AN EXAMINATION OF MEASURING AND REPORTING WORK PROGRESS

INTRODUCTION

Construction is the largest industry in the United States. It accounts for twelve percent of the gross national product, employs approximately five million Americans, and involves an annual expenditure of almost four hundred billion dollars [1]. Studies have shown that more than ten percent of the construction enterprises in the United States fail annually due to poorly informed management and ineffective use of management tools [2].

Although the need to minimize potential failure in the construction industry has provided the impetus for the accelerated growth of project management techniques, major challenges in tracking construction projects still exist. This paper briefly describes the current practice in measuring and reporting work progress, and discusses some problems in implementing the current approach. It also suggests an alternative approach that seems to have the potential for resolving such problems.

CURRENT MANAGEMENT APPROACH

The primary purpose of a project control system is to provide management with the information necessary for decision making. To prove successful time management of a project, the current practice often focuses on one date, the completion date of the project. Similarly, it focuses on one cost figure, the total project budget, as proof of successful cost management. Since these two performance measures are certain only at the completion of the project, attempts are made to determine the project's progress and to predict its performance at intermediate stages. In doing so, management faces two major challenges: 1) measuring work progress; and 2) integrating cost with scheduling data.

Measuring Work Progress

Two basic requirements need to be established at the start of a construction project to enable the quantitative measurement of work progress. These are: 1) Definition of the level of detail at which progress will be measured; and 2) Selection of the basis for progress evaluation.

Definition of the Level of Detail - The work breakdown structure (WBS) is the current management tool for defining the lowest level of detail at which progress will be measured on a construction project. The WBS is a concept by which work items are grouped to establish meaningful relationships among the different levels of control on the project hierarchy, such as shown in Figure 1. In this manner a project management team (PMT) can specify the level of detail for the tracking system adopted. The work items shown on a WBS represent the lowest level of detail at which project records are kept on a project.

Selection of Basis for Progress Evaluation - Review of the attempts to quantify work progress reveals that three bases for progress measurement have been used: 1) project's expenditures; 2) installed quantities; and 3) earned value.

The principal assumption in using project's expenditures as a progress measurement tool is that the ratio of the project's cost-to-date to its total estimated cost is indicative of the project's progress (percent of completion). It is quite apparent that a substantial amount of the project's funds can be expended without any significant progress being realized. This shortcoming directed attention to the fact that assessment of work progress should be based on actual quantities installed rather than merely actual expenditures.

Measuring progress based on quantities installed appeared promising at first. However, the use of different units of measurement (i.e., pounds, cubic yards, tons, feet, etc.) was a major obstacle in the application of this method. The different units did not allow the summation of the progress achieved on subcomponents to determine the progress of a work item. To determine the project's overall progress, the summation of progress achieved on different work items was not possible without assigning weight factors to each item and using the weighted percent complete (WPC) method [3]. The WPC method entails lengthy and cumbersome calculations that limits its effectiveness.

It was also realized that although the quantity of concrete placed on the first floor of a skyscraper is equal to that placed on the top floor of the same building, the cost and time for placing each of these two identical work items are significantly different. Pipe work, structural steel, and piling are other examples of work items for which the unit cost and unit time vary significantly based on elevation, size, diameter, and metallurgy, among other factors. For such items reporting quantity installed could be misleading unless these other qualifications are known.

All these difficulties in measuring work progress, whether based on the project's expenditures or installed quantities, led into the development of the earned value concept. The earned value is the amount budgeted or planned to reach a specific goal regardless of the actual expenditures incurred in reaching that goal. Implementation of this concept is accomplished by identifying distinguishable events (control points) throughout the life cycle of the work items and by developing earning rules for reaching these events. The control points for a work item such as placement of a footing foundation may include excavation, forming, steel reinforcement, placing concrete, and backfilling. The earning rules assign a value to each control point. The earning values can be expressed as percentages of the item's budget, duration, or an arbitrary work unit.

