Using P6 and EVA to calculate profit/loss

I’m not really familiar with EVA, but i’m experimenting to use a technique that i may call "ADAM", which means Apply Daily Account Management, as you know it, all refers to costs.

I suggest to use planning unit in "Day" (for daily).

For example: if you got an activity with a 10 Days Duration, then you can assign 10 units.

Remember, first you’ll need to calculate your "average daily expenses" (this is variable or on a project specific basis), this is to be based on your total resources - budget for a certain project. Now, you have your daily factor (you can also add factor of safety if you want).

So, you don’t have to show costs in your schedule or program, but you can show units.

who is EVA by the way?

cheers!

Hi Anoon,

EVA is Earned Value Analysis. It is also called EVM or EVMS stands for Earned Value Management System.

Yasser

Hi Yasser,

See below my answers.

My questions:

1- How can we use P6 and EVA to calculate profit/loss which involves selling price NOT cost price? In other words, can we subtract EAC from the total project value (selling price) to calculate forecast profit/loss at completion? What bout profits calculation on the Data Date??

R.: Normally, we use only the selling cost (BOQ amount) to cost-load the Client’s programme and perform EVA for periodic status report. In order to use one programme for both (Internal & Client), allocate actual costs on the same programme for internal periodic profit/loss status report. For Client’s reporting, copy the programme and remove the actual cost by global change or remove them in excel form, then import back to P6.

2- If 1 is possible, I do understand also that, it is not to the company’s interest to disclose its profits to the client when EVA reports and schedules are asked by him. Of course we have to submit monthly progress reports and monthly updated schedules to the client. The challenge is how to perform EVA without showing the client our profits; that is to say W/O making two schedules, one for the client and another for internal reporting purposes. That is too much for planners.

R.: Answered in Item 1

3- Can we produce productivity reports using EVA? Which means comparing budgeted labor, non-labor, material quantities to Actual ones? True of False??

R.: You can always compare budget vs. planned

Best regards,
R. Catalan

Hi Catalan,

Thanks for your input. But my questions still NOT answered.

1- " Normally, we use only the selling cost (BOQ amount) to cost-load the Client’s programme and perform EVA for periodic status report. In order to use one programme for both (Internal & Client), allocate actual costs on the same programme for internal periodic profit/loss status report"

a- If you use BOQ to calculate BAC, that means you are using the selling price. BAC should be calculated using cost price NOT selling price

b- EV should be calculated also using cost price NOT selling price



2- "R.: Answered in Item 1"

Even if you use selling price (BOQ) for reporting to your client means that PV and EV are calculated based on revenues Not Costs. Hiding AC from your reports to the client means EVA is missing the third important parameter, witch is AC, or that your client doesn’t ask for EVA, he only ask fro monthly updated program. There is no meaning for submitting EVA without incorporating the basic three parameters PV, EV, and AC.

3- “R.: You can always compare budget vs. planned”

Are productivity reports and comparison using P6 is reliable or it is better to calculate productivity the normal way by using Excel.

Regards,

Yasser

Hi Yasser,

Follow-up to my inputs and your comments:

a- If you use BOQ to calculate BAC, that means you are using the selling price. BAC should be calculated using cost price NOT selling price

R: Theoritically yes, BAC is your direct costs. But for Client’s status report your BAC should be the selling/contract price, and you can report EVA by schedule variance analysis (SV) only where this is the concern of the Client.

Now for your internal programme, still BAC will be your selling price and to be compared with Actual Cost (AC) since you want to report your periodic profit/loss status, right? Now if you want to report internally your real BAC (direct costs) vs actual costs then create a UDF for it. You can then now do your EVA using the needed three EVA values (PV, EV & AC). Use global change to do the calculations of your EVA. Make it sure to remove your actual costs and real direct costs (UDF) once you make a copy of it for Client.

b- EV should be calculated also using cost price NOT selling price

R: As explained in a

Even if you use selling price (BOQ) for reporting to your client means that PV and EV are calculated based on revenues Not Costs. Hiding AC from your reports to the client means EVA is missing the third important parameter, witch is AC, or that your client doesn’t ask for EVA, he only ask fro monthly updated program. There is no meaning for submitting EVA without incorporating the basic three parameters PV, EV, and AC.

