This article will focus on how to control in a ship repair project the time and cost during execution using the Earned Value Management (EVM) methodology. The idea with the EVM is to analyze the progress of the project vs. what was planned, in order to take informed decisions and not just wait until the end to realize that the project was out of control and didn’t produce the expected profits. This informed decisions are based on KPI’s and forecast that will help the Project Manager and team members to analyze current situation of the project.
This aspect is very crucial for Shipyard Project Managers. We all know that ship repair projects normally are short in time (approx. from 10 to 15 days average) and any slip on the schedule can impact time and cost of the project.
On this article I want to share my experience using EVM on ship repair projects. What I am going to explain is the theory applied to reality and the results of it. Besides that, I have design my own flow chart where you can see how to apply EVM on each project process group (i.e. Initiating, Planning, Executing, Monitoring & Controlling and Closing) and my own design report to check the condition of the project.
I understand that many shipyards has a strong and well set procedure to control project’s time and cost but maybe you can find useful some of the components of this article, some others might have a weak process and the article can help them to build it stronger.
As my previous articles, this is based on my experience applying world recognized project management standards to ship repair projects. I am not revealing a process or confidential information from the shipyard I work for. Here I will continue using the project QUEEN ANDREA (the same as the past articles) as an example to demonstrate how EVM works.
What is EVM?
Earned Value Management (EVM) is a methodology that combines scope, schedule, and resource measurements to assess project performance and progress. EVM develops and monitors three key dimensions for each work package and control account:
- Planned Value: Planned Value (PV) is the authorized budget assigned to scheduled work.
- Earned Value: Earned Value (EV) is a measure of work performed expressed in terms of the budget authorized for that work. It is the budget associated with the authorized work that has been completed.
- Actual Cost: Actual cost (AC) is the realized cost incurred for the work performed on an activity during specific time period. It is the total cost incurred in accomplishing the work that the EV measured.
Now I will translate this fancy information into ship repair language:
- Planned Value: the PV is the total estimate we have for a certain project, e.g. total of sales or total amount of man hours. For example the project QUEEN ANDREA tender value is USD $756.000 if you want to express it in money or can be 8.500 MH expressed on man hours. The total amount in money or man hours can be called Budget at Completion (BAC). the PV is expressed in terms of monitoring dates, that means that on each monitoring date you should have a portion of the BAC according to the plan represented as PV (See table 2).
- Earned Value: the EV is the current progress you have on the project. You can measure it in percentage of progress and then convert it into money or man hours. For example for the project QUEEN ANDREA today has a progress of 30% of the total (PV) that is equivalent to USD $22.680 or 2.550 man hours up to date of the total budget.
- Actual Cost: the AC is the amount in money or man hours that you have spent at certain moment on the project. For example today the project QUEEN ANDREA has spent USD $20.680 or 2.400 man hours.
These 3 dimensions are they key for the EVM, from those measurements you can get KPI’s, Forecast, variances and charts. It is very important to understand each dimension in order to get real information. Something particular of the EVM is that you have to measure at certain dates in order to control the project during execution, personally I check my projects 3 days a week (Monday, Wednesday and Friday). If you have a project of 15 days, you can have around 6 checking points for the project.
EVM also analyze variances that I will not explain here because the article will be very long and the intention is to keep it simple. Then, it is very important to understand the KPI’s and Forecast formulas that will inform the Project Manager how the project is performing and if the progress continue like it is how much you will spend at the end.
- Schedule performance index: the schedule performance index (SPI) measures how efficiently the project team is using its time. An SPI value less than 0 indicates less work was completed than was planned. An SPI greater than 1.0 indicates that more work was completed than was planned.
The formula is: SPI = EV/PV
- Cost Performance index: the cost performance index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost. A CPI value of less than 0 indicates a cost overrun for work completed. A CPI value greater than 1.0 indicates a cost underrun of performance to date.
The formula is: CPI = EV/AC
In ship repair language we can understand this KPI’s as follow:
- SPI: >1 = Ahead the schedule; <1 = behind the schedule, 1 = on schedule.
- CPI: >1 = spending more than planned; <1 = spending less than planned, 1 = on budget
For example, we have 3 monitoring dates for the project QUEEN ANDREA where you can see the 3 dimensions and the KPI’s per date, see table 1:
[CLICK TO ENLARGE IMAGE]
On the table 1 you can see that on the Monitoring date 1, the KPI’s indicates that we are on schedule (SPI) and on budget (CPI) that means we are doing it according to plan. On Monitoring date 2 we can analyze that we are behind the schedule (SPI=0.9) but we continue on budget (CPI=1), the Project Manager need to put special attention on identify why the project is behind the schedule.
EVM has two formulas for project forecasting, one is Estimate at Completion (EAC) and the other one is Estimate to Complete (ETC).
