PMIS 372: PMIS for Real Time Single Version of the Truth 360-Degrees Project Financial Performance

One of the key challenges that face project owners when it comes to delivering capital projects is how to ensure having real-time single version of the truth of their projects' financial performance. Of course, reporting on other aspects of a project’s performance status is also critical but those will be more crucial for the construction management team to report on rather than the project owner for which the financial viability and status of a project is of greatest importance.

To have a comprehensive 360-degrees financial performance status we need to include reporting on the project’s schedule performance, scope, quality, risks and issues. The report shown below covers all those aspects and will provide the project owner as well as those who are funding the project with the needed information and measures to monitor, evaluate and report the project’s financial performance.

Project Schedule

Delays in completing the project as originally planned not only carries the additional prolongation costs but also means that the project will not start earning the revenue as was originally planned. For the project owner, this will have direct impact on the internal rate return (IRR) and net present value (NPV) associated with the project investment as well as the penalties and cost of lost opportunities associated with delayed project’s operation.

Accordingly, there will be two project schedule measures that will be part of the project financial report. The first is the variance between the planned percent complete value (PV) and the earned percent complete value (EV). The variance between those two values also known as the schedule variance (SV) will be calculated automatically at the completion of each progress period which could be weekly, bi-weekly or monthly. A negative schedule variance will indicate that the project’s is not performing as originally planned. In addition, the schedule performance index (SPI) will be automatically calculated by dividing the earned percent complete value (EV) by the planned percent complete value (PV). A value that is more than one indicates that the project is performing better than planned and the reverse is true.

The second measure will be the project’s current completion date and the delay between what was originally planned and the current completion date. The measure will also detail how much of this delay is an excusable delay for which the contractor has received an extension of time due to changes and other causes that were not due to the contractor’s actions. Of course, the assessment of the granted time extension must be aligned with the contract agreement clauses.

PMWeb Project Management Information System (PMIS) will be used to capture and report on those two measures. The origin of this data will be the approved integrated project schedule which is usually created using Oracle Primavera P6. PMWeb scheduling module will be used to import the updated project schedule at the end of each period. It is highly recommended that the Primavera schedule has a single activity to summarize the overall project schedule performance. This activity will have the needed measures of planned percent complete value (PV), earned percent complete value (EV), revised completion date (which includes the approved time extensions) and the current completion or finish date. The baseline completion date will be picked up from the baseline schedule also imported into PMWeb when the schedule was originally approved.

Project Scope

The two measures that will be used to monitor, evaluate and report on the project’s scope performance are the change orders measure and potential change orders or claims measure. The change order measure is the sum of all approved change orders that were issued to the contractor. Those changes which could be for in-scope or out-scope of work, the project owner has accepted their cost and schedule implications in accordance to project’s contract agreement. Those approved change orders will provide the value for the revised contract value. PMWeb change order module will be used to capture the details of all approved change orders along with their workflow approvals.

The second measure is for potential change orders that are still under review, negotiation, rejected or disputed by the project owner. The measure will capture the details of those potential change orders to calculate the maximum claims exposure that the project could be subject to. PMWeb potential change order module will be used to capture the details of all potential change orders or claims.

Project Cost

There will be four measures to monitor, evaluate and report on the project’s cost performance. The first measure will be the planned budget spending for the fiscal year, the second will be status of progress invoices payment, the third will be the project contingency drawdown while the forth will be for non-compliance reports for which funds are withheld from the contractor until they are rectified.

The planned budget spending measure will compare the allocated budget spending for the current fiscal year with the actual year to date approved progress invoices for completed work in place. This measure is very critical for government entities and other organizations that blocks funds to be spent on their projects during a fiscal year. Failing to spend this money as planned would mean that the organization has failed to use their approved funds wisely and have deprived other projects to use those funds. PMWeb budget module will be used to capture the budget projection for each period while PMWeb progress invoices module will be used to capture the actual spending.

The progress invoice payment measure is another important measure as delays for settling the contractor’s approved payment could result in delayed payment claims as well as cause the contractor hardship in performing his duties on the project. Most projects have the 60 days payment terms for which they need to be adhered to. PMWeb progress invoices module will be used to capture the progress invoices details as well as actual payments made against approved progress invoices.

The third measure is to track the contingency drawdown which is usually part of the project’s approved budget. The measure will detail the remaining contingency funds available as well as what was spent. PMWeb budget request module will be used to capture the detail of all contingency transfers made along with their workflow approvals.

The last cost measure will be the amount of funds to be withheld for non-compliance reports issued to contractor for quality and safety related violations. PMWeb custom form builder will be used to create the non-compliance report (NCR) form which could vary between those for quality related violations and safety related violations.

Risks and Issues

There will be two measures to monitor, evaluate and report on the project’s risk and issues performance. Risk by definition is the possibility of a problem that has not occurred yet, and if it occurs it would have a negative impact on a project budget, schedule and scope. Whereas, an issue is a problem that is currently occurring. An issue must be resolved as soon as possible, otherwise it will have detrimental effects on the project budget, schedule and scope.

The risk measure will detail the risks identified on the project and their post-mitigation risk score, which could be low, alert and high. The risk score value will depend on the likelihood probability and the impact of the risk after being treated. The measure will also capture the weighted cost exposure of those risks which is calculated by multiplying the risk cost exposure by the probability of occurrence.

The issue measure will detail the number of issues resolved and pending resolution on the project. As stated above, issues are actual problems that must be resolved as soon as possible, otherwise it will have detrimental effects on the project budget, schedule and scope. PMWeb custom form builder will be used to create the forms for risks identification, assessment and mitigation and the issue submission and resolution form. Those two forms will be the basis for creating the project risk register and issues resolution log.

Summarizing The 360-Degrees Project Financial Performance

The report will include six traffic light performance indicators for schedule, scope, cost, claims, risks and issues. The colors of those traffic lights will be Green for on track performance, Cyan for performance alert and red for off-track performance. There will be also a summary project financial performance which will be based on the weighted average of those performance indicators for which the weight for each indicator could vary depending on the importance of the measure to the organization.

Although the report can have those six traffic light indicators calculated automatically, nevertheless it is highly recommended to have a progress form to be completed by the project manager where he/she will provide the values for those six traffic light indicators as either 1 for off-track performance, 2 performance alert and 1 for on track performance. The project manager needs also to provide the explanation of the selection made as well as provide an overall performance narrative for the progress period. PMWeb custom form builder will be used to create this form with all dropdown lists to standardize and expedite the release of the performance report.