R: You only report Schedule Variance (SV=EV-PV) to Client. Cost variance will be dealt thru VOs using spreadsheets.

Are productivity reports and comparison using P6 is reliable or it is better to calculate productivity the normal way by using Excel.

R: Presenting it in excel form is easy for the reader to understand.

Best regards,
R. Catalan

Hi Catalan,

Let us keep the client away for now.

For internal reporting purposes I’ll use cost price (not selling price) to calculate PV, EV. AC will be provided by our accounting Dept.

Is there a way to calculate the (forecasted) profit/loss at the end of the project periodically (on monthly-basis for example)? Notice that selling price (which is needed for profit/loss calc.) was not used in the calculations above.

Regards,

Hi Yasser,

What do you mean by "Is there a way to calculate the (forecasted) profit/loss at the end of the project periodically (on monthly-basis for example)?"

Could you please rephrase it?

R. Catalan

Hi Catalan,

For any project there should be a profit margin (which is our GOAL). Otherwise companies shouldn’t be in business.

During the project execution how can we know if the profit margin deteriorating or improving, or equal to what was originally calculated.

Now, for any given Data Date (periodic monthly update), I want to use EVM to calculate the forecasted profit margin at the end of the project. Notice that we still use the cost price in our EVM calculation.

Rephrased. I think now it is clear.

Regards,

Yasser

Hi Yasser,

Sorry for the late reply, got busy with project stuffs.

Let me try to answer your query.

In P6, show columns for CPI, ETC & EAC where:
ETC = PF x (BAC - EV)
EAC = ETC + Actual Total Cost (from your Accounting Dept.)

Go to WBS tab, then Earned Value tab to select the option for PF to calculate ETC.

We show CPI to know for every $ that was spent, how much $ physical work was accomplished.

Best regards,
R. Catalan

Hi Catalan,

The formulas in your post are the normal way that P6 uses to calculate EAC, ETC as well as the other measures. All this is very well known.

Still my question is NOT answered. Is EVM or P6 able to calculate the profit margin of a project??? (from a contractor point of view).

Regards,

Yasser

Hi Yasser,

Aside from P6 or doing the calculations manually thru committed costs, I don’t know of any other way of doing it.

Let invite others to contribute.

Best regards,
R. Catalan

Come on planners. need your thoughts and ideas

your question, Yes (though never tried it)

others: confidential to most (if not all)

maybe some uses abacus

what’s profit by the way, and how you make it?

Profit is the difference between the price and costs.
I don’t know how to track the expected profit in Primavera. In Spider Project it is easy including discounting. In long projects it is necessary.

Best Regards,
Vladimir

Profit is the difference between the price and costs.
I don’t know how to track the expected profit in Primavera. In Spider Project it is easy including discounting. In long projects it is necessary.

Best Regards,
Vladimir

Vladimir,

From the first posting, #1.

The challenge is how to perform EVA without showing the client our profits; that is to say W/O making two schedules, one for the client and another for internal reporting purposes. That is too much for planners.

Seems like updating various versions of the same schedule is too much for many.

Best regards,
Rafael

What about creating one cost account for costs and another one for the price of the same activities?
If Primavera permits to apply EVA to cost account then it may be a solution.

Best Regards,
Vladimir

Vladimir,

I’ve never tried to use cost accounts to perform EVA. I also doubt if P6 supports it. As far as I know P6 built-in features support EVA through resources loading and assigning costs for these resources.

If you know how to perform EVA through cost accounts, let’s share our ideas.

Regards,

Yasser

Yasser,

sorry, hijackers are always around

Vladimir said, "Profit is the difference between the price and the cost" I don’t know that EVA is so complicated when I originally thought that it only comes from ADAM.

