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EVM Queries - What would you do to help?

4 replies [Last post]
Tue, 2022-03-15 16:10
Peter Holroyd
User offline. Last seen 6 days 1 hour ago. Offline
Joined: 6 Jun 2005
Posts: 160
Groups: Petro-Chem / Oil & Gas

You are 15 months into a 4 year JV process plant project,(FIDIC Type Contract, Seperate OoC / IC)  and the EVM data is just pushing your project into the RED status. Your Project Director is putting pressure on you, as PCM, to make the numbers look better as a RED status will mean additional Company Board reporting and external team reviews which he wants to avoid. The Company runs a well proven progress measurement system. Current project EVM issues are:

1 The internal D&E charge out rate, used by the project for the bid, for the previous financial year has just been increased (5%) by Finance to balance the D&E Cost Centre end of year accounts

2 The central Company Procurement Department (which charges 3% for its services) has similarly charged the project £200k as your share of its end of year cost overrun

3 The project currently has 23 VO's submitted to the Client but as they have not been signed off by the Project Supervisory Board (not met yet) they have not been approved by the Client. THe JV IC partner informs us they will have to go to the Company Chairman has he has no delegated powers of approval. They have been included in the schedule (had to to keep the logic) but with zero budget. Costs have been identified seperately, but are included in the overall cost.

4 The Client had placed 6 P&E PO's (representing 25% of CV) with suppliers for the VLLI's with the stated intention of novating these to the JV (so are included in contract / budget sum). Unfortunatley after 9 months of negotiation only 4 have been novated and the 2 remaining ones will never be.

5 A single action nominated supplier has insisted (and been paid!) a 10% downpayment to reserve a manufacturing slot even before he begins to work on a bid instead of the normal payment on placement of order.

6 A D&E personnel supplier has just told you that due to mistakes in implementing overtime recording in his new accounts system you have not been billed for 2,000 manhours for the last financial year.

How would you treat each issue in order to help (or not) your Project Director?

 

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Replies

Sat, 2022-03-19 15:47
#1
David Kelly
User offline. Last seen 1 year 37 weeks ago. Offline
Joined: 19 Oct 2004
Posts: 630
Groups: Petro-Chem / Oil & Gas

I am a huge fan of EV, despite having been wrestling with it since the Thistle hookup which was, 1977 I think.

Of course, what you measure has always been the secret.... And in many cases IS secret.

A proper definition of what constitutes measurable worth is almost never contractually defined properly. Front loaded equipment costs? Who do we shoot?

I find the best therapy is to remind myself that since the contract is crap, the estimate wrong, procurement a joke and the design unfinished when construction starts, the only chance the project has is great planning. Thank goodness I'm on the team.....

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Sat, 2022-03-19 13:20
#2
Peter Holroyd
User offline. Last seen 6 days 1 hour ago. Offline
Joined: 6 Jun 2005
Posts: 160
Groups: Petro-Chem / Oil & Gas

David,

all excellent suggestions but forgot to mention that we had a PMC on the project who was determined to justify his fee as he (un)fortunately let our proposed payment milestone list get signed into the contract without challenge so we were way cash positive at this stage. Unfortunately, whilst our project was OK, the other 3 major projects in the company were in a terrible mess so senior management attention was elsewhere! (it went through a CVA eventually). The questions really relate to the Progress Measurement System you employ - should a deviation from it be signed off by the PD in the same way budgets, costs, VO's, float usage etc are used or moved between work packages.

I actually improved the numbers for the PD by including the VO budgets & EV numbers in the indices, additionally reported against the ES - LS 66% banana s curves and removed the 2 non-novated contracts from the baseline (so I could confuse the PMC). The rest I kicked down the road (sent in auditors), challenged finance on cost allocation or took the cost increase from contingence / management reserve.

As you can guess I am not a big fan of EVM despite using it for 30 years

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Wed, 2022-03-16 15:14
#3
David Kelly
User offline. Last seen 1 year 37 weeks ago. Offline
Joined: 19 Oct 2004
Posts: 630
Groups: Petro-Chem / Oil & Gas
Sorry, Peter. I can make P6 do practically anything, but a properly formatted reply in PP is way above my pay grade,,,,,
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Wed, 2022-03-16 15:12
#4
David Kelly
User offline. Last seen 1 year 37 weeks ago. Offline
Joined: 19 Oct 2004
Posts: 630
Groups: Petro-Chem / Oil & Gas
So, Peter, situation normal then. My granny would say ‘tell the truth, and shame the devil’ Pretty good advice I would say. These answers are P6 specific In all cases the use of P6’s Cost Account to identify each change order or extra cost would be useful. Actually, by useful I mean essential. 1) An extra hammock (oops I meant LoE) activity with the extra cost. 2) As above 3) Zero Budget (maybe) but that does not have to mean zero remaining cost. Stupid P6 does not allow EV at the resource assignment level (sigh) so all of these VO’s will need to have discrete activities. But now our EV reports are easily organised by Cost Account which in essence is Base Scope/VO status analysis. A trick I have often used when you HAVE to do work that is not approved, is to add the fully resourced activities with a resource price of zero – and change to the real price and annotate the activity with the VO number when approved. 4) Clearly, ritual sacrifice of your contracts manager is appropriate here. 5) Actual costs with no earned costs. 6) Whose mistake? You have to pay them why? If you have not implanted P6’s ‘Financial Calendars’ you do have a wee bit of a ‘S’ curve problem here. As always, I recommend all Vos are in a separate project. This means that P6’s insistence that Earned value ONLY comes from a baseline works for you, rather than against you. None of the new work needs to be added to a baseline, because the baseline for earning value in the VO project(s) is set to ‘current project.
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