Earn Value Analysis an Early Warning System
Earn value analysis is an early warning system that alerts management to the realities of performance. It integrates scope, cost (or resource), and schedule measures to help the project management team assess project performance. Earn value analysis is consider as a three dimensional tool – it compares the amount of work planned with the amount achieved, and compares this with the ‘cost’ of that achievement.
Performance is assessed mathematically and expressed in ‘Key Performance Indicators’. The indices are then used to forecast final outcome – and past experience shows this forecast is likely to be accurate unless some changes are made. Earn value analysis reports are therefore a spur to action, focusing attention on the major problems.
Also, by directing management attention to the most critical problems, focus can be placed on the critical areas of a project. Earn Value Analysis preparation commences in the planning stage of the project. Estimated costs and resources are added to each activity defined in the programme of works. Percentage completion of each activity is regularly assessed, usually weekly, and entered into the planning software which calculates planned and earned value data automatically.
Actual labor used is imported from daily labor returns and actual costs to date from existing commercial systems. (For smaller projects spreadsheets have been established which manage the whole process without reference to planning software).
If all this sounds complicated it is worth noting that for most projects, once the routine is established the production of earn value analysis reports takes only a couple of hours or so a week – time that should be spent producing some sort of progress report anyway. Earn value analysis gives the project manager the tools to consider the position of the project accurately and what remedial measures are necessary to recover any lost time.
Advantages of Earn Value Analysis
Better Visibility into Program Performance: Earned value analysis yields earlier and better visibility into program performance.
Forecasting: Forecasts use performance indices to predict the future.
Corrective Action: Earned value analysis improves project success by enabling the project manager to determine ‘problem spots’ early in the project and take the appropriate corrective action.
Valuable Practice: The use of earn value analysis demands the effective use of detailed plans, resourced plans and collection of progress reports, which are all things that professional Project Managers should be using in any event.
These are valuable tools in their own right, but are prerequisites to use and benefit from earn value analysis. In addition efficiencies are realized, for example in assessing progress on site from a production perspective and separately assessing interim payments.
Estimating of Future Projects: As earn value analysis imposes the requirement to record cost and effort expended, useful data is collected for use either in the estimating of future projects, or the validation of current plans. Historical information is a key to improving estimates.
Reduced Risk: Earn value analysis reduced risk because it enables realistic estimates of completion (for both cost and schedule) to be derived early in the project.
Conclusion: Much of the structure and data is generally in place in most of the construction projects, what we don’t accumulate is forecasting methods and performance efficiency factors. So using Earn Value Analysis actually implants discipline into good Construction Management.
Earn value analysis does not solve the problems – rather it is a technique with which you can locate where the problems are, quantify them and it also suggests corrective action. It will not fix poor planning or execution. However, it is a crucial tool for monitoring and reporting. The benefit of Earn value analysis is it illustrates the status of project construction on time.
By Syed Ali Dilawer, BE, PMP, CCC, ACIArb
Presently working as a Planning Manager with International Project Management & Cost Consultant for their Dubai office and having 19years of extensive experience as a Project Management Professional with expertise in Time & Cost Management, Contract Administration, Claim Substantiation / Analysis. Holding Bachelor’s degree in Civil Engineering along with PMP, CCC, ACIArb, and also affiliated with various professional bodies including PMI, AACE, IQA and CIArb.