Spurred on by the gradual shift toward digital transformation to improve project outcomes, contractors are zeroing in on performance and progress data to monitor how well projects align with those outcomes.
Many are using earned value management (EVM)https://ineight.com/process-solutions/earned-value-management/, widely considered to be an industry standard for calculating and tracking project performance metrics, as their method of choice.
EVM consists of a trio of variables: actual cost (AC), planned value (PV) and earned value (EV). AC is simply an ongoing tally of real costs. PV and EV are calculated metrics that track project progress. The two are related, but they’re not the same thing; you could consider them two sides of the same coin, each measuring a slightly different take on the monetary value of work. It’s an important distinction to understand, so let’s look at each and how they’re used together.
PV: What’s the value of the work that should be done by a certain point?
The point of planned value is implied in its name — the focus is on planning. It’s used in setting budget benchmarks against which to gauge task or work package progress. So, think of PV as your baseline.
Its value is determined with a straightforward formula:
PV = Budget at Completion (BAC) x % Complete (planned, or what should be completed by a certain point)
BAC is the project’s overall planned budget as outlined in the estimate. The percentage complete can be at any point during construction up to the project completion. The resulting PV number is presented as a dollar value. It represents the approved budget for the specific work expected to be done, with each task or activity derived directly from the schedule.
EV: What’s the value of the work that has been done by a certain point?
Where planned value establishes what should happen, earned value focuses on what has happened. EV is used to measure progress against planned (PV) benchmarks created in the planning stage. So EV is your ongoing progress tracker.
As with PV, its equation is simple:
EV = Budget at Completion (BAC) x % Complete (actual, or what has been completed by a certain point).
EV’s resulting number also has a dollar sign attached to it because it measures the monetary value of the construction activities that have already been accomplished by a certain point.
How do PV and EV relate to each other?
While they’re different, they’re not incompatible. Relying on just one of them gives only part of the story. In fact, they’re meant to be used in tandem to provide a more comprehensive view of progress against outcomes.
These two EVM metrics objectively quantify intended and ongoing progress. Contractors use this continual comparison to maintain or improve progress.
In a perfect world, their values align, indicating things are going according to schedule. But we know this has been more the exception than the rule.
So what does it mean when one value is higher or lower than the other? Digging into why a gap exists allows contractors to gain insights into what’s going on behind the numbers so they can plot out the best response or corrective measure.
If the earned value is less than the planned value, things are running behind. It could be a temporary thing. But if the EV maintains an underperforming value, that can be a red flag. Is the schedule behind because of something beyond your control, like a weather event or a late materials delivery? Is it due to site crews failing to achieve their productivity expectations? Was the schedule for that task unrealistic to begin with?
Or, if the earned value exceeds the planned value, the project is ahead of schedule. Understandably, this would call for some high-fives. Material or equipment shipments may have arrived early. All resources may have been allocated where and when they needed to be. Project teams on-site may have been in sync.
However, should the EV maintain a consistently higher value than the PV, it might be a good idea to do a little research into why. There may be a cost to such faster-than-expected progress beyond what the EV dollar signs indicate. For example, were corners cut on quality work? Is site crews’ safety compromised by working at an exhausting rate? Is there a corresponding increase in actual costs (AC) to account for extra labor or overtime to complete a task earlier? Were milestone dates unintentionally overestimated that could call scheduling integrity into question?
Getting value from EV and PV
Relying on planned value and earned value metrics enables contractors to make more informed decisions on next steps and therefore have more project control. Being able to do things depends on how accurate, current and trusted the metric data is. That comes with digitalization.
EVM benefits from the continuous automation of data sourcing and calculations afforded by cloud-based, integrated EVM software. This helps contractors gain more control over measuring and managing their projects by better understanding what their data tells them and how to put that understanding into action.
Get the full value of earned value and planned value — and other EVM metrics — for improved productivity, progress and control for your capital projects. We’re happy to talk with you about how. Schedule a brief conversation with us.
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