Project Management Best Practices

Module 12
Project Controls
 Project Management Best Practices
FEL Component: Project
1 Introduction 8 Execution Planning

2 Define the Business Stake 9 Value Improving Practices

Accurately Measure
3 10 Contracting Strategies
Effectiveness

4 Introduction to FEL 11 Risk Analysis & Mitigation

5 Team Effectiveness 12 Project Controls

6 FEL Component: Site Factors 13 Construction Safety

FEL Component: Design

7 14 Course Wrap-Up
Status
Project Management Best Practices – v 2.0 Module 12 - 2 CONFIDENTIAL
 Project Controls
LEARNING OBJECTIVES

Define project controls and discuss fundamental

control activities

Identify what project control Best Practices correlate

with improved project outcomes

Describe IPA’s Project Control Index (PCI)

Project Management Best Practices – v 2.0 Module 12 - 3 CONFIDENTIAL

 Module Outline
12 Project Controls

• Defining Project Controls

• Project Control Best Practices

• IPA’s Project Control Index (PCI)

• Summary

Project Management Best Practices – v 2.0 Module 12 - 4 CONFIDENTIAL

 Project Control Has Two Primary
Objectives

Regulation of results through alteration of activities

Stewardship of organizational assets

Control costs money to implement!

Project Management Best Practices – v 2.0 Module 12 - 5 CONFIDENTIAL

 Defining Project Controls

• A set of functions and activities that enable owners to

know what is happening on their projects in real time

Owner Functions Activities

• Schedulers • Schedule preparation and control

• Cost controllers
• QA/QC
Project Management Best Practices – v 2.0
• Cost estimate preparation and
control
• Monitoring of physical progress
• Change management
• Field auditing (QA/QC)
Module 12 - 6 CONFIDENTIAL
 Project Control Is Not Monitoring

CONTROLLING
= MONITORING

Requires active Has passive responsibility

involvement and authority and requires no actions

Project Management Best Practices – v 2.0 Module 12 - 7 The IPA Institute - CONFIDENTIAL
 Project Control Activities for
Active Involvement and Authority

• Measure actual performance against plan:

– Collect actual performance data
– Analyze data to compare with plan
– Document variances
– Use data to develop forecasts of likely final outcomes
• Inform stakeholders of changes
• Search out the “Whys” of variances
• Make adjustments based on forecasts and trends
• Recycle results into system to improve future projects

Project Management Best Practices – v 2.0 Module 12 - 8 CONFIDENTIAL

 Module Outline
12 Project Controls

• Defining Project Controls

• Project Control Best Practices

• IPA’s Project Control Index (PCI)

• Summary

Project Management Best Practices – v 2.0 Module 12 - 9 CONFIDENTIAL

 Research Findings on Project Control

• IPA has identified a set of owner project control

practices that drive improved project outcomes

• These practices do not represent a complete control

process or system

Practices add value and reflect real owner

commitment to project control

Project Management Best Practices – v 2.0 Module 12 - 10 CONFIDENTIAL

 Project Control Best Practices
Important for All Project Phases

Maximize Effectiveness Maintain Value Basis for Future Planning

Front-End Loading Execution Closeout

Negotiate strong Assign in-house Develop and

audit rights project controls maintain an owner
group during historical
Estimate for control execution cost/schedule
database
Owner estimate Use physical
validation progressing
Build an integrated Report status
and resource- frequently by
loaded schedule discipline

Project Management Best Practices – v 2.0 Module 12 - 11 CONFIDENTIAL

 Success Requires Strong Audit Rights on
ALL Contracts
Front-End
Loading • Fully define and articulate in bid packages
Negotiate
strong audit • Establish for all contract types
rights
Estimate for • Obtain for:
control
Owner – Cost reporting
estimate
validation – Electronic schedule updates
Integrated
and – Physical progress
resource-
loaded
schedule • Exercise immediately and fully in execution

Execution • Field representatives from owner’s project control

group must verify contractors follow reporting
procedures
Closeout

Project Management Best Practices – v 2.0 Module 12 - 12 CONFIDENTIAL

 Estimate for Control
Too Often the Objective Is Determining “The Number”
Front-End • Structure to support project control
Loading
Negotiate • Organize so that cost categories are separate and
strong audit
rights function as basis for control
Estimate for
control • Establish code of accounts early and across the
Owner
project
estimate
validation • Provides the best basis for evaluating the
Integrated contractor’s proposals (even for fixed-price
and contracts)
resource-
loaded
schedule

