Membrane Plant Upgrade: Reading the Earned Value Signal at Month 9
Northgate Water Authority has engaged your firm as program manager for a $48 million membrane filtration upgrade at its Riverside plant. At the month-9 steering committee, the earned value data are: BAC $48.0M, PV $27.0M, EV $23.5M, AC $25.3M. The critical path runs through the membrane skid procurement, now nine weeks late after the supplier invoked a force-majeure claim for a factory fire. The plant must remain in service throughout; only two of six treatment trains can be offline at once, and the regulatory permit for the new process expires in 14 months. The client's operations director wants a recovery plan that pulls completion back to the original date, while the finance director has frozen contingency at the remaining $1.2M. The contractor has offered to accelerate fabrication at a premium of $380,000 and to add a second installation crew, which would require a fourth train outage - something operations has so far refused.
1. Quantify the program's position from the month-9 data and state what you would tell the steering committee about (a) the forecast cost at completion and (b) whether the remaining $1.2M contingency is adequate.
Read the worked answer
Position at month 9
- Cost variance: CV = EV - AC = 23.5 - 25.3 = -$1.8M.
- Schedule variance: SV = EV - PV = 23.5 - 27.0 = -$3.5M.
- CPI = 23.5 / 25.3 = 0.93; SPI = 23.5 / 27.0 = 0.87.
- Approximately 49% of the work (EV/BAC) has consumed 53% of the money (AC/BAC).
Forecast
- CPI-based: EAC = BAC / CPI = 48.0 / 0.93 = about $51.6M, i.e. VAC of roughly -$3.6M.
- A CPI x SPI forecast gives about $59M. That is too harsh here because the slip is a supplier lead-time event, not a productivity collapse, so quote $51M-$53M as the central range and treat $59M as the downside.
- Cross-check: remaining work is $24.5M against a remaining budget of $22.7M, which would require a CPI of 1.08 on everything left. That is not credible when the trend is 0.93.
What to tell the committee
- Contingency of $1.2M covers barely a third of the forecast overrun. Say that plainly, with the range and its assumptions; do not present a single EAC as certainty.
- Be explicit that the SPI partly measures timing, not just efficiency: a nine-week critical-path slip keeps depressing SPI even if site productivity is normal. Date risk and cost risk are two separate messages.
- Recommend a bottom-up estimate to complete by package lead within 10 working days, a formal restatement of the contingency position at the next gate, and a decision on scope/date trade-offs rather than a commitment to 'manage it'.
2. Recommend a recovery strategy against the constraints (two trains offline maximum, 14-month permit, the $380,000 acceleration offer, the fourth-train outage). What would you refuse, and how would you handle the supplier's force-majeure claim?
Read the worked answer
First test whether the acceleration touches the critical path. If membrane fabrication governs completion, weeks recovered there convert directly into the completion date. Demand a schedule from the supplier showing exactly what the $380,000 buys - extra shift, second production line, freight - and a committed delivery date. If it buys two weeks against a nine-week slip, you are buying partial recovery, not recovery.
Value the time before spending on it. Cost of delay = extended site overhead + the client's permit and revenue exposure + any liquidated damages. If site overhead is roughly $100k per month and permit re-application is a real risk, four weeks may be worth $100k-$300k, which makes $380k poor value for less than a month. Put the arithmetic in the paper.
The fourth-train outage is not yours to grant. It is an operational and regulatory decision. Require it from the operations director with a quantified production impact and written risk acceptance, or treat it as unavailable and recover elsewhere: two crews working the same two trains in parallel, offsite pre-assembly of skids and pipe spools, train-by-train commissioning, and a phased permit negotiated with the regulator.
What I would refuse: funding acceleration without a schedule and quantum basis, and any informal acceptance that the original date is still achievable. Re-baseline publicly and show float consumed.
On the supplier claim: request the fire report, evidence of the affected sub-tier facility, the manufacturer's mitigation and business-continuity plan, and the exact notice date. A factory fire can qualify as force majeure, but the clause normally still requires prompt notice, mitigation and a time-impact analysis, and it rarely excuses a failure to secure alternative capacity. Reserve the client's rights in writing before agreeing any extension, and do not let acceleration money be paid without a change order.
3. The operations director refuses any fourth-train outage. What do you do, and what do you put in writing?
Read the worked answer
Treat the refusal as a constraint and price it, rather than arguing against it. Convert it into a visible choice for the sponsor:
- Option A - two crews with a fourth-train outage: completion date X, production impact Y, acceleration cost $380k, permit risk low.
- Option B - no outage, parallel working on two trains: completion date X + about six weeks, incremental cost of resequencing $W, permit exposure and possible liquidated damages quantified.
What goes in writing:
- The constraint as recorded, with the date and the person who gave it.
- The resulting forecast completion against the 14-month permit expiry, stated as a date, not a duration.
- The actions required, by whom, and by when - regulator engagement, supplier decision, contingency approval.
- The residual risk the authority is accepting, named explicitly: permit slippage, contingency depletion, and any liability the client carries.
- That the $380k acceleration spend is conditional on the outage decision, so no one can later claim it was approved.
Behavioural discipline: do not absorb the constraint silently and then carry the blame for the date. Log the decision in the decision register and confirm it by email to the sponsor. Escalate to the steering committee only if the decision is being taken below the level that owns the consequence - escalating everything destroys your credibility. Finally, formally re-baseline so that performance is measured against the approved plan and the team is not judged against a date nobody now believes in.