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What is Earned Value Management in Construction and Engineering?

What is Earned Value Management in Construction and Engineering?

How Earned Value Management works is explained in detail in the Project Management Institute (PMI) paper, Earned Value Management Systems1, and is summed up as follows:

“Earned Value Management systems allow the project manager to answer three questions: Where have we been? Where are we now? Where are we going?”

The 3 elements to Earned Value Management

Essentially, there are three elements to Earned Value Management; Planned Value (PV), Actual Cost (AC), and Earned Value (EV).

PV is what you should have done, and how much you should have spent doing it, at a given moment in time. AC is how much you have spent at that particular point in time. And EV is where you actually are now, in terms of tasks completed and money spent.

The key information that Earned Value Management gives you is the variance values that its calculations produce. When you subtract PV from EV, if what you get is 0, then your project is on schedule. If the figure is negative, then it’s behind schedule, and if it’s positive, it’s ahead. And the same thing is true of costs when you subtract AC from EV.

So what Earned Value Management provides you with is the gap, the variance, between where you should be, in terms of schedule and costs, and where you actually are. Which is expressed as Schedule Variance (SV) and Cost Variance (CV).

What is Earned Value Management in Construction and Engineering?

In their paper, Differences of Earned Value Management Practices in Construction2, the PMI divides engineering and construction (E&C) into four divisions; Power, Communication, Building construction, and Transportation. And they then compare projects that are funded with public monies with ones done in the private sector.

E&C: Power

A typical E&C project around power would be the building of a power plant. The procurement and logistics around which are incredibly complex and will almost certainly involve several countries. Then there are the environmental issues, around availability of water and the need to maintain an ambient temperature all year round, to name just two. Plus of course the different fuel specifications.

E&C: Communication

These days, communication projects in E&C tend to be around the establishing of wireless networks. This is made up of a series of small projects to construct individual cell sites, each of which needs;

“Engineering, permitting, construction, commissioning, and network optimization.”

E&C: Building construction

The constructing of actual buildings or building complexes is usually for office, retail, or accommodation space and involves reams of contractors, sub-contractors, and sub-sub-contractors who are split off into literally thousands of individual teams, under architecture, design, engineering, fit-out, construction, and any number of different suppliers.

E&C: Transportation

Transportation in E&C centers mostly around infrastructure and the building of roads, and the bridges and tunnels that they often need. So the pre-construction phase is particularly important, with the focus on permitting and siting.

Huge benefits from Earned Value Management in E&C

Given how inherently complex and layered each of those four areas are, it’s hardly surprising that Earned Value Management is increasingly coming to be employed across the whole of E&C.

After all, news of construction projects going wildly over budget has become the norm rather than the exception. And that’s entirely down to the discrepancies between what was supposed to have happened (Planned), what was supposedly happening (Actual), and what it then transpires actually happened (Earned).

Historically, these transparencies came about because so much of the reporting was done verbally, and was down to one person’s opinion of where a project was. Not just in E&C, but particularly in E&C. What Earned Value Management does is to give you mathematically produced metrics. So it transforms a reporting process that was subjective into something that is objective.

EVM: standardized performance management

That objectivity comes about because those metrics that Earned Value Management uses have been internationally agreed upon, and have been in use now for decades. So your ability to evaluate the progress of your project is hugely improved and made much more efficient. And problems or glitches get flagged far sooner than they would normally be.

And when you can identify a problem early enough, you have time to do something about it, before it has time to produce those crippling cost and schedule overruns. So you can be far more confident that your project will come in on time and on schedule. In effect, as the PMI concludes2;

“EVM can be thought of as an insurance policy. (So) all participants in the building construction industry can benefit from more rigorous use of EVM principles.”

But it’s not just at the individual project level that Earned Value Management can be so useful. The software you use to implement your Earned Value Management system should be able to extend those metrics up, so that they cover your entire programme, and indeed your portfolio of projects.

Cora software uses Earned Value Management metrics in all our solutions

Cora integrates Earned Value Management metrics on all its products, giving you certainty about exactly where your project and portfolio of projects is.

Our Project Portfolio Management (PPM) software will help you to radically streamline and completely digitize your organization. So everything will be seamlessly integrated, centralized, and consolidated.

Cora PPM helps manage projects generating more than $20 billion in over 50 countries, which it’s been doing for more than 20 years.

Contact us now to learn more.

Sources
  1. https://www.pmi.org/learning/library/earned-value-management-systems-analysis-8026
  2. https://www.pmi.org/learning/library/differences-earned-value-management-practices-construction-5790