Cost Control of Projects:
An Introduction to Earned Value Analysis
Earned value analysis is a method of performance measurement. Many project managers manage their project performance by comparing planned to actual results. With this method, one could easily be on time but overspend according to the plan. A better method is earned value because it integrates cost, schedule and scope and can be used to forecast future performance and project completion dates. It is an “early warning” program/project management tool that enables managers to identify and control problems before they become insurmountable. It allows projects to be managed better – on time, on budget. Introduction
Different traditional approach like performance reviews; project audit reports and key performance indicators have the limitation to relate the true cost performance of the construction project. Usually two data sources are used in traditional approaches, the actual expenditures and budget expenditures. The physical amount of work performed cannot determine by only compare these two data sources and it does not indicate anything about what has actually been performed for the cost spent, or performed according to the schedule. This paper briefly discusses about the Earned Values Analysis (EVA) as the alternative tools to control and monitor the projects. Earned Value Analysis
Earned Value Analysis (EVA) is a management tools to evaluate the performance of a project and also indicate what will happen in the future. EVA is an enhancement for the traditional approaches. Usually traditional approaches only focus on planned expenditures and actual expenditures and EVA goes one step further to examine the actual accomplishment. EVA will give managers more clear picture for the project. Sometimes, it acts like “early warning” tools that manager able to identify and solve the problems before they become insurmountable. It also provides a quantitative basis for the estimate cost and estimate completion time. Brief Earned Value History
In 1963, PERT (Program Evaluation Review Technique) started to introduce the basic concept of Earned Value. PERT was failed but the basic concept of Earned Value was adopted by Department of Defense (DoD) become one of the key elements for the Cost/Schedule Control Systems Criteria(C/SCSC) which established in 1967 to standardize contractor requirements for cost reporting and schedule performance. C/SCSC was compiled by Air Force and 35 statements were defined for the minimum requirements for an acceptable project management system. Due to excessive checklist and paperwork, specialist acronyms, and overly complicated methods and tools, many companies implement the C/SCSC in word only. However, many researchers still support C/SCSC as effective management tools by statistical evidence. DoD also started to remove excessive and ineffective components of the C/SCSC in the past few years and earned value is being used for government projects and several commercial projects. Description of Earned Value Analysis Terms
There are three basic quantities forms being define in Project Management Institute: A Guide to the Project Management Body of Knowledge (PMBOK) for Earned Value Management. They are listed below: a) Budgeted Cost of Work Performed (BCWP) or Earned Value (EV) – The sum of budgets for completed work and completed portions of open work packages. b) Actual Cost of Work Performed (ACWP) or Actual Cost (AC) – The actual cost for completed work within a given time period. c) Budgeted Cost of Work Scheduled (BCWS) or Planned Value (PV) - The sum of budgets for all scheduled work to be accomplished within a given time period. From these three basic quantities forms, we can determine the total budget and also the performance of projects as well as estimation of costs and completion time. Additional quantities forms are used to schedule performance, program budget and record the costs: a) Performance...
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