The status of each work item is determined by determining whether or not the control points were accomplished. The work item earns the full percentage assigned to a control point only when it is completed, but partial credit may also be allowed if appropriate. The work progress (percentage of completion) and the earned value for a work item are determined by the following Equations:

                                              Equ.1

               Equ. 2

Where: (PC) is the percent complete for the work item under consideration, (CPi) is the earning percentage associated with control point number i, and (Ai) is the actual progress accomplished on control point number is expressed in percent.

To determine the progress at a higher level on a WBS, for example, the entire foundation, one adds the earned value of all footings and divides that total by the total budget for the entire foundation. This computation is expressed by the following Equation:

            Equ. 3

It should be noted that Equation 3, which is another form of Equation 2, is applicable at all levels of control on the WBS.

Cost and Scheduling Integration

The WBS is also considered the key to the integration of cost and scheduling data [4].

This integration can be achieved by developing a WBS in which the work items represent scheduling activities, and by assigning a unique cost code to each level of control on the WBS. By doing so, costs of each scheduling activity can be tracked for control purposes, and integration of cost and scheduling can be achieved.

PROBLEMS IN CURRENT APPROACH

Although the two management challenges may appear to be well under control, in reality they are not. Hidden problems still exist which limit the application of the various concepts presented. These problems involve both the level at which cost-scheduling data are integrated and the basis for progress measurement.

Level of Cost-Scheduling Integration

If a work item on the WBS presents a typical scheduling activity (e.g., place draft fan foundation, erect retaining walls, etc.), it may not satisfy the requirements for being a typical cost item. Cost items in a project budget are not activity oriented. Unlike the scheduling activities, cost items (e.g., site work, concrete, finishes, equipment, etc.) and their cost codes are material or craft oriented. It is the common practice that budgets follow the estimates' format, and cost estimates are not usually structured around a WBS. Estimates customarily follow the Construction Specifications Institute (CSI) MASTERFORMAT or a similar format. Cost records, therefore, are not usually available at the level of detail appropriate for full integration with scheduling activities.

To further illustrate, a scheduling activity (e.g., placing a footing foundation) involves several subactivities (e.g., excavation, formwork, reinforcement steel, concrete work, hardware, installation, and backfilling operations). Each subactivity belongs to a different cost item. The cost of each subactivity is only a small component of a major cost item, for which cost records are not readily available.

Although theoretically nothing prevents us from keeping costs at any level of detail, practically costs are not kept at the subactivity level. An attempt to keep cost records at the subactivity level will result in creating an unmanageable cost system and imposing unnecessary extra work on the material handling system.

Basis for Progress Measurements

With the above in mind, a question arises on whether progress should be based on cost, time, or other basis. In other words, when a project is reported 70% complete, does this mean that 70% of the budget was rightfully earned, the project will be completed after a duration equal to 30% of its planned duration, or 70% of the quantities were placed ? Another question then becomes obvious: what are the relationships between the percent complete, budget, and duration of a construction project ?

The progress status of an activity and likewise of a project may vary significantly depending on the basis for measurements. Table 1 illustrates numerically the variance in work progress for a footing foundation reported on different basis.

Assuming that work was completed on the first four subactivities at the time of update, the reported progress could then be equal to either 90% if progress is based on cost or only 55% if based on time.

Further analysis of the three possible actual performance curves suggests that none of these interpretations is conclusive and each could be misleading. Points 'a', 'b', and 'c' could each depict a poor performance or an excellent performance. Point 'a', for example, may indicate cost overrun, but it could also indicate excellent performance resulting from accomplishing more work than scheduled; or it could reflect early arrival of either material or equipment for which cost was reported earlier than anticipated. Similarly, point 'c' may indicate slow progress which is reflected by a cost underrun situation, or it may mean excellent performance resulting from getting work accomplished under budgeted cost. Conversely, point 'b', the supposedly desired and acceptable performance, may in reality be the result of poor performance if it meant the same progress represented by curve 'C' but achieved at a higher cost.

In recognition of these shortcomings and in an attempt to improve this widely used management tool, a modification was recently proposed in 1986 (5].

The modification recommended plotting the project's cost profile and the project's accomplishments curve on the same graph in a manner similar to that shown in Figure 3.

Assuming that work was completed on the first four subactivities at the time of update, the reported progress could then be equal to either 90% if progress is based on cost or only 55% if based on time.

