Approximately 80% of our business is “design-build”, sometimes referred to as “turnkey” projects. Typically less than 20% of the project is delivered by internal labor, 80% or more by subcontractors / suppliers. To measure (or force) progress, we must rely on supplier reports (not necessarily reliable), meetings (shop visits etc.) that are not only expensive but also may need qualified personnel, and in some cases conditional terms of payment. Terms of payment however may be governed by financial considerations, not necessarily progress.
In such scenarios, how can EVM be made reliable?
What is the experience in the PMI community? Saving Changes...
For fixed price contracts you should not be concerned about contractor's cost, your interest is the cost to you - billing. The billing (and payment) should reflect the value you have received regardless of costs to the contractor to achieve that value. You should have a process in place to validate billings which should be sufficient for EV considerations. If you are paying bills without validation you have other serious problems (risks).
Some fixed-price or not-to-exceed contracts may have billing terms that 'pays advances based on costs and/or expired time' rather than value of work delivered. EV calculations become a bit trickier and possibly unreliable. These contracts are higher risk and should be avoided
Peter,
you may have misunderstood my example; I am the supplier to the project owner. ( I am the turnkey contractor), and I award a contract to a supplier with terms 100% on delivery ( to us)... After the contract is signed, I do not care anymore about he supplier's cost (well in the example.. if you don't care it may come back to bite you). My cost is the 100% on delivery.. Until such time from an EV point of view, my cost =0. ( I goes from an accounting point of view as well). In the mean time we use EVM for our internal labor, but as I defined the problem, internal labor is only 10% of the project value. Why would I go through the effort of EVM?
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1 reply by Peter Rapin
Jan 02, 2022 4:32 PM
Peter Rapin
...
Two thoughts here:
1) if there are many subcontracts and deliverables due a different times/stage of the project applying EVM to that work may still have some value. You may be able to identify slippage and impact on the ultimate deliverable.
2) why would you not use EVM on the internal work? You may want to show that you are being effective in-house as well as identify any impact on your subs and suppliers. On a $1 m project you may be able to do the exercise mentally but a $20 m project your internal work represents $2 m.
I would expect each of your major subs to have some sort of EVM system as they should want to monitor their performance against what they planned and effort applied.
Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
Jan 02, 2022 4:16 PM
Replying to Roland Vander Straeten
...
Peter,
you may have misunderstood my example; I am the supplier to the project owner. ( I am the turnkey contractor), and I award a contract to a supplier with terms 100% on delivery ( to us)... After the contract is signed, I do not care anymore about he supplier's cost (well in the example.. if you don't care it may come back to bite you). My cost is the 100% on delivery.. Until such time from an EV point of view, my cost =0. ( I goes from an accounting point of view as well). In the mean time we use EVM for our internal labor, but as I defined the problem, internal labor is only 10% of the project value. Why would I go through the effort of EVM?
Two thoughts here:
1) if there are many subcontracts and deliverables due a different times/stage of the project applying EVM to that work may still have some value. You may be able to identify slippage and impact on the ultimate deliverable.
2) why would you not use EVM on the internal work? You may want to show that you are being effective in-house as well as identify any impact on your subs and suppliers. On a $1 m project you may be able to do the exercise mentally but a $20 m project your internal work represents $2 m.
I would expect each of your major subs to have some sort of EVM system as they should want to monitor their performance against what they planned and effort applied.
...
2 replies by Roland Vander Straeten
Jan 02, 2022 4:40 PM
Roland Vander Straeten
...
Peter,
I think I answered your question via my response to Keith while you were writing your reply.
Jan 02, 2022 5:02 PM
Roland Vander Straeten
...
just to clarify, some of our supplier's contracts end up with changes to those contracts, without a corresponding change to our Customer's contract.. Some of those changes are increases in costs, some sometimes are reductions in costs. The EVM (methodology?) is able to give us an overall blend of cost / schedule..
Oh, what a joy to be a project manager!
