Earned Value Management: A Means of Tracking Construction Projects
Construction is a challenging and competitive industry, yet one that is arguably lacking in the use of metrics and critical cost analysis to drive financial performance. Those who agree with this assessment have likely experienced one or more of the following situations:
- An optimistic financial forecast from the Project Team that ultimately fails to materialize
- Not being able to adequately gauge financial performance of a job until completion
- Not being able to concretely decipher why a project was delivered late
- Inability to clearly understand which aspects of a job failed to meet the original estimate
At BlackVector, we understand how frustrating it is to face these situations, especially when there is no clear understanding of what led to the situation, and therefore no clear path to avoid the same situation in the future. That’s why at BlackVector highly recommend the use of Earned Value Management (EVM) on construction projects.
EVM is often called “Management with the Lights On” as it is an objective measure of the current state of a project. Comparing the current state and direction of a project to its planned state and direction can be very illuminating in terms of identifying what is or isn’t tracking as planned. It serves as an early indicator of the health of a project providing key information that allows you to act while there is still time to create an impact.
EVM is a set of tools that help integrate cost, schedule and performance of a project. Earned Value (EV), or the budgeted cost for the work that has been completed, is compared to the Actual Costs (AC) incurred at that same point in time. EV minus AC is equal to the Cost Variance (CV). Clearly, a negative CV means you are underperforming while a positive value suggests you are overperforming. This can be done at the overall project level or driven down to lower levels of cost or quantities which would provide more specific insight into what is working and what may need additional attention.
The Planned Value (PV), or authorized budget for the work that was scheduled to be completed, is compared to the EV providing insight into performance against schedule. If PV exceeds EV, then the project is likely behind schedule while if EV exceeds PV, then the project is likely ahead of schedule. This single data point is highly insightful at the project level, but can also be calculated at a more detailed level providing further insight into which items are tracking ahead of, or behind, schedule.
Repeating these calculations throughout the different stages of the construction process will help you stay on track by giving you the required data points to make needed adjustments in time to influence project outcome. The calculations employed by EVM can seem tedious, but applying a solution such as BlackVector completely automates the process, providing you this valuable insight without the effort.