EVA Presenation 1 - Project Controls · All Have a Fixed Construction Period All Are Resource Intensive All Incorporate Common Materials & Equipment All Meet The Preconditions For

evaeuropeGENEVA 2009

Geneva School of Business Administration Haute école de gestion de Genève

EVA EuropE 2009 wAs jointly orgAnisEd by pArtnErsgold sponsors

© 2009, CErn, HEg, AutHors - tHis mAtEriAl is proVidEd CourtEsy of EVA EuropE 2009, tHE EuropEAn orgAnisAtion for nuClEAr rEsEArCH(CErn), tHE gEnEVA sCHool of businEss AdministrAtion (HEg) And tHE AutHors. All rigHts rEsErVEd. tHE ContEnts mAy not bE rEproduCEd witHout pErmission of tHE AutHors And EVA EuropE.

©©Supertech Project ManagementSupertech Project Management

Application of Earned Value Based Application of Earned Value Based Project Control Techniques to Commercial and Project Control Techniques to Commercial and

Industrial ProjectsIndustrial Projects

YOUR PRESENTERYOUR PRESENTERRoland Horat Roland Horat

Managing Director and Director Business, GlobalManaging Director and Director Business, GlobalSupertech Project Management (Australia)Supertech Project Management (Australia)


WHAT DO ALL THESE PROJECTS HAVE IN COMMON ?WHAT DO ALL THESE PROJECTS HAVE IN COMMON ?

All Are Construction Projects All Are Construction Projects

All Are Capital Intensive ProjectsAll Are Capital Intensive Projects

All Are Unique Once Off With No RepetitionAll Are Unique Once Off With No Repetition

All Have a Fixed Construction PeriodAll Have a Fixed Construction Period

All Are Resource IntensiveAll Are Resource Intensive

All Incorporate Common Materials & EquipmentAll Incorporate Common Materials & Equipment

All Meet The Preconditions For Earned Value TreatmentAll Meet The Preconditions For Earned Value Treatment

All Are Subject To RiskAll Are Subject To Risk


What Questions Can Traditional Earned Value Performance ManagemeWhat Questions Can Traditional Earned Value Performance Management [EVPM] nt [EVPM] answer:answer:

1. How much work was actually performed [%C] and how much did it cost [AC]?

2. How much work remains to be done [100‐%C] and how much will it cost [ETC]?

3. For the work performed, how does the cost [AC] stack up against the budget [EV]? CV = [EV – AC]

4. Will the remaining budget [BAC‐EV] be enough to cover the cost of the remaining work [ETC] ?

5. Was the work performed on time [EV-PV]? Also by Schedule Variance6. Will the remaining work be completed on time? By Schedule Variance


Other Questions That Extended [EVPM] Can Other Questions That Extended [EVPM] Can Answer:Answer:

7. What is my commercial cash flow based on negotiated contract payment terms.

8. What is the Project's Exposure to Finance Costs?9. How is the Project Profit Tracking Against the

Planned Profit [P] Versus [PP]10.How is the Project Performing against Published

Industry Constants (Averages). 11.Is there a better implementation strategy to

minimize project risk (Financial, Resource, Time)12.How to optimize delivery of materials and

equipment and save cost (Supply Chain Management)


Mandated And Optional EVPM Data RequirementsMandated And Optional EVPM Data Requirements

COST

Data Requirements for EVPM include Scheduling and cost data, with optional Units of work and commodity/quantity usage.

Data Requirements for Integration With Job Cost Accounting Systems – WBS or CA Based

UNITS OF QUANTITY

UNITS OF WORK


1.1. PMI PMI PMBOKPMBOK ®® 2009 4th Edition 2009 4th Edition –– Project Management Body of KnowledgeProject Management Body of Knowledge2.2. PMI PMI PMBOKPMBOK ®® 2009 2nd Edition 2009 2nd Edition –– Earned Value GuidelinesEarned Value Guidelines3.3. Australia Standard AS 4817 Australia Standard AS 4817 –– 2006 Project Performance Measurement Using 2006 Project Performance Measurement Using

Earned Value Earned Value 4.4. US US DODIDODI 5000.2R United States 5000.2R United States Mandatory Procedures for Major Defence Mandatory Procedures for Major Defence

Acquisition Programs (Acquisition Programs (MDAPSMDAPS) and Major Automated Information System () and Major Automated Information System (MAISMAIS) ) 5.5. Acquisition ProgramsAcquisition Programs And ANSI And ANSI EIAEIA 748 748 ‐‐ Standard on Earned Value Management Standard on Earned Value Management

