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Time is Money

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Time is money is the natural approach for managing any project.

For contractors project finish delay usually means an increase of project expenses, for owners/investors project finish delay means that profits will be get later and so some profit will be lost. The cost of time is different for different project participants and yes, for some of them it is not easy to calculate accurately the cost of delays.

When project starts it is necessary to define project success criterion. Usually there are a lot of them (triple constraint as an example) and it makes project decision making subjective. Is it right to pay $10000 more but to finish the project one week earlier? Or select the subcontractor that costs $ 50000 less but to finish project three weeks later? Without estimating the cost of time these decisions cannot be justified. So it is necessary to set one integrated project success criterion that provides certain answers to above questions. Yes, cost of time estimates may be not accurate but they shall be known by project managers for future decision making and approved by project sponsors. It refers not only to cost but to any other value created by the project. These estimates are usually done not by project managers but shall be provided to project managers by top management (sponsor, PMO, CFO) in the Project Charter.

Contractors do not model future profits but shall include in the project model the cost of time and potential penalties and rewards.

Investors shall model future profits, so their models shall include post project completion periods. At project gates the decisions how and if to proceed are based on overall expected project results. When uncertainty is high risk simulation is required and we will discuss the problems with Monte Carlo simulation in the separate thread.

An example of the project where both expenses and profits are modeled is included in Spider Demo. At the picture below Gantt Chart of similar project is shown.

 photo exampleCF_zpsuhanfbsw.jpg

Replies

Hi Anel!

You placed the same question in Asta forum and this is right. If you need help with using Asta ask those who use the same software.

Anel Murguz
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Hi,

I work as a plannner in a big construction company. 

I want to show my boss how we can save/gaive money by planning. 

I have mentioned for example that we can see in a early stage that all extra work is delaying us. And with our baseline we can visualize this and show it to the customer. Also I have showed him how, with the help of code, resources and filter, how we can display the forecast machine hours and also show the actual work. 


But my question is: Is there any way to show how me earn money by planning? For example "we saved 300 000 dollars because we planned correctly"

I use Asta powerproject. 

Best regards

Rafael Davila
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IRR023 photo IRR023_zpsnspcogse.png

Rafael Davila
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If you don't have a good resource usage plan there will be a lot of time wasted on resources being idle.

Say you have 19 resources A and two activities with a duration of 10 days, requiring 10 resources A that can start at the same time.

  • Obsolete planning tools will delay one of the activities until the first one finishes, keeping 9 resources idle all 20 days.
  • Good planning tool such as Spider Project will allow you to define a minimum quantity of resource A and the production rates for lower quantity assignments.  Then the duration will be adjusted accordingly.  It might be that first activity takes 10 days and second activity will start at the same time with 9 resources A for 10 days and 2 days with 10.
  • Poor planning will come out of poor tools. Planners with poor planning tools will recur to manual methods. That will not make consistently better solutions. Just imagine manually resource leveling a job with thousands of activities sharing resources and with a substantial number of activities that can be scheduled with variable resource quantity.

Too much idle resources is a waste of time. TIME IS MONEY!

Cost Accounting will give you a reliable early warning when cost go above plan but will not give you the better resource planning a good planning tool can.  Use each system to their best.

Rafael,

your list of Spider Project advantages shows your advanced planning skills. Unfortunately most planners in the industry do not take into account resource constraints creating their nice looking schedules and until project owners and top managers will not start to require to create realistic schedules projects will keep be late and over budgets.

But even rookie schedulers in construction industry appreciate SpiderProject ability to work directly with activity volumes of work and apply construction norms. Some construction projects do not require scheduling that takes into account consumable, spatial and financial resource constraints, but in all of them it is necessary to plan and to manage volumes of work in physical units, most norms are applied to volume units, productivity is measured in volume per time unit or time for volume unit, etc. Russian managers could not believe that project management software used in construction industry abroad does not plan and manage work volumes.

And in most construction projects renewable resources are limited and skilled planners appreciate Spider Project resource constrained schedule optimization. Manual leveling suggested by Western Gurus as the best way to create resource constrained schedule is met with astonishment. Here people think that those who suggest this do not level resources at all or are not interested in achieving the best results (like CC planners that create schedules that are "good enough"). Reliable and optimized resource leveling is most appreciated.

Other features are advanced and nice to have and to use but most Russian managers do not understand how to use construction management software that does not have two main features mentioned above. Unless the software is used for drawing some Gantt Chart and then look if expected dates will be met or not. 

Rafael Davila
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In over 35 years in the construction industry I have not seen any scheduling software that is close to what Spider Project can do, by far Best of Breed tool to manage construction schedules.

