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Keep Track of Your Projects’
Health With Today’s EVM

 

4/5/2022

58 Minutes

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Transcript

Rick Deans:

We’ll go ahead and get rolling. We thought we’d start with some introductions, do some housekeeping and then get right into it. In terms of introductions, I’ll go first and then my esteemed colleague, John Upton, can introduce himself. But my name is, Rick Deans. I’ve been at InEight or it’s relative organizations for over 20 years. I work primarily with our customers in their offices, helping them solve real world problems that affect them. They can be owners, contractors, they can be engineering firms, they can be other third parties in the industry. And in fact, we’re going to ask you guys to take a poll to help us understand really how you represent your various markets. If we can get that poll going, we’re interested in knowing how you might best describe your organization and then how you might best describe your role within the organization.

Rick Deans:

I’ve had the opportunity over the 20 plus years, I’ve been working with some of these tools to work with folks across a wide variety of industries, roots. Were in civil construction, did a lot of work with industrial oil and gas, chemical. Spent a lot of time at remote mine sites, helping mining contractors and owners get value out of our tools. Been on a lot of different continents over my tenure here. And that’s just one of the things I super enjoy about my job is getting out and seeing how our tools impact our customers in real life. And I’ll turn it over to, John, now for his introduction.

John Upton:

Thanks, Rick. Yes. My name’s John Upton, product director here at InEight, overseeing our field execution and project cost management solutions. My background is, I started about 20 years ago for a large North American engineering and construction organization. Spent 15 years out in the field, everything from field engineer, superintendent, project engineer, and then transitioned over into the technology side of the world. And as Rick mentioned, now being with InEight, we get to experience business problems and try to solve them across the globe, which has been very exciting. My primary position here is to work with customers, define roadmaps, listen to their business problems and work for creative ways to solve those.

Rick Deans:

No, that’s excellent, John, I appreciate you joining us today. I think we’re going to have some fun in the mix as well. A couple of housekeeping issues we’d like to bring up. First off, we want give a huge shout out to our partners over at AACE International. They have been phenomenal to work with over the last several years. We’ve done a number of these sessions with them, and it’s always great to be able to have them, allow us to get our message out across their very significant platform. We’re super thrilled about that. There is a Q&A box located at the bottom of the screen.

Rick Deans:

As you were going through the information, feel free to put any kind of questions in there. We will try to save some time at the end, depending on how many questions we get. We might not get to all of them live on this webinar, but we’ll capture them the best we can and try to respond to you. If not, at the end of this webinar will try to respond to you, offline as well. And then you can up vote. If you see a question on there that you really like, you can use the thumbs up button to up vote each particular question. You’ve got a favorite in the mix. You’ve got an opportunity to bump it up to the top.

Rick Deans:

Just a little it about InEight, and then we’ll get onto it. I mean, who are we to come in here and talk to this organization’s members about project controls and earned value management? Well, we’ve got a set of software tools that really address multiple business processes throughout the stage of a life cycle of the construction project. We’ll take a look at that more in a second. But we have over 400,000 users of our tools across 60 countries. We have over 500 employees. We continue to add folks. And with the remote workforce, we do have 10 talent hubs across the globe but we’ve also got employees scattered throughout as well, which makes it really, really interesting for us to be able to solve all kinds of problems. We have a lot of folks in time zones that align with where our customers are. That’s huge for us. As I mentioned earlier, we have capabilities across eight functional categories. We’re going to talk about a few of those today, as it relates to earned value management. But perhaps more importantly, we’ve identified with the help of our customers, 18 business processes.

Rick Deans:

And so while the typical landscape is, I’ve got a tool that does this, I’ve got a tool that does that, we find out that these business processes, they span groups within an organization and they can also span the depth and breadth of a particular product that’s been brought in to help out with that. We’ll go through some examples of that, but if you take a look at any one of these things on the list, change order management, just right there in the center of the list, that affects a lot of different organizations throughout a project’s life cycle. And we’ll discuss that a little bit more in detail. But what we’re here to talk about today is earned value management. And we’re going to talk about really how EVM strategies are implemented in the real world. We’re going to talk about the relationship between the business folks and the financial folks in terms of who really owns earned value management. How is it different than information that’s coming, for instance, out of a financial system or an ERP?

Rick Deans:

We’re going to talk about reconciling earned values with actual values on a regular basis. And then we’re hoping that you folks are going to leave this webinar with a good understanding of some good industry best practices for leveraging earned value management techniques. We’re going to talk a lot about how things roll up, how things roll up from a particular activity to a group of activities, to a particular project, even to a portfolio or a program of individual projects. We want to talk about that as well. And we want to talk about how to determine which areas of your project are performing well, or might need additional attention. And this is something we run into all of the time, John, where our customers might tell us we have limited resources, we can’t look at a big list of 1000 things and start at the top and get to the bottom. And we really want to identify those areas where we need to focus and get the best use out of our resource that we’ve got on site.

John Upton:

[crosstalk 00:07:19] Yeah.

