SAP PS and CPM for EVM
SAP PS (Project System) and SAP CPM (Commercial Project Management) are the main modules for construction project management in our ConCost PreCast SAP software solution. There are many different items that need to be controlled within the project management scope. Here we only can focus on two major questions in a construction project.
- Will we deliver on time?
- Will we deliver within budget?
These questions are directed into the future because only if the answers are known before the work is done active measures can be taken to improve performance. But guesses don’t help. Required are performance indicators that allow accurate forecasting of time and cost. The established method in construction is the “Earned Value Management” (EVM) method.
“We budgeted 50 million this month but spent only 48 million”.
Sounds like a good cost performance in the first place, but this statement is of no value because it doesn’t include the information how much work was performed. If only 80% of the scheduled work was done then the cost performance in this case is bad (only 40 million should have been spent).
Relating the cost to the actual progress is one of the key principles of EVM.
“What should have been spent according to the progress made versus actual spending” provides the right cost performance indicator (CPI). Similarly comparing the scheduled work with the actual progress provides the schedule performance indicator (SPI).
In order to calculate the performance indicators three values are required.
- AC- Actual Cost (Actual Cost of Work Performed)
AC is the actual expenditure for the work performed. However, these are not values from the financial or procurement system. A sub-contractor might send his invoice late; a purchase order will include material that still is in the store.
As you measure the progress of the work performed you have to calculate the AC as the cost of what was actually consumed to perform this work. This means the liability against the sub-contractor (independent of his invoice), the material the storekeeper handed out for construction and the manhours and equipment hours the time keepers recorded. As you can measure only the performed work you have to collect the consumed resources in order to compare like for like.
Calculating this AC is automated in SAP PS if configured properly. However, capturing the data on site is a challenge for most contractors. To simplify the tasks, actuals are usually captured against a WBS-Element. This is one level above the more detailed activities of the schedule. ConCost offers tools (e.g. “Time Tracker” – a mobile app to collect actual hours) supporting this process.
- EV – Earned Value (Planned Cost of Work Performed)
(the term “BCWP” – Budgeted Cost of Work Performed is no longer used as the term “Budget” was confusing. "Budget" is a separate value usually decided by management)
EV is the planned cost of all work that was actually performed in the period. You take the actual progress made and multiply it with the planned cost.
The planned cost has to be a current job estimate based on the latest known rates and the performances measured on site. Only if planned costs are based on accurate values, any variance in comparison with the actual cost can identify changes in performance on site. The difficulty with EV is usually in providing the correct values in the structure of the execution schedule in SAP. For example, if a single material rate changes, then multiple (BoQ or Bill of Quantities) items will change planned cost. And this will change the planned cost of multiple activities (and WBS Elements). As there will be multiple changes to planned cost in each period it is almost impossible to calculate the changes on each WBS Element. ConCost provides a solution where the job estimate is mapped to the schedule (which is imported from e.g. Primavera).
Any change in the estimate or the schedule immediately changes the planned cost of activities and this cost plan can be uploaded to SAP.
- PV-Planned Value (Scheduled Cost of Work, formerly "BCWS" - budgeted cost of work scheduled)
PV is the planned cost of all scheduled work of the current reporting period. In other words “if all planned work was completed – that would be the planned cost of this work”.
Read more about how to calculate Performance Indicators.