Earned Value: A Decades Old Solution
Earned Value Management (EVM) has been in existence for decades and is arguably one of the best tools available for tracking financial performance on construction projects. However, its prevalence in this industry seems oddly limited, so let’s start with some background.
Max Wideman’s Comparative Glossary defines EVM as: “a management technique that relates resource planning to schedule and to technical cost and schedule requirements. All work is planned, budgeted, and scheduled in time-phased increments, constituting a cost and schedule measurement baseline”. The benefits of EVM lie in its ability to establish baseline measures for schedule and costs, which are used to compare against actual performance. These comparisons are typically done at multiple points throughout the life of the project. In terms of gauging the financial health of a project, this method tends to be more accurate than forecasting cost at completion. In fact, project management research suggests there is a positive relationship between the use of EVM and project success.
EVM was actually introduced to the construction industry in 1979 when David Burstein, a project manager at a national engineering firm, introduced EVM to the architecture and engineering industry in a “Public Works Magazine” article. However, it wasn’t until the 1990’s that further integration of EVM accelerated, but primarily within the broader practice of Project Management.
The genesis of this technique was developed in industrial manufacturing in the 19th century to measure performance and “earned” time. However, it wasn´t until 1962, when the concept took root in the U.S. Department of Defense where they improved the methodology and established it as a standard process across all their projects. The use of Earned Value Management (EVM) later expanded beyond the U.S. Department of Defense to the National Aeronautics and Space Administration, the U.S. Department of Energy and other technology-related agencies.
The use of EVM grew over the years with many implementations in all kinds of projects as it is clearly applicable in projects of different size, type and complexity. It is a great tool to generate “early alerts” of project financial and schedule performance against planned performance.
Implementing EVM in the construction industry could certainly shed an early light on the status of construction projects, providing valuable information on job performance while there is still time to impact the outcome. Additionally, it can be used to improve forecasting by tracking actual performance to date, and extrapolating this data to job completion.
Given the more recent focus on ways to drive productivity within the construction industry, an increased focus on the use of EVM seems to makes sense. The time is right to improve financial and schedule performance on your next construction project by applying the EVM method.Read