JEREMIE AVEROUS

Practical
Cost Control
Handbook for
Project Managers

A Practical Guide to Enable Consistent

and Predictable Forecasting
for Large, Complex Projects
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 In the Same Series

1. The Pocket Guide for those Daring Enough to Take

Responsibility for Large, Complex Projects
by Jean-Pierre Capron

2. Project Soft Power, Learn the Secrets of the Great Project

Leaders
by Jeremie Averous

3. Practical Cost Control Handbook for Project Managers, a

Practical Guide to Enable Consistent and Predictable
Project Forecasting
by Jeremie Averous

4. Practical Project Risk Handbook for Project Managers, a

Guide to Enhance Opportunities and Manage Risks
on Projects
by Jeremie Averous (to be published early 2015)

5. Advanced Scheduling Handbook for Project Managers, a

Practical Navigation Guide on Large, Complex Projects
by Jeremie Averous (to be published 2015)

And more to come…

Discover the latest publications and more on:
www.ProjectValueDelivery.com
 Contents
FOREWORD BY BRUNO CHABAS, CEO,
SBM OFFSHORE 1 

INTRODUCTION TO PROJECT COST

CONTROL 3 
What is the Issue? 3 
Keeping the eye on the Cost Control basics 4 
A practical handbook 4 
The Handbook’s Structure 5 
Topics not covered in this handbook 6 
Who is this handbook for? 7 

CHAPTER 1: WHAT IS COST CONTROL IN

PROJECTS? 9 
What is exactly the purpose of project Cost Control? 9 
Cost Control in the wider context of Project Controls 10 
Essential differences between Accounting and Cost Control 11 
What should be the profile of a Cost Controller for a project? 15 
The Project Cost Controller training and development 16 
Why Finance and Cost Control roles should be neatly
separated in the organization 17 
What differentiates Cost Control for Large, Complex projects 20 
Conclusion 21 

CHAPTER 2: COST CONTROL GOLDEN

RULES 23 

CHAPTER 3: COST CONTROL AT PROJECT

START-UP 27 
Introduction 27 
Transfer of budget information 28 
Coordination with the other project functions 35 
Systems and processes setup 39 
About the organization of Cost Control on large projects 40 
Conclusion 41 

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viii | Contents

CHAPTER 4: COST CONTROL DURING

PROJECT EXECUTION 43 
Precision or Accuracy? 43 
Taking into account the interface between stages:
Consequential Variances 44 
Project Maturity and the transition to ETC reforecasting focus 45 
Cost Control at Engineering Stage 46 
Cost Control at Procurement Stage 47 
Cost Control at Fabrication Stage 52 
Cost Control at Construction Stage 54 
Cost Control at Close-out Stage 59 
Conclusion 61 

CHAPTER 5: FORECASTING 63 

Conditions for Forecast quality 63 
Reconciliation with Accounting – a useful reality check 66 
The Two Forecasting Approaches 69 
Type 1 Forecasting: Quantity-based forecasting 70 
Type 2 Forecasting: Progress-based forecasting 74 
Keeping track of all variances 77 
Conclusion 78 

CHAPTER 6: PRACTICAL FORECASTING BY

TYPE OF COST AND REVENUE 79 
Project Management 79 
Engineering 80 
Simple and Bulk Procurement 83 
Complex Item Procurement 84 
Contracts for Services and logistics 85 
Fabrication 87 
Construction operations 88 
Allowances, Contingency and Other costs 90 
Forecasting for revenue (contractors) 93 
Conclusion 96 

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 Practical Cost Control Handbook | ix

CHAPTER 7: REFLECTING FORECASTS IN

THE PERIODIC PROJECT REPORT 97 
Cost Control information to be included in the Periodic
Project Report 97 
The two important inputs into financial forecasting: EAC and
‘Achievable’ 101 
Principles of re-forecasting for EAC 103 
Principles of Revenue Re-Forecasting 103 
Principles of contingency release 106 
Reforecasting and project dynamics 108 
Conclusion 110 

CHAPTER 8: TIME PHASING OF ESTIMATES:

CRITICALITY AND TRAPS 111 
Basis of the POC method 111 
Instability of financial results due to POC accounting 114 
Time-phasing of costs: principles 119 
Issues with cost time-phasing 123 
Time-phasing of revenue and cash flow generation 124 
Conclusion 125 

CHAPTER 9: MULTI-CONTRACTING ENTITY

AND MULTI-CURRENCY COST CONTROL 127 
Introduction 127 
Principles of Multi-Entity Cost Control 128 
Detailed application of Multi-Entity Cost Control 129 
Principles of Multi-Currency Accounting 131 
Currency Exchange Rate Hedging 132 
The need for advanced processes and systems 135 
Conclusion 136 

CHAPTER 10: FORENSIC ANALYSIS OF

PROJECT COST CONTROL 137 
It always starts with a surprise 137 
The psychological factor: denial, self-deception and other
aspects 139 
Failure Modes for the Cost Control Process 141 
Level 1 checks – Quality of Commitments and Actuals 142 
Level 2 checks – Quality of Forecast 145 
Level 3 checks – Quality of decision support 151 
Conclusion 152 

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CONCLUSION: COST CONTROL, A

STRATEGIC FUNCTION FOR PROJECT
SUCCESS 153 

APPENDIX 1 MONTHLY COST CONTROL

CHECKLIST 157 

APPENDIX 2 PROJECT STAGES COST

CONTROL CHECKLISTS 161 
At Startup Stage 162 
At Engineering Stage 164 
At Procurement Stage 166 
At Fabrication / Worksites Stage 168 
At Construction Stage 170 
At Close-Out Stage 173 

