Earned value management is an important process for monitoring projects performance against schedule and budget, it helps providing an early alarm on slippage or overrun of a project and enables addressing them before becoming major. Whether you are a project manager, a cost controller or an engineer working in construction management disciplines; you should have encountered the two indicators for earned value management; the Cost Performance Index (CPI) and the Schedule Performance Index (SPI). This paper demonstrates what is behind calculating the values of these indicators, and what should be done in a typical midsize construction company to have the project data readily available to serve the earned value calculation.

1. October 2018
1
arned value management is an
important process for monitoring
projects performance against schedule
and budget, it helps providing an early alarm on
slippage or overrun of a project and enables
addressing them before becoming major.
Whether you are a project manager, a cost
controller or an engineer working in
construction management disciplines; you
should have encountered the two indicators for
earned value management; the Cost
Performance Index (CPI) and the Schedule
Performance Index (SPI). This paper
demonstrates what is behind calculating the
values of these indicators, and what should be
done in a typical midsize construction company
to have the project data readily available to
serve the earned value calculation.
1. Introduction
After a project is awarded and after the
performance baseline is set, one of the main
concerns of a project manager is to know “how
good” is the project performing and “how
efficient” is the disbursement done on different
project components. This question is
conveniently answered by earned value
analysis. In simple words, Earned Value shows
how much of the budget and time should have
been spent, considering the amount of work
done so far. This paper does not give focus on
the straight forward earned value calculation
formulae, but rather on what should typically
be done to present the project data in a way that
facilitates eared value calculations. A real case
project for a midsize construction company
(ABC Company) is considered, showing a step
by step explanation for the basic requirements
to support earned value management in
companies of similar size and industry.
2. Case Project Details
The project under consideration is
construction of Ethylene Pipeline between two
industrial plants. The project has a baseline
budget of SAR 348,846,760 and an overall
duration of 20 months, the performance report
at month thirteen (13) shows the following:
Earned Value = EV = SAR 122,132,300
Planned Value= PV = SAR 144,540,980
Actual Cost = AC = SAR 123,251,020
The assessment of project performance can be
done applying the simple earned value
formulae
 𝐶𝑜𝑠𝑡 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒 𝐼𝑛𝑑𝑒𝑥 =
𝐶𝑃𝐼 =
 𝑆𝑐ℎ𝑒𝑑𝑢𝑙𝑒 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒 𝐼𝑛𝑑𝑒𝑥 =
𝑆𝑃𝐼 =
For the Ethylene Pipeline project, the CPI and
SPI values are:
E

2. October 2018
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𝐶𝑃𝐼 = 122 132 300 ⁄ 123 251 020 = 0.99
< 1. Hence the project is almost on budget &
𝑆𝑃𝐼 = 122 132 300 ⁄ 144 540 980 = 0.84
< 1. Hence the project is behind the schedule
In case the project continues with the same
trend for cost performance then the estimate at
completion is estimated to be (EAC)
 𝐸𝑠𝑡𝑖𝑚𝑡𝑖𝑚𝑎𝑡𝑒 𝑎𝑡 𝐶𝑜𝑚𝑝𝑙𝑒𝑡𝑖𝑜𝑛 =
𝐸𝐴𝐶 =
For the Ethylene Pipeline project, the Estimate
at Completion is:
𝐸𝐴𝐶 = 348 846 760/0.99
= 𝑆𝐴𝑅 352 370 460
With these simple calculation steps to
assess the project performance, the next section
of the paper will elaborate on what stands
behind the above values of Budget at
Completion (BAC), Earned Value (EV),
Planned Value (PV) and Actual Cost (AC).
3. Contract Price Breakdown
The Budget at Completion for the
Ethylene Pipeline project with a value of SAR
348.8 Million used in the calculation for topic
2 is the baseline against which the project
performance in measured. In the broader view,
this budget is a part of the contract price
(awarded bid price to ABC company) with a
value SAR 404.5 Million. Out of which SAR
348.8 Million is the budget allocated to
perform the work (BAC), while the balance
amount comprises the profit and reserve.
Figure-1 below demonstrates the breakdown of
contract price for the Ethylene Pipeline project
showing the level where earned value
management takes place.
In figure-1 below, the Contract Price is
the negotiated and mutually agreed bid price
between ABC company and the client.
Contract Price includes the Contract Profit and
the Contract Cost (to ABC company). The
Contract Cost is the place where the cost
control will be done. In the case of the Ethylene
Pipeline project, the Contract Cost has a value
of SAR 360.0 Million. Out of which SAR 11.2
Million is kept for Reserve and the balance of
348.8 Million is the Baseline Budget or Budget
at Completion (BAC). The latter was the figure
used for the earned value calculation in topic -
2.
At levels beyond the Baseline Budget,
the budget is broken to control accounts under
three (3) categories of cost; Home Office Cost,
Indirect Field Cost and Direct Field Cost
(Hastak, 2015).
Home Office Cost (HOC)
HOC includes the home office expenses,
project management, construction management
and project procurement. Due to being
comparatively a small portion of the total cost,
all such costs are assigned to a single control
account for this project. HOC management is
not a subject of this paper.
Indirect Field Cost (IFC)
IFC includes temporary construction facilities,
construction services or consumables, field
staff, construction equipment, etc. These costs
are assigned to different control accounts and
are mainly measured based on Level of Effort
(LOE). IFC management is not a subject of this
paper.