Rick Deans:

The objective, really broken into two parts. We’re going to talk first about earned value management, and then no discussion of earned value would be complete about a discussion of, okay, well, earned value management helps me understand how the work is progressing. I want to do a look into the future, and I want to see how we’re going to end up either on this task, on this group of tasks on this project or this group of projects. We would call that forecasting right, intelligently predicting the outcome based on some metrics that are available to us. A little bit of history about earned value management. It was created back in the 1960s to find a way to objectively report on a project’s health.

Rick Deans:

In the United States, back in the 60s, we had this space program, that, that was really the launch of the aerospace business. And the federal government here in the states was spending a lot of money on projects. And the delivery of those projects was a little murky. We would set a million dollars aside for something, and when we spent half of that budget, when we wrote a check for the 500000th dollar, there was that feeling that we were halfway done. But as we found out in many cases, the productivity and the results and the product of the project was not keeping pace with the spend. Early days, earned value managers were a special breed. They would come on site with slide rules and packages of binders, and they would set up shop in their clients’ offices.

Rick Deans:

And the model has gone through several iterations over the years. And today’s earned value management metrics can be implemented without bringing in any of these specially trained individuals. And it’s really a way to summarize how much work has been earned based on measurable progress. And those last two words are so important, measurable progress. If you think about earned value, if we’re measuring our progress, we’re going to take that progress, that percent complete. We’re going to multiply it by a budgeted value. And then in the example we’ve got on screen, we’re going to put in 100 widgets. We’ve estimated it’s going to cost us $10 per widget. We have an all in budget of $1000.

Rick Deans:

After we’ve installed 50 widgets, we’ve earned half of that budget. We’ve earned half of that $1000. We’ve earned $500. Okay. Now what we need to do is compare that with what we’ve actually incurred or what we might have actually spent to get there. The example I like to use a lot is, hey, we’re going to do a kitchen remodel. We had a budget of $25,000 to remodel our kitchen. We’ve spent $15,000. How are we doing? There’s no measure of progress in there, right? Are we 90% complete? Are we 10% complete? That’s really the key that’s going to tell us how we’re doing. Sometimes we’ve heard from our customers, and John, looking for some input from you, accounting says we spent half of our budget, so we’re 50% complete. Right? Maybe the project manager feels that we’re about 75% complete.

John Upton:

Yeah.

Rick Deans:

Yeah.

John Upton:

Yeah. Basically, we’re looking for that data that serves as verifiable proof that we’re either meeting or beating budget or lagging or ahead of schedule. And we’ll hit through some of the details as we go through this, but that progress is the key value. But to know what spend progressed, you got to have a baseline, you have to have something to measure against. And that’s the key to earned value management, which we’ll continue to discuss here.

Rick Deans:

Yeah. And you’re so on there, John, because some of the best practices that we’ve gleaned from organizations like AACE, there’s another organization out there, Project Management Institute that’s really formalized a lot of these concepts that many of us have adhered to over the years. One of the best practices is to create a detailed work structure. This should include everything in the project where we want to track costs and/or progress. And in many cases, it’s a hierarchical approach. We’ve got a major item of work. We’ve broken it down into some smaller items. We’ve taken some of those smaller items and we’ve broken those down so we really understand, what are some of the things that we should be considering when we’re putting a budget to this project. And so each one of those tasks or activities or line items within that WBS should contain estimated cost, budgeted cost, budgeted man hours, budgeted equipment hours, all of the resource utilization we’re going to be able to need to be able to complete that project.

John Upton:

Yeah, I would add there, Rick, that when people hear EVM, they think of your cost variances, your schedule variances, your performance indices. But I really think the planning is the foundation of EVM. And as you mentioned with this work breakdown structure, you really need to determine upfront, what level of detail you want to capture your cost, your forecast, your budget, is that the same level of detail you want to capture your progress? It’s a business process decision, but I would argue that your cost can be measured at a more summary role and the progress at which you’re determining your percent complete should definitely be broken down into more detail. And that’s where we bring in quantities.

Rick Deans:

Absolutely. Let’s take a look at one of our next best practices. Use quantities. Quantities are the least common denominator on any construction project. All totals resolved to some sort of a unit value, right? What is our unit cost to put in a cubic yard of concrete or to put in one masonry unit or one brick? Quantities are key. And we also appreciate the fact that as we’re putting an estimate together, maybe we’re an owner, maybe we’re a contractor, and we’re competitively bidding on work. Maybe we’re an owner, and we’re just trying to get a project approved through its natural funding stage gates. And as we’re doing this, we might estimate at a level of detail, like John said, that it’s going to be different than how we ultimately track in the field.

Rick Deans:

Once we’ve established what that budget looks like, we can morph that budget. We can break it out into more detail in some areas, as John said, to do some planning, maybe we want to summarize some things because we know that with our lab coat and our clipboard, we’re not going to be able to go out there and say, well, I spent 15 minutes in installing light switch, I spent 12 minutes putting in electrical sockets, I spent 17 minutes putting in a lamp. But I could say at the end of the day, I worked eight hours doing electrical work in unit A and I installed 32 switch plates and 75 plug receptacles in 15 light units. That sort of methodology can help us be a little bit more objective as it comes to measuring progress.

