Enhancing project team roles and responsibilities in project cost management

1. Enhancing project team roles and responsibilities
in project cost management
by Pascal Martin-Daguet, Civil Engineer INSA Rennes (France)
Freyssinet International and Company (www.freyssinet.com)
pmdaguet@gmail.com
Singapore, 27th May 2009
Introduction
In most construction projects “cost control”, if any, consists of asking an accounting
department to code each invoice using pre-defined cost codes, and to dedicate a quantity
surveyor to sum-up, on a regular basis, the amounts accrued on each of these codes. With
this biased information the project management team (Project Manager and Construction
Manager) are consequently restricted in their ability to attain efficient cost management.
In short this paradigm is “cost following” rather than “cost controlling”
“Project cost management” or “Cost-driven project management” has two main goals:
1. To secure the projected profitability, success and sustainability of the Project by
reducing the risks
2. To find areas of cost optimization in order to further improve profitability
In order to achieve the aforementioned the whole Projects organisation must be
structured, selected, organised but also effectively managed and lead to achieve these
aims.
Operations Financial
Project
Management
Customer Learning
& growth
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2. Planning the strategy
In order to manage the cost, the organisation has first to set out its strategy. This can be
first formulated in a vision and mission statement. The next step is to develop a
sustainable plan which is communicated and socialised throughout the whole organisation.
Risk management must be one of the fundamentals of this strategy. Risk management is a
systematic approach to minimizing the organisation exposure to risk. A risk management
system includes various policies, plans, procedures and practices that work in unison to
identify, analyse, control, monitor, measure and record risks.
The project management team need will need to prepare the following documents:
• Risk Register/Risk Assessment
• Safety & Security Policies & Plans & Procedures
• Quality Assurance, Quality Control, policy, Plan & Procedures
• Administrative policy , plans and procedures
• Human Resources , policy , plans and procedures
• Crisis/Emergency Management Response Plan and Procedures
Very often, the project management team is rushing to start the project and neglects these
strong pillars of a cost-driven organisation, or delegate them to lower rank staff, often a
trainee. This is a severe mistake as these documents are the architecture of the
organisation. Without them, members of the organisation will not efficiently execute the
strategic plan.
Throughout the life cycle of the project, regular reviews of the strategy must be
undertaken. This will facilitate the continual improvements of the organization as it moves
thought the various phases of the project: For example
• Management review : every 6 months
• Quality review : every 6 months
• Risk register review : every 2 months
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3. The execution of the strategy must also be made measurable as it provides the
organisation with measurements of actual performance against its perceived performance.
These measurements can take various forms and should be kept simple and in graphical
format to be more easily understood.
Safety Number of accidents (AFR)
Severity of accident (ASR)
Quality Non Conformance Reports (NCR)
Engineering Number of documents to be issued,
issued, approved
Works Percentage work done, scheduled; and
any other linear indicator (number of
beams, m3 of concrete...)
Financial Amounts invoiced, paid; cost
Cost control Budget, cost accrued, cost to spend,
works value, cost at completion, daily
running cost
HR Absenteism
Project team organisation
An organisation that manages cost is an organisation that manages risks. Traditionally,
safety and quality are the two major risks in the construction industry. The corresponding
two departments should therefore have an important position in the organisation chart,
they should be a service to the other departments, and they should be directly connected
to the Project Manager as they are some of his main control levers (other control levers
being: planning, budget/cost control, HR).
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4. Project Manager
Safety Quality
Contract/QS
Production Engineering Accounts Procurement HR
Cost control
Cost-driven project organisation
Traditionally, projects are late from the very first day, and recruitment is done in a rush.
Staffs normally are hired with little know of their qualifications, competency and suitability
to the project (job description, work environment, capability to cope with stress, ethics...).