I may add questions like:

1. How do you derive Prices? and How do you derive Costs?

2. Supposing you got only Costs, How do you make profits?

Anoon,

That is what we are really look after.

regards,

Yasser

Yasser,

I don’t use P6 and so cannot give you detailed instructions.
In P6 Help it is written that EVA can be applied by cost accounts.
Resource and cost assignments you can refer to different cost accounts. So you can create special resources or just apply additional costs with different cost account to the same activities. It is logical to suppose that P6 can report on separate cost accounts, and provide EVA by cost account. Total cost in this case will not have any sense.
It may become your solution.

I never did it myself. I use another software where to have parallel costs for the same objects is usual and easy.

I hope that you will get more help from some experienced P6 user.

Best Regards,
Vladimir

Dear Planners,

Have any of you used cost accounts to perform EVA??

Regards,

Yasser

Yasser,
below what is written in P6 Help. Maybe they did not mean Earned Value Analysis, just tracking earned value.
I hope that somebody may help.

In the software that we use it is so easy and so natural that I just cannot imagine that this is impossible.

Best Regards,
Vladimir


Cost accounts
You can create cost accounts and associate them with activity resource assignments or expenses in a project. Cost accounts are hierarchical, and they enable you to track activity costs and earned value according to your organization’s specific cost account codes.

Hi Yasser,

Using cost accounts in P6 is very helpful especially when you are cost-mapping or mirror your cost-loaded programme with BoQ.

Best regards,
R. Catalan

R. Catalan,

What do you mean by cost-mapping? Do you mean exact BoQ rates into your program?

Vladimir,

"I never did it myself. I use another software where to have parallel costs for the same objects is usual and easy."

What do you mean by parallel costs for the same objects?

Are these parallel costs different in figures? And you’re having different totals as well for the same object(s)?

To all P6 users,

Anyone used "Staffed Remaining Costs" and Unstaffed Remaining Costs"? And if you did, what do you mean by that?

cheers!

Hi Anoon,
yes, different figures, different totals (internal costs, contract costs, optimistic, pessimistic, etc.), different forecasts and EVA.

I still hope that someone will answer to the question if it is possible to apply EVA to cost accounts in P6.

Best Regards,
Vladimir

Hi Vladimir,

I supposed there’s a way (but you have to use P6 yourself - to find out).

"(internal costs, contract costs, optimistic, pessimistic, etc.)," - Do you mean in one program without having a baseline or target?

cheers!

Yes, in one program and in the baseline.

Vladimir,

You’re very convincing

Vladimir

In my opinion Primavera reps should have answered.

In P6 cost accounts can be assigned to resource assignments and to expenses NOT to activities. By this more cost accounts can be assigned for each activity (each resource, each expense can have a different account). But you can display all assigned accounts in the Activity view and Group & Sort by cost account or -id. Some of the Earned Value fields are summarized on group level.
In P7 seems to be some improvement, but I didn’t yet install it.
EV-curves or spreads can be displayed in the "Activity Usage Profile" and in the Tracking View.

So you can do it by cost account.

From how you described Spider, it seems to be stronger.

Regards
Dieter

Dieter,

P6 is a Bug, and seems will be for years to come. It was a bug 9 years ago when I first tried infamous P3e, named after P3 as to attract customers infatuated with P3 and the Primavera name.

If you test drive Spider Project and compare resource leveling results you might get surprised.

For years I have been hearing at Vladimir without listening, don’t do the same I did. Among the PP members I respect the most you are one of them, I would like some day to listen your evaluation on Spider Project for the knowledge and benefit of all.

