 |
| David Cuykendall Click for Index Page |
This is very important to note, for in safety and quality the standards are constant and absolute. For example, the safety objective is to have no future injuries or accidents.
The same goes for quality control: the goal is to produce an acceptable product. If substandard work should occur, there is no compromise in the established standard of acceptability. Every deviation triggers a corrective action.
Cyclic control systems are distinguished from absolute controls systems is that it is routine to reassess and possibly redefine the definition of the baseline cost or schedule.
There are three essential elements of control. The first is to establish the optimum condition, the second is to measure variation from the optimum and the third is to take corrective action in order to minimize this variation. The stages of control are:
- Define: Baseline Budget
- Measure: Monitor the Progress
- Compare: Variance Analysis
- Predict: Re-Forecasting
- Act: Corrective Action
The first stage of cost control is to establish the optimum condition for cash flow by inputting data such as planned earned values and budgeted cost for each month. These inputs create a level of expected accuracy and flexibility to uncertain factors such as time delay, cost overrun, and variation of cost.
By the end of the define stage, there shall be clear guidelines for the cost control process, precision, and metrics to be used.
Measure:
The second stage of cost control is to measure the actual costs though continuous recording, reporting, gathering, and accumulating cost data.
The main variable in recording actual costs is the frequency with which it is performed; while data collection may be performed on routine, sufficient intervals, it is important to have the most pertinent, up-to-date information.
Compare:
Periodic comparisons between previous estimates and incremental costs form the basis for the compare stage of cost control. Budgeted costs and actual costs are weighed against each other to determine the current status of the activity, quantifying any variation from the optimum (budgeted) values.
The frequency of measurements allows for realizing variations in cost information — transparency that is needed to make forecasts or predictions of the future. How fast deviations are recognized are a product of how frequent measurements are made.
In order to properly monitor and control sizable activities, a huge volume of information needs processing rapidly and accurately.
Predict:
Data collected through cost progress monitoring systems, if current and accurate, provide a snapshot of the budgeted versus actual conditions. It is through the interpretation of this data that trends, patterns, and tendencies allow for predicting the path that is headed.
Two objectives of forecasting are: (1) to provide a forecast final cost based on current status and trends, and (2) at the same, to highlight trends or potential budget deviations that require management control.
Predicting the future and recognizing deviations that need attention prevent potential letdowns that cannot be fixed once money and time has been spent; “surprises” can be avoided by forecasting with the same frequency that costs are measured and compared.
General rules for business cost forecasting are:
- A good forecast is more than a single number (a range);
- Aggregate forecasts are more accurate;
- The longer the forecast horizon, the less accurate.
