In this article we will discuss about:- 1. Reasons for Cost and Time Overruns 2. Methods to Avoid Cost and Time Overrun 3. Ways to Overcome 4. Weaknesses.
Reasons for Cost and Time Overruns:
It is a common problem in execution of the projects that the actual cost on the project would exceed than the estimated cost. Similarly, the project would not be completed within the time schedule for various reasons.
The reasons for cost and time overruns are summarized as under:
Pre-Feasibility Stage:
1. Bureaucratic delays in obtaining clearances e.g. pollution/environmental clearance.
2. Securing necessary approvals from regulatory agencies and financial bodies.
3. Inadequate infrastructure facilities like roads etc.
4. Failure to plan important resources, facilities, tie-ups and inputs needed for timely construction and putting into operation.
Evaluation Stage:
1. The better the evaluation, greater the chances of eventual project success in terms of meeting time schedule and budget.
2. A hurried through evaluation, an inadequate study, resulting in lack of clarity in the budget scope, non- freezing of specifications and revision of resource and cost estimates.
3. Wrong selection of location influenced by factors other than technical and the incompetence of consultants who are selected for extraneous considerations.
4. Wrong economic studies and misleading fund flow statements and projection causing financial impediments.
Choice of Technology:
1. Selection of wrong and outdated technology.
2. Selecting technology on considerations of credit offered by the supplier rather than of technical necessities.
3. Delay in completing detailed engineering, non-availability of design data, delay in the freezing of design and specifications, absence of an engineering schedule.
4. Improper scrutiny and approval of drawing and specifications also lead to revisions and rework at a later stage.
Contracting and Procurement:
1. Improper preparation of tender documents and late release of those documents.
2. Wrong selection of vendors/fabricators/contractors; delays in evaluating bids; lowest cost syndrome without regard for the contractor competency and vendor quality.
3. Time consuming procedure concerning procurement of imported materials.
4. Absence of proper quality control mechanisms.
5. Poor logistic planning.
Construction Stage:
1. Starting construction activities without proper planning and even before ensuring the availability of working drawings, storage space, supply of equipment and materials and adequate infrastructure.
2. Low productivity of contractors, improper coordination and monitoring of contractors work and contractors financial problems due to delays in settlement of claims.
Commissioning and Start-Up:
1. Delays in making available manuals, services, feedstock and special tools.
2. Failure of certain equipment’s or parts, design changes and delays on the part of equipment suppliers and/or the commissioning contractors.
3. Defects in erection and installation and teething troubles resulting from bad quality control during erection and inadequate testing of equipment.
Methods to Avoid Cost and Time Overrun:
There are numerous tools and techniques that are available for time and cost control and these aim at ensuring that the projects are successfully executed without any time and cost overrun.
1. Master Schedule/Milestone Network/Master Budget:
Plan and breakdown the project into Work Breakdown Structure (WBS) and develop from them the Master Schedule, Milestone Network and Master Budget. These major tools will help to control the time and cost factors of project performance.
2. Time and Resources Schedule:
From the Master Schedule and Master Budget, detailed schedules of time and resources are prepared. These are to be integrated with the organization breakdown structure, with the relevant responsibilities/authorities given to the project team, functional departments, individuals and agencies.
3. Procurement Time Schedule, Fabrication/Construction/Commissioning Time Schedule:
From the Master Schedule and Resources Schedule, we can find out the Procurement Time Schedule, Fabrication/Construction/ Commissioning Time Schedule.
We can prepare the following schedules:
1. Calendar-time phased construction work schedule
2. Schedule of contracting
3. Crashing economy analysis
4. Progress report
5. Fund flow analysis
6. Progress status report
7. Cost status report
8. Variance analysis
9. Overall performance
All these tools and information shall be used as per requirement in the cost control functions.
Specific Ways to Overcome Cost Over-Run:
The key to avoid cost over-runs and time slippages is to follow sound project management practice – in particular taking particular attention on the following:
1. Sound project estimating
2. Adopting appropriate techniques and measures based on lessons learnt from past (or those of the competitors)
3. Taking appropriate measures to get sanction/approval from different government authorities (like land acquisition, environment clearances etc.)
4. Selecting the right collaboration
5. Selecting the right equipment from proven sources
6. Ensuring complete engineering data and specifications
7. Securing necessary approvals from different regulatory agencies and financial bodies
8. Ensuring adequate communication facilities
9. Ensuring adequacy of different requisite infrastructural facilities
10. Proper full proof plans for obtaining important resources, facilities, tie-ups and inputs needed for timely construction
11. Sound project MIS for effective project control and monitoring
12. Enrichment through Learning Curve
13. Efficient project management budgets and controls
14. Plan and break-down the project with work-break down structure (WBS) and develop from them the: Master schedule, Milestone network, Master budget etc.
15. From these detailed schedules of time and resources can be prepared.
Some of the detailed schedules used for time and cost control shall include:
a. Master Time Schedule,
b. Procurement Time Schedule,
c. Fabrication Time Schedule and
d. Calendar-time phased Work Schedule.
Apart from above, following action reports:
a. Progress reports
b. Cost status and cost trend
c. Reviewing periodically the progress
d. Variance analysis and Fund flow analysis
e. Progress status report
The most important overbearing aspect is proper ‘time management’. It is necessary to have a proper integrated controlling and ‘time crashing economy’.
Weaknesses of Conventional Project Cost Control:
Weaknesses of conventional project cost control methods are as follows:
1. Conventional cost control methods are not project oriented.
2. These procedures are function or department oriented.
3. The obstacles to the use of network based cost control are largely due to the difficulties in the development of a network based accounting system compatible with the established accounting system.
4. Cost data must be applied to the project activities, but the conventional cost accounting methods are not oriented to project activities.
5. They collect costs by traditional classification, such as material, labour and overheads.
6. The budgeting and recording of actual expenses by both cost items and network activity clearly means that a more elaborate system is required.
In modern approach, the PERT cost system is used which consists of planning and control cycle to overcome the weakness of the conventional project cost control methods.
Functions of Planning Cycle:
1. Preparing work breakdown structure
2. Task definition
3. Preparing accounting code structure
4. Drawing network
5. Activity time estimation
6. Scheduling
7. Resource and cost estimation
8. Plan, review and revision
Functions of Control Cycle:
1. Plan, schedule and budget approval
2. Work authorization
3. Recording time and cost data
4. Updating plan
5. Preparing cost reports
6. Analyzing reports
7. Evaluating project schedule and cost status
8. Determining course of action
9. Review of schedule and budget