Project Controls: What Is It & Why Do Project Organizations Need It?
Project controls are set processes in place for tracking and analyzing a project’s costs and schedules, so as to help keep them on track. Project management cannot be truly successful without strong project controls to keep the project’s cost and schedule on track. Below we identify the components that make up a good project controls system (people, processes, and software) and how this system ultimately helps project organizations achieve project success.
Well-run projects, with good management practices and appropriate project controls, are more likely to achieve broad measures of success. Having transparent access to accurate, appropriate, meaningful project data could mean the difference between a minor course adjustment and a colossal project failure. Project controls are often undervalued until it is too late, in fact, 67% more projects fail when organizations undervalue project management for driving change (PMI, 2020). Project organizations that have effective project controls processes and project reporting in place can be separated out as leaders in their respective industries.
Imagine a project management professional who has been hired by a client to help manage the construction portion of a major project. The client traditionally used contractors to accomplish work on a lump sum basis, however the management of the organization felt that this approach was not delivering the right results. Instead, management has opted to engage contractors on a time and materials basis. The client’s project team are hurled into a new environment where they have little experience, which is why the project management professional was contracted to help. His first challenge is that the project team is not committed to the idea that project controls are valuable. Perhaps they have a point – simply having project controls is not enough. To effectively manage a project, you need “good” project controls. To a seasoned project management professional, the need for solid project controls in order to be successful in a project is as obvious as the need to breathe in order to live.
Project Controls Fundamentals
Project controls is an iterative process for measuring the project’s status and progress, forecasting potential project outcomes, and making project changes to avoid any potentially negative forecasts.
Project Controls’ Functions:
- Aligning projects with organizational or portfolio objectives
- Work breakdown structure (WBS) development
- Initial project schedule collaboration
- Project budgeting & forecasting
- Monitoring and managing project costs
- Providing risk management insights
- Project feedback & project reporting
The foundation of project management is rooted in balancing the classic triangle of cost, schedule, and scope.
A fundamental part of good project controls is a thorough understanding of the scope of work. The scope needs to be described in a way that documents the entirety of the work to be undertaken, from inception to project completion, in a way that can be understood by the whole project team.
Work Breakdown Structure
The best technique to achieve this thorough understanding of the project’s scope is to develop a work breakdown structure (WBS). The WBS divides the project into increasingly smaller units until eventually there are finite, identifiable activities or products that can be allocated to a responsible party to manage. Without a good understanding of the scope, it is impossible to manage the project and ensure that all objectives are met. It is also impossible to assess the impact of changes to the project or the effect of external events.
Once the scope has been clarified, the cost can be estimated and the schedule can be developed. Each component of the WBS can be related to the Cost Items needed to deliver that component (usually structured by a code of accounts or cost breakdown structure (CBS)). Project controls ensures that the estimate and schedule are developed together with an understanding of the project execution strategy and risks.
Project costs can be affected by changes in the schedule affecting when tasks are expected to be done. Cost drivers might alter the execution strategy which could change the schedule. Risk assessment could change the execution strategy which could affect schedule and cost. While changes to the project schedule could alter the risks.
Budgeting & Estimating
Some organizations do not align the execution strategy and risk assessment with the development of the estimate and schedule. The result of this misalignment is an over-optimistic schedule and estimate. Good project controls ensure that the estimate and schedule are developed into time-phased budgets, with all factors considered and with sufficient amounts of contingency and float, from which a solid project baseline can be set.
When the cost and schedule baselines have been set, the project then needs to be monitored. Poor project controls is reactive– spending time collecting data and producing reports. It’s barely getting to the end of the month before starting the next cycle leaving little or no time for in-depth analysis of the state of the project.
Good Project Controls
Good project controls collects commitments, actuals and progress data; and monitors and reviews risks and their impact on the project and reports them up to the project management team. It manages scope changes and trends against the budget, analyzes performance using techniques such as Earned Value Management, and actively controls the project through variance analysis and forecasting to provide a true and fair picture of the project. The key to achieving good project controls is to make the process as streamlined and as efficient as possible in order to allow time to do high value analysis and forecasting.
Part of this efficiency is gained from integrating and automating the systems that capture commitments, actuals and progress information ensuring that imported data can be related to the time-phased budgets. The project controls analyst needs to be able to rely on the integrity and validity of the data and therefore avoid wasting time making unnecessary checks that everything is correct.
Commitment data should be derived from the procurement and contracting tools in use while Actual data should be derived from the finance system. The line items in each purchase order and contract should relate to elements of the WBS / CBS to allow for easy consolidation of the data.
Progress Measurement & Reporting
While commitment and actual data is usually incontrovertible, progress is often less concrete. One way to improve the accuracy of progress measurement is to find a method of physically measuring what has been completed against a target of what needs to be completed.
- For construction activities, physical quantities completed should be used.
- For procurement, the purchasing and delivery of equipment and materials can be used.
- For overhead costs, it is usually sufficient to record progress as a measure of what has already been incurred against spending forecasts.
