Cost forecasting is the function that most project organizations get wrong and it’s the one that causes the most damage when it’s wrong. The forecast at completion is the most important number in project cost controls and it’s also the number that gets managed most aggressively when there’s organizational pressure to show budget compliance. Sohaib Wasif‘s approach to cost forecasting is shaped by years of working on programs where the financial consequences of an inaccurate forecast were real and large.
A cost forecast is not the same as a cost report. A report tells you what’s been spent. A forecast tells you what’s going to be spent based on current performance trends and committed costs and remaining scope. One is backward-looking. The other is a decision tool. Treating them as the same thing is how projects look fine in month 12 and blow up in month 24.
What Drives Cost Variance on Capital Programs
Scope growth that isn’t captured through change control. Productivity shortfalls in the field that accumulate over months before they show up in the numbers in a way that’s undeniable. Material cost escalation on procurement categories that weren’t price-protected in the original contracts. Extended schedule duration adding overhead costs that weren’t in the budget. These are the real drivers of cost overrun and a good cost forecast tracks all of them.
Sohaib Wasif has worked in environments at ExxonMobil and Ontario Power Generation where cost forecast accuracy was taken seriously at the governance level. That means the forecast had to be supportable. Not optimistic. Not aspirational. Actually grounded in the current performance data and the realistic assessment of what the remaining work was going to cost.
Committed Cost vs Projected Cost vs Contingency
The cost forecast on a capital program has three components that need to be clearly separated. Committed costs are amounts that have been contracted or ordered and won’t change barring a change order. Projected costs are estimates of the cost of remaining scope that hasn’t been committed yet and are inherently less certain. And contingency is a quantified reserve against identified risks. Treating all three as fungible numbers in a single cost total is a common error that makes the forecast misleading.
When contingency gets consumed to offset cost overruns on projected cost categories without anyone acknowledging that the project is actually running over budget the forecast at completion stays flat while the actual financial position of the project deteriorates. That’s the kind of managed optimism that ends badly.
The ExxonMobil Standard for Cost Forecast Rigor
ExxonMobil’s capital projects function has specific expectations for cost forecast quality that are higher than most organizations I’ve seen. The forecast has to be prepared from a bottom-up assessment of remaining work. It has to be consistent with the current schedule. It has to reflect updated productivity norms rather than the ones assumed at sanction. And it has to be reconcilable to the original approved budget through a clear chain of approved changes.
Working inside that expectation calibrates what you think good cost forecasting actually requires. It raises the floor. And once it’s raised it doesn’t come back down when you move to a different organization.
The Connection Between Schedule and Cost Forecast
A cost forecast that doesn’t incorporate current schedule performance is incomplete. Schedule slippage costs money through extended overhead and delayed benefits and reduced field productivity over a longer execution window. The relationship between the schedule and the cost forecast has to be maintained in real time. Sohaib Wasif Canada based program work at TC Energy and OPG both required that integration because the programs were large enough that a disconnect between the schedule and the cost forecast would produce meaningless numbers at the governance level.
This is actually one of the places where the engineering background matters specifically. Evaluating whether a cost forecast is consistent with the current schedule requires understanding what the physical execution sequence is and what the productivity assumptions for the remaining work are. You can’t do that evaluation from a spreadsheet alone.
FAQ
What is forecast at completion in project cost controls?
Forecast at completion is the current best estimate of total project cost. It’s calculated by adding actual costs to date to the projected cost of all remaining work. On a well-managed project it’s updated monthly and it moves based on actual performance data rather than being held artificially at the original budget.
How does change control affect the cost forecast?
Every approved scope addition should increase the control budget and the forecast at completion by the approved cost of that change. When approved changes are not captured in the forecast the forecast understates the true cost of the project as currently scoped. That’s how projects end up with budget overruns that look like cost growth but are actually just accumulated approved scope that was never reflected in the forecast.
What is a cost performance index and what does it indicate?
A cost performance index is a ratio from earned value management that compares earned value to actual cost. A CPI below 1.0 means the project is spending more than the budgeted cost of the work it’s completing. A CPI that has been consistently below 1.0 for several months is a strong indicator that the forecast at completion will need to increase unless there’s a specific and credible plan for productivity improvement.