Earned Value

Clear feedback for honest work…

One problem with managing a complex project is getting an accurate sense of the progress and how much (extra) time and money (yours) it will take. Every project faces scheduling issues, people getting sick, delays with materials, etc. For example: in a home remodel project, when you ask your contractor “How’s the work going?” you may receive feedback like “We’re on track”. However, you need to know the details about what’s happening. That’s where “Earned Value” comes in.

Earned value helps to create clear, reliable two-way communication and prevent little problems from exploding.

How Earned Value Works:

I’ll use a home remodel project as an example, though it could be any complex project. Complex projects have dependencies that affect time and costs. For example, the foundation can’t be dug until the building permit is issued and the permit won’t be issued until the blueprints are complete. Each item in a dependency chain affects anything following it.

Project managers assign milestones to the key tasks in the chain of tasks from start to finish. They can also assign a dollar or percentage value (for the release of funds to the contractor) to the completion of that task. Here’s a simple example:

Remodel Milestones

Milestone #1: Design completion and permits approved- 10%. - March 1

Milestone #2: Materials delivered to site - 30%. - April 1

Milestone #3: Demolition and cleanup - 5%. April 3

Milestone #4: Framing and electrical inspections passed - 25%. - May 15

Milestone #5: Final punch list inspection accepted - 30%. - May 24

In this example, each milestone represents a block of Earned Value. Passing a milestone means that the work is completed by the contractor and accepted by you (or your designated inspector). Passing a milestone means that the value for the work leading up to it has been earned and can be paid out.

Milestones can also be assigned a due date. This allows you to know if you are facing delays, deal with issues before they get too far advanced, and hold the contractor accountable for the progress. The earlier you detect problems, the faster and cheaper it is to deal with or avoid them.

Why it matters:

• Better communication. Instead of getting the answer “It’s all good” when you ask how things are going, you can expect “We’re finished with design and permits and expect the materials onsite by next Monday.”

• Better understanding of the costs, schedule, and issues affecting the project.

• The contractor has incentives to properly complete each stage of the work. Even if it turns out it’s a bad contractor you must fire, you’ll know it much sooner and that helps limit the damage.

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  That’s my perspective…

I hope you find this post useful. Let me know your thoughts. I read and respond to all messages.

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