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What is earned value management (EVM), and how is it used in construction projects?

Writer's picture: BHADANIS Quantity Surveying and Construction Management Training Institute for Civil Engineers & Construction Professionals OnlineBHADANIS Quantity Surveying and Construction Management Training Institute for Civil Engineers & Construction Professionals Online

Earned Value Management (EVM) is like having a GPS for your construction project—it helps you see where you are, where you’re supposed to be, and whether you’re on the right track financially and schedule-wise. EVM is a project management tool that combines scope, schedule, and cost data to give you a clear picture of your project’s performance. Let’s dive into what EVM is and how it’s used in construction projects, using the example of a 4,000-square-foot villa with a lavish finish.


What is Earned Value Management (EVM)?

EVM is a technique used to measure project performance and progress in an objective way. It compares the amount of work that has been completed (earned value) with the planned work (planned value) and the actual costs incurred (actual cost). This comparison allows you to see if your project is on budget, on schedule, or if there are any discrepancies that need attention.


Key Components of EVM

To understand EVM, it’s important to know the three main components:

  1. Planned Value (PV): This is the budgeted cost of the work that was scheduled to be completed by a certain point in the project. It represents your project’s “to-do” list in terms of cost and time.

  2. Earned Value (EV): This is the budgeted cost of the work that has actually been completed. It tells you how much value you’ve earned for the work done so far.

  3. Actual Cost (AC): This is the actual amount of money that has been spent on the work completed. It’s the real-world expense that’s been incurred.


How is EVM Used in Construction Projects?

EVM is used to assess whether a project is on track or if adjustments are needed. Let’s apply this to the construction of a 4,000-square-foot villa with a lavish finish.

Step 1: Set Up the Baseline

Before the project begins, you’ll create a baseline that includes the budget and schedule for each phase of the villa’s construction. For example, you might budget BHD 150,000 for the entire project, with specific amounts allocated to different parts of the work, like foundation, framing, roofing, and interior finishing.

  • Foundation Work: Planned Value (PV) = BHD 20,000

  • Framing: PV = BHD 40,000

  • Roofing: PV = BHD 30,000

  • Interior Finishing: PV = BHD 60,000

These figures are your planned values, representing the budgeted cost of work scheduled at each stage.


Step 2: Track Progress and Costs

As the project progresses, you’ll track both the work completed and the costs incurred. Let’s say the foundation work has been completed, and you’ve moved on to the framing phase.

  • Foundation Work: Earned Value (EV) = BHD 20,000 (work is 100% complete)

  • Framing: EV = BHD 15,000 (work is 50% complete)

At this point, you’ve also tracked the actual costs:

  • Foundation Work: Actual Cost (AC) = BHD 22,000

  • Framing: AC = BHD 18,000


Step 3: Analyze EVM Metrics

Now, you can use EVM metrics to see how the project is performing:

  • Cost Variance (CV): This tells you whether you’re under or over budget. It’s calculated as EV - AC.

    • For foundation work: CV = BHD 20,000 (EV) - BHD 22,000 (AC) = -BHD 2,000 (over budget)

    • For framing: CV = BHD 15,000 (EV) - BHD 18,000 (AC) = -BHD 3,000 (over budget)

  • Schedule Variance (SV): This tells you whether you’re ahead of or behind schedule. It’s calculated as EV - PV.

    • For foundation work: SV = BHD 20,000 (EV) - BHD 20,000 (PV) = 0 (on schedule)

    • For framing: SV = BHD 15,000 (EV) - BHD 20,000 (PV) = -BHD 5,000 (behind schedule)

  • Cost Performance Index (CPI): This measures cost efficiency. It’s calculated as EV / AC.

    • For foundation work: CPI = BHD 20,000 (EV) / BHD 22,000 (AC) = 0.91 (less efficient)

    • For framing: CPI = BHD 15,000 (EV) / BHD 18,000 (AC) = 0.83 (less efficient)

  • Schedule Performance Index (SPI): This measures schedule efficiency. It’s calculated as EV / PV.

    • For foundation work: SPI = BHD 20,000 (EV) / BHD 20,000 (PV) = 1.0 (on schedule)

    • For framing: SPI = BHD 15,000 (EV) / BHD 20,000 (PV) = 0.75 (behind schedule)


Step 4: Make Informed Decisions


Based on these metrics, you can see that both the foundation and framing work are over budget, and the framing is also behind schedule. This indicates that the project is facing challenges that need to be addressed.

  • Cost Overruns: Since both phases are over budget, you might need to investigate why costs are higher than expected. Perhaps the cost of materials increased, or there was a need for more labor than anticipated.

  • Schedule Delays: The framing work is behind schedule, so you’ll need to assess whether this delay will impact the overall project timeline. You might need to allocate more resources or adjust the schedule for upcoming phases.

By using EVM, you’re not just reacting to problems as they arise—you’re able to proactively identify and address issues, keeping the project on track.


Real-World Example: Villa Construction in Bahrain

Let’s put this into the context of building a 4,000-square-foot villa with a lavish finish in Bahrain. You start by setting up a detailed budget and timeline, using EVM to track progress.

As the project moves forward, you notice that the actual costs for the foundation and framing are higher than planned, and the framing work is falling behind schedule. Using EVM, you quickly identify these issues and take steps to mitigate them, such as negotiating better prices with suppliers, increasing labor resources, or adjusting the project schedule.

Thanks to EVM, you’re able to keep the project under control, ensuring that the villa is completed on time and within budget, while maintaining the high-quality finish that the client expects.


Earned Value Management (EVM) Template for Construction Projects

EVM Component

Description

Example Value (BHD)

Calculation

Interpretation

Planned Value (PV)

The budgeted cost of the work scheduled to be completed by a certain date.

BHD 50,000

-

Represents the planned budget for completed work.

Earned Value (EV)

The budgeted cost of the work actually completed by a certain date.

BHD 45,000

-

Shows the value of the work actually performed.

Actual Cost (AC)

The actual amount spent on the work completed by a certain date.

BHD 55,000

-

Reflects the real cost incurred for completed work.

Cost Variance (CV)

The difference between EV and AC, showing whether the project is under or over budget.

BHD -10,000

CV = EV - AC

Negative value indicates cost overrun.

Schedule Variance (SV)

The difference between EV and PV, showing whether the project is ahead of or behind schedule.

BHD -5,000

SV = EV - PV

Negative value indicates project is behind schedule.

Cost Performance Index (CPI)

A measure of cost efficiency, showing the ratio of EV to AC.

0.82

CPI = EV / AC

Less than 1.0 indicates poor cost efficiency.

Schedule Performance Index (SPI)

A measure of schedule efficiency, showing the ratio of EV to PV.

0.90

SPI = EV / PV

Less than 1.0 indicates poor schedule efficiency.

Explanation of Columns

  • EVM Component: The key elements used in Earned Value Management.

  • Description: A brief explanation of each component.

  • Example Value (BHD): An example value to illustrate how the component is used.

  • Calculation: The formula used to calculate the component.

  • Interpretation: How to understand the results of the calculation and what it indicates about the project.

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