Is Earned Value Management Helpful to Construction Projects?

Earned value is increasingly becoming a relied-upon technique in reporting construction projects. The technique simply uses the “money” to report scope progress, cost performance, and time performance.

o Scope progress: Quantities are the main means for a cost engineer to quantify and monitor the construction scope progress. In construction, we often have tens or hundreds of line items to monitor (cubic meters of cut and fill, square meters of tiles, etc.) the quantities for these line items collectively produce the quantity report which is used by the cost engineer to quantify the scope progress. However, when reporting the progress to the management, we do not overwhelm them with these quantity reports but just report the “earned value” concluded out of these reports. The earned value is the monetary value of work performed, so we simply report to the management that we have completed work worth 10 Mn during this month (example) without them having to go through the details of quantities executed for each item. This is a tangible and simplified representation of the scope progress based on the quantity reports.

o Time performance: time performance is mainly measured using the CPM scheduling technique. It is a fairly complex technique that establishes a time model of the project and calculates the project completion date. However, using the earned value technique can be much simpler to give an “indication” about the time performance in a handy way. With earned value, we can report that we have completed work worth 10 Mn (earned value) while we have planned to complete work worth 9 Mn (example) at this point of time. This indicates that we are performing faster than planned. This way of reporting cannot replace CPM reporting but just represents it in a simplified way. The method, in fact, acquires its accuracy from the accuracy of the CPM method. A proper earned value report requires to have a genuinely prepared schedule (program) that is properly linked to the project cost.

o Cost Performance: Cost reports are the key tool used by the cost engineer to monitor the cost performance, and they rely on the earned value in the first place. The outcome of a cost report will advise the management that we have executed work worth 10 Mn (earned value) while we have actually spent 11 Mn (example). This means that we are not doing well in cost performance. In other words, for each $ 11 we are spending, we are generating $ 10 worth of work.

The above indicates how can we have simplified reporting using the earned value so that scope, time and cost are represented by "money". Finally, two misconceptions need to be highlighted when using earned value management:

- One of the misconceptions is relying solely on the earned value in reporting. As mentioned above, we have the advantage that earned value is a simple method, but being simple carries the risk of it being over-simplified. The earned value gives an “indication” of the performance; this indication shall be analyzed in conjunction with other tools mentioned above (Quantity reports, CPM tools, and cost reports) to give the correct picture. A wrong indication of earned value management often happens in measuring time performance when the value of work done is not proportional to the amount of time spent. Some work with high monetary value can take place in a couple of days (like delivery of major equipment). On the other side, some low-value work may need several weeks to finish (like commissioning and punch list items). For these cases, the assumed proportionality between money and time is not valid and hence the earned value technique will not help.

- Another misconception is when reporting the earned value on the client side. I have seen practitioners include the earned value in their client reports for fixed-price projects. However, none of them was able to explain what the earned value means to the client in this case. When the contractor takes the risk of the cost and of a fixed price project, the earned value does not give a useful indication to the client; it is simply his actual cost. On the other side, for a cost-reimbursable contract (cost plus), the client accepts the risk of the project cost and the contractor has no risk. Here, the client will be concerned about the earned value but the contractor will not, this is the reverse of the previous case.

Disclaimer: The views expressed are my own and in no way reflect the views of my employing organization