- Estimate at Completion (EAC): involves making projections of conditions and events in the project’s future based on current performance information. There are a lot of formulas that you can use to calculate EAC and can be found in the PMBOK, but here I will show the one that I have used for ship repair projects:
EAC = AC + [BAC – EV) / (CPI x SPI)]
- Estimate to Complete: After obtaining the EAC, the ETC will be the remaining work or money needed to finish the project according to forecasting (EAC). The formula for the ETC is EAC – AC.
Let’s see an example on how to use this forecasting formulas on table 2.
[CLICK TO ENLARGE IMAGE]
On table 2 we can see that we add two new columns to the table 1 for forecasting of the project QUEEN ANDREA. We can see that on the monitoring date 1 the project was projecting to finish on budget but on monitoring date 2 due to a negative SPI (delays on schedule) the forecasting is projecting to finish $3.333 more than budgeted (BAC $30.000), at this point Project Managers have to take decisions about what went wrong that period and place action plans to correct deviations, then next monitoring date will show the results.
EVM APPLIED TO SHIP REPAIR PROJECTS
In real world ship repair projects, there are 3 main topics to control: man hours, materials and subcontractor jobs. If you wish you can control it in money each of this items which will be easier, or maybe is important for the shipyard the control of man hours specifically and you can do it separately as follow:
- Man hours: in hours
- Materials: in money
- Subcontractors: in money
We will follow the same theory I have explained above but I will add some extra KPI’s and Variances. Man hours and materials will follow strictly the EVM theory plus one KPI extra for materials. Subcontractors will be controlled only based on the profits you are making from them, e.g. you need to subcontract hydroblating service for tank treatment, you should be aware that what you are going to pay to your subcontractor is covered by the price you sell to client plus the percentage of profit. For subcontractor jobs it is very easy to control and it is not necessary to forecast, only to analyze variance.
I have defined a process for EVM keeping in mind what I have mentioned about man hours, materials and subcontractors and I draw a draft flow chart for better understanding.
[CLICK TO ENLARGE IMAGE]
To download the complete flow chart in pdf just click on this link: https://drive.google.com/open?id=0B44cTSRA2VODV2xraXBfUDE5LUU
This flow chart show what to do regarding EVM during the project 5 group of processes i.e. Initiating, Planning, Executing, Monitoring & Controlling and Closing. Let’s see how can we apply this flow chart to the QUEEN ANDREA project:
- Vessel name: QUEEN ANDREA
- Tender sale: USD $620.000
- Estimated Man Hours: 11.347
- Estimated materials: USD $186.000
- Estimated time for repair: 15d
- Project Manager: Fernando Remolina
With this information and following the flow chart I will summarize it in main steps for applying EVM to the ship repair project:
- Issue all the documents for EVM (I have my own excel sheet maybe other shipyards have a special software for it).
- Get all estimates in money and hours
- Start to plan the project with Head of Departments, confirm man hours with them and adjust if needed.
- Make the schedule with all information gathered and save project baseline, normally this is done by your scheduling software (I use Ms Project).
- Define the amount and when will be the monitoring dates (What I do for a project of 10 to 20d – 3 times a week, if it is a project that takes more than 1 month can be 2 times a week, all depends on how much you want to control your project)
- Get the PV values: to get the PV values you should calculate according to the baseline how much of progress in term of man hours and materials you should have each monitoring date. For those using Ms Project there is an option called “update project”, here based on the defined monitoring dates, it shows you the percentage complete you should have at that certain date. This percentage can be multiply it by the total estimated man hours and total estimated materials to get the PV. For example if in the monitoring date #3 the PV obtained is 30% you should multiply this value by 11.347 MH and USD $186.000 and then you will get the PV for man hours and materials for monitoring date #3.
- Issue current progress performance (EV) in each monitoring date: when the monitoring date arrives you should get the current performance (EV) for man hours and materials. That means how much you have progress in the project up to that date, you can get the percentage complete from scheduling software and multiply it by total estimated hours and total estimated materials to get the current performance (EV). Here you can analyze the variance between estimated vs current performance and see how much is remaining to spent
- Issue current cost performance (AC) in each monitoring date: To get the AC you have to get information from your system or accountant department regarding how much you have spent up to date in man hours and materials for the project. Here you can analyze the variance between estimated vs current performance and see how much is remaining to spend.
Perhaps all the steps above sounds like your own system to control time and costs in ship repair projects, but the interesting thing about EVM are the coming steps:
- Having the PV, EV and AC you can start to calculate KPI’s, Forecasting and S-Curve.
- Take decisions depending on KPI’s and Forecasting results
- Re start all the process for the next monitoring date and analyze results of previous decisions.