System guidelines. System guidelines. 6.6. Canadian Standard Canadian Standard CGSBCGSB 187.2 99 Guidelines for Earned Value187.2 99 Guidelines for Earned Value

EVPM Governance, Standards and GuidelinesEVPM Governance, Standards and Guidelines

7. Obtain Professional Advice Form A Specialist Organization Suc7. Obtain Professional Advice Form A Specialist Organization Such As Supertechh As Supertech


Typical Industry Projects Suitable for EVPM TreatmentTypical Industry Projects Suitable for EVPM Treatment

Projects most suitable for EVM treatment are: CAPEX – capital or resource intensive, these can be small, medium or large projects with implementation periods greater than 6 reporting periods (wks, mths) sufficient to have at least three report period to establish a trend.

Industrial ConstructionConstruction

Energy

Infrastructure Infrastructure Water SupplyWater Supply

Defence Defence SystemsSystems

Commercial Commercial ResidentialResidential PharmaceuticalsPharmaceuticals

Information Information

TechnologyTechnology

Projects Not Suitable For EVM Treatment:High Volume Manufacturing Projects Requiring Resource Planning Management (RPM) such as Vehicle Manufacture, Operational Level of Effort Type Projects (OPEX) such as providing support on call.


Bottom Line On EVPMBottom Line On EVPM

EVPMEVPM requires professional level understanding of the project estimarequires professional level understanding of the project estimating , ting , scheduling systems, knowledge of the company accounting systems scheduling systems, knowledge of the company accounting systems and the and the authority to access the required EVPM data.authority to access the required EVPM data.

EVPMEVPM is is NOTNOT an accounting system, does not undertake payroll functionality an accounting system, does not undertake payroll functionality but relies on time sheeting, actual cost and materials / quantitbut relies on time sheeting, actual cost and materials / quantity usage data y usage data collected by Job Cost Accounting Systems.collected by Job Cost Accounting Systems.

EVPMEVPM uses accrual accounting practices to recognize a liability for uses accrual accounting practices to recognize a liability for the the payment for goods and services received. payment for goods and services received.

•• This liability has a direct relationship to the task completion This liability has a direct relationship to the task completion record in the record in the project schedule. project schedule.

EVPMEVPM recognizes project commitments, variations and forecast trends recognizes project commitments, variations and forecast trends before before payment for goods and services received. payment for goods and services received.

EVPM is the choice where there is a requirement for strong finanEVPM is the choice where there is a requirement for strong financial control, cial control, reporting and accountability.reporting and accountability.


PrePre‐‐requisites for a Successful EVPM Project Control Systemrequisites for a Successful EVPM Project Control System

Develop And Maintain Common Project Work Breakdown [WBS]and Control Account [CA] Structure between:

• Project Control Estimate And• Corresponding CPM based Schedule

This Is The Foundation Of Your Project EVPM Based Control SystemThis Is The Foundation Of Your Project EVPM Based Control System

Use Use PMI PMI PMBOKPMBOK ®® 2009 2nd Edition 2009 2nd Edition –– Work Breakdown Structures Work Breakdown Structures for guidance.for guidance.

One To One Mapping Delivers Time Phased Data For Cash Flows, ResOne To One Mapping Delivers Time Phased Data For Cash Flows, Resource ource Histograms, Commodity Usage and MoreHistograms, Commodity Usage and More


Using the Schedule with EVPM Software to Using the Schedule with EVPM Software to Reduce Labour RiskReduce Labour Risk

Use to confirm availability, select company with a 20% surge capacity, model impact critical specialist shortage

Use Trade Histogram To Select Contractors with required labour with a 30% Surge Capacity, Model the effects of Key Skilled Labour Shortages. Use to investigate contracting strategy,

Use to investigate contracting strategy: Schedule of Rates, Lump Sum, Vertical Packages by Area, Horizontal Packages by Trade

Assign estimated engineering/procurement labour units then use EVPM CA Codes to identify engineering staff requirements.

Assign estimated construction direct and indirect labour units to schedule then use EVPM CA Codes to identify trade base labour and staff requirements.


Using EVPM Software with Schedule To Address Project Using EVPM Software with Schedule To Address Project [HR] Human Resources [HR] Human Resources Issues:Issues:

Camp Numbers And Permanent Housing

Fly In Fly Out Roster

Value of Offsite Modularization VSOn Site Assembly

Staff Recruitment

Value of Offsite Modularization

versus On Site Assembly

Supply Chain Management Purchase of Equipment Materials Common With Other Projects.


