Michael S. Wilson

About Michael S. Wilson

Michael S. Wilson (Msc, PMP) is a Projects Controls specialist that has been delivering projects large and small for over 18 years. He's a strong believer in the power of information, communication and risk management as primary influencers determining a successful project. He's worked in Construction, IT and Utilities and is always full of ideas and creative solutions to some often tricky problems.

Jobsite LEM Tracking – What About Vendor Accruals?

All vendor expenses from the jobsite have to be on a purchase order right? Isn’t that how it’s supposed to work? Aren’t all projects so well planned and organized that there is a pre-issued PO for everything? Of course not. Even the most structured and planned projects have ad-hoc & unplanned purchases that happen at the jobsite almost daily. Other projects only issue purchase orders for a portion of the project; and the remaining vendor expenses just happen on the fly. Still other projects create no POs at all, and just give their field staff a stack of carbon paper Purchase Order Books they buy at Staples to record expenses as they occur. None of these scenarios are wrong of course – but as I’m sure you already know, the less pre-planned control you have over jobsite expenses, the more challenges you face with getting a good handle on project status and vendor accruals, amongst other things. In an ideal world, all vendor expenses should be controlled by issued purchase orders. These should be driven by the project budget – with committed costs recorded in the GL or procurement software, for every vendor cost: no exceptions. When expenses are recorded from a vendor, they should be recorded as an incurred cost against the original issued PO. This is the ultimate control because you know ahead of time all your budgeted and committed costs; and as your actuals are recorded, there is nothing that falls outside those committed amounts. There is full clarity around your accruals; and when the vendor invoices you, it’s an easy step to clear out that accrual. Even as change orders are approved, purchase orders are revised and committed amounts altered to

What’s the Difference Between a Change Order, Change Forecast and Budget Transfer?

Changes are inevitable on projects. No project manager in their right mind moves forward with a project not expecting changes to happen - fluctuations in scope, cost, schedule and activity can happen almost daily.  In this article, I want to tackle a segment of change management that I often come across in conversations. Which is: the different types & states of Change Events that can be registered on a project; and some of the nuances of each. The three main project change events are: Change Order.  Used to register a change in project scope Change Forecast. Used to identify any project trends Budget Transfer. Use to move funds & resources within the project without modifying the budget It’s important to understand the difference so as to know in which cases you’d use each type of change event. Change Order There can be many reasons to initiate a Change Order, but they typically represent an underlying change in scope or unanticipated cost that has occurred on the project. As a result, change orders will always result in a modification to the project budget. They can be initiated by an outside request – such as an RFI from a customer or other stakeholder - or they can originate from an internal source, supplemental information, design change, or just be a result of a mistake.  In any case, something’s happened that’s going to require a change in budget (usually additional funds are requested), and potentially a change in schedule. If it’s an increase in budget, the initiator of the change needs to specify a funding source. The funding source could be a supplemental AFE, Purchase Order, etc.; or it could come from the Contingency Reserve (if there is

What’s the Difference between a Project Spend Forecast and a Project Cash Flow Forecast?

Cash moves at a different pace than activities. Maybe that seems obvious, or maybe you’re not sure what I’m talking about; but it’s an important distinction to understand in construction project management. When I first started working in project management, I had envisioned a job where I would spend my days walking around the construction jobsite carrying a big stick (not really) and telling people what to do. That appealed to me because I like organizing things and I get a kick of satisfaction when I see things moving along smoothly.  To be honest, I’m actually better at organizing others than I am at organizing myself. You’d only have to take one peek at the disaster in my garage to see that in action.  Anyway, the reality of my project management career has been that I’ve spent very little time at the actual jobsite, and most of my time with my face buried into schedules, budgets, cost projections, contracts and approving timesheets. Working with a smaller company managing big-ish projects, I had to learn quickly how to be a lot of things: a scheduler, cost controller, supply chain manager and the boss of a crew of people, all at the same time. If someone would’ve told me back then that “cash moves at a different pace than activities”, I would have stared blankly back at them thinking, “ya, so what?”  Because I didn’t really understand the full implications of that.  Budget, committed, actual, incurred, accrual, invoiced – I kept seeing words like this, but I considered them to be the domain of accounting and not project management. Oh, how wrong I was. To understand the difference between a Spend Forecast versus