John Upton:

I think that’s a key word, Rick, when you’re talking about claiming quantities or capturing progress, you want to be as objective as possible. If you have a foreman out there trying to claim up a footing, for example, it’s pretty subjective of him or her to say, that’s 10% complete or 20% complete. We like to take that a step further and say, well, with that footing, comes forms, you’re going to pour it, you’re going to strip it. There might be rebar. So being able to objectify all the components of that footing to allow your foreman to claim the most accurate progress, really helps you provide that much more accurate earned value.

Rick Deans:

That’s a great point. Oftentimes when we get into risk mitigation discussions, there’s a term that’s used called optimism bias, right? Nevermind all those times where it went wrong, this time we’re going to get it right. It’s nothing, none of those pesky issues are going to bother us. And a lot of that goes to when we’re building up that work breakdown structure, understand those variabilities with productivity and account for those in the work breakdown structure. I’ve got an example we’ll show in a moment. But if we know, for instance, we’re going to have a learning curve or if we’re doing civil work and there’s going to be an area where we’ve got longer hauls, or it’s going to take us longer to transport material from a plant to the job site where the work is going to be more difficult in certain areas due to the terrain or other constraints, we want to account for that in the work breakdown structure so we’re not surprised when the actual progress starts rolling in.

John Upton:

Yeah. And making sure that your plan is as accurate as possible. You don’t just recreate the wheel and start from scratch. Now, the digital transformations among us, and so we have knowledge, libraries and lessons learned that can be incorporated from project to project or across the organization so that you can look at what the last job did from a crew makeup or what equipment they used to be as productive and efficient as you possibly can so that you’re minimizing that learning curve as best you can. You’re not starting from scratch as they say.

Rick Deans:

And you and you’re so right, John, about the digital transformation age is upon us and more organizations are starting to institutionalized that data, right? It’s no longer just a spreadsheet that, John, has out in his pickup truck on his laptop. It’s data that’s now organizationally available. As a business leader, I might look at John’s productivity and I say, John’s doing the same work with his crew that Rick is doing with his crew, but John’s work is completed earlier. He is much more productive. Let’s find a way to knowledge share. It’s one thing to know, hey, John’s doing a better job than, Rick, but organizationally, what we want to do is we want to minimize that variability. John, spend some time with, Rick.

Rick Deans:

Rick asks John some questions about what he’s doing specifically, that’s keeping him consistently ahead of schedule and under budget. Because that’s the kind of data as we all strive to be part of a data driven organization, that’s the kind of stuff that’s really going to make a difference. And when we’re getting that data out of these far recesses of one off Excel sheets on individual hard drives, on laptops or buried somewhere in a SharePoint directory grade, in theory of the data’s available, but no one knows where to find it. And that’s the kind of stuff we run into a lot. That’s a really good point, John, about that institutionalization of that data, making sure that data’s out there, because we can respond to it and act on.

Rick Deans:

Rules of Credit. We’re going to talk about this in a little bit more detail, but these are ways of just another way of saying how much a specific task might contribute to the overall whole. One way of doing that is, we’ve taken John’s example. We’re going to pour some concrete. Well, we’ve got some formwork, we’re going to put in. We’re going to do the actual pouring of the concrete. Maybe there’s some rebar that has to be installed before we pour the concrete. Maybe we’re going to do a specialized finish on that concrete for a cure. We can then go through and we can establish Rules of Credit.

Rick Deans:

And we can say, okay, once that formwork is done and that rebar is tied, we’ve earned five plus 10, 15% of the value of that project. We could also do it based on roll-ups, based on maybe cost contribution or based on the level of effort, for instance, man hour contribution. Rules of Credit can be a great way of providing a standard way of measuring progress for repetitive work. And they can also be a great way to achieve alignment between maybe an owner community, an engineer community, and a contracting community that are all trying to come together and get aligned on how much work has actually been done. If we can all agree on these Rules of Credit ahead of times, it pulls a lot of that subjectivity out of those discussions.

John Upton:

Yeah. And I think another key to the Rules of Credit topic is, if you have a foreman out there pouring footings, there’s different units of measure, right? And it’s tough for a foreman to say potentially that this footing’s 20% complete when all I have is as the formwork started and that’s in square foot versus maybe the actual task is in cubic yards. Being able to apply Rules of Credit with different units of measure, to still get accurate progress against that activity is key. Back in the day, let alone the new technology wave that we have, but foreman, you want them supervising their work, not trying to do calculus to understand and give their superintendent an accurate percent complete. If you can break those and standardize those claiming schemes, that can provide a lot of benefit for tracking earned value much more accurately, as well as keeping your foreman on task with this crew, rather than trying to spend countless hours calculating an accurate percent complete.

Rick Deans:

A quick anecdote. I mentioned I’d spent some time at some various mine sites out in remote areas and one particular mine site, the organization was sinking a shaft. And they had just started and we were setting up the tools and there were different ways of interpreting how much material was being pulled out of that shaft. Do we want to measure it in cubic meters? Do we want to measure it by tons? Do we want to measure it in kilograms? And at the end of the day, just to John’s point, we did some back end math and we looked at the buckets, we measured the buckets and all we asked the project team for the superintendent was just, how many came out of the hole that day? And they didn’t have to worry about converting that to tons or kilograms or pounds or cubic yards, cubic meters.

