Meeting Project Budgets 4

[aepaul]

Perhaps this is a bit of a novice question, but I imagine there are probably a few good methods that I haven't run across yet. Which tips, procedures, and methods have you found for managing project budgets and making sure that the project comes in as projected.

 

[pennpiper]

Here are my thoughts on this subject:

Estimate: 'a judgment of size, number, quantity, value, etc. especially of something that needs calculation or assessment. An estimate can vary, according to context, from a rough guess to close determination'

Budget: 'a written statement of money: where it is drawn from, its amount, how it is to spent (also) to plan expenditure with a given amount of money'

These two words have their context of utilization at different times and from different points of origin. Here is one way to look at these two semi related terms.
First, both terms are guesses. That's right, they both are nothing more than guesses, they both relate to hypothetical numbers (hours or costs).

The term Estimate is 'Doer' oriented. The party (the Doer) that is to do the work makes an 'estimate' of how long they think it will take, how many hours they think it will take, how much material they think it will take, and what they think it will probably cost. Notice these are all 'they think' type of statements; they have not done this actual work yet, so they are guessing. This (Doer) estimating process will use applicable historical data collected over the years. It will also include knowledgeable input from experienced people. It will include prudent contingencies to cover the potential unknowns that occur on every project. In the end, it is still just a guess. It is not the real cost.

The term 'Budget' is 'Payer' oriented. The party (the Payer) who has ordered the work determines how much they are willing to pay for the project. They will do their own estimating to determine what each phase of the project should cost including the engineering phase. They will do some price checking to define what the major equipment and materials may cost. They will also try to determine what the direct and indirect field costs may be. they will have included such things as preliminary amounts for permitting fees, licensor fees, heavy equipment rentals, and third party testing. Being prudent in their thought processes, they will have included factors for what they think they should include for escalation and contingency. They will have determined what they think they should have to pay for the work. This is their 'Budget.' This is also just a guess. It is also not the real final cost.

The real cost of any process plant project is not known until the plant is finished and is successfully running in a full production mode. Billings, charges, and back charges will continue for months after start-up all of which change the final price.

In some cases the Engineering Company will never know the true cost of the project. The Client just does not want that information to be public knowledge. Some project cost information is required for permitting fees and taxation exemptions. For these purposes the client establishes and allows the release of a plant cost that is based on the guesses made early in the project during the estimate and budget process.

Now to your question:"Which tips, procedures, and methods have you found for managing project budgets and making sure that the project comes in as projected."

Start now and collect all the data about every past and present project. Have every discipline reduce their effort down to a single common denominator for their work (Structural = hrs/Tons of steel, Piping= hours/line number (or Iso), etc. there are other factors that effect estimating also. Such as different Clients may "Cost" more than others. Job site location effects cost. Everything effects cost and you should start developing a comprehensive data base for estimating but remember it is still a "Guess".

 

[casseopeia]

Start with the budget estimate. Break down the project into tasks and estimate the number of hours to complete each task times the billing rate of the person assigned to the task. Adjust until your estimate is close to your budget. This should give you a rough outline of the number of hours you have to complete each task. If you go over on any particular task, start taking hours away from later tasks until you run out of hours, then hand the job off to an underling to finish.

"Gorgeous hair is the best revenge." Ivana Trump

 

[cvg]

stay on schedule
avoid scope creep
no need to over analyze, it doesn't have to be perfect
limit the size of the team
make sure your scope is very well defined and explain it to your team
refine the scope as you go
limit the number of reviews and submittals
remember, the last 10 percent takes the longest...
try to complete the project with 90% of the budget. reserve the last 10% to close out the job

remember - you can only achieve 2 out of 3 of the following:
high quality/short schedule/low cost
you need to help your client determine which two factors are the most important

 

[SNORGY]

aepaul:

The better the up front scope definition, the better your stewardship to the budget will be.

The following, in this order, should be your first deliverables:

* Design Basis Memorandum
* Project Execution Plan
* AFE Cost Estimate
* Project Schedule

Make sure the Project Execution Plan (PEP) has a Scope Change Procedure.

Have weekly coordination meetings with the project team. Use the Meeting Minutes from the past week for the agenda for this week, and make sure that you develop a Needs List that everyone can steward to.

Prepare a Weekly Progress Report, appended to which may be the Weekly Coordination Meeting Minutes.

If you update the DBM, PEP, Estimate, or Schedule, then update *all four of them* together so that the most current versions all agree with each other.

Identify everything that you are going to draw. If you aren't going to draw it, it doesn't exist in the scope.

I find that when I do the above, my projects never vary more than +/- 10% on cost; +/- a few days on schedule, and repeat Client business is inevitable.

Regards,

SNORGY.

