Monday, February 2, 2009

De-constructing Project Progress Reporting

Any trade names that are referenced are the property of their owners


 

Introduction

The most common question that a project's Project Manager hears is 'Where are we?' In order to accurately provide the answer to this seemingly simple question, many pieces of information need to be carefully collected and organized and tracked. In this post, we use common-sense reasoning to explain the project management processes that are necessary to track a project's progress. This de-construction helps us to question our assumptions about each step of the project controls process. This also helps to confirm that each of the steps that we take has a legitimate reason. This, in turn, helps to reinforce the lessons regarding the consequences of NOT taking a particular step in the project management process. This post is intended for readers who wish to learn, or brush up their knowledge, about the basics of controlling a project..


 

Project Management

The term 'Project Management' is commonly used to describe the processes associated with reporting of a project's progress. However, as anyone who has managed a project knows, managing a project involves far more that simply reporting on its progress. The Project Management Institute (PMI) has many explanations and definitions of the kinds of things that PM's do– so we do not go there in this article. Instead, we focus on what it takes to report on a project's progress. At a very basic level, it is the need for accurate progress reporting that helps us determine exactly what items we will measure and against what we will measure them.


 

In order to illustrate the terms and processes that we use, we refer to project management terms as they are used in the North American (US and Canadian) context. The way that tools on the market currently handle project management information is also discussed.


 

What is Progress?

When people request progress information, what they are looking for depends on their focus. The people who are waiting for that new bridge to be completed, so that their commutes will be shorter, are only interested in when it will be done. The sooner, the better! They are interested in the time aspect of the project's progress. Typical pipeline and facility projects are also very concerned about time. However, in addition to this, they are also concerned about the cost of the project. A projected cost-overrun is not a good thing, especially if it is not expected. Time and Costs are the twin core aspects of reporting progress. In fact, the most common reporting tool that management uses combines both of these aspects in a graphical plot of the expenditure of costs over time. This report is a graph of cumulative costs over the duration of the project. The shape of the cumulative curve is similar to a flattened letter 'S' and is therefore called an S-curve. So, clearly, to report progress, we need to be able to do the following:

  1. Determine how much more time the project will take
  2. How much money has already been spent on the project


 

How can we do these aspects accurately and effectively?


 

In order to determine the time remaining, we need to know what is remaining to be done. In a complex project, we may have thousands of inter-related items of work that need to be done. Some of these may be completed. Some may not have been started and some may have started and are not, as yet, complete. The schedule is the tool that handles thousands of inter-related work items in a logical network. We rely on the accurate data in the schedule and the scheduling computation to help us determine the remaining time in a project. We discuss how the schedule does its work and how we assemble the data that it needs later in this post.


 

Determining the cost expended appears to be a fairly simple task. Simply add up all of the bills that we have for costs. The materials we have bought have bills or receipts. The equipment that we have rented also have bills or receipts. The contractors that we hired have sent us invoices for each week or each month. These costs are called expended costs and are reflective of the invoices that we have received. However, they are do not show exactly what we have already asked the contractors to provide us – the committed costs. As you can see, the cost issue is getting a little cloudy now. We discuss this the relationship between expended, committed, incurred, earned, forecast and target costs, some more in the section on costs – following the section on scheduling.

Remember, we are de-constructing the progress management process in order to ensure that every step that we take has a legitimate reason.


 

How much time is left? The Reason for the Schedule

The schedule helps us to determine the remaining duration of the project. In order to do this, it needs to have certain information. The schedule must have the following:

  • Work items, each with a duration in hours, days, weeks, etc.;
  • Logic ties, that connect the work items;
  • Periods, that ensure that work is scheduled in the correct significant period of the project (if needed);
  • Windows, that ensure that the work is schedule within the correct window within each period (if needed);
  • Milestones, that define the start and finish of each period and each window;
  • Human Resources, are identified for each work item. Limits of manpower available force the schedule to be delayed;
  • Rental Equipment items are identified for each work item. Limits of availability of equipment items may force delays in the schedule;
  • Consumable Materials are identified for each work item if needed. Delivery schedules for materials are critical to ensuring that the work proceeds as scheduled. Inclusion of materials delivery schedule as well as vendor commitments help to complete the schedule and make it more believable;
  • Contracted Work, which the contractor provides on a lump sum (as opposed to time and materials) basis can potentially have an impact on, and should be included in, the schedule so that the project manager and project team is not blind-sided by delays due to this work not being ready on time;
  • Measurable Tasks associated with work items, are included if they provide a means for measuring progress based on the physical completion of work


 

The function of a scheduling tool is to use all of this information to help determine the completion date of the work. Logic between work items ensures that they are scheduled to be done in the correct sequence. The human and equipment resources, when limits are entered, may affect the scheduled dates of each of the work items – this is a good thing as we really do not want surprises due to not being aware of the problems associated with having fewer resources available. Likewise material delivery dates. If the material procurement cycle, along with the vendors' committed delivery dates are in the schedule, the schedule computations will result in a more realistic completion date for each work item and the project as a whole.


