Why Real-Time Cost Reporting is Critical
Let’s backtrack a moment and review what cost reporting involves.
Cost reporting is used in many industries, including chemical manufacturing, on all types of projects. A cost report contains financial data, such as actuals and forecasted costs. After a person reviews the report, they have a sense of a project's financial health. The report typically focuses on a specific time frame or project. The report can be a snapshot in time that can guide the current project and be useful for future projects.
For example, the actuals on a chemical plant project include labor costs, replacement parts (or new) for equipment, materials, and rental fees for equipment needed to do the work. The forecast estimates the cost to complete the remainder of the project. Costs include ongoing labor costs, material costs, additional materials, and potential delays that could increase expenses.
When applied to maintenance, turnaround, or outage projects, cost reporting involves tracking all vendor expenses related to labor, materials, and equipment.
In the chemical industry, where maintenance, turnaround, or outage projects can exceed $100 million, cost reporting is critical to success. Accurate and real-time cost reporting can save companies millions of dollars.
How Cost Reporting Can Identify Savings
Maintenance, turnaround, and outage projects are regularly multi-million-dollar projects, and cost controls are often secondary to safety and schedule. Chemical manufacturers may accept and even expect some fat on the cost of maintaining equipment. Their primary concern is to sustain production.
For starters, the chemical industry is massive. In the U.S. alone, the value of chemical shipments (including pharmaceuticals) was $770 billion in 2021. To retain their slice of this gigantic pie, chemical manufacturers feel obligated to do everything possible to meet production goals. Missed quotas may lead to customers looking elsewhere.
Meeting production quotas is also important because the chemicals may be for essential items. Implementing stringent cost reporting can help chemical companies meet production quotas and time obligations. By closely tracking and documenting all expenses in real-time, chemical manufacturers can identify where course corrections can be made. These course corrections can result in cost savings and schedule targets realized.
Focusing on spending, in addition to work completed, enables chemical manufacturers to make impactful decisions about maintenance, turnaround, and outage projects. Consider examples of things that can be learned by cost reporting:
- The cost of rental equipment is significantly higher than budgeted.
- Labor costs per day are lower than estimated.
- Material costs are higher than anticipated.
Why are these costs exceeding expectations? There are a multitude of reasons, such as:
- The contractor is renting equipment through a third party and charging a mark-up rather than using their equipment as agreed to in the contract.
- The contract calls for a certain number of level two welders, but the contractor is sending fewer level two welders and more level one welders who get paid less. Good for the bottom line? Maybe not. Are the lower-level welders capable of getting the work done as effectively or quickly as their more skilled colleagues?
- Materials are billed by the contractor at a higher rate than what was stipulated in the contract.
Without stringent real-time cost reporting, chemical manufacturers can't course correct while a project is occurring. This can lead to projects that go millions of dollars over budget and go beyond the scheduled completion date.
Stringent real-time cost reporting enables management to make decisions with confidence. Instead of utilizing inaccurate manual processes and waiting on invoices to settle in their ERP system, they have the fully automated actual cost in real-time. Trouble points are identified, and adjustments made in real-time to improve conditions.
Consider this scenario: a turnaround project has a $3 million budget, but actuals show that $2 million has been spent with 60% of the project remaining. This is a project that is very likely to be massively over budget.
Before taking corrective actions to try and steer this project back on track, management needs insight into where or why the project budget is going off the rails.
The Benefits of Effective Cost Reporting
Chemical companies that implement effective cost reporting can experience the following benefits:
- Enhanced Control: Better control over project expenses, reducing the risk of budget overruns and missed schedules.
- Improved Decision-Making: Providing accurate 100% audited, real-time financial data helps stakeholders make informed decisions.
- Automation: Connecting contract terms and conditions, access control data, and site rules electronically eliminates human errors and post-project surprises due to late invoicing.
- Transparency: Ensures all project costs are visible and accountable, fostering trust among stakeholders.
- Financial Accuracy: Accurate cost reporting helps in maintaining financial records and aids in future project planning.
Case Study: Using TRACK to Achieve 95% Certainty
TRACK—and the next-generation platform myTrack—can help chemical companies achieve more effective cost reporting.
Case in point: A $41 billion chemical company was facing challenges related to cost reporting accuracy and contractor workforce management across its routine maintenance and turnaround projects. Due to insufficient information, field managers could not determine how much they spent in real-time.
After the first day, management didn't know if the project was within their targeted spending plan. Cost reporting was manual, reliant on vendor “Force” reporting, and essentially nonexistent. The company focused on completing work safely and on per schedule, paying little attention to spending.
TRACK provided information relevant to cost reporting in real-time. Data became a competitive advantage for the chemical company, enabling them to make quick and meaningful budget decisions on current projects and as a guide moving forward.
A field manager at the chemical plant said after implementing TRACK: “My confidence about the spend went up, and the ability to forecast was much greater since I saw how much I was spending.”
Read more about his story and learn how, after implementing TRACK, the leading chemical company revolutionized cost reporting accuracy, achieving 95% certainty.
When it comes to cost reporting for maintenance, turnarounds, and outage projects, chemical companies need to be vigilant if they hope to maintain their budgets. TRACK and myTrack are proven tools that help with cost reporting and lead to dramatic results.
Facilities and equipment need to be maintained to maximize production in a chemical plant. However, a successful maintenance, turnaround, or outage project goes beyond ensuring the facility and equipment are up to snuff. A successful project, turnaround, or maintenance manager also stays within budget. Cost reporting is the key to staying on budget and is impactful on current and future projects.
Learn more about myTrack and how to maintain your budgets on large projects without slowing down the work.
