Earned Value Management (EVM) in construction projects
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| − | | | + | | Is the cumulative actual cost that has been spent on a project/work package/activity |
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| − | | ''' | + | | '''Earned value (EV)''' |
| − | | | + | |is the cumulative value that has been earned for the work completed at a certain point in time. |
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| − | | | + | |Earned value(EV)=total budget for activity*completed proportion |
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|'''Deference to expertise (Collective mindfulness)''' | |'''Deference to expertise (Collective mindfulness)''' | ||
Revision as of 22:08, 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 | BLAA |
|---|---|---|---|
| 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 | o | |
| Budget at completion (BAC) | |||
| '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. | Earned value(EV)=total budget for activity*completed proportion | |
| 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.
