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A practical approach to Earned Value Methodology

A presentation to FIATECH by Mike MilinusicA presentation to FIATECH by Mike MilinusicMarch 30, 2010March 30, 2010

©OnTrack Engineering Ltd 2010


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Real time Automated Project Controls, Task, Technology and People Integration

OnTrack Engineering Model

A practical approach to Earned Value MethodologyFunctions and Tasks Integration

Incurred Commitments

Updated Cost ReportsEV Budget BOM

Bidders ForecastsSchedule MonitorMonitorEngineeringEngineering

RFQs Changes

Earned Value ModuleMonitorMonitor

ConstructionConstruction

ApproveEvaluate Issue POs/Contracts

Process InvoicesReceive

Pay InvoicesRecommend Expedite& QA


UpdatedSchedules

When tasks are integrated, efficiency is created and time and money are saved


EAC

$ or %

BACVACETC

Projected delay

BCWS planned

ACWP spent

SV in $

CVBCWP earned

Time

CV

SV in time

CPI = BCWP/ACWP= cost performance SPI = BCWP/BCWS = schedule performance



• EVM Mandated by US Government ( DOD, DOE)Cost and schedule are integrated with the dollar as a common denominator

Earned Value some History

– Cost and schedule are integrated with the dollar as a common denominator

• ANSI 748 standards: 32 guidelines. Each company define its business rules for– Organization of WBS

Planning and budgeting– Planning and budgeting– Accounting consideration– Analysis and reporting– Changes, revisions and data integrity maintenance

• Some of OnTrack’s business rules and reporting basis: – Measure value of work performed as delivered on site – Cash flow will lag the value of work performed, SOX compliance

Can split labour from material to account for crew productivity measurement– Can split labour from material to account for crew productivity measurement separately

– The total project variance, CPI and SPI is the sum of all accounts measured individually

– Combine standard cost reporting with EV reportingp g p g



• Scope

Earned Value Prerequisites

p• Budget• Schedule

WBS b t• WBS by accounts• Measurement metrics, milestones• Scope ChangesScope Changes• Cost accumulation• Contingency/Risk having no specific scope • Define business reporting rules• OnTrack Project Manager meets these prerequisites



• Simulation of cost reporting using EV inSimulation of cost reporting using EV in– Purchase order for equipment– Purchase order for bulk materialPurchase order for bulk material– Lump sum contract– Unit price contractp– Cost plus contract with labour reported

separately– Indirect cost– Risk and contingency



A /WBS

Scope, budget and 8 independent and concurrent WBS structure are imported

scope BudgetAccounts/WBS structures

To cover the full spectrum of the possibilities In this simple example, we created representative cost categories: direct and indirect cost, material and labour, and execution by lump sum cost plus and unit price contractsexecution by lump sum, cost plus and unit price contracts



Schedule

Each account is linked to the schedule by entering their cumulative percentage completion for each period, in this example periods are monthly.

For concrete we separated material from labour for accuracy and betterFor concrete we separated material from labour for accuracy and better schedule control and forecasting based on productivity, we also set the labour resource limitation to 3 persons



A typical cost report after import



A i l d l f iA typical earned value cost report after import

Since nothing happened yet and nothing was earned we have a negative value for the schedule variancethe schedule variancePlans do change and the initial plan of the value of work performed needs to be confirmed during the commitment stages, with a revised plan

O l th id ti f th t t diff t id th fi i lOnly the mid section of the two reports are different: one provides the financial data the other the progress data (green), these two will be combined in the executive report


Project #: FIATECHA

A practical approach to Earned Value MethodologyData Date: Jan 13, 10Print Date: Jan 13, 10Currency: CDN $

Value of work performed

Cash outflow

In the project setting we set a 60 days lag time for cash outflow based on the l f k f dvalue of work performed


A practical approach to Earned Value MethodologyProject #: FIATECHAData Date: Jan 29, 10Print Date: Jan 29, 10Currency: CDN $