Best regards,
Rafael

Hello there,

I think the real glitch in this question or method of thinking is not really what any software can or will do but rather the scope of issue itself.
Why reinvent the wheel?
I would prefer to leave the schedule for planning purposes and Loss/Profit calculations as well as business ratios for accounting software. And there are really good accounting software that can do the job easier for you then having to try to find a way to trick Primavera or other scheduling software to quasi-do it for you.
I am assuming that you are a contractor and therefore any cost you’re paying, whether be it employee salaries, expenses, purchases, worker’s daily wages as well as your revenues are passing through an accountant or accounting department. In this case, most of the work is already done for you. If you’re using the right accounting software tailored for your type of business and by simply doing your accounting choirs, business ratios such as profit per project, gross margin profit..etc..etc.. are just a click of a mouse away.
There are really good accounting software tailored for contractors on the market today,which can do all of this for you that you are asking. All what your accountant has to do is his normal duties and voila.
Regards

Roland Tannous

Hi Roland,
no accounting software calculates future profits and losses that depend on the project schedule,
no accounting software calculates project schedule basing on financial restrictions,
no accounting software will give you an answer to the question: what will happen with the project profit if I will use this resource instead of this, this technology instead of this, and even this contractor instead of this?
One contractor may suggest higher cost but shorter schedule. Is it profitable or not? Depends on many factors like links with other subprojects, the cost of project delay, indirect costs, etc.
I would not manage time without managing costs.

Best Regards,
Vladimir

Roland,

As a Construction Contractor, I don’t believe cost loading a schedule is justified in order to get a Billing S curve, which anyway is composed of Early and Late range that is going to vary as job progress. About tracking costs this is 1000x better handled through your accounting software, no need to get into the details of job costing which I call merely budgeting if production is not tracked.

I agree with you with an exception. Costing is better done outside CPM unless cash flow is per se a constraint. Vladimir have shown me of occasions where this can be applied to CPM.

That your car has 1,000hp and a 100 gallons tank does not mean you are to be running wild. Apply the power when usefull, do not waste your fuel. I believe we all can agree on that.

Best regards,
Rafael

Hi Rafael,

we have different experience.

In our contracts the Cient usually pays advance payment and pays for the job basing on the contractor invoices and contract conditions.

The cost of the work that was actually done is never the same as the payment to the moment.

The Client (or General Contractor, or Contractors) is interested to know who owes to whom and how much. Costs and payments are not the same. Accounting is about payments, project management is about costs.

Once again - the projects shall generate profits and all management decisions shall be weighted from this point of view. If we will use additional machines project cost will become higher but we will finish earlier. Finishing earlier means some saving. Is this saving higher than additional cost? This is an approach that justifies management decisions. If the schedule is not cost loaded it means that you don’t care about money.

For the contractor the price of the work is the cost that was agreed in the contract. The real cost of work is the sum of many costs (labor, machines, materials, indirect, etc.). We call them cost components. And it is natural to track both project cost and project price to understand which works are profitable and total profit or loss. Good decisions may be justified if they increase expected profits (with risks taken into account).

So I understand Yasser who wants to get these reports to be able to manage projects properly.

Best Regards,
Vladimir

Hello Rafael

I think we both agree, unless i misunderstood your post, that we’re both advocating to leave the financial part to the accountant and the planning to the planner.

1-Now that doesn’t mean that I am stating anything against project performance metrics like EVA or EVS.. On the contrary they are, most of the time, necessary.

2-On the other hand, project metrics are correlated but are just a part of Business /financial metrics on a company level.

@Vladimir

3- as i said in nr 1 above, I am not saying Project performance metrics embedded in CPM software are useless. I specifically answered the person who asked that question in the manner I did because the guy asked "how do i calculate a project profit margin". If that is specifically what he wants to do and not more, then accounting makes it easier to him then having to busy his planners with updating two versions of the schedule each time.
4-
"no accounting software calculates future profits and losses that depend on the project schedule"
Correct!
In fact, the most appropriate method, in my opinion, is using the output of EVA or similar methods in CPM, mixing those with the numbers from the Accounting software (most accounting software allows you to export in many formats) and running customized advanced financial analysis on them much more advanced then any one software can do for you.

