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Time-Cost Aspects in Project Cost Planning and Control
particularly important in case of mega engineering projects
The article explains the Time-Cost Aspects of Project Cost Engineering. Utilizing the Dual Entry Accounting, the Cost Engineer can generate Time-Cost reports, illustrated by histograms and S-curves, showing cost distributions of FORECASTS, ACTUALS, BOOKINGS and COMMITMENTS within the project time-span. For more information on this subject, read this book PROJECT ACCOUNTING FOR COMPLEX ENGINEERING PROJECTS; click here.
Under the term Time-Cost Aspects, we shall understand the distribution of project costs, comprising FORECASTS, ACTUALS, BOOKINGS and COMMITMENTS, within the project time frame. In the Project Accounting, the Time-Cost Accounts supply an instant comparison of ACTUALS with FORECAST. Time-Cost aspects make the Project Accounting more complex than the Business Accounting.
During construction of any large engineering project, in the financial and cost matters, the Project Manager is always supported by the Cost Engineer and the Accountant. The term “Project Accounting” defines the common involvement of the Cost Engineer and the Accountant in the project financial component.
Let us define the “Project Accounting”. It consists of four major parts:
o FORECASTS – comprising cost estimates and change orders, including BUDGET created from the First Forecast, plus Prorates and Contingency.
o ACTUALS – comprising information about the project progress.
o BOOKINGS – comprising billing related to Project Participants, i.e. contractors, suppliers, engineering firms, and other business entities or individuals who provide services and materials to the Project.
o COMMITMENTS – comprising data about the monetary funds furnished by Project Sponsors, i.e. business-, private-, or government entities that finance the project.
In the Dual-Entry Project Accounting, there are four types of Accounts: COMMITMENT Accounts, COST Accounts, EXPENSE Accounts and BOOKING Accounts. The Time-Cost Attributes, comprising Start Date and Finish Date, are mandatory only for COST Accounts that relate to Project Objects. All other dates - related to FORECASTS, ACTUALS, BOOKINGS and COMMITMENTS - are obtained automatically from the journal Entries. In any Account, DEBIT does not need to be equal CREDIT, and the difference shows for Overrun or Under-run.
At the Project initiation, the Cost Engineer creates the Project Cost Schedule that is based on the overall Project Schedule, usually prepared by the Scheduling Engineer. Two dates (Early Start and Late Finish) shall be allocated to every Cost Account. These dates define the period for the time-cost forecast distribution of the Cost Account. Based on the summary of all time-cost account distributions, the computer program (TECA) can automatically calculate the Time-Cost distribution of the Total Project. Based on this total project time-cost distribution, the program can also generate instantly the Commitment Report (i.e. project cash flow forecast).