Cost Estimation and Control on Projects: Addressing today's challenges

Project Value Delivery
© Project Value Delivery, 2019
w w w . P r o j e c t V a l u e D e l i v e r y . c o m
Cost estimation and control on
projects:
Addressing today’s challenges
ESCOFIN Seminar
January 2019
Escofin Comet

w w w . P r o j e c t V a l u e D e l i v e r y . c o m 2
Cost estimation and control: a career
choice to be reconsidered?

Who we are
Our observation basis
• Multiple
industries
• Owners and
contractors
• International
outlook

Sommaire
• Opportunities and challenges
of digitalisation
• The benchmarking challenge
• How to address the increased
complexity of projects and their
organisations
• The lack of understanding of
the role from management
• International considerations

Section
1
• Opportunities and challenges of
digitalisation
• The benchmarking challenge
organisations
• The lack of understanding of the
role from management

Disruptive technology is already here:
Have you heard about Lili.ai?
• And it’s right next door: a
startup from Ecole
Polytechnique…

What are we really doing in our
jobs?
Cognitive work complexity degree
Collect
and
process
raw data
Clean
and
check
raw data
Analyse
the data
Develop cost
& schedule,
predictive and
benchmarking
models
Use
predictive
models
Develop
action
strategies

What are we really doing in our
jobs?
Degree of Cognitive work complexity
Collect
and
process
raw data
Clean
and
check
raw data
Analyse
the data
Develop cost
& schedule,
predictive and
benchmarking
models
Use
predictive
models
Develop
action
strategies
Already here Coming soon… Harder!

What is Project Controls?
Digitalisation enables more data to
be managed, giving to the pilot the
right information at the right time

Digitalisation opportunities
• Develop tailored and scalable
dashboards
• Spend much less time on reconciliation
and data processing!
• Manage electronically rapidly growing
volumes of data
• Access from anywhere
• Onsite data acquisition (mobile,
connectivity)
– Accuracy
– Enrichment (pictures etc)
– Real time dashboards
• Implement common processes with
subcontractors

Challenges of digitalisation for
project cost professions
• Make digital information available and usable
– Improve direct digital acquisition of cost, schedule and
productivity data
– Gather all cost and schedule data in databases to take full
advantage of technologies such as data mining, AI,
business intelligence and dynamic dashboards creation
(data visualisation)
• Develop proven solutions that allow to save time and
accuracy on data processing to spend more time on tasks
with high cognitive value

Summary: Digitalisation and AI
• A significant reduction in the amount of repetitive tasks is to be
expected
– Important competitive factor
• The transformation in projects will be slower than elsewhere in
the industry but shouldn’t be neglected
– The non-repetitive nature of projects constitutes a barrier
– This domain will never be a priority for major software
developers
• The need for expertise in data architecture and model
creation and use is growing
• The cost estimation and control professions have an significant
conceptualisation component that will not be automated

Section
2
digitalisation
• The challenge of benchmarking
organisations

Benchmarking stakes
Benchmarking is a strategic skill for
companies that carry out multiple
projects:
• Benefit from a reliable, market-realistic
basis of estimation: the quality of the
estimate is the first cause of problems!
• Challenge the offers received by
subcontractors
• But also... To share cost bases so as not
to depend solely on the personal
competence of the estimator and his
"little black book".

The benchmarking, a challenge for
organisations
• Toggling between actual project cost data and estimation does
not work well in most project organizations.
• Challenges:
– Project control’s CBS (Cost Breakdown Structure) cannot be
aligned with the decomposition of the estimate to avoid loss
of efficiency either in estimation or control. Resulting in cross-
mapping issues that often remain unsolved.
– The level of detail of the available cost data, which is not
necessarily the one required by the estimate
– The validation of the data accuracy, as well as its collection
during the project to obtain "fresh" data (and not only at the
end)
– Insufficient standardisation of cost data and estimation needs
on the project portfolio
– Real cost data is often confidential and inaccessible!

Improve benchmarking
• Take advantage of digitalisation to create bridges between
estimation and control data (without imposing the same
decomposition, which is a source of inefficiency)
• Standardise as much as possible the upper levels of the CBS
• Give clear responsibility to estimation (the project does not
have time, it is not its priority)
• Be very careful with the quality of the data. The quality of what
comes in is correlated to the quality of what comes out!