5-
"no accounting software calculates project schedule basing on financial restrictions"
Correct.
I have many times setup project cash flow forecasts that assume financial restrictions using accounting principles and used those results while devising my schedule using regular CPM software. I never found it a hard task enough to require it a feature of the CPM software i am using. I assume from reading your other posts that this is a characteristic in your program that allows you to do it all in one single program? I still have to try it. Already downloaded a demo and I’ll tell you what i think when i have the time to use that feature.
6-
One contractor may suggest higher cost but shorter schedule. Is it profitable or not?
This is a question of Cash flow forecasting and you could simply use the CPM software to export a cash flow forecast which you input into your accounting software. Afterwards perform Discounted Cash flow methodology to figure out how profitable is that option to you.
Again mixing the best of both worlds.

Now I understand the advantage of having all of these financial features integrated into your CPM software. I am not against such a thing. What I am really concerned about is turning the planner’s job from helping out the project management into maintaining the schedule and finishing within budget and time into wasting his time doing accounting choirs.
After all , the planner doing such a thing is inputting data that the company’s accounting department will have to do anyway to have a more global corporate look into loss and profit.

A great way to take advantage of what your software offers as far as financial features is probably having the ability to export such financial information directly from your software to an accounting software which integrates the Project’s fin. status and projections with others projects and business ventures and therefore the same thing is not being done twice and everyone is happy and has the info he needs to complete his job... Just a thought..

Earned Value gives you an idea on how much value of work the project planned/actually done in a certain period of time while profit/loss is a function of the projected/actual billings against projected commited cost/actual cost, and whatever the difference, it’s either projected/actual loss or profit for that specific time. This is what is called as cash flow.

Use EV as “basis only” to generate cash flow. Use planning software to EV, excel to cash flow.

Why bother performing EV in P6 cost accounts? Don’t complicate it.

KISS

I don’t buy this idea that EV can predict delay accurately. It just can not do it. It only gives you a "hint" that something is not right. Use CPA instead.

Roland,

project schedule model consists of thousands activities with durations measured in days or hours. Each activity is resource loaded, has its own calendar, dates, etc. What do you mean by exporting project model to the accounting software? Export all activities and resources? And return discounting costs for each activity? I don’t know the accounting software that does it.

For management decisions I will not need advanced accounting software, plus or minus a couple of dollars does not matter much. I need to know that my decisions will improve project success criterion that in many cases is the profit.

If cash flow forecast is done in the CPM software why to export it at all? It is easier to apply discounting in the CPM software itself.

Project planner will not become accountant if the schedule is cost loaded. The cost of resources, materials, activities, financial restrictions can be imported from the accounting software but the budget is created basing on the scheduling results. And different scenarios may generate different budgets.

Of course export of project portfolio cash flow into ERP system is useful and many our customers do it.

Look at the investment project in Spider Demo. There are options to calculate project schedule taking into account project financing schedule (cost center) and material flows (material). If you will uncheck these boxes or just schedule the project (not level) you will find that the new schedule generates higher profit but you will need more money and frames (molds) than you have.
Of course you can move activities manually if your software does not have this feature. But it is not easy to find the best solution in the large schedule.

I don’t consider this functionality as the main Spider Project advantage. There are a lot of them.

But I still think that P6 can produce budgets and earned value analysis by cost accounts. I just don’t know this software well enough.

Best Regards,
Vladimir

Hello Vladimir,

No i didn’t mean export the whole model rather the cash flow forecasted by this model only.

This is why and I’ll give an example.
Its something i see happening in a lot of construction companies:
We should both agree that it’s actually the accounting department in a construction firm who pays subcontractors , suppliers, moves around cash from one project to the other, buys assets etc...
To be able to do that , the accounting department in that firm needs to know how well are all company projects doing , if they are progressing as planned or slower, because this affects their ability to pay subcontractors and suppliers on time without getting caught off guard.
To do that, they usually perform something called financial planning and the cash flow forecasting is one of these financial tools, whether on a corporate wide level or a project level.
On the project level, the accounting department depends on the cash flow forecasted by the schedule as modeled initially in the CPM software. But we know that the schedule changes during the lifetime of a project and therefore the project cash flow forecast changes with it. The accounting department in that firm needs to be informed of the changes to update its own cash flow forecast so they’d be able to make better informed decisions, to know when payments are really due, what to do with revenues in different projects etc..etc..
So is the accounting department supposed to check the CPM software by itself for changes? Don’t think so.
That is why i suggested the feature of being able to export updated cash flow forecasts from the CPM software in a format which accounting softwares would be able to read and use to mirror the project cash flow forecast and any changes that have impacted it, therefore helping the accounting software and the department using it reflect a better image of how is the project and company as a whole is doing financially.

