Assessing the Performance of Road Construction Projects: The. Practical Application of EVPM Method (Case Study)

Transcription

1 Assessing the Performance of Road Construction Projects: The Practical Application of EVPM Method (Case Study) P. Daneshmand 1, 2, A. Khreich 1 ¹ Blue Visions Management Pty Ltd (BVM), Sydney, NSW, Australia ² Leighton Contractors, Sydney, NSW, Australia Corresponding Author: P. Daneshmand, pedramd@bluevisions.com.au, Level 14, 99 Mount Street, North Sydney, NSW, Abstract: An ideal project performance control system sets the baseline and performance indicators, measures the project performances and compares them with the expected plan. Among the available range of project performance assessment tools, Earned Value Performance Measurement (EVPM) successfully encompasses scope, schedule and cost information within a single quantitative integrated analysis for measuring and reporting project performance and forecasting future performance based on past performance. This review outlines the development of EVPM methodology on a AUD500M road construction project in Australia. The paper examines the application of EV concepts (based on AS ) in this case study, the advantages and challenges, and provides practical guidance for elements of the Monthly Performance Programme Report for similar projects and programmes. Overall, the experiences of EVPM application in this road construction case study highlight the highly interactive nature of successful performance reporting and the importance of EVPM methodology. Key words: Earned Value, Performance, EVPM, Construction. 1 INTRODUCTION 1.1 Project Monitoring & Control The road construction industry is often judged by analysts to be relatively inefficient compared to performance seen in the manufacturing industry. It is highly unlikely to proceed in all respects entirely according to plan. Small deviations between plan and actual performance may locate within the limits of uncertainty of the model, but significant variations however may require a revision of the plan to meet the project s objectives. Two main phases of the project control system involves the five steps of Plan, Implement, Monitor,

2 Report and Action. A key obstacle to improved performance in construction industry, and hence improved productivity and client satisfaction, is current accurate performance information availability. This case study will focus on the monitoring and reporting steps and highlight the benefits of the Earned Value Performance Measurement method for preparing Programme Performance Report. An ideal control system sets the baseline and performance indicators, measures the project performances and compares them with the expected plan. Integrated project performance includes the four main elements of a construction project: cost, schedule, quality, and safety (Oberlander 1993). Typically, two parameters, which are widely used for performance assessment, are Time and Cost. A time-phase spend plan is usually prepared and updated by the project planning manager monthly. On the other hand, finance department calculates cost figures and actual costs. However, what is missing from most of these models is any understanding of how much work has been accomplished during the project. What is needed, then, is a method of quantifying the technical performance of the project and integrating with time and cost, which is the objective of EVPM [1]. 1.2 EVPM Background The genesis of EVPM was in industrial manufacturing at the turn of the 20 th century, but the idea took root in the US Department of Defense (DoD) in the 1960 s. In 1967, the DoD established a criteria-based approach, using a set of 35 criterions called Cost/Schedule Control Systems Criteria (C/SCSC). At best, C/SCSC was generally considered a financial control tool that could be delegated to analytical specialists. In the early 1990 s, EVPM emerged as a project management methodology. An overview of EVPM was included in first PMBOK Guide in 1987 and expanded in subsequent editions. Recently, efforts to simplify and generalize EVPM have gained momentum. In Australia, standard AS was prepared by the Standards Australia Committee OB-014, Earned Value Performance Measurement (EVPM) to supersede AS The current version of this standard has been referred to for this case study [2]. 2 EVPM PROCESS (AS ) 2.1 Step 1: Decompose the WBS The key for an effective EVPM system is the Work Breakdown Structure (WBS). WBS breaks the project down into manageable discrete elements of work and may be expressed in an organization chart format. The WBS needs to be defined down to at least the level at which EVPM reporting will be applied. Making decisions about this level is critical. Too low will create an overload of data and too high could lead to the masking of some vital information. According to the literature, most construction projects will find 3-4 levels within a WBS will