- Before vessel departure check forecasting formula to be prepared to set final invoice with superintendent.
- When project is finished this file can be used as a record to identify deviations and lessons learned for process continuous improvements.
I have created a KPI for materials called Material Performance Index (MPI) that it is similar to the formula of the CPI. The formula is MPI = Material EV / Material AC, in this way you can control materials that normally are not a headache for the project manager in ship repair projects in contradistinction to man hours. In my approach the Forecasting and S-Curve is exclusively for man hours but as I mentioned before you can control all the project in money and you can gather everything. Also, you can customized this EVM methodology to your needs and my current need is to control specially the man hours.
Let’s see an example for EVM calculation on the EVM report for the project QUEEN ANDREA on table 3 which is my own design report.
[CLICK TO ENLARGE IMAGE]
We can see on Table 3 the following:
- Date of monitoring: we have a project of 15d and I have set 7 monitoring dates. Normally is Monday, Wednesday and Friday.
- Project Sales: as in ship repair we have a lot of additional jobs or cancellations requested by client it is good to keep record on how the sales of the project is performing on each date.
- Progress: here we can record the percentage of progress the project has at the monitoring date.
- PV: as I mentioned before you can see that the PV (expressed in man hours) is set for all the monitoring dates because this is your plan. EV and AC you should control it by each monitoring date. At the last monitoring date 4th August you can see on the PV column 11.347 that is the total budgeted man hours for this project (BAC).
- EV: here you can see how the real progress is onboard of the project expressed in man hours. For this example you can see that the progress on the 27th July was 32%, you take this percentage and multiply it by the total estimated man hours (11.347) and you get 3.612 man hours progressed at that moment.
- AC: same as the EV column but this information is taken from the system on how much hours you have spent at the moment. On the table 3 you can see that on the 27th July you have spent 2.400 man hours for the project.
- SPI: This is the KPI for the schedule and as a result on the 27th July we have 0.74 that means we are behind the schedule and some actions need to be taken. Remember that SPI = EV/PV, that means that on the 27th July the EV value (3.612) was lower than what we planned PV (4.879)
- CPI: this is the KPI for the cost and as a result on the 27th July we have 1.51 that means we are spending less than planned. Remember that CPI = EV/AC, that means that on the 27th July the AC value (2.400) is lower than the planned value PV (4.879), we supposed to spend the same as the PV value but we spent less.
- EAC: this is the forecasting formula and the one I like the most. On the 27th July we have an EAC of 9.591 man hours, that means if we continue at this moment progressing and spending as we are doing right now at the end we will finish the project on 9.591.09 man hours, very positive because is less than the BAC (11.347). Despite we are behind the schedule but spending less than planned the forecast is good.
- ETC: this value represent how much we have remaining to spend.
- MPI: this is the material KPI. And on the 27th July was on 0.09 which is good because we are spending less than planned.
- SC-CM: this is a KPI to control subcontractors that means Subcontractor Contribution Margin, as I mentioned before it is not necessary to include subcontractor’s jobs on the EVM methodology using the approach to control specially man hours. What we have to control is that we are getting profits from this kind of jobs and we can add it to the report.
Another important way to control graphically the project is using an S-CURVE. See on the figure 2 below how is this represented on the QUEEN ANDREA project.
[CLICK TO ENLARGE IMAGE]
On the Figure 2 you can see how was the performance of time (EV – red) and cost (AC – green) versus what was planned (PV – blue) according to each defined monitoring date.
Here I will show the complete EVM report for the project QUEEN ANDREA that I use to control the time and cost in ship repair projects.
[CLICK TO ENLARGE IMAGE]
You can download a pdf version of this report on the following link: https://drive.google.com/open?id=0B44cTSRA2VODOTFzVWZFU1RtWmM
This is not a very easy topic to explain in written but I tried to give my best to share my experience and knowledge applying EVM to Ship Repair Projects. I can conclude that this is a MUST in every ship repair project because with this you can control your project, make informed decisions and not just doing the things by feeling and waiting until the end. Another benefit of the EVM is that you can record your projects and analyze job by job how the performance was, what we did good and what went wrong in order to process continuous improvement.
If you need more clarification or feedback on this topic please do not hesitate to contact me.
 Project Management Institute. (2013). Project Cost Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 217). Pennsylvania, USA: Project Management Institute, inc.
 Project Management Institute. (2013). Project Cost Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 218). Pennsylvania, USA: Project Management Institute, inc.
 Project Management Institute. (2013). Project Cost Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 219). Pennsylvania, USA: Project Management Institute, inc.
 Project Management Institute. (2013). Project Cost Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 220). Pennsylvania, USA: Project Management Institute, inc.
 Baseline: the base line refers to the confirmed plan by all stakeholders and is the base to measure against the project performance by monitoring date