Cost Engineer's Work Scope and Responsibility
This article describes the work scope and the responsibility of the Cost Engineer, employed on any EPC (Engineering, Construction, Procurement) engineering project, and also presents 17 ledgers of the D-E Project Accounting.
Cost Engineer is a member of the Project Team, where he reports directly to Project Manager. On any large and long-duration engineering project, Cost Engineer may be supported by one or two engineering technicians, reporting directly to him. Cost Engineer is responsible for the financial part of the engineering project, covering the following four (4) major cost areas:
FORECASTS: Using the final Project Cost Estimate as the base, Cost Engineer is responsible for creating the Project Budget, that includes also Contingency and Prorates. He must distribute the budget cost in the project time-frame, crating the Project Cash Flow Forecast. He must also create the Code of Accounts, that comprises one Cost Account for each Project Element (covering Engineering, Procurement, and Construction) and also for each involved Project Participant (Engineering Firms, Contractors, and Suppliers - as known at the project initiation time). Using the final Project Schedule (responsibility of Project Scheduler) as the base, Cost Engineer must also create Expenditure Forecasts (Time-Cost Accounts) for all major Project Cost Elements (belonging to Engineering, Procurement, and Construction). Any subsequent Change Orders belong also to this part of cost areas.
ACTUALS: Using the progress report data furnished by Project Engineers, Procurements Engineers, and Field Engineers, Cost Engineer is responsible for creating Progress Cost Reports. These reports - issued monthly and quarterly - must clearly show the financial status of the Project, pointing for any project cost area that appears as either over-run or under-run, comparatively to his already created Expenditure Forecasts. To such critical cost areas shall belong all major Project Elements (covering Construction, Procurement, and Engineering) as well as Cost Accounts of Contractors, Suppliers and Engineering firms involved in the project.
BOOKINGS: Using the current accounting data - based on issued Purchase Orders and received Invoices, Cost Engineer is responsible for properly assessing the financial progress of each involved Contractor, Supplier, and Engineering Firm, and for reporting about any participant's overpayment and possible project cost over-run.
COMMITMENTS: Referring to the Project Cash Flow and using current project bank account statements, Cost Engineer is responsible for properly assessing the overall financial situation of the Project. His reports must show dates and amounts of funds already supplied to the Project, and also critical dates and amounts that must be made available to the Project in the future.
The above listed responsibilities of Cost Engineer are extensive and important. Let us compare two situations: first when Cost Engineer has no means to utilize the dual-entry accounting, with the other when he has these means.
Without utilizing the dual-entry accounting (DEBIT=CREDIT), Cost Engineer gathers all cost data in separate accounts, where any network relationship does not exist. Although he does not call his data-gathering as "accounting", this is an accounting except that this is the single-entry accounting. Therefore when creating cost reports, Cost Engineer must extract figures from various accounts, following some written company rules and/or his professional experience. Some cost areas become for him overwhelming - such as maintenance of hundreds of accounts of involved Contractors, Suppliers, and Engineering firms, and therefore this work area (inclusive responsibility) is delegated to Project Accountant, a CPA who generally is not an engineer. By the same reason, Cost Engineer is released from the responsibility for ensuring that any time enough money is available to the Project to pay current bills, as this becomes the responsibility of Project Accountant. In this arrangement, rather than being directly involved and by the same responsible for the Total Project Cost matters, Cost Engineer concentrates almost solely on tracking project work progress and incorporating the best practice of Cost Loaded Scheduling and Earned Value Management (EVM) Principles. This leaves the very critical part of Project Costs (BOOKINGS and COMMITMENTS) to be handled by Project Accountant, by the same reducing both the scope as well as importance of Cost Engineer's role within the Project Team.
Why today on any EPC engineering project the Cost Engineer is unable to handle the Total Project Cost alone and must depend on the Project Accountant? Why it is easy for an accountant to handle any complex business, comprising thousands of transactions, and to get the Balance Sheet and Profit-Loss without much effort? The answer is simple: the Accountant was and is is using the dual-entry accounting, whereas so far the Cost Engineer was and is using the single-entry accounting.
As you know, the dual-entry accounting (supplemented by the related computer program) is already available to Cost Engineers: TECA Project Accounting. Besides the major advantage, such as ability to control the Total Project Cost alone, the Cost Engineer can streamline and reduce greatly his work load by employing the D-E Project Accounting. Namely, it allows him to gather all cost data in four (4) Journals only, and in return to get all necessary reports almost automatically. How is this possible?
If using the dual-entry methodology of Business Accounting, the Accountant can manage multitude of transactions and get easily the Balance Sheet and Profit-Loss Statements, then also the Cost Engineer can manage multitude of cost data entries and get easily the current financial status of the total Project when using the D-E Project Accounting.
We shall review the subjects of creating Code of Accounts, Budget, Cash Flow, an utilization of Journals in our future e-mail articles. Now, let as consider the benefits yielded by utilizing the four Journals. For majority of Cost Engineers, using Journals is a novelty, but it is not for accountants. The advantage of using journals is that: once posted into the Journals, the data are sorted and placed automatically in the Ledgers, thus yielding instantly (when computer software is used) financial and time-cost statements.
Let us review all ledgers, related to a large EPC engineering project (a nuclear power plant). Similarly like in Business Accounting, in Project Accounting all ledgers are automatically updated, based solely on the posted journal entries. By clicking below, you can review the 19 ledgers to see the program screens and the corresponding report first page. However, when using the related computer program TECA, you can scroll the screen data and print the complete reports.
The following D-E accounting ledgers are presented:
TIME-COST LEDGERS: Cost Account - Forecast (one for each Cost Account); Cost Account - Forecast versus Actuals (one for each Cost Account); Cost Account Summary - Forecast versus Actuals; Cost Accounts by Periods (one for each Cost Account).
GENERAL LEDGER: General Ledger (used solely to verify that overall DEBIT=CREDIT).
Be aware, that all above ledgers were created automatically, based solely on the data posted by the Cost Engineer into the journals, without any need on his part to perform any data gathering or calculations. These ledgers should convince you about the power of the dual-entry accounting. The dual-entry accounting, combined with the computerized database, allows the Cost Engineer to handle all project financial matters easily, efficiently and up-to-date.