While most of people adapt well to their new environment, there is usually a small number
of people wrongly selected that don't fit the organisation. In best cases, these people don't
produce the expected results; in worse cases they produce counter-productive results and
damage the entire organisation, limiting the execution of the plan and adding avoidable
costs.
It is therefore important that the whole the organisation be clear on the projects goals,
mission and values. This can be achieved through strategic HR policy where the right
person is selected for the right job, in alignment with the project's goals.
To achieve this important target, the following should be put in place:
• Assign/recruit a trained HR manager
• Forecast HR requirements for the whole project
• Prepare an organisation chart at an early stage of the project, and keep it regularly
updated
• Define the required job positions, do a job analysis in order to clearly define what
the employee is expected to do.
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5. • Contact recruitment agencies, advertise in newspapers (although 75% of
recruitment is usually done through “people who know people who know people”)
• Use Human Resource information management systems to assist in making
people the most powerful organisation assets [ HRIMS]
• Ensure time is built into the plan for regular group or one-on-one worker
management consultation sessions.
• Use performance appraisals and link rewards (bonuses, salary increments) to
Projects goals.
Job interviews should be conducted not only to verify the competencies of the candidate,
but also to determine whether the candidate will fit the organisation (be in alignment with
the project's goals and values). The interviewer should use pre-defined questionnaires to
assess the candidate's values: ambition, assertiveness, competence, courtesy,
cheerfulness, dependability, forgiveness, helpfulness, honesty, imagination, independence,
rationality, openness, self-control. Finally, the interviewer could use online tests
(personality, team playing) to ensure that the future staff will be comfortable in the
organisation and produce positive results.
Cost control organisation
Cost control is a tool that must be used by senior management to monitor the profitability
of the project, to report to a corporate level, to make strategic decisions, to get the
production teams to be responsible of their works.
The most important point of an efficient cost controlling system is to have a senior
manager with a good technical knowledge of the project (“what” has to be built) to define
the cost codes. It would be typically the project manager, the construction manager or a
senior engineer. In no cases should the definition of cost codes be left to an accounting
department as they would not have the required big picture.
Cost codes should be defined so that they provide monitoring of the critical parts of the
project, representing amounts of money that are relatively high or in the same range. It
makes no sense, for example, to create a specific code to monitor purchase of stamps that
would represent 0.002% of the cost of the project.
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6. Cost codes should be of two types, organised in a matrix system, in order to represent the
two different aspects of cost: its destination (which part of the site) and its nature (what
kind of material, equipment or service):
Cost centres : typically one per team so that each foreman is responsible of his own
budget. It is recommended to use letters for cost centres. There should always be a cost
centre for “general items” where all the administrative and running costs (general staff,
office...) can be allocated.
For example, for a bridge construction:
Centre Activity
A General items
B Foundation
C Columns
D Piers
E Beams prefabrication
F Deck
G Finishes
Analytical codes (also called, global ledger code, accounting code...) : a series of codes
representing the nature of the cost, defined in main categories and sub-categories. It is
recommended to use 4-digits code, the first two digits for the main category, the following
two for the sub-category. There should no more than 50 to 100 analytical codes.
An example of chart of accounts (sub-categories have been shown here only for the first
category for easy reading):
Code Nature
0100 Labour (main category)
0101 Direct labour
0102 Sub-contracted labour
0110 Labour medical expenses
0111 Labour transportation
0112 Labour other expenses
0200 Materials and products
0300 Plant and equipment
0400 Consumables
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7. 0500 Design, Testing, sub
0600 Staff
0700 Running cost
0800 Administrative and financial charges
0900 Fixed assets
On smaller projects, cost centres can be omitted as long as analytical codes don't actually
comprise of a mix of cost centres and analytical codes (for example: labour for
foundations, labour for columns...) as this would create confusion in the coding process.
