Financial data is in demand across organizations. People at various points on the organizational chart want to know how much a planned project is going to cost, the impact of mitigated or realized risks, changes in scope, and increases / decreases against the project’s total cost to complete. This requires regular updates.
But not everyone across the organization needs the same data. Those closely involved in the project require information that is quite different from what is needed by finance or upper level management. And it's up to cost engineers within the project controls organization to communicate clearly and appropriately to all stakeholders.
Providing the Right Data
Communication of financial data is all about understanding the roles of others and providing them with what they need to successfully do their jobs. Initially, the process is relatively simple. Everyone is provided with a well-researched estimate of what the entire project is going to cost. It is broken down in detail to cover all line items and components. Anyone can drill down into the data to understand all facets of project expense.
But as the project progresses, changes are inevitable. Estimates to complete are often adjusted as there is always an element of uncertainty involved. Until work begins, it is impossible to know the number of hours that will be required. Expert knowledge can provide a realistic estimate, but unforeseen problems and delays can throw things off.
The classic, and fortunately rare, example is construction work unearthing burial grounds or archeological findings. That can cause lengthy delays and send costs spiraling. But more common and mundane occurrences can interrupt even the most expertly planned timelines - from supply chain shortages, to labor constraints, or even construction surprises.
Notification of Financial Changes
There are many people to notify, and myriad financial nuances to take into account. The project manager (PM) needs to know every aspect of cost changes. Whether due to unexpected issues, construction delays, hazards encountered, weather, or decisions made to speed up or delay completion, the PM must be supplied with all of the facts at a granular level.
Meetings between the scheduler, the PM and the cost engineer in some organizations are done weekly while others only do them monthly. Weekly meetings often yield the best results – from lessening potential surprises to others in the organization to allowing more time for input and fine tuning. The results of these meetings should be communicated to everyone that needs to know. But the requirements of each stakeholder can vary markedly.
Perhaps components such as transformers have been delayed by six weeks. That delay can change the total cost of the project. Similarly, the estimate may have allowed for one crew, but the PM realized three crews would increase speed of deployment and reduce other costs or help avoid late penalties.
This information needs to be communicated in whatever format makes it easiest for them to quickly review changes, understand what is going on, and accept or query any decisions made below them.
There are also circumstances where costs go down. For example, ongoing expenses for a project are overestimated or work is completed quicker than expected. If a loan was involved, finance needs to know, as the organization will end up paying more in interest than it needs to.
Communication with Those Above the Project Manager
Where finance and PMs demand details, details, details, the various echelons of management above the PM should only be fed reports that are filtered down to the information they require. This varies from role to role.
For example, a manager might wish to be informed that a change occurred due to a hazard but does not necessarily need to receive all the details about the hazard or a line-item accounting of how it impacted the budget.
A Vice President, however, may only ask for very high-level information like the name of the project or what the total change is to the bottom line.
A good way to think of the division of information is as follows:
- The PM and scheduler need weeds-level data.
- Their boss needs information at the tree level.
- The next higher manager should be supplied with data at the cloud level.
Using the Right Tools
Sharp analytical skills are required to develop workable budgets, realistic forecasts, and make adjustments that help guide a project through to completion. Technology can be of great assistance in budgeting and forecasting. While tech tools cannot effectively replace a skilled cost engineer, the right tools can greatly improve their abilities.
Many cost engineers within project controls, for example, utilize spreadsheets to manage their workload. These will continue to be a vital element of their toolkits. Spreadsheets are now being augmented by business intelligence (BI) and analytics tools such as Microsoft Power BI.
Our Business Intelligence team works to integrate Power BI with ERP systems and project management tools to create real time reporting that can distribute alerts and provide data to utilities, construction organizations, and other partners. Additionally, these tools can also be harnessed to provide managers with higher-level views into project progress and associated financial data.
Forecasting for Long Projects
Long projects can prove particularly challenging. In some cases, a project might span five or more years. Look what has transpired over the past few years and how events have impacted prices, schedules, and the supply chain as a whole: Pandemic shutdowns, oil prices surging from the basement to the stars, regular supply chain interruptions, soaring shipping and fuel costs, and equipment and component shortages. These and many other factors have caused the budgets of some lengthy projects to be torn up and redone.
Just as homeowners have seen the bids for remodeling projects increase by as much as 50% to 100%, those operating in the energy and industrial infrastructure space are dealing with big shifts in costs, delivery schedules, and component and labor availability. This can make forecasting seem like a thankless task. Yet it is vitally necessary for the success of longer projects – even more so in an environment with such price volatility.
Power BI can provide an analysis of historical costs dating back many years, trend how costs have risen, be used to extrapolate future costs, and more. Project controls expertise can take this data and combine it with information from other sources to provide management and finance with a prediction of overall costs.
Yes, there may be underestimates – even sometimes major ones. But it is up to the project team, with information provided by cost engineers, to stay on top of things, make the right adjustments, and provide some leeway in initial forecasts to accommodate unforeseen circumstances. And to sound the alarm when predicted expenditures are going seriously awry.
The Perfect Cost Controls Partner
Our team consists of industry heavyweights that bring substantial expertise to the table for our clients. We partner with you to reduce risk and uncertainty in your capital projects, delivering initiatives on time with significant cost savings while meeting industry and safety standards. Contact us today to find out how we can help.
by Laura Hannah, Project Controls Manager, PFES