3 adequately meet their data requirements for running a reliable EVPM system. However for more complex projects and systems, breaking down to level five or six has been recommended [3]. 2.2 Step 2: Assign responsibility Once the WBS has been developed into manageable elements, responsibility is assigned for the performance of the work elements. An Organization Breakdown Structure (OBS) may be used to identify the project hierarchy responsible for work accomplishment. A Responsibility Assignment Matrix (RAM) may be used to map WBS elements to the OBS elements. 2.3 Step 3: Planning/Scheduling All elements of the work are scheduled into a logical sequence, which identifies durations, activities, milestones and interdependencies. For construction projects, activity durations in the performance measurement programme will usually be in the 2-4 weeks range, but there will exceptions. Activities and milestones will be linked with dependencies to produce a network schedule such that the critical paths can be determined and the float can be determined for every activity and milestone. Grouping the activities with start and finish milestones helps creating the closed network. 2.4 Step 4: Develop time-phased budget Costing may be done using a Bill of Quantities or pricing schedule. If it is possible to influence the production of the WBS, it is useful to define how the bill will be split to reflect the programme. The total authorized budget for accomplishment of an activity, WBS element or the project scope of work is termed the BAC. 2.5 Step 5: Objective measures of performance Objective measures of performance largely depended on activity content, size and duration. There is no definitive set of techniques, but a widely used method is the technique termed milestone where EV is only claimed when the milestone is completed. Another technique termed percent complete is used to claim partial completion when the objective measurement of the percentage completion of an activity is possible. The performance measurement indicators are scheduled with sufficient frequency to provide a basis for accurate performance measurement. 2.6 Step 6: Set the performance baseline The valid baseline should be logically constructed and also should make sense when compared to available project resources. The shape of the s-curve budget against time is a quick way to judge. According to investigations by Singh and Lakanathan (1992), the

4 application of S curves for cash flow projections can achieve an accuracy of approximately 88-97% [3]. 2.7 Step 7: Monitor, Report and Take Action An accurate scoped, estimated schedule is essential for good project performance measurement. As the project progresses, we will make assessment of progress and will collect actual information in regular bases from site senior engineers. Labour Returns forms and cost reports can be used for actual cost data and variations. Then EVPM uses this information to calculate various KPI s such as Percent Complete Planned (PCP), Percent Complete Achieved (PCA), Schedule Performance Indicator (SPI), Cost Performance Indicator (CPI), Schedule Variance (SV) and Cost Variance (CV). One sample of EVPM report has been shown at Figure 1. According to the programme report, the appropriate action then will be taken and a new baseline will be created when the process is well documented and traceable [4]. Fig. 1 EVPM presentation 3 CASESTUDY OVERVIEW 3.1 North-West T-Way Project The NWT-Way is a bus rapid transit line in the northwestern suburbs of Sydney, Australia. The AUD500M project plan was approved in Feb 04 and is due for completion in Dec 07. As a design and construction project, it was designed and is under construction by Leighton Contractors Pty Ltd. The project planning management, control and performance measurement reporting services are provided by bluevisions Management Pty Ltd. The 24- kilometre-long road will include 30 stations, seven new bridges, one new underpass, a cycleway and pedestrian facilities. 3.2 WBS establishment and Work Packages

5 Traditionally applied EVPM considers the whole project and no account is taken of the work break down structure in the form of activities or work packages. For this project, the usage of WP s (Work Packages) for EVPM system has been considered. For such a road project, the whole project (Level 0) has been broken down to four Zones (Level 1), and then each zone has been divided to two Sections (Level 2). Under Sections, the Sub-Sections have been allocated (Level 3). Down at this level, the Work Packages (Level 4) are located. Also for programme performance report purpose the project is broken down to four Separation Portions (SP1-4). Considering the level of Earned Value calculated figures, we are able to calculate and report the Percentage Completion for individual Zones and SP s by using the EVPM system. For this proposed case study, the following types of Activity Codes for planning purposes have been defined: - Zones: Mile, Z1, Z2, Z3, Z4, and Cost. - Tasks: Mile, Design, Procurement, and Construction. - Sections: SP1-4, S1, S2, S3, S4, S5, S6, S7, and S8. - Sub-Sections - Disciplines: Site Establishment, Temporary Works, Communication Adjustments, Gas Adjustments, Electrical Adjustments, Services Installation, Sewer Adjustments, Water Adjustments, Asbestos Removal, Local Roadworks, Property Works, Utilities, Earthworks, Retaining Walls, Cross Drainage, Drainage, Relocation Services, Pavement Drainage, Traffic Signals, Pavements & Barriers, Road Furniture, Street Lighting, Noise Walls, Footpath, Concrete Paths, Station Intelligent Transport Systems (ITS), Urban & Landscaping Works, Linemarking & Signage, Testing & Commissioning Works, Bridges & Structures, Building Works, Bus Stations & Precincts, Station Layout, and Civil Details. - Locations: Project broken down to 50 locations. - Trades: 40 different trades have been identified. The selection of Work Packages is made according to natural groupings of project activities arranged in their logical work sequence. Key dependencies between the activities within different Work Packages are determined and these are used to establish the lead and lag times between the packages. Also choosing the work packages with regard to cost reports has been recommended. For our purposes, these Work Packages have been located at the 4 th level of WBS and based on Activity Codes of Discipline for the project s EVPM system. Hammocks or summary activities represent the individual Work Packages and have been linked to groups of tasks by start and finish milestones.

