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Last updateFri, 08 Dec 2017 9am

Why Earned Value contributes to success of major construction firms

The growth in the number of major contractors adopting Earned Value for major projects is expanding beyond the remit of public sector bodies, according to Donna Butchart, MD of Prōject (EU). Ltd

However being able to establish an earned value matrix is both tricky and complex, and being able to adapt existing systems for construction organisations is key, particularly when monitoring earned value throughout the life of the project.

There is an increasing trend for public sector contracts to require suppliers to monitor not just the costs and schedules, but also value add, through Earned Value Management. Earned Value management is seen as the best practice methodology, and as a result is being adopted by construction organisations involved with complex client projects.

Earned Value is not a new concept; it has been in use since the industrial revolution. It came to prominence first in the US when the government introduced earned value management as a requirement for their contracts, and has been replicated within the UK as Government Departments are keen to establish the value add of their major contracts. In addition the Project Management Institute has adopted it as a proven project management methodology to help keep projects on schedule and within budget.

The National Audit Office’s definition of earned value management is “a technique for measuring project performance and progress, based at its simplest on quantified measures of work planned (planned value) and work completed (earned value)”. 

Of course in reality the actual formulas used behind the Earned Value calculation are far more complex than this simple definition.

Why is Earned Value important for construction organisations?

Earned value management offers opportunities to construction organisations, beyond the simple adherence to contract requirements. It allows an organisation to have transparency around infrastructure and maintenance projects, programmes and portfolios of stand-alone and integrated works, and provides a clearer indication of progress on large-scale projects than other traditional monitoring techniques. In essence it allows organisations to keep projects on schedule and within budget.

Earned value is not only valuable to organisations; clients letting contracts also benefit from earned value metrics. The client can have clear visibility through weekly, monthly or quarterly reporting of the three elements of the work: the budget, the work undertaken and the value of their projects.

Why are companies using EV?

The reasons why a growing number of construction companies are using earned value as a reporting matrix are varied; however in essence there are three key themes around why companies decide to start using earned value management:

  • To track project performance and to identify any problems before the project begins to fundamentally fail (ie through over-spending or being behind on schedule).
  • To give improved project transparency and accountability to both the project team, sponsors and stakeholders. The earned value reports are based on inputs from across the team, and therefore capturing hours, expenses and costs; they also give accurate non-manipulated projections showing good and bad performance and outcomes. This means that problems are quickly identified and management can then decide on the relevant remedial action.
  • To streamline the planning process so that activities are kept to schedule throughout the life of the project. This is achieved by have a comprehensive approach that captures and displays detailed costings and programme schedules which then have real-time updates in terms of tracking committed costs and work delivered to date. This means actual outputs are tracked against planned outputs to provide accurate insight.

Examples of construction organisations using Earned Value

There are a growing number of examples of organisations using earned value. 

The MoD recommends that its project management staff use earned value management to be able to both work closely with counterparts in other government departments and to ensure that benefits are fully realised. It has been used on a number of building projects. 

 The construction partners on the major Crossrail programme used earned value. The project was seen as a leader in best practice for earned value management, where all of the performance data was held centrally so that it was cleansed and robust. It allowed a user to drill down to core data. In addition to the data warehouse there was a reporting functionality attached which allowed business intelligence reporting to produce dashboards. The quality and transparency of the data within the reports led to a positive behavioural change.

As a result of the project’s success with earned value the National Audit Office recommended that both the Department for Transport introduce earned value management approach to monitor infrastructure programmes.

With demonstrable results such as these, the number of construction organisations adopting Earned Value within their projects looks set to rise.