3. October 2018
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Direct Field Cost (DFC)
DFC includes the project work items covering
material, construction crews and tools. DFC
constitutes the major part of the budget and
the most variable one. The next topics of this
paper will elaborate further on how to measure
the Direct Field Costs.
Figure 1 Contract Price Breakdown
4. Earned Value Measurement
Having the Budget at Completion
(BAC) set for the Ethylene Pipeline project, the
time factor should be introduced to account for
schedule monitoring. The work packages
constituting the total budget are distributed
versus time along with their budgeted resources
to have a time phased budget. This will enable
calculating the Planned Value (PV) for a given
period of time at the work package level and
rolling up to the baseline budget level. The
sheets below refer to the real data for EV, PV
& AC at different levels for the Ethylene
Pipeline project.
4.1. Level 1- Budget Summary Level
At the highest level of earned value
measurement sheets, the monthly values for
PV, AC & EV are added to the corresponding
cumulative values for the previous period. This
yields the commutative PV, AC & EV to date.
Table-1 below reflects Level 1 calculation
sheet for Ethylene Pipeline project.
Control
Accounts
Control
Accounts
Baseline Budget
348,846,760
Reserve
11,160,200
Profit
44,495,240
Contract Price
404,502,200
Contract Cost
360,006,960
Direct Field Cost
284,300,860
Indirect Field Cost
45,359,900
Home Office Cost
19,186,000
Control
Accounts
EarnedvalueManagement

4. October 2018
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Table 1 Level 1 Earned Value Calculation Sheet
During the month of March 2016, it was
scheduled to do activities worth SAR 9.11
Million (PV). However, the work actually done
is worth SAR 12.01 (EV). This means that
there is more work done than what was
scheduled, giving an indication that the work is
ahead of schedule for the considered period.
Likewise, comparing the budgeted cost of the
work performed (EV = SAR 12.01) to the
actual cost incurred to do the work (AC = SAR
10.91) reveals that the work is done with less
budget for the considered period. The
subsequent tables will demonstrate how are the
data for EV, PV & AC collected at lower levels.
4.2. Level 2 – Cost Group Level
Table-2 below demonstrates Level 2
calculation sheet for Ethylene Pipeline project.
The values are collected as per three cost
categories:
 Direct Field Cost (DFC).
 Indirect Field Cost (IFC).
 Home Office Cost (HOC).
Indirect Field Cost and Home Office
Cost will not be elaborated in this paper.
The paper will have specific focus on the
Direct Field Cost. Direct Field Cost is the
most variable and the greater in magnitude,
DFC includes control accounts and work
items that are mainly discrete and
measurable. However, some of the work
items are not directly measurable, but their
progress can still be assessed using
quantitative and qualitative earned value
progress measuring techniques as follows:
 Quantitative measuring techniques
Units completed: for tasks involving
repeated production of easily measured
pieces of work.
Each piece is considered to have
approximately the same level of effort.
Incremental milestones: progress is earned
only when reaching specified milestones.
Start-finish: for low value and/or short
duration activities 100% progress is earned
at completion.
Earned Value Calculation Form
Project Name 10” C.S. Ethylene Pipeline Project No. 0415
Budget 34,884,676 Location Jubail Client G022
Start Date 20 Feb 15 Finish Date 19 Oct 16 Duration (M) 20
Report Period March 2016
Budget Summary
SN Item
Budget
(Million
SR)
Previous Period
(Million SR)
Monthly Progress
(Million SR)
Cumulative
(Million SR)
Planned
Actual
Earned
Planned
Actual
Earned
Planned
Actual
Earned
Project Summary 348.85 135.43 112.34 110.12 9.11 10.91 12.01 144.54 123.25 122.13

