fbpx
Portfolio, Program & Project Management Construction Software

Creating the Perfect Project Budget Performance Report

Creating the Perfect Project Budget Performance Report

Written by Bassam Samman, PMP, PSP, EVP, GPM

Whether we like it or not, managing, monitoring, evaluating, and reporting the budget for capital construction projects takes priority over the other aspects of project management including but not limited to schedule, quality, health and safety, and risk among others. What makes managing the budget for capital construction projects more challenging compared to other types of projects is the involvement of multiple entities in delivering those projects for which each would have the ultimate control over their portion of the project budget. For example, the budget for the construction scope of work although it represents a critical element of the Project Owner budget, nevertheless the Contractor has the ultimate control over the budget and its spending plan. The same applies to the engineering consultants and other entities who could have agreements with the project owner.

For Project Owners to have the perfect solution to monitor, evaluate, and report on capital construction project budget performance, they need a solution that should fulfill a number of requirements. The first of those requirements is that the solution should enable creating time-phased budgets for the different budget control levels including those associated with outsourced consulting and construction contracts, overhead expenses, contingency allowances, and other project owner related expenses. In addition, the solution should allow the use of different currencies for each budget control level as sometimes this is a requirement. The third requirement is that the solution should enable projecting the budget spending for each control level in any needed format. For example, for overhead expenses, it could be linearly spread over its planned duration, whereas for construction scope of work it should be aligned with the contractor’s cost-loaded schedule values, while for contingencies could be assigned to certain time intervals and for equipment or high-cost assets on predefined payment milestones.

The next requirement is that the solution should allow maintaining the different budget revisions created for the project as well as enable comparing those revisions when needed. The fifth requirement is that the solution should have a governed, controlled, and traceable process if there a need to make any changes to the approved baseline budget. Further, the solution should also enforce a governed, controlled, and traceable process for capturing the sources of all actual costs applied against the budget cost centers. Another requirement is that the solution should also enforce a governed, controlled and traceable for capturing all potential expenses and adjustments to forecast the cost to complete the remaining scope of work rather than depending on earned value management formulas that uses past periods performance indices to predict the future performance of the cost to complete.

Another requirement is that the solution should provide a centralized cost ledger for which the cost details of every single transaction for each budget management related process will be stored. This will lead to the next requirement and that is the ability to have a consolidated summary view of the cost values of all those budget management-related processes. The final requirement is for the solution to enable reporting on all processes used to manage the project budget in any desired form and format as well as to the desired detailed level regardless of the source of the reported data.

Using a Project Management Information System (PMIS) like PMWeb, all those requirements among others can be fulfilled using the same platform. Being a 100% web-enabled solution that can be self-hosted, or on-premise, project owners that can ensure that all data associated with the project management processes needed to manage, monitor, evaluate and report on the capital construction project will be stored in a single data source that complies with all needed data access, protection, and ownership requirements. The project owner can decide if all projects will share the same data source or create different data sources for the different programs that the project owner might be investing in.

To start with, the PMWeb cost breakdown structure (CBS) will be used to detail the budget control levels that are needed by the project owner. Those levels can be standardized across the complete projects’ portfolio, which can be common to some projects or unique per project. A standardized CBS is highly recommended for reporting budget across programs and projects’ portfolio. PMWeb CBS allows having up to 16 breakdown levels to enable the project owner to establish the needed control on the budget.

PMWeb budget module allows the project owner to create and maintain all budget versions although only a single budget with approved status can be maintained and others need to be withdrawn or voided. The budget can be created directly in PMWeb or it can be generated from the approved project cost estimate captured in PMWeb cost estimate module. Each budget item needs to be associated with a unique cost breakdown structure (CBS) level. If multi-currency is enabled, PMWeb allows having the values for the different budget items in their relevant currency. The currency exchange can be set as static using predefined exchange rates or dynamic by linking to a currency exchange website where rates can be updated based on the defined frequency. PMWeb also allows associated each budget line item with a project schedule activity to determine the start and finish dates of each budget line spending as well as it allows adding those dates manually. Additional information can be added to the budget as an overall or to each budget line item. All supportive documents need to be attached to the project budget.

