By

Dr. Ali Sajid

The greatest discovery of
our generation
is that a
human being can alter
his life by altering
his attitudes.
- William James
 What we see
depends mainly
on what
we look for.
 The Growth &
Development of
People is the
highest calling of
Leadership.
- Harvey S. Fireston
 When building a team,
always look for people who
love to win.
 If you cant find any of those,
search for people who hate to
lose.
(Ross Perot)
The fastest way to
succeed is to
double your
failure rate .
(T.J.Watson)
 "I have always been
delighted at the prospect of
a new day,
a fresh try,
one more start, with perhaps
a bit of magic waiting
somewhere behind the
morning."
- J.B. Priestly
 COST MANAGEMENT
Process whereby
companies use
cost accounting to report or
con various costs of
doing business.
widely used in
business today.
 Cost Management Generally
describes approach & activities
of managers
in Short Range & Long Range
Planning & Cost decisions
that incorporate Value for
customer & Lower Costs of
“Product & Services”.
 Manager make decisions on
amount & “kind of material used”,
changes of “Plant Processes”,
changes in “Product designs”.
 Information from “Accounting
system” helps managers make
such decisions, but “Information
& accounting system” not “cost
management”.
 Project Cost Management
broad focus includes
continuous “Control of
costs”.
 “Planning & Cost” is
usually” linked with
Revenue & Profit planning.
 What is Cost Management
In the Context of project?
Cost Management involves
overall Planning, Co-
ordination, Control &
Reporting of all Cost-related
aspects from “Project initiation”
to “Operation & Maintenance”.
Process of identifying
all costs Associated
with investment,
Making informed
choices about options
that will deliver Best
“Value for Money”.
Managing those costs
throughout life of
Project.
Techniques (value
management) help to
improve “Value &
Reduce costs”.
 Cost Control
Cost control is equally important to all companies,
regardless of size.
Small companies generally have tighter monetary
controls, mainly because of the risk with the failure
of as little as one project, but with less
sophisticated control techniques.
Large companies may have the luxury to spread
project losses over several projects, whereas the
small company may have few projects.
 Cost control (C/C)
Cost control is not only "monitoring" of
costs and recording perhaps massive
quantities of data, but also analyzing of
the data in order to take corrective
action before it is too late.
Cost control should be performed by all
personnel who incur costs, not merely
the project management office.
Cost control implies good cost
management, which must include:
1. Cost estimating

2. Cost accounting

3. Project cash flow

4. Company cash flow

5. Direct labor costing

6. Overhead rate costing

7. Others, such as incentives, penalties,

and profit-sharing
Figure 2. Phases
of a Management Cost
and Control System.
The planning and control system must, provide
information that:
1. Gives a picture of true work progress.
2. Will relate cost and schedule performance.
3. Identifies potential problems with respect to their
sources.
4. Provides information to project managers with a
practical level of summarization.
5. Demonstrates that the milestones are valid, timely, and
auditable.
The planning and control system
is a tool by which objectives can
be defined. i.e.
1. Hierarchy Of Objectives
2. Organization Accountability
It exists as a tool to develop:
1. Planning
2. Measure Progress
3. Control Change
Planning & Cost is as a tool for
planning, the system must be able
to:
1.Plan and schedule work.
2.Identify those indicators that will be
used for measurement.
3.Establish direct labor budgets.
4.Establish overhead budgets.
5.Identify management reserve.
“The project budget” that is the final
result of the planning cycle of the
MCCS.
Must be reasonable, attainable, and
based on:
1. Contractually Negotiated Costs
2. Statement Of Work

The basis for the budget is either

historical cost, best estimates, or
industrial engineering standards.
Budget must identify:
1.Planned Manpower
Requirements
2.Contract-allocated Funds
3. Management Reserve
Establishing budgets requires that the planner fully
understand the meaning of standards. There are
two categories of standards.
Performance results standards are quantitative
measurements and include such items as:
1. Quality Of Work
2. Quantity Of Work
3. Cost Of Work
4. Time-to-complete
Process standards are qualitative,
including:
1. personnel
2. functional
3. physical factors relationships
Standards are advantageous in that
they provide a means for unity, a
basis for effective control, and an
incentive for others.
Planning & Cost system acts as Tool for:
a) Measuring Progress
b) Control Change
The systems must be able to:
1. Measure “Resources consumed”.
2. Measure “Status & accomplishments”.
3. Compare measurements to “Projections
& standards”.
4. Provide basis for “Diagnosis & Re-
planning”.
MCCS Planning activities includes:
1. Contract receipt (if applicable)

2. Work auth for Project Planning

3. Work Breakdown Structure (WBS)

4. Sub divided work description

5. Schedule

6. Planning Charts

7. Budget
MCCS Planning - in one of these ways:
1. One level below lowest level of (Work
Breakdown Structure) WBS.
2. At lowest management level.

