VIEWPOINTS

Notes on Effective Project Cost Control

By Alan Stretton, PhD

Sydney, Australia

INTRODUCTION

These notes on effective project cost control derive mainly from my own experience in developing and implementing project financial and cost control systems in two project organizations, but primarily in Civil & Civic Pty Limited, an Australian project management organization operating in the building and construction industry. It appears that certain issues in project cost control continue to cause difficulties, whose solutions are rarely discussed in the literature. Therefore, although I first drafted these notes many years ago, they may still be sufficiently relevant to warrant publishing now. The following notes briefly discuss the percentage completed problem; the evaluation of current performance and forecasting final costs and variances; focus of control on negative and positive variances; commitment costing; control by self control; project change control; and formal and informal project control.

THE PERCENTAGE COMPLETED PROBLEM IN PROJECT CONTROL

This is a perennial problem in performance measuring, which has been occasionally mentioned in the project management literature over the years, but seldom with solutions. I have sometimes described it as “the 99% complete problem”. An example from ship-building projects which was given by Baker et al 1976 typifies the nature of the problem:

An area with which the writer is most familiar is the use of percentage complete reports for reporting progress on US ship construction in the US Navy. If ever a tool was designed to lead management down the primrose path, the percentage complete report must come close to receiving the top award in that category. The writer found in some four shipyards, that when ships were reported to be 85% complete they were only about 70% complete on average. When they were reported as 95% complete they were only about 82% complete, on average. In one case, a ship was reported 99.99% complete for over a year!

We had just this type of problem in Civil & Civic on a complex building project in Melbourne in the early1960s. When we realized what was happening – admittedly a bit too late to recoup the situation to the extent we would have liked – we changed our cost control procedures very substantially, and rapidly.

Click here to read entire paper

About the Author By Alan Stretton, PhD Author Alan Stretton is currently a member of the Faculty Corps of the University of Management and Technology, Arlington, Virginia, USA. In 2006 he retired from a position as Adjunct Professor of Project Management in the Faculty of Design, Architecture and Building at the University of Technology, Sydney (UTS), Australia, which he joined in 1988 to develop and deliver a Master of Project Management program. Prior to joining UTS, Mr. Stretton worked in the building and construction industries in Australia, New Zealand and the USA for some 38 years, which included the project management of construction, R&D, introduction of information and control systems, internal management education programs and organizational change projects. He has degrees in Civil Engineering (BE, Tasmania) and Mathematics (MA, Oxford), and an honorary PhD in strategy, programme and project management (ESC, Lille, France). Alan was Chairman of the Standards (PMBOK) Committee of the Project Management Institute from late 1989 to early 1992. He held a similar position with the Australian Institute of Project Management (AIPM), and was elected a Life Fellow of AIPM in 1996. He was a member of the Core Working Group in the development of the Australian National Competency Standards for Project Management. He has published over seventy professional articles. Alan can be contacted at alanailene@bigpond.com.au.