Rick Deans:

How many buckets came out of the hole? And that was all they needed to do. In the discussion of the argument for Rules of Credit, I just want to tick the box and say that my formwork is complete and let those pre-established Rules of Credit drive my earned value without taking time away from my busy superintendent in the field, right? His job is to make sure things get done properly, safely, and that everyone goes home to their families at the end of the day, not necessarily to pull out a calculator and do metric conversions on site. Another determination that we want to involve, another best practice that we want to include in our discussion is determine how children are going to affect their parents. Do they contribute based on their share of costs? Do they contribute based on their share of workforce hours? Do they contribute using some other metrics that we’ve agreed upon like the Rules of Credit discussion we just had?

Rick Deans:

I’m going bring up a screenshot from one of our applications. This is from InEight estimate. And I love this because I’ve gone through it. I’ve changed some of the data. But initially, this data came to me from a customer that was planning a pipeline, changed some of the quantities and things like that and productivity rates. But one of the things I really liked when they were doing their estimate for the [inaudible 00:23:33] grading and restoration, they broke it down. Okay, we’re going to do some surveying, we want to be able to account for that. But then they made some assumptions and I just love it because everything was right here on one page. Okay, we’re going to be doing some clearing in normal soil. And the assumption, the going in metric was a figure, it’s 80, 20. 80% of this is going to be normal soil, 20% of this is going to be rocky material.

Rick Deans:

And so that the quantities follow that rule, 80% of 1,400, 1,120, 20% of 1,400, 280. And so you can look at the unit costs over here and the man hours. The unit costs take into consideration that Delta of how much more difficult it is to do the work in rocky material versus normal material. Same thing with the trench excavation. We had normal soil, we had some rock and then we assumed some of this was going to have to be done by hand and look at the unit cost of doing that hand work. It’s 140 bucks a unit. When the excavator can get in there and work in the normal soil, it’s only 262 a unit. Yeah, building out this sort of plan and having quantities assigned and associated with each one of those is really, really key. I think this incorporates so many of our best practices. I love to show it in these sorts of presentations.

John Upton:

Yeah. And I guess just to add this, I mean, if you look at trench excavation as an example, they all share the same unit to measure. It’s pretty simple when you can roll those quantities up or proportion them down. But when you start talking about walls or something, that’s got multiple units of measure with formwork, like we mentioned in square feet, rebar and tons, maybe you have some block-outs and inches, you can’t just get a percent complete by rolling up the quantities. Units of measure differ, that kind of a buzzkill.

John Upton:

As Rick alluded to earlier, given the option to roll up based on cost or man hours is how you’re going to drive percent complete at those rollout values. And percent complete is great at the lowest level, but management, other people that aren’t in the solution or on the job daily, they might not care about transactivation. Show me in this example, pipeline, where am I at in terms of pipeline? They don’t care about the nitty gritty details, but you still have to have a way to provide a percent complete at your roll up items. And that, like Rick said, could be through cost or man hours.

Rick Deans:

Excellent. What does planning get us? We’ve put together a plan. I’m the foreman, I’m out there maybe an hour before the guys show up, before we have our first safety meeting of the day. John, maybe you can explain what we’re seeing on screen here. I’ve put together a plan. What’s this telling?

John Upton:

Yeah. I did see a comment come through, how is the foreman and measuring progress? This is our progress application, and it’s basically considered a mobile time card that you’re tracking hours and quantities installed on a tablet. There’s also the web version, which is what we’re seeing here. But basically, what we’re doing is we’re planning out the task for the next day. Whether that’s a field engineer, a superintendent, foreman, working together to see what they need to plan or what they’re going to do tomorrow, they’re going to plan quantities. Obviously, they have a crew that they’re going to plan as well. And this will tell you based on your budgeted units and the quantities that you’re planning to install and the man hours you’re planning to expend, are you going to make or break budget? In the first couple examples you see red, obviously, that’s bad.

John Upton:

They’re planning to install five inches. And then this is actually in the execution phase of progress and they only installed 0.5. They’re a little bit behind for today. But in the planning scheme, they get instant visibility into whether or not they’re going to make money or lose money. Same with man hours, just based on the quantities they’re planning to install and the budgeted units they have for those quantities and the hours they’re planning to spend. And sometimes I know it rarely happens, but maybe the estimator missed some scope so you don’t even have a budget to earn. Well, those red boxes can really take a toll on somebody. We give you the option to apply your gain/loss against an estimate, maybe a new estimate. Sure, you’re still losing money every day, but the foreman could at least have a goal to shoot for.

John Upton:

And that’s another opportunity in this screen where you can see we’re measuring against this current budget there, but you could measure against your current estimate. Or on the flip side, maybe your foreman’s just beating the heck out of his budget. And he is in the green every day. You want to give him a little bit more of a challenge, a stretch goal, per se. You can also do that here. So maybe the budget was very easy to achieve and you want to give him a little extra incentive to work harder. You can also compare his earned value against a goal instead of just the normal current budget that we always talk about with EVM.

Rick Deans:

That’s so important. And to put it in context, I’m getting this information, this is the sort of stuff I’m seeing before we even walk into our first safety meeting of the day. I put the plan together. The plan is going to tell me if I’m going to do well or not. And then I can also put in my actuals, how we actually did against that plan. But we hear so often, it’s like, well, by the time we get any meaningful information out here in the field, it’s at a different level, there’s a lag of a few weeks between when the work was performed and when we see it.