The executive summary combines both reports


A practical approach to Earned Value MethodologyPurchase order for equipment

Once the commercial and technical evaluations are done theOnce the commercial and technical evaluations are done, the recommendation and approval process take place and are recorded to comply with SOX



PO Is issued



Project #: FIATECHAData Date: Jan 15, 10Print Date: Jan 15, 10Currency: CDN $Currency: CDN $

And the 10% payment approved in the system


Project #: FIATECHA

A practical approach to Earned Value Methodologyj

Data Date: Jan 15, 10Print Date: Jan 15, 10Currency: CDN $

Either a request is made to an ERP system for payment or a cheque isEither a request is made to an ERP system for payment or a cheque is issued directly, the system assuming the full project accounting functions


A practical approach to Earned Value MethodologyPurchase order for equipment

On the cost reporting screen the commitment is reflected, the cost controller investigates and finds out that some extra will be required he adds this iteminvestigates and finds out that some extra will be required, he adds this item setting the EAC @ 285,000 creating a positive variance and CPI



The cost controller transfers the forecast and is prompted to comment the p preason for the change of forecast. These comments can be viewed if requested in the detailed cost report as part of an audit trail


Jan 29, 10

Project #: FIATECHA

A practical approach to Earned Value MethodologyData Date: Jan 14, 10Print Date: Jan 14, 10Currency: CDN $

The planned, revised and forecast of the value of work performed and and actual cash outflow are reflected


A practical approach to Earned Value MethodologyLump sum contract

Issued a Lump sum site clearing contractp g



The work was completed on January 14, 2010p y



Extra clearing was required and the amount was agreed on site, from the same receiving screen, not requiring for this small amount the full approval process, an extra was directly issued.We could have triggered a trend process that could have changed the forecastWe could have triggered a trend process that could have changed the forecast and /or triggered a scope and budget change



And the billing certificate issued includes contractor’s extra workAnd the billing certificate issued includes contractor s extra work



PO t ti ll i d fl ti thi tiPO automatically revised reflecting this action


A practical approach to Earned Value MethodologyLump sum contract

Not being an extra to the project but an overrun, the cost controller set the EAC at 6000 reflecting an unfavorable variance and CPI



The EV graphical presentation shows 150% spent for the 100% earned


Project #: FIATECHA

A practical approach to Earned Value Methodologyj

Data Date: Jan 14, 10Print Date: Jan 14, 10Currency: CDN $

Th k i d d d t i d ft th l i dThe work is done and earned, payment is due after the lag period



If h d th 2 000 t th i b d CPI 1If we have approved the 2,000 as an extra the variance becomes zero and CPI 1

Lump sum contractp


A practical approach to Earned Value MethodologyPurchase order for bulk material

No extra claimed and we have a favorable EAC and CPI for the project on thisNo extra claimed and we have a favorable EAC and CPI for the project on this account



Also in cash outflow


A practical approach to Earned Value MethodologyCost plus contract

Now we will complicate matters, we issued a cost plus labour contract where labour productivity rates are variable as well as the quantities canwhere labour productivity, rates are variable as well as the quantities can also change



The contractor and the project representative, based on metrics agreed that physically, 20% of the work was completed by the end of the month of January.



However the contractor spent 350 hours and his actual labour rate was underestimated by 10 dollars. In order to create a billing certificate a ”LEM” was Issued. Note next period the labour rate can be different again



The billing certificate is issued to the contractor to be attached to his invoice



On the cost coded template, the actual hours, billing unit cost,% completion, actual contractor's cost (for contractor's use only to determine his profitability and cash flow) the planned % completion and the period number areand cash flow), the planned % completion and the period number are entered for that period


