Start » How-to » Project Management » The earned value analysis in construction

The earned value analysis in construction

Construction projects are often carried out in fixed-price contracts. This is possible for smaller orders, such as a small assembly aid or device, without major controlling efforts. However, as soon as larger constructions are involved or several people are working together on a project, it is no longer so easy to keep an eye on the project and possible deviations. Status reporting is usually used in such projects (see also: how to write a project status report).

Part of this reporting is called the forecast. The aim is to make the most reliable estimate possible of the working costs that can still be expected. This assessment can be made intuitively, although in practice it has been shown that this does not always provide reliable values. A typical effect is that optimistic estimates are made until the budget is used up. And a “surprisingly” spent budget means in most cases that you are left with all or at least some of the additional costs because you could not take countermeasures in time.

Earned value analysis can be used as part of project controlling in order to be able to provide a good forecast of results.

Time recording poses a challenge when implementing this method: in projects it is usually not customary to record times for sub-steps of a work package. Instead, the processing time that has accrued in the entire work package is recorded. However, the method can still be used.

How does it work?

The spreadsheet

The starting point for the earned value analysis is the calculation of the work packages of a project. In the following, a fictitious work package “Draft” of a construction project is shown as an example, for which certain expenses have been calculated and contractually agreed.

ActivityHours planned
Regulations research20
Deriving the requirements20
Append the list of requirements10
Description of the functions10
Pre-selection of components20
Inquiries from component suppliers40
Design of the functional groups60
Design of the spatial arrangement40
Preliminary material selection20
Selection of energy sources and media20
Determination of the design criteria20
Performing strength calculations40
Carrying out kinematic calculations40
Evaluation and selection of possible solutions40
Sum400 h
Example calculation for the work package “Draft”

The entire “design” work package thus includes a processing time of 400 hours for the activities listed in the table.

The forecast table – variant 1

Variant 1 describes the earned value analysis when booking the hours on the work package.

Assuming the work package is being processed by a single person, we are in the third week of the project, 110 hours have been booked for the project and a result forecast is to be made. The table shown above is supplemented by a column for assessing the degree of completion of the individual steps and the result forecast is calculated.

ActivityHours planned PProgress F in %
Regulations research20100
Deriving the requirements2080
Append the list of requirements1050
Description of the functions1050
Pre-selection of components2025
Inquiries from component suppliers4025
Design of the functional groups60
Design of the spatial arrangement40
Preliminary material selection20
Selection of energy sources and media2050
Determination of the design criteria20
Performing strength calculations40
Carrying out kinematic calculations40
Evaluation and selection of possible solutions40
Sum PLANNED400 h
Sum ACTUAL110 h 17,75 % (weighted)
Forecast (Sum ACTUAL / Progress)620 h
Evaluation of the degree of completion, general time recording

The degree of completion of the individual steps must be estimated for the preparation of the forecast. It is ideal to specify a gradation (if necessary in 5-20% steps). However, larger increments require that the individual steps do not have an extraordinarily large hourly budget.

The weighted total degree of completion is calculated as follows:

\[ F_{ges} = \frac{\sum \left( P_i \cdot F_i \right)}{\sum P_i} \]

The result forecast for the expected total processing effort is now obtained by dividing the actual hours by the weighted degree of completion.

In this case the prognosis is 620 hours.

What about when the hours are booked on the individual steps?

The forecast table – variant 2

In variant 2, it is assumed that the time recording for the project allows the effort to be allocated to the sub-steps of the work package. This means that the forecast table is expanded by a column for the booked hours of the sub-step.

ActivityHours planned PActual hours IProgress F in %Remaining effort R in h
Regulations research20251000
Deriving the requirements2015803,75
Append the list of requirements10105010
Description of the functions10105010
Pre-selection of components20152545
Inquiries from component suppliers40152545
Design of the functional groups6060
Design of the spatial arrangement4040
Preliminary material selection2020
Selection of energy sources and media20205020
Determination of the design criteria2020
Performing strength calculations4040
Carrying out kinematic calculations4040
Evaluation and selection of possible solutions4040
Sum400 h110 h393,75 h
Forecast (Actual hours + Remaining effort)504 h
Evaluation of the degree of completion, time recording for individual steps

The remaining costs of the individual steps are calculated as follows:

\[ R_i = I_i \cdot \left( \frac{1}{F_i}-1 \right) \]

In this case, the prognosis is 504 h, which is significantly below the prognosis of variant 1. In addition, the evaluation of the individual steps clearly shows at which points particularly large deviations occur or have occurred.

The evaluations shown here must be created for all work packages of the project and then merged into an overall forecast.

Conclusion

The earned value analysis for forecasting project results can be easily implemented in construction projects – as long as work packages are used in project planning and time recording is available. The prognosis for time recording on the work package is basically more pessimistic – but this does not have to be bad due to its function as a warning signal for project controlling.