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Implementing Earned Value Management in a Design Consultancy


John Mathew
JohnMathew
Product Director
BST Global

Earned Value Management (EVM) is a technique well-suited for professional services organizations, yet many design consultancies struggle to harness it. However, through thoughtful use of process and technology, your consultancy can make EVM stick and enjoy improved project delivery.

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Advanced Earned Value Management Metrics for Design Consultancies

John Mathew
JohnMathew
Product Director
BST Global
Ben Franklin’s proverbial words “time is money” have special meaning for design consultancies, as successful delivery of professional services involves navigating the intersection of project schedules and project finances. Earned Value Management (EVM) provides direction at this intersection by offering a variety of metrics to assess project health and drive project performance. Let’s build on EVM’s three basic metrics and explore nine financial and scheduling metrics that your consultancy can leverage today.   Financial Metrics 1. Budget Variance As the difference between Earned Revenue and Actual Effort on a project, this metric compares how much money has been spent to how much revenue has been earned and provides insight into whether the project is under-budget (positive value) or over-budget (negative value). 2. Effort Performance Index This ratio of Earned Revenue to Actual Effort measures how efficiently a project is earning revenue compared to expenditure. An index less than one indicates an over-budget condition. 3. Effort at Completion Dividing Planned Revenue by the Effort Performance Index provides a projection of how much money will be spent at project completion. 4. Budget Variance at Completion The difference between Planned Revenue and Effort at Completion projects where a project will end up in comparison to its overall budget.   Scheduling Metrics 5. Schedule Variance The number of time periods (e.g. days, weeks, or months) between the current time period and when Planned Revenue matches the current Earned Value position, this offers an assessment of whether a project is ahead of schedule (i.e. Earned Value ahead of Planned Value) or behind schedule. 6. Schedule Performance Index The ratio of Earned Revenue at a point in time to the Planned Revenue at the same point provides a normalized assessment of whether a project is ahead of schedule (greater than one) or behind (less than one). 7. Planned Duration This metric indicates the number of time periods a project is expected to span. 8. Duration at Completion Dividing the Planned Duration by the Schedule Performance Index will give you a projection of how many time periods will have elapsed at project completion. 9. Schedule Variance at Completion The difference between Duration at Completion and Planned Duration, this is a projection of whether the project will complete ahead or behind schedule.   Closing Thoughts Different consultancies have different needs, including which combination of financial and/or schedule metrics are useful. As you identify the mix of metrics for your firm, consider goals and variance thresholds for each selected metric. For example, if Effort Performance Index is important, define the upper and lower limits that dictate whether a project needs further focus and attention. By defining these thresholds, you can start to establish how EVM will fit into your firm’s project management methodology. In my next post, I’ll share tips on harnessing the metrics outlined above, in conjunction with process and technology, to implement EVM in a design consultancy. Author’s Note: This is the third article in a four-post series on the use of Earned Value Management in professional services organizations.

