Tag Archives: Cost Management

GAO Cost Estimating and Assessment Guide Updated

The venerable Cost Estimating and Assessment Guide (Cost Guide) has been updated for the first time since 2009!  Published in March, the 2020 version of the Cost Guide has been significantly improved.

Some of the changes include:

  • Better alignment of best practices, cost estimate characteristics, and cost estimating steps
  • Clarification of some of the best practices and their related criteria
  • Additional content in technical appendixes and revision or deletion of others
  • Update case studies and references to USA government legislation and rules
  • Modernization of the Cost Guide’s format and graphics.

The Cost Guide defines the four characteristics of a good estimate: comprehensive, well documented, accurate, and credible. It also incorporates 18 best practices and shows how the best practices align to the four characteristics. Additionally, it introduces the 12 steps of the cost estimating process that produce reliable estimates, and shows how the best practices align with the 12 steps.

Earned Value Management (EVM) remains central to the Cost Guide’s approach to managing the delivery of a project once the estimate is approved.

As with the previous version, the Guide can be downloaded free of charge from: https://www.gao.gov/products/GAO-20-195G

For more on cost management see:
https://mosaicprojects.com.au/PMKI-SCH-040.php

Project Controls

There is a useful discussion on the aspects of project ‘control’ systems by Earl Glenwright in this month’s PM World Today.

Whilst project controls don’t and can’t actually control anything (for more on this see: Project Controls Don’t), the information provided by ‘project controls’ is needed to inform the decisions being made by the project management and team.

What Earl has done is separate the ‘control tools’ into three groups:

  • Primary Controls are those that are essential to the management of daily on site performance (eg, schedule and quality).
  • Ancillary Controls facilitate the on-going management of the construction project (eg, cost and issues).
  • Support Systems are tools that process, create, store, or model the integration of the design, schedule, and cost into a composite relational study of the project’s work plan.

Interestingly, cost is seen as an ancillary control, a view we strongly agree with, cost is a very sensitive symptom of how well the primary controls are working. For more on this see: Cost Engineering is an Oxymoron!

PM World Today is a free monthly e-zine, if you are not on the mail list I would recommend signing up.

Cost Engineering is an Oxymoron!

Cost performance is a symptom of other management functions. It is impossible to ‘engineer costs’. The only way to change cost outcomes is to change the other processes that incur costs.

The three key areas of business operations and project management that incur costs and where a change in the process will cause a change in costs are:

  1. Changing the procurement / purchasing / supply chain processes that acquire the required inputs to the process being managed.
  2. Changing the way the work that transforms inputs to outputs is undertaken through enhanced management and leadership including skilling, motivating and directing the people involved in the work and ensuring they have the correct resources and equipment to undertake the work.
  3. Focusing on the quality of the outputs produces to ensure the ‘right scope’ has been delivered at the ‘correct quality’. Too low and there are cost consequences in rectification, too high and you may have spent money unnecessarily.

These three elements exist in a risk frame. Whilst risk management will not ‘control’ the future, it will allow opportunities to be identified and grasped and threats mitigated and avoided by changing the way the work is undertaken and as a consequence optimise cost outcomes.

The two key facets that permeate all of the above are stakeholder management and time management.

  • Stakeholder management both within the team and externally, (including effective communication) is central to achieving a successful outcome at the best price. Stakeholders are in the supply chain, include the project team and contractors and can have a major impact on the risk profile of the work. For more posts on stakeholder management see: http://www.stakeholder-management.com/blog/?cat=5
  • Time management focuses on ensuring the right people are in the right place at the right time, with the right resources and equipment to do the work in the optimum sequence. For more posts on time management see: https://mosaicprojects.wordpress.com/category/project-controls/scheduling-project-controls/

Both of the above need regular reviews and adjustment within the overall frame of the emerging risk profile.

Where ‘cost engineering’ adds value is via techniques such as Earned Value (EV). Applying EV effectively allows the symptoms of a deviation from the expected performance to be highlighted through Cost Variances and other reports.

As with medicine and diseases, it is capability to recognise and correctly interpret symptoms that allows diagnosis that leads to the effective treatment of the under-laying problem. In project and business management space, this should translate to the requirement for managers not only to report a cost variance, but also to identify the cause of the variance and to recommend and/or implement corrective actions.

Whilst it is impossible to directly manage or control costs; timely and accurate information on cost performance can be a valuable diagnostic tool to remedy the real issues. What’s needed is for senor managers to stop focusing on ‘cost’ and start asking deeper questions about performance and risk. I know many readers of this blog will say this already happens in their organisations, but I also know that far too many other managers focus on the symptom of cost performance rather than the under-laying problem to the detriment of their businesses.