Using P6 and EVA to calculate profit/loss

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?

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

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 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 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 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

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 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