“Projects of Concern Analysis” Improves Project Deliveries
Construction placement curves can determine projects with problems and forecast program cash flows.
By Wandell E. Carlton, PMP, M.SAME
Construction projects have schedules and budgets that need to be met. Yet effective project management often fails. A primary cause of this failure stems from contract schedules and cost estimates that rarely represent the current status of projects. A project manager needs to know early on if there are issues with contracts causing schedule and cost creep.
In the case of hospital construction, for instance, Network Analysis with Earned Value is used to combat project cost and schedule creep—with time and cost resourced for every activity from excavation to equipment installation. This is a costly process justified by the unity, size and complexity of construction. It is another matter when an organization has multiple projects of various sizes at various stages of construction. Network Analysis becomes an impractical tool to identify project issues, or to forecast the cash flow for the multiple projects. An alternative method has been developed that is both economical and uses readily available data. The “Projects of Concern Analysis” (POCA) method was developed within the Great Lakes and Ohio River Division (LRD) of the U.S. Army Corps of Engineers (USACE) to serve as a leading indicator of issues during military construction. POCA has proven to be accurate and versatile—identifying project delays six months prior to the actual schedule slip, with correct projections, at minimum, 78 percent of the time.
Under the 2005 Base Realignment and Closure Program, LRD was tasked with constructing 123 military projects across USACE districts to meet a September 2011 deadline. A need for highly accurate forecasting of schedule progress and delays became critical with so many projects and variety of players involved. Using early versions of POCA, nine projects were estimated to have delays 12 months in advance of the deadline. And as forecasted by POCA, out of the 123 projects, the nine did not complete in time.
Contractors’ profit motivation drives them to seek payments for construction placement as soon as progress is made. However, invoices are not paid by the contract owner until actual placement is observed or documented. The contractor’s motivation and the owner’s need for verification is the foundation of POCA. As in most processes, production versus time follows a curve. POCA utilizes such curves for early identification of projects that will miss milestones and it does so with maximum efficiency.
For organizations with standardized policies and processes, accurate placement versus time curves can be determined from historical data. USACE uses three placement curves. The construction division uses the Hannum Curve to manage contract payments and contract delay metrics; it is contract focused and accesses only the construction database. The project management division forecasts project and program placement using the POCA Curve and the Expected Payment Curve. Both of these curves are project focused and access information from multiple databases.
POCA Curve. The POCA Curve plots the minimum project placement required to stay on schedule. If project placement is below the curve for a given contract time, then the project is behind schedule. This modified “S” curve was developed by modeling many projects against their actual milestone history and from multiple databases.
Expected Payment Curve. The Expected Payment Curve plots total payments expected for a typical project at a given contract time during construction. This curve is unique to the organization managing the workload and was developed through modeling hundreds of projects. It is used to forecast placement for one project or for multiple projects across a program.
THE POCA PROCESS
“Projects of Concern Analysis” is performed using an Excel program developed over a four-year period. An enterprise database system could be developed, but would be costly and could take away the flexible interface needed for accuracy. The model consists of a four step process: data gathering, reconciliation, analysis and reporting.
Data Gathering. Analyzed results are more accurate when multiple sources of schedule and cost information are used. Schedule, financial and other project data are downloaded into Excel on a monthly basis as payments, projects and schedules change.
Data Reconciliation. Inconsistent data entry can be expected even for small organizations. Depending upon the phase of construction, one database may be more accurate than another. The POCA analysis is sensitive to data quality. A 5 percent error in placement data can result in a 20 percent error in the projected progress. Since the construction process is systematic, logical data errors can be determined by looking at the differences between databases, and within the schedule. For instance, contracts have to be awarded before there is a Notice-to-Proceed to the contractor, and Completion Date has to follow Notice-to-Proceed, and so on. For missing data, sometimes standard durations and funding ratios must be substituted.
Analysis. Project delays and program placement are analyzed separately. The POCA Curve is used as the basis for determining project delays. The Expected Payment Curve is used to estimate the yearly expected project placement.
Projects of Concern Analysis: Projects of Concern are determined using the contract schedule, payments and the POCA curve. Percent expired contract time is subtracted from the percent POCA time and multiplied by contract duration to determine the forecasted contract delay.
Placement Analysis: Expected Project Payments analysis and Historical Placement analysis are used together to determine yearly placement using a three step process: 1) the possible project-by-project maximum and minimum placements are determined for the year being studied; 2), historic monthly placements are averaged; and 3), historic placement rates and possible project placement rates per month are reconciled using an efficiency factor and regression.
Reporting. Many custom reports can be produced from this analysis and data. A red, yellow, green traffic light color theme provides some clarity to the reports (red means a problem; yellow, a concern; green signals completed or on schedule). The reports can contain:
- Projects with Construction Completion Date or Occupancy Date slips, along with an estimate of delay in days.
- Gantt schedule for each project indicating original schedule, actual progress, schedule growth, and projected schedule.
- Identification of Data Errors, Estimated Overhead and Design Cost by project.
- Projected placement by project or program for current and future years.
|Project Placement Projections||Project Gantt Schedules||USACE Historical Monthly Military Placement|
Valuable lessons can be learned from the POCA and Expected Payment Curves. Placement curves and analysis developed for USACE indicate that 10 percent of placement is typically accomplished in the first 25 percent of the contract time. Therefore, 80 percent of placement must be accomplished within the middle 50 percent of the contract in order for the project to stay on schedule. Work needs to be accomplished as efficiently as possible during this stage, striving for minimum issues such as delivery delays or availability problems. For the last 25 percent of contract time and project close-out, 10 percent of the cash flow remains. Contractors can easily leverage themselves into default by assuming the 80 percent cash flow during the middle of construction will continue. Contractors must understand that 75 percent of the way through the contract, only 10 percent of the money remains to complete the job.
Additionally, during construction there is never a direct one-to-one relationship between the construction on site and the amount of payments received. Slow placement during the start of construction is a result of designs and shop drawings being approved before site work is started. Midway through construction, the difference between the POCA Curve and Expected Payment Curve placement becomes more than 30 percent. During the last 5 percent of the contract, progress is unpredictable due to punch list items. POCA also shows that placement is seasonal, with cash flow typically 26 percent higher in September than in February.
Ultimately, POCA methods can be used by private industry and government agencies to identify projects with issues, often even before a project manager is aware of them. With POCA, a minimum of 78 percent of projects with issues are found six months prior to the actual schedule slip. Program placement can be projected using POCA methods, allowing organizations to forecast cash flow and income. Accurately determining projects with issues and forecasting program cash flows are just a sample of the potential uses for this simple, and economical, approach.