Our consultant Alejandra Restrepo outlines the importance of Project Controls and how good budget planning can provide a basis for better progress measurement for stock exchange listed companies.

When predicting the probability of success of a project, there are always numerous uncertainties. At board level, most of these include:

  • When will the project be completed?
  • How much will it cost?
  • Is it on budget, in scope, and on time?
  • How much more is it needed to finish the project and for how much longer?
  • What is our risk exposure?

Being able to answer these questions accurately is essential for the success of any project and that is where Project Controls best practice can benefit any organisation. Project Control is all about planning, tracking, coordinating and reporting progress on a project.  By adopting a cultire of project control 'best pracice' an organisation can quickly provide some guarnatee as to the possible outcomes of a projects and to inform stakeholders when complications compromise success.

To simplify management and reporting on the project, the project manager needs to bring together budget, scope and time so that it permits a comparison between the actual progress against the planned progress and presents an accurate forecast of the upcoming circumstances without complications. Project Controls is an enabler to this objective.

The importance of a good time-phased baseline

Budget control is a key element of setting your project up for success. By defining an accurate time-phased budget, project teams are able to quickly assess progress against a comparable baseline. But if the budget is not correctly defined (time-phased) then going through the process of comparing progress is a wasted effort.

In order to know if the budget is within the planned values, it is necessary not only to know what the budget is, but also what the budget is at any point in time and it should be reflective of the scheduled tasks of a project.

Time-phased budgeting is a process that allows organisations to assign costs for project activities over the expected timeline in which those expenses are planned to occur. Instead of using an evenly distributed pattern for every project, project teams can use actual contractual agreements as to when items are expected to be paid for.  As a result, budgets have a more accurate timeline that forecasts project spend patterns, contributing with a better capacity to anticipate potential cost overruns and other cost discrepancies.

A project cost can also be forecasted using spread curves. This is a more realistic representation of the anticipated spend of any project and becomes a priceless resource for handling project expenses.

To produce this however, the project team must have had created a good understanding of the typical levels of effort required for all resources in the project. For instance the spread of "engineering' type resources may have a typical bell shaped curve which characterises the amount of effort to be applied to a certain engineering deliverable.

This high level approach is particularly favourable when it comes to high-level cash flow planning in the early stages of a project's lifecycle.

Being aware of the estimated costs of a project and where they are likely to be spent will provide the project with good cash flow management outcomes and a far more superior control of project budget.

Australian legislation is important

In an effort to provide consistency and sincerity, Australian government and accounting entities have established standards ruling the production of financial reports. Companies’ disclosure requirements are clearly specified in the ASX listing rules (ASX, 2018), the Corporations Act and the ASIC Act. These standards establish that companies should immediately reveal any information that could affect the value of their shares (Humphery-Jenner, 2017) to their shareholders.

Furthermore, forecasts are required to be very accurate to all ASX listed companies. This includes cash flow, resource and EVM forecasts.

Considering the above, organisations should realise the importance of creating an accurate project budget and forecast to provide shareholders the full picture of how projects are going.

Don’t let the complexity of project controls limit your capability to deliver success!

 

 

Some References:

Wilson, M. (2012, August). Time-Phased Budgeting is Critical for Project Controls. Retrieved from http://blog.4castplus.com/blog/time-phased-budgeting-who-needs-time-phased-budgeting

ASX. (2018). Corporate Overview. Retrieved from https://www.asx.com.au/regulation/rules-guidance-notes-and-waivers.htm

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