For an Interior Design contractor using a Project Management Information System (PMIS) like PMWeb to manage the procurement of their Furniture, Fixtures and Equipment (FF&E) contracts, it is of high importance to apply the best practice of Earned Value Management (EVM). This in turn provides a readily available objective monitoring, evaluating and reporting of those contracts schedule and cost performance. The article titled “Improving the Cost Performance of Interior Design Projects’ Furniture, Fixtures and Equipment (FF&E) Procurement Contracts” has details of how those FF&E contracts are managed with PMWeb, and for which the same captured cost information is 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 captures 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 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, PMWeb highly recommends for the interior design contractor to have the CBS standardized across all projects in execution so he can generate a 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. Usually user use no more than six levels. 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 become the periods that all cost related data is posted to during the project life cycle stages. The financial periods are 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, some items performance earning could be simply based on 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 submit their interim payment certificates (IPC) for actually procured, delivered and installed furniture, fixtures and equipment. The PMWeb progress invoice module captures the details for each progress invoice for each contract. The certified progress invoice amount is the Actual Cost (AC) measure in EVM reporting. In addition, PMWeb’s option to link each item in the progress invoice with its relevant project schedule activity is used to calculate the Earned Value (EV) measure also needed for EVM reporting. The EV equals 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 are based on the current contract value which includes all approved change orders to the originally awarded FF&E scope of work issued to date. Of course, the PMWeb Change Order module captures all change orders, regardless of their status. Nevertheless, only the approved change orders help to automatically adjust the awarded contract value, spending projection and progress invoices. As a rule, no change order is 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 can be for one reason or another are not captured in one of the awarded FF&E contracts, PMWeb Miscellaneous Invoices module is used to capture what is known as non-commitment expenses. The captured expenses are 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, 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. The PMWeb Potential Change Order module captures those potential change orders, also known as Early Warning Notifications (EWN).
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.
The metrics listed below help 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, project, program or the complete projects’ portfolio schedule and cost performance. PMWeb highly recommends that in addition to the EVM measures and metrics, the calculated project schedule Total Float value (TF) is 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 displays the location of the selected projects as well as the performance indices. The size of the bubble on the map can reflect on the project’s approved current budget.