Earned Value in Construction Project Management

Earned Value in construction management involves evaluating how a project is performing. Comparisons are made against the project’s plan as resources are allocated, hours are deployed, and phases are launched. Adjustments are introduced in response to deviations from the plan in order to manage the project’s scope, schedule, and cost. The customer’s voice is similarly used to insure quality is sustained throughout the project’s lifecycle.

Article Contents

Lagging vs. Leading Indicators

Evaluating the project’s performance includes both lagging and leading indicators. Lagging indicators help the teams evaluate if the project outputs were delivered and if the customer is satisfied with the results.  Leading indicators help evaluate if the project inputs are delivering the project as planned or if deviations are occuring.

Whereas lagging indicators are evaluated after the project comes to a close, leading indicators help evaluate the health of the project throughout its lifecycle. The relationship between the two is crucial as leading indicators are directly connected to the project outputs. Having the ability to proactively evaluate the construction project’s health is central to managing scope, cost, schedule, and quality throughout the project’s lifecycle.

The ability to manage a construction’s earned value is dependent on having a healthy project architecture. This architecture includes having the necessary roles, design models, contractual agreements, planning components, and technologies required to deliver on cost, within schedule, and per specifications. It also requires knowledge of best practices, local, provincial/state, and federal regulations as well as a thorough understanding of the construction project management methodology.

CONSTRUCTION MANAGEMENT 101

The roles in construction management can vary depending on project size, whether the construction is residential or commercial, and the regulations surrounding the build. The following list provides a high level overview of the different roles and responsibilities included on a construction site (ESub). The combined total of these roles create the necessary competencies and expertise needed to deliver a quality construction project.

CONSTRUCTION DESIGN AND CONTRACT MODELS

The types of construction contracts vary as much as the type of design models available. The construction roles listed above are internal members of the construction team and include the contractors, vendors, and technical/ licensed specialists needed to deliver the project. External members include the project owner who is often represented by the ‘site rep’ or ‘owners rep’ on the construction site.

The relationship between the internal members, and the internal – external members influences how the construction is designed. This also influences the contractual agreement used to manage these relationships. The contract model also influences how risk is managed and who owns the risk (owner vs. contractor).

The following section provides a brief description of some of the design and contract models currently used in the construction industry.

The design model has direct implications on what risks will be present and how the project will need to be managed. Although these models can be tailored significant consideration should be allocated to a review of the project planning and coordination risks that are commonly found for each model. Contract models can help mitigate some of the risks but not completely, particularly as the number of members and relationships increases.

CONSTRUCTION PROJECT MANAGEMENT ARCHITECTURES

The project management (or planning) architecture is informed by the construction design model and governing contractual agreements. Best practices for construction project management build the site out in phases. Each iteration provides an opportunity for a project performance audit and milestone review, as well as an opportunity to conduct an earned value analysis of the project’s health.

Building Information Modelling

Building Information Modelling (BIM) is an intelligent 3D model-based process that gives architecture, engineering, and construction professionals the insight and tools to more efficiently plan, design, construct, and manage buildings and infrastructure.

PROJECT PLAN – EXAMPLE

The project architecture model has direct implications on what risks will be present and how the project will need to be managed. Although these models can be tailored significant consideration should be allocated to a review of the project planning and coordination risks that are commonly found for each model. Contract models can help mitigate some of the risks but not completely, particularly as the number of members and relationships increases.

EARNED VALUE MANAGEMENT FORMULAS

The value realized during and after the project depends in the quality of its inputs (tools, resources, models). The following earned value management formulas are used to help evaluate (leading and lagging indicators) the health of your project. These help answer questions such as:

• Is our budget on schedule?
• Will it be enough to finish the project (budget, resources, staffing, etc)?
• Are we producing at the planned rate (quantitative)?
• Are we on schedule (resources, work, etc.)?
• Are resources being used efficiently/ as planned (resources, inventory, budget, staffing, etc)?

