by Jeffrey C Kadlowec, Architect

Abstract

Earned value management measures project performance based on scope, schedule and cost. Utilization of these methods improves planning, tracks progress, and mitigates risks. Analysis of planned value, actual cost, and earned value provide key indicators in estimating budget, duration and probability of success. These tools offer greater cost control, assess and predict performance, help achieve objects, and meet expectations.

Keywords: earned value management, cost analysis, project performance

Earned Value

Variance in cost and schedule throughout the lifecycle of a construction project becomes apparent through utilization of earned value analysis (EVA). These calculations provide an early-warning system for small and large businesses, providing them with a means to identify problems regarding financing and scheduling estimates [Echeme 2023]. EVA compares the actual amount of work against the anticipated work that is planned. This method allows project managers to monitor and evaluate the performance of construction and take corrective actions to ensure timely completion within the approved budget.

Earned value management (EVM) is a method of project performance measurement (PPM) derived from scope, schedule and cost data. There are a wide variety benefits of using EVM including clearly defined scope, improved planning process, analysis of time and cost figures, tracking and forecasting project progress, mitigation of risks, and historical comparison for future projects [Chin-Keng 2015]. Resource budget refers to the time and labor committed to a project, while cost budget is an estimation of materials and equipment. These quantities are divided into project phases and detailed work breakdown structure (WBS). Management and contingency reserves should be allocated to address operational costs and unexpected events (Li 2023).

Construction cost analysis includes several key figures and related calculations to understand project performance. Planned value (PV) is the estimated expense of a project based on a specific timeline, with earned value (EV) as the real value of the work completed and actual cost (AC) being the total cost incurred for that work (see Fig 1). Budget at completion (BAC) is the required funding required to finish the entire project. Cost variance (CV) is the difference between estimate and actual cost, and schedule variance (SV) the time gap for current and planned progress. The cost performance index (CPI) is the actual value earned back per unit of cost, and the schedule performance index (SPI) a way of measuring progress performance [Li 2023]. Forecast indicators are derived from these figures to estimate cost of remaining work, the total overall cost, and variance at completion.

Figure 1. Planned Value, Earned Value & Actual Cost [Li 2023]

Earned duration management (EDM) evaluate schedule performance based on time data independent of project costs. Duration performance index (DPI) is the earned duration at report date divided by the actual duration, with earned duration index (EDI) the total earned duration (TED) relative to the total planned duration (TPD). The project duration can be estimated by using EDM to analyze the project schedule, critical activities, and risk factors [Roghabadi 2022].

Developing an accurate budget is a critical step in project planning. These figures incorporate current costs and prediction of future value. The speculative nature of real estate development can result in major cost overruns and reductions in profits, which in worst cases may have devastating consequences for businesses and investors. Integrating EVM and risk management (RM) provides realistic value assessments, better estimates, and effective monitoring of performance [El Mikawi 2017]. The indicators improve response time in risk mitigation and produce a higher probability of success.

Estimate at completion (EAC) is a forecast of future project success based on key performance indicators (KPI). Through extrapolation of EVM data, CPI and SPI can be used to predict time and cost required for completion [Babar 2017]. This method accounts for the current levels of uncertainty, giving a clearer understanding of risks and helping stakeholders in decision making. Several other tools have been developed to further aid in evaluation of project performance including critical success factor (CSF), emergency action plan (EAP), earned value management maturity model (EVM3), and the Kaiser-Meyer-Olkin (KMO) test. Utilizing EVM has clear benefits in project management, providing greater control of schedules and budgets, allowing for better communication of performance and scope, and assisting in achieving objectives [Netto 2020].

References

Babar, Suqrat; Thaheem, Muhammad & Ayub, Bilal. (2017). Estimated Cost at Completion: Integrating Risk into Earned Value Management. Journal of Construction Engineering Management. 143(3). 10.1061/(ASCE)CO.1943-7862.0001245.

Chin-Keng, Tan & Shahdan, Najihah. (2015). The Application of Earned Value Management (EVM) in Construction Project Management. Journal of Technology Management and Business. 2(2). 

Echeme, Ibeawuchi; Akpanebu, Jerome & Moneke, Uchenna. (2023). Comparative Analysis of the Performance of Construction Projects Using Earned Value Management Technique. International Journal of Science, Engineering & Technology. 10(2).

El Mikawi, Mohamed; Khahil, Ayman & Asaad, Mohamed. (2017). Integrated Earned Value Management and Risk Management Approach in Construction Projects. International Journal of Engineering and Management Research. 7(4): 286-291.

Li, Wenquig. (2023). Application of Earned Value Management in Project Management. International Conference on Management Research and Economic Development. 10.54254/2754-1169/20/20230178.

Netto, Joaquim; Fernandes de Oliveira, Nylvandir; Freitas, Andrey & Neves dos Santos, João. (2020). Critical Factors and Benefits in the Use of Earned Value Management in Construction. Brazilian Journal of Operations & Production Management. 17(1).

Roghabadi, Mohammadjavad & Moselhi, Osama. (2022). Forecasting Project Duration Using Risk-Based Earned Duration Management. International Journal of Construction Management. 22(16): 3077-3087. 10.1080/15623599.2020.1840272.