Execution

Closeout

Project Management Best Practices – v 2.0 Module 12 - 13 CONFIDENTIAL

 Design Cost and Schedule Estimates Using a
Common WBS and Cost Account Breakdown
Front-End • Supports project control
Loading
Negotiate • Facilitates cash flow analysis and earned value
strong audit
rights analysis
Estimate for
control • Helps to ensure consistency between cost estimate
Owner
and project schedule
estimate
validation • Facilitates resource loading of project schedule
Integrated
and • Provides consistent project controls
resource-
loaded
schedule

Execution

Closeout
* WBS = work breakdown structure
Project Management Best Practices – v 2.0 Module 12 - 14 CONFIDENTIAL
 Owner Estimate Validation Is the Owner’s
Quantitative Check of the Cost Estimate
Front-End • Evaluates competitiveness and conformance to project
Loading and business expectations and targets
Negotiate
strong audit • Uses metrics that are different from those used in
rights
estimate preparation:
Estimate for
control – Compare actual cost of past projects
Owner
estimate – Compare with past estimates or check estimates
validation
– Compare with relative cost metrics or ratios
Integrated
and
resource- • Requires:
loaded
schedule – Estimate data that support validation process from
contractor
Execution
– An appropriate reference database of historical metrics
and comparison project record
Closeout

Project Management Best Practices – v 2.0 Module 12 - 15 CONFIDENTIAL

 Sample Metrics for Validating Cost
Estimates
Ratio Types Some Sample Ratios
• Percentage of Total Cost
• Total Cost / Equipment Cost
Cost : Cost • Construction Labor Cost / Bulk Materials Cost
• Office Cost / Field Cost

• Field Hours / Total Project Cost

Resource : Cost • Field Hours / Million Dollars of Equipment

• Labor Cost / Number of Hours

Cost : Resource • Material Cost / Quantity of Material
• Total Project Cost / Unit of Capacity

• Craft Hours / Quantity of Material

• Field Hours / Number of Pieces of Equipment
Resource : Resource • Engineering Hours / Design Drawing
• Office Hours / Field Hours

Project Management Best Practices – v 2.0 Module 12 - 16 CONFIDENTIAL

 Estimate Validation by Owner Cost Specialist
Helps Ensure Competitive Lump-Sum Pricing

1.2
Cost Effectiveness Index

1.1

1.0

0.9

0.8
0 1 2
Weighted Index (for Effectiveness)
Reimbursable Construction Fixed Price Construction

Data are for FEL held constant at industry average level

Project Management Best Practices – v 2.0 Module 12 - 17 CONFIDENTIAL
 Integrated and Resource-Loaded
Schedules
Front-End
Loading Integrate all project phases into a single master schedule:
Negotiate
strong audit
• Definition • Construction
rights
• Detailed Engineering • Shutdown/Turnaround
Estimate for
control • Procurement • Commissioning and Startup
Owner
estimate
validation
Reflect all project aspects:
Integrated
and
resource-
• Authorization process • Plans for work calendar, shift
loaded work, and overtime
schedule
• Contracting approach
• Turnaround/shutdown
• Drilling and reservoir coordination
Execution components
• Turnover sequence
• Design and construction
Closeout packages • Commissioning and startup
plan
Project Management Best Practices – v 2.0 Module 12 - 18 CONFIDENTIAL
 Resource-Loaded Schedules Are
Essential for Project Control
Front-End • Becomes the owner’s “window” on the project
Loading
Negotiate • Provides a framework for planning the project
strong audit
rights • Identifies critical activities, relationships, and
Estimate for constraints that drive schedule duration
control
• Ensures cost estimate and schedule are aligned
Owner
estimate • Measures basic feasibility of the desired schedule
validation
Integrated • Pulls Project Execution Planning elements into a single
and model
resource-
loaded
schedule • Functions as a communication tool
• Provides essential data for:
Execution
– Evaluation of peak labor
– Resource leveling
Closeout

Project Management Best Practices – v 2.0 Module 12 - 19 CONFIDENTIAL

 Why Bother With Resource-Loaded
Schedules for EPC Lump-Sum Contracts?
Front-End
Loading • Shifting risk to the contractor does not compensate for
the lack of definition at sanction
Negotiate
strong audit
rights • EPC contractor typically does not manage all phases
Estimate for
control • Many lump-sum projects include other scope elements
Owner
that require efficient integration
estimate
validation • Provides a cross-check with the cost estimate
Integrated
and • Facilitates constructability
resource-
loaded
schedule • Provides a tool to check the validity of the contractor’s
schedule
Execution