Schedule and cost variances and performance indicators are defined mathematically as follows:

• Schedule variance (SV) = Earned value (EV) – Planned value (PV) 
• Cost variance (CV) = Earned value (EV) – Actual cost (AC)
• Schedule performance index (SPI) = Earned value (EV) / Planned value (PV)
• Cost performance index (CPI) = Earned value (EV) / Actual cost (AC)

CONSTRUCTION MANAGEMENT INNOVATIONS

Construction models have gained significant advances over the past decades with the introduction of new technologies, tools, resources, processes, and best practices. These advances are particularly helpful during the project initiation, planning, and controlling/monitoring stages where proactive mechanisms can help avoid costly errors later on. 

These advances have recently been integrated into the LEED model with an emphasis on green building, sustainability, and efficiency.

Leveraging these innovations can drive value for both internal and external stakeholders in addition to strengthening the project’s public image.

LEVERAGING INNOVATIONS IN CONSTRUCTION

Construction management innovations are responsible for building society. These innovations include process, resource, and technologies that contribute to society’s foundations.

Literally spanning the infrastructures in which we live, work, and transport goods, the construction industry is responsible for our safety, quality of life, and access to resources. As a result, we have a responsibility for leveraging current innovations in construction to support effective execution (during the project) and maintenance (after the project’s delivery).

Infographics and project templates are available for download with the purchase of the Project Management Blueprint!

Earned Value (EV) project management provides a framework for evaluating the health of a project throughout the lifecycle. Each phase or deliverable can be evaluated against the plan, with deviations found between forecasted and currently observed numbers being used to inform subsequent strategies. Whether the emphasis is on the project cost, schedule, or quality, the earned value tools can help keep a project on track and the customer satisfied.

The EV tools are supported by a robust history of construction project management in which best practices, technologies, and standards have evolved. These best practices are reinforced (if not championed) by local and federal regulations. A thoughtful approach to developing your construction project plan is thus warranted to guarantee regulatory compliance as well as support an effective and efficient allocation of resources.

Resources:

Anderson Moore Construction Corp. (1970, January 01). Anderson-Moore Construction Corp. Retrieved from http://amcbuild.blogspot.com/2011/02/negotiated-vs-competitive-bid.html

Better buildings are our legacy. (n.d.). Retrieved from https://new.usgbc.org/leed

Build–operate–transfer. (2018, October 10). Retrieved from https://en.wikipedia.org/wiki/Build–operate–transfer

Construction Project Management Software – eSUB. (n.d.). Retrieved from https://esub.com/construction-roles-on-the-jobsite/

Design assist. (2015, January 11). Retrieved from https://en.wikipedia.org/wiki/Design_assist

Design–bid–build. (2018, September 13). Retrieved from https://en.wikipedia.org/wiki/Design–bid–build

Design–build. (2018, August 05). Retrieved from https://en.wikipedia.org/wiki/Design–build

Earned Value Management Terms and Formulas for Project Managers. (n.d.). Retrieved from https://www.dummies.com/careers/project-management/earned-value-management-terms-and-formulas-for-project-managers/

Guaranteed maximum price. (2015, October 07). Retrieved from https://en.wikipedia.org/wiki/Guaranteed_maximum_price

Managing risk in construction projects[PPT]. (n.d.). Price Waterhouse Coopers.

Project Delivery and the Theory of Lean – Lean Project Delivery. (n.d.). Retrieved from https://www.coursera.org/lecture/construction-project-management/project-delivery-and-the-theory-of-lean-GtDcs

Roseke, B. (2018, June 05). The Earned Value Management System. Retrieved from http://www.projectengineer.net/the-earned-value-management-system/

Set-Based Design – Scaled Agile Framework. (n.d.). Retrieved from https://www.scaledagileframework.com/set-based-design/

Shaneel, S. A. (2018, September 18). Top 8 Construction Trends in 2018. Retrieved from https://geniebelt.com/blog/top-8-trends-for-construction-in-2018

Target Value Design. (n.d.). Retrieved from http://www.projectrealign.com/index.php/lean-services/target-value-design