3. By cost “Element Account” or “Cost

Account”.
 Even with a fully developed
Planning & Cost system, there are
some benefits & costs.
Project benefits
Planning & Cost techniques facilitate:
1. Derivation of output specifications (project objectives).
2. Delineation of required activities (work).
3. Coordination and communication between
organizational units.
4. Determination of type, amount, and timing of
necessary resources.
5. Recognition of high-risk elements and assessment of
uncertainties.
6. Suggestions of alternative courses of action.
7. Realization of effect of resource level changes on
schedule and output performance.
8. Measurement and reporting of genuine progress.
9. Identification of potential problems.
10. Basis for problem solving, decision making, and
corrective action.
11. Assurance of coupling between planning and control.
 Project cost
Planning and control techniques require:
 New forms (new systems) of information from

additional sources and incremental processing

(managerial time, computer expense, etc.).
 Additional personnel or smaller span of control to

free managerial time for planning and control tasks

(increased overhead).
 Training in use of techniques (time and materials).
Results: A well-disciplined
MCCS will produce the
following results:
Policiesand procedures that will
minimize the ability to distort
reporting.
Strong management emphasis on
meeting commitments.
UNDERSTANDUNG
CONTROL
Effective management of a
program during the operating
cycle requires that a well-
organized cost and control
system be:
1. Designed
2. Developed
3. Implemented So That Immediate
Feedback Can Be Obtained
The requirements for an effective
control system (for both cost and
schedule/performance) should
include:
1. Thorough planning of the work to be
performed to complete the project.
2. Good estimating of time, labor, and costs.
3. Clear communication of the scope of
required tasks.
4. A disciplined budget.
5. Authorization of expenditures.
6. Timely accounting of physical
progress and cost expenditures.
7. Periodic re-estimation of time and
cost to complete remaining work.
8. Frequent, periodic comparison of
actual progress and expenditures to
schedules and budgets, both at the
time of comparison and at project
completion.
Management must compare
the time, cost, and
performance of the program
to the budgeted time, cost,
and performance, not
independently but in an
integrated manner.
The first purpose of control becomes a
verification process accomplished by
the comparison of actual performance
to date with the predetermined plans
and standards set forth in the planning
phase.
The second purpose of control is that of
decision making. Three useful reports
are required by management in order
to make effective and timely decisions.
These Reports are helpful for timely Decision
Making:
 The project plan, schedule, and budget
prepared during the planning phase.
 A detailed comparison between
resources expended to data and those
predetermined. This includes an
estimate of the work remaining and the
impact on activity completion.
 A projection of resources to be
expended through program
completion.
 These reports supplied to both
managers & doers.

 These report if properly

prepared Provide management
with Opportunity to minimize
downstream changes.
Operating Cycle
 Operating Cycle (O/C)
 (MCCS) takes import during Operating cycle of
Project.
 Operating Cycle Composed of four Phases:
1. Work authorization and release (phase II).
2. Cost data collection and reporting (phase III).
3. Cost analysis (phase IV).
4. Reporting: customer and management (phase V).
Phase II is considered as work release.
After planning is completed and a
contract is received, work is authorized
via a work description document.
The work description, or project work
authorization form, is a contract that
contains:
a) The Narrative Description.
b) Organization, And Time Frame For Each
WBS Level.
This multipurpose form is used to:
1) Release The Contract.

2) Authorize Planning.

3) Record Detail Description Of The

Work Outlined In The Work
Breakdown Structure.
4) Release Work To The Functional
Departments.
 Contract services may require a
“work description form” to
release the contract.
 The contractual work
description form sets forth
general contractual
requirements and authorizes
program management to
proceed.
 Program management may then
issue a subdivided work
description form to the functional
units so that work can begin.
 The subdivided work description
may also be issued through the
combined efforts of the project
team, and may be revised or
amended when either the scope of
time frame changes.
The “work control center”
assigns a work order number to
the subdivided work
description form, if no
additional instructions are
required, and releases the
document to the performing
organizations.
A work order number is required
for all in-house direct and
indirect charging. The work
order number also serves as a
cross-reference number for
automatic assignment of the
indentured work breakdown
structure number to labor and
material data records in the
computer.
 Small company avoid this
additional paperwork cost
by going directly from an
awarded contract to a
single work order.
 The Only work order for
Entire contract.
Cost Account
Codes
By definition, a cost account is an
identified level at a natural intersection
point of the work breakdown structure
and the organizational breakdown
structure (OBS) at which functional
responsibility for the work is assigned,
and actual direct labor, material, and
other direct costs are compared with
actual work performed for
management control purposes.