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A Case for Progressive Technology Change

John Mathew
JohnMathew
Product Director
BST Global
Intellectual capital is a key asset of a professional services firm. It encompasses the knowledge and expertise of the firm’s staff, and is central to selling and delivering services. As a byproduct, many consultancies have a technically focused and collegial culture, as building and sharing intellectual capital contributes to competitive advantage and success. While well founded and well intentioned, this kind of culture creates challenges for many project-driven consultancies as they look to develop their project management discipline and ensure projects are managed to standards of technical quality and commercial viability. As staff members take on project management roles, they are often operating in an environment that prioritizes technical innovation and excellence over adherence to project scope, schedule, and budget commitments. And so, a common project management challenge for professional services is managing the tension between scope, schedule, budget, and quality. Compounding this challenge is a tendency to place technical experts in project management roles, without developing their project management skills. This can lead to project managers who view the commercial and transactional aspects of project management as someone else’s job, which in turn impedes a firm’s ability to monitor and control project schedule and financial performance. Facing this dynamic, project-driven consultancies rely on their project management and accounting functions to jointly facilitate several key processes, including project initiation, revenue recognition, billing, and collections. Some firms also look to address these challenges with business systems. But those firms that view technology as a solution unto itself often find their improvement efforts futile – they fail to understand that technology is only one component of the overall solution, which really encompasses people, process, and technology. Implementing business systems can be a unique and valuable change agent for a firm, if done incrementally and iteratively. With the different levels of interactions that occur across the project lifecycle – transactional, transformational, and tacit – this progression also serves as a basis for phasing business system capabilities into an organization, in the following manner: 1. Establish a foundation of project controls. The core accounting and financial management function (or “back office”) provides a solid foundation for the introduction of business systems into a project-driven consultancy. Deploying a back office system – one that automates core financial processing and reporting, project revenue and billing management, and time and expense entry and posting – establishes a central facilitator and repository of transactional activities that can then be leveraged to drive additional project delivery improvements. 2. Create firm-wide project and operations visibility. Once core back office functions are automated, firms should focus on information delivery to operations personnel. Begin by defining key performance indicators by which projects, staff members, and operating units will be measured. This sets the stage for role-based dashboards that deliver real-time, online performance measurements and analysis, tailored to the project, resource, and operations managers in the organization. In turn, deploying dashboards provides a valuable opportunity to communicate and reinforce current operating standards and expectations through role-based training and development programs. 3. Evolve project delivery processes and tools. As Jim Collins indicated in Good to Great, one of the keys to organizational transformation is establishing a culture of discipline that is marked by a consistent framework within which people have responsibility and freedom to operate. Business systems can help evolve and sustain this framework, particularly after enabling the delivery of relevant, timely information to operations personnel that helps them focus on their areas of accountability. At this stage, many firms are in a position to improve and mature other key project delivery processes, such as project planning, resource scheduling, earned value management, collaboration, and work management. With the continued emergence and evolution of business systems that help automate and facilitate processes, project-driven consultancies face a myriad of decisions and challenges as they look to effectively leverage technology to improve business performance. Spanning the project lifecycle – from business development and marketing to project and resource management to finance and accounting – there are countless business systems that firms can choose to deploy. But before implementing a business system, take a step back and think holistically about your organizational structure and business processes. Business system implementation often presents a valuable opportunity to realign roles and responsibilities, as well as progress and mature standards and practices.  Resist “band-aid” implementation approaches; and instead identify and focus on core issues in an incremental, iterative manner that holistically addresses people, process, and technology. Where’s the low-hanging fruit in your organization, ready for the picking and ready to be that next step on the path of progressive transformation?

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. To help you succeed in this, here are five process and technology tips for implementing EVM in your consultancy:   1. Establish a project work breakdown structure.  A key component to EVM is establishing a work breakdown structure (WBS) for every project. Consider establishing WBS standards for the different types of projects you deliver, aligning with project deliverables. To best support EVM, a project WBS should go down to the level that Planned Revenue, Earned Revenue, and Actual Effort will be tracked.   2. Establish a project schedule.  To utilize EVM to track schedule performance, you need to establish project schedules. These schedules should reflect WBS sequencing, and how resources will be utilized to deliver the project. Additionally, these schedules should be divided into time periods (e.g. months, weeks, days) at a granular enough level for tracking schedule performance.   3. Calculate and baseline Planned Revenue.  After establishing the project WBS, determine Planned Revenue across the WBS. An integrated project management and accounting system with the right combination of project-centric capabilities can help you achieve this. To support EVM, a system should capture project labor and expense pricing terms, and leverage these terms along with a project resource plan to calculate Planned Revenue. At a minimum, Planned Revenue needs to be established by WBS element, in order to utilize EVM to track project financial performance. If tracking project schedule performance is also an objective, then Planned Revenue should also be forecasted across the same time periods by which the project schedule is established.   4. Track Earned Revenue and Actual Effort.  Once project execution begins, track Earned Revenue and Actual Effort as labor and expense charges are posted to the project WBS. Here too, a project-based business system can assist, if it tracks these metrics in conjunction with timesheets, expense reports, and other project charges.   5. Track project performance and adjust Earned Revenue.  As Earned Revenue and Actual Effort accrue on a project, use additional EVM metrics to assess financial and schedule performance and determine when corrective action is necessary. In conjunction with this analysis, Project Managers may need to adjust Earned Revenue in alignment with project progress. An EVM-enabled business system supports this by allowing project managers to update the physical percent complete of an entire project or specific elements of the project WBS. This percent complete assessment is then used to adjust the Earned Revenue via the following equation:   Earned Revenue = Planned Revenue x Physical Percent Complete   By following these tips, EVM can play a central role in driving better project delivery in your firm. By understanding how traditional EVM metrics apply to your business model, and incorporating these metrics into your project management processes and systems, your firm can take significant steps towards better financial and schedule performance across its project portfolio. Author’s Note: This is the fourth article in a four-post series on the use of Earned Value Management in professional services organizations.

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.

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.