Most other software cannot dream to provide good model for:

  1. Consumable Resource leveling.
  2. Spatial Resource leveling.
  3. Financial Resource leveling.
  4. Variable Resource assignments.
  5. Resource production rates.
  6. Skill Resource automatic replacement.
  7. Multiple Teams working independently of each other on same activity.
  8. Integrated Risk Analysis.
  9. Integrated Trend Analysis and Diagrams
  10. and others like:
    Time Location Charts
    Direct transfer of database tables
    Disclosure of Resource Dependencies
    Conditional Scheduling
    Portfolio Management
    Group Work – transfer of access rights at file level
    No need for Financial Periods
    A Free Viewer
    Scripts
    Multiple resource leveling algorithms
    ... just to name a few
     
The same is done here. We plan and track costs using scheduling tool that does not replace accounting system. Periodically (once in month) data are compared and adjusted.
Rafael Davila
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Does managerial accounting answer to the questions like these:
What will happen with the project budget or expected profit if to add some workers to certain crew?
• The managerial accounting system provides some reliable data but the calculations are better done within the scheduling tool.
If it is profitable to add some machine to project resources?
• The managerial accounting system provides some reliable data about the cost of machine but the calculations are better done within the scheduling tool.
• The managerial accounting system is not a substitute to other management tools.
If it is profitable to hire the subcontactor that will finish his job one week earlier for additional $100K?
• This is better analyzed by using the scheduling tool. That a subcontractor finishes earlier does not mean the job will finish earlier.
If one way of project crashing is better than another because increases project profit?
• This is better analyzed by using the scheduling tool.


As I said before we use Best of Breed approach, to get historical records we use managerial accounting systems, to make schedule projections we use the scheduling tool.
 

Rafael,

does managerial accounting answer to the questions like these:

What will happen with the project budget or expected profit if to add some workers to certain crew?

If it is profitable to add some machine to project resources?

If it is profitable to hire the subcontactor that will finish his job one week earlier for additional $100K?

If one way of project crashing is better than another because increases project profit?

Rafael Davila
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http://www.investopedia.com/terms/m/managerialaccounting.asp

Managerial accounting encompasses all fields of accounting aimed at informing management of business operation metrics. Managerial accountants use information relating to the costs of products or services purchased by the company. Budgets are also extensively used as a quantitative expression of the business’ plan of operation. Individuals in managerial accounting utilize performance reports to note deviations of actual results from budgets.

Managerial accounting involves reviewing the trendline for certain costs and investigating unusual variances or deviations. This field of accounting also utilizes previous period information to calculate and project future financial information. This may include the use of historical pricing, sales volumes, geographical locations, customer tendencies or financial information.
Product Costing/Valuation

Managerial accounting deals with determining the actual costs of products or services. Managerial accountants calculate and allocate overhead charges to property assess the true expenses related to the production of a product. The overhead expenses may be allocated based on quantity of goods produced or other drivers related to the production, such as square foot of the facility. In conjunction with overhead costs, managerial accountants use direct costs to properly assess the cost of goods sold and inventory that may be in different stages of production.

Our product/process unit costing is done via our unit costing system that is integrated with our accounting system. We use accounting data to make management decisions; we avoid duplication of data entry that is on the accounting system.

I don't mean to say our Managerial Accounting practice is good in general but the contrary;

  • Many companies lack good manangerial accouting systems.
  • A few have good systems like Sage 300
    • http://www.aronsonllc.com/sites/default/files/2014%20S300CRE%20Variance%20Analysis.pdf
  • Some only track budget cost but not relate them to production quantity.

I believe this is due to the insistence by some that it is not an accounting responsibility. It is because of this insistence in avoiding the formal accounting systems that many end up doing very poor unit costing and some none at all. This is the perfect excuse for the Accountant to bypass this responsibility.

http://smallbusiness.chron.com/difference-between-biweekly-semimonthly-p...

Employers in the United States generally pay their employees weekly, biweekly, semimonthly or monthly. State law usually dictates the time frame that employees must be paid by; an employer can pay more frequently but not less. Our statutory laws require employers pay construction workers on a weekly basis by what we call "mandatory decree" that is specific for each industry classification.

Management considers jobs done but also consider jobs in progress.  Management needs fast cost estimates of the future work for justified management decisions and providing this data is an accounting function.

Of course labor cost is not the only concern but it is the cost subjected to most variation.  In our construction jobs, on average we have 32% on labor costs 60% is cost of Equipment, Materials, Subcontracts and Other; 8% is our average markup [we target for 10% but experience is that on average we get 8%].  Of these costs the variation in cost of Equipment, Materials, Subcontracts and Other is minimal.  It is in labor costs where we have the most variation that will impact the final cost.

We have very different laws as well as methods.

Here salaries are paid on the monthly basis but not only salaries matter.

Accounting is based on the documents and considers only those jobs that were done and accepted. So accounting reports on the work done include only accepted jobs, management takes into account done jobs. Maybe it is different in your country.