In that case,I would say you are going through the motions without actually using EVM, at least at the contractor level. The whole purpose of EVM is to discover issues early when they can be addressed, not just to create metrics that can't be fixed.
Unless the suppliers can break down their delivery into time phased expectations, everything is always on plan until it suddenly becomes a crisis. Plan your deliveries early enough so that you have plenty of buffer for problems.
You may be doing EVM at the project level, but by the terms of your contract, you are not managing your supply chain at all. You are simply making purchase orders for long lead items hoping for on-time delivery.
Hi Keith, I just made an extreme illustration to make a point. We do not use EVM for the reasons you mention. I am also conscious of what you mentioned earlier ("...When I am a sub, I don't want the prime to micromanage my work and interfere") However, we do use EVM where we are in complete control,. This would be both at the beginning and at the end of the project. I was hoping there was some hybrid methodology in order to provide a clear overall picture at any point in time, spanning all phases.
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1 reply by Keith Novak
Jan 03, 2022 1:44 PM
Keith Novak
...
There is a hybrid method which requires managing different subs differently.
On aircraft projects, I have many types of suppliers. Structural parts will generally be build-to-print and we take credit for EV when we release the drawings to create purchase orders. Those may go to several suppliers and I don't even know who they all are.
Other more complex parts such as electronics are defined under specification documents of some type where the supplier has their own development effort to design HW or SW to the specs. In those cases, we usually have multiple planned events in our own WBS related to supplier activities. Releasing the spec to the supplier, PDR & CDR, reviewing supplier engineering, test plans, & test results, first article inspection at the supplier are all things we can take credit for incrementally.
In some cases we do have suppliers who are making changes up to the last minute, and we are mostly flying blind as to what they are doing until we get their product. Those are a big source of problems that we learn just before delivery, or after we receive the product.
My current responsibilities include process improvements for integrating the many supplied parts. In the case where we are mostly flying blind, we are often left with 2 choices: 1) Earlier delivery dates so we have time to fix the problems. 2) Better visibility so we can plan for issues rather than just react to them. 2) Requires contractual changes.
Two thoughts here:
1) if there are many subcontracts and deliverables due a different times/stage of the project applying EVM to that work may still have some value. You may be able to identify slippage and impact on the ultimate deliverable.
2) why would you not use EVM on the internal work? You may want to show that you are being effective in-house as well as identify any impact on your subs and suppliers. On a $1 m project you may be able to do the exercise mentally but a $20 m project your internal work represents $2 m.
I would expect each of your major subs to have some sort of EVM system as they should want to monitor their performance against what they planned and effort applied.
Peter,
I think I answered your question via my response to Keith while you were writing your reply. Saving Changes...
Two thoughts here:
1) if there are many subcontracts and deliverables due a different times/stage of the project applying EVM to that work may still have some value. You may be able to identify slippage and impact on the ultimate deliverable.
2) why would you not use EVM on the internal work? You may want to show that you are being effective in-house as well as identify any impact on your subs and suppliers. On a $1 m project you may be able to do the exercise mentally but a $20 m project your internal work represents $2 m.
I would expect each of your major subs to have some sort of EVM system as they should want to monitor their performance against what they planned and effort applied.
just to clarify, some of our supplier's contracts end up with changes to those contracts, without a corresponding change to our Customer's contract.. Some of those changes are increases in costs, some sometimes are reductions in costs. The EVM (methodology?) is able to give us an overall blend of cost / schedule..
Oh, what a joy to be a project manager!
...
1 reply by Peter Rapin
Jan 02, 2022 7:04 PM
Peter Rapin
...
I hear you. I was lucky in that my early project experience predates today's technology. We used pencil and paper, talked to each other and developed simple ways to keep track of stuff. From there the payroll and costing ledgers got computerised but all data was manually collected and handled. Reporting remained a headache as upper management wanted reports based on the costing spreadsheets which were months late and somewhat misleading. Scheduling was a scroll in the field office (not portable and barely readable). As project managers we spent a lot of our time stalling, feeding bullshit up the line and trying to steer a ship with no connection between the steering mechanism and engines. As the project management industry evolved (computers, theoretical models, professional associations, etc) some of us thought that things would be easier. However, it seems that every advancement is accompanied by increased expectations and complications - more forms, quicker response, stakeholder expectations, legal complications.
