It’s all about money, managing industrial projects requires more money than it did in the past. Many of the industrial plants running today are running for one reason only: to generate revenue that will flow back to their owners and investors.
Today industrial facilities are built and maintained to produce a product for sale at prices that will net stakeholder investors a tidy return. The mindset affects any project being build or the execution efforts of any plant being overhauled during a scheduled shutdown. If the investor feels that the cost to complete or rehabilitate a project might potentially reduce his return on his investment below a pre-calculated level, the project will be cancelled.
If a project has survived through all of its preliminary stages such as initiating business cases, and feasibility studies to finally reach the construction phase it is extremely important for the survival of the project that this remaining phase be scrupulous and financially managed.
Many excellent construction managers and even site managers with many years of experience building some of the largest plants in the world are not used to manage the finances of a project to the standards deemed today. They have a good understanding of direct and indirect hours, tools, consumables etc. But many do not have experience or ability to predict the outcome of the finances in time to:
- Notify of impending issues before they become a big problem (RISK).
- Ability to take preemptive actions to bring a poorly performing project back on track.
The first steep for everyone is to become aware of the need to manage the financials of a project and the execution phase as opposed to just reporting them. Again, Project Cost are highly dependent on effective and fast decision making of leading supervisor and managers.
Common expressions in project cost management
Although some of these sayings are old school they still deliver a key message:
Fitzgerald's law
In project management Fitzgerald's Law states that there are two states to any large project: “Too early to tell and too late to stop” The ability to identify and terminate infeasible planning, tasks, activities, resources, or deliverables early is probably the most valuable characteristic of senior experienced managers.
Parkinson's law
In project management the Parkinson Law is when the project expenses raise to meet the budget because no limits are set. In the same fashion the Parkinson Law is when work expands to only fill the time available when it could have been done in less time.
Constantine's law
In project management Constantine's Law means: “A fool with a tool is still a fool” Meaning that the problem with providing tools to all and sundry is that if you give a man a hammer, everything starts to look like a nail. Implementation of systems, adequate components and training is fundamental to success.
Cost Management vs Cost Reporting
Why it is so important to understand
Usual cost reporting indicates how money has been spend vs how it was planned to be spend up to the point of being able to predict how finances of the project will look once completed. Project key stakeholders want this information consistently and instantaneously. They want this information to protect or enhance their investments.
Good cost management during the project execution phase can have a significant impact to the final outcome of the project. But by accurately tracking the cost of work in progress, by actively forecasting and predicting the cost to complete, by establishing cost performance indexes over a predetermined baseline and the corresponding variance limits will provide the project team, owners, and investors the data they need, when they needed, to make their financial decisions.
The Project Cost Management Plan is an absolute essential to any project and allows owners and investors to understand the project and make key decisions to protect their investment.
Read more in THE ELEMENTS OF A PROJECT COST MANAGEMENT PLAN.