Closeout

Project Management Best Practices – v 2.0 Module 12 - 20 CONFIDENTIAL

 Cost Index Analysis
Schedule Definition for Lump-Sum EPC
Front-End 0.6 +1 Std. Dev.
Loading Mean
Pr < 0.001
Negotiate -1 Std. Dev.
strong audit
rights 0.8
Estimate for
control
Cost Index

1.0
Owner
estimate
validation
Integrated 1.2
and
resource-
loaded
schedule 1.4

Execution
1.6
Resource Loaded CPM Schedule Milestone
Closeout Schedule

Project Management Best Practices – v 2.0 Module 12 - 21 CONFIDENTIAL

 Project Control Best Practices
Important for All Project Phases

Maximize Effectiveness Maintain Value Basis for Future Planning

Front-End Loading Execution Closeout

Negotiate strong Assign in-house Develop and

audit rights project controls maintain an owner
group during historical
Estimate for execution cost/schedule
control database
Use physical
Owner estimate progressing
validation
Report status
Build an integrated frequently by
and resource- discipline
loaded schedule

Project Management Best Practices – v 2.0 Module 12 - 22 CONFIDENTIAL

 Owner Project Controls Group
Front-End • Are an integral part of sound projects
Loading
• Measure, report, and evaluate progress and other
Execution tasks

Assign in- • Help to mitigate disruption in case of project

house manager turnover
project
controls
group during • Are useful to claims avoidance and reduction
execution
Use physical • Are essential in claims defense
progressing
Report • Are chronically understaffed
status
frequently by
discipline

Closeout

Project Management Best Practices – v 2.0 Module 12 - 23 CONFIDENTIAL

 Projects With Owner Project Control
Specialists Have Less Cost Growth
Front-End +1 Std. Dev.
Loading 40% Mean
-1 Std. Dev.
30%
Execution
Pr < 0.03
Facilities Cost Growth

20%
Assign in-
house
project 10%
controls
group during
execution 0%

Use physical
-10%
progressing
Report -20%
status
frequently by
discipline -30%
Owner Specialist Not Assigned Owner Specialist Assigned

Closeout

Project Management Best Practices – v 2.0 Module 12 - 24 CONFIDENTIAL

 Owner’s Key Roles During Execution
Front-End • Remain constantly aware of the project’s
Loading
progress
– Contractor may not be aware and is not
Execution
communicating
Assign in-
house
– Contractor’s system may lack capability to monitor
project progress
controls
group during – Contractor personnel may not be trained to operate
execution the monitoring system
Use physical
progressing
• Be prepared and willing to intervene
Report
status
constructively when problems occur
frequently by
discipline

Closeout

Project Management Best Practices – v 2.0 Module 12 - 25 CONFIDENTIAL

 Owner Intervention Examples
Front-End
Loading Unaware Owner & Damage Control
• Contractor is unable to secure work permits for
construction labor personnel
Execution
• Contractor attempts to address the problem by getting
Assign in- higher-ups in the ministry to “fix the problem” made it worse
house
• Owner worked with the government to resolve the problem
project
controls • The project fell behind
group during
execution
Aware Owner & Timely Response
Use physical
progressing • Contractor had environmentally related community
problems
Report
status • Owner’s controls organization identified the problems
frequently by immediately
discipline
• Owner changed the project’s approach to environmental
considerations
Closeout • There was no significant effect on the project
Project Management Best Practices – v 2.0 Module 12 - 26 CONFIDENTIAL
 Physical Progressing System for Project
Control Is Essential
Front-End • Is an objective and reliable method to
Loading
measure completion of work progress
Execution • Identifies physical quantities or events
Assign in-
house • Compares actual completed units against
project
controls plan
group during
execution
Use physical
• Identifies existing gaps
progressing between money spent
Report and actual scope
status completion
frequently by
discipline

Closeout

Project Management Best Practices – v 2.0 Module 12 - 27 CONFIDENTIAL

 Four Steps to Physical Progressing
Front-End Assign weighted value to an activity or
Loading Assign group of activities associated with some
Weighted Value physical item or event

Execution

Assign in- Measure Measure degree of completion by counting

house Completion items, quantities, or events
project
controls
group during
execution
Determine overall progress by summing up
Use physical Summarize achieved or “earned” value (degree of
progressing Progress achievement times weighted value) for each
item, event, etc.
Report
status
frequently by
discipline
Determine Divide earned-sum by total value of all
Percent Complete items to determine percent complete
Closeout

Project Management Best Practices – v 2.0 Module 12 - 28 CONFIDENTIAL

 Physical Progressing Reduces Schedule Slip

Front-End 50% +1 Std. Dev.

Loading

Execution Schedule Slip

Mean
40% -1 Std. Dev.

