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16thMay
The Seminar ‘The Future of Project Controls’

Especially for large projects, it is common to have at least one risk analysis session. In such a session, different stakeholders and experts try and identify events that might impact the performance of the project. It is also determined how to mitigate or even prevent these potential problems from occurring.

Allocating risks

After the first session, it is important to keep the risk management plan active and the parties continuously involved. The risk manager should make sure a party that is best at handling a certain risk is also made the owner of it. After all, they are the experts. During the project, in between phases, sessions are held to re-evaluate the potential risks, and to reallocate the budget to properly cover them.

The trend register 

When the project enters execution, cost control takes over the budget estimate and starts controlling the project. Cost controllers should not only focus on hours, cost, and installed quantities but also monitor possible events like changes, unforeseeable events, and risks. These elements can be identified as a trend, having resources allocated to them. Cost controllers anticipate these trends and take them into account when reporting the Estimate at Completion (EAC) and the Estimate to Complete (ETC). 

Basically, your trend register also covers your risk register. During execution, you follow up on your trend register and note which occurred and which did not. The magnitude will also change, as the impact of changes, unforeseeable events and risks is not constant but varies with the situation in the field until they occur or become irrelevant.

Contingency rundown curve

The cost for risks that is reserved and allocated in the original budget is often called contingency fund. When a risk occurs, this money gets actually spent. In contrast, when a risk does not occur, the money is kept in the project or returned to the business.

A cost controller tracks the trends occurring and allocates the proper amount of money to them, including contingency when a risk is involved. This can be tracked over time and displayed in a contingency rundown curve:

 Contingency Rundown in Cost Control and Risk Management

Project close-out

At the project close-out, the contingency spending should be reviewed. This helps you to learn about possible risks and how to estimate or prevent them better in future projects.

As you see, risk management and cost control are closely related to each other. Risk management should be performed throughout the entire project. An experienced cost controller spots the signals about risks and other contingency scenarios just before they occur, which allows steering the project in the right direction.

 

In order to further discuss cost control and cost management, join the Project Controls & Cost Management LinkedIn Group where you will meet Cost Engineering’s global network of project control professionals.

 

Description: Cost control and risk management are certainly not the same, but are heavily related to each other. Here’s how.

Keywords: cost control, project controls, risk management, cost management, contingency