Effective Cost Control Begins Early for Every Project

Investopedia defines cost control as the practice of managing and/or reducing business expenses. To remain competitive within any industry, a company must earn revenues and control expenses – cost control. Within the business models of manufacturing and refining, industrial cost control is an essential component of the success of the company as the ramifications for failure to limit expenses are large and potentially terminal.

Effective cost control begins well before the first contractor timesheet is submitted for review or cost report is issued by your controls team. The first elements of
control are established when the project plan is designed and the schedule estimated. Every step in the process of putting a project together will play a role in the
final cost of any project. At the inception of the project a tentative budget is put together based on the past performance, current anticipated work, the cash flow strategy and the anticipated outage dates, and every step of the process from that point forward is designed to firm the budget, redefine the actual AFE expenditure
and create a working cost document which compliments the scope of work needing completion.

Cost control is an invisible part of the process at the inception of the planning stage. From stepping out the plans, estimating the time it takes to perform each
task and assembling a project schedule, to defining the scope of a service bid document up to the selection of contractors performing each phase of the work,
there is an underlying element of future cost control in place. Each of these steps in the development of a project requires an intimate knowledge of the work
at hand, what it will actually take to execute the work and a rough estimate of the eventual costs to be incurred during final execution.

As the work is planned, estimated and entered into the project schedule, attention and planning must be paid too many factors which will affect the final project
cost at the end of the execution phase. The identification of long-lead materials to be ordered will limit the exposure to last minute manufacturing and delivery
charges during the project timeframe. The selection of the appropriate contractors who have the requisite skills to perform the work at hand, plus the ability to
staff the job with skilled and proven craftsmen, will greatly enhance the productivity and functionality of the work force. Researching the likely scope required
in those pieces of equipment that cannot be opened and inspected prior to the shutdown can limit the amount of extra work exposure during execution. Planning
an adequate contingency for those scope items that are less defined or have never been previously worked on can help design a reasonable budget and goal
for final project execution.

When the scope has been defined, and preferably frozen, the tangible effects of those invisible cost control measures will begin to materialize. A clear and well
defined scope will allow the bid documents to be appropriately evaluated and properly returned from qualified contract companies. A rough outline of the schedule
will limit the parameters of the job including work scope, timeframe and material needs. When the bids documents are reviewed, resources selected and the
contracts written, the opportunity for the most effective cost control possible will be provided.

There are a number of different contracts that will need to be utilized in the planning and execution of any project. One primary contract will be a vendor contract
to provide material goods or manufactured equipment to the project. These contracts should provide the means to effectively order and financially track the
material goods which will be utilized throughout the project or manufactured to defined specifications. The service contracts will provide the means to turn a
functional plan of work force resources and hours into realized dollars. Lease and rental agreements will assure that the necessary equipment to support the
project is available, but generally does not incur a cost until utilized. Once the resources have been mobilized and preliminary work begins on the project, the
hours of work performed, the supplies required and the equipment utilized can be specifically converted into real money charged against the AFE.

Prior to the first scheduled day of any outage many costs will be incurred which will be a component of the final project cost. How high these preliminary costs
will be is wholly determined by the length of time existing in the planning stages, how much long lead material needs to be ordered and how many staff it takes
to perform the preparatory phases. If the work is performed with the future final costs in mind, and planning occurs within an effective and proven model, costs
from the inception of the project, to the planning and scheduling phase, to the eventual letting of contracts and the final phase of project execution, each part
of the process helps define, refine and tighten the expected final costs.

If the plan is well defined, contractors are retained under clear and defined contracts, material and equipment resources ordered in a timely and organized manner
and there is a well-planned contingency for those unknown scope items, the opportunity to conduct a major project from start to finish, within an approved AFE
is very high. For the greatest success of the project an effective cost control program begins at the inception of the planning stage is becomes a component of
each individual step through the final phases of the work.