"Oh, what a joy to be a project manager".
Is it really all that different?
A ride I'm glad I didn't miss.
Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
Jan 02, 2022 5:02 PM
Replying to Roland Vander Straeten
...
just to clarify, some of our supplier's contracts end up with changes to those contracts, without a corresponding change to our Customer's contract.. Some of those changes are increases in costs, some sometimes are reductions in costs. The EVM (methodology?) is able to give us an overall blend of cost / schedule..
Oh, what a joy to be a project manager!
I hear you. I was lucky in that my early project experience predates today's technology. We used pencil and paper, talked to each other and developed simple ways to keep track of stuff. From there the payroll and costing ledgers got computerised but all data was manually collected and handled. Reporting remained a headache as upper management wanted reports based on the costing spreadsheets which were months late and somewhat misleading. Scheduling was a scroll in the field office (not portable and barely readable). As project managers we spent a lot of our time stalling, feeding bullshit up the line and trying to steer a ship with no connection between the steering mechanism and engines. As the project management industry evolved (computers, theoretical models, professional associations, etc) some of us thought that things would be easier. However, it seems that every advancement is accompanied by increased expectations and complications - more forms, quicker response, stakeholder expectations, legal complications.
"Oh, what a joy to be a project manager".
Is it really all that different?
A ride I'm glad I didn't miss. Saving Changes...
Hi Keith, I just made an extreme illustration to make a point. We do not use EVM for the reasons you mention. I am also conscious of what you mentioned earlier ("...When I am a sub, I don't want the prime to micromanage my work and interfere") However, we do use EVM where we are in complete control,. This would be both at the beginning and at the end of the project. I was hoping there was some hybrid methodology in order to provide a clear overall picture at any point in time, spanning all phases.
There is a hybrid method which requires managing different subs differently.
On aircraft projects, I have many types of suppliers. Structural parts will generally be build-to-print and we take credit for EV when we release the drawings to create purchase orders. Those may go to several suppliers and I don't even know who they all are.
Other more complex parts such as electronics are defined under specification documents of some type where the supplier has their own development effort to design HW or SW to the specs. In those cases, we usually have multiple planned events in our own WBS related to supplier activities. Releasing the spec to the supplier, PDR & CDR, reviewing supplier engineering, test plans, & test results, first article inspection at the supplier are all things we can take credit for incrementally.
In some cases we do have suppliers who are making changes up to the last minute, and we are mostly flying blind as to what they are doing until we get their product. Those are a big source of problems that we learn just before delivery, or after we receive the product.
My current responsibilities include process improvements for integrating the many supplied parts. In the case where we are mostly flying blind, we are often left with 2 choices: 1) Earlier delivery dates so we have time to fix the problems. 2) Better visibility so we can plan for issues rather than just react to them. 2) Requires contractual changes.
...
1 reply by Roland Vander Straeten
Jan 03, 2022 1:52 PM
Roland Vander Straeten
...
Keith,
Wow. Yes, almost same as many of the scenarios we deal with! and same kind of remedies.
Roland
There is a hybrid method which requires managing different subs differently.
On aircraft projects, I have many types of suppliers. Structural parts will generally be build-to-print and we take credit for EV when we release the drawings to create purchase orders. Those may go to several suppliers and I don't even know who they all are.
Other more complex parts such as electronics are defined under specification documents of some type where the supplier has their own development effort to design HW or SW to the specs. In those cases, we usually have multiple planned events in our own WBS related to supplier activities. Releasing the spec to the supplier, PDR & CDR, reviewing supplier engineering, test plans, & test results, first article inspection at the supplier are all things we can take credit for incrementally.
