Cost Control & Monitoring of Earned Value Management Components
Quantity Surveying is a crucial aspect of construction management that involves estimating and managing the cost of a construction project. One of the most important functions of a Quantity Surveyor is cost control and monitoring, which involves ensuring that a project stays within its budget while meeting all the required quality standards. In this blog, we will discuss the concept of Earned Value Management (EVM) and its components, and how they can be used to control and monitor the costs of a construction project.
What is Earned Value Management?
Earned Value Management (EVM) is a project management technique that combines time, cost, and scope to measure project performance. It is a comprehensive approach to monitoring and controlling a project's progress, which enables project managers to determine the actual performance of a project against its planned performance. EVM allows project managers to measure and analyze the progress of a project in a more objective manner, which in turn helps them to make more informed decisions about resource allocation, risk management, and cost control.
The Components of Earned Value Management
There are three key components of EVM that are essential for effective cost control and monitoring in a construction project. These components are:
Planned Value (PV)
Planned Value is the planned cost of work that is scheduled to be completed at a specific point in time. It is the authorized budget assigned to a specific work package or project activity. PV is also known as Budgeted Cost of Work Scheduled (BCWS) and is calculated based on the project's approved budget.
2.Actual Cost (AC)
Actual Cost is the actual cost incurred in completing a project or work package. It includes all direct and indirect costs associated with the project or work package. AC is also known as Actual Cost of Work Performed (ACWP) and is calculated by summing up all the costs incurred in performing a work package or project activity.
3. Earned Value (EV)
Earned Value is the value of the work that has been completed at a specific point in time. It represents the value of the work that has been completed as a percentage of the planned value of the work. EV is also known as Budgeted Cost of Work Performed (BCWP) and is calculated by multiplying the percentage of work completed by the planned value of the work.
Using EVM for Cost Control and Monitoring
To use EVM for cost control and monitoring, project managers must calculate the PV, AC, and EV of a project or work package. The following are the steps involved in using EVM for cost control and monitoring:
Calculate the Planned Value (PV)
The PV is the planned cost of work that is scheduled to be completed at a specific point in time. To calculate the PV, project managers must first break down the project into work packages or project activities, assign a budget to each work package, and determine the planned completion date for each work package. The PV for each work package is then calculated by multiplying the planned budget for the work package by the percentage of time that has elapsed.
Calculate the Actual Cost (AC)
The AC is the actual cost incurred in completing a project or work package. To calculate the AC, project managers must track all direct and indirect costs associated with the project or work package. The AC for each work package is then calculated by summing up all the costs incurred in performing the work package.
Calculate the Earned Value (EV)
The EV is the value of the work that has been completed at a specific point in time. To calculate the EV, project managers must determine the percentage of work completed for each work package and multiply it by the planned value of the work package. The EV for each work package is then added up to determine the total EV for the project.
Analyze the Variances PV, AC, and EV have been calculated, project managers can use them to analyze the variances and make necessary adjustments to the project plan. The following are the key variances that project managers should analyze:
Schedule Variance (SV)
Schedule Variance measures the difference between the Earned Value (EV) and the Planned Value (PV). If the SV is positive, it means that the project is ahead of schedule, while a negative SV indicates that the project is behind schedule. Project managers can use SV to adjust the project plan to ensure that the project is completed within the planned schedule.
Cost Variance (CV)
Cost Variance measures the difference between the Earned Value (EV) and the Actual Cost (AC). If the CV is positive, it means that the project is under budget, while a negative CV indicates that the project is over budget. Project managers can use CV to adjust the project plan to ensure that the project stays within the approved budget.
Schedule Performance Index (SPI)
Schedule Performance Index is the ratio of Earned Value (EV) to Planned Value (PV). If the SPI is greater than 1, it means that the project is ahead of schedule, while an SPI less than 1 indicates that the project is behind schedule. Project managers can use SPI to adjust the project plan to ensure that the project is completed within the planned schedule.
Cost Performance Index (CPI)
Cost Performance Index is the ratio of Earned Value (EV) to Actual Cost (AC). If the CPI is greater than 1, it means that the project is under budget, while a CPI less than 1 indicates that the project is over budget. Project managers can use CPI to adjust the project plan to ensure that the project stays within the approved budget. By analyzing these variances, project managers can determine the actual performance of the project against its planned performance and make necessary adjustments to the project plan to ensure that the project stays within the approved budget and schedule.
Conclusion
In conclusion, Earned Value Management is a comprehensive approach to monitoring and controlling a project's progress, which enables project managers to determine the actual performance of a project against its planned performance. The key components of EVM are Planned Value (PV), Actual Cost (AC), and Earned Value (EV). By calculating PV, AC, and EV and analyzing the variances, project managers can use EVM for effective cost control and monitoring in a construction project.
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