In any case management needs fast cost estimates of the future work for justified management decisions and this is not accounting function.

Rafael Davila
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In our projects accounting data for labor cost and production reports become available once in a week as we pay construction employees on a weekly basis.

If you need the same data from the schedule model as from the accounting system you shall enter the same initial information.

If you don't need this data (so Mary and John are just workers with the equal salary, etc.) then you will get not so accurate information about the past but will be able to plan the future with the reasonable accuracy.

It is not so hard to enter individual resource data in the resource table but I think that this is usually not needed. In my practice project planners operate by the average costs of resource types.

Besides, in our projects accounting data become available once in a month but project schedules are updated at least weekly.

 

Project model does not and shall not replace accounting but shall be able to calculate the impacts of management decisions, actions, risks, etc. on the project dates and costs.

Rafael Davila
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> If resources are tracked individually then they shall be defined as John and Mary and not as workers.

Do you mean a scheduler in my 200 workers job shall define 200 such resources as soon as the names and pay rates are known? Each with different pay rates for regular and overtime hours. To me it looks like A DATA ENTRY NIGHTMARE while this is business as usual for accounting systems that will also accrue labor burden such as Social Security that have a maximum per year, such as MCare, union fees ...

> And accounting information about John and Mary work will become available with the large delay.

But we get process costing reports weekly while schedule is updated once a month.

If resources are tracked individually then they shall be defined as John and Mary and not as workers.

If they are defined as John and Mary their individual hours may be easily entered.

But in any case as I wrote earlier project management software is used for decision making about the future, past information is entered but shall be regularly compared with the accounting data and adjusted in the performance archive if necessary.

Accounting does not look to the future and is useless for decision making with what if analysis. And accounting information about John and Mary work will become available with the large delay.

Rafael Davila
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Vladimir,

How do you enter the following? :

Resource A:

  • Out of a pool of 15 resources working on the activity,
    • 10 resources worked 40 regular hours for a subtotal of  400 man-hours
    • 5 worked 30 regular hours for a subtotal of 150 man-hours
    • among the above 3 worked 3 overtime hours during 3 days for for a subtotal of 27 man-hours
    • man-hours total for the period is 577 as per time card
  • Activity execution: regular hours 40, overtime hours 9 for a total of 49 hours.
  • Work calendars for activity as well as for resource A did not contemplated overtime hours.
  • Period volume of work: 100 units

How you calculate the resource production rate for the period if using the software?

  • shall be (100 units)/(577 man-hours) = 0.159 units/man-hour

Best Regards,

Rafael

DIITD photo Devil is in the Details_zps0fkywbsd.png

Rafael,

in the actual data table people enter what number of resources and what time (work hors) was used on activity execution for reporting period. Look not only to activities but also to assignments and fill the data not top-down (from activity level to assignment level) but bottom up - just enter assignment data and activity data will be calculated.

If you enter activity duration it is calculated for all assignments basing on the assumption that the work was done as expected but you can change assignment information.

Rafael Davila
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Duration of activity execution is not the same as effort-hours.

How do you track and calculate actual resource production rates for same process executed under many activities using the schedule updates? Volumes done actual [to date] or at this period and hours of activity execution alone will not answer this question. Cost Accounting answer this question very easily if using Unit Costing with no duplication of effort.

Cost accounting and Cost management use different data and shall not be integrated.

Accounting deals with accepted jobs only. If the job was done but for some reasons not submitted (some documents were not ready yet for an example) it is not considered in the accounting data and project status determined basing on accounting data will be wrong.

For management decisions it is necessary to know real project status and so project management is based on the reports that are not considered in the accounting system.

Spider Project is successfully used as an integrated cost and schedule management system by many companies. One example: in the largest Russian construction company Spider Project implementation was initiated and sponsored by its CFO (about 15 years ago) and since then it is required to justify management decisions by their impacts on project profits.

Project cost in Spider Project may consist of any number of cost components like labor cost, machine cost, material cost, indirect cost, taxes, etc. and some of these components may be calculated by user defined formulas (usually used for taxes and indirect costs).

Owners usually manage contract costs and estimates of future profits, Contractors use at least two parallel budgets, one is contract budget and second includes project expenses.

Project expenses include costs applied to project activities, renewable resources and materials.

For materials the users may define unit costs (cost of one meter, ton, sqm, pound, etc.) and expected changes of these costs in the future.

Cost of renewable resources depends on the way they are paid.

If resources are paid for hours and their salary does not depend on the work they do then it is sufficient to define resource cost per one hour (defined as labor or machine cost).

If resource cost depends on the work they are doing then it is not sufficient to define hour cost, it is necessary to define the cost of resource assignments on different types of work. Usually cost of resource assignment is defined as the cost per hour or per volume unit depending on the ways they are paid. Assignment cost may also be fixed if resources will be paid for completing certain activity and the payment does not depend on activity volume and duration. In many cases assignment cost is defined as a combination of these options.

