Despite best efforts and intentions, many organizations find that large-scale projects miss their targets for a number of reasons: optimism bias, manual estimation errors, insufficient historical data, scope creep and many other factors.
When it comes to large-scale capital projects, 98% of projects experience cost overruns or delays. On average, cost increases are estimated at 80% of the original value, and timelines are often delayed by 20 months or more.
So what is the difference between a costly, long-overdue project and one that is delivered on time and within budget? In many cases, the answer is good project controls.
What Are Project Controls?
Project controls are processes for gathering and analyzing project data to keep costs and schedules on track. The functions of project controls include initiating, planning, monitoring and controlling, communicating, and closing out project costs and schedule. Ultimately, project controls are repeatable processes for measuring project status, forecasting likely outcomes based on those measurements and then improving project performance if those projected outcomes are unacceptable.
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Activities under the umbrella of project controls may include:
- Aligning projects with portfolio/organization goals and objectives
- Developing a work-breakdown structure (WBS)
- Collaborating on initial project schedules
- Developing a risk management plan
- Project budgeting and forecasting
- Monitoring project costs
- Feedback and reporting
- Optimizing project strategies to enable better outcomes in the future
While a project may deal with many parameters, such as quality, scope, etc., the discipline of project controls puts a spotlight on the cost and schedule factors, continuously monitoring for any risk to them.
Hierarchically, project controls nest under project management. A project controller could be reporting to a project manager on a specific project or an entire portfolio of projects. Project controls are vital to successful project management, as it alerts project stakeholders to potential trouble areas and allows them to course correct, if needed.
For project controls to succeed, they cannot be applied in spurts or in a vacuum. Rather, project controls activities must run through the complete project life cycle — from cradle to grave — to monitor and control the various factors that impact cost and schedule.
Interweaving project controls with the rest of project management provides timely insights that empower project stakeholders to make the right decisions at the right time.
Processes That Define Project Controls
The strengths of project controls lie in their data-focused approach and attention to detail. A project manager does not simply want to know that there is a cost overrun, but rather wants to know the root causes, the precise numbers, and how it can be resolved. This is where a fully integrated project controls solution can help with efficiency in obtaining answers quickly, and provide visibility into performance that can reduce project costs.
Let’s dive into the processes that define project controls.
Planning is one of the important steps in which controllers and project managers work together. Whether it’s creating project plans, schedules, work-breakdown structures or cost estimates, planning gives your team a baseline to work with throughout the project.
Integrating the budgeting process into project activities is essential to calculate costs accurately and to understand when and why variances occur. By time-phasing budgets and refining the numbers, a transparent model is available for senior managers and team members alike. This model serves as a benchmark throughout the project to understand vitally important cash flows.
Project controls provide a meticulous approach to managing risk. By preemptively identifying risks, monitoring risk continuously, and developing contingency plans to address and mitigate issues, it becomes possible to reduce impact on budget and schedule. It also helps prevent some risks from happening in the future.
When a project deviates from its original estimates, it’s often not due to a single factor, but due to the cumulative effect of several factors that tend to go unnoticed. This is why change management is critical. By tracking changes and understanding their impact, while following a clear process for evaluation, approval, and accountability, projects can stay on their charted trajectory.
By increasing the accuracy of estimates-at-complete, project controllers and managers can gain more insight into the current drivers of cost and schedule overruns. Good progress measurement is a vital input to the forecasting process. It serves as the comparison against actual and committed costs that enable project controllers to extrapolate a forecast using a combination of standard forecasting methods and formulas. Regular, timely updates aid the project controller by enabling faster response and corrective action to when a project starts to get off track.
Defining and using key performance indicators (KPIs) to monitor project health and forecast trends is crucial to take corrective actions. Organizations that use performance information to manage projects, like the calculations used in Earned Value Management, achieve a 68% success rate, compared to a 7% success rate for projects that don’t leverage this data.
