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Organization
As project teams are formed for specific projects, project planners,
cost control coordinators, and estimators are assigned by the
Project Controls Group. Project Controls personnel assigned to
a project are directly accountable on a functional basis to the
Project Manager but rely on their home department for administrative
support.
The Project Controls Group provides support to the project team
in the form of supplemental personnel, technical resources, system
maintenance, and procedure development. The Project Controls Group
also audits projects to ensure that established systems and procedures
are followed and to gain information and ideas from projects for
system improvements.
Estimating
The most important aspect of JRME's project controls function
is scope definition. The identification, classification, and utilization
of all available information concerning project scope is critical
to the successful implementation of project controls. JRME's estimators
assemble and classify all available information on project scope
to determine the level of scope definition and to establish the
appropriate estimating methods and procedures.
When the project scope is conceptual (with minimum scope definition),
factoring methods are used to develop order-of-magnitude estimates
(also called budget estimates). As the project develops and as
scope definition becomes better defined, increasingly refined
estimating methods are employed to ensure maximum utilization
of the improved data. The cycling of enhanced scope definition
data to improve the quality of the project cost estimate continues
through the definitive estimate phase. The definitive estimate
is developed near the end of the engineering effort, using prices
committed by suppliers for engineered and commodity materials,
definitive commodity material takeoffs from detailed design drawings,
and established construction labor productivity and cost data.
The estimating unit also has the capability to conduct range
estimating risk analysis. Monte Carlo techniques are used to statistically
model project cost elements and set the appropriate distribution
parameters for each element. This modeling technique is used to
estimate the amount of contingency to be added to the budget to
achieve a specified confidence level for the level the budget
will not exceed. Both the customer's and JRME's management experience
will be used to establish parameters for use in the analysis.
JRME's estimating unit has databases available that are appropriate
to specific estimate classifications. The available estimating
data includes the following:
- Cost factors based on equipment size and throughput
- Historical material and equipment pricing from quotations
developed for previous projects
- Historical labor cost and productivity data for engineering
and construction activities
- Access to commercially available estimating databases for
unusual cost items and cost verification
- Labor rates and productivity from associated McDermott companies
throughout the world
- Cost escalation factors for equipment and commodities from
the McDermott's Corporate Economics Department
- Exchange rate risk evaluations from the McDermott Corporate
Treasury Department
If required, the estimating unit is available to assist customers
in developing estimates for budgeting purposes. In this effort,
the estimators work closely with their counterparts in the customer's
organization to ensure that budget estimates meet the customer's
requirements for methodology, format, etc.
Fair-price estimates are developed by the estimating unit for
use in evaluating contract proposals. The estimators base the
estimate scope on the tender documents distributed to competing
contractors. The resulting contract price estimate is used as
a benchmark in evaluating the commercial proposals submitted by
contractors.
To support Cost Control in contract change-order development,
the estimating unit estimates the costs of change orders for those
changes not covered by contract unit rates.
Cost Control
The most important determinant in effective cost control is a
fully and properly defined scope. An understanding of the work
included in the scope and the limits of the project scope is imperative
in this definition.
The cost control function begins with recasting the control estimate
into the project budget. The control estimate is defined as the
current estimate, whether it is the conceptual estimate (developed
during the early stages of the project) or the definitive estimate
(developed after completion of the design and commitment of most
of the materials). The project budget is adopted as the baseline
for reporting projected project costs. All cost forecasts reference
this baseline.
The cost control coordinator maintains a running total of cost
commitments as the project proceeds. Each commitment is compared
to the corresponding amount in the project budget. The differences
between budget amounts and commitments are reflected in the total
project forecast. At the end of each reporting cycle, the balance
of costs to be committed is re-estimated:
Balance to be committed
+ Commitments to date
= REVISED TOTAL FORECAST
The total forecast is then compared to the project budget and
the previous period forecast. The comparison provides management
with itemized listings of where cost variances are projected to
occur and allows sufficient lead time for corrective action to
be taken.
The total forecast is also used to project cash requirements.
Total expenditures to date are deducted from the total forecast.
The balance of funds to be expended is distributed over the remaining
project duration, using resource allocation and expected material
delivery dates to arrive at projected cash requirements.
Cost control is responsible for variance analysis and cost trending
based on projected material price trends and labor productivity.
Experience on ongoing projects is used to identify and evaluate
cost trends. Such trends are incorporated into the total forecast
as part of the evaluation of the balance of costs to be committed.
Project cost control coordinators define the scope and evaluate
the cost of contract change orders. This responsibility entails
developing the complete scope of the effort with customer, engineering,
procurement, and construction management representatives. Once
the scope is developed, the cost control coordinator develops
the cost of the scope change using rates specified in the contract
or, in the absence of specified rates, with the assistance of
the estimating unit. The schedule impact of the proposed scope
change is formulated by the project planner, based on the scope
definition developed by the cost control coordinator.
Project cost control coordinators assist the project manager
in his ongoing cost reduction effort by developing the complete
scopes and potential savings associated with items considered
for cost improvement, through value engineering.
Project Planning & Scheduling
In planning and scheduling, a clear concept of the scope and
contract requirements is critical to adequately define activities
required to complete a project, as well as to estimate activity
durations and assign their proper sequence.
