About the relevance of control
Reports, information compilation, organization and format for consolidation and issuance. What is the purpose of the control reports?
In general terms, the greater the rank and responsibility of the person in charge of an organization, the less time he, or she, can spend reviewing the details of any operation, even if the business depends on those operations. Of course, if a particular operation is especially large or important, it is possible and advisable for that manager to take time to familiarize himself with the details and find out if there are any actions that need to be taken to ensure a positive outcome.
Obviously, if in general terms the person in charge of the organization cannot take the time to review the details of most of the specific operations, such individual can only be guided by standardized reports that feed him with the essential information needed to understand the essential issues and, in the ideal world, ask questions and make decisions that add value.
Is that the reason why information is collected, organized and issued through reports? In part yes, definitely, but I postulate here that it is not the only reason, since control reports serve to generate value long before they are issued.
How come? Because the mere exercise of collecting and organizing the information, which is - or should be - reviewed by those responsible for each of the specific operations that generate said information, transforms the reports into decision-making tools for those responsible for the source operations.
For more than 25 years I have worked in the world of engineering and construction, and what I have discovered is that reports are not for senior managers, first of all they are for each project manager and to know, not only where we are standing, but, and much moreimportantly, what is the effect of the decisions we have been making and what is the urgent need for action to take today - yes, today, not at the end of the month or at the beginning of the next quarter or, much less, for the next year - in order to align or realign the project according to plan or, at the very least, in order to mitigate cost overruns and maximize profit opportunities.
In the world of engineering and construction the most useful system that I have found, to date, is that of Earned Value Management (EVM), widely used by the Project Management Institute, PMI. Stephen Hawking warned in the "History of Time" acknowledgements that someone told him that, for each formula he would include, his book sales would be cut in half. I am no one to contradict the late Dr. Hawking, so I will discuss the concepts, rather than the formal mathematical relationships.
In general terms, the application of the EVM requires three fundamental points: define and plan over time a target cost or Planned Value, (PV), and then periodically control two values: Earned Value (EV) and Actual Cost, (AC). Everything is transformed to monetary units, that is money.
The Planned Value is nothing more than the accumulated target cost (theoretical, anticipated, desired, planned) that we have defined that we must have produced (manufactured, built) at each moment of time throughout our project. Thus, if our project is to manufacture 30 units of equipment in three days, that is, 10 units / day, and we have a cost of USD 10 / unit as a goal, the PV at the end of the first day will be USD 100, at the end of the second USD 200 day and at the end of the project USD 300.
Once the curve that represents PV has been defined throughout the time programmed for the project, it is enough that in each control time milestone (let's say each of the three days of our project) we compare the value that we have earned, EV, that is, that we have actually produced or built, physically. If at the end of the first day we have only manufactured 4 units of the product, our EV will be USD 40, clearly less than the USD 100 planned for the end of the first day. This means that we are behind, and we even have the exact value of our delay, precisely the USD 60 that we are short to reach the PV at the end of the first day.
The actual cost, AC, is usually the trickiest part of the issue. It turns out that calculating actual cost, particularly in construction, requires a lot of information, or at least generally a lot more information than forecasting PV and reporting EV. In a real project we have labor, equipment, materials, subcontracts, etc.
Furthermore, the allocation of costs to each “reportable” productive unit can be somewhat complex. However, and continuing with our simple example of a team manufacturing project, let's say we know for a fact that in materials, labor, tools and equipment, each unit actually costs USD 9. The AC report should indicate those USD 9 / und for the quantity actually manufactured at each control time- milestone. In this case, if at the end of the first day our actual advance is only 4 units, not the planned 10 units, the AC for that milestone will be USD 36.
All right, by the end of the first day we have a report with PV = USD 100, EV = USD 40 and AC = 36. What does the report tell us?
Everything, absolutely everything, is compared to EV. If PV is greater than EV, we are behind because the physical reality, EV, is less than planning. This is the case in our example. If AC is less than EV, as in our example, the real cost is less than expected and we can expect that the “pure” economic result of the operation will be positive (we are not yet taking into account potential penalties for delay); if it were the other way around and AC were greater than EV, we would be over costed, that is, each production unit would be costing more than expected.
Returning to the initial question: What is the purpose of control reports?
Let's imagine now that we are the Project Manager of this manufacture of 30 pieces of equipment and at the end of the first day we see that we are behind, but the cost is going well, what do we do? Do we just issue the report to our supervisor?
Obviously we must issue the report, the point is that before issuing it we have reviewed it, validated it and known it. We know where we stand and we have specific resources and knowledge under our control that can allow us to take corrective action. For example, if we know that we have cost savings and the problem is the speed of execution, it is reasonable to schedule overtime or incorporate some additional subcontract to speed up and recover the delay, since we have a budget that we can invest for that purpose.
At the end of the day it is not so important to define what the solution is, the important thing is that the day-to-day manager has a decision-making tool in real time and with an economic measurement of the effect of his decisions. That is priceless.
In sum, control reports are not only for their recipients, control reports are a fundamental project management tool that serve, first, the day-to-day decision makers, the managers of the operation. It is there, in the day-to-day operation, when they are most useful because they allow timely decision-making.
I have seen engineering and construction companies trying to make decisions based on accounting information. Unfortunately, accounting information is not designed to operate, it is designed for tax and management issues at organizational, commercial, financial and market levels, but it tends to be extremely untimely for project decision-making, and it is the project decisions that determine the economic outcome of each of these projects. Thus, in engineering and construction, we cannot escape the establishment of specific and timely operational control systems - control and reporting systems - for each project.
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