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...
What is the nature of the contracts - are they mostly fixed price or are they cost plus ones as that would make a difference in how EVM could be applied. For example, if you have milestone based payment on a fixed cost contract then so long as proof of progress can be confirmed, it should be relative simple to determine your EV at any point in time. With a cost-based contract where progress is less easy to determine, things will get corresponding more complicated...
Thanks Kiron.
Fixed price. The problem is to have a reliable proof of progress, as described in the initial message. Suppliers are from a global supplier base, that is why shop visits tend to be expensive. Suppliers also tend to set up a bit of show prior to shop visit. With Corona, now it is even more of a problem. Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
Without question it is a problem. The solution starts with risk management and the the tendering process. If you focus on "lowest price" through competitive bidding you significantly increase the risk of poor performance and service - what you save on low price you need to compensate in the level of monitoring and control. If you wish to have enhance services and better tracking and reporting there may be a premium built into the bidding - consider pre-qualifications and relying on a proven stable of subs and suppliers. Typically you get what you pay for, maybe a little less.
To me it's about quality control - not just in the product but the delivery service as well. Someone has to pay for it. If you expect it of the subs and suppliers, pay for it. Otherwise do it yourself and suffer the costs.
...
1 reply by Roland Vander Straeten
Jan 02, 2022 1:15 PM
Roland Vander Straeten
...
We do pre-qualify, we visit ( but with Corona this is a problem) etc. However, my question was more related to the EVM: How do we allocate (EVM) costs. The only measure we do have is conditional terms of payment, but those may not have anything to do with the costs-to date. In other words, why would we do EVM in the first place? what / how do we learn from it.
This is similar to my environment where subs design and test individual electronics components, and we integrate the hardware into a larger system.
First I would say that EVM is not a substitute for knowing what is really going on. When used effectively, EVM provides data points, and the frequent discussions with the performing teams explain what the numbers really mean. While site visits are expensive, the subs with good working relationships and frequent progress updates perform much better than those who work mostly unseen.
Second, EVM tracks planned work. That means the work must be planned. Sounds obvious, but experience shows otherwise. If you have months long periods of "preliminary design", there is not enough fidelity to know if the work is being completed. It needs to be planned and broken down into more detailed deliverables, milestones, etc. That is easier to do in the release phase since you have test results, documentation completion, etc. More attention needs to be on progress early, or you just track how late and over budget you will finish.
There is a balance required however. When I am a sub, I don't want the prime to micromanage my work and interfere. You need to find the right balance between knowing the true progress, and causing more work by poking at every daily minor schedule delay unrelated to the critical path. Saving Changes...
Without question it is a problem. The solution starts with risk management and the the tendering process. If you focus on "lowest price" through competitive bidding you significantly increase the risk of poor performance and service - what you save on low price you need to compensate in the level of monitoring and control. If you wish to have enhance services and better tracking and reporting there may be a premium built into the bidding - consider pre-qualifications and relying on a proven stable of subs and suppliers. Typically you get what you pay for, maybe a little less.
To me it's about quality control - not just in the product but the delivery service as well. Someone has to pay for it. If you expect it of the subs and suppliers, pay for it. Otherwise do it yourself and suffer the costs.
We do pre-qualify, we visit ( but with Corona this is a problem) etc. However, my question was more related to the EVM: How do we allocate (EVM) costs. The only measure we do have is conditional terms of payment, but those may not have anything to do with the costs-to date. In other words, why would we do EVM in the first place? what / how do we learn from it. Saving Changes...
If you are using a fixed price contract, then AC should equal EV. As such, EVM will tend to focus more on schedule performance than cost performance in terms of variances between EV and PV...
To illustrate the issue: suppose that my fixed price supplier (to me) contract has a terms of payment 100% on delivery. Only at the time of delivery do I allocate the AC. In the mean time I have been flying blind on autopilot. In a typical case ( for us), delivery is more than 1 year.
...
1 reply by Peter Rapin
Jan 02, 2022 4:15 PM
Peter Rapin
...
If there are no intermediate deliverables and there are no, or unreliable, progress reports then I would say you have received no value until you get to 100%. Thus EV is a one shot deal on receipt of the deliverable.
If you don't want to fly blind then your contract needs to have conditions under which you can get reliable progress reports. The key is "reliable". You may be able to achieve this through audits at set points but if you don't establish milestones or interim deliverables even audits are of little value if they can't be compared to expectations.
How risky do you see 'flying blind' and develop mitigating measures, including suitable contract requirements, to increase your level of comfort to the tolerable range.
Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
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
...
1 reply by Roland Vander Straeten
Jan 02, 2022 4:16 PM
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?
Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
Jan 02, 2022 3:49 PM
Replying to Roland Vander Straeten
...
To illustrate the issue: suppose that my fixed price supplier (to me) contract has a terms of payment 100% on delivery. Only at the time of delivery do I allocate the AC. In the mean time I have been flying blind on autopilot. In a typical case ( for us), delivery is more than 1 year.
If there are no intermediate deliverables and there are no, or unreliable, progress reports then I would say you have received no value until you get to 100%. Thus EV is a one shot deal on receipt of the deliverable.
If you don't want to fly blind then your contract needs to have conditions under which you can get reliable progress reports. The key is "reliable". You may be able to achieve this through audits at set points but if you don't establish milestones or interim deliverables even audits are of little value if they can't be compared to expectations.
How risky do you see 'flying blind' and develop mitigating measures, including suitable contract requirements, to increase your level of comfort to the tolerable range. Saving Changes...
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.
...
1 reply by Roland Vander Straeten
Jan 02, 2022 4:34 PM
Roland Vander Straeten
...
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.
