Project control systems within the world of construction aim to ensure project goals are achieved. Like SmartPM, Joseph Heagney’s Fundamentals of Project Management views Earned Value Analysis (EVA) as the project control that is considered the correct way to monitor and control almost any project.
Differing from the fundamentals, SmartPM implements project control systems automatically across project portfolios, showing project progress immediately. This article takes a closer look at what EVA is and how to begin using it as a top project control to ensure projects stay within budget and schedule parameters.
What is Earned Value Analysis?
Earned Value Analysis (EVA) is defined as an industry-standard method of measuring a project’s progress and performance at any given point in time. Conducting EVA answers many questions heavy on the minds of project management, such as questions concerning total project cost and estimated completion dates. However, in order to conduct earned value analysis, projects must have a high-quality baseline schedule to work off of.
The Importance of High-Quality Baseline Schedules
If construction schedules are not built with integrity, then the schedule can be misleading. Meaning, that all of the data pulled out of the schedule will not be able to give accurate insight into project performance. High-quality baseline schedules provide project teams with A) a reliable plan, B) an accurate and reliable critical path, and C) the information that they need to deploy a successful project control process.
From there, an abundance of rich data can be pulled from well-built construction schedules to gauge performance, risks, delays, impacts, and inefficient processes. EVA integrates schedule data into valuable information by evaluating task completion progress against the baseline schedule so that actual performance can be measured.
4 Key Values of EVA
Once you have established a high-quality baseline schedule, you can pull four values from it that can be combined to determine whether or not work is being accomplished as planned. These four values are:
Planned Value (PV) - the planned progress scheduled to be completed at a specific point in time, represented as a percentage of the overall completion of the project
Earned Value (EV) - the progress actually achieved at a specific point in time, represented as a percentage of the overall completion of a project
Budgeted Cost (BC) - the total budgeted cost of a project
Actual Cost (AC) - the amount of money or effort actually spent in a specific time period
After these values are determined, they are integrated into an earned value analysis management system. The result of which determines the expected sequence of work as well as gives an understanding of project progress up until a specific time period. This can be accomplished by reviewing schedule and cost performance indexes, or graphically by plotting the baseline curve (PV) and budgeted cost curve (BC) against the earned value (EV) and actual cost (AC) curves.
Visualizing EVA Graphically
As a result of the overwhelming amount of data available to us in modern times, visualization of data allows information to be more digestible and accessible across project teams. Automating your project controls process allows you to automatically status project progress by giving graphical representations of earned value analysis information seen in the graph below:
At this project’s data date, which is just before November 1, 2015, the project is not progressing as planned. However, if this project’s current data date was January 1, 2015, the project would be ahead of the plan. You can tell this by looking at both curves and seeing which one is above the other. When the actual progress curve is above the planned progress curve, the project is ahead of its planned progress. On the other hand, if the planned progress curve is above the actual progress curve, the project is behind in its intended progress.
However, before conducting EVA mathematically through schedule or cost performance indexes, you have to understand how a project's schedule data is structured. There are three main ways this can be done, either according to costs, resources, or short of both of those options, durations. After looking at the pros and cons of each, you can determine which is the best way for your project to begin conducting earned value analysis to better understand your project's progress at any given point in time.
Cost-loaded schedules provide project management with the most accurate picture of project progress. Cost data adds a whole new dimension to the weighting of activities in terms of the progress which is especially useful when conducting EVA. Figuring out planned value (PV), earned value (EV), budgeted cost (BC) and actual cost (AC) using a cost-loaded schedule ensures that work is well defined, meaning progress can be accurately measured and controlled according to budget and time constraints.
Both owners and contractors strive for the best possible return on investment (ROI). As a result, it is always recommended that project schedules be cost loaded. While there is considerably more work to ensure each activity gets an accurate cost estimate, there is no better way to get an accurate understanding of cost unless you cost-load your schedule.
Resource-loaded schedules are the next best way to conduct EVA. As opposed to using budgeted cost per activity, resource-loaded schedules use the level of effort or manpower per activity. Loading schedules in this way is useful for project managers and superintendents as they are responsible for managing manpower on projects. Additionally, EVA is simplified using resource-loaded schedules as measuring progress in terms of monetary value takes more effort to accurately measure.