Once the chart of accounts has been created, the first budget can be prepared; each item
of the budget should then be coded according to the charts of accounts, and the cost
displayed in the form of a matrix so that each team (corresponding to each cost centre) is
aware of its available budget in each category:
A B C D E F G
0100 - $ $ $ $ $ $
0101 - $ $ $ $ $ $
0102 - $ $ $ $ $ $
0110 - $ - $ - - -
0111 - $ $ $ $ $ $
0112 - - $ - $ $ -
0200 - $ $ - $ - -
0300 - $ $ $ $ $ $
0400 - $ $ $ $ $ -
0500 - $ $ $ $ $ $
0600 $ $ $ $ $ $ $
0700 $ - - - - - -
0800 $ - - - - - -
0900 - $ $ - $ $ -
During the course of the project, each site team will specify ts cost centre on the
requisition for purchase of material, equipment..., and the accounting department will code
each invoice according to the analytical nature of the cost. Purchase orders, delivery notes
and invoices should be input in a computer system, and the cost reconciled in a matrix
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8. form, similar to the budget one, for easy comparison.
On a regular basis (monthly), the cost controller should compare the “cost to date” + “cost
accrued” (spent but not yet paid) to the “works value” (cost that should have been spent
considering the present progress of the works). The budget should be updated at least
every 6 months.
The typical organisation chart for this kind of system should be as follows.
Steering Committee
Project Manager
Construction Manager Commercial Manager
Foreman 1 Purchaser
Foreman 2 Cost controller
Foreman 3 Accountant
Store keeper
Planning
The Five P rule : “Proper Planning Prevents Poor Performance”
The main program of works should be prepared at the beginning of the project in the form
of a Gantt chart showing the main activities and sub-activities, using a specialised
software. Dates in a Gantt chart should never be fixed except for the first task as futures
modifications of the program would be rendered very difficult. Tasks should be linked to
each other, and the calendar should include rest days, bank holidays and a few days
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9. immobilized for bad weather. The actual progress of works should be checked against the
main program of works on a monthly basis, and the main program of works should be
revised every 6 months.
A “weekly 5 weeks rolling program” should be prepared at the end of each week to show
the activities programmed for the 4 weeks to come, and the actual works done against the
programmed tasks of the past week.
A program of procurement of the main items to be ordered should also be prepared in
accordance with the main program of works and reviewed on a regular basis. This is
particularly important for items that have to be procured from overseas to allow fabrication
time, shipping and custom clearance. Indeed, many project suffer delays because of bad
procurement planning.
if you fail to plan, you plan to fail
Finally, a program of staff and labour (in the form of a bar chart) will allow the HR
department to anticipate the recruitment needs.
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10. Leadership
The best way to manage the cost of a project is to make sure that the whole team is
aligned on a same vision, a same goal, so that all the energies are focussed in the same
direction (towards a successful completion of the project) rather than to fight against each
other. It is widely recognized that a team behaves similarly to its leader. Besides finding
the right people for the right job, it is therefore paramount to the team to lead by example
in an environment where each person feels empowered, respected, listened to,
responsible. In such circumstances, no energy is lost in conflicts, everybody works
efficiently which, eventually, helps managing cost (conflicts creating intangible cost).
Creating such an environment is entirely up to the project manager, and it takes years of
practice and a good dose of psychology to achieve it. There are countless books and
training methods available (see in the references section), and here are some of the
qualities that a good leader should develop:
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11. Think big picture Set realistic targets
Be completely committed Hold effective meetings
Work harder than everybody Make meetings fun
Be prepared to sacrifice Encourage people
Be mentally tough Give credit
Lead with integrity Celebrate
Build team spirit Fight for your team
Build confidence Inspire loyalty
Respect legitimate authority Respect individual differences
Be proactive, not reactive Listen to ideas from others
Keep it simple Don't always have the last word
Chase perfection Be ready to say yes
Learn from mistakes Set standards/expectations
Have a plan B, and a plan C Be creative
Be flexible and ready to move on Keep learning
Don't bad-mouth your boss Don't bad-mouth your team
Don't play politics Don't intimidate
Don't cut corners Be in command and take charge
Relationships with Client and subcontractors
Remember why you are working of this project: because of the Client, your customer.
