W11_ABM_Methods for Calculation of BCWS

Problem Definition

In creating the weekly report for Team Emerald, the group noticed that other groups had calculated their BCWS figures differently using the planned completion percentages x BAC figures instead of creating a cost loaded schedule and S-Curve.

This blog will consider what are the differences between each approach and can 1 method be considered more correct than the other.

Feasible Alternatives

Method 1: Calculate BCWS using S-Curve or cost loaded programme bas

Method 2: Using the BAC figures calculated at end of method 1 above, calculate the weekly BCWS base on planned progress multiplied by BAC.

Development of the Alternatives

The BCWS is also known as the “Planned value” (PV) as well as the Performance Management Baseline (PMB)

Ultimately, the BCWS defined as the BCWS is the sum of the budget items for all work packages, planning packages, and overhead which was scheduled for the period. It can be compared to the Cost budget or what is planned to be spent.

Under Method 1, this is calculated by developing a cost or resource loaded programme from which an S-Curve is produced. refer to Figure Below which represents the early and late curves for Team Emerald’s entire programme. Each Team member (Resource) has made a weekly estimate of their hours required to complete the required deliverables.

In developing their schedules and progamme, the following factors have been considered;

  • Total Weekly contribution
  • Sequence in which hours are allocated to projects
  • Anticipated Variances in weekly hours/costs due to availability, etc
  • Non Working Times due to holidays, etc

Hours are then converted to costs on a week by week basis and summed over the full period of the progamme to determine the BAC (Budget at Completion).

Under Method 2, the BCWS is determined using the formula of Total Budget cost or BAC x Planned Schedule %

The Planned schedule progress is determined by reference to the project deliverables and each deliverable carries its own weight with respect to the overall programme as well as method of calculating progress.

Selection Criteria

  • ACWP figures can be compared against BCWS accurately on a week by week basis
  • BCWS reflects any fluctuations in resource usage or allocation

Comparison of the Alternatives

Refer to Figure 2 below for a comparison of each BCWS calculated using Method 1 and Metho 2.

Note that there is a large differencebetween the 2 methods at week 1. Under Method 2, the BCWS value is approximately $12k less than method.

This variance is due to a misalignment between the first project milestone and the planned costs for Week 0.

The project includes a milestone after week 0 which has been valued by the programme Owner as equivalent to 8% of the total project – 115 from 1500.

However after completing an estimate of the hours and cost, the total cost for Week 0 is equivalent to 18% of the BAC!!

Method 2 therefore reports a BCWS based upon the programme’s weightage allocation and this percentages has no relationship to the estimated hours or costs spent during the Week 0 period and as such are misleading.

Similarly, the use of Incremental Milestone Techniques to determine planned percentage for deliverables i.e. Paper Topic instead of units in place for deliverables such as blog postings, problem solving, etc also contributes to difference in BCWS figures between the 2 methods.

Similarly, non work periods predicted around week 22 to 23 are not reflected under method 2.

Selection of the Alternative

As can be seen the determination of BCWS figures using the planned progress % and BAC figure does allow for an accurate comparison with ACPW figures due to the fact that Planned progress % and planned Expenditure are not always aligned due to factors such as

  • Resource usage may vary from time to time
  • Resource Usage is not aligned with Deliverable weightage
  • Method of calculating Progress percentage

Calculation of BCWS using a Cost loaded Schedule is the most accurate method when comparing on a week by week basis

Performance Monitoring

The Use of Method 2 could be considered if resource usage was aligned with planned progress percentage. This would likely require the milestones weightage closely reflects planned cost or effort

References

1. Chapter  9.1 – Introduction to Managing Progress – Guild of project controls compendium and reference (CaR) | Project Controls – planning, scheduling, cost management and forensic analysis (Planning Planet).  Retrieved from http://www.planningplanet.com

2. Humphreys, G.C 2011 Project Management Using Earned Value Humphreys associates, Management Consultants. Second Edition, pp 512-515

3.Earned Value Management – Budgeted Cost of Work Scheduled (BCWS) (2017) retrieved from http://acqnotes.com/acqnote/tasks/budgeted-cost-of-work-scheduled

 

 

W10_MFO_Contract Type for EPC Project

  1. Problem Definition

Normally the company use lump sum or Firm Fixed Price (FFP) contract type. But, refer to some profiles of our project from my paper draft as seen as table 1 below, FFP contract type is not appropriate to use in our project because our “real” scope definition less than 85%. (70% – 84%). So, in this paper blog author try to analysis the contract type should be used for our project.

