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August 14, 2023

How to Implement Earned Value Analysis Into Your Construction Project

Construction projects are multifaceted endeavors that require meticulous planning, precise execution, and effective financial management. To achieve success, construction professionals must monitor and control various project aspects, such as cost, schedule, and progress.

Earned Value Analysis (EVA) is a powerful project management technique that integrates three fundamental components: planned value (PV), actual cost (AC), and earned value (EV). By comparing these metrics, construction executives and field teams can evaluate project performance and financial health, increasing the likelihood that projects stay on track and within budget.

This article will serve as a guide to earned value analysis in construction. We’ll cover what EVA is and why it’s important. Then, we’ll dive into how Avvir is revolutionizing the construction industry by providing real-time and accurate earned value analysis, offering executives and field teams unprecedented financial visibility and confidence in their construction projects.

The Fundamentals of Earned Value Analysis (EVA) in Construction

Earned Value Analysis is an essential part of the broader concept of Earned Value Management (EVM), which integrates cost, schedule, and performance measurements to assess project progress comprehensively.

The Project Management Institute (PMI) states, “Earned Value Analysis is a method that allows the project manager to measure the amount of work actually performed on a project beyond the basic review of cost and schedule reports.”

PMI also notes that earned value is sometimes referred to as the budgeted cost of work performed (BCWP), and enables project managers to “compute performance indices or burn rates for cost and schedule performance.”

How to Calculate EVA

The formula to calculate Earned Value is:

Earned Value = Actual Amount of Work Complete x Task Budget

The amount of work completed is expressed as a percentage.

As mentioned, earned value is one component of an earned value management system. The other two components of earned value management are:

By looking at these values, stakeholders can better understand where their project stands.

The Information Derived from Earned Value Analysis

In construction, EVA can serve as a cost management tool. The metric enables stakeholders to compare the baseline, or the initial planned value of the work, against the actual progress achieved to date. This comparison allows them to calculate the cost performance index (CPI) and schedule performance index (SPI), critical indicators of the project's financial and schedule efficiency.

CPI measures the cost efficiency of the project. It’s calculated as the ratio of EV to AC. If CPI is greater than 1, the project is under budget. If CPI is less than 1, the project is over budget. Project team members can also denote cost variances by subtracting AC from EV.

SPI, on the other hand, assesses the schedule efficiency of the project and is calculated as the ratio of EV to PV. An SPI greater than 1 denotes that the project is ahead of schedule, while an SPI less than 1 indicates a delay in the project schedule. Project team members can also denote schedule variances by subtracting the PV from EV.

The Importance of Financial Visibility in Construction Projects

Earned value analysis: entrepreneurs having a discussion

Financial visibility is the ability to access accurate and real-time financial data for a construction project. Construction projects involve significant monetary investments, and maintaining financial visibility is crucial to ensure project profitability and success.

Construction executives and field teams need access to reliable and up-to-date information to monitor cost and schedule performance, as well as make informed decisions to keep the project on track. Accurate financial reporting can provide early warnings, giving stakeholders the chance to alter the project plan.

Without financial visibility, construction projects are vulnerable to cost overruns, schedule delays, and other inefficiencies that can jeopardize the project's success. The sooner an issue is identified, the easier it is to make adjustments and remain within the project budget. Earned Value Analysis, as part of Earned Value Management, provides stakeholders with the necessary financial visibility to make data-driven decisions and optimize resources effectively.

Avvir Empowers Construction Teams With Accurate Data

Avvir has emerged as a game-changer in the construction industry, offering unprecedented financial visibility and confidence. Avvir offers real-time and precise data on construction project progress and financial status. This revolutionary solution enables construction executives and field teams to make well-informed decisions, enhance collaboration, and ensure project success.

Traditional methods of construction progress monitoring often rely on manual inspections and time-consuming data collection. Avvir's laser scanning and 360 degree photo analysis technology revolutionizes this process by providing high-resolution analysis of as-built conditions on the construction site. In the analysis these scans or 360 photos are compared against the 3D sub trade-coordinated BIM model, enabling real-time monitoring of project progress.

By using Avvir's automated progress monitoring, stakeholders can track completed work accurately and efficiently. This real-time information allows team members to identify delays, bottlenecks, and potential cost overruns. As a result, they can take proactive measures to mitigate risks and ensure the project stays on schedule and within budget.

3 Ways Avvir Helps Manage Costs

Let’s take a closer look at a few of the ways project teams can implement Avvir to track and maintain overall project costs.

1. Produces Earned Value Analysis Reports

One of the most significant advantages of Avvir is its ability to perform accurate earned value analysis. By integrating the project's BIM model with reality capture data like laser scans and photography, Avvir can precisely measure the actual progress made on the project. This data is then compared against the project baseline, or planned progress, to calculate the EV, AC, and PV in real time.

The Avvir platform automatically generates comprehensive EVA reports, providing stakeholders with a clear and detailed understanding of the project's financial health. These reports include crucial metrics and offer valuable insights into cost efficiency and schedule adherence. Armed with this information, project teams can make data-driven decisions to optimize resource allocation and keep the project on track.

2. Identifies and Mitigates Project Risks

Construction projects are inherently risky due to factors like unexpected weather events, labor shortages, and material supply disruptions. Avvir's real-time progress monitoring and accurate EVA reports empower stakeholders to identify potential risks early in the project lifecycle. By recognizing these risks promptly, construction teams can implement mitigation strategies to minimize their impact on the project's timeline and budget.

Avvir's data-driven approach to risk management enables construction professionals to analyze historical trends and patterns in project performance. This analysis allows them to proactively address potential issues and adjust their strategies to ensure project success.

3. Enhances Collaboration and Communication

Effective communication and collaboration among project stakeholders are essential for successful project execution. Avvir's cloud-based platform allows easy access to progress reports, EVA analyses, and other project-related data for all team members, regardless of their location. This seamless communication fosters transparency and collaboration, leading to improved decision-making and increased project efficiency.

The Avvir platform acts as a centralized hub for project data, streamlining communication between different teams and reducing the chances of miscommunication or data discrepancies. This level of transparency and collaboration ensures that all stakeholders are on the same page and can collectively work towards achieving project objectives.

This can be very useful in the resolution of change orders and any disputes with budget which may arise on the project. It can also help streamline project closeout and the release of retained funds, ultimately yielding a smoother process for final payment.

Earned Value Analysis Can Help Project Job Costs

Earned value analysis: engineer using a walkie talkie while holding a tablet

Earned Value Analysis (EVA), as part of Earned Value Management, is a powerful tool that provides construction executives and field teams with financial visibility and confidence in their projects. By tracking earned value reports, stakeholders can better understand the projected budget at completion. They can also take measures to reduce cost variances and ensure the project’s total cost remains within budget.

There are tools available that can help construction professionals in their earned value analysis efforts. One such tool is Avvir.

Avvir can help enhance project efficiency, profitability, and overall success. As technology continues to advance, Avvir's innovative approach will undoubtedly play a vital role in shaping the future of construction program management. Be sure to contact us today to learn more about how Avvir can help improve your current processes and methodologies.

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