Using EVPM Software with Schedule To Undertake Cash Flow AnalyUsing EVPM Software with Schedule To Undertake Cash Flow Analysissis


Cash Flow is based on expected Cash Flow is based on expected payment conditions for the payment conditions for the project/contracting strategyproject/contracting strategy

This is Modified EVPM , This is Modified EVPM , Defined as Commercial Defined as Commercial Cash FlowCash Flow


Using EVPM Software with Schedule To Undertake Profit AnalysisUsing EVPM Software with Schedule To Undertake Profit Analysis


The corresponding Planned Profit [PP] The corresponding Planned Profit [PP] based on payment conditions for the based on payment conditions for the project.project.

This is Modified/Extended This is Modified/Extended EVPM where: EVPM where: Formula: PP = SP Formula: PP = SP –– BACBAC

Where the SP = Sell Price or Where the SP = Sell Price or the Revenuethe Revenue

BACBAC = Budget At Completion= Budget At Completion

Good Practice from a ContractorGood Practice from a Contractor’’s s Perspective is for the project to Perspective is for the project to remain cash positive.remain cash positive.


Using EVPM Software With Schedule To Optimize And Select Best OUsing EVPM Software With Schedule To Optimize And Select Best Optionption

Model Alternative Implementation Options To Select The One With Least Or Most Acceptable Risk Profile. (The Best Cash Flow Option For Client May Not Be The Best For Contractor)

Use Options to Determine The Required Contingency, 5%, 10% To Cover Unforseen Circumstances Such As Weather And Other Delay Effects.

Re‐run To Model Best Financial/Bank Terms, Reduce The Cost Of Project Finance [ 2% To 5% Saving]

OPTION 1 Schedule

OPTION 2 Schedule

OPTION 1 Cash Flow

OPTION 2 Cash Flow


Build a Project time phased financial model, then update and maintain through the project development phases:

Concept Phase

Using EVPM to Manage the Project Life Cycle Using EVPM to Manage the Project Life Cycle –– The PhasesThe Phases

Concept Phase: Initial business study to confirm the economic viability of the project.

Selection Phase: A number of Technology Studies are undertaken to determine the best technical solution for the project. At the end of the phase only one technology, contract management strategy should go forward. Estimate is at +/‐ 30%

Definition Phase: The engineering level is at 80% with placement of long lead items for equipment with suppliers. All contract work packages are identified, early works designs completed in readiness for the Execution phase. Estimate +/‐ 20%

Execution Phase: Engineering is rapidly progressed to 100% based on Supplier information and committments, Construction works commences and is completed in this phase with full EVPM control systems in place and functional by Area/Facility/Commodity using Control Accounts [CA] and Work Packages [WP]. Estimate +/‐ 10%

Execution PhaseDefinition PhaseSelection Phase


As the project passes through the phases, scope definition improves and the financial model continuously updated an results evaluated at against target returns.

Engineering 25‐30%Engineering 5‐10%

Execution ScheduleExecution Schedule

Selection Management Schedule

Concept ManagementSchedule

Financial ModelFinancial Model

Estimate (BAC) Estimate (BAC)

Risk Progressively ReducesRisk Progressively Reduces

Concept Phase

Using EVPM To Model and Manage RiskUsing EVPM To Model and Manage Risk

Selection Phase

Engineering 50‐80%

Execution Schedule

Definition LevelSchedule

Financial Model

Estimate (BAC)

Definition Phase

Engineering 100%

Execution Schedule

Execution Management Schedule

Financial Model

Estimate At Completion

Execution Phase

Scope Definition, Confidence in Estimate, Scope Definition, Confidence in Estimate, Contracting Strategy Progressively Firms Contracting Strategy Progressively Firms


Build a Project time phased financial model, then update and maintain through the project development phases:

Case Study Case Study ‐‐ Project Life Cycle For A Process Plant Project Life Cycle For A Process Plant

Concept Phase: Initial business study to confirm the economic viability of the project.

Using the Phase Components: Model the CAPEX – Capital Expenditure, OPEX ‐ Project Operating Cost, Product Cost of Production, Expected Commodity Prices over the Project Life cycle. Include the expected Management and Modelling costs.

Then use Modified EVPM to determine the Project Return Period and Internal Rate of Return using discounted cash flow.