EVM Explained: Variance

“If you keep going at this speed, you’re going to be late!” That’s my simplistic real-life analogy of earned value management. It’s a simple bit of math that we all do in our heads anytime we’re trying to get somewhere or finish something.  If you gave yourself an hour to get there and after a half-hour you’re still less than half-way, you’re going to be late.  It’s that simple. As simple as it is, it requires us to know quite a bit of information about the current situation in order to calculate late vs. on-time.  Just like EVM, you need to know 3 key elements to make the calculation: Your speed Remaining distance to go Remaining time left Cost Variance If you know those 3 values, you can not only calculate whether or not you’re going to be late, but you’ll also know how late.  In earned value management, the “how late” answer would be called Variance. Whether we’re talking about time, cost or hours, variance is determined by knowing three things about your project: Your budget How much of that budget you’ve spent so far (actual) How much work has been completed (as a percent) To save you from having to read it here, you can have a look at this site to get the details on the math for calculating variance (and any other earned value metrics). Depending on your preference, variance can be expressed as a whole number or as a percent. Most people tend to speak about variance in percent terms since it gives you a sense of the magnitude.  For example, “we’re 17% over budget.”  It’s key to point out that that would be a

Current Information and the Right Tools Drive Your Business Core

As most any project manager will tell you, you can’t manage the past. You have to manage in the Now to have a chance at staying on top of your projects.  "Managing the Now" means providing project managers with current, reliable information on what’s going on. The idea of “current” project data isn’t anything new of course, but it’s astonishing how many projects are managed using data from the construction site that’s days or even weeks old.  Historical information is interesting – and it does serve a purpose in the final analysis – but it doesn’t help much on a day-to-day basis when snap decisions need to be made to keep things running smoothly. If you can do anything to help your projects, your business and the mental health of your project management team, give them better information and good tools to report on that information. They’ll hug you and probably never stop. It’s like moving from print to digital photography. Digital cameras have made all of us better photographers; if only because we get immediate results on the photos we take. If the photo stinks, take another. The moment is still there and you can keep taking them until you get a good one. Back in the day of print film, it was days later before you could see the result, and by then it was way too late to do anything about it.  Giving your project managers that same kind of immediate feedback arms them with the power to make informed decisions on the fly. So, assuming you can equip your teams with current and reliable field data, the next thing you need to give them is good tools

How Do You Keep Track of Vendor Accruals?

You thought you had your project all wrapped up when, SURPRISE, vendor invoices just keep coming in.  Whoops, things didn’t go as well as you thought. The costs on your project keep soaring, and you have to keep updating your project reports to your superiors. How does this happen? This happens because vendors rarely invoice you at the time they completed the work, or delivered the materials.  The problem is, if you wait until vendors invoice you to show the cost on your project, then you’re in for a lot of surprises. Here’s a common scenario: Every day your Site Supervisor is asked to approve or sign-off on the work done that day by the various subcontractors on your project – or materials delivered by suppliers. All those approved daily field tickets make their way back to the subcontractor’s Accounts Receivable group; and they then batch them up for invoicing. You of course have a copy too, and it likely sits as a scanned document on a shared drive somewhere. However, this receipt-of-work-done typically isn’t used as a means to record the associated cost on your project. Most often, a project’s actual costs are driven by updates from accounting, or manually input into spreadsheets by a project manager when the vendor invoice is received.  The problem with this model, is that you might not receive that invoice for weeks if not months after the work was completed – so during that time, there’s a discrepancy between what’s showing on your project for actual cost, and what you are in fact liable to pay. This scenario can fill you with surprises since you’re really at the mercy of your vendors’ invoicing cycles.  Not all vendors are

Procurement on Construction Projects is, well, Different

To manage the complexity of procurement on large construction projects requires an exceptionally robust technology solution. Most commercial procurement software products are designed to handle general-purpose purchasing for a broad range of businesses and industry applications.  Procurement on construction projects however, is quite different. It’s not at all like buying pencils for the school board, or buying a fighter jet for the defense department. Construction project procurement has many characteristics that place heavy demands on the software that supports it. The differences fall into the following six categories. I’ll go on to discuss each of these in more detail further below: The need to handle High Volume Procurement The requirement to manage Long-Lead Items and Expediting Integration with Project-Level Cost Codes Tie-in with Project Controls The Need for Speed Multi-Discipline Collaboration In case you didn't notice, I've left out any of the hairy legal details that are unique to construction contracts. The contract management side is a whole other beast that is best tackled in another discussion. For this, I'm primarily focused on the procurement process.  I've also avoided the accounting side of the debate with respect to holdbacks, retainage, punch lists, etc. Again, this is an area more related to the contracts and accounting end of supply chain.  So anyway, here is a more detailed discussion around each of the above cornerstones of construction project procurement. High Volume Procurement Large construction projects face an enormous volume of materials, labor services and equipment that all needs to be contracted, procured and successfully delivered to multiple jobsites & warehouses on a very explicit schedule. The procurement teams on larger construction projects can face managing many thousands of concurrent contracts, hundreds of thousands of line-items and hundreds

