
Percentage Contingency Used
Project Control Practices Reduce Cost Growth*

for Lump-Sum and Reimbursable Construction
25%
20%
15%
10%
5%
0%
Fixed-Price Construction
-5%
-10%
6 Good
4Fair
2Poor
Deficient
0

* Contingency use
45
CONFIDENTIAL
Project Control Is a Good Investment

Project Control as % of Total Project
100%
90%
80%
70%
60%
50%
40%
30%
20%
1.3%
Project control function costs

range from 0.5 to 3 percent of
total project
Cost improvement from Best
Practices can range from 6 to 20
percent
IRR also benefits from schedule
improvement
10%
0%
46
CONFIDENTIAL
Andrew F. Griffith
Director of the IPA Institute
Email: agriffith@ipaglobal.com
Phone: +1 703-726-5375
47
CONFIDENTIAL
Project Management Best Practices

Project Controls Best Practices

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Project Management Best Practices

Project Controls Best Practices

Define project controls

Identify Project Control Best Practices that drive

The IPA Institute - a Division of IPA, Inc.

Project Management Best Practices Roadmap

Introduction to Front-End Loading

Project Control Best

Value Improving Practices

Project Controls Index

Project Control Objectives

Stewardship of organizational assets

Control costs money to implement

The IPA Institute - a Division of IPA, Inc.

The Philosophy of Project Control and

Cost, schedule and resource analysis, planning,

The IPA Institute - a Division of IPA, Inc.

The control practices of cost engineering,

Control vs. Monitoring

Planning without action is just watching

The IPA Institute - a Division of IPA, Inc.

Total Project Control System

Project Control at Work

Analyze data for comparisons with plan

Inform stakeholders of changes

Feed results back into system to improve future projects

The IPA Institute - a Division of IPA, Inc.

Project Management Best Practices Roadmap

Introduction to Front-End Loading

Define Project Controls

Project Control Best

Value Improving Practices

Project Controls Index

Risk Analysis and Mitigation

Research Findings on Project Control

Practices add value and reflect real owner

The IPA Institute - a Division of IPA, Inc.

Project Control Best Practices

The IPA Institute - a Division of IPA, Inc.

Project Control Best Practices

The IPA Institute - a Division of IPA, Inc.

An Integrated and Resource-Loaded

Commissioning and Startup

Provides a framework for planning the project

Pulls project execution planning elements into a single model

Project Control Best Practices

The IPA Institute - a Division of IPA, Inc.

Negotiate Strong Audit Rights on

Audit privileges and procedures must be well documented

Once established, audit rights must be immediately and fully

Project Control Best Practices

The IPA Institute - a Division of IPA, Inc.

Owner Estimate Validation

Common sources of data include:

The IPA Institute - a Division of IPA, Inc.

Sample Metrics for Validating Cost

Some Sample Ratios

Field Hours / Total Project Cost

Labor Cost / Number of Hours

The IPA Institute - a Division of IPA, Inc.

Percentage of Total Cost

Craft Hours / Quantity of Material

Estimate Validation by Owner Cost Specialist

Cost Effectiveness Index