 

Now, it should be clear that the schedule needs plenty of useful information so that it can accurately complete its function. The project planners are the people that perform this function.


 

Planning the Work – Building an Effective Foundation for the Schedule

We have discussed the need for a schedule that contains all of the time-based work items in the project. In order to effectively create the schedule, Planners break down all of the work in the project into work packages. Work packages are bite-sized pieces of the project – this is a sort of project breakdown that also makes sense from the standpoint of the execution of the work – which is discussed later. A pipeline project is broken down into a work packages for each spread and for each facility. A turnaround project will have a work package for each asset. Once this is done, the planner(s) further breaks down each work package into discrete work items. In the case of a pipeline spread, this would be each of the major work items such as Clearing, Ditching, Welding, etc. Each work item is further broken down, if needed, into tasks. Each task may have a physical quantity as a target to complete. This quantity is the basis for tracking progress for the task. The progress for each task on each work item is weighted and then applied as progress on the work item. This is computed and set as a percent complete and a remaining duration for each work item with progress.. We discuss the issue of quantity and duration-based status in the discussion on the Execution phase of this article.

In any case, the detail of the plan should be the level to which the field will execute the plan and what they will use to report progress and charge their time. The field may decide to add to the level of detail provided by the planner.


 

As earned value is computed based on the planned hours and the estimated materials and contract dollars entered by the planner, you can see that this function is critical to determining the Target Cost as well as the Target (Baseline) Schedule. An inaccurate or incomplete plan is going to quickly manifest itself in a variety of ways. These include poor schedule performance (low Schedule Performance Index, SPI) as well as poor cost performance (low Cost Performance Index, CPI). Unless the plan is improved, its use as a means for earning value is limited and counter-productive.


 

A common cause for the degradation of the plan and the schedule is the way that field changes are managed. The Change Management section discusses the way that TeamWork 2k handles this issue.


 

As you have seen, it is important to have a good, detailed plan. However, at the front-end of a project, while the pieces of information regarding the content of the project are coming together, how is it possible to have a good plan? This leads to the issue of scope definition and management.


 

Managing the Project's Scope – Ensuring a Great Plan

As the project's evolves, drawings are issued for construction (IFC). These drawings help to provide the scope of work in capital projects. Inn turnaround projects, the lists of assets, that operations provides, provides the basis of the scope of work. The project manager and the project staff keep track of the scope items by creating work packages for each. These work packages are later used by the planner to provide the detail for scheduling.

A project's scope is 'frozen' at a certain date prior to the beginning of the construction phase. Following this point, additional scope changes are automatically tracked as changed scope. This allows project management to track changes and report on the effect of these changes to the scope of the project. In addition to knowing which items constitute changed scope, it is necessary to get these changes approved on a regular basis. A change management system includes the ability to tag one or more changes with a change number or ID. Each change makes a trip from the scope definition, to the planner, for planning and estimating, to the PM for approval. All changes that have a cost impact must be approved by a person in the project (or company) with the appropriate signing authority for the dollar amount f the change. In order for the PM to have an accurate idea of the impact of the change on the project, the change authorization request must include along with the cost impact, an indication of the impact on the overall schedule of the project.

It is important that the current scope of the project is always accurately stated in the plan and the schedule. This requires every member of the project team, especially the front-line supervisors and foremen to ensure that every work item that they work on is accurately included in the plan.


 

This leads us to discuss the Execution phase of the work, as this is where the whole project finally comes together: the engineering, scope development, planning, scheduling, targeting, cost tracking, etc.


 

Executing the Plan – where the rubber meets the road

The field is the 'work face'. It is where work is done according to the plan and the schedule. The people in the field are critical players in communicating all aspects of the work being done. They can be the source of disconcerting news too. Such as: the plan is not a good one. Or: the schedule is unworkable. Or: materials are not available. The field is where people have to get the job done (safely!), no matter what. So, it is critical that field people, including their potentially 'bad' feedback about the plan, are an integral part of the progress tracking process. The foreman's crew is working on the job every day.

  • Who else could possibly provide insights into the progress of the work and the potential problems that are ahead? This information leads directly to the accurate determination of earned value.
  • The foreman is the logical person to report on any additional scope items as well as their magnitude. This affects scope change tracking, thus ensuring that an accurate baseline is maintained.
  • The foreman is also the logical person to accurately report on what his/her crew did that day. This information is also known as Incurred value (hours and costs).


