Bridging the Cost/Schedule Divide: Integrating Primavera and Cost Systems

Transcription

1 Bridging the Cost/Schedule Divide: Integrating Primavera and Cost Systems Javier Sloninsky EcoSys Introduction For large projects (with budgets of hundreds of millions of dollars or more), dedicated cost control resources are assigned to track project costs and performance and ideally prescribe corrective action when a project veers off course according to either schedule or cost. For projects smaller in scale, a dedicated resource may not be assigned but the cost control function must be implemented to drive successful outcomes. The majority of organizations have the foundation in place for performing project controls - scheduling and cost data. Oracle Primavera P6 is a critical tool to manage schedules and the myriad of details that drive project success. However, despite the capabilities of P6, organizations often struggle to reconcile project data with costs, commitments, and available resources. Attempting to manage both schedule and cost data within P6 forces compromises that limit the strengths of the system. Even when managing schedule and cost separately, cost data from ERP systems don t truly align with the scheduling data from P6. As a result, those responsible for controlling projects and driving success are left in a great divide between these two diverse data sets. While the next logical step is to get more value from your project/program management controls to produce predictable and repeatable program performance outcomes, this has traditionally been difficult to achieve due in large part to the data divide. A key objective should be increasing an organization s level of consistency and competency through standardization, integration and automation of systems and processes made possible by bridging the cost/schedule divide. The implementation of a best practice cost controls system enforces process standardization and increases the effectiveness of program personnel because they have procedures and tools to reduce effort required to collect and enter data, reconcile data and produce reports. Its automation capabilities will improve the timeliness and quality of data. Ultimately, this translates into better profit margins on projects because of efficiency gains. That, in turn, can enable contractors to produce more competitive proposals and create competitive advantage for winning new business. A best practice cost controls system also creates perceptual improvements to project management. Management teams and customers will have confidence in the system and the ability to meet project objectives on time and within budget. It can also result in higher customer satisfaction because they are confident in your ability to effectively manage the work they want to do business with you because you can execute and deliver. In the following sections, we will discuss the challenges currently facing cost controls practitioners, followed by the components of best practice cost controls systems. Then, using recent case studies, we highlight how companies create a single end-to-end process that manages costs, funds, budgets, forecasts, commitments, and earned value via a secure enterprise database. The best practices solution integrates data which form the basis for powerful project controls performance measurement, earned value management, advanced forecasting of project costs and resources, and more. Primavera users and internal and external stakeholders can realize greater transparency into long-term and near-term plans and performance. Specific benefits include: Real time visibility into forecasts and spending performance with transactional drilldown Confidence in data by elimination of spreadsheets, formula errors, and manual processes for budgeting, forecasting, and reporting Time savings by automating previously manual data collection tasks, freeing resources for performance and trend analysis COLLABORATE 12 Copyright 2012 by Javier Sloninsky Page 1