5. October 2018
5
 Qualitative (subjective) measuring
techniques
Level of effort (LOE): used when it's
difficult to measure what work was
accomplished for the budget spent. LOE
progress can be assumed to be equal to the
actual cost divided by the budget.
Supervisor Opinion: used for complex
work not easily measured by other methods
and is the most subjective and least
accurate method.
Table 2 Level 2 Earned Value Calculation sheet
4.3. Level 3 – Control Account Level
The Direct Field Cost for the Ethylene
Pipeline Project is controlled in five (5) Control
Accounts as per table 3 below. Each resource
requested/expended should be
registered/accounted to the corresponding
control account. To enable such accounting, the
project scope should be broken down to the
same five (5) control accounts. Topic 5
describes the requirements for designing the
work breakdown structure to enable earned
value calculation. The control accounts for the
Ethylene Pipeline project are listed in table 3
below, demonstrating level 3 of earned value
calculation, where direct field costs are
accounted and monitored on each control
account.
Considering the particular case of the
control account #1101 referring to (Zone C-
108 Pipeline), table 3 shows the
planned/actual/earned values in three
columns:-
Earned Value Calculation Form
Project Name 10” C.S. Ethylene Pipeline Project No. 0415
Budget 34,884,676 Location Jubail Client G022
Start Date 20 Feb 15 Finish Date 19 Oct 16 Duration (M) 20
Report Period March 2016
Cost Groups Breakdown
SN Item
Budget
(Million
SR)
Previous Period
(Million SR)
Monthly Progress
(Million SR)
Cumulative
(Million SR)
Planned
Actual
Earned
Planned
Actual
Earned
Planned
Actual
Earned
1 Direct Field Cost 284.30 110.37 91.55 89.33 7.42 8.89 9.99 117.80 100.45 99.33
2 Indirect Field Cost 45.36 13.55 9.28 9.28 0.74 1.07 1.07 14.28 10.34 10.34
3 Home Office Cost 19.19 11.51 11.51 11.51 0.95 0.95 0.95 12.46 12.46 12.46
TOTAL 348.85 135.43 112.34 110.12 9.11 10.91 12.01 144.54 123.25 122.13
RefertoTable3

6. October 2018
6
 Column 1 showing the cumulative values
for the previous period from the project
start until the end of last reporting period
(from 20 Feb 2015 till 29 Feb 2016).
 Column 2 showing the values for the
reporting period (March 2016), details on
column 2 values are illustrated in topic 4.4.
 Column 3 showing the cumulative value for
Planned/Actual/Earned from the project
start till the end of reporting period (equals
Column 1 + Column 2). Column 3 from
March report is simply Column 1 for April
report.
Table 3 Level 3 Earned Value Calculation Sheet
Planned Value, Earned Value and
Actual Cost are calculated for each of the five
(5) control accounts and the values are rolled
up to the Direct Field Cost level in table 3. The
next topic will have focus specifically on the
control account 1101 to illustrate how the data
for PV, EV and AC is collected at work items
level
Earned Value Calculation Form
Project Name 10” C.S. Ethylene Pipeline Project No. 0415
Budget 34,884,676 Location Jubail Client G022
Start Date 20 Feb 15 Finish Date 19 Oct 16 Duration (M) 20
Report Period March 2016
Direct Field Costs
Item
C.A.
CODE
C.A.
Budget
(Million
SR)
Previous Period
(Million SR)
Monthly Progress
(Million SR)
Cumulative
(Million SR)
Planned
Actual
Earned
Planned
Actual
Earned
Planned
Actual
Earned
Zone C-108 Pipeline 1101 56.86 55.92 48.80 47.09 2.23 2.67 2.99 58.15 51.47 50.08
Zone C-109 Pipeline 1102 119.41 5.60 4.56 4.45 1.11 1.33 1.50 6.71 5.89 5.95
Zone F-108 Pipeline 1201 68.23 38.63 32.04 31.27 2.60 3.11 3.50 41.23 35.15 34.76
Zone F-109 Pipeline 1202 31.27 10.22 6.11 6.52 1.48 1.78 2.01 11.70 7.89 8.53
Testing & Comm. 1300 8.53 0.00 0.04 0.00 0.00 0.00 0.00 0.00 0.04 0.00
TOTAL 284.30 110.37 91.55 89.33 7.42 8.89 9.99 117.80 100.45 99.33
Refer to Table 4
Column 1
(Previous Period)
Column 2
(Current Period)
Column 3
= Column 1 + Column 2

