Cost Performance on Project S Often Poor, What Are the Possible Causes of This and How Can It Be Improved? Essay

The cost planning is one of important phases for project management. It will goes through whole project’s life cycle. It is foundation of project and it will tell the project are measured, reported and controlled in every process. Estimating is the process of forecasting or approximating the time and cost of completing project deliverables. A successful project management will include time control and cost planning. Accompany with these two important features, and then bring out the best quality project. Causes of poor cost performance

According to many decades’ records, Morris et al. (1989) has researched more than 4,000 projects between 1959 and 1986, after this, he concluded that projects are normally poor at achieve their targets. *From example of helicopter Comanche which is largest acquisition program in U. S. army ($ 48b). It is purpose to replace whole school of light utility reconnaissance and attack helicopters with one helicopter that makes military gears be modular designed which already used in many kind of armoured machines, it is easier to fix and replace.

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However, this project has begun in 1983, and it is been 5 times restructured, furthermore, it’s cost growth in product development 101% and schedule growth in product development 120%. Finally, it has been cancelled in 2004. This activity is to avoid sunk cost that done by this overrun project, economist normally suggest to do this way, because it is only suffering in early stage, and it will saves opportunity cost. In general, this shows lack of planning, without good planning, there are several areas will affect on cost estimating, and then directly affect on cost performance that leads to delay of time and cost overrun.

Time management Delay is the most common problem of poor cost performance in projects, from road building project to the most complex project, such as launching satellite and project Comanche. Delay is defined as the time overruns either beyond the completion date specified in a contract, or beyond the date that the parties agreed upon for delivery of a project T. R. Puspasari (2005). The results of delay often give owner loss on revenue, to the contractor, delay means higher cost through labour cost increases, inflation of material cost and longer construction period. With longer period of project, sometimes occur vicious cycle.

It will damage the whole project performance. Thus the first thing is estimating a approximately cost and time. Error of design One main reason for overrun of cost is design error that basically means representation is not reach the requirement of client, it is often wrong at project deliverables. It also directs to a different way on application, and at the end of phase, errors will show off from wrapped package. Furthermore, having a design error also leads overrun on cost estimating, which is omission will be included in it, by this means change of order, longer period working will occur.

Equally, project design that has not extensive research and investigation will restrain potential error. It also could goes to extra work, repeatedly to scope the project, through these additional work, there will definitely influence on project, and triggers more cost and fail to delivery on time A. Ambituuni (2011). Avoiding the design error that has to has participation of professional expertises and application of proficient gears right through the project Bordat et al (2004).

Thus, to achieve an error free project, need every one in project group have excellent communication, must ensure the design process is accurately considered and grant enough time for extensive research and investigation. In the same way, a decent project could makes the project lift cycle is created by effective planning, controlling and monitoring, which means could achieve better cost performance result. Impact from contract Additionally, ‘’inappropriate and inadequate procurement and faulty contractual management system ‘’ (Singh 2009) could be one of main reason for bad cost performance.

In project management, contract almost related with every level of project, such as material buying, price negotiation, customer service and payments. Supplier is another important role in project management. If contractor could give a appropriate contact to supplier, it will helps on build stable relationship, with supplier, even more, it could bargain with price of materials. However, if contract not finish at each single phases of project, it will increase negotiation time, which means definitely time delay and cost overruns.

With decent contract management of project, it will simply to avoid such fundamental problems. Another explanation for contract error is worker. Human resource is also important for basic project proceeding, and it has been included in contract management as well. Similarly, all potential possibilities need considered by manager. “careful consideration need to be finished when forming the initial contract, for about what might occur during its operation, this will guarantee that things are included in the contract documents that enable effective contract management”(OGC 2010) Mega project management

Complexity could another reason for bad cost performance. The most of mega project, such as project Comanche, could be defined as complexity. When estimating mega project, it always will be affected by some errors, for instance inflation, exchange rates, change in resources price, etc. This leads the budge need to be increased, after that it will increases cost and leads to time delay. Also, complexity of project could also be defined as ’’ in term of the diversity of stakeholders with different interest and long chain of communication channel with slow feedbacks’’ (Cerpa and Verner 2009).

According to this situation, managing and caring their tastes will cost lots of time and resources, thus it could affects on cost performance. To get rid of poor cost performance from complexity project, better overall planning need to be done properly, and every single aspects need to care of. As Johnsinit (2010) said, “Managing complex projects needs experience, expertise and exposure”. Therefore, project needs to fit clients’ need Macro changing for project Macro change is another reason for poor cost performance.

For a macro view, goal of project is delivery on end of time, which means could include all features in macro view, for example, estimation, schedule. Therefore, through any minor macro change, the whole lifecycle of project has to be rechecked. That means it will cost more time and resources. “With each macro change, precious project resources are diverted to activities that were not identified in the original project scope, leading to pressure on the project schedule and budget” (Narayan 2010). Macro change of project could guides to uncertain risk, funding change and budget change, even the whole project team.

Bad macro change will also let stakeholder not confidence in managing team and start to doubt their decision. One thing is certain, that is delay on delivery. To avoid this problem and reach better performance, that has to ensure change is unavoidable and it could gain benefit for overall project Ambituuni, A. (2011). For such change management, manager has to have a long term vision which can foresee some of changes. According to the lifecycle of project, it is key to recognize the success way with stakeholder and set key performance indicator for project that will measure for macro change.

