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M09-5 - Project Performance Forecasting - EVM

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Rafael Davila
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RE: GPCCAR on EVM

09.0 - MANAGING PROJECT PROGRESS - 09.5.3.2 THE PERIODIC PROGRESS REPORT - STEP 7: OPTION 2: REJECT THE PROGRESS UPDATE AND REQUIRE A RE-BASELINE BE PREPARED

In the event that the project as being built is “materially” or “significantly” different than what was originally planned, (and the “rule of thumb” is +/-10 variance is a “significant” variance) then we can recommend to the clients and key stakeholders that we RE-BASELINE the schedule. When Re-baselining, there are two options or approaches:

1. Option 1 - Leave the ACWP and BCWP to date UNCHANGED and only adjust the BCWS Early and BCWS Late Date Curves to reflect the changes. (+/-)

2. Option 2 - Zero Based Budgeting Method- In this method, we “close out” all the work completed to date and effectively create a new project baseline consisting of the work already done and the work remaining, and use the only known fact- ACWP to date as the starting point for the new project.

From a CONTRACTORS perspective, Option 1 is generally preferred as it enables the contractor to demonstrate the impact of the changes, while in most cases, owner’s prefer to see Option 2 as it gives them a more clear picture of what work is remaining and how it will be executed regardless of which dates have been agreed to.

___________________________________________________________________________________________

The above statements regarding the Re-baselining options are wrong and misleading.

1. GPCCAR on EVM completely misses the concept of formal re-programming, the Over-Target-Baseline and Over-Target-Schedule.  It only mentions the confrontational approach to require a mandatory Re-Baselining.

a. Re-programming is a sensible approach when Re-Baselining is falling behind and there is no mutual agreement on all pending time and cost issues, a common scenario in construction jobs.

b. Formal re-programming does not changes the contractual conditions as Re-baselining might do.

c. http://www.acq.osd.mil/evm/docs/OTB-OTS%20Guide%20121205.pdf

2. The DOD provides five basic options for Re-baselining the Over-Target-Baseline and Over-Target-Schedule,  four of them must be mutually agreed while there is one that does not require mutual agreement, DOD 3.5.6.2.1 Eliminate all Variances. The remaining DOD options require cumbersome manipulations of the Baseline schedule, are error prone.  

a.  3.5.6.2.1 Eliminate all Variances

b.  3.5.6.2.2 Eliminate the Schedule Variance (SV) Only

c.  3.5.6.2.3 Eliminate the Cost Variance (CV) Only

d.  3.5.6.2.4 Eliminate Selected Variances

e.  3.5.6.2.5 Retain All Variances

3. GPCCAR on EVM fails to mention that for fixed price contracts the DOD is against use of EVM no matter the contract price.  The DOD recognizes that the recommendation to use EVM is very dependent on contract type.

a. http://www.goaztech.com/media/documents/evmigoct06.pdf

b. 2.2.3.7 Exclusions for Firm Fixed Price (FFP) Contract Type.   The application of EVM on FFP contracts and agreements is discouraged, regardless of dollar value.

c. EVM is dependent on Activity Based Costing.  Due to the amount of activities on construction CPM Schedules, ABC method is considered impractical by Construction Contractors.

4. To say Option 1 is generally preferred as it enables the contractor to demonstrate the impact of the changes is wrong.  

a. None of these Delay Analysis Methodologies Contemporaneous or Forensic depends on EV theories; otherwise the DOD recommendation to avoid EVM on Fixed Price Contracts would be stupid as well as AACE® International Recommended Practice No. 29R-03 that makes no single reference to EV.

b. DOD 3.5.6.2.1 option is superior because of how cumbersome the Baseline Schedule manipulations can be.  

c. No single local contractor voluntarily uses formal EVM procedures.  I suppose it is only required on DOD non-fixed price jobs, very rare around here.  If you know of a single such job let me know, I want to see this rare bird.

5. GPCCAR on EVM misses to mention the inherent limitations of EVM theory when applied to CPM Schedules.

a. http://wbia.pollub.pl/files/83/attachment/1914_3_2.pdf

b. Many organizations worldwide adopted Earned Value as a standard management tool (e.g. US Department of Defense [13], an Australian standard [14]). It is described in practically all management handbooks and incorporated into management software. However, if to be implemented, the method should be used according to its purpose: it is not a tool for forecasting; instead, it facilitates progress monitoring, determination of project status (on time? to budget?), identification of potentially negative occurrences and a rough estimate of their combined effect on the project’s outcome. If the project is to be managed consciously, these occurrences should be then investigated into by means of more accurate methods.

c. http://www.planningplanet.com/guild/library/project-control-methodologies

d. http://www.spiderproject.com/images/img/pdf/Project%20Control%20Methodology.pdf

e. http://earnedschedule.com/Docs/Schedule%20is%20Different.pdf

f.  http://www.redorbit.com/news/health/1436113/earned_value_management_clog...

