Do you make decisions guided by Earned Value? · Construction Contractors Hub

Do you make decisions guided by Earned Value?

Currently, cost control in construction projects frequently uses the ABC/M (Activity Based Cost Management) methodology. This approach tracks expenditures from specific activities, represented by verbs, through to the project's final deliverables. This method makes the cost structure of a construction project more transparent and enables a variety of interpretive analyses of the values.

One such analysis is Earned Value Analysis (EVA), which compares the construction schedule and budgeted values against actual expenditures.

In this insight, we will conduct a case study demonstrating the possible interpretations of an Earned Value Analysis, showing how it can be useful in decision-making and construction project management.

Basic Concepts of Earned Value Analysis

Before diving into the case study, it is necessary to understand some fundamental concepts of Earned Value Analysis:

BCWP (Budgeted Cost of Work Performed) or EV (Earned Value): The percentage of actual quantity completed multiplied by the budgeted cost of the work item.
ACWP (Actual Cost of Work Performed) or AC (Actual Cost): The real cost of executing the work item for the percentage completed.
BCWS (Budgeted Cost of Work Scheduled) or PV (Planned Value): The percentage of elapsed time multiplied by the budgeted cost of the work item.
CPI (Cost Performance Index): The cost performance index, calculated as EV / AC.
SPI (Schedule Performance Index): The schedule performance index, calculated as EV / PV.

Note: Since both performance indicators use Earned Value as the numerator, values above 1 indicate favorable performance.

Case Study:

Scenario: A construction company is building three identical buildings and the time has come to contract masonry services. All site engineers received the same schedule and budget for execution. However, there is a difference in masonry quantities between the basic design and the executive design, as shown below:

Masonry Quantities
Contractual Budget
Construction Schedule

Interpretation of Information:

The ground floor masonry work is on the critical path.
The ground floor masonry quantity did not change between the basic and executive designs.
The window frame installation (contramarco) has a Finish-to-Start + 1 day relationship with the masonry work, creating a 3-day float for masonry completion.

Procurement:

The company's supply department was engaged to quote materials and labor based on the executive design quantities. The competitive bidding results and observations are presented below.

Competitive Bidding.

Map:

Since all suppliers offer materials of the same quality and there are no delivery restrictions, the engineers at all three projects chose Supplier A for materials.

But what about labor contracting? What would be the best approach? Each engineer adopted a different strategy:

Engineer 1: "I have 25 days to produce 1,325 m² of masonry. I will choose the cheapest supplier that meets the required productivity rate, i.e., 1,325 / 25 = 53 m²/day. Supplier Y."

Engineer 2: "The site's responsibility is to produce. Since there are many unforeseen events, we need the supplier who can execute the fastest. Supplier Z."

Engineer 3: "Looking at the schedule, only the ground floor is on the critical path, so I cannot fall behind on that floor. For the other floors, I have a 3-business-day float, so I can choose a supplier with lower productivity as long as they offer the best unit price and commit to reducing block waste during execution. We will go with Supplier X."

Performance Indicators

After 15 days of service execution, the engineering manager visited the sites to conduct a performance evaluation. Which site is performing best? Let's verify:

Engineer 1:

Production: 55 m²/day × 15 days = 825 m²
Labor cost: 825 m² × R$53.00/m² = R$43,725.00
Material cost: (825 / 1,325) × R$75,816.50 = R$47,206.50
AC = R$90,931.50
EV = (825 / 1,325) × R$138,750.00 = R$86,391.50
PV = (15 / 25) × R$138,750.00 = R$83,250.00

Engineer 2:

Production: 60 m²/day × 15 days = 900 m²
Labor cost: 900 m² × R$55.00/m² = R$49,500.00
Material cost: (900 / 1,325) × R$75,816.50 = R$51,498.00
AC = R$100,998.00
EV = (900 / 1,325) × R$138,750.00 = R$94,245.30
PV = (15 / 25) × R$138,750.00 = R$83,250.00

Engineer 3:

Production: 50 m²/day × 15 days = 750 m²
Labor cost: 750 m² × R$52.00/m² = R$39,000.00
Material cost: (750 / 1,325) × R$73,630.25 = R$41,677.50
AC = R$80,677.50
EV = (750 / 1,325) × R$138,750.00 = R$78,537.70
PV = (15 / 25) × R$138,750.00 = R$83,250.00

Conclusion:

With the Earned Value data calculated, we can assess the performance indicators across all three sites. Engineer 3 achieved the best Cost Performance Index, even though the site is slightly behind schedule. However, this delay does not jeopardize the overall project deadline, as the float identified in the schedule (3 days) is greater than the estimated delay (0.06 × 25 days = 1.5 days).

Let us continue refining our practices and ensure we are always aligned with the highest standards of cost engineering.

Thanks!

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