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Topics: Change Management, Cost Management, Earned Value Management
Cost Management on Large-Scale Projects - Best Practices
Opening this Discussion to talk abut some of the best practices in managing cost on large scale EPC projects.

One of the most import aspect I see is setting up the targets and tracking not only the actual against it but paying attention to changes in scope.
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If the project lends itself to its usage, then EVM would be a good practice. Contract types will also have a strong influence on effective cost management - for example, a FPEPA type contract would be preferable to an FFP if material resources are making up a large percentage of the budget.

Kiron
Kiron you bring up a great point about the contract type, Cost-re vs Lump-sum projects will have different set of cost measurement criteria. EVM is a great tool to measure progress which indicates the spending in construction and Engineering domain.
My position is: there is no difference on manage costs in large, medium or small projects. If you have a defined process, if you have a tool, then you can manage it. Is more about to get the needed information in the exact point of time.
Sergio, Great and simple thought that you have shared this align to my thinking of keeping business simple and not introduce irrelevant complexities.

Working on both small and mega projects I can say with my experience that tools that my fit on small jobs will not work for mega projects just because of complexity the scope have. you need to have very well defined procedures and tools which can cover all the open ends otherwise the risks are too high sometimes in hundreds of million.
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1 reply by Sergio Luis Conte
Jul 31, 2020 2:17 PM
Sergio Luis Conte
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Tools and process are part of the solution then the worst thing somebody can do is trying to use something that will not fit to the solution. Nothing new about this is knowing as "Silver Bullet Syndrome"
A few observations I've made over the years:

Cost actuals need to be broken down to a low enough level that you can identify variances and causes. Lumping them together can result in Simpson's Paradox where when you add a bunch of measurements driven by different causes together, it can hide trends or appear to show trends that are mostly random (Group A is way over budget but Group's B, C, and D are behind schedule so it looks like the project is on target.)

If using EVM, you must avoid large hammock tasks. You won't know where you are related to the target until too late because people will game the numbers and figure out what to enter in order to avoid attention.

Look carefully at your cost curve compared to milestones. Where you are as far as spending should relate to where you are in terms of planned major events.

Figure out your communication plan for variances. Do you just look at the cost data? Do you ask teams individually to explain variances? Do you have focals by function to roll-up the variance causes? Large teams can require significant work to understand the cost performance.

Have a plan to record variance causes. This can reveal trends to improving project performance. There are creative ways this can be used such as word clouds, plots of top variance types, etc.

Don't think that just cutting budgets to drive efficiency is going to work. Some work can't just be cut 30% and you're setting yourself up for failure. Be realistic.
Keith You bring up great point about accountability within the team by making people responsible, also a key task of project control to make sure data sanity to make sure what is being reported is correct.

Also great insight on how goal should be set and they need to be achievable.

Thanks for valuable input
Jul 31, 2020 11:30 AM
Replying to Amit Kulshrestha
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Sergio, Great and simple thought that you have shared this align to my thinking of keeping business simple and not introduce irrelevant complexities.

Working on both small and mega projects I can say with my experience that tools that my fit on small jobs will not work for mega projects just because of complexity the scope have. you need to have very well defined procedures and tools which can cover all the open ends otherwise the risks are too high sometimes in hundreds of million.
Tools and process are part of the solution then the worst thing somebody can do is trying to use something that will not fit to the solution. Nothing new about this is knowing as "Silver Bullet Syndrome"
Hi Amit,
your first statement is correct.
It is necessary to look ahead and analyze what happens with the expected total cost of the project.
It is useful to analyze total cost trends, even better to apply risk simulation and analyze trends of probability to meet project targets.
Earned Value Analysis looks at the past performance and does not take into account expected changes in the future like identification of new risk events. It is useful but not sufficient for informed decision making.

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