Avoid the Burn – fix your Earned/Burned Disconnect

A single number to indicate your turnaround or project’s state of health, is the CPI or Cost Performance Index. If this number looks good, meaning that it is > 1, it means you are getting more done (earned) with less time (burned or incurred hours) and less cost, which in turn means that the project or turnaround is trending to being under budget. Which is a good thing. But it’s not enough. Why? Your turnaround or project may be running late. So, you need another index. The SPI, or Schedule Performance Index. If the CPI and SPI indices both are > 1, then your project or turnaround is humming along ahead of schedule and under budget. So, clearly, getting these 2 numbers right is of paramount importance to the steering team, the turnaround and project managers and the execution teams and contractors. If either of these numbers are close to or less than 1, managers would have a reason to drill down into the project or turnaround, to determine root causes of budget overruns or schedule lateness. The sooner that they see the warning signs, the more lead time they have to address looming issues. The fundamental purpose of project and turnaround controls (based on hours) and cost controls (based on costs): is forearming teams with knowledge of potential issues, so that they can be mitigated in time. In order for these indices to be helpful at the project level, however, they need to be computed and collected at a level of detail below the project level. The disconnect occurs owing to the different levels of detail that the data that feeds CPI are computed and collected. But, I’m getting ahead of myself – let’s review the basics.

Defining the Jargon

While AACEI and PMI, two leading project and cost management professional associations, have technical terms for project controls indices, I’ll use the commonly used terms found on spreadsheets in use these days. A cross-reference to the technical terms is included at the end of the article. While the focus of this article is the disconnect underlying the CPI, we’ll review the fundamentals that lead to both of these indices.

CPI, Cost Performance Index = Earned over Burned or Earned over Actual or E over A.

Digging deeper into Earned: Earned = Planned value of progressed work. If you had planned to spend 10 hours or $1,000 on a task in the project, then completing that task causes you to have earned that 10 hours or $1,000.

Burned, or Actual, more accurately called Incurred, is the hours it took to complete the work in the task. If you spent 12 hours to do the work you are over budget by 2 hours and the task’s CPI is 10/12 = 0.8.

SPI, Schedule Performance Index = Earned over Scheduled. We’ve already determined what Earned is, Looking at Scheduled: Scheduled = Total Hours (or Cost) that were scheduled to be incurred in work on the task by today. A schedule, also often called a CPM schedule, is obtained in a system that: performs a forward computation pass through linked tasks, to obtain early dates of each task; performs a backward pass to compute the late dates of each task; and tags tasks on the longest or critical path (CP). In 2018, commonly used scheduling systems include Oracle’s Primavera and Microsoft’s Project. TeamWork Group’s TWIST also includes CPM schedule capability. The schedule may delay a task based on its priority if it requires a limited availability resource. Adding the planned hours/day of the task for each day provides a cumulative schedule that leads to the hours Scheduled to be done by today.

To summarize, CPI and SPI need: Earned, Incurred, Planned and Scheduled to be computed for each task. Next we’ll review a small turnaround scope in a turnaround to see how his works out in a Turnaround or Project.

Planning your scope of work

A turnaround’s scope consists of 1000s of equipment or asset-based work orders and work packages for equipment in one or more operating Units. We’ll keep it really simple for this illustration, and will look at look at just 2 types of equipment: 2 Relief Valves and 2 Exchangers. This is what the Turnaround work scope looks like:

The Planners adds, or copies from a previous turnaround or project, a set of steps or tasks for each equipment. This is the beginning of the Detailed Plan for each equipment. A good rule of thumb is: Build a new task for a new process that is to be done by a different crew/equipment or resource than the current task. In the Valve list of work the Remove and Replace tasks are done by the Pipefitter craft and the the Repair task is done by the Machinist craft.

The next planning step is to estimate a duration for each task based on crew size composed of a Craft or Resource code. This process results in a plan and estimate table similar to this:

To obtain a doable sequence of work, tasks need to be linked logically. In this example we have kept the logic simple – as each task finishes, the next can start. A Gantt Chart displays each task as a bar with a length proportional to its duration and located in time based on its logical connection or tie to its predecessor task. The is a common way to display a detailed schedule. It’s not necessary to print and display every bit of your schedule – simply knowing that your data is linked correctly in your solution is sufficient. Note that the valve’s Remove step is two hours long, while the Repair step is 3 hours long:

By applying the estimated resource count to each task we can show how the resource amount for each period as well as a cumulative amount for each period is calculated internally. The total amount for each Equipment (Valve and Exchanger), Equipment Type and Turnaround or Unit are also shown, in order to complete the resource loading picture for all of the scope items. You can see here that each level has its own Cumulative Scheduled hours: Task, Equipment, Equipment Type, Turnaround.

