Effective Cost Control System
An effective project controls system requires an effective cost control system. An accounting system is not a cost control system. The cost control system should be tied to the accounting system in terms of transactions and cost data, but the cost control system should be able to allow independent analysis and reporting for cost control and project control purposes (which most accounting systems do not allow). Detailed, flexible, transparent cost reporting is required - analysis and reporting that provides instant answers to cost questions.
Project Controls Accruals
Accounting Accruals - only the invoices that you have in hand can be accrued. Project Controls Accruals - all costs and revenue not previously recognized in the system must be accrued. This is the only way to measure and analyze project performance for recently completed periods. Are you surprised by costs that hit the system after the current period is over? Then your cost accruals are poor.
Revenue and Cost by Service Date
To measure and analyze performance, you have to compare revenue and cost for exactly the same task, for exactly the same period. Measuring revenue is relatively easy - what is the value of the work performed for the task for the period (consists of billed and unbilled (accrued) revenue).
Measuring cost for a specific task and time period can be much more difficult. If you are using your company's accounting system to obtain cost data, you could face the following problems: Labor charges hit the system in the month that they were incurred. Subcontractors and equipment can be billed monthly and hit the accounting system the month after these charges were incurred. If your accounting system does not date stamp the transactions by G/L Date, Date Entered and Service Date (which could all be different for a single transaction) you could have a serious problem trying to match revenue to cost for a specific time period. Project management (especially Earned Value) becomes impossible.
Earned Value Project Management (EVPM)
An effective project controls system includes EVPM (Earned Value Project Management) calculations and analysis, and the ability to apply these EV calculations and analysis to any grouping possible - by task, by task group, by PM , by location, etc.
Accurate Forecasting
Accurate Forecasting – this includes identifying trends early and spotting problems before they occur. Most failed projects fail before they even start, or to put it a different way, the causes of most failed projects are in place before the projects begin. Effective project controls includes analyzing the project plan (contract, budget and schedule) and presenting an opinion as to the probable success of the project before project initiation. As much as 90% of negative impacts to a project are identifiable before they occur. If management is constantly blindsided by bad news about a project, the project controls team is not doing their job.
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