Introduction
Value and budget management are generally regarded as the key for successful project management and implementation. Central principles of earned value management are associated with detailed planning of the available time, financial, and human resources. The aim of this project is to create an earned value management plan for implementing a Park Road Stadium project developed by Birmingham United FC.
The report will involve seven key components that are required for a detailed and thorough earned value report. These are: Work Breakdown Structure (WBS), Organisation Breakdown Structure (OBS), Control Accounts, cost loaded project programme, record of actual costs against budget, earned value, cost variance and schedule variance reports, estimations for report completion based on performance. These values are required for the detailed assessment of the performance effectiveness, as well as the project planning in the case of smooth implementation, risks, and unexpected factors.
Project Overview
Previously to creating the necessary structures and plans for monitoring the project implementation, there is a necessity to consider the processes that are connected with the accurate cost information. The actual costs of the work that are the inevitable part of the Earned Value Management System involve labour costs, direct and indirect expenses, costs of materials, as well as subcontractor costs. The actual costs of the project are associated with the identification costs of the elements that define cost variance, and that should be recorded in consistence with the budget. In accordance with the research by Schuster (157):
Cumulative costs should be recorded so that costs for the period are calculated as the difference between cumulative costs last period and current cumulative costs. It is essential that procedures are in place to protect the integrity of the bookings to the work packages/control accounts – common numbering systems in use throughout the project based on the Work Breakdown Structure.
In the light of this statement, the actual importance of the WBS is explained by the opportunity of strict identification of the responsibility delegation system, and allocation of the project assignments. Hence, the properly created WBS chart helps manager restructure the project implementation in the case of urgency.
Work Breakdown Structure
This structure is required for proper control of the values, costs, and expenses of the project. Therefore, the actual importance of WBS for this project is the opportunity to control the efforts, allocate labour resources, create the common framework for the natural development of the planning process, as well as the creation of the proper basis for dividing work into structural components. As a rule, this breakdown structure is associated with summing and subordinating costs for the key tasks, allocation of the materials, and successful risk management practices. (Straight, Lawler and Schwartz, 37)
Organisation Breakdown Structure
OBS for the stadium project may be regarded as the intermediate level of the organizational relations and task assignment. The key importance of this structure is explained by the fact that this helps o identify clear links within the organization for tracing the assignment accomplishment, restructuring of the organizational structure, assigning managers and executives responsible for any particular part of the work, etc.
The breakdown structure for the regarded plan is based on the principle of precise responsibility structuring, as the entire activity of the stadium involves administrative, commercial, medical, and media activities. Therefore, all these responsibilities should be allocated properly. Additionally, in accordance with the project file (Birmingham United FC, 16), it should be emphasized that Birmingham United FC has the reputation of a loyal club, with no-nonsense fans. Therefore, the cost effectiveness of the project should be the number one priority of the project, and all the key decisions adopted. This means that cost management functions will be delegated to a specific department that will control expenses of every project coordination branch.
Considering the general principles of structure creation, it should be emphasized that there are three key points of the EVM implementation of the strategy. The first step is intended for work definition and assessment. This is performed in a hierarchical arrangement, and the simplicity of the hierarchy depends on the nature of the tasks that should be performed. As for the regarded project, the tasks are closely linked with the necessity to arrange a proper managerial structure for controlling the efforts. The elements of the structure are mutually exclusive, so the tasks are divided into elements, and the most detailed elements are based on activities.
The next step is assigning the value of the activities. This is linked with allocation of the budget, time, and human resources available. In the regarded project, the allocation of the resources is almost equal; hence, facilities, security, and media departments have 30% each, and infrastructure is allocated 10%.
The final initiation step of the organization breakdown structure involves assignment of the rules and principles for each activity. This means that a grading criteria is stated, as well as the completion rule (0/100, 50/50, 80/20 defining the credit that is given to the project initiation and accomplishment stages):
- Infrastructure – 10 / 90
- Facilities – 40 / 60
- Security and medical care – 20 / 80
- Media – 70 / 30
Control Accounts
The entire resourcing process of the project is based on the precise division of the financial resources available, and assignment of these resources in accordance with the aims of the activities.
Therefore, the control account will be needed for tracking all the financial transactions within the company. Considering the fact that project performance is controlled by united project coordination efforts, the values of control account will help project managers assess the effectiveness of the entire financial project management. In accordance with the figure one in appendix, the project status by the end of month 16 will be 35-40%. The costs will be divided proportionally to the project status accomplishment. However, stages that were identified in Organisation Breakdown Structure will have different parameters, depending on the rule stated.