During the early stages of a project, the project planner prepares
a conceptual schedule which specifies the major project milestone
events and dates. This schedule is based on the conceptual designs
and is developed in conjunction with the customer and with experienced
engineering and construction managers.
As the project becomes better-defined through additional engineering,
the improved definition is reflected in continually improving
schedules. Schedule improvements allow increasing detail, increasingly
complex logic, and more accurate projected occurrences (such as
equipment deliveries) based on information specific to the project.
The fully-developed, detailed plan is presented to the customer
and to JRME management for review and approval. Once approved,
the detailed plan is established as the baseline schedule and
is included as a major component in the project execution plan.
All future progress reporting and schedule-related decisions are
made with reference to this schedule. The baseline schedule does
not change unless there is a major redefinition of the project
scope which affects the project execution plan.
Progress measurement is based on an evaluation of physical work
completed (not elapsed time or manhours expended). During the
engineering phase, each product of the engineering effort is assigned
a weight proportional to its contribution to the total engineering
effort. As engineering progresses, a periodic assessment is made
of the progress to date on each product underway. The assessed
percent-complete is extended by the assigned weight, to arrive
at the product contribution toward total effort completion. The
sum of product contributions yields the total percent-complete.
Items completed are assigned a completion value of 100%, whereas
products not started are considered 0% complete. The progress
reporting system is structured to minimize subjective evaluations
(using control point milestones like "Activity Started"
or "Approved for Design," or "Approved for Construction,"
etc., thereby allowing objective independent progress assessments.
Detailed tabular progress reports are distributed to lead engineers
and drafters as soon as possible after the reporting cut-off date.
The project manager and engineering and procurement discipline
managers receive summary progress reports by discipline in tabular
and/or graphical format. Customer representatives and JRME management
receive graphical reports in the form of S-curves showing the
baseline schedule, the actual progress to date, and the forecast
rate of progress to be achieved for the balance of the project's
duration. Exception reports detailing areas of potential trouble
are available at all levels for prompt analysis.
The planning and scheduling engineer evaluates the schedule impact
of potential changes in scope. In this effort, the planning engineer
receives the scope definition from the cost control coordinator
and works with discipline group leaders, project buyers, and construction
management to evaluate the potential impact on total project schedule.
The results of the scope change schedule analysis is presented
to JRME project management for review and discussion with customer
representatives.
As the schedule is updated to reflect actual progress and the
impact of scope changes, critical path analyses are conducted
to determine if the original critical path (as included in the
baseline schedule) remains valid. It is possible, through variations
in progress achievement and the cumulative impact of scope changes,
for the critical path to deviate from the baseline schedule. Often,
when this deviation occurs, a lengthening of the overall project
is indicated. In such cases, the project planner works with discipline
leaders, material buyers, and construction management to develop
a "work around" schedule to return the overall project
duration and critical milestone dates to agreement with the baseline
schedule.
Automated Systems
JRME uses a Power Builder-developed computer application running
on a Sybase database management system to perform project management
tasks, such as estimating, project budgeting, change order control,
scheduling interface, and progress measurement. The system is
server-based and available over the network to all users who need
access to the system.
The system is designed to capture estimate information at the
detail level based on the defined engineering and project work
scope. The system has a predefined set of cost, time, and resource
(CTR) tasks which make up the work breakdown structure (WBS) that
JRME uses to manage the work. The estimate detail supports the
baseline bid or control budget estimate basis on which future
scope changes are based. Standard unit rates are also maintained
in the system: users only need to identify the quantity of deliverables,
and work hour requirements are automatically extended in the system.
Predefined task relationships are also maintained in the system,
so that the data can be electronically linked to a Primavera scheduling
system for a preliminary look at an overall project plan and resource
requirement histogram.
After a project is awarded or the control budget estimate is
accepted, the estimating data is transferred to the Project Budget
System. Any "as awarded" changes can be incorporated
into the estimate at this stage. This estimate becomes the project
baseline or original budget for the project for both work hour
quantities, dollars, and nonlabor costs. Since budget detail is
also tied to the schedule, future changes can be assessed for
both cost and time effects.
After the resource-based schedule is finalized, it becomes a
working plan for the computation of planned progress. Monitoring
of schedule progress is achieved in the system by way of a detailed
look at all of the individual deliverable components that make
up the estimate. Each deliverable is assessed with a predefined
milestone accomplishment factor (factors are defined such that
maximum objectivity is achieved when updating their status). These
milestone factors are multiplied by the current budget weight
of the activity and rolled together with the status values of
all other activities in the database to determine the earned-value
percent-complete achieved. These earned values are summarized
at meaningful levels within the WBS system and compared to the
plan.
Results from this exercise are then updated to the scheduling
system. Based on this update, the schedule is recalculated to
determine if the earned status has an effect on the activity dates
in the schedule. These activity date changes - plus the resources
required to complete the estimate - are used to calculate a new
forecast. This forecast information is then used for customer
reporting, internal financial reports, and personnel requirements
management. The system is designed to provide early warning on
deviations in the plan that may effect the overall completion
date of the project so that actions can be taken to correct the
problems that caused the deviations.
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