Using P6 and EVA to calculate profit/loss

Vladimir,

OK. Now let’s go a bit deeper.

That means through EVM we use only cost prices which is our cash out or outlays.

Some will quote that " No, activities should be loaded using BOQ" which simply indicates using selling price Not cost price to show cash in.

In my opinion that is not correct since EVM’s parameters, PV, EV, and AC should be compared ’apple to apple’ which is costs vs. costs " Not comparing selling price in PV, EV vs. AC

Many will confuse it and it will be completely misleading for them and for their companies as well.

Second, if that is the case; how to make a program to perform EVM for our internal reporting purposes while the client needs EVM based on selling price.
Beware that the AC shown in internal reporting shouldn’t appear to the client. At the same time hiding AC from EVM to the client reporting will result in a non-complete EVA, namely CV, CV%, CPI, ETC, EAC, TCPI, etc...

Regards,

Yasser

ACWP - BCWP = COST VARIANCE when BCWP = Budgeted Costs on Work Performed

BCWP - ACWP = PROFIT/(LOSS) when BCWP = Billings on Work Performed

Yasser,

You can use a single cost account for Budget and a single cost account for Billings; or you can use a combination of costs accounts for either.

Coding will help you identify and group cost/billings accounts, for example you can add a prefix C to cost accounts and a prefix B to billings accounts, this will simplify your selection of account range(s).

Best regards,
Rafael

Yasser,

I believe tracking costs in a CPM is quite time consuming, use the functionality to model possible outcomes and make your decisions.

Best regards,
Rafael

That is why all this discussion happened.

You shall certainly compare apples to apples. And entering real costs you will have the forecast of future profit.

But this is not what shall be shown to the client. The same works have internal cost and contract cost (price) and for the Client you shall submit the results based on the price.

I expected that P6 can produce EVM reports for separate cost accounts and in this case you may have one cost account for youself and another one for reporting to the Client. But nobody confirmed yet that this is possible.

If it is not possible then you will need to manage two schedules with different costs - one for youself, and another one for the Client.

Best Regards,
Vladimir

Vladimir

Basically you are right: In P6 Per assignment of a resource or an expense, one account. EVM by account or group of accounts or by activity. Any accounting software would do the same. In P6 Version 7 seem to be some enhancement by resource, but I could examine.
In parallel you have the hierarchical codes and user defined fields.
--> cost x profit-rate = udf_price (by global change). If the profit is different per phase, discipline, or.. then the rate would be a udf as well.
--> Analyse by "price breakdown structure" (a code)

This work-around should be able to serve for parallel analysis according price.

Duplicate schedules are forbidden, where I work. Too much risk, double work, not auditable ==> rubbish.

Regards

Dieter

Vladimir,

Where I work also duplicate schedules are forbidden, but no one follows this as in occasions you want to take control of your own job while the Owner insists in not accepting you schedule for whatever irrelevant excuse. Yes, at times we are forced to create a schedule that is in accordance to the reality of the job and not in strict accordance to the Owner’s caprice.

Also is not uncommon to have incapable reviewers. It is not uncommon to find reviewers that do not allow changes in logic or activity count, unless approved by him. Some do not even allow you to schedule activities for constructive change orders, others do not allow you to schedule activities related to additional work, under way but with no final agreement, some directed by force account or a change directive, others at the risk of the contractor. Yes at times at the risk of the contractor as it is not uncommon for our government contracts to state no change order is valid until signed by a named high official in a Government Agency, these officials after a 15% in change orders above original contract price must get approval of the Board of Directors of the agency which meets once in a month.

I would like some functionality that updates the activities actual to all your versions based on activity ID/Code. Some versions will have a few extra activities, other a few less activities. A few less should be no problem, just disregard the data, a few more update them individually. Only my Top Secret version will be cost loaded with actual costs.

We consider costs a confidential issue, we never disclose true costs to anyone outside the company, here it is not like in Europe where contractors willingly disclose their costs to everyone.

Are you going to keep your tail within your legs or are you going to take charge of your means and methods? I am the Contractor, give me the functionality and let me worry about the contractual issues.

Ahh! We found a software developer with common sense. Two thumbs up to Spider Project.

Best regards,
Rafael

Thanks All. This discussion is very interesting.

