Article #287 Contract Based Earned Value Management (EVM) Analysis for Capital Construction Projects

When it comes to delivering capital construction projects, it is a very common practice that project owners will transfer the risk for delivering the projects by procuring the different contracts for delivering the scope of work. Those contracts could be for construction works, site supervision and even project management services. For construction works, it is also a growing trend to use bid packages as a project delivery to breakdown the project’s scope of work into specific contracts that can be awarded to different qualified contractors. This will enable to fast-track the project’s design, procurement and construction phases to reduce the overall project delivery duration.

For a project owner to have a more meaningful earned value management (EVM) monitoring and evaluation, the earned value measures need to be applied on each contract level and then consolidated at the project level. This means that the Budget at Completion (BAC) value should be the current contract’s approved value that will equal to the awarded contract value plus all approved change orders to date. The Planned Value (PV) will be the planned amount for what the Contractor will invoice at the end of the current period. This is equivalent to the values calculated in the Contractor’s cost-loaded schedule. The Earned Value (EV) will be the current period approved percent complete as per the updated schedule multiplied by the contract’s approved value as explained above. The Actual Cost (AC) will be the total of interim progress invoices approved to date. Those values will then be used the EVM metrics for Schedule Variance (SV), Cost Variance (CV), Schedule Performance Index (SPI) and Cost Performance Index (CPI).

Using a Project Management Information System (PMIS) like PMWeb, organizations can capture the details of all projects and contracts within each project. PMWeb commitment module will be used to capture the details of awarded contracts, lump sum and unit price contracts, for construction, supply, supervision, project management consulting and other professional services. The contract value will be the baseline Budget At Completion (BAC) value for the earned value management (EVM) reporting.

The details of each contract need to be aligned with the cost loaded schedule of the relevant contract agreement. The level of detail will use the same cost breakdown structure (CBS) levels used in the cost loaded schedule. The calculated cost loaded value for each period in the project schedule will become the basis for providing the planned invoice or cost value for each line item in each contract. Those values should be aligned with the progress earning rules for each contract and items within a contract. Those are the values that will become the basis for calculating the Planned Value (PV) value for each progress period.

PMWeb change order module will be used to adjust the baseline contract value when needed. PMWeb change order module will capture all approved, pending and disputed change orders. In addition, there is an option to associate the PMWeb change order module with PMWeb potential change order module. The potential change order module will be used to capture all early warning notifications, claim notices and other change documents that could lead to a change order if they have merit and approved.

The interim payment certificate (IPC) valuation will be captured using PMWeb progress invoice module. The interim payment certificate (IPC) will be used to calculate the Earned Value (EV) and Actual Cost (AC) measures for each contract line item Each line item in the progress invoice will be linked with the relevant project schedule activity which will be the basis for importing the percent complete (%) for the activity as per the linked updated schedule for the same progress period. The percent complete (%) value will be used to calculate the Earned Value (EV) for the period by multiplying the percent complete value with the Budget At Completion (BAC) value for the relevant item in the contract agreement.

The last needed measure for earned value management (EVM) metrics will be the Actual Cost (AC) value for the work in place for the current period. The details of which will be captured using the same PMWeb progress invoice module. PMWeb will keep track of the calculated Earned Value (EV) and Actual Cost (AC) for each progress period to enable producing the earned value management (EVM) metrics trend reports.

Similar to all other PMWeb project management processes, the approved baseline contract, potential change orders, change orders and progress invoices can be attached will all supportive documents that will be usually uploaded and stored in PMWeb document management repository. In addition, links to relevant PMWeb records and imported MS Outlook emails can be added to each process transaction.

In addition, each process can be associated with a workflow to formalize the submit, review and approve process. The workflow will be used to map the workflow tasks, their sequence, duration, responsibility, conditions for resubmit, possible actions among others. The workflow could also have conditions to map the approval authority levels usually associated with financial transactions.

Of course, the earned value management (EVM) measures and metrics for each contract at the end of each progress period can be consolidated to produce the project EVM report. This will provide the project owner with a better and more reliable monitoring and evaluation of their projects’ portfolio performance for which the reporting can be done at enterprise, program, project and contract level as well as at the cost breakdown structure (CBS) level for each contract. Although the calculated Schedule Variance (SV) and Schedule Performance Index (SPI) provides an indication if a contract, project or program is ahead or behind the planned schedule, never the less, the Cost Variance (CV) and Cost Performance Index (CPI) are not an indication if the project is under or over cost but rather whether the Contractor, Supplier or Consultant actual funds earned are more or less of the value earned as per the approved project schedule percent complete. For a Project Owner, this is an important indicator to show if what cost percent complete is less than the physical percent complete or not.

About the Authorfounder

Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with 40-year service record providing project management, project controls services and project management information system to over than 200 projects with a total value in excess of US $100 Billion. Those projects included Commercial, Residential, Education and Healthcare Buildings and Infrastructure, Entertainment, Hospitality and Shopping Malls, Oil and Gas Plants and Refineries, Telecommunication and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training and business development.

Bassam is a frequent speaker in topics relating to Project Management, Strategic Project Management and Project Management Personal Skills. Over the past 40 years he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe and South America. He has written more than 300 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP) and Earned Value Professional (EVP) from the American Association of Cost Engineers (AACE) and Green Project Management (GPM).

Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA and London Business School, London, UK.


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