 

Clearly, the most accurate sources of information during the execution phase are the field supervision people. They are the closest to the work. As they report all of their information on a daily (or shift) basis, it is important to track the progress of the project at the same rate. If you make it easy for them to enter their data into a single system (your system for progress tracking) then you have the best information as early as possible.

Another benefit of including your field supervision in the project at this level is that they plan their future work based on what the plan and the schedule have – which in turn makes them invested in ensuring that the plan is a sound one.


 

Now, that we have gone through the processes from progressing needs to scheduling, to planing, to scope management, through to execution, we are now ready to discuss the report that we will use to report this progress – Progress Reporting.


 

Reporting the Progress – what's the Good news?

We'll keep it simple . . . the big two items are time and money. We mentioned the S-Curve before. This curve plots cumulative hours or dollars on the y-axis against time in weeks or months on the x-axis.


 

The target s-curve is what we are shooting for. It is also known as the baseline. As we have already discussed, the planned scope changes. Therefore, the baseline changes. So we need to maintain a fresh baseline that reports to management the current effects of the latest changes. In order to see the transition over time, from the original baseline to the current baseline, it will be necessary to maintain a history of each baseline. Baseline management is discussed later.

In addition to the baseline s-curve, which stretch from the beginning of the project (0% Progress) to the end of the project (100% progress), two additional curves are normally plotted: Earned and Incurred. Earned human hours or earned costs (we'll refer to these as earned value) are the hours or costs that were estimated, and that are now in the baseline, for the current amount of progress. If the earned value exceeds the baseline value from the baseline curve, the project is ahead of schedule. The Incurred value curve is a plot of the labor, equipment, materials and other costs that have been incurred to-date. This is the cost incurred in obtaining the current earned value. If the earned value exceeds the incurred value your project is under budget, as you are making more progress for less cost.

It should be obvious here that an accurate system needs to exist for both:

  • the determination of progress and how it gets converted into earned value, as well as
  • the collection on incurred costs in a timely and accurate manner


 

These issues are tackled in the next two sections.


 

Earned Value Determination

in order to accurately obtain earned value, we depend on the work of the planner(s) that provided the initial estimates for human hours, equipment, materials and contracted costs associated with the work. Also, the foreman (foremen) in charge of executing the work need to provide an accurate accounting of the work being done (including new work that was previously not identified), and the remaining quantity of either duration hours or a logical physical unit (such as lineal feet of a pipeline).

The ratio of the remaining quantity to the original quantity provides a measure of the percent complete of the work item:


 

Percent Complete = 100 x (1-Remaining Quantity/Original Quantity)


 

The percent complete multiplied by the work item's value (hours and/or cost) provides the earned value of the work item.


 

In order to ensure that a trend of the earned value over time is obtained, it is necessary to record the daily value for quantity remaining for each task on each work item. This is routinely done by the field staff.


 

Collecting Incurred Value

The cost that your contractor bills you, for today's work, is the incurred value of today's work for that contractor. You have incurred that cost. It is not yet on an invoice or even in the mail. It should be in your system within 12 hours of being incurred. If the foreman enters his/her crew's time into your system directly and if the timekeeper validates that time and adds other costs at the end of the shift, this target is easily met. This means that you can compare your earned vs. incurred (also known as earned vs. burned) each day. A trend of this ratio is your productivity curve and helps the PM to decide whether the project needs corrective action. In order to provide a way to truly compare earned value with incurred value, these costs must be collected at the same level that the planner planned the plan. That's right. The hard work that the planner does continues to provide payback to the project deep in the execution phase. What if a work item that is needed by the field is not available in the plan and the schedule? The timekeeping system must allow the field people to add the missing work item 'on the fly'. They must feel that their timekeeping is accurate and that they have a stake in accurate data collection. In fact, the reports that are produced will validate their work automatically – further saving a huge amount of field effort in the area of report preparation of weekly and monthly reports.


 

OK, so, now we have our graphs, how about answering the first 2 questions?

  • When will you be done?
  • What's it going to cost me?


 

This leads us to forecasting.


 

Forecasting Cost and Schedule – where are we?

We mentioned two indexes previously, the CPI and SPI: These are computed as follows

  • Cost Performance Index, CPI = Earned Value / Incurred Value
  • Schedule Performance Index, SPI = Earned Value / Baseline Value


 

These two indexes can be used to compute a forecast cost at completion, based on the CPI and a forecast date of completion, based on the SPI.


 

As with any computed value, the numbers obtained are heavily dependent on all of the numbers that lead to these – careful attention to each of the detailed data elements leads to a higher confidence factor in the computed forecast costs and dates. That has been the objective of this document – to focus on the elements that deliver the desired results. Formula for forecasting cost and dates are:


 

Forecast Cost at Completion = Incurred Cost + (Remaining Baseline Cost / CPI)

Forecast Completion Date = Data Date + (Baseline Duration Remaining / SPI)


 

Note that your company's business rules for these computations may be different and the system that you use should be able to reflect your business rules.