In some cases we do have suppliers who are making changes up to the last minute, and we are mostly flying blind as to what they are doing until we get their product. Those are a big source of problems that we learn just before delivery, or after we receive the product.
My current responsibilities include process improvements for integrating the many supplied parts. In the case where we are mostly flying blind, we are often left with 2 choices: 1) Earlier delivery dates so we have time to fix the problems. 2) Better visibility so we can plan for issues rather than just react to them. 2) Requires contractual changes.
Keith,
Wow. Yes, almost same as many of the scenarios we deal with! and same kind of remedies.
Roland Saving Changes...
Dear Roland,
My experience in construction with EPC – lump sum projects, where the measuring is based more on milestones than physical progress of the job, is using EVM like an economic model. So, it designs a model for measuring efficiencies and productivity by the unit of work or activity. The model helps to predict based on current work done (retrospective) plus work to complete (changes + context + capability + strategies). In other words, it uses the principle of inspection and adaptive planning.
Secondly, supply chain failure is one of the principal causes of milestone failure. So, measuring physical progress could be inefficient. It is more important to predict a most realistic delivery date than estimates progress which will not show the future impact on the construction. In addition, procurement delays create many types of wastes within the construction activities.
The aim is to design an artefact that enables to early detection of deviations to reduce the impacts coming from risks or issues. Besides, permit more efficiently resources management.
...
1 reply by Peter Rapin
Jan 03, 2022 5:19 PM
Peter Rapin
...
Sounds like risk management to me. Identify what could go wrong, determine possible impact and develop mitigating measures which, in this case, would include processes to gage progress. I say processes in the plural as different situations may require different responses. Sometimes we are looking for an all encompassing simple solution where one does not exist.
As noted in earlier comments, sometimes the mitigating measures reduce the risk of occurrence (contract changes) and sometimes the measures reduce the impact (earlier delivery dates).
Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
Jan 03, 2022 3:03 PM
Replying to Elena Sandoval
...
Dear Roland,
My experience in construction with EPC – lump sum projects, where the measuring is based more on milestones than physical progress of the job, is using EVM like an economic model. So, it designs a model for measuring efficiencies and productivity by the unit of work or activity. The model helps to predict based on current work done (retrospective) plus work to complete (changes + context + capability + strategies). In other words, it uses the principle of inspection and adaptive planning.
Secondly, supply chain failure is one of the principal causes of milestone failure. So, measuring physical progress could be inefficient. It is more important to predict a most realistic delivery date than estimates progress which will not show the future impact on the construction. In addition, procurement delays create many types of wastes within the construction activities.
The aim is to design an artefact that enables to early detection of deviations to reduce the impacts coming from risks or issues. Besides, permit more efficiently resources management.
Sounds like risk management to me. Identify what could go wrong, determine possible impact and develop mitigating measures which, in this case, would include processes to gage progress. I say processes in the plural as different situations may require different responses. Sometimes we are looking for an all encompassing simple solution where one does not exist.
As noted in earlier comments, sometimes the mitigating measures reduce the risk of occurrence (contract changes) and sometimes the measures reduce the impact (earlier delivery dates).
...
1 reply by Keith Novak
Jan 03, 2022 6:20 PM
Keith Novak
...
There is a 3rd mitigation method at the project level: Limiting the number of suppliers in the exception group of little to no progress visibility.
If you can measure the progress of most suppliers, you may be able to accept a few issues and handle their occurrence by planning for surge capacity near the point of scheduled delivery. Those suppliers must be exceptions though (80/20 rule). If everyone sees that accepting issues is the norm, then everyone tries to move into the exceptions group, and the 80% become the problems at which point you run out of people to manage the inevitable wave of crisis management.
This is easier to manage top-down. A CEO can demand there will be no exceptions without explicit approval. It's harder to manage up and explain to the exec level that unless they maintain schedule discipline, everyone will expect a free pass and plan accordingly.
After all, if there is no accountability, who cares if you're on time?