Rick Deans:

And this flips that on its side, it’s the people that are actually responsible for the work, have the tools and the capabilities to plan their work ahead of time. And to see if we achieve what we think we’re going to achieve today, this is where we’re going to end up. And now the people in the field, you talk about empowerment. These are the folks that have always been asked to do a little extra, do a little bit more for some results that they don’t even get access to. Now, they’re the first ones in the organization that are going to be able to see how well they’re going to do that day. It really does flip that paradigm around.

Rick Deans:

Let’s talk about some real world applications in these concepts. Yeah, what I was just talking about, understand those metrics before the shift begin. You can put together that detailed plan, put your resources on there, your hours, your quantities, and then see how that’s been fair based on your budget. Again, we don’t have to wait for accounting to close out at the end of the month. And here we are in the first week of April, they’re just now closing out March. Maybe in a few more days, I’m going to get a very detailed, comprehensive, complete report of what March looked like. And that includes work that I’ve done in the first week or two of March. A month ago, I’m going to just now get data based on how well I did a month ago, when guess what? I’m four weeks into the next battle, right?

Rick Deans:

I want to know ahead of time. I want to be a little bit more predictive and proactive. Now it’s not going to be accounting numbers down to the penny, but most of our customers tell me, I can get within 3% of some of my major costs, like labor costs. That’s enough where I can make good decisions. We talked about resource management earlier. I’ve got a limited amount of time, I’ve got a limited amount of resources, I want to have a fighting chance to complete this on time. But sooner I can know that there’s going to be an issue, the better off [inaudible 00:31:13] to be. Again, catch those trends before they become major issues and contractors and owners can stay on the same page using these sets of tools. We can agree on Rules of Credit. Yeah.

John Upton:

And back to that previous screen, we talked about the plan value. You don’t have to plan your next day’s work. Obviously that’s a suggestion. You can see if you’re planning to fail or not, but even once you’re in the execution phase and you’re actually marking down who worked on what task and what equipment was included, you get that real time visibility and to gain losses without having to wait, like Rick said, a week for payroll, two weeks for payroll. And again, they’re directionally, correct. They’re not accounting specific, but it gives you an idea of where you’re at.

John Upton:

And then I also like to think you’re being proactive. Everybody says it all the time, you want to be proactive, not reactive. And so that planning option gives you a chance to be proactive. And if you know you got 10 guys on the crew, but you only have a certain amount of concrete to install, you don’t have enough concrete to install to earn enough man hours to cover your crew. You can plan to put those crew hours to a different task or share resources or whatever the case may be. But it gives you that real time visibility into what’s going to happen in terms of an earned value for the next day, based on the quantities and the man hours you have to install.

Rick Deans:

Another little anecdotal discussion. I had an opportunity to be sitting. I was in Europe, working with a client and they were an oil and gas refiner, and they were planning for a big major event turnaround. It’s going to be 30 days, and we’re going to spend, I don’t know how many millions of dollars, 60 or 70 million in the course of 30 days, taking a particular unit of their plant offline. And the turnaround manager was really blunt. He says, my job is as a resource manager, I want to see where we’re over-performing so that I can go in and take some of those resources and put them on places where we’re underperforming. And do the guys like it? No, because no good deed goes unpunished, right?

Rick Deans:

I was working my tail off. I was really making progress. Now they’ve put me on something where I’m behind. But as a steward of his organization’s resources, he wanted to make sure that that entire event came in the way it should have. Yeah, he was very much down into the weeds and wherever they were over-performing, he was in there pulling guys out and asking them to help out in other areas. Again, and you put it in the context of a 30 day life cycle of the execution of that project, there was no way he could have been doing that without some forward looking tools, to be able to determine where he was really well performing. Because basically, the event’s going to be over before they get their first invoice and accounting is not even going to know about it until it’s all over.

Rick Deans:

We’re about halfway through our presentation. We’re about halfway through our content. We’re going to switch over now into forecasting, and we’re going to talk about some forecasting calculations warning. There is some math involved, but that’s the trade off, right? You’re going to get your continuing education units. You’re going to have to struggle through a little bit of math. We’ll try to take it easy on you. We’ll talk about some forecasting methods that might be available to us. And then we’ll wrap it up with some real world application of different forecasting tools and methodologies that are available as well.

Rick Deans:

Forecasting. What is forecasting? Is it going to one of those old arcade machines on the boardwalk and flunking a nickel in and having the genie look a crystal ball and tell us, no, that’s not forecasting at all, there’s no science associated with that? Forecasting is a way to intelligently predict what an activity, what an account, what a project or a group of projects will ultimately cost when it’s complete. And that cost can be measured in money, that cost can be measured in hours, that cost can be measured in duration. We’re going to go through some terms here. And these are aligned with our friends over at the Project Management Institute. Estimate at Completion, it’s acronym is EAC. This is a prediction of the total amount that will be spent when whatever we’re measuring the account, the activity that the project is finished, Estimate at Complete, that’s the total.