Basic Earned Value Management Metrics for Design Consultancies

John Mathew
JohnMathew
Product Director
BST Global
“We’re on schedule, but it looks like we’re going to exceed our budget." "We’re running a bit behind, but we’re going to come in under budget.” For design consultancies, providing updates like these is essential to managing expectations while delivering project-driven professional services. If you want to make this more of a reality in your organization – it’s all about Earned Value Management (EVM). EVM is built on three metrics: Planned Value, Earned Value, and Actual Cost. Think of these metrics in terms of your project budget and schedule. Planned Value represents how you expect to earn your project budget over the duration of the project. Earned Value represents what you actually earn as the project progresses. Actual Cost represents what you spend to do project work throughout the project. At first glance, these terms might seem pretty straightforward, but let’s translate them into even more meaningful terms for a professional services firm. 1. Planned Value = Planned Revenue Planned Value provides the baseline for tracking project performance in EVM, representing the value a project is expected to deliver over its duration. In the context of consulting projects, Planned Value represents the revenue a project is expected to earn through completion, adding up to the overall project fee or budget. In other words, Planned Value is Planned Revenue. Planned Revenue may be expressed as an overall figure for an entire project, or it can be divided across a project’s work breakdown structure (WBS). Additionally, Planned Revenue can be spread across time periods (e.g. weeks or months), to represent the timing of when a project is expected to earn revenue based on anticipated completion of project deliverables. 2. Earned Value = Earned Revenue The second metric of EVM is Earned Value. For design consultancies, this is more aptly termed Earned Revenue, as the metric represents the revenue a project earns as work is performed and milestones are achieved. There are multiple ways to earn revenue on a project. Revenue may be earned when the project team charges hours or expenses to the project. Hours charged on a timesheet may be converted into revenue via contracted labor multipliers or bill rate schedules. Expense charges – like travel, printing, or subcontractor expenses – may be converted into revenue via contracted expense multipliers or unit pricing rate schedules. Revenue may also be earned as project managers assess percent complete across the project WBS. These assessments are often done a monthly basis, and often stem from progress to-date and how much work remains. Regardless of how it’s calculated, Earned Revenue is often governed by Planned Revenue, which in turn is tied to contract terms. For instance, if the contract dictates a lump sum or fixed fee, Earned Revenue cannot exceed this amount. A similar limit applies for projects that have cost plus (i.e. time and materials) contracts up to a predetermined maximum amount. 3. Actual Cost = Actual Effort The final core EVM metric, Actual Cost, is the market (or retail) value of cost a project incurs as work is performed. This metric provides consultancies with a way to compare how much effort has been expended on a project in relation to the Planned Revenue and Earned Revenue on the project. As such, in a professional services context, this metric is better termed Actual Effort. In many ways, Actual Effort accrues on a project similar to the way Earned Revenue accrues. Actual Effort is the result of labor or expense charges being posted to a project, with these charges being converted into Actual Effort via contracted labor and expense pricing terms. However, there are two significant differences between Actual Effort and Earned Revenue. First, Actual Effort cannot be calculated or adjusted by percent complete assessments – Actual Effort is purely a function of the labor or expense charges posted to the project. Second, Actual Effort is not bound by Planned Revenue. As your team continues to work on a project, Actual Effort continues to accrue, even if Earned Revenue is capped by Planned Revenue limits. Another way to understand Actual Effort comes from its relationship to Direct Cost. While Direct Cost represents the cost to a consultancy for services delivered, Actual Effort represents the market value of services delivered. And while some consultancies may incorporate Direct Cost into their project management methodology to measure project multipliers or other margin-based metrics, Direct Cost is not core to EVM. Closing Thoughts In order to leverage EVM effectively, a design consultancy must translate EVM’s three core metrics to fit the unique way professional services projects are contracted and delivered. With this understanding, a firm can take the next step of defining additional metrics and thresholds that leverage these core metrics – enabling better insight into project status and helpful early warning indicators of project issues. I’ll discuss this next step in the third post of this EVM series. In the meantime, please share your EVM questions and/or experiences in a comment below! Author’s Note: This is the second article in a four-post series on the use of Earned Value Management in professional services organizations.

Sustainability Means Only Doing the Right Things

Matti Mannonen
MattiMannonen
Managing Director
SKOL
In infrastructure development, we live in the world of investment projects. That’s because the traditional approach to solving a capacity problem is simply to build more capacity. There are several factors guiding us in this direction. For politicians, it is important to acquire investments in their own election district. For authorities, investments are crucial to keep the organizations busy. For consultants and contractors, investments mean steady workload and opportunity to grow. But, we are constantly consuming more than our globe can stand. In 2014, natural resources available for the year were already consumed by mid-August, according to the Global Footprint Network. What’s more, a World Energy Resources survey found that the growth in world energy consumption has been higher than anticipated even in the high growth scenarios, and global primary energy demand could still increase by 50% by the middle of the century. In order to survive, we have to change our ways of working and step out from this build-more-of-the-same mode. We must think more, anticipate the changes in the world, consider carefully our choices, and create solutions that consume less. Take the capacity problem we discussed earlier. Instead of building more capacity on a transport link, for example, what if you took the end-user perspective to the issue, and started looking out for a wider scope of solutions to the problem? Can you affect the demand with online traffic management, real time guidance, pricing, or by affecting modal split? Will the changing working patterns, new commuting patterns, or other behavioral changes of commuters improve the situation, and how could you affect the desired changes? What could be the role of spatial big data that is available in real time? Can you encourage car sharing, other means of more efficient use of fleet, or stimulate new services that change the situation? With private car in Finland only being used an average 17,000 km per year, or 4% of its available time, there is vast possibility to improve the use of fixed assets in this corner. In most cases, using this approach leads to much more cost-efficient and sustainable solutions than traditional investments to the physical infrastructure. Planning and thinking are the core skills of engineering consultants, so we have the capacity to follow this path. But, as engineers, we cannot do this alone. We have to include new skills and expertise – like behavioral and social sciences specialists, spatial and city planners, ICT specialists, industrial designers, economists – and build up multi-disciplinary teams that communicate with all stakeholders around the problem. Yes, I believe we can change our approach – but what about the politicians and authorities? We need them to place more resources and emphasis on advance planning, thinking, and efficient, innovative problem solving. The real challenge is to turn their thinking, which can best be done by highlighting the crucial impact of good planning to the sustainability of our future. Sustainability means doing only the right things. And the consulting industry has vast impact on what our world will be in the future. The sustainable future of the world is at our drawing boards – it’s time we start creating it.