So from a point of view of financial department, the CPM cost loaded schedule would also be acting as a real time sensor to the financial health of the investment which is the project. Projects are also investments.

Regards,
Roland

Roland,

I advocate leaving the financial part to the accountant unless the financial part becomes a constraint to the schedule. And this happens.

For the traditional way of contracting we are used to build jobs that have full Owner and Contractor’s financing, the availability of funds is no constraint to the schedule. But there are jobs where the financing is a constraint to the schedule.

I know of a local resort that has been in the making for over 25 years, this resort has its own waste water treatment plant, a marina, a couple of hotels, a gulf club, a school, and the list goes on. Financing and cash flow is what the owners have for breakfast, lunch and dinner, it is all about leverage, NPV, ROI and all the financial ratios we know. To these people the functionality built into Spider Project would be welcomed, easier than playing ping pong with a Spreadsheet and a CPM schedule.

Spider project is not the usual high end CPM software, it stands above. This I realized recently as I could not believe these functionalities could be analyzed together in a single package. Multi constraining algorithms that look for optimum solutions considering multiple sets of constraints is quite complicated, the software can look for solutions that are either optimum or near to optimum in a way you cannot do it under separate software.

Primavera/ORACLE falls short to this challenge; I thought they were capable of the most basic multi resource constrained optimization that is only two sets of constraints, a set for logic links and a set for limited resources. Well I found through a 10 activities sample job they cannot even do optimization with the lowest amount of multi constraint sets (just two).

Judging from the limitations and bugs embedded in P6 I bet on Spider Project for CPM Schedules, on Microsoft for Databases and SAP for ERP.

Best regards,
Rafael

Hello Ronald,

I agree with everything you wrote.
I want also to add that the same shall be done with project material requirements.

Expected cash flow shall be sent to financial department to plan payments, expected material flows shall be sent to supply department to plan material supplies.
They shall return any restrictions that may happen. Like lack of money at some period, delays with supplies, etc. And project schedule shall be adjusted to meet these restrictions.

But this is one side of the cost planning.
I also wrote about another - all management decisions shall be justified by their impact on the project cash flow. If some actions increases project profit then they are justified.

To estimate project profit for the contractor it is necessary to be able to compare project costs and what will be paid for the same works. It is necessary to take into account that project delays increase indirect costs. It is not necessary to be precise but these estimates are necessary for decision making.

For the Client project is not finished when the work was done. It is necessary to look further - to the profit generated by the project product. If the project finishes earlier then the profit will be generated earlier, each day of project delay costs some money. I may decide to select the contractor that will do the work faster though for higher cost because my profit will become higher (remember that each day has some cost).

Look at the presentation http://www.spiderproject.ru/library/mps.ppt
It covers more than we discussed but may be interesting to you.

Best Regards,
Vladimir

Hello Vladimir
You said:
"To estimate project profit for the contractor it is necessary to be able to compare project costs and what will be paid for the same works. It is necessary to take into account that project delays increase indirect costs. It is not necessary to be precise but these estimates are necessary for decision making."

A: OF course it is necessary , i never said the contrary. And I personally do that better through my accounting software. That doesn’t mean it can be only done the way i do it. Its just I prefer to mirror the info i get from a cost/resource loaded CPM schedule into my accounting software and work from there.
But of course there are other valid ways to doing it!
Regards,
Roland

Roland,
the project cost is distributed in time.
Calculating project schedule we shall generate two cash flows - one for costs, another one - for the price of the same works.
Accounting software does not generate cash flows. So both cash flows shall be generated by the project scheduling software.