Although the Client has the same goal as the contractor (finishing the project on time, with
the required level of quality, with high safety standards and within its budget) he has
different problems to solve: funding the project, dealing with Authorities or stakeholders,
dealing with the Public...
Although most contracts contain all the necessary weapons to go to war with the Client (or
vice-versa) this should be envisaged as a last recourse only. All win-loose situations
actually lead to loose-loose situations!
Maintaining good relationships with the Client from the very first day of the project and
more particularly in difficult moments, will be beneficial to both the Client and the
Contractor; in other words to the Project. This requires to work in partnering with the Client
to solve problems as they come, to propose solutions adapted to the problems, to discuss
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12. openly and on a regular basis contractual and commercial issues. In all circumstances,
leaving problems aside until the end of the project, hoping that they will be solved then, is
an open door to endless conflicts and financial losses.
In some cases, Contractors realising that their price offer was too low will start a
contractual battle with the client and produce unreasonable variation orders. They should
rather consider the option of “managing the cost of the project” through the implementation
of an appropriate organisation and opting for cost optimization. Blaming the Client for
everything is, in the end, counter-productive as a lot of energy (and therefore cost) is lost
in the process. It also damaged the image of the company for future projects.
Compromising and opting for a win-win settlement of problems will, once again, avoid
intangible costs.
The same principles apply to sub-contractors that main contractors often tend to
pressurize to “squeeze” cost. Ensure the sub-contractors are selected not only on their
cost both also their ability to align themselves with projects goals. There should be time
allocated to sufficiently orient them to the expectation levels. Early identification of sub-
contractors' weakness through audits and through a formal appraisal system, will guide
these sub-contractors to improve themselves. Not blaming “bad” subcontractors, but
instead helping them to develop, will help create strong and durable relationships between
parties, reducing delays and ultimately cost. Changing sub-contractors “as they are not
good” would again produce intangible costs and is often a result of poor planning and
selection policies.
Training
Most project-based organisations don't see the value of training their project staff. After all,
they will be with the company for only a few months or a few years; so why spending
money for their development?
The first reason for adopting a learning and development policy is to be able to fill the gaps
in people's competencies and make them more efficient in their present position. They
work better, produce better results for the benefit of the project which has the long-term
effect of optimizing the cost of the project.
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13. The second reason is that, thanks to continuous training, people can be internally
promoted to higher levels of responsibilities, which is of great advantage to the company
as there is no need to spend time and money recruiting external staff that could possibly
be unsuitable for the job.
Finally, being exposed to external experiences different from the daily routine job, helps
the team to bond together and to work better together, especially when they are under
pressure.
In conclusion, adopting a learning and development program helps to stabilize the staff,
reduces turnover , improves work efficiency and avoids intangible costs.
Communication
Communication is the giving, receiving, processing and interpretation of information.
Information can be conveyed verbally, non-verbally, actively, passively, formally, informally,
consciously or unconsciously. Effective communication is fundamental to project
management as it helps to gain common understanding (what are the objectives and how
to attain them). Unclear communication can quickly lead to misunderstanding among the
projects team, which can invariably degenerate into friction and conflicts as everybody
may think they have understood the expectations levels when in fact they may have not.
The organisation may also be a multi ethnic team where multiple languages and different
cultural norms exist. If each member is not recognized and understood by the
management, there can be misunderstanding, frustration, conflict and reduction in
efficiency. Ideally all managers should be trained in cultural awareness and effective
communications before they start to work on a project.
In other words, “seek first to understand then to be understood “(Covey, 1989). Effective
communication helps maintaining energy levels and enthusiasm, builds teamwork and
ensures that the organisation is focused towards a common goal which, in turn, reduces
the intangible costs incurred.
