Cost Control
Cost Reporting vs Cost Control
- Reporting actual expenditures is the accountant's job
- Forecasting cost trouble spots before funds are committed, determining corrective action to minimize expenditures and communicate the issue is the Cost Engineer's job
- Cost Control is identifying trouble areas and communicate the issue, and using the "Accountants" cost report is one of several tools to be utilized.
Objectives of a Cost Control Program - Pro Active not Re Active
- To focus management attention on potential cost trouble areas in time for corrective or cost minimizing action. *Detect possible budget overruns "before" they occur rather than "afterwards."
- To keep Project Manager informed of his/her budget and how his expenditures compare to the budget.
- To create a cost-conscious atmosphere so that all persons working on a specific project will be cost conscious and aware how their jobs / activities effect impact the cost of the project.
- To minimize project cost by looking at all activities from the view point of "cost reduction."
5 Elements of a Good Cost Control System
- KNOW WHAT HAS TO BE DONE: Must have good financial and time yard sticks to measure "cost performance" and "physical progress." All activities must be carefully planned as to timing (schedule), method of execution, and cost (control estimate).
- KNOW WHAT HAS BEEN DONE: Know where the project stands. All cost and schedule commitments for engineering, materials, labor, or services (sub contracts). This must be known and kept up to date. IF it is not kept up to date how do you know where the project is and where it is going; until after the fact.
- KNOW WHAT REMAINS TO BE DONE: Forecast the cost and schedule for all remaining work out to project completion.
- KNOW WHAT IS WRONG EARLY AND WHY: Comparing, analyze, and find where and why cost or schedule deviation is occurring. Compare the forecast to control estimate and schedule.
- TAKE CORRECTIVE ACTION: After isolating points of cost or schedule overruns, consider corrective actions. Possible reasons for overruns include overly conservative designs, limited or inefficient purchasing practices, poor material control, and inefficient labor practices. There are always alternative approaches, and some alternative may be more economical (cost and time).
Data on this page: Clark and Lorenzoni, Applied Cost Engineering 3rd ed.