Replies

Rafael Davila
User offline. Last seen 12 hours 28 min ago. Offline
Joined: 1 Mar 2004
Posts: 5069
  • From a CONTRACTORS perspective, Option 2 is generally preferred, not Option 1, no need to complicate things unless it is of some value that justifies the complication. 
    • Many local contractors do not see much value on EVM and understand the limits and flaws of such methodology and I agree with them.
    • https://www.pomsmeetings.org/confpapers/060/060-1448.pdf  
  • EVM is not a methodology for claim analysis in any case a tool for measuring performance that fails its purpose when baseline frequently changes. EVM is not mentioned in many references such as AACE International Recommended Practice No. 29R-03, it is not true it is necessary to demonstrate impact of changes. 
Dr. Paul D Giammalvo
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Raf, given that the US DoD's track record on their projects is less than exemplary (See research by Glenn Butts from NASA http://www.build-project-management-competency.com/wp-content/uploads/2010/09/Glenn.Butts-Mega-Projects-Estimates.pdf and Bent Flyvbjerg in particular) I don't encourage people to hold the US DoD out as exemplary examples of what others should be doing.

My perspective is as a small to medium sized, hard money CONTRACTOR where my own money is on the line if the project "succeeds" or "fails".     In that context, I have put forward what I know WORKS and works well.

IF others want to put forward alternatives, we have made provision in the GPCCAR to accomodate DIFFERING opinions or intepretations of "best tested and proven" practices.    My only concern with what the DoD does is whether it actually works or not and if it does NOT then how can it qualify as a "BEST TESTED AND PROVEN" practice?

 

BR,
Dr. PDG, Jakarta, Indonesia

Rafael Davila
User offline. Last seen 12 hours 28 min ago. Offline
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Posts: 5069

Paul,

You said - I also disagree vehemently that EVM is inconsistent with Activity Based Costing.

  • I did not said that, on the contrary I said - EVM is dependent on Activity Based Costing [ABC].  Due to the amount of activities on construction CPM Schedules, ABC method is considered impractical by Construction Contractors.

You said - Bottom line- keep in mind the rather abysmal track record of the US government in general in terms of bringing their projects in on time and within budget.

  • I agree but GAO is worse, just look at Veterans Administration Jobs and GAO overlook by using EVM that is of no help at all. It looks like overemphasis on EVM is part of the problem, a few patches is not going to solve the issue.  Invariably when you read all references regarding the VA Construction jobs the issue boils down to the innumerable changes in scope that end up in substantial change orders.
  • GAO stands for Government Accountability Office but I do not recall them assigning any accountability on the VA cases.  At the end ultimate accountability rested on the wrong side, on the tax-payer who pay for the change orders.
  • Most of US Contractors do not want EVM, we understand what it is but see not much value on it, otherwise we all would be on the EVM bandwagon.
  • Maybe in the UK only 7% of contractors indicated they use earned value analysis.  We are smarter we do not waste cost and time on something we do not find of much value, we EVM only when at gunpoint.
  • http://www.arcom.ac.uk/-docs/proceedings/ar2009-0879-0886_Olawale_and_Mi...  
  • PMBOK over emphasis on EVM seems directed to other industries and to oudated bureaucratic process of government agencies.  It looks PMBOK does not care about the average Construction Contractor.  As I see it for the average contractor in Puerto Rico GPCBCAR is doomed to be irrelevant.  The average construction contractor in Puerto Rico have a preference on unit costing at the process level.
  • http://www.nps.edu/academics/centers/drmi/docs/unit%20cost%20handbook-we...
  • ...the unit cost methodology identifies and reports all costs as they relate to outputs. This provides management with a view of the total cost of operations and the resultant cost per unit of output. This view encourages a new and more meaningful understanding of production processes at all management levels. It also assists managers in determining more efficient uses of the resources available to them. The producers' focus shifts from managing fixed budgets to managing processes and their consequent costs. Using unit cost principles is consistent with the implement ation of the Government Performance and Results Act, changes arising from the National Performance Review, and other initiatives designed to create a government that works better and costs less.
  • A Body of Knowledge (BOK or BoK) is the complete set of concepts, terms and activities that make up a professional domain, as defined by the relevant learned society or professional association.
  • In my "Barrio" any BOK on Project Controls that misses to adequately adress the unit cost methodology is not considered a BOK.

You said - Anyway, if you have something you feel is really MISSING or flat out WRONG then by all means, fill in the appropriate form and submit it for review by the relevant Technical Committee.