Besides decision making is the process of estimating what if scenarios like what if I will use overtime work, what if I will bring additional workforce or machines, what if I will use new technology, what if I will build something in different order, etc. Exporting to the accounting software for decision estimate will spoil the pleasure of this game.

Best Regards,
Vladimir

Yasser,

I supposed your thread becomes a university of "Ss" who wanted to make it simplier but can never find a way! When somebody said, there’s only one way! And where’s the Truth?

For me, Accounting works on a "given" situation with accuracy (and must be).

Planning on the other hand works on a "guess" most of the time, and working very hard to validate that guess! Until a situation arise in reality, it remains a guess.

Vladimir has presented his solution and everybody wants to discount it.

Now they are saying that "EVA" can be worked-out by Planning and Accounting, so I guess they must elevate the qualification of a Planner.

cheers!

Hi

A very interesting discussion!

It is the co-operation between accounting, (financial) controlling, and the project team. ERP- and CPM software, both have strengths and weaknesses. So before starting it should be decided, which software for which purpose.

Master for dates, durations, resource assignments: CPM-software
Master for costs, master data, balance sheet: ERP, e.g. SAP.

BUT does PM need costs exactly per cent? This would need evaluation which is done during monthly closing and the evaluation by accounting - if I’m PM this would be too late.

Vladimir wrote: "For management decisions I will not need advanced accounting software, plus or minus a couple of dollars does not matter much. I need to know that my decisions will improve project success criterion that in many cases is the profit." I fully agree to this statement. To prevent from confusions - different figures with the same title from ERP and CPM - all CPM-reports must be classified as e.g. approximate forecasts. Then it will be obvious, those figures from CPM. As a PM I must decide while there will be an effect, not 6 weeks later. I must be able to run scenarios. CPM never will be accounting software and vice versa. So we must be aware that EVA by CPM-software always will be first estimate.

But company policy must be regarded.

Anoon

Why not learn EVA? Planners must have an understanding of contractual items as well.

Regards

Dieter

Hi All,

Your inputs are invaluable. I’m still didn’t get an answer of the straightforward question:

Using EVM, can we calculate profit margin or loss through the next formula:

Profit margin = Project selling price - EAC

Is it a good indicator or we can’t use it??

Is it meaningful or not??

Regards,

Yasser

Wow,

This is a great discussion.

Unfortunately, the originator of the thread wants a very simple answer to a very simple answer.

Even my great grandaughter can answer.

The answer is "yes". You can use the formula.

You can use that formula in computing profit and loss for your main contract, for your sub-contract.

How????

The answers is complicated because of the range of project, 500,000GBP, 1,000,000,000GBP or 20 BillionGBP.

the complication is directly proportional to the project budget.

Thank you,
Scarlett

Yasser

The formula is correct and will give your margin if all costs are covered by the software:

- ERP (acounting, controlling) software: Yes
- Planning software: In general it will be only an indicator because many cost will not be maintained in the planning software - e.g. fees, taxes, money transfer/exchange, legal issues... You can transfer data from accounting to planning system for more exact figures.

Regards

Dieter

Yes, Yessir.
You can use this indicator if your contract is Fixed Price.

From your question I understood that you want more deep cost analysis of the project performance. I think that the same understanding was shared by other participants of this discussion.

Now when you clarified your question the answer is simple:

Yes, if your contract is Fixed Price,
No, if your contract includes Cost reimbursement.

Best Regards,
Vladimir

Yes, Yessir.
You can use this indicator if your contract is Fixed Price.

From your question I understood that you want more deep cost analysis of the project performance. I think that the same understanding was shared by other participants of this discussion.

Now when you clarified your question the answer is simple:

Yes, if your contract is Fixed Price,
No, if your contract includes Cost reimbursement.

Best Regards,
Vladimir