- For engineering deliverables, it becomes a little more difficult. The use of 3D modelling tools has made the engineering process more cyclical and interactive which makes it more difficult to be certain that designs are fully completed. As the model is developed, the engineers and designers can freeze components of the WBS as being “complete” which can be used as an indicator of progress. The delivery process of documents generated can be used, but if these are derived from the model there tends to be a rapid increase in progress made towards the end of the exercise.
The more rigorous the measurement of the delivery, the more accurate the progress measurement will be.
Project Change Control and Change Management
Also key to good project controls is the integration of trending and change control so that the impact of changes to scope can be immediately seen. New scope, often identified by the need to add to the WBS, needs to be properly estimated for cost and schedule impact and assessed for risks. A change to contingency may be required to cover the new risks, in addition to an increase in budget and schedule to compensate for the completion of work. Some changes are forced on the project as risks materialize and the project has to draw on the contingency.
As the project proceeds, there needs to be a continual assessment of risk:
- Identifying new ones
- Removing ones that are passed
- Monitoring those that are still active
Each new risk should be assessed for potential impact to schedule and cost. Similarly updates to the schedule need to be analyzed and changes to durations, dates or logic must be assessed as to their impact on cost.
Finally, changes to the way the project is being executed need to be assessed for risk, schedule and cost impact. Any potential issues should be logged as trends and any actual impact should be logged as changes and incorporated as updates to the budget and forecast (for out of scope changes) or just the forecast (for in scope changes).
Earned Value Management (EVM)
Once the data has been collected and all changes to the project have been incorporated, the analyst needs to do the work described by their job title – analyze the data. A powerful and prevalent technique to aid in the analysis is Earned Value Management. Armed with a solid baseline, accurate progress and actual data – a few simple calculations provide a very powerful assessment of the state of the project.
Traditionally a project was tracked by reviewing the actual spend against a plan. If the project was spending less than was planned all was assumed to be good and the project would be expected to complete under budget.
However, with an assessment of how much the work completed should have cost, a different picture can emerge. If it cost more than expected to achieve the current progress, then the project will overrun on cost. If the project planned to be further along than it currently is, then the project will overrun on schedule.
Good project controls use tools like Earned Value Management to get a more accurate picture of the state of the project and are therefore more capable of forecasting the likely end date and final costs. Using performance and productivity indices and variance of earned against planned allows an assessment to be made of how the project is proceeding. The indices and variances can be used to highlight those items that are most at risk of over-running so that they can be focused on for resolution.
Project People and Collaboration
Having good WBS and CBS coding structures in place, automating the data collection and validation, and having a system to maintain and report the data is not enough. One of the key success factors for good project controls are the people who work on the data. The project controls team needs to:
- Be present in the project, actively engaging with each other and with the project team.
- Maintain an awareness of the state of the project that might not be visible by just looking at the data.
- Use their skills and experience to look at the data, spot anomalies and interpret what the data is telling them.
- Use the forecasts generated from the data and use their knowledge to adjust it for reporting.
- Have the courage to honestly report the state of the project even if the news is not what the project manager and sponsors want to hear. By highlighting problems and issues early in the project, more time is provided to develop and implement plans to address them and keep the project on track.
Project Controls Tools
Another component of good project controls is using the right tool to manage project data. The data needs to be stored in a database that allows the analyst to use report writers and dashboards to produce helpful reports to investigate and assess the data. The system should bring all the components (estimate, schedule, scope, changes, progress, commitments, actuals and forecasts) together in one easy-to-use environment. The reporting needs to be flexible enough to allow ad-hoc analysis while also being structured enough that regular reporting can be efficiently achieved.
Built-In Project Controls Benefits
- Eliminate dependency on Excel spreadsheets
- Standardize coding and procedures across projects
- Timely issuance of project status reports
- Employee availability and staff plan reporting
- Improve employee productivity
- Reduce staffing needs
- Utilize a benchmarking tool that provides new projects and proposals:
- Estimating rates and prices
- Historical data analysis
- Report status across projects
Why Project Controls is Important
Good project controls are fundamental to good project management. To be effective, project controls needs to be integrated with everything the project does. The project controls team needs to be integrated with the project team and communicate with each other constantly; it’s more than just number crunching. The project controls processes need to be efficient and not detract from the day-to-day work of the project. The system chosen to collect, collate, analyze and report on the data needs to be robust and easy-to-use, standardized to allow efficiencies within the organization while being flexible enough to meet the needs of the project.
Projects change on a daily basis and the people, processes, and systems that are in place need to embrace those changes and manage their impact to prevent the project from failing to deliver to expectations. At ARES PRISM, project controls is what we do. Our software is developed by people who know project controls and who have experienced the life of a project manager, estimator, scheduler and cost controller. ARES PRISM software has been created to improve the timeliness, completeness and quality of project controls data, make the lives of the users easier and to help the project deliver the scope on time and under budget by improving the visibility of the project status.