This process involves establishing processes and systems that can help team members communicate and collaborate with each other. The goal is to track status updates, capture meeting minutes and lessons learned, and manage workflows seamlessly so teams can focus on actual execution rather than routine tasks.
Project Controls vs. Project Management
The overlap in function between these two disciplines can at times make it difficult to differentiate between them. Many organizations assign the role of a project controller to one of the project managers, making this even more confusing. However, it’s important to discern the differences between these two in order to fully appreciate the role of project controls.
Project management is a holistic function that involves managing people, processes and deliverables in a project through various sub-functions. It focuses on quality and scope, in addition to cost and schedule.
The objective of project management is more exhaustive in that it aims to successfully complete a project given the resources available.
Project controls are a sub-function and focus on just two parameters: cost and schedule. People management and quality control, for example, does not fall under the purview of project controls.
The main objective of project controls is to minimize the variance in costs and schedule from what was originally planned.
Controls acts as a safety harness to project management. Sometimes project managers can focus almost solely on delivery, which leaves less room to examine costs, deviation from the project plan and other variables involved. Project controls introduce a necessary reality check for project managers, giving a more data-grounded view of how the project resources and objectives are trending over time.
At its core, project controls are part of a monitoring function that analyzes scenarios and provides recommendations. A project controller reports on cost and schedule and advises the project team of potential issues. The actual execution of these recommendations is not done by the controller, but rather by the project managers.
Even though controls is a sub-function of project management, project controllers interact with more than just the project managers that they report to.
A few team members that controllers interact with are:
- Project manager
- Finance team
- Construction manager
- Procurement team lead
- Technical team lead
Importance of Project Controls
In a 2018 survey, 88% of respondents said they perceive project controls to be important or critical to the success of enterprise projects.
The report also confirms the correlation between project controls and success: those that perceived controls as ‘critical’ were twice as likely to meet all project objectives. Those who perceived project controls as ‘not important at all’ were more than 3 times more likely to fail.
These results emphasize the significance of controls, especially considering the number of major deviations from initial project estimates in the past.
In a PwC analysis of capital projects, six nuclear plants observed an average cost overrun of 157%! In another instance, a refinery project eventually overshot its budget from an initial $4 billion to $12 billion.
Project professionals know that, whether it’s a large-scale construction project or the launch of a new website for a small business, there will always be unexpected delays, additional costs, or unforeseen circumstances. But without project controls to anticipate and resolve these issues, costs and delays can quickly become huge expenses and affect other areas of the business.
Benefits of Project Controls
In megaprojects, the various moving parts can make it difficult to stay aligned with the initial plans. However, close monitoring, analysis, and regulation can keep this in check. Projects of all sizes, not just large projects, experience significant benefits when controls are properly executed.
The following are some of the key benefits of project controls:
- Reduced project costs through ability to make timely decisions using KPIs
- Increased project predictability for cost and completion date
- Increased visibility into the financial health of the project as it progresses
- Ability to mitigate project scope creep
- Meaningful benchmarking data for future projects via well-structured projects
- Increased margins when working in a fixed-price environment
- Improved reputation for properly managing and controlling projects
- Competitive advantage over organizations with less mature project management capabilities
- Increased job satisfaction for project team members
Reports That Every Project Controls Team Should Have
Too often, project controls are considered “back office analytics,” without a clear understanding of how it directly relates back to project performance and ROI. This makes it difficult for project teams to grab the attention of management.
However, when recommendations are supported by facts and actionable data, teams are more likely to embrace them. This is why it’s essential to build smart, automated and regular reports into the process.
Here are a few reports that help to socialize project controls concepts with project teams and allow everyone to align on the best path forward:
1. Cost Report
One of the most frequently used tools for communication, a status report should include all metrics regarding project costs. Examples of metrics on cost include actual budget consumed so far, committed expenditures—such as contracts signed with vendors for work yet to be completed—and ratios of actual versus planned work as of a given date. A staple of the project controller’s cost report is the S-Curve, visually tracking total expenditures to date.