PROBLEMS IN REPORTING PROGRESS

The time-cost envelope diagram is one of the most popular reports to describe the progress of a construction project. This diagram is a graphical representation of cost profiles based on early start (ES) and late start (LS) schedules, as shown by the solid curves in Figure 2. As a project progresses, actual project costs are plotted on the graph as indicated by the dashed curves. When a project is represented by a curve similar to curve 'B', i.e., falling inside the planned cost envelope, the progress of the project is judged to be satisfactory. If the actual costs are described by curves similar to 'A' or 'C', outside the planned cost envelope, the progress of the project is judged to be unsatisfactory. Curve 'A' is interpreted as an indication of an overrun situation, while curve 'C' is interpreted as an indication of a behind schedule situation.

To determine scheduling performance in this method, one projects point (a) of the Actual Accomplishment curve onto the Scheduled Accomplishment curve (point b). If this requires going back on the time scale, the project is behind schedule. The expected delay is equal to the distance between point (a) and point (b) on the time scale. In arriving at point (b) if it is required to advance ahead of the update time, the project is ahead of schedule. The scheduling gain is equal to the distance between point (a) and point (b) on the time scale.

A cost overrun situation is detected by comparing the cost corresponding to the level of accomplishments projected on the Cumulative Budget curve (point c) and the actual cumulative cost at the time of the project's update (point e). If the actual cost expenditure (point e) is greater than the planned cost (point c), an overrun situation is detected. The magnitude of such a cost overrun is equal to the difference between the two points (c and e) on the cost scale. Similarly, if the actual cost expenditure is less than the planned cost, an under run situation is detected. The magnitude of a such cost under run is equal to the difference between the two points (d and e) on the cost scale.

Although this modification offers an improvement to a widely used reporting method, certain shortcomings remain. The modified approach still erroneously assumes that a sound quantitative method exists for measuring work progress upon which the performance curve is generated.

PROPOSED APPROACH

The problems discussed above are perhaps a result of the current management approach which in essence attempts to use one indicator in describing the performance of an entire project. In effect, each point on the Cost-Time diagram is attempting to describe performance in terms of cost, schedule, and completion simultaneously. The inadequacy of this approach prompted the authors to search for an alternative in which more than one indicator are used simultaneously to describe the different aspects of progress, an alternative that is not based on full cost-scheduling integration.

It was interesting to notice the similarities and differences between how construction projects are managed and how financial analysts manage business enterprises. Financial analysts have been successful in evaluating companies' performance and identifying problem areas using financial ratios. With this technique, ratios describing the relationships among different items on the balance sheet and profit and loss statements are used as indicators of the overall performance of a firm. The emphasis is placed on understanding that none of the ratios individually is a good indicator of a firm's performance, rather, the value and correlation of many ratios collectively determine the business performance [6,7]. Instead of searching for one indicator to describe the success of the entire business, up to fifty different ratios are generated to evaluate each aspect that affects the overall performance.

Another important concept in this technique is the use of ratios of data elements instead of the absolute values of such data. The use of ratios was found to eliminate problems in comparing companies of different sizes or in different locations. Also, the use of ratios expedited the analysis, reduced the large numbers of items to a relatively small set of readily comprehensive and economically meaningful indicators, and minimized the problems of time lag in reporting costs [8,9].

Developing a progress evaluation technique for construction projects which is analogous to the financial ratios analysis technique is an alternative that deserves further investigation. The development should address: 1) identifying project ratios capable of describing the different aspects of work progress; 2) developing a procedure to detect work items with potential problems; and 3) devising an analytical algorithm to calculate the monetary impact on the final project cost.

CONCLUSION

Examination of the current approach for progress evaluation indicated that major implementation problems exist. Namely, these problems are in determining the basis for progress measurements and the practicality and the degree of cost-scheduling integration. This may result in generating misleading information such as that reported by Time-Cost diagrams.

It is suggested that a different approach to measuring and reporting work progress is needed. Development of a methodology analogous to the financial ratio analysis method which has been used in evaluating the performance of businesses appears to be a promising alternative.

APPENDIX 1.-REFERENCES