Section
3
digitalisation
organisations

Market evolution
• An increasing complexity!
– More and more integrated projects with contracting
authorities in partnership, executed by contractors in JVs or
consortiums, with extended scopes and internalised
interface management
– Multi-currency, multi-entity, multi-country projects
– An increasingly global supply chain, including related
logistics challenges
– The growing complexity of the environment that impacts
more and more projects, and requires a greater
adaptability in execution
 More sophisticated estimation and reporting requirements
 Increased flexibility requirements for systems and processes
during execution to cope with unforeseen events

The ability to manage multi-
currency, multi-entity, multi-country
projects (including tax optimisation)
is an essential differentiator between
organisations that carry out projects

The Battle of Detail
• Eisenhower: “In preparing
for battle, I have always
found that plans are
useless but planning is
indispensable”
• Have a sound baseline
(schedule, cost) and
remain agile and
flexible

The Battle of Detail
Project planning / cost model detail
Too little detail
will not allow
to grasp
the project drivers
Too much detail
drowns the team
and removes agility
Effectiveness
Optimal
Planning
Detail
Range

The necessary hierarchy of models
• A hierarchy of models must be developed to
provide the right level of control and enable
decision-making
• Establishing this hierarchy and maintaining its
consistency is a difficult task that requires a high
level of conceptualisation

Convergence
Plan
MOREDETAILS
MOREFOCUS
Document
List &
detailed
engineering
schedule
Procurement
Detailed
Plan
Construction
Sub-
contractor’s
schedules
Commi-
ssioning
Plan /
schedule
Startup
Plan
Simplified Project
Schedule
200 – 400
Activities
(risk analysis)
Integrated Project
Schedule
1,500 – 2,000 activities
Battle of Detail:
Example for schedule

Main reporting
~25 lines
MOREDETAILS
MOREFOCUS
CTR tracking
and
timesheets
Detailed
commitment
tracking
Detailed
Sub-
Contractors’
reports
Quantities
tracking,
consumabl
es,
inventory
Time-spread integrated
cost model
~200 lines
Battle of Detail:
Example for cost

What is wrong with too many details?
• Too much time spent on updating data rather than thinking
• Too many errors due to the inability to ensure the quality of the
model, especially if there are many changes
• Loss of model overview and understanding of performance
drivers
• Lack of agility and responsiveness to major unexpected
changes

Adaptation of practices and tools
• Practices and tools must evolve for a better consideration of
complexity and unpredictability
– Increase the ability for processes and systems to work in
multi-country, multi-currency, multi-entity consortiums with
ad hoc reporting
– Improve data exchange and sharing between entities
(most existing tools work in silos)
– Improve model hierarchies and their consistency to
provide useful and accurate decision tools, with models of
appropriate detail for each use

Section
4
digitalisation
organisations

Two main challenges for careers in
project control and estimation
• Management does not understand project-specific
skills and professions
• Many positions are a step in careers from other
specialties

Management doesn't understand!
• The organisation’s top management often lacks real project
experience
– Especially among project Owners
• Management often has a limited understanding of project-
specific jobs and skills
• The number of positions to be filled is limited: it is a niche that
does not match the standard HR categories
• The eternal example of project cost control, the expected
profile and the integration into accounting....

In Manufacturing,
the future is
an extrapolation
of the past

In Projects,
the future
needs to be
re-forecast

Cost control is not accounting
Two disciplines that must collaborate but remain
distinct
COST CONTROL ACCOUNTING / FINANCE
- Focus on the future
- Understands the business
- Follows commitments
- Focus on remaining work to
complete
- Fixed exchange rates
- Focus on project end point
- Focus on the past
- Same for any business
- Follows invoicing and payment
- Variable exchange rates
- Cash flow management
- Focus on reporting period end
point (PoC accounting)

Positions in project control are often
only a step in a career
• Roles in project cost estimation and control do not always offer
career development
– Manager and expert roles are limited in number
• On the other hand, they quickly provide a very good insight of
commercial and strategic subjects
• Some natural career development include:
– The management of commercial aspects and bid
management for estimators
– Project management for project cost controllers
– Etc.

How to manage the unavoidable
turnover?
Instead of having a defensive
position on this turnover, why not
anticipate it proactively and
develop a project control alumni
network within the company

Section
5
digitalisation
organisations

Different practices
• Few differences in international cost control practices, except
for the Anglo-Saxons' Quantity Surveyors
• No significant differences in maturity, which really depends on
the organisation. Some funny exceptions:
– An American customer or system that only makes single
currency US$ (even internationally). Why bother?
– Exchange-rate control challenges that require fine in-
country/out-country optimisations

French specialist is selling
• Generally speaking, the quality of French specialists
in terms of cost is good
– Strengths:
• Ability to cope with difficulties
• Good general knowledge and overview
• Adaptability to different cultures
• Good capacity for work!
– Weaknesses
• Difficulty to follow established processes
• Poor linguistic skills
• Does not know how to sell himself

Conclusion

Conclusion
• The profession has still challenges to overcome in order to be
more international, to better understand the increasing
complexity of projects and to implement learning processes
• Building an organisation that can undertake large
international projects and manage them properly takes time,
it is a real capital
• The profession is attractive to young people due to possible
career developments. It is necessary to take advantage of this
opportunity to spread the understanding of the importance
project-specific roles

Conclusion on digitalisation
• There is still hope, we are not going
to be replaced by robots
immediately!
• But we need to be more proactive in
digitalising repetitive operations and
data capture, to focus on activities
with higher added value

W e E m p o w e r O r g a n i z a t i o n s
T o b e R e l i a b l y S u c c e s s f u l i n
E x e c u t i n g L a r g e , C o m p l e x P r o j e c t s
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