Earned Value Management (EVM) in construction projects
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Earned value(EV)=100 DKK*30%=30 DKK | Earned value(EV)=100 DKK*30%=30 DKK | ||
This formula translates project accomplishments from physical units of measure, e.g. milestones completed, kilometers of tarmac for highway, amount of floors completed in a house and converts them into measurable financial units. | This formula translates project accomplishments from physical units of measure, e.g. milestones completed, kilometers of tarmac for highway, amount of floors completed in a house and converts them into measurable financial units. | ||
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| + | | '''Planned Value (PV)'' | ||
| + | |Is a budget baseline that has been established for a project/work package/activity. It is a function of cost and time as can be seen in figure 1. PV baseline can be used to view the value to be earned at a certain time/phase in the project. PV is frequently referred to as the S curve simply because of the shape of the curve | ||
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| + | |The airline industry encourage their personnel to report all failures and near misses generating failure catalogs. A big effort is expended in reviewing all reports to improve processes and workarounds. | ||
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| + | |- style="vertical-align:top;" | ||
| + | | '''Reluctance to simplify''' | ||
| + | | Simplify mindfully and reluctantly. Have in mind that simplification can become too simple resulting in useless, unprecise simplifications e.g. explanations and categories. Problems faced in complex projects typically offer several options and a nuanced picture to fully understand the best solution. | ||
| + | |A merger of two North American railroad companies in 1996 resulted in a [[wikipedia:Gridlock|gridlock]] of the system from North Platte, Nebraska to Chicago. Many small errors and failures occurred after the merger, but the most obvious reason for the [[wikipedia:Gridlock|gridlock]] was an ignorant and arrogant attitude toward innovative and complex solutions. The top management insisted on doing like they always had done, where trains are made up in central locations called [[wikipedia:Classification_yard|classification yards]], not in dispersed locations called shipper yards, satellite yards or mainline tracks. Freight shipped by railroaders are shipped by rail, not trucks. They insisted even though the merged rail company had successful experiences with innovative solutions. In this case the problems caused by these traditional simplifications were overlooked until the central location or excessive grain shipments became a bottleneck causing the [[wikipedia:Gridlock|gridlock]]. | ||
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| + | | '''Sensitivity to operations''' | ||
| + | | An organization must have an integrated overall and aligned picture of operation. Sensitivity to operations is closely related to sensitivity to relationships. Meaning a clear and unprejudiced communication between operation and management is crucial to understand the big picture. | ||
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| + | Furthermore, it is important to be responsive to the changing reality of projects. This can be obtained first by controlling the progress, monitor deviations and implication on projects, and second being mindful to potential unexpected events. | ||
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| + | | 1: Studies of nuclear weapons suggest that many problems arise not from a single failure, but when small deviations in different operational areas combine to create conditions that were never imagined in the plans and designs<ref name=Sagan>Sagan S.D. 1993. The limits of safety: Organizations Accidents and Nuclear Weapons. Princeton, NJ. Princeton University.<br>''Sagan started his research with the belief that an accidental nuclear explosion was very low and he came to a completely different conclusion.''</ref> | ||
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| + | 2: The microcomputer industry can be characterized as a high velocity environment with a rapid and discontinuous change in demand, competitors, technology and inaccurate, unavailable or obsolete information. Decision-makers deal with this environment by paying close attention to real-time information e.g. concerning current operations or environments. | ||
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| + | |- style="vertical-align:top;" | ||
| + | | '''Commitment to resilience''' | ||
| + | |Accommodate unexpected events and react to them quickly as they arise. | ||
| + | Resilience involves (a) the ability to absorb strain and preserve the functioning of the project; (b) ability to recover quickly; (c) ability to learn from the unexpected event and how it impacted the project.<ref name=oehmen>Oehmen, J. et al. 2015. ''Complexity Management for Projects, Programmes, and Portfolios: An Engineering Systems Perspective''. Copenhagen: PMI<br>''Oehmen et al discuss complexity, how it impacts projects, programmes and portfolios and what we can do about it. This white paper connect abstract concepts and management approaches to concrete practical examples. Introducing cutting edge tools and strategies such as network analysis, system dynamics, modularization, antifragtility and mindfulness.''</ref>. | ||
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| + | | In the North American railroad merger case the meltdown of operations showed an inability to bounce back when the initial problems occurred. The railroad were short of men right after the merger and they had trimmed crews, locomotives and supervisors shortly before the gridlock from Nebraska to Chicago. Slack resources is a common way to create resilience. | ||
| + | |- style="vertical-align:top;" | ||
| + | |'''Deference to expertise (Collective mindfulness)''' | ||
| + | | Deference to expertise is about involving experts in the decision-making. The experts actively involved in the projects are more capable to give articulate solutions to problems. Rigid hierarchies have their own special vulnerability to error where errors at high levels tend to pick up and combine errors at low levels. HRO’s push decision making down where decision is made on the front line. The authority migrate to the people with the most expertise, regardless of their rank. | ||
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| + | Collective mindfulness is associated with cultures and structures that promote open discussions of errors, mistakes and awareness. | ||
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| + | |In the North American railroad merger case the decisions were made from top management even though their operational expertise were outdated. Furthermore the management were only fed with information that they wanted to hear. A horrible paradigm where management were fed with biased information and insisted to make decisions at top level. This classic command-and-control bureaucracy is adequate for a stable situation but too inflexible in times of change. | ||
| + | |} | ||
| + | The five principles are exemplified within the context of an [[Mindfulness_on_US_Navy_aircraft_carrier|US Navy carrier]] here | ||
===Terminology=== | ===Terminology=== | ||
Revision as of 20:59, 11 September 2016
The Us federal government introduced Earned Value management(EVM) in 1967 as a part of the cost/schedule control systems criteria (C/SCSC) Earned Value management is a systematic process that is used to measure the performance of a project at different times throughout the life cycle of a project. EVM is useful to help project managers or people in general that are responsible for a project to determine whether a project is on schedule, or if the project is over or under budget. EVM can also be used to compare the actual work that has been performed to the work that was estimated and planned for the project at a certain time during the project, EVM can also be used to forecast projected performance. EVM is a technique that can be applied, to at least some degree, to the management of projects in any industry and using any contracting approach. The use of EVM requires
Contents |
History
Concept overview
Implementation of the method
The following parameters are used to asses and compare in EVM Planned value (PV) Is a budget baseline that has been established for a project/work package/activity. It is a function of cost and time as can be seen in figure 1. PV baseline can be used to view the value to be earned at a certain time/phase in the project. PV is frequently referred to as the S curve simply because of the shape of the curve Budget at completion (BAC) BAC is the final point and the highest value of the cumulative Planned value curve. BAC represents the total budget for the project/work package/activity. Actual Cost (AC) Is the cumulative actual cost that has been spent on a project/work package/activity Earned value (EV) is the cumulative value that has been earned for the work completed at a certain point in time. To obtain the earned value for an item the following formula can be used with a simple example: A certain project has a total budget of 100 DKK, the project is 30% done than the EV is the following Earned value(EV)=total budget for activity*completed proportion
Earned value(EV)=100 DKK*30%=30 DKK This formula translates project accomplishments from physical units of measure, e.g. milestones completed, kilometers of tarmac for highway, amount of floors completed in a house and converts them into measurable financial units.
