Earned value is the measurement of the value of work performed thus far. The accuracy of this assessed value is one of the most critical components in determining the financial health of a construction project. A misrepresentation of true earned value leads to an overly optimistic forecast of project costs, delayed recognition of cost overruns, and the inability to take corrective action to mitigate cost and schedule impacts.
As the complexity and scope of capital projects continues to increase, the measurement of earned value is as crucial as ever. With that in mind, you can utilize the following tips to improve the accuracy of your earned value measurement.
1. Measurement of earned value must be completely blind to dollars spent
This is the number one mistake companies make when assessing earned value. Avoid referencing cost to date when determining work completed to date. This can be done by eliminating cost-to-date columns in views or files used to input actual progress. Referencing where the project should be based on costs incurred leads to biased reporting of actual progress.
2. Perform a detailed quantification of the scope of work
The scope of the work must be quantified in order to validate a percent completed. Cost items should have a quantity greater than one, with a unit of measure that reflects the work being performed. Both with self-performing work and contracting work, it’s important that field personnel and contractors are reporting progress with auditable quantities. A good starting point is with the engineer/architect, who can often provide quantity takeoffs straight from their modeling software.
To take it a step beyond bulk quantities at a cost-item level, break down those quantities into identifiable elements of work that can be easily tracked. For example, a project with 300 tons of structural steel to erect can be broken down by each steel member with its associated weight. This enables field personnel to accurately report based on what they are familiar with (e.g., a foreman who understands the piece marks he erected).
To break down quantities, look at each operation: What unit of measure best represents the work? How do crews establish boundaries for tasks? What are the logical start and stop points? Answering these questions will help determine what the quantity breakdown items should be.
3. Develop standard claiming schemes
Claiming schemes or rules of credit allow partial claiming of work completed. Any operation that cannot be finished within the progress reporting period (daily, weekly or monthly, based on how often you report progress) should be assigned a claiming scheme to receive partial credit in earned value calculations. To define a claiming scheme, start by identifying the steps required to complete the work. For concrete operations this might be:
- Erect formwork
- Tie/place rebar
- Set embeds
- Strip formwork
- Quality verification and documentation
These steps become your claiming steps. Next, track the operation to determine how much effort (man-hours or cost) it takes to complete each step. This enables you to assign a weighted percent complete to each. Setting up claiming schemes also allows you to designate a quality verification step and holdback of earned value. This step is important if third-party verification is required, or if excessive overruns due to punch list work is a recurring issue. A quality holdback step promotes finishing as you go.
4. Perform regular quantity audits
Reporting based on quantities is the first step; next, you must regularly audit the quantities reported complete. A quick sanity check is to compare quantity installed with material received reports. For example, if more cable has been reported pulled to date then cable has been received, you have identified an issue.
Another way to perform a quantity audit is to walk down construction packages with the drawings. Highlight work completed and compare it to the reported percent complete of that package of work. Whether you perform quantity audits weekly, monthly or quarterly, they hold those claiming progress accountable for accuracy.
5. Start benchmarking past costs
Budget x Percent Complete is globally recognized as the basic formula for earned value. Therefore, getting percent complete right is only half of the equation. Unrealistic budget unit rates will also lead to inaccurate earned value reporting. Benchmarking allows companies to track unit rates of like operations by assigning standardized codes and units of measure. This provides estimators a library of actual unit rates to utilize when developing future budgets.
6. Select the right project controls solution for earned value management
Finally, you’ll want to look for a solution that:
- enables tracking quantities rolled up and at a detailed level
- facilitates claiming scheme development
- provides views for progress reporting separate from cost-to-date data
- enables benchmarking past cost
Applying these six tips will get you on the path to improving the accuracy of your earned value measurement and help you identify potential problems that might impede project success.
Interested in seeing how InEight’s solutions can help you improve project performance? Request your free demo here.