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Level: Basic
TCM Section(s):
9.1. Project Cost Accounting
9.2. Progress and Performance Measurement
Venue: 2021 AACE International Conference & Expo
Abstract: The term budget has become an ambiguous concept in the world of capital projects. It is often used, interchangeably, to describe a variety of distinct concepts. The most notable of those are the project cost control baseline and the authorized funding for expenditure. These two concepts are easily confused in the everyday language of capital projects. While the cost control baseline and authorized funding for expenditure (AFE) may intersect at various stages of the project lifetime, they are distinct concepts that must be defined, delineated, and managed independently.
The authors have noticed that some asset owner organizations are not aware of the differences in the definitions and applications of these concepts. This lack of awareness, if ignored, can jeopardize the effectiveness of the project cost control function and its elemental role as an indicator of the project performance and health status.
The purpose of this paper is to eliminate the ambiguity surrounding the various concepts encompassed within the budget terminology in the capital projects environment, and to highlight the benefits of distinguishing between the authorized funding and cost control baseline processes. The paper will also touch base on where these two concepts intersect and deviate, and present how these two processes can be utilized more effectively in the management of capital projects.
Level: Basic
TCM Section(s):
9.1. Project Cost Accounting
9.2. Progress and Performance Measurement
Venue: 2021 AACE International Conference & Expo
Abstract: The term budget has become an ambiguous concept in the world of capital projects. It is often used, interchangeably, to describe a variety of distinct concepts. The most notable of those are the project cost control baseline and the authorized funding for expenditure. These two concepts are easily confused in the everyday language of capital projects. While the cost control baseline and authorized funding for expenditure (AFE) may intersect at various stages of the project lifetime, they are distinct concepts that must be defined, delineated, and managed independently.
The authors have noticed that some asset owner organizations are not aware of the differences in the definitions and applications of these concepts. This lack of awareness, if ignored, can jeopardize the effectiveness of the project cost control function and its elemental role as an indicator of the project performance and health status.
The purpose of this paper is to eliminate the ambiguity surrounding the various concepts encompassed within the budget terminology in the capital projects environment, and to highlight the benefits of distinguishing between the authorized funding and cost control baseline processes. The paper will also touch base on where these two concepts intersect and deviate, and present how these two processes can be utilized more effectively in the management of capital projects.