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14. My suggestion is to have, at least, one weekly meeting with the management personnel
(15 to 20 participants maximum). This meeting should be held within the office building,
preferably towards the end of the week (my personal experience is that Friday morning
9am is a good time). The meeting should be held in the form of a forum where each
participant is invited to expose the challenges or problems that he faces so that the other
members of the team can actively participate and suggest solutions. The chairman of the
meeting (the Project Manager) should limit the meeting to 1h-1.5h, make it a dynamic and
fun moment and prepare short minutes of meeting in the form of an action list (who does
what by when). A weekly coordination meeting should not be a lengthy, sterile moment
where each participant waits his turn to give a report of what he has done during the week.
I also suggest to have a 2-3 hours meeting with the senior staff only (5 to 10 people) every
6 months, outside of the office (preferably in a hotel or in a restaurant so that it can be
followed by a dinner and a fellowship session) for the Project Manager to remind the
objectives of the project, share the strategy and important information.
Finally, Key Performance Indicators (KPI), newsletters, website, multilingual posters
should be used when appropriate to communicate with the whole team.
Cost optimisation
Once the above-described organisation has been put in place and is working efficiently, a
cost-optimisation exercise can be envisaged. It is pointless, and sometimes counter-
productive, to start a cost-optimisation exercise when the cost-management structure is
not fully-functioning and stable. There are several ways to optimise cost:
1. Planning optimisation: consist of looking for ways to reduce the project time by
overlapping tasks, modifying resources on specific tasks, reducing float using the
Critical Path Method.
2. Value engineering: is the action of being creative to modify parts of the structure to
be build, to change methods of construction or materials in order to reduce cost.
Value engineering usually requires the prior approval of the Client.
3. Budget optimization: consist of reducing “cost to spend” of specific areas in the
budget that had been over-estimated. The cost centre / nature of cost matrix
defined earlier is particularly useful here.
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15. 4. Six Sigma: is a performance based methodology that uses metrics and statistical
analysis to detect inefficient parts of a working process, to reduce defects, to
improve performance and productivity, and to ultimately reduce cost. The Six Sigma
methodology is widely used in the manufacturing industry to drastically improve
profitability, but is under-used in the construction industry although it is easy to set-
up and can generate substantial savings (10% and above) as it tackles intangible
costs : the Cost Of Poor Quality (COPQ). Six Sigma uses the DMAIC concept:
Define, Measure, Analyse, Improve, Control to produce durable cost savings.
Conclusion
Cost-Managing projects is far more than cost-controlling projects. It relates to cost-driving
projects to tackle the intangible costs by putting in place a strong organisation united
toward a same goal: completing the project safely, on time, with the required quality, in
budget and to the satisfaction of the Client. Cost-managing projects not only helps to
stabilise costs (avoiding cost overrun) but also gives opportunity to improve profitability by
improving productivity and efficiency, therefore further reducing cost. Finally, it enhances
the image of the company, builds sustainability and improves marketability.
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16. References
Association for Project Management (APM), http://apm.org.uk , viewed 12th May 2009
APM Body of Knowledge 5th Edition, 2006, Association for Project Management, UK ,
Covey , S , 1989 , The 7 Habits of Highly Effective People , Simon and Schuster , NY
Free online personality test, http://www.goddessflight.com/per/passess.htm, viewed 12th
May 2009
Free online team player test, http://www.testcafe.com/team/team.html, viewed 12th May
2009
Lombardi , V , 2003, The Lombardi Rules, Mc Graw-Hill, USA
Project management tools : http://www.method123.com/, viewed 12th May 2009
Stone, R, J , 2008 ,Human Resource Management 6th Edition, John Wiley and Sons
Australia Ltd.
Templar, R, 2005, The rules of Management, Pearson Books, Pearson Books , UK
Understanding Six Sigma, Neville Clarke Malaysia Sdn Bhd, www.nevilleclarke.com
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