Cost Forecasting
DRMcNatty helped the client automate monthly project cost forecasting procedures using P6 resource-loading to fit a tight reporting deadline and increase forecast accuracy.
Overview
This is a review of a successful cost and schedule integration which utilized the accounting system of record and P6 schedules to produce a cost forecast each month. The portfolio was over $400 million annually and the requirement was to forecast monthly expected expenditures for more than 700 projects. The forecast encompassed the entire life cycle of the projects. The previous method required the project managers and analysts to utilize their own method and side spreadsheets for forecasting the remaining costs for the year. However, forecasts did not usually align with schedules and the reporting deadline was an issue.
Challenges
The timing requirement of the company forecasting was an important consideration that drove this solution. The accounting actual cost data was available on the second business day each month and then the complete forecast needed to be reviewed and entered into the accounting system within 3 days. The company P6 application was used for scheduling only, and the usual resource-loading via P6 input was not practical. Other systems were being utilized for cost management. In addition, there was the usual cost and schedule integration issue: separating the project cost to match the specific scope of the P6 activity. The cost accounting needed to align with the tasks in the schedules.
Solution
The solution was to automate the input of costs in the individual P6 schedules. The existing project cost details were formed from rates and contracts. A summarization of the line items on the cost form was then applied to the scope of the P6 major activities with a standard methodology. From there, programming was developed with actual and remaining costs at the activity level. An algorithm was used to account for costs that occurred after the dates of the P6 activity. This was necessary due to small follow-on activities and lag on the recording of costs. The monthly P6 cost loading to 700+ projects was done with programming directly into the P6 database.
Results
After automating the P6 cost loading, all 700+ schedules could be opened and the remaining costs could be spread over the major activities in P6. The project managers were able to review and make time period adjustments based on project knowledge. The adjustments were effective for the managers because the actuals had been applied in the P6 cost forecasts and they were in the correct time frame. Then they could fine tune to account for projected monthly variations in expenditures. Overall, the method provided a consistent approach to cost forecasting using the current P6 schedule dates and was integrated into the accounting system.
