Cost Control, EPMO, EPPM, Planning & Control, Portfolio Management, Project Cost Controls, Project Portfolio Management Office

Cost Management For Contractors

Cost management is more crucial to the contractors than other parties during contract execution. Some contractors are still in the dilemma on working on huge unsecured excel sheets and late reports from site and misalignment between the construction team and the head office departments which support and monitor the project. EVM system is on tool to monitor the cost and profit on real time every single day using Primavera P6 EPPM system.

Earned Value Management (EVM) is a widely used and powerful project management technique for controlling project performance. However, there are other methods that can also be used to control project performance, such as:

  • Critical Path Method (CPM)
  • Performance measurement baseline (PMB
  • Six Sigma
  • Balanced Scorecard
  • And more

It’s important to note that each method has its own strengths and weaknesses, and the best method to use will depend on the specific project and the organization’s needs. EVM can be a very effective method for controlling project performance to achieve the best results.

However, using EVM system without a software to monitor it live like Primavera P6 Enterprise Project Portfolio Management (EPPM. With the new feature in 22.12 releases, we can monitor EV on the resource level too. So you can monitor EV on the level of activity, WBS, project, program and portfolio

In a project, earned value (EV) can be tracked and analyzed at the activity, Work Breakdown Structure (WBS) and resource levels. By tracking EV at these different levels, contractors can gain a more detailed understanding of the performance of their projects and take more targeted corrective actions to improve performance.

  • Activity Level:

Tracking EV at the activity level allows contractors to see how individual activities are performing in terms of schedule and cost. Contractors can compare the planned value (PV) and actual cost (AC) of individual activities to the earned value (EV) to see if they are on schedule and within budget. If an activity is behind schedule or over budget, contractors can take corrective action, such as adding more resources or adjusting the schedule, to get the activity back on track.

  • WBS Level:

Tracking EV at the WBS level allows contractors to see how different sections of the project are performing in terms of schedule and cost. Contractors can compare the PV, AC, and EV of different WBS elements to see if they are on schedule and within budget. If a WBS element is behind schedule or over budget, contractors can take corrective action, such as adding more resources or adjusting the schedule, to get the WBS element back on track.

  • Resource Level:

Tracking EV at the resource level allows contractors to see how different resources are being utilized on the project. Contractors can compare the PV, AC, and EV of different resources to see if they are being used efficiently. If a resource is being overutilized or underutilized, contractors can take corrective action, such as reassigning resources or adjusting the schedule, to improve resource utilization.

To improve performance using these levels and controls, contractors can use the following strategies:

  • Cost Controls preparation:
  • Create different rate types for each type of cost: Create different rate types for labor, materials, equipment, and other costs. This will allow you to track and compare the actual costs for each type of cost separately.
  • Assign the correct rate types to each resource: Assign the correct rate types to each resource, such as labor, materials, and equipment. This will ensure that the actual costs for each resource are being tracked and compared correctly.
  • Create a rate type for burden costs: Create a rate type for burden costs, such as overhead, insurance, and taxes. This will allow you to accurately track and compare the actual burden costs for each activity, resource, WBS and project.
  • Create a rate type with inflation: Create a rate type with inflation, which will allow you to adjust the costs and sell rates over time to account for inflation. This will ensure that the actual costs and sell rates remain accurate.
  • Create a rate type for sell rates: Create a rate type for sell rates, which will allow you to compare the actual selling price of each resource or activity to the actual cost. This will allow you to determine the profit margin for each contract.
  • Reporting and controls:
    • Performing a thorough analysis of the PV, AC, and EV of the project: By analyzing the PV, AC, and EV of the project, contractors can identify any variances and take corrective action before the project gets off track.
    • Using Earned Value Management (EVM) metrics: Contractors can use EVM metrics, such as the schedule performance index (SPI) and cost performance index (CPI), to measure the performance of the project.
    • Monitoring progress regularly: Contractors should monitor progress regularly and make adjustments as needed to keep the project on track.
    • Communicating with stakeholders: Contractors should communicate regularly with stakeholders to keep them informed of the project’s progress and any issues that arise.
    • Implementing a change control process: Contractors should have a process in place for managing changes to the project, to ensure that changes are controlled and do not negatively impact the project’s performance.

By tracking EV at the activity, WBS, and resource levels, and using the strategies above, contractors can improve the performance of their projects cost and profit, ensuring that they are completed on time, within budget, and to the satisfaction of all stakeholders.

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