6 NWT Zone 1 Zone 2 Zone 3 Zone 4 S1 S2 S3 S4 S5 S6 S7 S8 50 Locations 34 Disciplines Fig.2 Project s Work Breakdown Structure (WBS) 3.3 Budget Cost Allocation As mentioned, according to the related literatures, for most construction projects 4 th or 5 th Level of WBS can provide an accurate database for EVPM calculation system. So to produce a time related budget, we have to allocate estimated costs over each Work Package (Hammock activities). All this information is taken from cost reports and financial statements. The nature of the work will determine whether costs should be set as labor costs only or if like this project all project costs should be loaded into the schedule. For cost allocation, we used traditional linear relationships, but for long Work Packages, it may be more appropriate to allocate a more accurate non-linear expenditure against time, than to assume a direct relationship. 3.4 Schedule & Plan Value (PV) As the initial plan is ready at this stage, this step generally provides the spread of the project. It generates the traditional S-curve of the project plan, often referred to as the sum of the budgets for work scheduled to be accomplished within a given time period or Planned Value (PV) or previously BCWS (Budgeted Cost of Work Scheduled). The process can include analysis of specific resources to ensure that maximum available levels are not exceeded at any point in the schedule. There is also a review of the financial viability and the cashflow of the project to check that the financing plan for the project supports the schedule [5]. Fig. 3 NWT-Way Plan Value (PV)

7 3.5 Progress Monitoring/Updating Ongoing updating of the schedule needs to be done whether or not the EVPM system is used as a control mechanism. For our programme updating, the schedule programme and cost programme are updated fortnightly and monthly respectively. The scheduled activities are reported as started, completed or part completed. For non-completed activities, percentage completion and remaining duration would be provided during the site updating with junior engineers. The next step is the Work Packages percentage completion updating with senior engineers and section managers. The final step in the periodic updating is to enter the actual costs into the Work Packages. This information comes from financial documents, timesheets and invoices. Revised and actual start and finish dates are recorded for all activities. On the other hand, all Work Packages are updated with Actual Costs and ETC information (cost figures) and because they have been linked to the schedule network, they will be updated automatically in terms of time (schedule figures). 3.6 EVPM Calculation The final step is to calculate the Earned Value (EV) or previously called BCWP (Budgeted Cost of Work Performed). By using the defined Work Packages, the EV is simply the percentage completion of a work package multiplied by the budgeted cost. Other performance calculations are described hereafter. Schedule Variance (SV) is the difference between Earned Value and Planned Value (EV PV). A positive value indicates an ahead of plan situation while a negative value indicates behind plan. Cost Variance (CV) is the difference between EV and Actual Cost (EV AC). A positive value indicates a favourable position and a negative value indicates an unfavourable condition. Performance indices are often merely ratio expressions of the SV and CV such as Schedule Performance Index (SPI) and Cost Performance Index (CPI). The Percentage Complete Planned (PCP) at any time is the PV for that point divided by the total budget. Percentage Complete Achieved (PCA) is the EV divided by the total budget. The Estimate at Completion (EAC) is a useful figure since it indicates where the project cost is heading. It equals AC to a point in time plus the estimated costs to completion (ETC). Most techniques for forecasting ETC include some adjustment to the original estimate, based on project performance to date. In this case study, all ETC figures are provided by senior engineers and financial documents. 3.7 Data Analysis & Project Reports Formal project programme reports are a critical part of the project management plan and EVPM system. We have to summarize and analyse the project data received from senior engineers and the financial department to prepare the reports provided to executive managers and our client. To meet this requirement, EVPM has fully capability to calculate the performance for different Zones and Separate Portions based on the integrated system of time