But before closing the issue I have more questions for you, using P6:

1- How to load resources or costs to activities on a monthly basis (month by month)?? ( for summarized activities for example)

Normally resources are distributed to activities linearly, front loaded, back loaded, etc.. according to resource curves. But is there a curve or any other way that allows me to distribute them monthly??

2- How to represent costs on activities that has deferred payments??
Sub-contractors submit their payment certificates but get paid one or two months later, the same applies for suppliers, Plant, etc... according to contract conditions.

Assume our project is 12 months duration. Some costs will be deferred to month 13 or 14 as well as retention recovery. Assume also that our activity duration is from month 1 to 12, but costs will be loaded from month 3 to 14.
It is not logic to create two activities one to show the real timing month 1-12 and the other to show the expected payments (costs) month 3-14.

To complicate it a little some activities will be split with deferred payment.

How to represent that all from a contractor point of view to perform EVM using P6???

Regards,

Yasser

As i commented it is the HOW that really matters.

HOW?????

You may not be able to understand because you provided very small information on your status and project.

Alway remember: the how complication is directly proportional to the project budget.

If the project is small: for example constructing a dog house, then, you can do it yourself by applying simple accounting principle.

"2- How to represent costs on activities that has deferred payments?? Answer: use accruals, this is an accepted accounting techniques very little known to die hard planners but widely known to commercial managers."

Thank you,
Scarlett

but of course if you are involved with Metro Projects that cost 5 billion USD,

you dont have to worry to much because you are not alone.

The funds for billion dollars projects is sufficient to get on board the best and the brightest with high caliber experience professional to the point that there are always answers to problems encountered.

So the How in reality will depends on the project you are in.

There is no point to get into details with regards to HOW in this planet.

Thank you,
Scarlett

Scarllet,

It looks like that your granddaughter is unable to answer my questions this time.

However, our projects are not dogs houses, it is like Metro projects.

On the other hand, if we will let our problems to " the best and the brightest with high caliber experience professional "; it is better that we go our homes, rest on our luxury sofas, and enjoy our delicious meals. To this extent I don’t need to worry at all.


Thanks you

Yasser

Hello all,

@Vladimir

"Accounting software does not generate cash flows. So both cash flows shall be generated by the project scheduling software."

A Cash flow is usually generated after pricing/planning is done. If you reread what i wrote properly, you will see that I clearly said:
- Prepare the cash flow forecast from within CPM scheduling software.
- Export this cash flow forecast and integrate with if necessary other company wide numbers.
- Apply Business ratios or whatever performance metrics being used in your company.
-Each time Schedule is updated and/or there are revisions to the logic, the cash flow forecast in this schedule will also have changed.
- Export New cash flow forecast and integrate with other company finan.
- Apply Business ratios/performance metrics and repeat the above...

I never said don’t do cash flow forecasting in CPM... Dunno where you got that from.
i said "I analyze it" outside the CPM software.

And Its correct to say that the project manager doesn’t need numbers to the cents. There is a kind of tolerance at project level that doesn’t exist in the accounting department especially that an accounting department needs to take into considerations stuff like insurance, income tax, Sales tax ..etc.. that doesn’t really matter to the Project Manager.

Hi Ronald,
I am glad that we have common approach to Enterprise Cost Management.

I will explain why I decided that you do too much in the accounting software.

In your message you replied to my words:
"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."

with this:
"OF course it is necessary , i never said the contrary. And I personally do that better through my accounting software."

It is my fault, because I meant not only to estimate project profit but also profits/costs on project phases and activities. For this task project cash flow is not enough.

We also discussed the case when activities have two costs - internal and external. Project Management software should generate two cash flows but it failed. Without exporting both cash flows to the accounting software it will not become very helpful.

Best Regards,
Vladimir

Yasser,

the writing on the wall is very clear. Use PM software to perform EV. Don’t bother doing your "real" cash flow in PM software but use it as the "basis" to generate your real cash flow in whatever accounting system you’re using.

don’t read the rest, it just confuses people.

Se,

Thanks. That is exactly what I think; drift away from the main problem, which is how to use P6 to perform EVM.

We planners need to get the full implementation and usage of P6, not accounting softwares.

Yasser