2 What causes the cost/schedule divide? Disparate Systems The most obvious hurdle is that the project lifecycle is typically handled by different, independent systems that do not share information. An organization may have invested in good project scheduling techniques and tools like Primavera, but they work independent of cost. Commitments may originate in a financial system or be stored in a contract management system, but the ability to automatically track how commitments compare against budgets and forecasts is missing. Departmental budgeting exists independently from project budgets. Disparate Philosophies Compounding the issue of separate systems is the different philosophical approach to each data type. P6 is a dynamic activity-driven system ideal for the fluidity of managing schedules. By contrast, cost forecasts require greater structure and control. To manage costs in P6 requires activities to reflect every single cost on the project, and this is not appropriate for things like overheads, G&A, maintenance contracts, certain ODC costs, etc. As activities are easily changed or deleted, the cost data associated with them can be lost or corrupted. To attempt this approach of managing costs is to forfeit the strengths of Primavera in lieu of an artificial activity structure. This is also difficult and time consuming to maintain in practice. Effective management of costs requires, instead, a transaction-based system ideal for building and reconciling budgets, as well as development of what if scenarios, cash flow, and forecasts. Excel doesn t excel More often than not, all roads then lead to Excel. This practice seems an easy and expedient solution: manually extract data from the disparate systems and compile the necessary information in Excel. However, problems emerge with this approach. In order to create the necessary reports, data undergoes so many manipulations that mistakes are often made. This often results in a lack of confidence in the data and undermines the credibility of cost controls personnel with other departments like Finance. Different spreadsheets are created to track budgets, forecasts and costs for each individual project. It is hard to track changes; incorrect formulas become buried in spreadsheets; summary spreadsheets provide no direct access to the data that informs the numbers. Status quo operating procedure is to manage multiple spreadsheets to determine where projects stand. With a lack of version control and auditability, navigating the maze of spreadsheets is often contingent upon the knowledge of a select few (or even one individual). Stemming from the fractured systems landscape and reliance upon Excel, the necessary data for everything from generating updated forecasts to variance analysis is compiled manually. The reality of this process is a lot of painful, manual number crunching to simply generate reports, leaving little time to actually perform analysis and improve performance. Being unable to resolve these challenges negatively impacts cost, productivity and the value of the data itself. Organizations are left with: Teams of people consolidating data in spreadsheets Double entry of data Spreadsheet errors Performance reports available too late to address issues Problems with version control no change history; hard to identify what is the right spreadsheet. The results of an internal survey conducted by an EcoSys customer illustrate these points. A new project controls manager joined the organization and wanted to assess the current capability for efficiently managing cost controls. COLLABORATE 12 Copyright 2012 by Javier Sloninsky Page 2

3 A detailed analysis on where cost analysts/cost controllers spent their time revealed that 61% of time was spent on wasteful activities, e.g. fixing information, correcting codes, compiling reports and manually downloading information to be populated into reports (Figure 1). Only one-third of time remained for real cost controls and monitoring of status and progress, with very little time for actual forecasting, scenario analysis or devising alternatives. By contrast, the cost analyst target utilization (Figure 2) which would be achieved by implementing a best practices cost controls system provides for greater value added activities. 65% of time would be spent on analysis of data, with the remaining time allocated for more sophisticated scenario analysis, (i.e. trends, predicting results, and prescribing corrective action). Relatively little time would be necessary for running automated reports. Figure 1 Cost Analyst Actual Time Spent Figure 2 Cost Analyst Target Utilization Successful Best Practice Cost Controls Systems A successful cost controls system will incorporate these properties that address the challenges that organizations face: COLLABORATE 12 Copyright 2012 by Javier Sloninsky Page 3

4 Centralized repository for all project costs Here, data can be viewed and edited if necessary. However, the goal is to get past individual files being circulated through an organization, and the difficulty in getting a picture of all budgets and forecasts for relevant projects. Establish a single version of the truth. Leverage the best sources of available data to get true picture of cost controls situation for each project and program. Standardized cost control structures with project-specific flexibility Where it makes sense, create standards that cut across projects disciplines, accounts, resources, etc. Use the standards across projects for consistency (e.g. cost accounts, cost codes, work breakdown structures), however you must acknowledge that projects are unique and require flexibility. Begin with standards and then get into very specific methods of tracking costs. Of course, large scale projects costing millions to billions of dollars may dictate their own processes. It is a balance between flexibility and business rule enforcement. It is best to codify project and organizational structures whether for reporting, organizing work, costs or organizational responsibility. However, the system should allow for unlimited breakdown structures. The best solutions easily allow you to spin structure of information into a new view based upon customer requirements that may differ from internal need. Additionally, tailoring of terminology to fit with industry and organization norms is an important component of system flexibility. At the same time, data must be available to reconcile against the general ledger, and therefore the ability to map to Finance s coding scheme is essential. Also, why not take advantage of what planners are doing with schedules and resource loading, and use that data to compare against cost forecasts and identify variance? Standardized structures aid in these endeavors. Single integrated process and system throughout the project lifecycle Organizations must evolve from individual systems performing a slice of cost management (often very well), to a singular system driving the entire project cost management lifecycle, encompassing long-range planning to detailed budgeting and forecasting. A single system can deliver a holistic view, pulling together data and comparing them side-by-side, outside of traditional silos. Otherwise, patterns are missed. The full lifecycle (Figure 3) encompasses: Capital Planning long range and big picture, here we forecast funding needs and make decisions on funding allocation Budgeting and forecasting From a project controls perspective, an organization should be able to very quickly generate project budgets, forecasts and compare them. This spans department and cost center budgets, workforce planning resource forecasts and tying these to detailed project budgets and forecasts. Commitments delivering visibility into commitments versus planned Change Management Establishing a change workflow process, given the need to understand how budgets and forecasts evolve over time. Change orders must be tracked carefully and once approved, track back to view the impact on budgets and forecasts. Actuals & Closeouts forming agreement with finance, this covers payments, cash flow and invoices received. Actuals must be compared against all controllers planning work and reconciled. Performance Reporting and Earned Value The system should provide the ability to analyze in a variety of ways including historical snapshots, trends, and variances. COLLABORATE 12 Copyright 2012 by Javier Sloninsky Page 4