Activity cost may be also set as fixed, per volume unit or an hour. Activity costs usually reflect contract costs and for some activities some portions of their costs do not depend on assigned resources.

It is not necessary to define costs for each activity and assignment. It is reasonable to create the reference-books with norms (costs, productivity, crews, etc.) for activity and resource types. If such reference-books were created it is sufficient to enter activity type, activity volume (for productivity type activities) or activity duration (for duration type activities) and automatically get everything else (resource assignments, costs, etc.).

Spider Project actual data reports are prepared in the table form and include actual dates of activity execution, volumes done at this period, quantity and hours of activity execution, expenses and material consumption at considered period. When actual volumes are entered everything else becomes proportional (actual hours, actual expenses, actual material consumption) and people enter only those data that differ from planned. So it is not hard but yes, it is not rare when actual volumes are entered but deviations from planned hours are not. So actual data is not absolutely correct but the errors are usually small.

Management and accounting data are regularly compared for finding and analyzing the difference. For making this analysis easier people usually have parallel copy of the project model where only accounting data is entered. So the planners have two project versions: one based on management data, second based on accounting data. Comparing these two versions it is easy to get any kind of reports like what jobs were actually done but still not paid, what jobs have cost difference and why, etc.

In any case integrated cost and schedule model is required for management decisions about the future actions and accounting information is about the past. Project schedule that does not include cost information will not answer to many what if questions like if it is profitable to use different technology, assign different resources, accelerate project execution for certain money, etc. But the aim of project model is to help with decision making answering to most (better any) what if questions, isn't it?

Rafael Davila
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When I started working as a Project Engineer close to 40 years ago my first job was a 20 story low cost housing condo. We had about 150 workers in our payroll. In my second job, a 19 buildings [2 to 4 stories] low cost housing project we had close to 200 workers. Payroll data entry and job costing for labor and all expenditures required a full time accounting clerk at the site to prepare the documentation for the main office to enter the data on the accounting system on a PDP computer so we can get our weekly unit cost report and workers get their weekly pay check.

PDP03 photo PDP03_zpsods8kygz.png


We had a single cost account for interior cement plaster we would distribute costs for labor as well as for any purchasing. The crew was supervised by a single foreman and consisted of close to 20 workers, each having his own pay rate and working different hours per day, some overtime hours. Imagine if the payroll and each purchase had to be distributed to a schedule activity for every story instead of a single cost account. For cement delivery we would have to distribute the cost among several activities, the same for every other purchase.


I do not recall scheduling software that automatically integrated with our financial system.  At the time we had a financial system capable of unit costing but the scheduling software was “Single 8x11in Paper” by an office supplier.

BarSchedule photo Schedule_zpsblmzmmkb.png

Then when scheduling software surfaced, each job was required different scheduling software and our financial system could not communicate with each of the scheduling software. To be honest our financial system could not communicate with single scheduling software decades after we switched from manual scheduling to software based scheduling. The idea on full integration was a daydream. Therefore we ended using best of breed approach.

After seven years I moved to a company doing water works.  Scheduling got exponentially complicated for the most simple of these jobs, then I became hooked on CPM scheduling.
 

Rafael Davila
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FOR A COST CONTROL METHODOLOGY PLEASE SEE:

Project Job Costing by RD
http://www.mediafire.com/download/s23cbf6q02ttvec/Job+Costing+by+RD.pdf

This methodology I used as a PM before, currently is used by a few of my clients. Same as you will see in the reference for UK practice most contractors at home use very rudimentary methodologies I do not consider good enough.  We do not consider tracking costs at the activity level good enough, it is excessively granular and usually misses the tracking of production rates. Scheduling software is not a substitute for a good Financial System, both complement each other.

Scheduling software is not particularly good at recording true man-hours, usually you enter start time and finish time for the update but this misses the details of actual work hours for every resource unless you make complicated data entry to get it done.

Sage 300
http://www.aronsonllc.com/sites/default/files/2014%20S300CRE%20Variance%...

Unit Cost and Production Reporting
http://www.foundationsoft.com/unit-cost-production-reporting/

Financial Reporting Capabilities of Construction Accounting Software
http://www.foundationsoft.com/financial-reporting-construction-accounting/

The Great Divorce - Construction Loaded Schedules
http://www.nflaace.org/index_files/john_orr_cost_loaded_schedule_updatin...

CONSTRUCTION PROJECT COST AND TIME CONTROL PRACTICES IN THE UK
http://www.arcom.ac.uk/-docs/proceedings/ar2009-0879-0886_Olawale_and_Mi...

FOR PORTFOLIO INVESTMENT ANALYSIS PLEASE SEE:

http://www.spiderproject.com/images/img/pdf/Tools%20and%20techniques%20o...