Rick Deans:

Estimate to Complete. This is where people get twisted at EAC versus ETC. What’s the difference? Well, Estimate to Complete is only that piece of the work that remains out ahead of us. This is a prediction of the remaining amount that will be spent when the activity account or project is finished. So we’re looking at the total in the first bullet point, Estimate at Complete, that’s my all in, you’re going to spend $60 million to do this thing. My Estimate to Complete is that portion of the work that I haven’t already attacked. And the Actual Value (AV), is the amount that’s already been spent or incurred. I don’t want to get involved in payment terms and payment side. For this argument, we’re going to say, if the work is done, we’re going to consider that, an incurred cost, regardless of when invoices are received, or when payroll checks are cut. There’s other tools we can get into that talk about that. But for our purposes, we’re going to consider this Actual Value to be an incurred value.

Rick Deans:

And then if we look at all three of those variables, one of them equals the other two summed up. The Estimate at Complete is going to equal what I’ve already spent, plus an Estimate to Complete the remaining work. EAC= AV + ETC. How do we get that Estimate to Complete? Well, remember our first discussion about quantities? We’ve done a good job of quantifying things. So we’re going to look at how much work we’ve got to do as it relates to the quantities that remain. And we’re going to multiply it by some sort of a unit value. Now, let’s talk about this for a second, John, what if I’m a project manager and my team is giving me these wildly varying reports as to my forecast, what that might be? [crosstalk 00:37:32] What could that be an indicator of?

John Upton:

One, you’re going to lose confidence in their ability to create an accurate projection or a forecast when your values are swinging month over month. But the biggest thing is probably that remaining quantity. There’s two variables here, the remaining quantity, if you don’t know the total amount that you’re going to be completing, then there’s no way of knowing what’s left to complete. And ultimately, that unit value, that’s the million dollar question. How do you come up with an accurate remaining unit value to apply with the remaining quantity to figure out what you actually are going to spend for the rest of that operation project?

Rick Deans:

We go back to one of those initial pain points. Well, the foreman or the project superintendent feels we’re at 75% complete. Well, how many of us have been on projects where everything is going just really, really smoothly until we hit about 80, 85% complete, and then it takes us 20, 30% of our budget to finish that last 10 or 15% of the work, the physical work that remains? That’s one of the issues. It goes back to, hey, the earlier I can detect these trends, the better off ultimately I’m going to be. Yeah. Let’s take a look at this unit value and try to understand what could be driving that. Our Estimate to Complete is just carried over from the last but there’s nothing new here, equals that remaining quantity time, some sort of unit value. Where does that unit value come from? Well, it can come from what was budgeted for the work.

Rick Deans:

Now, we really carry a couple budgets. We have what we call our CE budget and our CB budget. Current estimate is the acronym CE. We can put together an estimate based on the remaining work and whether or not that was part of our original budget, whether it was something that’s been confirmed and approved, that’s sort of regardless. We can put together a current estimate for the work, regardless of what’s been budgeted. CB, however, it is the acronym for current budget. Typically, when we go into a project, we’re going to create that baseline. We’re going to create an original budget, and then we have a change process that we’re going to overlay. As changes come up, we want to model those changes. We want to understand the impact of those changes.

Rick Deans:

And at some point, that change is going to get approved. If I’m a contractor working for an owner, and I feel like, hey, this is out of scope. And we need to have some sort of commercial terms to facilitate this. Great, that becomes approved. And now that is added to my current budget. If I’m an owner and I’m working on a project, maybe I want to update that budget based on new information. We can look at that unit value as coming from a place of what we’ve thought about, whether it’s our current estimate or our current budget. It can come from commitments made to third parties to perform the work. If I’ve hired, John Upton Contracting to come in and do a portion of that work and I’ve committed to him, great, I can use that commitment value as a way to forecast the remaining work.

Rick Deans:

It can come from how the work is currently progressing. So maybe I’m a self performing contractor and I’m out there. And we realize we were going to do 100 units a day. And boy oh boy! On our best day to date, we’ve only done 95 units. And my average is 87 units. Yeah, maybe we want to forecast the remaining work based on an updated profile. That’s why it’s so important to break that work down. If you know they’re going to have a learning curve in the field, if you know they’re going to hit rock, put that as part of your plan so that way we don’t get these wild fluctuations in our forecasts [inaudible 00:41:18].

Rick Deans:

And then finally, it can be manually adjusted based on new information. Maybe there was an underperforming contractor that we’ve relieved of their obligations. And now we go back to the market, try to get someone to come in and finish that work. And it’s new information, it wasn’t anything we planned for in our estimate. It wasn’t anything that we’ve approved from a change perspective at this point, it has nothing to do with our actual performance. It’s just net new information and we want a place to go in there and enter in some new information based on our forecast.

John Upton:

Yeah. And these unit values can be as simple as a plugged value if you know what that value is going to be, or it could be as detailed as doing a whole new resource makeup, maybe using different labor resources or different pieces of equipment. And you can apply that new unit value times the remaining quantity. As Rick mentioned, commitments made to third parties, not only just the committed value, but any vendor change orders, right? Change happens all the time. You might want to also include those as approved vendor change orders or even potential change orders, depending on how likely you are to have to do that additional work with the average production or a straight line as we call it or some people call it as well. That can be very valuable. I’m assuming that work’s progressing.