Execution
30%
Assign in-
house 20%
project
controls 10%
group during
execution
0%
Use physical
progressing
-10%
Report
status
-20%
frequently by Yes, but Not
discipline Yes No
Comprehensive

Physical Progressing Used

Closeout
Results are controlled for FEL
Project Management Best Practices – v 2.0 Module 12 - 29 CONFIDENTIAL
 Tracking Physical Progress for
Lump-Sum Contracts
Front-End • Recognize contractor’s poor performance
Loading
early
Execution
– Team can work together to take remedial action

Assign in- • Pay only for actual work accomplished

house
project – Owner payments usually based on work progress
controls
group during
execution • Track contractor hours
Use physical
progressing – Owner cannot directly track contractor’s cost in
Report
lump-sum contracts
status
frequently by – Hours information used to gain insight into
discipline contractor cost performance

Closeout

Project Management Best Practices – v 2.0 Module 12 - 30 CONFIDENTIAL

 Frequent and Detail Reporting Indicates
Good Project Controls
Front-End • Reports require all pieces of effective control
Loading
to be in place
Execution • Contractor can prepare the report, but the
Assign in-
owner must establish reporting requirements
house
project
controls • Owner must evaluate and act appropriately on
group during the report contents
execution
Use physical
progressing
Report
status
frequently
by discipline

Closeout

Project Management Best Practices – v 2.0 Module 12 - 31 CONFIDENTIAL

 More Frequent Reporting Improves
Schedule Effectiveness
Front-End
1.6 +1 Std. Dev.
Loading
Pr < 0.0001 Median
-1 Std. Dev.
Execution Schedule Index 1.4
Execution

Assign in- 1.2

house
project
controls 1.0
group during
execution
0.8
Use physical
progressing
0.6
Report
status
frequently 0.4
by discipline
No Reports Monthly Reporting Biweekly
Reporting
Closeout

Project Management Best Practices – v 2.0 Module 12 - 32 CONFIDENTIAL

 How Does Reporting Frequency
Accelerate Execution Schedules?
Front-End • Provides tool for keeping the project on schedule
Loading
• Identifies schedule variations on a timely basis
Execution
• Helps prevent delays from going unnoticed
Assign in-
house
project
• Schedule benefit is strongest for reimbursable
controls projects (strategy places cost risk of schedule
group during delays on the owner)
execution
Use physical • Model serves as the framework for project control:
progressing
Report
status Act Plan
frequently
by discipline

Check
Closeout Do
Project Management Best Practices – v 2.0 Module 12 - 33 CONFIDENTIAL
 Project Control Best Practices
Important for All Project Phases

Maximize Effectiveness Maintain Value Basis for Future Planning

Front-End Loading Execution Closeout

Negotiate strong Assign in-house Develop and

audit rights project controls maintain an owner
group during historical
Estimate for execution cost/schedule
control database
Use physical
Owner estimate progressing
validation
Report status
Build an integrated frequently by
and resource- discipline
loaded schedule

Project Management Best Practices – v 2.0 Module 12 - 34 CONFIDENTIAL

 Historical Databases Are Valuable for All
Departments
Front-End
Loading

Execution Capital Management

Project Managers Estimators

Closeout

Develop
and
maintain an Evaluate cost and cycle
owner time performance for
historical overall project program
cost/ Look at project Validate contractor’s
risk assessments estimates and
schedule future estimates
database

A key resource in making investment decisions and

planning and managing individual projects
Project Management Best Practices – v 2.0 Module 12 - 35 CONFIDENTIAL
 Historical Databases Are Especially a
Valuable Asset for Estimate Validation
Front-End
Loading Estimate validation requires a reference database of
historical metrics and comparison project records

Execution Raw Data Tools

Closeout Process Data

Develop
and
maintain an
• Cost • Normalize for • Ready-to-use
owner
• Time escalation • Accessible
historical
cost/ • Resources • Categorize costs • Planning
schedule • Etc.
database • Technical • Estimating
data • Validating
• Scheduling
• Risk analysis

Project Management Best Practices – v 2.0 Module 12 - 36 CONFIDENTIAL

 Owner Historical Database Management
Correlates With Improved Cost Effectiveness
Front-End 1.2 +1 Std. Dev.
Loading Median
Pr < 0.005
-1 Std. Dev.
Average Cost Effectiveness
Execution
1.1

Closeout
1.0
Develop
and
maintain an
owner 0.9
historical
cost/
schedule
database
0.8
Owner Employee Focused on Owner Employee NOT
Data Focused on Data

