The Role of Project Control Systems in Capital Projects

Chris Drake
Capital projects do not happen in isolation. It is entirely wrong to think of them as separate from ongoing business activities, they are a means to an end.

If we take the example of a pharmaceutical company, the major economic activities are the research, development, marketing and sales of new drugs. The construction of new facilities although important is not a core business activity; however, the decision to build a laboratory or factory is intrinsically linked to them. It will also be subject to the same internal and external constraints placed upon that business such as the required return on invested capital, the availability of finance, shareholder returns, environmental concerns etc.

Similarly, capital projects must operate to the same standards as the whole of the business. It will be subject to the same human resource procedures, health and safety regulations and accounting standards. The implementation of the Sarbanes Oxley Act of 2002 in the US demonstrated to the accounting and finance community across the world that adequate control doesn’t happen by accident. It's the end result of thorough design and rigorous testing of processes and procedures. 

...responsibility for the design, implementation, testing and audit of specific controls for capital projects would usually be with the programme management office...

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) defines internal control as “a process affected by an organization's structure, work and authority flows, people and management information systems. It is a means by which an organization's resources are directed, monitored, and measured. It plays an important role in detecting and preventing fraud and protecting the organization's resources, both physical (e.g. machinery and property) and intangible (e.g. reputation or intellectual property such as trademarks)”. It’s with this in mind that internal controls for capital projects must be designed and integrated into, and be compliant with, the general internal controls of the company. The responsibility for the design, implementation, testing and audit of specific controls for capital projects would usually be with the programme management office (PMO) in conjunction with finance and corporate compliance.

Internal Project Controls

Typically, the internal controls for capital projects are a developed set of techniques and procedures that ensures a company produces sound estimates that are aligned to integrated schedules. Both are constructed with an understanding of business and project risks. The company will then analyse performance and control any changes to the estimate, or schedule, to ensure they can control the outcomes. The controls and procedures that are put in place to manage the project are aligned to the controls that run the business as a whole. Likewise, the reporting requirements will be driven by the need to satisfy the stakeholders of the projects, not just the project management team. The goal of these controls is to ensure that there is a ‘true and fair’ picture of the project activities at any given time.

Well designed and implemented project control systems provide an efficient and effective way of working.

It is precisely because project control systems are implemented after detailed design, which will include alignment with corporate internal controls, that they add to the internal controls of the organisation. 

The four main areas for project controls systems are schedule, cost, change, and document control.

Schedule control – The management of the project plan and the control of the milestones, activities and deliverables within the agreed constraints. By using a single system there is a single source of project data.

Cost control – The management of the project’s budget, actual cost reporting and forecasting. As cost control systems are usually tightly integrated with the corporate ERP systems, there is no issue with Delegation of Authority (DoA) levels, segregation of duties controls, nor is time wasted reconciling various systems. The reporting requirements can be set and defined at the programme level so that multiple projects are directly comparable and thus effective benchmarking is possible. Cost control systems are transaction based so that changes to forecasts can be audited. Integration with the schedule control system will ensure that there are accurate and up-to-date forecasts available.

Change control – By defining the DoA levels and expert review pathways a change control workflow may be designed so that any proposed change to the project is reviewed by the right person at the right time. By integrating this with the cost, schedule and document control systems it will ensure that approved changes are reflected in the schedule, forecast and design documents.

Document control –When working on complex projects it’s vital to ensure that the most up-to-date documents are available to all the staff. These may be design documents, control procedures or the latest forecasts and budgets people are working toward achieving. Document control is vital in the implementation of Building Information Modelling (BIM).

...the role of project controls is to provide a ‘true and fair’ view on the position of a capital project. This allows management to report externally with confidence...

In conclusion, the role of project controls is to provide a ‘True and Fair’ view on the position of a capital project. This allows management to report externally with confidence, and to put into place mitigation if a project is neither performing as expected nor as required. Furthermore, well designed and implemented project control systems provide an efficient and effective way of working. Less time is spent ‘managing the systems and processes’ so that the people working on the project can concentrate on their ‘Value Adding Activities’ and can deliver the capital project that the business needs, on time and on budget.

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