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Measuring Contract Performance Using Earned Value Management


STUDENT PAPER

By Sichun Yang

SKEMA Business School

Paris, France

 



ABSTRACT

Contract management plays a vital role in a successful project. Majority projects closed out of scheduled date, budget, or efforts, which results in a huge loss of the organization. In this case, contract management is extensively studied by authority institutions. However, measuring the contract performance is often overlooked, since when they carrying a project, they also push the team member to work harder to meet the requirement, and when a project close successfully, the organizations will allocate another project as soon as possible. They often ignore ‘lessons learned’, in which measuring contract performance could be helpful to increase the working efficiency and effect. Even if a project failed, to measure the contract performance would support them to achieve the goal, because disputes in the contract are the roots of project failure. Regarding this, the author will highlight this problem, and give a thorough analysis of this problem and provide a practical tool to measure the contract performance. After that, the organization will be able to define an accurate scope, and monitor the contract performance in response to the contingency.

Key words: Control, Measure, Performance, Scope, Cost, Schedule, Resources, Activities

INTRODUCTION

Earned Value Performance Management (EVPM) is a method to measure the cost and schedule performance through an entire project lifecycle. It gives the project team opportunities to be visible to the cost and schedule issues, which is to be specific, to predict the delivery time and the actual cost comparing to the schedule and the contract, in order to reduce uncertainty, and support contract-making process, etc. From the Agile perspective, ‘time and cost are fixed’, because if the deliverable date and the actual cost beyond the planned cost, it would result in a consequential risk to the success of the project or even damage the whole organization, such as bankruptcy. Since EVPM has been firstly introduced by U.S Air Force in 1966, this approach is widely used by the project-oriented companies, as time and cost are vital variables to a successful project, specifically in contract management and cost management.

Contract management is one of the pillars to ensure the success of the project, as most organizations know; however, the measurement of contract performance in contract management is often overlooked. So as to the research on contract performance. Although there are many research results about contract strategy, management, etc., there are rare papers about measuring contract performance. There is a statistic indicating that 70% of the projects are over budget and behind schedule, and 52% of all projects finish at 189% of their initial budget. Regarding this, the author catches this opportunity by developing an innovative way to achieve measuring contract performance, by applying Earned Value Performance Management.

The use of EVPM in contract measurement can indeed benefit the contractor and the whole organization, such as making more accurate budgets and schedules at different stages in the contract. In this case, the author will highlight this problem, and give solution by applying the EVPM approach for measuring contract performance to improve the contract management in a project.

To conclude, the objective of this report is to identify six aspects regarding EVPM in the contract measurement, which is what, why, who, when, where, and how to improve the performance of contract management and then measure the three main types of contracts which are generally used by organizations. The author will analysis these aspects orderly, review the benefits as well as the challenges, and assess the outcomes the article will bring to the public.

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To read entire paper, click here

 

Editor’s note: Student papers are authored by graduate or undergraduate students based on coursework at accredited universities or training programs.  This paper was prepared as a deliverable for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director, at [email protected]



About the Author


Sichun Yang

SKEMA Business School
Paris, France

 


Sichun YANG
is a MSC student in SKEMA business school, majoring in Program Project Management and Business Development. He is certified as Prince2 practicer, and AGILE practice. In 2014, he created his own company ‘XiaoNeisong technology’. In 2015, he had an internship in RICOH as Project manager assistance. In 2017, he worked in a consulting company Millward Brown, KANTAR, chaxarging in IHG, La Vache qui rit, etc. He was highly recommended by the project manager, as a coordinator, executor, and planner.

He lives in Paris now, and can be contacted at [email protected]