An Introduction to Earned Value Management

John Mathew
JohnMathew
Product Director
BST Global
Is the project on track? The question is simple, asked every day by design consultancies and their clients. The answer, however, can be hard to come by. All too often, project complexity, disparate project management systems, disconnected internal processes, or some unfortunate combination of these factors can cloud a project manager’s ability to clearly view the status of a project. Measuring performance has been a long-standing challenge for many project-driven organizations. So, for an institutional issue, I offer an institutional solution: Earned Value Management (EVM). First developed by the U.S. Department of Defense (DoD) in the 1960s, EVM is a technique for objectively measuring project performance from both financial and scheduling perspectives. Built on top of the “project management triangle” (also known as the triple constraint), EVM leverages measurements of scope, time, and cost to assess progress and forecast where a project is headed. The EVM technique helps ensure that the job is completed on time, within budget, and according to specifications. More specifically, the DoD notes that project managers use EVM to: Quantify and measure project performance, Provide a warning system for departure from a baseline, Minimize risks associated with cost and schedule deviations, and Forecast final costs and schedule outcomes. Since the development of this technique, EVM has been tested and proven on thousands of defense contracts, and is now employed across a multitude of industries around the world – from construction to information technology to manufacturing – to better track and steer projects. A number of design consultancies have also begun incorporating EVM into their project management methodology to get clearer, timelier insight into project status. However, the technique still represents unexplored territory for many architecture and engineering firms – especially those without an enterprise project management software solution. Over the next few weeks, we will take a practical look at the business value of incorporating EVM into your organization’s project delivery approach. We’ll be discussing the core EVM metrics professional services organizations should monitor, how to implement the technique within your firm, and ways to leverage technology throughout the process. In the mean time, what questions do you have about Earned Value Management? Ask us in a comment below! Author’s Note: This is the first article in a four-post series on the use of Earned Value Management in professional services organizations.

The Role of Engineering Consulting Firms as Leaders In Social and Environmental Problem Solving

Jae Wan Lee
JaeWanLee
Chairman
KENCA
When constructing the Roman Empire, one of the most important factors for ancient Romans was engineering techniques. The difficulties in securing drinking water during the building of cities were overcome with the construction of aqueducts. The enlargement of infrastructure based on engineering techniques such as roads, water and wastewater, and sanitation facilities, made the life of the Roman people prosperous – and it became the solid base for the development of the Roman Empire. As seen in the example of the Roman Empire, engineering is a very important feature that can promote a nation's development and solve various social problems. Today, there are many issues, such as population increase, urbanization, deficiency of resources, and climate change, that need to be resolved to improve the quality of life. Let's take a look into what role the engineering industry has played and will continue to play in solving these global issues.   Urbanization and Population Growth One of the biggest dangers for human beings is weak urban infrastructure, which arises as a critical problem in developing countries. According to the UNESCO Engineering Report, the world population will increase from 5.1 billion to 6.6 billion by 2025, and the portion of the urban population from 40% to 60%. As urbanization intensifies, cities are facing some of the biggest challenges in terms of climate change, public health, social well-being, and safety. It is both a chance and challenge for us, as engineering consultants, to supply new cities with urban infrastructure and to improve existing infrastructure. For example, making cities more efficient with less consumption of energy and resources would not only help alleviate threats from climate change, but also decrease the waste of resources, for a better quality of life.   Resource Deficiency We have and will continue to consume the natural resources of our homeland Earth faster than nature can reproduce them, whilst the world’s population is expected to keep increasing. Water is one of the harder resources to replace. Many countries in Africa and South-East Asia are currently suffering from diseases and epidemics due to inadequate drinking water. This problem can be solved with a public health-based approach that improves the quality of life at the national level, beyond just the drinking water supply level.   Climate Change The UNESCO Engineering Report estimates the average global temperature will rise 1.8 to 4.0°C over the 21st century, and warns that a temperature rise of anything over 2.0°C is likely to be catastrophic for the world. Immediate action is therefore needed to prevent catastrophic and irreversible change to the world’s climate. One of the major areas of need and growth for engineering is in the area of sustainable or green engineering. Countries around the world have begun paying attention to and making efforts toward sustainable development. We should be looking to use sustainable resources for the protection of our environment for future generations. To achieve this, engineering firms must increase the efficiency of facilities and systems, and concentrate on decreasing pollutions. In addition, agreement on climate change should be kept not only by developed countries, but also by developing countries. Engineering firms play a lot of roles in solving social and environmental problems for the future generation. Therefore, we should consider engineering as a global industry, not a local one, and do our best to work on opportunities and fulfill our duties in order to create a better quality of life.


Projects

The variable nature of projects presents a unique set of management, collaboration, and delivery challenges with each new undertaking. As the globalization of the architecture and engineering industry continues, strategic project portfolio management is becoming ever more critical.

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