 

Before we get too comfortable with our work we need to tie up some loose ends. Remember the Expended costs and the Committed Costs? Where do they now fit in?


 

How much have we spent? How much is left? The reason for the Budget

We know that we can easily track the amount that we have spent. This number is the sum of the credit card receipts, the invoices received, the checks written. This is called the Expended Cost. Assuming that the expended costs are the only extent of costs on the project is not facing reality. Project Controls is about peering ahead to determine what costs the project can expect. Each of the contracts, with contractors and vendors, represents a commitment that your project has to spend a certain amount of money. As this commitment does not, yet, show in the expended costs, it is easy to assume that you are not, yet, 'on the hook' for the contracted costs. This would be a mistake. Committed cost is a critical element of the cost story for the project. If committed cost exceeds expended costs, you need to turn your focus towards committed costs as the potential budget-breaker costs in the project. Once the project has started, it starts incurring costs. Incurred cost is the term that we use to define the costs that the project has incurred. An example helps to explain the difference between incurred costs and expended costs. Your contractor had 1000 people on your job site today. You just incurred a cost (of 1000 people x10 hours x $50 =) $500,000, that is not on any invoice or bill - yet! So, incurred cost is an approach to tracking your costs at the source and at the time of their being incurred. This, in turn, ensures that there will be no surprises – you should know your incurred costs on a daily basis. In order to know if any of these costs, expended, committed or Incurred exceeds the amount that you planned to spend, also known as the Budgeted Cost, you should be paying close attention to the project's progress. In order to create a realistic budget, you must first estimate the costs associated with the project. The estimating process is discussed in the Estimating the work.


 

Estimating the Costs – getting ready to create a Budget

Long before the planner gets involved, when the engineering drawings are at 30% complete, the estimating process provides a means for obtain a project budget. This estimating process is typically done for capital projects. It involves a materials take-off from the drawings. The materials quantities are multiplied with man-hour rates for installation. The man hours that are obtained in this way are then multiplied by current labor rates to obtain labor costs. These labor costs are added to estimated materials, equipment and sub-contracted costs to obtain the estimated cost for the project. Contingency costs due to unknowns, fees and other costs are included with the estimate to help ensure that a reasonable cost is obtained.

As the project's schedule is nowhere near being formulated, the budgeted amount is 'time-lined' manually using a cash-flow tool.

Appropriate company and/or project managers will approve the budget that is obtained in this manner.

Once the appropriate approvals are obtained, the project continues to progress from the engineering through the procurement towards the construction phase. This project cycle is commonly referred to as the EPC cycle. Managing the project means managing each of these cycles separately and together in the project or work management tool.


 

Project Baseline – What are we comparing our progress to?

A human hour project baseline is available for the planned and scheduled expenditure of human hours over the life of the project. In addition, a cost baseline is available for the planned and scheduled expenditure of costs over the duration of the project. As work scope is added to or removed from the plan, it may be necessary to re-baseline the project. In this situation, the TeamWork 2k's Re-baseline process provides the means to create the new baseline based on a 'pure' schedule – one with no progress. Some project managers prefer to see multiple baselines on their charts. TeamWork 2k maintains a history of each baseline in its snapshot area. The maximum number of human hours in the baseline is the Target Human Hours. The maximum cost that the baseline reaches is the Target Cost.

So, now we have baselines and targets and we are ready to see how we measure up against these.


 

Summary of Progress Measurement and Management

Bottom line . . . the process is certainly not hard. What is hard is trying to do all of the work in ONE system. The benefits of doing so are many, including less data manipulation and handling leading to less redundant data handling, which leads to more accuracy.


 

You will have now done away with the need for summarizing their progress, changes and incurred costs on a weekly or monthly basis. You have now evolved to a project management approach that is integral to the project – rather than one that is separate from it, as are most systems are today. Excel spreadsheets cost data, Primavera schedules with scheduled activities, Access databases with time data, Powerpoint presentations with management reports. This is the norm for project reporting today. And this is a very expensive way to do business. That would be OK - except that it is also extremely disconnected and thus prone to inaccuracies that are due to the redundant handling of data.


 

Another huge benefit is that the project team has a better quality of work – they do not need to spend countless hours manipulating spreadsheets, databases, presentations, schedules, etc. Management has 24x7 access to project data and is not dependent on field teams working overnight several days in a row to produce that monthly report. And the reports have no surprises – that is the nature of a well-used and widely-used system.


 

Talk to us at The TeamWork Group, Inc. We have the people, the tools and the know-how that can help your company take the management of projects to the next level.


 

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