A practical approach to Earned Value MethodologyControlling Home Office engineering progress, cost and cash flow

deliverables

Control account

Our example was dealing with a single deliverable, we can deal with thousands f d li bl H i t l f i i ffi A t lof deliverables. Here is a separate example for an engineering office. A control

account can have multiple deliverables©OnTrack Engineering Ltd 2010

A practical approach to Earned Value MethodologyControlling Home Office engineering progress, cost and cash flow


To speed up the process, from the receiving registry a template is exported filled and re imported creating the progress report and the billing certificate


And imported



N t t th l b f ti ti f th t tNow we must go to the labour forecasting section of the cost report



Note the items in red, since we are over the 15% threshold and the CPI for labour being .8571428 requiring us to bring more people ( 250 hours) if we must meet the schedule for period 4must meet the schedule for period 4

And made by adding two persons for periods 2 and 3©OnTrack Engineering Ltd 2010


Let us discuss the math and the Composite CPI given that not only we have poor productivity but also higher wage costs:The cost to date is 35,000 and the cost to go is 1400 x 100= 140,000 for a total forecast assuming the current composite productivity andfor a total forecast assuming the current composite productivity and billing rate of 175,00 hours by the current billingScrutinize all the other values and discuss, note tool tips for the cumulative data to date could not show on the PowerPoint


Project #: FIATECHAData Date: Jan 27, 10Print Date: Jan 27, 10

A practical approach to Earned Value MethodologyCurrency: CDN $

The revised and increased manpower in order to stay on targetp y g



The data is also reflected in the basic forecast screen



And the data manually transferred to cost at completion with reason stated y pfor this change. These reasons are recorded in the detailed cost report, by date and author for each account



Progress and cash outflow for concrete labour



Total project progress and cash outflow©OnTrack Engineering Ltd 2010


Project #: FIATECHAData Date: Jan 29, 10Print Date: Jan 29, 10Currency: CDN $

The commitments report on January 29, 2010



Project #: FIATECHAData Date: Jan 29, 10Print Date: Jan 29, 10Currency: CDN $

The standard cost reportThe standard cost report



The earned value cost report



Project #: FIATECHAData Date: Jan 29, 10Print Date: Jan 29, 10Currency: CDN $Currency: CDN $

And the month end executive summary©OnTrack Engineering Ltd 2010


Back to the labour contract this time productivity and rates were as plannedBack to the labour contract, this time productivity and rates were as planned



The second billing certificate



February hours and rates are imported



Since productivity improved we need less hours








A practical approach to Earned Value MethodologyUnit cost contract


A practical approach to Earned Value MethodologyUnit cost contract

A takeoff was made indicating only 19 ton will be the final quantitySi h d f h d l t d b d ti it b t ifSince we are ahead of schedule we are not concerned by productivity, but if we were behind we will be, advising the contractor to increase manpower



When cost at completion is less than the commitment one


When cost at completion is less than the commitment one needs to revise the commitment







A practical approach to Earned Value MethodologyIndirect cost

The construction management is our internal cost processed in our ERP system





We planned to spend to date 30,000 on the construction manager, in this example we are going to assume that either the rate is higher than expected or he needed more hours so we will give this account a productivity of 30/36= 833333 d ll.833333 and allow an overrun

One can measure also labour productivity externally©OnTrack Engineering Ltd 2010






The incurred commitment is a dummy PO, The EV is invoiced


Risk and contingency

Each company has its own policy for contingency and risk gradual rundown, it is never proportional to the % of project completion

We are approximately 25% complete, we could not allow a rundown of 25% and cover completely the overrun of some 22,000, I decided to use only

, p p p j p

p y , , y5,000 leaving the rest in reserve toward the end



The rundown risk/contingency curve©OnTrack Engineering Ltd 2010


The standard cost report



The EV cost report



The executive report for period 2©OnTrack Engineering Ltd 2010


The current and projected cash outflow



Every graph has an accompanying table



A presentation to FIATECH by Mike MilinusicA presentation to FIATECH by Mike MilinusicMarch 30, 2010March 30, 2010

Thank youThank youThank youThank you

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