If the numbers are acceptable moves to the Next Phase.

Execution PhaseDefinition PhaseSelection Phase

Engineering 5‐10%

Execution Schedule

Concept ManagementSchedule

Financial Model

Estimate (BAC)

Concept Phase


Financial Model

Case Study Case Study –– Process Plant Phased ScheduleProcess Plant Phased Schedule

Concept Level Management Schedule

Concept Level Engineering 5‐10%

Concept Level ExecutionSchedule

Selection Phase Level Schedule

Concept Level Revenue Model

Definition Phase Level Schedule

The schedule and EVPM model is continuously revised from one phase to the next to reduce risk.


Financial Model

Case Study Case Study –– Process Plant EVPM Based Investment AnalysisProcess Plant EVPM Based Investment Analysis

Investment Return Period Cash Position = $0

Construction Period

Plant In production

Internal Rate of return = 34% with 8% Finance Interest

Phase 1 to 3 Period

Internal Rate of return = 34% with 8% Finance Interest Internal Rate of return = 34% with 8% Finance Interest


Case Study Case Study ‐‐ Using Commercial EVPM To Successfully Administer A ProjectUsing Commercial EVPM To Successfully Administer A Project

Cost/Time Project Information

Builders Cost Estimated Builder’s Construction Cost $16,770,239Committed Trades & Preliminary Costs $16,990,043at 90% of Trade Package Commitment.

Developers Cost Cost to the Developer $18,152,708Land Cost $2,000,000.Legal & Finance Charges $2,000,000Design Charges and Permitting $500,000Project Management $200,000GST $2,000,000

Benefits Sale Value $30,000,000.Before Tax Profit $5,147,292 (21%)

Time Development Period 22 MonthsConstruction Period 14 Months.

Architectural Drawing of the Project

A project management control charter was established with the following characteristics:• One single point for project program maintenance, financial control and performance reporting.• A fully resourced program to give visibility to all labour requirements by trade package by cost, units of work and key commodity usage.• A stakeholder agreed control baseline for both program and cost control. The baseline to be used for extension of time and contract variations.• An agreed and documented mechanism for resolving disputes between the project stakeholders.• A site agreement with the relevant labour unions with a No Strike disputes resolution process.

Architectural Drawing of the Project


Case StudyCase Study ‐ The project program and EVPM cost control system structured to identify the key construction elements by area and by trade. Shown is the Level 2 & 3 (part) program.

WBS Work Breakdown Structure

CA Control Accounts Mirroring Trade Contracts

OBS Organizational Breakdown Structure Mirroring Responsible Authority

Builder’s BAC ‐ Budget for Works

Builder’s EAC ‐ Committed and Actual Costs

Builder’s SP ‐ Gross Revenue


Case Study ‐ The project program displaying baseline, actual and forecast Start and Finish dates and their corresponding Schedule Variance against the Baseline at detail activity level.

Schedule Variance identifying gains and slippage in the schedule against the Baseline


Case StudyCase Study ‐ Using Supertech’s EVENGINE EVPM Software to Perform the Following Project Performance Evaluation and Project Controls Reports.

1.1. Scheduling DataScheduling Data?? Job Cost Job Cost

Accounting Data Accounting Data for for ActualsActuals

?? Time Sheeting Time Sheeting Data for Units Data for Units of Workof Work

EVPM graphical & tabular EVPM graphical & tabular reports for management reports for management analysis and action using analysis and action using Cost, Work & Quantity / Cost, Work & Quantity /

Material dataMaterial data

Special purpose reports and Special purpose reports and graphical data for Financial graphical data for Financial Management, Investment Management, Investment

Analysis & Financial Analysis & Financial AdministrationAdministration

Case StudyCase Study ‐ EVPM Project Controls Summary Report with Traditional Key Performance Indicators


EVPM Project Controls Summary Report with the Commercial Performance Factors.

New EVPM Fields Include: SP = Revenue, PP = Planned Profit = SP SP = Revenue, PP = Planned Profit = SP –– BACBAC, P = Profit = SP , P = Profit = SP ‐‐EACEAC

Case StudyCase Study ‐ EVPM Combined Histogram with S‐Curve


Project is Late And Overspent At the Status Date


Case Study ‐ EVPM Traditional CV and SV Variance with PP Planed Profit and P Profit

©©S t h P j t M tS t h P j t M t



Case Study ‐ EVPM Traditional % Complete


Case Study ‐ EVPM Traditional CPI and SPI



Case Study ‐ Using CA or Resource Coding Filters To Drill Down By Trade Packs


Apply a CA Filter for CA 210 Concrete Works

Case Study ‐ EVPM Extended Analysis Trade Separation Curves


Identify Trade Congestion And Overlap

Use in Claims/Litigation to Model and Identify Trade Interference and Delay Effects.