APPENDIX 3: EARNED VALUE

MANAGEMENT 175 

ABBREVIATIONS AND GLOSSARY 183 

ACKNOWLEDGMENTS 187 

TABLE OF FIGURES 188 

INDEX 189 

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 Table of Figures

Figure 1: Principle of Resource Rates and Over/ Under

Recovery ................................................................... 14 
Figure 2: Typical Work Breakdown Structure ................. 29 
Figure 3: Breakdown Structure Detail Optimal Range .... 30 
Figure 4: Precise versus Accurate ................................... 44 
Figure 5: Budget, Commitments, Actual and Invoiced
Cost ......................................................................... 67 
Figure 6: Reconciliation Process between Cost Control
and Accounting ........................................................ 69 
Figure 7: Forecasting Bulk Quantities ............................ 71 
Figure 8: Two Legs to a Sound Forecast ......................... 76 
Figure 9: Treatment of Unsigned Variation Orders ....... 105 
Figure 10: Contingency management throughout the
project lifecycle ....................................................... 107 
Figure 11: Evolution of Cost, Contingency and
Revenue during project lifecycle ............................. 109 
Figure 12: Evolution of Achievable Cost and Revenue
during project lifecycle ........................................... 109 
Figure 13: Typical best practice POC equivalent curves 113 

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 Index

Cost Control 
A  Definition, 9 
Failure Modes, 141 
Achievable Forecast, 25, 101 
Forecasting focus, 23, 153 
vs EAC. See Forecasting 
Process customization, 39 
Actual Cost (AC), 75, 153 
Profile and Training, 16 
Allowances 
Surprises, 137 
Time Phasing, 121 
Team organization on large 
projects, 40 
B  vs Accounting, 11 
within Project Controls, 10 
Bid Comparisons. See Supply Chain  Cost Control interfaces 
Breakdown structure, 28  Finance, 38 
Changes, 52, 59  Schedule, 24, 37, 54, 56 
CTR Cost‐Time‐Resource, 31, 47,  Scope, 24 
80  Supply Chain, 47 
Key Characteristics, 31  Supply Chain – contracting 
Level of detail, 29, 47, 80  strategy, 36 
Maintenance of Consistency, 38  Cost Control Tools 
Type of Main Contract, 32  Multi‐Entity, Multi‐Currency, 
Types, 29  135 
WBS, 28  Specifications, 20 
Breakdown Structure  Timesheet system, 46 
Multi‐Entity, 131  Cost Engineering. See Cost Control 
Budget  Cost Management. See Cost 
"Padding" syndrome, 65  Control 
Tender budget review, 34  Currency Hedging 
Budget Owners accountability, 23,  Contractual Hedging, 134 
27, 47, 64  Natural Hedging, 132 
Designation, 33 

D 
C 
Data Integrity 
Candidness Principle, 24, 139  Principle, 25 
Commitment 
Recording process, 37   
Tracking, 25, 49, 54, 58, 76 
Contingency 
Re‐forecasting, 91 
Release strategy, 59, 105 
Time Phasing, 122 

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E  Level 2 failures (quality of 
forecast), 145 
EAC  Level 3 failures (lack of decision‐
Prudence Principle, 25, 102  making support), 151 
vs 'Achievable'. See Forecasting  Surprises, 137 
Earned Value techniques, 37, 73, 
175 
Escalation, 90 
I 
Immediacy Principle, 24, 103, 110 
F 
Financial Results 
M 
Instability. See Percentage of  Main Contract 
Completion (POC)  Revenue structure, 32 
Multi‐Currency accounting, 131 
Multi‐entity accounting, 127 
Forecasting, 63 
P 
Allowances, 90  Percentage of Completion (POC), 
Allowances (Engineering), 82  111 
Allowances (Fabrication), 88  Loss Making projects, 114 
Allowances (Quantities & Bulk),  Threshold, 112 
72  Periodic Project Report 
Bottom‐Up, 64  Contents, 97 
Conditions for Forecast quality,  EAC vs Sensitivity table, 98 
63  Project Cost Model, 20, 23 
Construction, 88  Initialization, 27 
Construction spread rate, 55, 89  Time Phasing. See Time‐Phasing 
Contingency, 91 
EAC vs 'Achievable', 101 
Expensive consumables (fuel),  R 
57  Rates 
Fabrication, 87  Over/Under‐Recovery, 14 
Principles, 75  Standard Rates vs Actual Costs, 
Project Management &  13 
Engineering, 61, 79  Reconciliation (cost), 26, 54, 60, 66 
Revenue, 93, 103  Rental equipment, 58, 60 
Supply Chain, 83, 84  Reporting 
Forecasting Approaches  Requirements for suppliers, 51, 
Productivity/ Earned Value, 73  53 
Quantities (Bulk & Equipment),  Timing, 40 
69  Revenue 
Two different approaches, 69  Forecasting. See Forecasting 
Forensic Cost Control 
Cost Control Failure Modes, 141 
Level 1 failures (commitments 
and actuals), 142 

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 Practical Cost Control Handbook | 191

S  Importance, 119 
Initial Budget, 35 
Schedule  Project Management and 
Consistency with Cost Control,  Engineering, 120 
24  Revenue, 124 
Interface with Cost Control. See  Strategy, 123 
Earned Value techniques  Supply‐Chain, 121 
Supply Chain 
Bid Comparisons, 36 
Interface with Cost Control, 36 
V 
Suppliers vs Contractors, 48  Variances 
Consequential variances, 44 
T  Tracking, 76 
Variation Orders 
Time‐Phasing  Revenue recognition, 94 
Allowances, 121 
Construction, 121 
Contingency, 122 
W 
Cost Model update, 111, 119  Worksite Cost Control, 53, 57 

© Project Value Delivery