PMIS 374: How Can a Contractor Have a Real Time Single Version of the Truth 360-Degrees Project Financial Performance
One of the key challenges that face contractors when it comes to delivering construction projects is how to have a real-time single version of the truth report on the project’s financial performance. Nevertheless, to have a comprehensive 360-degrees financial performance status of a project, the report must address the different aspects of project management that could have an impact on the project’s financial performance. Those will include schedule, scope, contract, commitments, quality, risks and issues management.
Schedule
The project’s financial status report should take into account the impact of project delays on the project’s financial status. The contractor’s objective is get compensated for all project delays that not attributed to the contractor’s own actions as well as recover the delays that could be attributed to the contractor’s own actions. PMWeb PMIS custom form builder will be used to create a form to capture details of all extension of time (EoT) requests along with the delay analysis to justify those requests. This information will be used for the schedule performance measure which will display the original project duration, approved time extensions, pending time extensions, disputed time extensions and delays due to the contractor’s, including subcontractors and suppliers, own actions. The measure will also show the current project completion date.
Earned Value
The project’s financial status report will display three percent complete values which will be the basis for the project’s earned value analysis. The first percent complete is the planned percent complete (PV) which is based on the approved project’s baseline schedule. The second percent complete is the earned percent complete (EV) which will be extracted from the contractor’s approved progress invoice for completed work in place while the third percent complete will be the actual cost percent complete (AC) which will be based on the approved progress invoices submitted by subcontractors and suppliers as well as all other actual costs charged against the project. The difference between the earned value and the planned value percent complete indicates the inefficiency in earning project income as while the difference between the earned value and actual cost percent complete indicates the inefficiency in delivering the project’s scope of work as originally planned.
In addition, the performance dashboard will also display the schedule performance index (SPI) which is calculated by dividing the earned value (EV) by the planned value (PV). In addition, it will also display the cost performance index (CPI) which is calculated by dividing the earned value (EV) by the actual cost value (AC).
PMWeb budget module will be used to record the planned percent complete value for each work package at each period of the project duration. For the earned value percent complete, this will be extracted from PMWeb contract requisitions module which will be used to capture the particulars of the contractor’s monthly progress invoice. For the actual cost percent complete, this can either extracted from PMWeb modules for commitment progress invoices, miscellaneous invoices and resources timesheet modules or imported from the contractor’s ERP or financial system.
Cashflow
Getting paid on time is critical for the contractor to maintain the cashflow to fund the project’s execution. Delayed payments not only could drastically impact the contractor’s ability to make payments for subcontractors, suppliers and his own resources but it could be an early warning of the project’s owner ability to fund the project. This requires having a measure that detail the total amount of approved progress invoices, amount paid to date and pending payments. PMWeb accounts receivable module will used to capture the details of actual payments received against approved progress invoices.
Scope
There will be two measures that will be used to monitor, evaluate and report on the project’s scope performance. The first measure will be based on the contract agreement between the contractor and the project owner where it will report on the details of approved and pending change orders. All those changes will be captured using PMWeb contract change orders module. The second measure will be based on the commitment agreements between the contractor and subcontractors, suppliers and contractor’s business units where it will report on the details of approved and pending commitment change orders. All those changes will be captured using PMWeb commitment change orders module.
Claims
The claim measure will have two values. The first will be all claim notices submitted by the contractor and for which they were not approved as change orders to the contract. PMWeb custom form builder will be used to create those claim notices so they can be captured, monitored and tracked. The second value will be claim notices submitted by subcontractors, suppliers and contractor’s business units and for which they were not approved as change orders to their commitment agreements. PMWeb potential change orders module will be used to capture, monitor and track those claim notices.
Risks and Contingency
Regardless of the risk mitigation actions taken by the contractor to reduce the project’s risk exposure, there will be always risks that need to be accepted along with their cost exposure. The risk measure will report on the current mitigated risks’ cost exposure as well as the balance of the project contingency that is usually allocated to respond to those risks should they occur. PMWeb custom form builder will be used to create the risk form which will capture the details of identified risks, pre-mitigation schedule and cost exposure, approved risk response actions, and post-mitigation schedule and cost exposure. PMWeb budget request module will be used to capture the details of all contingency drawdowns made along with their workflow approvals.
Quality
It is highly recommended for the contractor to replace the reactive non-compliance report (NCR) process where the project owner might withhold funds for completed works that are in accordance with the project’s quality requirements with a proactive weekly snag list walk-around. The contractor and preferably along with a representative of the project’s supervision consultant will have a weekly review of completed works to identify all work items that need to be rectified by the contractor or his subcontractors. Amounts for the work to be rectified can be established for which the contractor will hold against his subcontractors, suppliers or any other entity responsible for the work to be rectified. PMWeb snag list mobile app will be used to capture the details of all those work items to be rectified along with the estimated amounts to be held until this work get rectified.
Issues
Unlike risks which are 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, an issue is a problem that is currently occurring. All project issues must be resolved as soon as possible, otherwise they will have detrimental effects on the project budget, schedule and scope. The issue measure will detail the number of issues resolved and pending resolution on the project. PMWeb custom form builder will be used to create the form for issue submission and resolution form which will be the basis for creating the issues resolution log.
Summarizing The 360-Degrees Project Financial Performance
The report will include six traffic light performance indicators for schedule, earned value, cashflow, scope, claims and issues. The risk and quality impacts on the project’s financial performance will be addressed under the issues measure. 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 per his/her assessment of the achieved progress. 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.
