This course introduces the types of cost estimation from the conceptual design phase through the more detailed design phase of a construction project. In addition, the course highlights the importance of controlling costs and how to monitor project cash flow. Students will work on a break-even analysis of construction tasks in a project.
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Earned Value Method (EVM)
In this module, Professor Odeh goes deeper into the Earned Value Method of Cost Control.
Instructor, Department of Civil Engineering and Engineering Mechanics, Columbia University Director of Research and Founder, Global Leaders in Construction Management
Hello everyone, in this module, we will build on what we
discussed before, related to the earned value method.
And to take it further up,
as I mentioned since the EVM is the most common used
cost control method in our construction projects,
and I want to emphasize more on an example and
what's exactly what we mean from a definition and objectives.
That been said, let's go to defining earned value method.
As a definition, earned value method is a way to
calculate the work of progress on a project
using a work account based breakdown system.
In matter of fact, this method started to
be implemented by government agencies
first here in the US in the early 70s.
And it used and implemented to help
control both the costs as well as
the schedule of complex projects.
It was called in the beginning,
the Cost/Schedule Control Systemic Criteria or C/SCSC.
Then some private owners, I think it was in the power sector,
started using very similar systems as a means to
report back to the government as their clients.
That helped or actually encouraged to place
requirements use of the C/SCSC or what we refer to,
the earned valued concept in our industry.
The main idea behind the earned value is based on
the development of the percent complete of the budgeted
costs associated with an individual work package.
So at the earned value method or EVM,
there is a direct relationship is established
between percent complete of an account and
the budget for that account.
This relationship is expressed with the equation
earned value equal percent complete times budget for that account.
This is for the definition.
Now, objective, the main objective of the earned value method is determining
project progress addresses both cost status and the schedule status.
From a cost status point of view, that means to identify if the project
is on budget, is over budget, or is under budget.
For the schedule status also to identify if the schedule you have is
on schedule or behind or ahead of schedule.
So let's take a very simple example here.
If we have a budget for a specific activity or account of $10,000,
and also a 60 working hours have been budgeted for
that specific or given account.
And we says that the account is 25% complete.
Then if we want to identify how many working hours have been used and
how many value has been earned, we would just multiply.
As I mentioned, the earned value is the percentage
times the budget cost or the budgeted time or
the schedule which is 25% times that 10,000 or
the 25% times the 60 worked hours.
And that will give you $2,500 and 15 work hours have been earned to date.
So this is the concept, I'm simplifying it here before
we move forward in more advance of the concept of the EVM.
Of what's the earned value from the initial
budgeted when we finish 25%, as we can see here.
Since progress in all accounts can be calculated as an earned dollars or
an earned work hours, this provides a method for
summarizing multiple accounts and
calculating overall progress.
So we can say that the percent complete equal
to the earned dollars of all accounts divided
by the budgeted dollars of all accounts.
So it is as if, as I mentioned the earned value equals the percentage times
the budgeted, we just took the budgeted over the earned and equal the percentage.
So the percentage complete is equal to the earned dollars or
work hours of an account, or all accounts divided by the budgeted
work hours or dollars of all accounts or one account.
The next challenge is to analyze the results for
the purpose of determining how well work is
it proceeding as compared to what was planned for.
So far, only budgeted and earned dollars or
work hours have been identified with the formula that I just highlighted.
Next, actual work hours or
actual dollars have to be identified.
This will take us to the introduction to the mean parameters or
actually four parameters we want to highlight,
that we need to understand in order to catch the fundamental concept or
the foundation of the earned value method or the EVM.
So let's say here, on each work package,
there is an estimated initial budget that we refer
to as the budgeted cost at completion, BCAC.
When we progress with the work on that work package or a matter of fact,
any work package, we start to do an assessment of what is
the percent completed in any day during the project.
We call that day or any day that we want to identify
as the study date of that work package progress.
Now, from the beginning of the project, we have the initial schedule.
The schedule establishes an expected level of work completion on any
of the study dates during the duration of that work package.
Delivery of expected production
usually identified as an s curve.
That shows the relation between the costs,
or units of production, and time.
We refer to that production curve or the s curve as
sometimes the baseline or the budgeted curve.
Let's draw it here.
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Ibrahim Odeh, Ph.D., MBAInstructor, Department of Civil Engineering and Engineering Mechanics, Columbia University
