:AACE CERTIFICATION 2009-2010:

Forecasting

I would like to share what PT Inco project organization performing with capital project forecasting compare with Total Cost Management Framework forecasting theory, input, tools & technique and the output. Capital forecasting from PT Inco project organization perspective is performing evaluation to the project control plan in consideration to the current project performance. The assessment and evaluation is performed into the cost, schedule, scope and resources, but mainly into the costs and the timing of the forecasts by monthly basis right after PT Inco monthly financial closing date.

The forecasting process using the actual monthly expenditure as the basis to measure for any deviation to the cost plus committed cost and the remaining work to be done and we called it, Estimate Cost to completion. We obviously did not measure the earned value of the project as we using the accounting cost as the basis of forecasting. Accounting department provide monthly cost report automatic run through ellipse system and update into the Business Object report and in reality, these costs will not directly related to the physical progress to the project. The physical progress and schedule will then be assessed differently. Typical PT Inco Business Object report as picture below1:

Figure 1. PT Inco Project Budget Report

Once these report updated in the monthly basis, the project manager will then starting to perform capital cost forecasting by calculation of the actual cost, committed cost and cost estimate for work remaining. The actual cost is depend on the timing of contractor invoicing submission to the accounting department plus 45-days to have the actual payment according to PT Inco accounting policy. Therefore, the actual cost is definitely will not reflecting anything about the actual progress of the project. This kind of forecasting methodology is the status quo tools using for project forecasting till today.

Now, According to the Total Cost Management Framework, forecasting is the process of evaluation project control plans and control baseline in consideration of assessment on going project performance2. Project performance obviously project earned value which is determining accurate project status measurement, despite the actual cost based on accounting report. The objective of forecasting is to support the identification of efficient means, with acceptable risks, for the project to achieve its objectives when past and/or current performance is at variance with baseline plans. The second objective its opportunities to improve future performance are evaluated, even performance conforms to baseline plans. Finally, forecasting incorporates the results of the evaluation performance data and opportunities into control plans by communicating the forecasted cost, schedule and resources to complete the project or achieve specific milestone.

The forecasting is used to assess each applicable element of the project control plan i.e. scope, schedule, budget resources and risks, that is affected by a deviation, trend, change request, or opportunity. The input to the process include plans, performance and progress assessment, and change management information.

Figure 2. Process Map for Forecasting

Figure above illustrate the process map of forecasting. The forecasting process applies the project control planning processes in the context of a project progress. Tools and technique in the forecasting process is a combination of the analyzing the plan, analyze risk and contingency and driving by project performance assessment through earned value management. The forecasting outputs are:
1. Project control plans, are considered in overall project control planning
2. Planning information
3. Corrective action
4. Alternative forecasts
5. Project control basis
6. Historical information

I’m personally realized that the current PT Inco project forecasting tools is still way out of the forecasting technique supposed to be. Utilizing the accounting report cost as forecasting basis will not give a comprehensive project evaluation and assessment in order to make any decision to the project. However, changing the status quo will need a huge effort with regard to the existing system, cost and changing behavior. Can I make it?

Sorowako, December 15th, 2009

1 PT Inco PTI-boprd, Business Object reporting system, author. PT Inco IT Department
2 Total Cost Management Framework, Chapter 10.2 Forecasting, Page 209-210