  • I have a genuine interest as a member of the Planning Planet community to expose and debate my views especially after finding out so many false statements about how US Contractor do business.   
  • If you insist on requiring anyone who challenges the GPCCAR to fill some forms then you shall make it private for the exclusive use of the Guild members.  Not everyone is into the Publish or Perish Business.

You said - Bottom line- keep in mind the rather abysmal track record of the US government in general in terms of bringing their projects in on time and within budget, which is why I wrote the two papers I did.

  • I agree Government agencies are a different story, it is on their management of the scope that over 90% of change orders do originate. GPCCAR keep looking on the wrong place and if not enough keep suggesting unrealistic procedures for US Contractors and Government Agencies on the places where the issue does not originate.
  • Puerto Rico is not as big as Texas, so the same contractors that work for private client do work for government clients. I see the same faces on the pre-bid meetings of government as well as on private jobs.  The private jobs usually make it on budget and on time, government jobs do not.  My observation is that over 90% of failed jobs in Puerto Rico is on the Government jobs.  By simple association the difference is on the sponsor, not on the contractor, a no-brainer. 

You said - Rafael, what sector do you work in?

  • I worked on the private sector for construction contractors for over 25 years doing work for private sponsors as well as for government agencies.  I worked about four years [our election period] on the government sector for a Program Manager and currently work as an estimator 80% and as a Scheduler/Planner 20% for several local construction firm.

You said - The big difference I see between the DOD is that as a private sector contractor, I apply risk mitigation at the ACTIVITY level and not at the PROJECT level, with the premise that by "managing the details" (the activities) the "big picture" will take care of itself.

  • But the main source of issues is on the management of the scope.  I do not see GPCCAR making any reference on the activities that are the main source of overruns.

Paul,

I think that discussions on EVM and risk analysis are interesting not only to the relevant Technical Committee members and so I ask Rafael and anyone who will decide to join do it at planningplanet forum openly. I expect that these members read forum discussions and may contribute.

And could you please explain what do you mean by applying risk mitigation on activity level?

BR,

Vladimir

Dr. Paul D Giammalvo
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Hmmmm....... Rafael,  what sector do you work in?   As noted I have been using EVM as a "hard money" (FFP) private sector contractor since the 1970's and when combined with Activity Based Costing, it works out just great for risk management?  Also keep in mind that at least the contracting I did (in the NE and Alaska) we were working on single digit EBIT margins meaning we has close to zero "buffer" to cover UNKNOWN risk events.....

 

The big difference I see between the DoD is that as a private sector contractor, I apply risk mitigation at the ACTIVITY level and not at the PROJECT level, with the premise that by "managing the details" (the activiities) the "big picture" will take care of itself.

FWIW, I've also used Earned Value FORECASTING as the basis upon which to calculate the pricing of claims.....

Anyway, if you have something you feel is really MISSING or flat out WRONG then by all means, fill in the appropriate form and submit it for review by the relevant Technical Committee.

BR,

Dr. PDG, Jakarta

Dr. Paul D Giammalvo
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Hi Rafael,

As a private sector, hard money contractor, I totally DISAGREE with the US government saying that EVM is inappropriate for FFP contracts.   For 20+ years I used EVM for projects where my own money was on the line if they "failed" or "succeeded", as do nearly all the contractors I know.  For more on this, here are two published articles related to this topic:

1) http://pmworldjournal.net/wp-content/uploads/2013/04/pmwj9-apr2013-giammalvo-do-small-contractors-comply-ANSI748-FeaturedPaper.pdf

2) http://pmworldjournal.net/article/practical-look-at-how-private-sector-entrepreneurial-contractors-use-earned-value-and-what-lessons-learned-this-might-offer-for-state-and-federal-governments/

Having said that, I do agree that when we update Module 9, it would be appropriate to expand the section to cover the nuances between Rebaselining/Re-Programming/Recovery Schedules, explaining the DoD. 

I also disagree vehemently that EVM is inconsistent with Activity Based Costing.   The best example against what you are saying is the RS Means Cost Databases, which for as long as I have been in the business have been ACTIVITY BASED, just as demonstrated in Modules 7 and Module 8.

Bottom line- keep in mind the rather abysmal track record of the US government in general in terms of bringing their projects in on time and within budget, which is why I wrote the two papers I did.  Explained another way, I don't think holding the US Government out as an example of "best teested and proven practices" is such a great idea, which is why we looked more to the GAO as they are very critical of how many US government organizations use or apply EVM.

Enjoyable debate, none the less...

BR,
Dr. PDG, Jakarta

Rafael Davila
User offline. Last seen 12 hours 28 min ago. Offline
Joined: 1 Mar 2004
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When an additional view to traditional scheduling reports are desired there is a tendency to ask for RA risk analysis using statistical methods and not require EVM because in addition to the many reasons why many of us reject formal EVM it is incompatible with risk analysis.