John Upton:

You think it’s going to progress similarly for the rest of the operation, or even doing a rolling average production. And so if you think the last month’s production is going to be pretty constant for the remaining quantity, why not use that? Yeah, there’s lots of variables to derive that unit value. And unfortunately, there’s not an easy button and software can’t just predict whether or not you have bad production rates or if there’s additional scope that was missed, or that plan value was incorrect. But there’s always going to be some human element in forecasting. But ultimately, the software is there to help you identify trends and then apply those trends to get the most detailed and accurate Estimate to Complete.

Rick Deans:

Yeah. And you’re absolutely right, John, the tools, maybe 25 years from now, machine learning will be to a point where it’s smart enough. But my guess is that we’re not going to replace any humans thinking through this stuff. And what we’re trying to do is get them to focus and pay attention in the areas that are going to be most impactful to them. Let’s walk through some real world examples. Here’s one that we run into quite a bit. We have a one time delay on site. We’re getting set up, we have a one time anomaly. Maybe the team doesn’t have access to the job set, they’re locked out.

Rick Deans:

Maybe major equipment or major materials haven’t been delivered or aren’t accessible at this point in time. We’ve got guys standing around and we need to pay them for that time, but then we’ve mitigated that issue. We don’t expect to see it again. We called it out. We had a one time delay. We get that, but now we’ve solved the problem we’re going to move on. Now maybe we want to, or at least for right now, forecasting the remaining work exactly the way it was budgeted. We did have an issue. We solved it. Now we have no reason to think we’re going to be different than what we had planned.

John Upton:

And that issue would be covered in the actual value that’s already been progressed. If you go back to that equation, it’s actual value plus ETC. That one time hiccup would be already covered in your forecast. And now you’re going to continue out with the original estimate of the original plan for the remaining work.

Rick Deans:

Just kicked that can to the end and our forecast equals whatever we plan, plus that one time delay. Here’s one that probably never happens to anyone in this audience. The work is progressing differently than we had planned, right? Maybe we’re using different resources, different spread of equipment, different labor resources. Maybe we’re using more costly or cheaper labor, but it’s not keeping up or it’s over producing. In this case, this would be a really good case to use our average production, or as John pointed up, maybe a rolling average, right? Let’s just look back at the two most recent weeks or the last month, and use that as a metric to forecast the remaining work. We’ve encountered new constraints that we didn’t account for. John said it much more politely, heaven forbid we left something out of the estimate.

Rick Deans:

In this case, we may want to manually adjust our forecast. We may want to… I think it’s so important as the teams are out there in the field working, we want to give them realistic goals. If there was something that they’re going to encounter that we hadn’t planned for, this is where we can use that current estimate. We can bump that current estimate up. We can update that so that they’ve got a reasonable target that they’re shooting for regardless of who missed it, or how it should have been accountant for, to begin with. Nonetheless, we want that demo in the field to really be striving toward a realistic goal that they can achieve.

John Upton:

Yeah. Or maybe your activities are on the critical path. And you can’t let that slip, so you’re going to double shift it. You got to account for that with the additional overtime. There’s lots of variable that you have to factor in when new constraints are realized. And that’s being that proactive. You don’t want to think everything’s fine and dandy until you’re at 80% and then realize, crap, your forecast swings by a million bucks. That’s not going to win any brownie points on the project.

Rick Deans:

And then, of course, you can’t really talk about project management without talking about change. There’s been a new scope. We’ve decided we’re going to add some additional scope. Well, new proof scope can be included in the project’s current budget. We’re going to have an approval process associated with that. And now we can forecast our costs to complete by using our current budget. Again, lots of different ways to be nimble. And to, again, what we’re really trying to do is intelligently predict the outcomes and we can use the way we planned, we can use our actual experiences to date, we can use net new information. We’ve even opened up the door.

Rick Deans:

If I wanted to do some fancy formulas and take this metric and divide it by that and add it to this and do that, great, you can do that off to the side. And you can just import that back in. You can do that in good old Excel, and you can bring it into our set of tools that would allow you to come up with a forecast that, again, meets whatever criteria you’ve decided you want to use to forecast for [inaudible 00:48:29].

Rick Deans:

And then as we do have a few minutes left, I thought it would be interesting, as I pointed out earlier, there are many solutions that come in to an organization and do a specific job or fulfill a specific role. What we wanted to talk about here at the end was just really briefly, some of those differentiators that we feel make InEight world class. One is, we talked about the ability to create a WBS. We’re not just asking you to enter in a budget line item, what is the budget for this and that we’re going to track against that. We give you all the tools required to create a budget. We give you in InEight estimate, a WBS creation tool that is going to do all of that leveling between units of measure between different productivity rates that allows you to leverage and organize your organizational history to create that WBS that’s so key to track against in the field. Integrated contract management. We can leverage commitments, we can let a whole bunch of other data that’s already in play to measure our earned value and to more accurately forecast our costs.

John Upton:

And with that too, with the integration or integrated WBS creation, going from estimate to execution, and then further refining that down to further detailed items that we call components to measure that progress, that’s all seamlessly integrated, and you don’t have to track it on 15 different spreadsheets and make an update in six different places. The other thing with contract management, we’ve talked about ERPs a lot. And I think there was a question around, how do you give it earned value from your contractors? We have the ability to take POs and break them down those line items of the PO into schedule of values and track progress against those, and automatically roll those back up to the cost item or the cost breakdown structure without the need of an ERP, as well as the cost. We can pull those directly from the contract management system into your forecast so you can take what’s, what’s left as an open commitment versus what’s been actualized to generate those EAC forecasts.

