AAOM Handbook

ES.05 Validate Most Likely Activity Cost

Context

The creation of an Operating Master Schedule (OMS), or ExPenditure Schedule (EPS) is a reasonably significant piece of work and, having completed it, the aim should be to maintain their relevance by continual adjustment and refinement rather than recreating them. The Activities within these tools, and the timing or frequency of the Activity occurrence is maintained via the OMS. The EPS applies the resource quantity and pricing estimates to the OMS content in order to create a forecast of likely expenditures. Any changes in the underlying drivers for these parameters needs to be validated and applied in the appropriate place. In some cases the changes in cost drivers (scope or resourcing/pricing) will either be deliberate, or predicted, and they should in these cases be adjusted in the EPS at the time the change is recognised. This is particularly the case for the high cost low sample rate Activities. The role accountable for the EPS should be reviewing the forecast of high cost, low sample rate Activities on a regular basis (typically each month) and considering whether there is anything that is likely to cause a change in the most likely cost of these forecast Activities. In the case of the lower cost, high sample rate Activities, the EPS costing is based on average values across a population of different types of work, that are grouped for ease of management. In this case there may be changes to the resourcing or pricing of the work that is more difficult to recognise ahead of time. In response to this case we can monitor the distribution of the actual cost results to identify whether there is a unique outlying cost result, or whether a fundamental shift in Activity costs may be occurring. Throughout the Operating Model the principles of statistical process control are used to ensure that the monitoring and response to data are based on objective and proven criteria. Hence the distribution of measured cost results for high sample rate EPS Activities should be monitored via a control chart to identify points that are outside of the normal results distribution, or where a fundamental shift may be indicated by either a string of points above or below the mean or moving in the same direction. If any of these are indicated then an investigation should be undertaken to determine if the assumptions underpinning the most likely/average cost in the EPS are still valid.

Whenever a change to the cost drivers for an EPS Activity are recognised the forecasting data in the EPS should be updated.

Purpose

To ensure that the cost forecasting data used in the EPS is valid.

Quantity

• One validation or update for the most likely cost for each of the Activities of the EPS.

© McAlear Management Consultants 2006

Operational Planning: Set Expenditure Schedule

Updated: August 2018

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