Earned value management (EVM) is a vital tool that contractors, construction managers, project managers and owners use to track, measure, and assess project progress and performance. EVM provides a set of leading indicators that are easily understood. With proper inputs, the tool can enable forecasting of schedule and budget performance and other significant performance trends.
EVM’s popularity has grown, and it is used in a number of different applications, from large construction to IT projects. Regardless of the application, the basic methodology is the same – comparing a project’s plan to its actual performance.
Owners and external stakeholders – even those with limited experience – have found EVM an effective tool for understanding progress and causes for issues. However, for EVM metrics to be meaningful, owners need to know which data the contractor must provide and what that data tells them about the health of their projects.
We will cover six tips for owners to keep in mind to help make sure that EVM systems are properly set up using the appropriate data. In our experience, owners must ensure contractors are in compliance with EVM requirements, which means they should clearly specify the contractor’s obligations in a commercial agreement.
For that reason, we’ll focus on addressing some of the granular details owners’ teams commonly gloss over when structuring EVM and cover why those details are important.
Six Tips for Owners to Implement an Effective EVM System
- Obtain buy-in to EVM at the project’s outset: Contractors who manage one way and report a different way can confuse owners and external stakeholders. Owners benefit from the performing groups (contractors, work groups, engineers) agreeing to use a common EVM system for tracking the work. Having the contractor’s project leadership reporting the same metrics as the owner’s team breeds accuracy and confidence. Alignment between project executives and senior management should commence at the start of the project and be continually confirmed as the work progresses.
- Cement mutual commitments to data fidelity: From the project’s outset, owners should be very specific as to the data contractors should provide and how often it should be published. The project’s commercial terms and conditions should anticipate potential issues so that the contractors understand expectations and set up their systems to meet them. The project teams should be required throughout the project to address and eliminate any fidelity problems in project data and reporting. Given the importance of reporting, it is not unreasonable for owners to include financial penalties for incorrect or late progress reporting in the project’s contract.
- Set realistic activity budgets: Owners need to know the EVM system has integrity. The performing groups (contractors, work groups, engineers) must ensure the scope of their work is reflected in realistic man-hour and cost budgets within the detailed project schedule and associated work breakdown structure (WBS). Contractors need to report their progress against the correct WBS codes so that an accurate comparison of earned versus planned can be made. As the project progresses, contractors must resist claiming that work is more complete than it is or reporting level-of-effort activities with the same weight as work activities. To guard against this, owners need to actively manage their projects and verify contractors’ progress with their own eyes. Also, rules should be set at the outset regarding how changes to the contract will be handled from a data and reporting perspective.
- Obtain actual hours: Owners need to know whether the performing groups are providing sufficient human resources to get the job done, and that the work is being done efficiently. To achieve this, we recommend owners require the contractors to provide their actual work hours along with their earned hours. This provides both a measure of the accuracy of the contractor’s estimated hours, and a critical gauge of a contractor’s productivity. An accurate measure of contractor productivity allows the owner to forecast completion and budget performance.
- Align commercial milestones with EVM: Owners want to know that they are getting value for the money paid to their contractors. Commercial contracts often contain incentive or milestone payments that depend on the contractor achieving certain major milestones. However, attention is not often paid to ensuring that these payment or incentive milestones are aligned with EVM. As an example, meeting a payment milestone often requires merely starting an activity, while EVM measures actual progress over time. To the extent possible, the parties should seek to align these kinds of incentives with EVM.
- Use other metrics to confirm EVM: Owners who depend solely on EVM may be surprised when the work getting completed and reported in aggregate appears to be appropriate though the key work is not getting done. Owners often benefit from other sources of information to validate the picture EVM is providing. This information includes verifying the physical percent completion of work in the field; identifying whether cost trends are in line with schedule performance; and reviewing whether key commodities, materials and engineered equipment are being ordered in time, among other key indicators. Obtaining this information often depends on the depth and capabilities of the owner’s field team. In light of such concerns, the owner should evaluate its needs for independent verification of the contractor’s work.
Owners benefit from having systems in place that readily and clearly explain the progress being made on their projects. EVM, when properly employed, fills the owner’s needs. If owners keep in mind some of the suggestions above, the metrics produced from the project are much more likely to be meaningful and accurate.