By |March 25th, 2014|Categories: Procurement|0 Comments

Resource Management for EPCMs – It’s a Big Deal

Do you have a regular Monday morning meeting where your management team plans out who is doing what for the week?  EPCM organizations spend a significant amount of time and effort on resource management. And no wonder – resource management is a critical, continuous exercise in projecting resource loads, along with planning and managing who is doing what on any given week or month. Not every company plans at a level that's quite that granular – some companies with larger resource pools and projects forecast their resource needs more at the discipline level.  Others prefer to plan each named person in the organization. Regardless of the approach taken, it remains a complicated exercise that requires good process and good supporting software to do. This isn’t a challenge faced only by EPCMs, but they’re the professional services companies that we work with the most, so it’s a very familiar world to us. Here at 4castplus we obviously have to do a great deal of resource and task management with our own staff, so it’s a fairly universal affair.  Part of complexity lies in the fact that many professional services companies (like EPCM) work on a time & materials basis, so the questions of ‘who is billing to what project’ is an integral part of the resource management exercise.  On fixed price projects, moving resources around is less of an issue of being transparent to customers – but still requires careful internal management.   However, regardless if you are an owner, contractor or EPCM – you still need a software system that elegantly handles your resource management needs. For this posting, I’m going to throw out a few scenarios that I’d like you to

What is the Difference between RFP, RFQ and Invitation To Tender?

In the world of contract management and procurement, there are a variety of ways the tendering stage can work.  A key part of planning any piece of work to be done, is determining who is going to do that work; and setting out the terms of reference and evaluation criteria for awarding the contract to the winning bidder. Most owners or clients know full well that they will likely not get exactly what they want. Nevertheless, they obviously still require a way to determine the best fit subcontractor or supplier to give them the best value for money.  Of course, in the private sector, choosing a vendor doesn’t always require a bidding process at all – and in many cases a sole-sourced vendor is chosen and a purchase order contract awarded directly.  Often this is not the case of course, and so the owner/client requires some understanding of the types of tendering contracts they have to choose from when going to market to solicit a competitive bid. While each company (or government) has their own policies and contract rules around tendering bids, there are generally three methods of competitive bid solicitation to choose from: Invitation to Tender Request for Quotation Request for Proposals All three methods are identical from the legal point of view and so are contractually binding in the same way. It goes without saying therefore, that the terms, descriptions, power reserved, evaluation criteria, etc. set out in any of the contract types is critical to ensure both a lawful and smooth relationship between client and vendors. What we often get asked, is “What’s the difference between the three?” Invitations to Tender: These are typically used in major

Manage Contracts – Not Chaos!

One of the biggest challenges most procurement professionals face, is managing the day-to-day madness of having too many things to stay on top of, and not enough information to work with.  A very common frustration we hear about from procurement officers is their constant battle with “emergency procurement”.  A feeling as if they are always behind, in an ongoing reactive state – having to make sudden purchases with next-to-no advance planning. This is obviously pretty risky, since for a successful construction project, procurement should be executed from a position of firm control, proactively planning and managing contracts and vendors, with detailed information at their fingertips.  When vendors get a whiff of a client that’s in a state of emergency with little-or-no options, you can be sure they’ll take advantage of that with some highly leveraged negotiations. Good for the vendor – bad for the client. Procurement management software is all about helping purchasing staff eliminate emergencies like that. It enables the team to plan-ahead with planned-purchase-orders, prepared material requests, shell RFQs, and an abundance of planning dates at both the contract level as well as the detail item level (for material, services and equipment). Software that also has the logic built-in to determine all the required-at-site dates – well ahead of time –so that it can notify users about upcoming events or actions that need to be taken. The procurement team that can additionally forecast potential planning gaps so that they can make informed adjustments well before they become chaotic emergencies, is the procurement team that is truly in control. In construction, timing is everything; and information is gold. Managing project procurement using spreadsheets just invites chaos and reactive contract management,

By |December 31st, 2013|Categories: Procurement|0 Comments