Rick Deans:

Excellent points. We perform work at the activity level, right? Why can’t we measure work at the activity level? I think that one of the capabilities of InEight that is unique is it allows for planning and execution at the activity level. And I’m being very specific here. We can work at this activity level, as John mentioned, we can introduce this concept of components that allow us to really break our work down into whatever level of detail we feel is the right level for tracking that work. And we can still summarize it up to those broad based ERP accounting codes. We can certainly do that, but if we’re just living at that broad based cost code level, it’s really hard to pull the curtain aside and look and interrogate those details. However, if we’re starting out of that more detailed level, we can certainly summarize that up and give all parties, including project team members the information that they need to do their jobs.

Rick Deans:

Change management. We’ve mentioned several times, we can forecast and we can run our earned value metrics off of our pending changes, which might be our current estimate off our approved changes. And how many times have we been asked, we go a meeting and someone is what’s the forecast? And we say, we blurred out a number. And does that include all pending changes or just the approved changes? And then we’re back in Excel. And we’re trying to create a macro, we’re trying to drop in another column where our tools are built from the ground up purpose built to answer those sorts of questions in that sort of pressure situation. And then another thing that I think that we offer that’s unique, and John, you can discuss this as well, but project team members can collaborate on forecasts and they can spend some time reviewing forecasts, and then they can collaboratively and collectively decide which forecast do we want to use for our reporting to management and our other project stakeholders?

John Upton:

Yes. We have a couple different concepts around forecast. We have a personal forecast that’s independent to me, for example, and I can do what if analysis of pessimistic, optimistic, a straight line. We also have sandbox forecast that you can work across the entire project to see everybody’s changes, not just yours, and communicate. Again, you could still do a sandbox for what’s the best case scenario for my discipline or the worst case scenario. And then after collaboration amongst the team, you could push it to what we call the live forecast. And the live forecast is that final forecast that’s going to be sent to your ERP or that you’re going to be basing all of your financial reporting off. But being able to collaborate, see, if I change from a straight line to just a current budget at complete, what’s that Delta? Not only see those side by side, but see the deltas in real time, based on the different methods that you’re choosing to use for your forecast.

John Upton:

Some brief powerful stuff, notes, obviously, that can go against each item so that you can see the reasoning for the change. You can see in app, how does my new forecast compare to my previous month’s forecast? How big of a swing was there? As we mentioned earlier, you don’t want to see your EAC be going up and down across the project, because that leads you to believe that you’re not as sure of your projection as you probably could be. Also, a big one I like to see is your Delta from straight line. Based on my current forecast, how does that compare to if I just straight lined it?

John Upton:

And then if it’s a big number, you might be a little bit conservative or maybe there’s a reason for that big swing. You know you’re coming up to winter and productivity is going to take a major hit, vice versa. If you’re dealt from straight lines in the negatives, that means you’re being pretty aggressive that ever happened previously, you’re going to figure it out and make some drastic changes to get better. Lots of details in the data. Again, not having to pull information from a bunch of point solutions, all integrated and all the applications talking to each other in real time helps to make better informed decisions and be proactive instead of reactive.

Rick Deans:

One of my favorite customers, John, I think she knows who she is. She has told me that our tools bring a level of accountability. As they go around from business unit to business unit, implementing these tools and getting people on the same page, she loves the accountability it brings. She can look a project manager in the eye and say, you’ve been performing in a performance factor of 0.75. And you’re telling me that you’re somehow going to miraculously finish this work with a productivity factor of 1.23. How is that going to work? And it’s not to be mean to people, it’s just to, hey, let’s surface this information early, let’s make this data available and let’s act on the data, let’s make the best decisions we can with the finite resources we have to make sure that we’re going to get an outcome that is within our tolerance zone.

John Upton:

Absolutely.

Rick Deans:

That whole accountability is something that is implied throughout all of this as well. And then we’ve got one more slide. We know that you are very interested in your continuing educational credits. Part of that is to take a webinar survey. And if you can scan the code below, let us know how we did. We’d love to get some feedback for you. And I think that takes us right to the top of the hour. John, are there any burning questions in the chat that you feel we should address here in the next 90 seconds? Or should we try to get those answered offline?

John Upton:

I just saw a few that popped up on the bottom. I haven’t taken a look at it in the whole list yet.

Rick Deans:

But we want to be respectful of folks time. Again, as we started off, we know people bounce from one of these to the next, to the next, to the next. If it’s okay with the team, what we’ll try to do is we’ll look at the responses. Maybe they fall into the questions, maybe fall into some number of groups and we can get our responses out to the participants offline. And boy, we sure want to thank you, the attendees for joining us, we know time is valuable. Thank you so much for spending an hour of your time with us. We also want to give a big shout-out and a big thank you to our partners over at AACE International for, again, offering us this platform to share our good news about earned value management and forecasting.

John Upton:

Yeah. Thank you guys very much. Appreciate the opportunity.