Case Study ‐ EVPM Extended – Commercial Cash Flow With Payment Conditions


Negative Cash Flow range for a project one time and late

EVPM Can Be Extended to Undertake Certificate of Payments and Claims


Step 1. Step 1. Distributed the BAC, EAC and SP to each activity. Then if the activity is completed payment is due.

EAC = Subcontract Price

Then Certificates of Subcontractor Payments = Sum of EAC for Completed Work this period less value for last period.

SP = Main Contractor Revenue

Then Certificates of Claim = Sum of SP for this period less value for last period.

EVPM EVPM Can Automates Certificates of Claim & PaymentsCan Automates Certificates of Claim & Payments

Step 2. Step 2. Systematically Update the Schedule each report period and recalculate payment due. The difference between report periods is the certificate of Payment.

Case Study ‐ EVPM Extended – Work Hours


Same Rules apply to Work based EVPM As for Cost. Differences will Occur with respect to % Complete based on Cost versus work weightings.

Case StudyCase Study ‐‐ Civil Engineering ProjectCivil Engineering Project Use EVPM Extended To Undertake Commodity Performance Analysis


One Pile RigOne Pile Rig

Two Pile RigTwo Pile Rig

Commodity reports are based on filter codes example for piles, concrete etc. The process forms the basis for Productivity Analysis and Supply Chain Management.

Productivity AnalysisProductivity Analysis

Supply Chain ManagementSupply Chain Management

Case Study ‐ EVPM Extended – Trade Productivity Analysis – Use to Monitor Expenditure Rates and Compare Against Published Constants (KPI’s)


Simple Simple

ConstructionConstruction

Simple Simple


Complex Construction

Simple Simple


Simple Simple


Conclusions


Using EVPM The Project Manager Can:

Take full control of the project program and cost performance reporting by using a consistent reporting framework conforming to International and Industry accepted guidelines and standards.

Produce professional performance reports and graphs to assist in trending and identifying problem with respect to schedule and budget.

Undertake formula based cash management of the project by removing uncertainty with respect to the project cash position. Cash management saved the project some 2% of the project finance costs in the case study example.

Realize significant cost savings (calculated at 20% of the project management budget) in administrative cost by automating the earned value reporting and payment certification process.

Minimized disputes with the builder, subcontractors and suppliers over the value of progress claims and payments.

Evpm can also be extended to evaluation of performance based on man‐hours and commodity usage and combined performance can be measured against industry published indices.

Conclusions


EVPM has application outside of the traditional reporting reference frame – commercial cash flow, profit and loss trend analysis, contract administration payments, performance analysis based on units of work, supply chain management.

Used to mitigate project failure – trend analysis in advance of any job cost accounting system

Model project alternative scenarios for determining the optimum lowest risk best price strategy –cash flow, resource and commodity histograms

Used to evaluate cash position and minimize project finance costs – model negotiated payment terms

Used to schedule and minimize program finance costs – redistribute (front load revenue to stay cash neutral – take profit later third of project)

Use to set yearly finance budget limits – adopt and extend cash flow to a program of works (not covered in presentation)

Used to investigate labour recruitment – (offsite prefabrication versus on site)

Used to evaluate remote area accommodation, fly in fly out


Application of EVPM Project Controls Techniques To Commercial Application of EVPM Project Controls Techniques To Commercial And Industrial ProjectsAnd Industrial Projects

QUESTIONS AND ANSWERS ?QUESTIONS AND ANSWERS ?

ALL GRAPHS AND REPORTS PRODUCED USING ALL GRAPHS AND REPORTS PRODUCED USING SUPERTECHSUPERTECH’’SS EVENGINEEVENGINE MICROSOFT EXCEL ADDMICROSOFT EXCEL ADD‐‐IN EVPM IN EVPM

PROJECT CONTROL SOFTWAREPROJECT CONTROL SOFTWARE

For more information visit For more information visit www.suptec.netwww.suptec.net

Documents

EVA Presenation 1 - Project Controls · All Have a Fixed Construction Period All Are Resource Intensive All Incorporate Common Materials & Equipment All Meet The Preconditions For