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| Project Planning With Dollars & Sense Issue 28 - Mar 07 Facility and project managers alike understand the value of good project planning and execution. But many might be unaware that there is more than one way to track a project and measure its success. Professor John Gilleard explains how to manage a project by tracking what the company really cares about. The money. Imagine that the CEO of Paradigm Inc, an organisation that currently employs 140 staff in Hong Kong, has initiated a meeting with the company’s FM. “Let’s reconfigure our workspace. We will change the current closed cell configuration to an open-plan office. It will make everyone work more collaboratively and we’ll make more money”. The CEO also stated that the company plans to increase the payroll by an additional 60 staff, mainly in sales and marketing section, without adding to the current space. This is a common task for many Hong Kong FMs. Taking the above example, let us assume that the company currently occupies 10,000 sqf of space in a grade A office. The FM has estimated that the reconfiguration work will take four months to complete. He has also recommended that the company uses a business centre located in the building as a ‘swing office’ for staff as the work progresses. The CEO has agreed to this suggestion but has emphasised that as the business centre rates are relatively high the project should not overrun. Let us now imagine that one month after the start of the project 25 employees have temporarily ‘swung through’ the business centre and are now sited at their new office location. However, the move plan had anticipated that 40 staff would have moved within these first four weeks. Fast forwarding another four weeks, an additional 30 staff have moved, whereas 80 staff should have moved. Clearly the project is behind schedule and the FM has a problem. What should he do? Earned value is not new, indeed it has been used since the 19th century in the manufacturing sector, and for almost 50 years in construction. Today it is both favoured and shunned. This is not an uncommon situation and most FMs would closely examine the original schedule of work. This particular FM would probably focus on ‘catching up’ the planned schedule by determining which tasks or jobs might be ‘crashed’, that is worked in parallel with other tasks. It is unlikely that the FM would be too interested in the overall cost of the work at this stage, other than being fearful that the end date might slip thus incurring ‘penalty charges’ of using the business centre beyond the originally anticipated four month period. If the FM had been au fait with the application and principals of “earned value analysis”, then the project planning and control might have been very different. Earned value is not new, indeed it has been used since the 19th century in the manufacturing sector, and for almost 50 years in construction. Today it is both favoured and shunned. Antagonists often cite the extra cost and effort to make it work compare to the (perceived) limited benefits. On the other hand, advocates strongly endorse the approach commenting on the improved control of a project. Before computer-assisted planning tools a less positive attitude was understandable. However, with the ready availability of planning software that is capable of both measuring work hours as well as dollars spent, adopting earned value is relatively simple. defi nition Earned value analysis uses information from both the work breakdown structure (the project plan) as well as the cost breakdown structure (the cost estimation). By combining both, earned value analysis shows how much work has been accomplished as well as mathematically forecasting the time and/or dollars needed to complete a project. It also provides an early warning of potential cost overruns and schedule delays. For example, earned value analysis helps a manager to measure whether a project is: • Ahead or behind schedule • Over or under budget • Being effi cient or ineffi cient with the organisation’s resources • The accuracy of the estimate-to-complete by the project team. Earned value requires three important measures: • Budgeted Cost for Work Scheduled (BCWS) • Budgeted Cost for Work Performed (BCWP) • Actual Cost of Work Performed (ACWP)
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| BCWS is the planned budget, i.e. it shows the amount of work (in dollar terms) that should take place if the work proceeds exactly as scheduled. BCWP is a measure of the value of work completed to date. This value is based on the cost budgeted for the work and the extent to which the work has been accomplished. The difference between the BCWP and BCWS (BCWP– BCWS) is known as the schedule variance, SV. If SV is negative it means that the project is behind schedule. ACWP represents the amount actually spent for the work performed. (The cost of the work is independent of the value of the work completed, and independent of the plan for accomplishing the work.) The difference between BCWS and ACWP (BCWS – ACWP) is known as the cost variance, CV. If CV is negative, the work is over budget. in practice For example, the fi gure below indicates that throughout the project life BCWP is constantly below BCWS and the ACWP is always above BCWS. What does this mean? In simple terms, the project manager has two problems. Firstly, the project is behind schedule, evidenced by BCWP being below the BCWS. This is similar to Paradigm’s problem, i.e. less work is being accomplished than anticipated in the time scheduled. However, observing that the ACWP is above the BCWS, i.e. a negative CV, we can also determine that the project is ahead of anticipated budget. In other words the project team is accomplishing less that we had anticipated and what we are fi nishing off is costing more than we expected.  At this stage Paradigm’s facility manger may simply panic and begin to throw money at the remaining work items in an attempt or get back on track and fi nish the work in the remaining two months. However, before they panic it is advisable to see whether earned value analysis can offer further help. Fortunately it can. There are two more formulas to learn to make this happen. So before we calculate the future likely expenses etc. we need to establish to what extent we have over run in terms of both time and money and this involves calculating two indices: both the schedule performance index (SPI) and cost performance index (CPI). These are: • SPI = BCWP/BCWS • CPI = BCWP/ACWP Continuing, assume budget at completion (BAC) is an estimation of the total project cost, then: • Budget at Completion of Remaining Work (BCRW) = BAC – BCWP • Estimate Cost to Complete (ETC) = (BAC – BCWP)/CPI • Estimate at Completion (EAC) = ACWP + ETC • To complete performance index (TCPI), or the ratio of work remaining to funds remaining to be spent = [BAC – BCWP] / [BAC – ACWP]. A TCPI greater than one indicates a need for increased performance; less than one indicates performance can decrease. If this seems complicated don’t fear! Most of these calculations are not normally determined by hand but within project planning software. If this seems complicated don’t fear! Most of these calculations are not normally determined by hand but within project planning software, e.g. Primavera or Microsoft Project. Data output from the software is both tabular and graphical meaning you and the CEO can see where the problems might arise. Another advantage of using software is it typically allows the project manager to factor in non-linear task and job progress.  This is important since although, for simplicity, progress is often measured over time on the basis of an assumed linear relationship, it can lead to false assessment of progress since many jobs progress non-linearly. For example, more often than not there is a nonlinear plan in the minds of those performing the work. Characteristically in the early stages of work unit output is less than planned as the work crew ‘learns’ how to complete the work. Later, unit rate typically increases only to decrease towards the end of the work. This is often shown as a lazy s-curve on unit rate cost incurred (Y) against time (X) graph. See fi gure 2. If we go back to the original question, how would earned value have helped the facility manger for Paradigm? If we assume the cost data was known, then clearly we would know not only that the project was behind schedule but also how well the completed tasks had performed. By looking at the data it may become clear that the FM had simply under spent the budget by doing too little, but what he had spent had been productive. In such a case we would increase output by redirecting resources confi dent that the budget was available. On the other hand if the BCWP and ACWP were more or less equivalent we would again know that we did not have a cost problem but our scheduling and work output needed correcting. In this case it would be clear that the CEO would be looking very seriously at our value to the company. RFP Professor John D. Gilleard, The Hong Kong Polytechnic University
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Key title: RFP magazine
Abbreviated key title: RFP mag.
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