Project Management Best Practices – v 2.0 Module 12 - 37 CONFIDENTIAL

 Practices to Implement a Historical Data
Collection, Processing, and Analysis System
Front-End • Assign responsible person/group to manage and
Loading
maintain system

Execution • Use standard coding structure for consistent:

– Data collection
Closeout
– Analysis
Develop
and – Retrieval
maintain an
owner
historical
• Develop standard data collection procedures
cost/
schedule • Communicate availability of the data and tools
database
within the organization

• Ensure security

Project Management Best Practices – v 2.0 Module 12 - 38 CONFIDENTIAL

 Module Outline
12 Project Controls

• Defining Project Controls

• Project Control Best Practices

• IPA’s Project Control Index (PCI)

• Summary

Project Management Best Practices – v 2.0 Module 12 - 39 CONFIDENTIAL

 PCI Measures Four Project Control
Best Practices

Estimating for Control During

Control Execution Index

Has an in-house cost Is physical progressing being used, and

specialist quantitatively
validated the estimate
(ensuring the estimate
is reliable and
competitive)?
to what level of detail?
What is the frequency and level of detail
of project status reporting?
Is an in-house project control person
assigned during execution?

The PCI, measured on a single scale,

strongly correlates with project outcome metrics

The practices measured by the PCI do not constitute a complete project control process; they are
proxy measures of a strong project control process
Project Management Best Practices – v 2.0 Module 12 - 40 CONFIDENTIAL
 IPA’s PCI Scale

6.0

Good
5.5
Lead
Industry 5.0

4.5
Industry Average for Large Projects (Best Practical FEL)
4.0 Industry Average for Small Projects (Best Practical FEL)
Fair

3.5
Industry Average for Large Projects
3.0 Industry Average for Small Projects
2.5

2.0
Poor

1.5

1.0 We observe a positive correlation

between the PCI and IPA’s FEL
Deficient

Trail 0.5
Industry Index for Projects
0.0

Project Management Best Practices – v 2.0 Module 12 - 41 CONFIDENTIAL

 PCI Correlates With Faster Execution
Schedules
Execution Schedule Effectiveness

1.30
Pr < 0.0001
1.25

1.20

1.15
Index

1.10

1.05

1.00

0.95

0.90
6 Good 5 4 Fair 3 2Poor 1 Deficient
0

Project Control Index

Project Management Best Practices – v 2.0 Module 12 - 42 CONFIDENTIAL

 Project Control Practices Reduce
Execution Slip for Reimbursable Construction

35%
30%
25%
20%
Percentage Slip

Reimbursable Construction
15%
10%
5%
0%
-5%
-10%
-15%
-20%
6 Good 5 4 Fair 3 2 Poor 1 Deficient
0

Project Control Index

No significant effect for lump sum

Project Management Best Practices – v 2.0 Module 12 - 43 CONFIDENTIAL

 Project Control Practices Reduce Cost Growth*
for Lump-Sum and Reimbursable Construction

25%
Percentage Contingency Used

20%

15%
Reimbursable Construction
10%

5%

0%
Fixed-Price Construction

-5%

-10%
6 Good 5 4Fair 3 2Poor 1 Deficient
0

Project Control Index

* Contingency use
Project Management Best Practices – v 2.0 Module 12 - 44 CONFIDENTIAL
 Project Control Is a Good Investment

Project Control as % of Total Project

100%

90%
1.3%

80% • Project control function costs

range from 0.5 to 3 percent of
70%
total project
60%
• Cost improvement from Best
50%
Practices can range from 6 to 20
40% percent
30%
• IRR also benefits from schedule
20% improvement
10%

0%

Project Management Best Practices – v 2.0 Module 12 - 45 CONFIDENTIAL

 Module Outline
12 Project Controls

• Defining Project Controls

• Project Control Best Practices

• IPA’s Project Control Index

• Summary

Project Management Best Practices – v 2.0 Module 12 - 46 CONFIDENTIAL

 A Good Project Control System Adds Value

• Good and timely project control activities and practices

allow for and promote:
– Focus on successful business results
– Good communication between all project participants
– Early identification and analysis of issues
– Initial indication of scope changes, low productivity
(increase cost), and schedule slip
– The balances scorecard for the project

Project Management Best Practices – v 2.0 Module 12 - 47 CONFIDENTIAL

 LARGE GROUP DISCUSSION

Where Is Your Project Control Process?

How well do you cover the practices discussed?

Which are the elements that are most challenging?

Why are those elements difficult to implement?

Project Management Best Practices – v 2.0 Module 12 - 48 CONFIDENTIAL

Project Management Best Practices

Module 12
Project Controls