Cost reports can be shared in a variety of formats and frequency: some teams prefer a daily scrum style, some have their own customized templates sent on a weekly basis, and some pack them into real-time dashboards. While frequency of reporting has been shown to improve project performance, all stakeholders should be clear on how to access the report and how to use the information provided.
2. Change Management Register
Scope creep is a common challenge for most project managers. A change management register keeps track of change in scope from the initial statement of work or estimate. It identifies how much extra cost the project has to incur and how much the project may be delayed because of the addition in scope.
This information helps project teams prepare for the impact and communicate that impact to customers, whether internal or external. Sometimes, those customers may be willing to cut back on their requests when they understand the implications. It also provides a formal way to get all parties to review and sign-off on the changes.
3. Risk Register
A risk register is a document that manages risks and records contingency dollars associated with known risks.
It works as a RAID (risk, action, issues, decision) log and is created at the beginning of a project, documenting risks, assumptions, issues, and dependencies. As a project progresses, the risk factors can change, and these changes are tracked in the risk register.
In large teams, a risk register provides visibility to everyone about the top areas of concern. It lends clarity to stakeholders by addressing what-if scenarios and correlating these scenarios to their risk quotient. It also builds more predictability into projects, as team members can review past occurrences of these changes or risks to anticipate how it may affect this project.
Challenges Within Project Controls
Despite the growing recognition of controls as a discipline, the questions for organizations are: How well is it implemented within? Is it bringing in results as expected? Are these results consistent?
When projects fail, many organizations may end up blaming the effectiveness of their project controls. However, this is the time to assess whether the control processes have been adequately implemented. Let’s look at a few challenges and obstacles faced by project teams in implementing controls properly:
- Lack of commitment and support from senior management: This is one of the biggest challenges. Control does not simply mean monitoring; while monitoring is passive, control refers to actively making decisions based on analysis and reporting. Hence, this cannot be achieved without sufficient authority provided by leadership. In the absence of autonomy and support, controllers cannot achieve their goals. Many project controls teams tend to be understaffed or not backed with enough budget to invest in the right tools.
- Perception as just another cost function: As controls do not come into limelight unless things go awry, they can be perceived as an overhead expense. However, this is far from true. One study on this subject conducted by IPA Global indicates that while project controls function costs range from 0.5% to 3% of the project, cost improvement from their best practices can range from 6% to 20%. Organizations can resolve this perception issue by training project teams and executives of the potential ROI from controls.
- Confrontational dynamic: Functions such as controls and audit are often viewed with a suspicious approach by people focused on delivery and timelines. By building partnerships rather than a me-versus-you approach, this can be overcome. It’s also important for organizations to integrate the function with other areas of project management. A project controller is not someone who visits once every few weeks or months with bad news. Rather, the role should be blended harmoniously into the project lifecycle.
- Manual and outdated processes: Even when there is sufficient support from management and awareness in teams about the importance of controls, the actual implementation may not be keeping pace with the difficult challenges in projects. Many organizations still use manual processes with cumbersome spreadsheets to attempt to track and manage risk matrices and change requests. The manual systems tend to remain siloed and generate disparate data rather than holistic insights. They also do not provide the required visibility into the big picture.
The Power of Project Controls Software
Project controls span multiple processes and interact with multiple roles to ensure project success. They require consistent attention to detail throughout the duration of projects, some of which can run for years.
In the past, it may have been acceptable to rely on manual methods to monitor and evaluate project metrics. Now it’s critical to use automated reporting and algorithm-based forecasts to harness the best available project data. Project controls are too important for the success of large projects—and the success of the organization overall—to let manual processes and errors get in the way.
A modern approach to project controls requires strategic project controls software. A strong solution like EcoSys Enterprise Project Performance software offers tools for budgeting, risk management, planning, administration, forecasting and more to keep your projects on target and deliver greater business value across your organization.
Visit these additional resources for more information on Project Controls:
EcoSys Solutions: Project Portfolio Management, Project Controls & Project Management