By estimating hours planned and establishing an hourly rate for each resource, the budget can still be measured using this method as well. However, this method is not as accurate for capturing real cost, meaning there are a few downsides to resource-loading your schedule, such as:
Delays in reporting actual information can easily result in budget overruns.
Changes in resources can also easily result in budget overruns.
If there is not well-established communication between project management and site organizations, opportunities for inaccurate rates appear.
When only labor hours are tracked, you have no warning signal that labor hourly rates might cause a budget problem.
As PMI points out, resource-loaded schedules are not government-certified. However, they do provide an alternative way of conducting EVA without the hassle of having an accounting system for actual costs.
When a schedule lacks cost or resource data, schedule programs must rely on duration data to calculate earned value. Conducting EVA using solely a duration-based schedule is not recommended but can still offer valuable insights in terms of understanding progress to date. This is because there are considerably more risks in using this method. The reality is, that each activity in the schedule can represent different values of work in place, yet the durations can be the same. This and other factors can skew progress calculations and misrepresent any progress calculation at any point in time.
In order to perform EVA effectively with duration data alone, one must tally up the total amount of work days across all activities and calculate earned work days based on progress data in the schedule. For example, if a schedule contains 100 activities that are each 10 days of work, the total number of work days is equal to the sum of all work days across all activities. In this example, it is 100 activities multiplied by 10 work days per activity or 1000 total work days. Essentially, the progress calculations per activity should substantiate the total earned work days, allowing EVA to be a simple calculation of earned work days divided by total planned work days.
Unfortunately, estimating progress based on duration alone does not allow best project control practices to be exercised as the schedule is poorly defined and only partially complete. That being said, it is better to analyze EVA with schedule data alone than not doing it at all, as it does still give one a look at progress versus a plan.
After determining how your schedule is loaded, you can conduct earned value analysis calculations to better understand project performance. Schedule and cost performance indexes are mathematically calculated using earned value analysis values but differ in what each tells you about project performance.
Schedule Performance Index (SPI) tells you how far ahead or behind the project is according to the schedule and is calculated into a ratio by dividing earned value by planned value.
On the other hand, the Cost Performance Index (CPI) tells you where you are in a project according to the budget and is calculated into a ratio of earned value and actual cost:
Once calculated, these ratios help you understand how efficient your project is in terms of progress in the following ways.
Cost Performance Index (CPI):
If it is less than one, the project is earning less value than what has been spent, indicating that the project is over budget.
If it is greater than one, the project is earning more value than what has been spent, indicating that the project is under budget.
If it equals one, the project is earning the expected value according to what has been spent, meaning the project is on budget.
Schedule Performance Index (SPI):
If it is less than one, less work has been completed than originally planned, meaning the project is behind schedule.
If it is greater than one, more work has been completed than originally planned, meaning the project is ahead of schedule.
If it equals one, the project is progressing as planned and is on schedule.
For example, if you were to get an SPI value of 0.767, then your project is considered behind schedule. In other words, for every 10 work days scheduled, your project actually only “earned” 7.6 days of work. This tells you that your project needs to fit an additional 2.4 days' worth of work into your schedule and that your planned durations may not be realistic for your project teams.
I know that seeing EVA, PV, EV, BC, AC, SPI, & CPI is an overwhelming amount of acronyms, but they are extremely useful in conducting project reviews. Earned value analysis is a part of the overall project controls process that provides project teams with quantitative data for better decision-making. With all of the data given from conducting earned value analysis, project managers can gain many benefits, such as:
Improved communication through project visibility
Proactive risk management from finding potential risk areas
Increased confidence in project success
Provision of better planning processes by measuring deviation from planned performance as early as possible
Furthermore, most of these benefits can be achieved automatically through implementing automated project controls into construction projects. Using SmartPM ensures a quality baseline schedule is established. From there, you can simply upload the schedule into the dashboard and see your performance index and graphical interpretations of earned value analysis within seconds.
Get started proactively managing your projects today by detecting endangered processes before they become great risks by conducting earned value analysis across your construction portfolio.