Earning based on your progress

When a task is partially done or progressed, the earned value that it contributes is a part of the task’s planned value. When it is completely done, its earned value is all of its planned value. The same applies with the Cumulative Scheduled Value that is contributed by each task – again this is cleanly based on the planned value. In summary, Planned, Earned and Scheduled are derived and managed at the Task level of the Plan.

Whose getting Burned?

Burned, or Actual (A) or Incurred value – where does this come from? I have yet to see a system used in a turnaround, or project that records Incurred for a task. Why is this gap present? And why does it persist – spreadsheets and schedules have existed for years? There are a few reasons, that all stem from the assumption: “It’s too difficult and time-consuming to enter time against a task”. Moreover: “We have hundreds of people, working for dozens of contractors. It’s like herding cats. We could never get them to correctly enter their data.” And the big reason: “We don’t have time to waste on that level of detail. Who cares anyway? So what if we run over plan on some items and we run under on a bunch of others? It all balances out in the wash.”

Getting the Level Right

Think about that! Clearly, in the current situation, there is no way to compare Earned and Burned at a Task level – the basic level of the Plan! How about the next level up, the Equipment Level? Again, I have not seen any turnaround system enable the collection of incurred hours at the Equipment Level either. Doing so would require forepersons to turn in their crew timesheets to timekeepers for entry into a time system. The system would have to be pre-loaded with each equipment in the turnaround plan – which could prove problematic if the plan changes, as it often does during the turnaround. Planned hours would be needed in the timekeeping system to provide ‘sanity checks’ to prevent the wholesale coding of time to certain random ‘go to’ equipment numbers. As timekeeping does not happen at the Equipment Level either, let’s move up a level to the Equipment Type Level. Here, again time entry system would need to be preloaded with the equipment types as well as the Planned hours to act a sanity checks to prevent out-of control time entry against on or more accounts. I have seen the Equipment Type Level and the Unit Level and at the Turnaround Level used at sites that have a standalone or ERP-based time management system. Ironically, the primary driver for such central systems is not Project or Turnaround Controls. Its Accounting – justifiably wanting to ensure that they are not billed by contractors for people who were not badged in to the site on the billed date.

Getting on the Right Level

As you have seen, turnaround and projects have a serious gap in managing their Burned hours, while doing much better with their Planned and Earned. In the case of turnarounds and repetitive projects, where lessons learned help to improve the scoping, planning and estimating process, there is no data available to validate whether the scoping planning or estimating was done well or that it needs improvement. To me, it’s not surprising that we see turnaround teams re-inventing the wheel and making the same mistakes each turnaround. Often, the next turnaround has a different set of contractors and key managers, so the opportunity to learn from lessons is further decreased, as they do their own planning and scheduling to the task level and tracking of burned to a summary level.

Plan, Earn and Incur against the same Equipment Task

In 2018, system architecture limitations should no longer be limiters of doing the job that needs to be done. We have innumerable examples in the real world of the use of data to make things easier. I suggest a new new norm for projects and turnarounds: Use each Foreperson’s Daily Crew List mashed up with the crew’s Daily Work List to help speed up time entry for Crew members. This ensures accurate entry of time to the tasks that the crew works on a shift. There is no place for the time to get ‘lost’. In fact, the system would provide the foreperson with a list of Equipment Tasks and their Crew Members. This would take them less time to complete, than filling out a timesheet. And improved accuracy makes the data actionable in lessons learned evaluations.

With easily obtained accurate data, management and accounting’s needs are both served, in addition to ensuring that your estimators and planners have actionable data to improve their lessons learned. Now , when you drill down from Project or Turnaround, to Unit, to Equipment Type to Equipment to Task in search of problem Earned vs Burned or CPIs, to a specific Crew and Planned task, you would truly have a control system that keeps you in control!

The model described here is intentionally simplified. In a real turnaround or project, there is a lot more ‘noise’: many contractors and service providers, each with their own team of ‘experts’ and their own systems; many zones and units and equipment types; capital and new construction work mixed in with maintenance; Operations shutdown and startup plans and schedules; Change Management additions to the scope; Risk-mitigating changes to the work; Reliability and Inspection tests and analysis; Safety training and auditing; all causing constant changes to the foundation task data. Having all of this data working within the same core ensures that no critical ball is dropped due to being in a separate system or spreadsheet, while ensuring that your control tools are effective in enabling the steering team and others to be proactive in avoiding emerging issues. Closing this gap is an important step towards executing streamlined projects and turnarounds with lower stress levels that are being induced by incomplete, repetitive and disconnected data. Avoid the burn!

As usual, please comment and discuss freely.

Technical Terms:

BCWP = Budgeted Cost of Work Performed = Earned

ACWP = Actual Cost of Work Performed = Burned (or Actual or Incurred)

BCWS = Budgeted Cost of Work Scheduled = Scheduled todate

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