Cost Tightline for Turnarounds
A tightline drainage system ensures no water leakage from drain pipes between your house and the storm drain or ditch on your street. Water leakage causes your yard to get soggy and not be a pleasant place especially after severe rainfalls.
Likewise, a cost tightline ensures that you have no cost leakage between your estimate of costs at the start of your turnaround, and paying your bills at the end. No leakage of costs means that you have an explanation and approval for each expended cost in your turnaround or project. Also you ensure that you have not, inadvertently, ‘double dipped’ and bought the same thing more than once.
All in all, it’s a good thing to have a clean, well-exercised cost tightline. Corporate, and Accounting, will be happy – and that’s a great hurdle to cross.
Let’s dig a little deeper into the cost leak sources in turnarounds and projects today.
The Way It Is Today
As there are many silo systems in your turnaround or project, including ERPs, CMMS, spreadsheets, schedules and more spreadsheets, you have no continuity in the cost control chain. There is no cost tightline. Estimated costs, on your standalone spreadsheets cannot be directly linked to the invoiced costs, collected in the ERP or accounting system. This means that you have a lot of manual ‘filling in the blanks’, that then lead to the lack of an audit trail.
And, between these endpoints, during the middle, Logistical, stage:
- Purchase Orders are written, in your ERP or CMMS, with no link to the real estimates on your spreadsheet;
- Contracts are configured for contracted labor and equipment.
Each of these also has no audit-able link to your spreadsheet data.
During the Execution stage, work assignment and completion is tracked in a scheduling system that is not linked to the procurement system. Potential late delivery dates should alert you when your critical turnaround work is affected, but as these are done in two different systems, good luck. You need some pretty consistent, and complete, verbal communications between your team members, and you need their diligence in recording the information that they receive.
Finally, at the end of a project or turnaround, the contracted teams disperse and their spreadsheets and schedules remain untouched and not reviewed in their SharePoint folders. Forgotten. Lesson learned are forgotten or obscured.
This cycle then repeats for the next turnaround, and the new team.
The Way it Should be – Use a Cost Tightline
Use end-to-end tracking of costs for each scope package, including Work order, Risk Mitigation, Change Order, Work Package, etc. Each phase of the development of the budget and the expenditure is tracked in the cost tightline. The cost tightline ensures no wriggle room for second-guessing where the budget numbers came from (i.e. original scope, discovery scope, scope changes, extras, Risk Mitigation, etc.) and where the money went (i.e. contracted or in-house labor, equipment and facility rentals, supplies, consumables, tools, services). You will know: why the money was spent; who prepared and authorized the expenditures; and when they were authorized.
What, exactly, is in the cost tightline? For each WBS (work breakdown structure, typically an asset in a plant) you track its cost build-up through a. Estimating and b. Budgeting, and its cost expenditure through c. Commitments (POs and Contracts), d. Incurred (Receiving and Burned time), e. Expenditure (Invoices received and paid).
Spin-off benefits of the cost tightline include a live, accurate measurement of earned value. This comes from the completion statusing of your work. Critical cost control indices such as CPI, SPI, CV and SV are each available in real-time upon sign-off of each work step completion by a crew foreman.
So you now know what the problem is and what the solution should look like. Next we’ll review how TeamWork’s Integrated Solution Technology (TWIST) helps ensure a cost tightline.
An integrated cost tightline confirms that you know that the money you estimate and budget at the start of the turnaround or project is traceable to specific invoices at the end of the turnaround. The lack of such an assurance would be a huge cause for concern, as you can imagine. TeamWork’s Integrated Solution Technology, TWIST, provides a way to change this paradigm.
- When your Estimate is reviewed and approved, it becomes a Budget for each asset.
- Budgeted items are available to have Commitments to be generated against the Budget.
- Commitments are typically managed by a Procurement or Supply Chain group in your turnaround or project team. The first step in the Procurement process is the staging of needed labor, equipment, consumables, supplies, tools and services grouped by Supply Chain Codes such as Exchangers, Pumps, Valves, Catalyst, etc.
- A Requisition holds the needed procurement items for each supply chain code. The Procurement and Turnaround teams then build Request For Quote (RFQ) packages for each supply chain code.
- When ready, these RFQs are provided, preferably electronically, to approved vendors and contractors. Their quotes are compared, preferably electronically, to help the Supply Chain team determine the winner for each quoted item.
- One or more purchase orders (PO) is written to each winning contractor or vendor. Contractors and vendors sign-off on these POs and then mobilize their labor teams and ship the materials and equipment required.
- Shop or Warehouse Receiving teams document the receipt of each ordered equipment and material (consumable, supplies and tools). Received non-labor and non-rental items are considered Incurred or Delivered cost, and may be invoiced as Expended cost. As work is completed by crews in execution, their time is defaulted as Incurred (or burned) cost for labor. A similar process is followed for managing equipment and facility rental costs.
- Expended costs are built from invoices received from contractors and vendors. Each line of each invoice is mapped to each received item. This ensures that invoices are validated against committed and delivered items. Once this happens, invoices can be paid in accordance with contractual obligations.
TWIST’s approach to managing these all of your costs provides you with a ‘no-place-to-hide’ cost tightline for low-cost cost management! Imagine that!
Go to http://www.teamworkgroup.com or email firstname.lastname@example.org for more on TeamWork Group’s TWIST Cost tightline.