Relating Cost and Schedule Information

Relating Cost and Schedule Information

The previous sections focused upon the identification of the budgetary and schedule status of projects. Actual projects involve a complex inter-relationship between time and cost. As projects proceed, delays influence costs and budgetary problems may in turn require adjustments to activity schedules. Trade-offs between time and costs were discussed in Section 10.9 in the context of project planning in which additional resources applied to a project activity might result in a shorter duration but higher costs. Unanticipated events might result in increases in both time and cost to complete an activity. For example, excavation problems may easily lead to much lower than anticipated productivity on activities requiring digging.

While project managers implicitly recognize the inter-play between time and cost on projects, it is rare to find effective project control systems which include both elements. Usually, project costs and schedules are recorded and reported by separate application programs. Project managers must then perform the tedious task of relating the two sets of information.

The difficulty of integrating schedule and cost information stems primarily from the level of detail required for effective integration. Usually, a single project activity will involve numerous cost account categories. For example, an activity for the preparation of a foundation would involve laborers, cement workers, concrete forms, concrete, reinforcement, transportation of materials and other resources. Even a more disaggregated activity definition such as erection of foundation forms would involve numerous resources such as forms, nails, carpenters, laborers, and material transportation. Again, different cost accounts would normally be used to record these various resources. Similarly, numerous activities might involve expenses associated with particular cost accounts. For example, a particular material such as standard piping might be used in numerous different schedule activities. To integrate cost and schedule information, the disaggregated charges for specific activities and specific cost accounts must be the basis of analysis.

A straightforward means of relating time and cost information is to define individual work elements representing the resources in a particular cost category associated with a particular project activity. Work elements would represent an element in a two-dimensional matrix of activities and cost accounts as illustrated in Figure 3-6. A numbering or identifying system for work elements would include both the relevant cost account and the associated activity. In some cases, it might also be desirable to identify work elements by the responsible organization or individual. In this case, a three dimensional representation of work elements is required, with the third dimension corresponding to responsible individuals. More generally, modern computerized databases can accommodate a flexible structure of data representation to support aggregation with respect to numerous different perspectives; this type of system will be discussed in Chapter 5.

With this organization of information, a number of management reports or views could be generated. In particular, the costs associated with specific activities could be obtained as the sum of the work elements appearing in any row in Figure 3-6. These costs could be used to evaluate alternate technologies to accomplish particular activities or to derive the expected project cash flow over time as the schedule changes. From a management perspective, problems developing from particular activities could be rapidly identified since costs would be accumulated at such a disaggregated level. As a result, project control becomes at once more precise and detailed

Unfortunately, the development and maintenance of a work element database can represent a large data collection and organization effort. As noted earlier, four hundred separate cost accounts and four hundred activities would not be unusual for a construction project. The result would be up to 400x400 = 160,000 separate work elements. Of course, not all activities involve each cost account. However, even a density of two percent (so that each activity would have eight cost accounts and each account would have eight associated activities on the average) would involve nearly thirteen thousand work elements. Initially preparing this database represents a considerable burden, but it is also the case that project bookkeepers must record project events within each of these various work elements. Implementations of the "work element" project control systems have typically fondered on the burden of data collection, storage and book-keeping.

Until data collection is better automated, the use of work elements to control activities in large projects is likely to be difficult to implement. However, certain segments of project activities can profit tremendously from this type of organization. In particular, material requirements can be tracked in this fashion. Materials involve only a subset of all cost accounts and project activities, so the burden of data collection and control is much smaller than for an entire system. Moreover, the benefits from integration of schedule and cost information are particularly noticeable in materials control since delivery schedules are directly affected and bulk order discounts might be identified. Consequently, materials control systems can reasonably encompass a "work element" accounting system.

In the absence of a work element accounting system, costs associated with particular activities are usually estimated by summing expenses in all cost accounts directly related to an activity plus a proportion of expenses in cost accounts used jointly by two or more activities. The basis of cost allocation would typically be the level of effort or resource required by the different activities. For example, costs associated with supervision might be allocated to different concreting activities on the basis of the amount of work (measured in cubic yards of concrete) in the different activities. With these allocations, cost estimates for particular work activities can be obtained.