South African consulting engineering firms need to realise the importance of managing project profitability and using the Earned Value Management (EVM) tool, says local system development, implementation and training resource company Akron Software.
The company is the developer of ProMan, a project financial management solution designed particularly for consulting engineering and environmental consulting firms.
“Since the beginning of this financial year we have seen an increased interest in the software and its capabilities, which means the market is definitely becoming aware of the fact that cash in the bank does not necessarily mean success, and that holistically, real-time reporting on project progress is a critical issue.
“We have recently developed, both proactively and in conjunction with key clients, an EVM module for ProMan. The roll-out of which is imminent,” says Akron Software marketing director Doug Smith.
ProMan users in South Africa include consulting engineering and environmental consult- ing firms, such as WorleyParsons South Africa, SRK Consulting, UWP, BVI, Iliso Consulting, the MSA Group, Semane and Zitholele Con- sulting, among others.
Two new clients currently implementing ProMan are environmental consulting firm Digby Wells Environmental and consulting engineering firm Jacobs Matasis, the South African subsidiary of the multinational Jacobs Engineering group.
“The ProMan system consists of an online timesheet capture interface, which automates the collection, validation, approval and process- ing of time-, expenses- and human resource-related information.
“This is integrated with a complete financial system – the client does not need to use a generic accounting package, since all the functions are available in ProMan,” says Akron Software MD and ProMan developer Arno Greyling.
Smith notes that EVM is not a new concept to the industry, but it is one that not enough people in the industry are aware of.
“EVM was first adopted by the US Depart- ment of Defence in the late 1960s and since then it has become more widely used in the private sector for industries including mining, construction and oil and gas, where best practice project financial management controls are critical.
“Ideally consulting engineering firms start projects after having conducted a rigorous approach to planning the project scope, timing the completion of the project and calculating the costs involved. The result will be a planned earned value across the project’s life cycle,” he says.
Subsequently, project managers usually track project progress using a comparison of planned versus actual project costs to date.
“This contains a major area of uncertainty, though, as it gives no insight into whether the project is overspending, (i.e. costing more than planned) or whether the project is costing more because it is running ahead of schedule – or a combination of the two.
“The key lies in using the EVM approach, which, in simple terms, is the percentage of the project complete, multiplied by the budget or the authorised budget value of work accomplished on the project at the given time,” he explains, adding that the earned value is then used as a benchmark to highlight the underlying reasons for, and the true implications of, the actual cost being ahead of the planned costs.
He explains that the cost variance is the difference between earned value and actual cost, while the schedule variance is the difference between earned value and planned cost.
“Positive variances indicate a project is ahead of schedule or underspent, while negative vari- ances indicate the opposite,” states Smith.
Greyling notes that EVM enables companies to correctly track and manage whether projects are on time and within budget, at any time in the project life cycle.
“The challenge of running large projects is that companies only find out at the end of the project that they are running at a loss. It is difficult to determine the financial status during the course of the project for reasons such as delays that affect invoicing.
“Using EVM also enables companies to manage the project effectively, focusing on the end total at all times. Essentially, it enables them to move from reporting only historically to reporting at any time,” he explains.
Other advantages include consulting engineers being able to perform resource or labour planning at the start of the project life cycle, and on an ongoing basis, to ensure resources are used effectively.
“I think another point that consulting engineers often miss is that, if you have detailed and accurate records, it makes it easier to apply for variation orders, contract extensions and changes to the scope of work from the client,” says Greyling.
He notes that the industry has moved towards using fixed prices for projects, as clients want a quote before the project begins, as opposed to billing for hours worked, as was done in the past.
“This trend towards fixed price contracts is forcing consulting firms to manage projects better and to be more productive, which is what ProMan and EVM are designed to achieve,” he says.
Greyling says there were no challenges for the company in developing the new EVM module for ProMan.
“The ProMan software already had much of the functionality needed for EVM, so we knew what clients were already using and what they wanted improved. Working with our clients to develop the module means we knew exactly what clients wanted the module to do and to look like,” he says, adding that the company typically carries out developments in this way to ensure the modules will be widely accepted by the industry.
Going forward, Smith says the company conti- nues its focus on gaining new clients.
“There are still at least two or three hundred firms in South Africa that are not using an integrated project financial system to manage their projects and have not yet realised the importance of doing so. Our role is to help educate the broader market about the importance of using best practice systems including EVM. We understand this will take a lot of work,” he says.
Additionally, Greyling says the company is constantly designing new modules and improving the ProMan system.
“We use the feedback from clients to guide us in our development priorities. For example, we are extending the multicurrency module functionality and improving ProMan’s integrated Drawing Management system to make it more user-friendly,” he concludes.