 

[TED7]

I usually look at projet timelines in the same light as tolerance stacks, you wouldn't design a device using only nominal sizes, you apply tolerances to allow for things to not be quite how you want.

Work out your nominal times, allocate tolerance, then add together the stack. Its generally worked for me. Although I have never applied it to financial budgets.

Will
Sheffield UK
Designer of machine tools - user of modified screws

 

[csd72]

aepaul,

There are things that have to be done and there are things that can be done'near enough' with no real compromise to the project. The secret is knowing the difference.

Also understand the 80 20 rule.

you are in the broadest field of engineering and you have not given us any idea of what a 'project' is for you. This would help with the quality of replies.

 

[lacajun]

What they've said and learn to say "no" politely but resolutely to people. I've seen projects overrun horribly because PM's couldn't tell process engineers, engineering managers, discipline engineers, friends, etc. that one word.

After the drawings are done, they should be frozen and the design built unless there is a huge gotcha' that will jeopardize the health, safety, and welfare of the public. If it will work, build it to your design package. Continual changes to your design package will ruin your budget and schedule.

I've seen projects overrun by 200% because of this. There was no call for it other than an inability to say "no" to changes. If you can't say no needless changes that will ruin your budget and schedule, you may have other boundaries that need establishing.

 

[controlsdude]

I do electrical projects
Some milestones are set in stone for project
mechanical design frozen at some point
electrical designs off of frozen mechanical design
Ask this question: Can you do the scope of this project in the hours stated based on past experience of other projects?

 

[ornerynorsk]

Don't let Marketing arbitrarily change your inputs and requirements without taking ownership of the request for increase in budget.

It is better to have enough ideas for some of them to be wrong, than to be always right by having no ideas at all.

 

[SNORGY]

controlsdude:

Sorry about your luck. If you do electrical projects, the sad fact (from the point of view of a Project Engineer) is that you guys are never on budget.

Regards,

SNORGY.

 

[SNORGY]

Uh-Oh...that one might get me in trouble...

But...to my defense...

The [BackSpace] key is pretty close to the [Enter] key...and my fingers are pretty fat...

Regards,

SNORGY.

 

[lacajun]

SNORGY, SNORGY, SNORGY........... Yeah, they're usually under budget as opposed to mechanicals being over budget. :-0

 

[SNORGY]

Sigh.
Knew it would get me in trouble.

Regards,

SNORGY.

 

[csd72]

SNORGY,

Is that why our electrical bills keep going up at an exponentially increasing rate?

 

[SNORGY]

csd72,
I never looked at it that way...but...now that you mention it...

Regards,

SNORGY.

 

[csd72]

How difficult could it be? Its just bossing a bunch of electrons around!

Sorry, back to the original question. A lot of cost management comes from managing the changes to the drawings as others have said. Make sure that it is clear where the changes have come from and give a clear indication of the likely implications before you spend time actually designing it.

Also sometimes being too fast to make changes can create more work if they change their mind, overnight turnarounds are generally only justified if they are already building the thing.

 

[SNORGY]

No matter what you tell the electrons, they move in the wrong direction. No wonder they get lost on the way ohm.

Back to the O.P.

One thing I have learned is that things tend to go better on projects when you don't "turn anyone loose on them" until they have a clear understanding of the design basis, the schedule, the estimated cost and the general plan by which they are to achieve the end result. In other words, the Project Engineer should start everone off only after establishing a very clearly defined scope.


And...keep the electrical folks current; that's a lesson I have arrived at through induction, even on the truly re-volting jobs.



Regards,

SNORGY.

 

[SNORGY]

"everone"

I am obviously not wired to be a spelling star - no Y.

Regards,

SNORGY.

 

[IRstuff]

The first thing any project manager should do is to find the ORIGINAL bids, before they got cut. It's been my experience that the first bottom-up bid is usually the correct end value. Managers and BD will cut and "challenge" and the resultant bid rarely resembles the original. Once you do that, you can now determine how deep in the hole you are, and whether you can downscope on the fly, which presumes that you know EXACTLY what your actual scope is. Try to allocate some budget to management reserve, to cover expected expenses, if you can. If you're already behind the curve, fess up early; it's usually the last overrunner that has the most trouble. Make sure you're continually aware of the estimated cost to complete (ETC)

Now, given the budget you have, the typical approach is to manage by earned value, wherein the percentage scope completed is tied to the cost incurred, and you can then track both schedule and cost variance on a weekly basis. You should and must get weekly name runs that show every hour charged against your project the previous week, and use those numbers for your earned value. If you have contractors, you'll need to beat the hours charged directly out of them; contractor charges often don't show up in the weeklies for weeks or months. Ditto for subcontracts; some subs will lay down boobytraps and spring surprise scope or cost growths on you.

Expect to spend a noticeable amount of time each week to doing this.

TTFN

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