Table 1. Profiles of our project

  1. Identify the Possible Alternative

Based from Engineering tool box (www.engineeringtoolbox.com) there are 4 (four) common types of contracts which is used in the engineering and construction industry i.e:

  1. Lump Sum Contract
  2. Unit Price Contract
  3. Cost Plus Contract
  4. Incentive Contracts
  1. Development Of the Outcome For Alternative

a. The possibility outcomes if owner used Lump Sum Contract i.e.

Advantage:

  • Minimum Risk for the owner
  • Time involved for preparing the plans and specifications is considerably longer
  • Contract is based on agreed rates
  • Minimum Owner supervision related to quality and schedule.

Disadvantage :

  • Time involved for preparing the plans and specifications is considerably longer.
  • Because price determines who is awarded the contract, the quality of work will be poor.
  • Difficult to make changes

b. The possibility outcomes if owner used Unit Price Contract i.e.

Advantage:

  • Owner pays for only measured work
  • Scope and quantities easily adjustable

Disadvantage:

  • Negotiation of ‘unit’ rates can be very time consuming
  • Final cost not known at outset since bills of quantities at bit time are only estimates
  • Additional site staff needed to measure, control, and report on units completed

c. The possibility outcomes if owner used Cost Plus Fee Contract i.e.

Advantage:

  • Set a contract early with little negotiation.
  • Selection of supplier is based on rates.
  • Work definition is unimportant to contract.
  • Field work may be started before the plans and specifications are complete

Disadvantage:

  • Owner assumes all of the risk.
  • The contractor is encouraged to use inefficient (time wasting) labor and expensive materials.
  • Owner has to manage all coordination issues.
  • Owner carries cost of poor quality.
  • the contractor cannot afford delays that will keep the job going longer than expected.

d. The possibility outcomes if owner used Incentive Contracts i.e.

Advantage:

  • Used to Encourage More Effective Work From Contractors.
  • When Appropriately Applied, Contractors are Paid Based on Their Handling of Cost, Schedule, and Their Performance
  • Good Business Practice
  • Owner & Contractor share financial risk and have mutual incentive for possible saving

Disadvantage:

  • Opportunities are Given to Contractors to Receive Unearned Fees
  • Require complete auditing by owner’ staff
  1. Selection of criteria.

In order to determine what kind of contract should be used there are some criteria must be considered:

  • Flexibility for additional or reduction of scope
  • Quality of the services
  • Detail spec, volume and scope of work requirement
  • Owner financial risk
  • Owner supervision
  • Price negotiation
  1. Analysis and Comparison of Alternatives

Author analyze and compare the alternatives by using compensatory models. The attributes of the contract type as shown in table 2.

Table 2. Attributes of The Contract Types

Ranking attribute by using non-dimensional scaling as shown in Table 3.

Table 3. Non-dimensional scaling

After set relative rank for each attribute, further is to conduct additive weighting for all alternatives as shown in table 4.

Table 4. Additive weighting for all alternatives

  1. Select of the preferred alternative

Base from above calculation Incentive Contracts become the best alternatives to replace FFP contract type for our project.

  1. Performance Monitoring and Post Evaluation of Result

Management should consider to use incentive contract type as the best alternatives to replace FFP contract type to avoid over budget project and monitoring should be conducted during the project contract to ensure that all requirements are met.

References:

  1. Sullivan, W.G., Wicks, E. M., Koelling, C. P. (2014). Engineering Economy, Chapter 14, page 559 to 617. Pearson. Sixteenth Edition.
  2. W2_FELIX_Contract Type. Retrieved from http://aacemahakam.blogspot.co.id/search?q=contract
  3. W3_FELIX_Contract Type II. Retrieved from http://aacemahakam.blogspot.co.id/search?q=contract
  4. 10.3 – module 10-3 – managing change – the owner’s perceptive. Retrieved from http://www.planningplanet.com/guild/gpccar/managing-change-the-owners-perspective
  5. The Engineering Tool Box. Retrieved from http://www.engineeringtoolbox.com/contract-types-d_925.html