8 and cost information. This is in effect, an interpretation of the various results of last step and exact needs of the project. For our case study, the following reports are provided: Programme (Schedule) Report Schedule programme is updated fortnightly through regular programme meetings with Zone Managers and Senior Engineers. As all activities and work packages have been updated regularly by revised start and finish dates, actual start and finish data, percentage completion and remaining durations as at each status date, the current programme always shows the remaining activities and forecast practical completion date. A programme developed at P3 software is used for this case study Project Performance Report At project level, Zone level and SP level, the current percentage completion can be calculated by established EVPM system. The Percent Complete Achieved (PCA) for project, zone or SP is the total EV of relative work packages divided by the total budget for that section (Eq. 1). For most construction projects, it has been found that 4-5 levels within a WBS will adequately meet the EVPM data requirements. This means if you want to get an accurate PCA for a Subsection, it is suggested to calculate the EV at 4 th level down its level. PCA = Total( EV ) / Total( Budget) (Eq. 1) Fig. 4 Construction Performance Report for Zone Separation Portion Performance Report One of the benefits of EVPM method is the performance measurement ability for any combination of areas. For this cast study, SP3 included the sections 1-6 and section 7 and Section 9 make SP4. The PCA can be calculated for any combination of areas using the Eq. 1 although we do not have the individual programme information for that portion. As mentioned, the only point to consider is that to get the PCA at any level, we have to calculate the EV at 4-5 levels down of this level Cashflow Report

9 After updating all work packages with AC and ETC information and regular schedule and cost programme updating, the system can provide the distribution of forecast cashflow for the project based on integrated time and cost data. The forecast cashflow function at P3 software has been used for this report. With actual cost figures, updated schedule, project PV data and ETC information, the Cashflow is prepared. For a fixed price project, we need two versions of the EVPM system. For the Internal programme, WP s are updated with real AC and ETC information. On the other hand, the External system requires that the WP s would be just updated with Claims reports to produce the cashflow report for the client [5]. Fig. 5 Project s Cash Flow Report 4 EVPM CHALLENGES If the calculation of ETC is based on past performance, in some instances the EVPM may not be correct because future work may be entirely different and unrelated to that already completed. To address this issue, we focused on senior engineers estimation as well as past performance. SV relates purely to cost performance only and no account is taken of time as it relates to the completion of project activities in their logical sequence (Howes et al. 1993). To address this deficiency, the project schedule and WP s are updated concurrently with time and cost, respectively. In its basic mode, EVPM does not account for variations to the project in the form of additions and/or omissions. The budget and forecast information are taken into consideration to ensure a meaningful measurement approach is in place. This powerful tool for project performance measurement has no provision to measure project quality and client satisfaction. Other management tools should be used in conjunction [6, 7]. 5 CONCLUSIONS EVPM is a tool for improving the analysis of progress and performance on a construction project. The paper outlines the development of EVPM methodology on a construction case study and to provide practical guidance for EVPM implementation in similar programmes. According to this EVPM application for a road construction case study, the following comments have been achieved:

10 - Although putting the work packages at Level 4 had accurate results, engineers feel more confident at level 5. If the implementation of EVPM is not scaled to match the size and type of the project, it may be either too lightweight or too costly. - General overheads and profits should be eliminated from the analysis so that actual expenditure can be directly compared with budgeted expenditure; hence, when these are added back, a more accurate summary of the profitability can be obtained. - Within this closed network, activities are updated with time data and Work Packages are updated with cost information creating an integrated performance measurement system built of time and cost. - The test data needs to be expanded with data from a wider range of road projects to provide more practical usages and procedures of EVPM system. - Getting the accurate cost figures from financial departments and the real time and performance data from site engineers, makes the EVPM system a reliable performance measurement tool. ACKNOWLEDGMENT This consulting service was undertaken and fully supported by Blue Visions Management Pty Ltd ( bluevisions ), Sydney, Australia and the first author would like to express his special thanks to the Managing Director, Mr. A. Khreich for all his support and constructive reviews. We also acknowledge the Leighton Contractors Pty Ltd team for project database support. REFERENCES 1. Al-Jibouri, S.H. (2003). Monitoring systems and their effectiveness for project cost control in construction. International Journal of Project Management, Vol Australian Standard AS Project performance me asurement using Earned Value. 3. Howes, R. (2000). Improving the performance of Earned Value Analysis as a construction project management tool. Engineering, Construction and Architectural Management, 7 4, pp Raby, M. (2000). Project management via earned value. Work Study, Volume 49, Number 1, pp. 6-9, MCB University Press, ISSN Park, H.K., Han, S.H. and Russell, J.S. (2005). Cash Flow Forecasting Model for General Contractors Using Moving Weights of Cost Categories. Journal of Management in Engineering, ASCE. 6. Ruskin, A.M. (2004). Two Issues Concerning the Use of Earned Value Measurements. Engineering Management Journal, Vol. 16, No Alvarado, C.M., Silverman, R.P. and Wilson, D.S. (2004). Assessing the performance of construction projects: Implementing earned value management at the General Services Administration. Journal of Facilities Management, Vol. 3, No. 1, pp