Mr. Al-Khatib,
I believe the question you are getting at is how do you use EVM on a cost reimbursable contract? Also, how do you treat baseline scope changes?
To your first question you would treat this like any other program. There is a baseline agreed price or BAC that your EV is measured against. If there are modification there should be a standard process used to estimate, negotiate and incorporate the change within the baseline.
To your second question each baseline change should come with corresponding negotiated budget. There should never be a time where any underrun budget achieved in the past is harvested to complete new work. This would be the only way your metrics should change. Percent complete will change with the increase in budget, but not CPI,SPI, CV, or SV. The difference between budget and funding has to be maintained. You can use underrun funding to pay for new budget, but never use underrun budget to provide new budget. This will distort true performance against the baseline.
So in summary yes you can use EVM on cost reimbursable, but strong management techniques for changes must be applied. You should have a board or committee that reviews, negotiates, and approves additions to the baseline. So if there is new work scope, it goes to this board to be reviewed to ensure it is accurate, negotiate what the assumed budget will be, and approve the negotiated budget into the baseline. Then performance will be taken against the new budget along with the old and the metrics will still provide you accurate performance.
If you have further questions, please ask.
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Ty Moore EVP
Advanced Analyst
Tecolote Research, Inc.
Clinton UT
(801) 586-6200
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Original Message:
Sent: 05-02-2018 05:07
From: Yahya Al-Khatib
Subject: Earned Value Measurement for cost reimbursible projects
Dear Anderson,
Thanks for you input, the template you provided can help me to present my clarification. I have done some modifications to explain what I mean. For the attached sheet, upon completing 480 unit of the quantities out of 1000, the baseline was changed to 1100 and the installed quantity now represents 43.6% instead of 48%. Likewise, the budget proportionally increased and EV, CPI and SPI should remain the same.
This could be a basic principle that in case of change of baseline where budget is proportionally changed with scope, the earned value remains the same. The other part of the question is: do we deal with EV management for cost reimbursable projects as simple as a project with many modifications of baseline? Is there a best/recommended practice to follow?
Regards
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Yahya Al-Khatib CEP PSP
Sr. PMO Planner
Khatib & Alami
Khobar
+966541127560
Original Message:
Sent: 05-01-2018 12:05
From: Anderson Menezes
Subject: Earned Value Measurement for cost reimbursible projects
Mr Al-Khatib,
I'm probably not getting your question clearly, but:
I've made a simulation of your questioning and reached the following conclusions:
* You're talking about changing the BAC by an increase of 10% and also the SOW in 10%
* So, the proportion on cost/work to be done will stay the same.
* But, Earned Value, as comes from the new BAC, changes.
(also you can figure changes on CPI) the only unchanged indicator is SPI, unless there are changes on the EAC(t) final date.
Take a look at the file with both situations illustrated. (attached)
Feel free to contact me:
Regards.
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Anderson Menezes
Principal Consultant
menezes.PRO
Santa Cruz de la Sierra
+591 75617742 - anderson@menezes.pro
Original Message:
Sent: 04-30-2018 16:13
From: Yahya Al-Khatib
Subject: Earned Value Measurement for cost reimbursible projects
Greetings,
We are working for a client PMO for a program of cost reimbursable projects. The PMO is newly established while projects are almost 60% completed in construction and 90% in Engineering. Our Construction Management Consultant (who is also responsible for cost control) is arguing that Earned Value measurements cannot be done (not applicable) for this type of projects since the budget is not fixed. I have few points to note and hope you can share your thoughts in this regards:
- With the current development of the projects where engineering is 90% developed and the scope of work which wasn't clear at the beginning of the project is now clear and no special consideration (in Earned Value management) applies to the projects at this stage.
- In terms of value management, we look at the cost reimbursable projects similar to the lump sum projects but with many changes in cost/time baselines. We create a baseline for the perceived scope and upon the defined scope, we create our baseline (time/cost) and measure the earned value. As we proceed in project construction, additional scope becomes clear and at a certain level will be ready for addition to make a new baseline and so on.
- In case a project scope increases by 10% for example, a budget will typically increase 10% in this case we will have:
New progress% = Old progress / 1.1
New budget = Old budget x 1.1
With EV = Progress% x Budget, the Earned Value will remain the same.
- I have navigated quickly through AACE RP's but could not find an RP addressing reimbursable cost projects? Any suggestion is appreciated.
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Yahya Al-Khatib CEP PSP
Sr. PMO Planner
Khatib & Alami
Saudi Arabia
+966541127560
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