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Cost as a progress tool

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David Watters
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Hello all,

I couple of weeks ago I saw a thread discussing weighting techniques. One suggestion was to use Cost as a basis for measuring progress on Purchase Orders, which I have always been taught is a big no no - Well at least in UK EPC companies anyway. I have, in the past, based progress on Design Critical Documentation received (Using our Doc Control System).

However, I have been looking around since on the Web and have found that many planners use this system quite sucsessfully.

My arguement against is how do you acrue progress, on commitment or expenditure, and how to deal with retention.

Has anyone out there sucsessfully used a cost based progressing method, and what are your views of it?

Many thanks in advance for your thoughts!!

Dave W

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Asif Anwar
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Sorry, in my previous post, the design/procurement 15%, should be read as design/engineering 15%.

Any comments on the post from anyone?

Asif
Asif Anwar
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Dear David/Planners

The question raised by David and the subsequent questions raised by guests and members are quite interesting and remind me of one of my recent EPC project where we had the similar problem on how to get the percentage breakdown.

Friends, it was not that easy. It took us several months before we came to a final conclusion of the percentage breakdown. When you have got different stages of project whose parameters of progress and monitoring are different, you cant simply apply manhours, or tonnage of steel produced or supply of equipement with relevant to each other.

Hence the best method to monitor a progress percentage on a large EPC project is to firstly get the relevant percentage breakdown between different elements of the project. For a large EPC project, following are the major elements.

1. Design/Engineering
2. Procurement
3. Construction
4. Testing & Commissioning

The only way to get the relevant breakdown of percentage between these items is the cost as for a large EPC project, it is always impossible to calculate the exact manhours on every element. In fact you cant even guess to a nearest percentage as it varies a lot on every project. Hence you cant use previous experience or data at this stage. Hence the best way to calculate the breakdown percentage was cost of major elements of the project.

For our project, following was the breakdown from the total cost of the project.

1. Design/Procurement 15%
2. Procurement 45%
3. Construction 30%
4. Test & Commission 10%

Now for monitoring purposes, we used different criteria for every element. For example, the design was further divided into sub elements, like, preparation of documents, drawings. At this stage luckily we were able to established the total number of drawings to be produced for the project, which were around 16,000 drawings. We then used different weightage for drawing issuance by design department, approval, and issuance to contractor and many more elements. It was rather complex and the task was given to the design department to prepare and monitor. They were then able to give us the total progress percentage with relevant to 15% of their total progress.

In procurement, the total no. of equipment/machinery was established and the relevant cost was associated to each item, to calculate the weightage. Then for each equipment, the progress was then calculated with reference to different stages of procurement for that item, like RFQ, PA, P.O, Manufacturing time, shipment, final checking and acceptance etc. and then progress of each equipment/machinery was then calculated and contributed towards the total progress of procurement activity.

Similarly for construction, different items of fabrication were firstly weigthed with respect to cost, and then monitored with respect to different criterias, like for steel, total production of steel at the end of month, which itself was further divided into material cutting, joining, welding, NDT, painting, etc. For piping material, it was pipe spools who were measured and for each item, several subdivisions were made.

The cost of each item contributed towards the progress of majore elements which then finall gave us the progress of overall project.

Hence calculating and monitoring the progress for any project is quite complex especially for large EPC projects. The system we used above gave us very good results and was applied on other projects successfully.

Should you need some further guidance on more detailed breakdown, you can email me.

Cheers

Asif
Shahzad Munawar
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According to subject title we cannot take cost as progress tool. Manhours is the best progress tool as compared to Cost.
Forum Guest
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Dear Fellow Planners,

Regarding the question on how to calculate the weight factor on a large EPC project, here are some tips:

For Engineering, convert the total estimated manhours to cost (i.e. manhours x ave. unit rates of the engineering team per hour + overheads, profits, etc.). Divide it with the Total Contract Price and that will be your weight for Engineering.

Net Amount of Procurement = (100% - Wt. of Engineering) x Supply Contract Price

Weight of Procurement = Net Amount of Procurement / Total Contract Price.

Net Amount of Construction = (100% - Wt. of Engineering) x Construction Contract Price.

Weight of Construction = Net Amount of Construction / Total Contract Price.

If you want to have a separate weight for Commissioning convert commissioning manhours to cost (following the same steps for engineering). Divide commissioning cost to Total Contract Price to get commissioning weight. Of course, you have to subtract commissioning weight to the calculated construction weight above to adjust the weight of construction accordingly.

I hope this will help.

Cheers,

proj_planner

David Watters
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The project I am planning is detail design - so manufacture progress is not really a concern of mine. All I need to know is the input of design information into the design process. This I can best progress by deliverables received and not by commitment.

On the issue of ACWP, I am partly there. When the order is placed, 100% of the funds are committed. Bang, 100% - really? Even though the order is placed there is still an issue of supply of information that needs to be considered for the above reasons. Has anyone used a cost based system that tackles these issues?
Dayanidhi Dhandapany
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To calculate weighing factors for the items listed (Engineering,
Procurement, Construction, Commissioning) in the EPC project, refer the valuation break-down for the items listed from your contract department, then based on quantities(measurable items) distribute the costs accordingly.
Forum Guest
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Can someone tell me how to calculate the weight factor on a large EPC project.
Engineering
Procurement
Construction
Commissioning
Forum Guest
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My arguement against is how do you acrue progress, on commitment or expenditure, and how to deal with retention.

----------------------------------------

IF you use cost as a basis for mearuring progress you really have to consider using EVM in which you will get SPIs and CPIs.

Your argument above needs to be split between issues:

Commitment simply implies that an order has been placed, if a suitable fully costed product breakdown structure has been produced you can estimate ACWP by the delivered products, or an estimate to their completion from which your commitment would be reduced. i.e. accruals accounting.

The point about retention is largely irrelavent when it come to progress as the product has been fully delivered hence the ACWP is 100%....the retention issue is simply a matter of cash flow.
Luca Basile
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I used it.
Mainly for each package, You split the procurement phases in steps and weight these.
I mean Issue PO, Complete set of Dwg from Vendor, Material ready ex-work, Shipped.
You have still full control of the expediting, mainly You can have a separated sheet for the expediting and monitoring of the material on site, to make lighter the schedule, linked with the final data of the package on site.
Keep track of original planned, actual and forecast dates and variances.

Using only the Engineering Vendor Document, You miss the manufacturing process.
The vendor may issue all the engineering in time and then sleep on, because they have the factory full of works or working at other project.