5 Figure 3 Full Lifecycle Project Controls Integrated, automated and timely data Hand-in-hand with the integrated process throughout the project lifecycle is the need to integrate data via software to eliminate the majority of the manual data processing that costs time and accuracy. When possible, the cost controls platform will leverage existing solutions already in place, pulling scheduling or actuals data from the project management software or general ledger (Figure 4). This integration blends information in an automated, repeatable way paving the way for faster, more efficient and accurate planning, budgeting, forecasting, and reporting. Further, by automating this data exchange, the system should version and lock data for confidence and to understand how it changes over time. Figure 4 Integrating Data from multiple systems for Project Cost Controls COLLABORATE 12 Copyright 2012 by Javier Sloninsky Page 5

6 Easy to use software The software being used for cost controls should be tailored for the organization. Each will work their own way and use specific terminology across industries. Further, the software should be optimized for each role within organization, driving users straight to those important tasks without wading through irrelevant information. When dealing with cost, the software should provide web-based, Excel-like spreadsheets, providing both the familiarity and flexibility to drive user adoption. This provides a flexible environment for planning, budgeting and forecasting, and provides the ability to develop templates from trusted, long-used offline processes and spreadsheets as a starting point. The system will enforce rules important for data integrity, but be familiar to endusers. Scalable for large enterprises and capital programs While small projects are easier to manage and Excel may be an acceptable solution, multi-billion dollar programs or organizations with multiple business units will need a more robust solution. The cost controls platform should handle high volumes of data, and be scalable to support enterprise or organizational perspectives. Powerful Reporting Reporting is the heart of cost controls and a system must provide a powerful reporting mechanism to analysts to be worthwhile. Reports should easily output to a variety of formats (for use by contractors, customers, or for internal consumption). Non-technical (Non-IT, non-programmer) end users should be able to easily create their own reporting. Reporting will provide visibility into costs by Work Breakdown Structure (WBS)/work package and Cost Breakdown Structure (CBS)/cost category and look at projects and costs according to terms used in Project Management and Project Controls, not just from the perspective of finance (although that is needed as well). Reporting capabilities should also go beyond tracking actual costs and perform time-phased forecasting based on past performance, generate cash-flow estimates and perform predictive analysis. This will be more accurate and help prevent surprises. Standardized project performance measures Each organization has its own flavors of metrics for measuring performance and productivity (earned value, key performance indicators, milestones). They can be tailored for a specific job, project type, but they should be standardized to allow for consistent comparison. Standards will, however, need to change as an organization s maturity changes. The system should allow for this evolution. Dynamic re-planning and analysis from different perspectives As the cost controls function takes on a greater role in organizations, value will be delivered by presenting different alternatives and ways to respond very quickly to changes on the ground. The system must easily allow for what-if scenario analysis and showing how changes impact the overall project. Top down, long range for capital/organization planning When looking beyond one project at a time, and looking at how we plan across an organization, ties to annual budgeting are essential, and need to account for both top-down and long-range. Bottom up, rich, transactional data for projects You need very rich information within your cost controls platform to provide the answers you re looking for -- granular data to generate costs from quantities and hours spent; accounting for multiple ways to calculate rates, prices, and currencies. COLLABORATE 12 Copyright 2012 by Javier Sloninsky Page 6

