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What’s the right way to earn value on PM costs?

5 replies [Last post]
Tue, 2008-03-18 10:58
Oliver Melling
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Should Project Management value be claimed on a 1 for 1 basis, even if a project is delayed?
Or should PM costs be assigned to Level of Effort activities, leaving the EV to move with the job?
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Thu, 2008-03-20 15:06
#1
Oliver Melling
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Thanks for the reply.

I recently spoke to Quentin via email so if you can’t find it i’ll ask him!
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Wed, 2008-03-19 13:53
#2
Darren Kosa
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Hi Oliver,

Good question, PM tasks don’t tend to play well with EVMS, they typically fall into the LOE category simply because they don’t form Work Packages comprising of discrete work.

If you can link PM tasks to a product or a deliverable (progress reports, working groups etc.) then all the better, or use a time phased budget as James suggests.

Otherwise it is nigh on impossible to claim for these ’watching brief’ activities as Planned Value always tends to equal Earned Value.

This is obviously not ideal, so I try to keep LOE activities to the bear minimum and focus on the technical deliverables.

As a sense check, what I have done in the past is group together all the LOE activities into a separate Work Package, estimate a burn rate for the activities over specific periods of time (weekly / fortnightly / monthly / etc.) and track the actuals.

In essence I take it as a given that no Schedule Variance will occur and SPI will always be 1, however, there will be a Cost Variance so that’s what I use to measure performance.

Quentin Fleming and Joel Koppelman wrote an article on LOE a few years ago, "The Curse of Earned Value" I’ll see if I can find a link if I have time, if not does anyone else have a link / copy?

Regards,

Darren
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Wed, 2008-03-19 11:34
#3
James Barnes
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Indirect costs usually follow their own effort curve. That curve is almost always more linear than the EV curve of the project execution. Something like;

M0 M1 M2 M3 M4 M5 M6 M7 <- month
0% 10% 20% 40% 70% 85% 92% 100% <- direct (execution) EV
0% 15% 30% 45% 60% 75% 90% 100% <- indirect (PM) EV


In this case you could envisage releasing each 15% at the achievement of the planned overall progress figure (or pro-rata between the milestones assuming achieved progress is not exactly as planned). In this case, while it is tied to progress, the relationship is not 1-1.

If you tied the PM costs to tasks 1-1 then you would pay up the majority of PM costs too early and leave nothing left for the hardest part of the job ... the end. Plus, as you say, you risk paying up all of the PM costs early in the event of contractor led delay.

I’m not sure that makes sense to me, I hope it does to you!
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Wed, 2008-03-19 11:05
#4
Oliver Melling
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Does that mean you think PM earned value should be directly related to the % complete for a LofE across the whole project?

I’m trying to decide whether PM costs should be on Task dependant activities that claim EV 1 for 1.

OR

if PM earned value (on LofE) should be allowed to drop when the project is delayed?
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Wed, 2008-03-19 10:41
#5
James Barnes
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I would say that claiming of indirect costs should be tied to overall progress, except where extension of time (with prologation costs) are involved.

In principle, as a client you wouldn’t want to pay up the contractor all of his indirect costs before he’s spent them, which might happen if you pay him following the baseline where he is delayed on site at his own liability.

The contract terms should normally cover such issues specifically though.

/2p
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