| Parameter | Description | Formula |
|---|---|---|
| 'Planned Value (PV) | Is a budget baseline that has been established for a project/work package/activity. It is a function of cost and time as can be seen in figure 1. PV baseline can be used to view the value to be earned at a certain time/phase in the project. PV is frequently referred to as the S curve simply because of the shape of the curve | The airline industry encourage their personnel to report all failures and near misses generating failure catalogs. A big effort is expended in reviewing all reports to improve processes and workarounds. |
| Reluctance to simplify | Simplify mindfully and reluctantly. Have in mind that simplification can become too simple resulting in useless, unprecise simplifications e.g. explanations and categories. Problems faced in complex projects typically offer several options and a nuanced picture to fully understand the best solution. | A merger of two North American railroad companies in 1996 resulted in a gridlock of the system from North Platte, Nebraska to Chicago. Many small errors and failures occurred after the merger, but the most obvious reason for the gridlock was an ignorant and arrogant attitude toward innovative and complex solutions. The top management insisted on doing like they always had done, where trains are made up in central locations called classification yards, not in dispersed locations called shipper yards, satellite yards or mainline tracks. Freight shipped by railroaders are shipped by rail, not trucks. They insisted even though the merged rail company had successful experiences with innovative solutions. In this case the problems caused by these traditional simplifications were overlooked until the central location or excessive grain shipments became a bottleneck causing the gridlock. |
| Sensitivity to operations | An organization must have an integrated overall and aligned picture of operation. Sensitivity to operations is closely related to sensitivity to relationships. Meaning a clear and unprejudiced communication between operation and management is crucial to understand the big picture.
Furthermore, it is important to be responsive to the changing reality of projects. This can be obtained first by controlling the progress, monitor deviations and implication on projects, and second being mindful to potential unexpected events. |
1: Studies of nuclear weapons suggest that many problems arise not from a single failure, but when small deviations in different operational areas combine to create conditions that were never imagined in the plans and designs[1]
2: The microcomputer industry can be characterized as a high velocity environment with a rapid and discontinuous change in demand, competitors, technology and inaccurate, unavailable or obsolete information. Decision-makers deal with this environment by paying close attention to real-time information e.g. concerning current operations or environments. |
| Commitment to resilience | Accommodate unexpected events and react to them quickly as they arise.
Resilience involves (a) the ability to absorb strain and preserve the functioning of the project; (b) ability to recover quickly; (c) ability to learn from the unexpected event and how it impacted the project.[2]. |
In the North American railroad merger case the meltdown of operations showed an inability to bounce back when the initial problems occurred. The railroad were short of men right after the merger and they had trimmed crews, locomotives and supervisors shortly before the gridlock from Nebraska to Chicago. Slack resources is a common way to create resilience. |
| Deference to expertise (Collective mindfulness) | Deference to expertise is about involving experts in the decision-making. The experts actively involved in the projects are more capable to give articulate solutions to problems. Rigid hierarchies have their own special vulnerability to error where errors at high levels tend to pick up and combine errors at low levels. HRO’s push decision making down where decision is made on the front line. The authority migrate to the people with the most expertise, regardless of their rank.
Collective mindfulness is associated with cultures and structures that promote open discussions of errors, mistakes and awareness. |
In the North American railroad merger case the decisions were made from top management even though their operational expertise were outdated. Furthermore the management were only fed with information that they wanted to hear. A horrible paradigm where management were fed with biased information and insisted to make decisions at top level. This classic command-and-control bureaucracy is adequate for a stable situation but too inflexible in times of change. |
The five principles are exemplified within the context of an US Navy carrier here
Terminology
Advantages
The use of EVM to make progress payments on construction projects.
When undergoing a project there is often a risk that the owner of the project is going to overpay their suppliers for the work they completed. This is due to the fact that Cost-type arrangements have inherent risk for the sake of the owners focusing on the expense paid and forgetting to closely monitor the actual work done for the money spent. One way of mitigating this risk is to accurately measure the value of work completed, compare that against the original budget authorized for the completed work, and only pay for actual work completed.
Limitations
References
Further reading
Cite error:
<ref> tags exist, but no <references/> tag was found