7 Blend Finance, cost, schedule and risk perspectives This is where many current systems fail in delivering good cost reporting. Stakeholders have different needs. Finance has a perspective from the general ledger, Fiscal years, and accounting rules. Project Cost Controls is not finance & accounting, but Finance needs to see credibility in Cost Control reporting. The system must also tie into schedules and risk. Project Management is great at planning, scheduling & resourcing but struggles to put more financial and costing data into those perspectives. Best practices platforms tie these together. Role-Based Dashboards To provide the most relevant information for a particular type of user (cost controller, finance manager, organization executive), a customizable dashboard provides the best access to information with the opportunity to drill-down to deeper levels of detail as desired. Audit Trail In moving away from the freeform world of Excel, an audit trail within your cost controls system is essential from tracking all changes that are made such as who logged in/ran which report or how financial or cost info has changed. This provides an added level of security and confidence in the data being used for critical decision making. Case Studies The following organizations provide examples of project cost controls success through the implementation of best practices cost controls systems. Babcock & Wilcox B&W is a nuclear power generation and operations company. Recently, they have led the development of modular nuclear reactors that give utilities (investor owned or public) options in how to build new nuclear power plants from 100 to 1000 MW in a much more cost effective and efficient manner than in the past. A key differentiator is their ability to provide customers a level of cost and schedule certainty about building the modular reactors per project. As a result, it was critical for B&W to measure cost and schedule accurately (and safely) but as quickly as possible. The company had standardized on Oracle Primavera P6 and SAP s Enterprise Resource Planning (ERP) financial system. Their goal was not just to integrate these two systems, but also to create a centralized platform for reporting and cost controls. COLLABORATE 12 Copyright 2012 by Javier Sloninsky Page 7

8 Figure 5 Systems Integration Figure 5 describes how the integrated system was created, with EcoSys EPC as the software that bridged their two other systems. Actuals from SAP and schedule and progress data from P6 were used to generate earned value (EV) metrics and dashboards and forecast metrics in an automated way. The system would provide both internal and client reporting and deliver very detailed EV metrics both periodic (specific project) and cumulatively lifecycle of the entire program. EV summaries and forecasts in very specific way (combined SPI and CPI metrics) were created that allowed for drill down into any variances. Technip Technip is a global oil & gas contractor headquartered in Paris, France. Following a successful deployment of their cost controls solution in North America in 2010, they implemented it as their standard cost controls solution globally in Technip s focus was on setting good standards for Budgets, Forecasts, Change Management, and Managing Commitments. They standardized reporting for internal status reviews, client reporting, and Joint Venture reporting. Engaging in many global projects, they introduced multi-currency forecasting analysis based on spot and fixed rates. They were also able to achieve visibility across multiple projects through divisions. Technip could look at different budget versions side-by-side according to different aspects of the cost breakdown structure (CBS). They could also compare revenues against cost forecasts to perform gross margin analysis and track multiple currencies with project-specific exchange rates. They pulled data into EcoSys EPC from Oracle P6, as well as financial information from Oracle and IFS, different ERPs used in different geographies. Technip presented a value add to their customers by showing a sophistication in project cost controls. An additional benefit to the company was the addition of some interchangeability in their cost analysts. Previously, their analysts were experts at upstream or downstream projects, but couldn t be easily switched from project to project because knowledge was in their head and nowhere else. In the creation of a standard system including well documented, automated processes, it became easier to move resources to areas of need driven by economic cycles or corporate strategy. COLLABORATE 12 Copyright 2012 by Javier Sloninsky Page 8

9 Conclusion A well-formed cost controls process and system is essential for delivering the best project performance inclusive of delivering on-time and on-budget. Most organizations rely on immature or ad-hoc methodologies that ultimately rely on Excel for planning budgets, tracking costs and other cost control functions. While flexible, this loose process costs time in the creation of reports and makes it difficult to prescribe corrective actions in a timely manner. By implementing a more structured, standardized cost controls process that includes integrating P6 with other systems, automated reporting and flexibility for project-specific requirements, an organization can dramatically increase the productivity of its cost controls staff and ultimately provide better information to take corrective action for projects in the short-run, and for decision making by management in the long-run. COLLABORATE 12 Copyright 2012 by Javier Sloninsky Page 9