For an Interior Design contractor who is using a Project Management Information System (PMIS) like PMWeb to manage the procurement of their Furniture, Fixtures and Equipment (FF&E) contracts, applying the best practice of Earned Value Management (EVM) to provide an objective monitoring, evaluating and reporting of those contracts schedule and cost performance is readily available to be used. The article titled “Using Digital Transformation Solutions to Improve Consolidating, Monitoring, Evaluating and Reporting a Single Version of the Truth for the Cost Performance of Interior Design Projects’ Furniture, Fixtures and Equipment (FF&E) Procurement Contracts” has provided the details of how those FF&E contracts are managed using PMWeb and for which the same captured cost information will be used for the required EVM reporting.
One of the requirements for earned value management (EVM) reporting is to have the baseline project schedule and subsequent monthly schedule updates. PMWeb scheduling module will be used to capture those schedules for which there is the option to either create those in PMWeb or import them from Primavera P6 or MS Project. The either created or imported project schedule activities will become the basis for calculating the Earned Value (EV) for each contract by using the current percent complete of each activity multiplied by the total value of the relevant contract line item.
Another requirement for earned value management (EVM) reporting is to have the Cost Breakdown Structure (CBS) for each project established. Nevertheless, it is highly recommended for the interior design contractor to have the CBS standardized across all of the projects that are being executed so he can generate consolidated report by cost center across the different projects’ portfolio. PMWeb cost account module allows defining up to 16 levels to the cost breakdown structure although usually no more than six levels are used. The level of CBS details depends on the level of control that the interior design contractor wants to have on his projects’ portfolio.
In addition, the financial periods for reporting the projects cost performance needs to be defined. Those will become the periods that all cost related data will be posted to during the project life cycle stages. The financial periods will be also needed to create EVM metrics trend reports.
Unlike cost loaded schedules, that have little control on how to plan the spending value for each contract, PMWeb allows setting the exact planned payment value for each line item within each contract and for each financial period. This is critical as the payment terms for each contract line item could differ from other contract line items. For example, although some items performance earning could be simply based on completed percent complete (%) but for others the performance earning could be linked to specific events like placing the order, receiving the ordered furniture, fixtures or equipment and installing them while others could be simply equally spread monthly payments. The value for each awarded contract will be the Budget at Completion (BAC) measure used in EVM reporting while the planned contract spending projection for each period will be the Planned Value (PV) measure also used in EVM reporting.
As the project progresses, the suppliers will submit their interim payment certificates (IPC) for actually procured, delivered and installed furniture, fixtures and equipment. Using PMWeb progress invoice module, the details for each progress invoice for each contract will be captured. The certified progress invoice amount will be the Actual Cost (AC) measure in EVM reporting. In addition, PMWeb option to link each item in the progress invoice with its relevant project schedule activity will be used to calculate the Earned Value (EV) measure also needed for EVM reporting. The EV will equal the value of each line item as per the awarded contract which is the Budget at Completion (BAC) measure multiplied by the linked project schedule activity percent complete value.
It should be noted that the Budget at Completion (BAC), Planned Value (PV) and Actual Cost (AC) values will be based on the current contract value which will include all approved change orders to the originally awarded FF&E scope of work issued to date. Of course, all change orders, regardless of their status, will be captured in PMWeb Change Order module. Nevertheless, only those that are approved will be used to automatically adjust the awarded contract value, spending projection and progress invoices. As a rule, no change order will be issued to a supplier if the interior design contractor has a counter approved change order with the Project Owner or General Contractor unless the interior design contractor confirms that the change order to the supplier for the original in-scope of work.
To ensure that all actual cost and expenses incurred on each Furniture, Fixtures and Equipment (FF&E) scope of work that could be for one reason or another are not captured in one of the awarded FF&E contracts, PMWeb Miscellaneous Invoices module will be used to capture what is known as non-commitment expenses. The captured expenses will be posted against their relevant cost breakdown structure (CBS) level and financial period.
One of the critical measures for Earned Value Management (EVM) method which provides the forecasting capability of EVM is the Estimate to Complete (ETC) measure. Although the default value for ETC is the Budget At Completion (BAC) minus the Actual Cost (AC) to date, nevertheless this fails to take into account any expected additional expenses due to potential change orders that the supplier might claim for and might be reimbursed by the contract agreement between the interior design contractor and the Project Owner or General Contractor. Those potential change orders, which are also known as Early Warning Notifications (EWN) will be captured using PMWeb Potential Change Order module.
By having the Budget At Completion (BAC), Planned Value (PV), Actual Cost (AC) and Earned Value (EV) for each line item of each awarded contract at the end of each progress period, the interior design contractor is now ready to monitor, evaluate and report each contract as well as project schedule and cost performance using the Earned Value Management (EVM) method.
Those metrics listed below will be used to report each contract and project schedule and cost performance using the Earned Value Method (EVM):
- Schedule Variance (SV) = EV – PV
- Cost Variance (CV) = EV – AC
- Schedule Performance Index (SPI) = EV/PV
- Cost Performance Index (CPI) = EV/AC
- Estimate to Complete (ETC) = BAC – AC + any expected additional expenses as explained above
- Estimate at Completion (EAC) = AC + ETC
- Variance at Completion (VAC) = BAC – EAC
Using PMWeb business intelligence (BI) report writer or any other business intelligence (BI) and data visualization (DV) tool like MS Power BI, the interior design contractor can have a real-time single version of the truth earned value management (EVM) report to monitor, evaluate and report on each line item of a contract, contract, project, program or the complete projects’ portfolio schedule and cost performance. It is highly recommended that in addition to the EVM measures and metrics, the calculated project schedule Total Float value (TF) to be part of the performance report. The EVM reports could display the information in a scorecard format or selecting visuals that can provide the needed insight on schedule and cost performance.
In addition, the interior design contractor could monitor, evaluate and report on the earned value management (EVM) variances and indices across the organization’s complete projects portfolio or selected projects that could be part of a program or any other attribute like location, type, sponsor among others. The interior design contractor might display the earned value as a scorecard or link it to a map that will display the location of the selected projects as well as the performance indices. The size of the bubble on the map could be used to reflect the project’s approved current budget.
About the Author
Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with 40-year service record providing project management, project controls services and project management information system to over than 200 projects with a total value in excess of US $100 Billion. Those projects included Commercial, Residential, Education and Healthcare Buildings and Infrastructure, Entertainment, Hospitality and Shopping Malls, Oil and Gas Plants and Refineries, Telecommunication and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training and business development.
Bassam is a frequent speaker in topics relating to Project Management, Strategic Project Management and Project Management Personal Skills. Over the past 40 years he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe and South America. He has written more than 300 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP) and Earned Value Professional (EVP) from the American Association of Cost Engineers (AACE) and Green Project Management (GPM).
Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA and London Business School, London, UK.