- Infrastructure – 10 / 90 – 40% of the costs
- Facilities – 40 / 60 – 60%
- Security and medical care – 20 / 80 – 45%
- Media – 70 / 30 – 80%
Considering the project bar given on figure 1, the expenses by the end of the month 16 will be 16 180 000.
Cost Loaded Project Programme
This program involves division of the costs in accordance with the stated priority, and budget allocated for the entire program. Hence, the total costs involve 45 539 000 while the terms of project implementation are 28 months. It has been already emphasized that the tasks are assigned with a special priority rule, hence, in accordance with the research by Calabrese (33), this process is described as given below:
Accounting departments use the trial balances generated from the general ledger when accumulating monthly, quarterly, and annual financial data. Generally, accounting departments rarely require the type of detail tracked in a subsidiary ledger. For example, an accounts receivable department will need to be able to access customer information, such as a phone number, in order to potentially contact a customer regarding unpaid balances. The accounting department, however, under most situations, would prefer to see totals of outstanding receivables and not the customer information tied to specific transactions.
Actual Costs Against Budget
In accordance with the project tasks, the costs of the project implementation are closely linked with the level of the team experience, as well the performance of each department. The actual costs will be stated for the control account, while budget has been already defined during the planning phase.
Additionally to technical management strategies applied for implementing the project, it is required that monitoring and reviews were arranged at regular intervals. Actual costs against budget registering requires proper measuring of the cost performance. This involves planned value and work scheduling. Therefore, control accounts are often regarded as the responsibility cells that are united with the division principles in WBS and OBS. Therefore, control accounts should be assigned to budget control managers.
Earned Value, Cost Variance, and Schedule Variance Reports
Earned value calculations involve sum of the costs for accomplished project stages. Therefore, the actual data is given on figure 2, and in accordance with the data given on the graph, the earned value of the project is 35% of the total costs.
Cost variance of the project is not essential, and the earned value and actual budget values differ slightly. This means that the project management strategies were applied and performed successfully and with maximal effectiveness. In accordance with the statement by Cook (18), low values of cost variance may be caused by properly developed and implemented project development plan, hence, the values of cost variance may be regarded as the indicator of the project effectiveness.
As for the schedule variance, the lengths of the phases differs from the planned schedule. The phases are either one month longer or shorter, however the general project variance is minimal. This means that risk management strategy is not worked out properly.
Estimate to Complete Report, Based on Performance
The project management principles applied for the regarded project are effective enough. However, regardless of the properly developed schemes and structures, some stages were not controlled effectively, which caused further variance in schedules and costs. In general, cost management strategy of the project involve control accounts that may be used for thorough monitoring of the cash flow. This was the key reason for the insignificant cost variance, and control accounts helped financial managers to mitigate risks associated with the project implementation.
Assignment of the rules for the project tasks was the necessary step for implementing these steps, and arranging effective and structured delegation allocation system. Therefore, the entire project is divided into four main branches, each with the preliminary assigned tasks.
Conclusion
Earned value management for the Birmingham United FC was performed in accordance with the most effective managerial practices. Division of the project into seven key parts was required for implementing all the necessary control measures, and further identification of the drawbacks and successes of the New Park Road Stadium project. Since the actual costs of the work are regarded as the inevitable part of the Earned Value Management System, the involvement of labour costs into direct and indirect expenses was required for controlling all the costs and cash flows originated by this project.
Work and organization breakdown structures are regarded as the schematic representation of the responsibility delegation system, as the project is divided into several interdependent spheres, and each sphere is featured with an assigned rule value. This was essential for allocating the resources available depending on the importance of the phase, and stage of its implementation.
Works Cited
Birmingham United FC. New Park Road Stadium. Project File. 2009.
Calabrese, Vincent J. “Economic Value Added: Finance 101 on Steroids.” The Journal of Bank Cost & Management Accounting 12.1 (2006): 33.
Cook, Dan. “Communicating Value-Easier Said Than Done.” Management Quarterly 46.2 (2005): 18.
Schuster, Leo, ed. Shareholder Value Management in Banks /. New York: St. Martin’s Press, 2004.
Straight, Ronald, Rebecca Lawler, and Lawrence Schwartz. “Fundamentals of Earned-Value Management: Government Projects Learn How to Use an Earned-Value Management System to Help Integrate Budget and Performance, a Key Goal of the President’s Management Agenda.” The Public Manager 32.1 (2003): 37.