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Weightages for different phases of an EPC Project.

10 replies [Last post]
Wed, 2007-08-01 14:08
Salman Raza
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My company is undertaking a project for expansion of its existing plant. Engineering, procurement and construction have been assigned to different contractors. We are now in the process of preparing master shcedule encompassing all the three phases. So, we are now facing problem in assigning %age weightages to different phases. If we use the standard yardstick of respective cost then because of cheap labour, the cost contribution of construction cost is coming out to be only 9.5% of the total budget. As per the schedules submitted by E&P contractor, procurement would be completed around one year before mechanical completion of the project. So if we go by cost for around a whole year out of 3 years span of project, we would be left with only 9% which doesnt sound appropriate. Could anyone give me a clue on how these apportionment of weightages are done.
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Replies

Fri, 2007-09-14 11:53
#1
Nicolas Igersheim
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Nar,

If the design phase nears its end, an overall progress figure would be meaningless.

So your pb is construction progress.

You need to assess what you know about it:

First question:
Is it the subcontractor’s intent to monitor the progress
of it’s works? If yes, your question is answered, all
you need is audit this monitoring.

If no, second question:
do you have any information money, manhours or quantitywise
about the works?

If yes to money or manhours, you can weigh your activities using that information.
If you have only quantities, use theoretical (guesstimates) manhours per unit to find manhours per activity.
The mistakes you will make on the weights will not be very
important as long as you do a comparison scheduled<->actual.
The mistake will be the same on both sides of the scale.

If you have no information at all, you need to reconsider
producing an S curve. It will not be possible!

sorry to sound pessimistic.
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Fri, 2007-09-14 06:26
#2
Nar Thap
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Thanks James and Nicolas,
Nicolas so you are saying money as overall measure of progress which is displaced at percent expend column?

My additonal query is how is an EPC project ideally progress monitored? by money or by % completion, obviously it includes procurement?

Let me brief you bit about my problem.
The project is at the almost end of the design phase and soon going to be in construction by a subcontractor. I don’t think I will have detail info. of money as the company’s interest. This plan I picked up few months ago and was not fed in manhours. How can I fed in the MHs back?
I need to produce s-curve. Please suggest me.
Cheers
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Fri, 2007-09-14 03:39
#3
Nicolas Igersheim
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Hi Nar,

You should split the problem thus:

- Weigh all activities in your programme: this must be with one and one unit only, money.

- Assess the progress of each individual activity: there
you have the liberty to use a physical unit for instance
weld units for piping, tons of steel for structure etc.



Would that answer your question?

If not why not come up with a specific progress curve
for construction using manhours?
For if you want
to measure overall progress, you have to chose a
common measuring unit and that would be money
if procurement is involved.

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Thu, 2007-09-13 11:51
#4
Nar Thap
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Client wants progressed to be measure in terms of money for procurement and design and construction on physical basis. Is it possible to do in primevera? Hope somebody can help me.
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Wed, 2007-09-12 11:38
#5
James Griffiths
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Hi Nar,

On what basis do you wish to measure the progress??

James.
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Wed, 2007-09-12 11:15
#6
Nar Thap
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Hello,
Somewhat related to the topic...how should one use weightings to the different phases of the project on primevera p3 so that progress does not measured only on physical basis?
cheers

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Fri, 2007-08-03 03:16
#7
James Griffiths
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Salman,

You are quite right in that, if there are no "measurement quantities" available to use to calculate % progress, then MONEY can be used instead. In fact, MONEY is still a perfectly good measure, owing to the fact that all Earned Value calculations are ultimately converted to money. Are you familiar with the principles of Earned Value?

The whole idea of EV is to "claim" monetary value according to the assigned monetary value of the work tht is to be performed. In theory, once you have "claimed" all of the baseline monetary value (BCWS) you should be 100% complete - unless you are overspending etc.

There is no problem in "claiming" 90.5% of the "value" of the project when you are only 66% through the duration - if your weighting calculations are performed correctly.

Nicholas’ suggestion in changing the point in time when you "claim" the "value" of procured items is a valid point - as long as you understand what the effects are. For instance: Assume that you are going to "claim" the value only on installation (thereby increasing the proportional "value" of the installation phase). If you purchase all the air-conditioning units in the month of March, and you have to pay for them in April, and install them in June; you will be incurring the cost in the April period, but will be unable to claim any of their value - therefore you have achieved no "progress" - but you will have incurred their cost (this will result in a reduced performance indicator in the April period). You will be able to "claim value" only in June. So, in order to satisfy the desire of your boss to have the installation phase become a larger proportion of the total project, you may incur a performance penalty (and a potential cash-flow penalty) in the earlier phases of the project.

Does this make any sense?

Cheers.

James.
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Thu, 2007-08-02 13:39
#8
Salman Raza
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Hello Nicolas and James,
Thank you very much for your very informative replies.

James, problem with man-hours is that we don’t really have very concrete and clear figures from our EP contractor and my company’s management had agreed with them at contract stage that they would provide us on monthly basis the %age planned and achieved figures of their part and similar feedback will be provided by our Construction contractor. Now we have been asked by our management to prepare a consolidated project schedule and monitor the overall progress through it by incorporating the %age progress feedback of EP & C Contractors. So we really dont have any other concrete basis or yardstick for assigning weightages except for the cost and that’s why I floated this suggestion. However, my bosses are not comfortable with the allocation of only 9.5% weightage to construction on the ground that as per planned dates, the mechanical completion would be completed one year after the last procurement is completed, i.e. 90.5% of the project would be completed in two years and the remaining 9.5% in the third year.
Nicolas, the clue given by you makes a lot of sense to me. I yet have to receive detailed item wise procurement schedule. Once I’ve that I will try to work out something relating physical progress to cash flow and see if the percentage weightage increases for the last year.
Thakyou again both of you. Your feedback has bolstered my confidence in my stance. Please let me know if you have other tips on the issue.
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Thu, 2007-08-02 07:48
#9
Nicolas Igersheim
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Hi all

Salman,

How do you allow for equipment and bulk supply cost?
Is it 100%
on committment,
on site delivery,
on erection, or
on mechanical acceptance?

This could move ("improve") your figure of 9.5% some.

Hth
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Thu, 2007-08-02 02:44
#10
James Griffiths
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Hi Salman,

It sounds as though you have made a perfectly good calculation, using a perfectly good yardstick (unit of measurement) ie.MONEY. If you are using Earned Value, then what you have done is perfectly OK.

Just because the % weighting is lower than you expected, it doesn’t mean that it is wrong. As long as the mathematical calculations have been correctly performed, then you are fine. However, you could also try using MANHOURS as the yardstick. This may very well increase the proportion of the construction element, as part of the total project manhours.

As an example: Western manufacturing companies often sub-contract the manufacture of their products to cheap-labour-cost countries like China. The quantity of manhours required to manufacture the product doesn’t change, but because the cost-per-hour is lower, then the overall product cost becomes lower. This translates to the fact that the labour-cost element of the product becomes a proportionately smaller % of the product cost. You could also say that the corollary (inverse) is that the "other element costs" of the product ie. the non-labour, become a larger % proportion of the total product cost.

HTH

James.
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