Project Management in the Oil and Gas Industry

4.3.5 Cost 
Control
Cost control is very important in the management of projects, as they 
relate to the economics of the project as a whole, which is a key element in 
the success of any project.

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Project Cost Control 129
The objective of cost control is a follow-up of what has been spent com-
pared to what was already planned to be spent and to identify deviations, 
so as to do the appropriate action at an appropriate time. Therefore, cost 
control and the intervention of an ongoing process in the domain of the 
control of the project by the project manager who is directly responsible to 
define who is execute or supervise.
Calculating the actual cost should consider the different costs such as 
employment, materials, equipment, and sub-contractors and each calcula-
tion of the cost should be according to the specific document that all par-
ties agreed on at the start of the project.
If the actual cost increases to more than the cost estimate, this will be 
due to one or more of the following reasons:
• The cost estimate is low.
• The circumstances of the project are not studied well.
• There is an increase in the prices of raw materials and labor 
during the project.
• There are climatic conditions and others that delay some of 
activities.
• There was a poor selection of equipment.
• There is inefficient supervision.
While it is difficult to correct the impact of the first four factors, there 
is always hope in improving the selection of the equipment and ensuring 
the department is aware and capable of choosing competent supervisors or 
increasing their capabilities.
The cost control process should be more than collecting data on the 
cost. The codification of data collection can be given a copy of the gain and 
loss after the implementation of the project. Cost control should help the 
project manager to analyze the performance rate for equipment produc-
tivities and manpower.
Reviewing the total spent on the project since the beginning of work 
until the date of the audit will present the situation of the project cost, 
which usually comes out of one of the following three cases:
It was exactly equal to the spending planned in accordance with the 
implementation plan of the project and estimated budget for this plan.
1. More has been spent than was planned according to the 
project’s plan of implementation, which means an over 
expenditure or “cost overrun.”

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130 
Project Management in the Oil and Gas Industry
2. Less has been spent than the planned expenditure in accor-
dance with the project’s plan of implementation to end all activ-
ities, which entails a savings in spending or “cost underrun.”
In general, over-expenditure is not desirable and must be prevented. 
The analysis of the causes must be identified so that it can be avoided in 
future. The savings in spending is desirable. However, this also requires 
searching about the causes of increasing cost as the main feature of the suc-
cessful management of the project in the execution phase is the best way to 
perform a reduction in costs.
The following parameters are the main tools to control the cost:
• ACWP – actual cost of work performed
• BCWP – budget cost of work performed, also called earning 
value (EV)
• BCWS – budget cost of work scheduled
• BAC – budget at completion
• EAC – estimation at completion
To illustrate the above factors simply, assume that, in the phase of the 
engineering, CTR is planned to be done in 200 hours, the actual work will 
be 250 hours, and the work that is already done is 200 hours, the same as 
planned. One can see that what was done is equal to the plan. Assume the 
cost of one hour is $100.
The actual cost of work performed (ACWP) = $25,000.
The budget cost of work performed (BCWP) = $20,000.
The budget cost of work scheduled (BCWS) = $20,000.
Cost variation (CV) = BCWP – ACWP.
Schedule variance (SV) = BCWP – BCWS.
In the previous example the cost variance (CV) is equal to -$5,000.
Percentage of cost deviation = (ACWP – BCWP)/BCWP.
Schedule performance index (SI) = BCWP/BCWS.
A value higher than one represents an acceptable performance and a 
value less than one represents an unacceptable performance.
Cost performance index (CI) = BCWP/ACWP.
EAC =BAC/CI.
As stated previously, these factors must be calculated at regular intervals 
during project implementation and should, preferably, be compatible with 
the date of the month accounted by the company.
Monitoring these factors on a monthly basis will assist in evaluating the 
project and approximating information and the final cost of the project.

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Project Cost Control 131