For each budget line item, PMWeb allows creating the budget spending projection in any desired distribution. The distribution can be done manually for each period or automatically by using the defined distribution curves. For the construction contract line item, the spending projection will be done manually for each period to match the calculated projection values in the contractor’s cost-loaded schedule.

For all budget adjustments which could include adding or omitting budget values, transferring budget amounts from our budget center to another, transfer budget amounts from one project to another if permitted, as well as building the baseline budget in increments, the PMWeb budget request module will be used.

To ensure that the process for all those budget changes are governed, controlled and traceable, PMWeb allows assigning a workflow to the budget request module as well as all other modules that are needed to have a perfect solution to monitor, evaluate and report the project budget performance.

PMWeb workflow will identify the workflow steps, duration, responsibility, available action types, and sequence. In addition, the workflow could include conditions to enforce the approval authority rights assigned to the project. For example, if the progress invoice’s total amount exceeds a certain value, then could require an additional approval level for the progress invoice.

The actual cost against the approved baseline budget can be captured from three different sources. The first is from the executed commitment contracts that will be captured in the PMWeb commitment module. For each one of the awarded commitment contracts which could be with the prime contractors, project management, design and supervision consultants, suppliers among others, the PMWeb progress invoice module will be used to capture the details of the interim payment certificates based on the approved and certified work in place.

For the project owner’s own staff and other resources, the PMWeb timesheet module can be used to capture the actual hours and the payment type of those resources whether they were overtime, weekend, or holiday pay. Those are considered non-commitment expenses and will be captured in the PMWeb cost ledger repository.

The third source, which will be for all other actual expenses that are covered by neither the interim progress invoice nor timesheet, will be captured using the PMWeb miscellaneous invoices module. This module is also used sometimes to report actual costs that were captured by other applications maintained by the project owner and for which an integration was done with PMWeb using either PMWeb Integration Manager or API which supports the SOAP and REST protocols.

To ensure that the solution will enforce a governed, controlled, and traceable for capturing all potential expenses and adjustments to forecast the cost to complete the remaining scope of work, PMWeb potential change order module will be used. This module, which is also known as Early Warning Notification (EWN) will enable authorized project team members to capture all possible costs that could be incurred by the project to complete to the remaining scope of work. This approach will provide the needed control and traceability that the earned value management formulas for adjusting the estimate to complete value using past periods performance indices to predict the future at completion cost cannot provide. The issue with the earned value management formulas for adjusting the estimate to complete values is that they are only meaningful if they were proven to be accurate when used by the project owner on other projects of their own.

In addition, the adjustments to the cost to complete value should also consider potential change orders that were approved to become change orders but not yet reviewed and approved. The same will also apply to all other change orders that are still pending formal review so they can be either accepted or rejected. The details of those change orders will be captured in the PMWeb change order module.

The cost details of every transaction for each budget management related process will be automatically captured in the PMWeb cost ledger module. This will fulfill the requirement for the solution to provide a centralized cost ledger for which the cost details of every transaction for each budget management related process will be captured and stored.

The real-time cost ledger will become the basis for fulfilling the next requirement and that is for the solution to be able to provide a consolidated summary view of the cost values of all those budget management related processes. PMWeb cost worksheet module allows the project owner team to create all required spreadsheets to better understand, monitor, and evaluate the project budget. The one common thing about all those cost worksheets is that they report a single version of the truth of the project budget as all data displayed in those spreadsheets are based on the same single data source being the cost ledger.

The final requirement for the solution is to enable reporting on all processes used to manage the project budget in any desired form and format as well as to the desired detailed level regardless of the source of the reported data. PMWeb comes ready with most of the forms and reports needed to monitor, evaluate, and report on the project budget and other related processes. PMWeb clients can create their own branded forms and reports in the desired form and format.

In addition, the data captured in PMWeb be also consumed by third party business intelligence and data visualization tools to create tabular and visual interactive reports that will provide improved insight to make better and faster-informed decisions. There is no limit to the variety of reports and dashboards that can be created and shared, nevertheless, what is more important is that all of this data provides a single version of the truth when it comes to monitoring, evaluating, and reporting the capital construction project budget performance. The captured data is trust-worthy, auditable, and traceable.

Four of the World's Top 10 Universities use PMWeb, including Princeton (#1) and Harvard (#2). Learn why PMWeb is the #1 CapEx Planning & Project Portfolio Management Software.

Request Price & Demo