In addition, to keep away from argue, it is also important to keep in touch with stakeholder and receive permission from them. Furthermore, changing could be paused and more focus on finish the project. Purpose of estimating First of all, budget which define as ‘’a written statement of money: where it is drawn from, its amount, how it is to be spent. Budget is foundation of estimate, before project has been decided, there has a process of consideration, if it has been approved, it becomes to budget, and it is the key tool for project management to estimates income and cost. It is also the foundation of cost estimating.

Worldbank (2007) There are several elements for budget applications, such as transporting, subsistence, materials, labour, and capital expenditures. The main reason for cost estimating is let budget more clearly and obtain more meticulous data for project. Importance of Cost estimating Cost estimating is ‘’ an integrated, process-centered, and disciplined approach to life cycle management of projects provides real and tangible benefits to all project stakeholders. ’’ NASA (2008), which means organization, can receive a preview of project from the result of cost estimating. It can explains project is or not good for their benefits.

As a process of project, cost estimate is one of the most important aspects which can provide necessary guidance for programming and the suggested staging of budgets. Basically, cost estimating is bond with cost performance. A good cost estimating can reach greater profit. Besides, with proper cost estimating and foresee, the lifecycle of project will easily to tracking, it will save and time and budget. Tracking and Estimating Project spend Contractor and stakeholder both like to know where their cash flow goes to, thus a proper tracking will helps to get involve in every project processes.

That will really helpful for project proceeding. Basically, there are two ways for cost estimating ‘’Bottom up costing- the estimates of each level in the work breakdown structure and complied and added together by each level of supervision in the project hierarchy- as would be the case for reimbursable contracts; Top down costing – you are allocated a certain amount of money to complete the project activities and this has to be split between the sub=projects, the allocation is base on either senior management’s estimates or the use of target costing. ’’ Maylor, H (2003) Quality performance planning

After cost estimating, contractor needs to aware of quality of product that they have finished, which means with great production quality, it would makes more satisfaction for customer, moreover, it helps gain more profit. Project selection is the start point of a project, contractor choose what project will simply decide cost performance. Good project selection is accompanied with good planning control. Sometimes means negotiation with stakeholder. Satisfaction of stakeholder is the most central point for project management, it also means quality contractor have done with.

Some general principle says stakeholder management bring from an appreciation of basic customer behaviour. Maister (1993) cited the nature of satisfaction, that SATISFATION= PERCEPTION – EXPECTATION Since, satisfaction simple defined as how the stakeholder thinking of the project and how they expected. However, the biggest problem is also drawn from stakeholder that is unrealistic expectation for project. Maylor, H (2003)Contracts always have to push their limits they could done, but in real life, even if there has no other competitors, there always has a limit which means contractors need to tells stakeholder what situation they have.

Expectation should be measured really carefully. About perception stage, as seen from above, it also could be managed. There has a way of wisdom that is lead stakeholders to their favourite outcome, which means communication. Maylor, H (2003) Contractor uses communication as key tool instead of quality first. With further communication, stakeholder could know the process of project, how their investment goes to and where. However, basically there has not daily communicate, only important reports, technical updates and announcement.

With well communication, contractor also could know what is stakeholder truly needs, then make right and appropriate decision for project. Conclution Even though cost performance is often done bad in practice, but it could be reduced. Furthermore, it can be entirely solved by proper cost planning and management. With a better managing system, the project lifecycle will easily to inspect and adjust, it could achieve higher benefit. Performance is usually defined as quality of projects. This is assisted through the practice of both product and service.

And managers have to have clear view of project, when bad performance has occurred, then managers have to fixed the problem without delay, not let project become the second Comanche that wasting investment and resources. However, even cost overrun and time delay are hard to prevent, but a good plan and controlling system for project reduce these bad effects.

References and Bibliography:

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Available: http://ipac. kacst. edu. sa/edoc/2006/156957_1. pdf. Last accessed 10/11/2012. Smith, J. and Jagger, D. (2007). Building Cost Planning forthe Design Team. Available: http://zh. scribd. com/doc/36232724/Building-Cost-Planning-for-the-Design-Team. Last accessed 10/11/2012. PUSPASARI, T. R.. (2005). FACTORS CAUSING THE POOR PERFORMANCE OF CONSTRUCTION PROJECT . Available: http://eprints. utm. my/3723/2/TatianaRinaPuspasariMAD2005ABS. pdf. Last accessed 10/11/2012. Truman, D. King, P. E.. (2012). Asseessment of Problems Associated With Poor Project Management Performance.

Available: http://www. long-intl. com/articles/Long_Intl_Assessment_of_Problems_Associated_with_Poor_PM_Performance. pdf. Last accessed 10/11/2012. NASA. (2008). 2008 NASA Cost Estimating Handbook. Available: http://www. nasa. gov/pdf/263676main_2008-NASA-Cost-Handbook-FINAL_v6. pdf. Last accessed 10/11/2012. Ambituuni, A. (2011). Five Causes of Project Delay and Cost Overrun, and Their MitigationMeasures . Available: http://www. academia. edu/904386/Causes_of_Project_Delay_and_Cost_Overrun_and_Mitigation_Approach. Last accessed 10/11/2012.