7. October 2018
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4.4. Level 4 – Work Items Level
For the particular control account 1101,
Table 4 below demonstrates the lowest level
for earned value data collection for the
Ethylene Pipeline project at the work items
level. At this level, the planned value, earned
value and actual cost are calculated as follows:
 Planned Value (PV) is calculated by
multiplying the planned quantities for the
period by the estimated unit rates. Where a
unit rate for a work item is the original
estimated unit rate to include material cost,
manpower cost and other costs for the work
item.
 Earned Value (PV) is calculated by
multiplying the executed quantities for the
period by the estimated unit rates. This
indicates the budgeted amount for the work
actually done.
 Unlike the Planned Value (PV) and Earned
Value (EV), the Actual Cost (AC) for the
Ethylene project was collected at control
account level as illustrated in table 4.
The Actual Cost (AC) collected at the
control account level for CA-1101 along with
Planned Value (PV) and Earned Value (EV)
calculated at the work items level, constitute
the data needed for earned value calculations at
the control account level. Similarly, data is
collected for other control accounts and all
control accounts are rolled up to the "Direct
Field Cost" level and then to the baseline
budget level (figure 1).
Actual cost in ABC company projects
is accounted at work package level or control
account level. The actual cost for the Ethylene
Pipeline project was accounted at the control
account level. Going beyond the work package
level in collecting the actual costs would be
quite beneficial for measuring productivity,
benchmarking and updating the work unit rates
(Hastak, 2015). However, for the case of the
ABC company, the breakdown to work items
level was not feasible due diversity of work
items and for having relatively small
magnitude of work.
The different sources for providing the
information about the actual cost for the
Ethylene Pipeline project is listed below:
Accounting for Actual Cost
S
N
Cost Item Informati
on source
Measuring/acco
unting means
1 Manpowe
r cost
Human
resource
dept.
Timesheets
coded with C.A.
codes
2 Equipmen
t cost
Contracts
&
Procurem
ent. dept.
Purchase orders
coded with C.A.
codes + delivery
notes
3 Subcontra
ctor cost
4 Other
costs
Finance
dept.
Monthly report

8. October 2018
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Earned Value Calculation Form
Project Name 10” C.S. Ethylene Pipeline Project No. 0415
Budget 34,884,676 Location Jubail Client G022
Start Date 20 Feb 15 Finish Date 19 Oct 16 Duration (M) 20
Report Period March 2016
Control Account 1101 Breakdown
SN Item
C.A.
CODE
W.P.
CODE
Cost
Estimate
Last Month
Quantities
Last Month Value
(SR)
Unit
Measure
UnitRate
Planned
executed
Planned
Actual
Earned
01 Excavation Type-1 1101 1101P1 m3 615 598 790 367,770
2,670,800
485,850
02 Pipe 10” CS SMLS Sch40 1101 1101P1 Lm 2,010 481 708 966,810 1,423,080
03 ELB 90 10” CS SMLS Sch40 1101 1101P1 Pc 2,670 16 28 42,720 74,760
04 FLG 10 CS RF CL150 1101 1101P1 Pc 2,909 18 23 52,362 66,907
05 GV 10” BR RF CL150 1101 1101P1 Pc 8,490 4 3 33,960 25,470
06 Pipe 1” CS SMLS Sch40 1101 1101P1 Lm 418 280 412 117,040 172,216
07 GV 1” BR NPT CL150 1101 1101P1 Pc 4,100 21 0 86,100 0
08 X-RAY testing 1101 1101P1 L inch 120 518 610 62,160 73,200
09 Painting Type-1 1101 1101P1 m2 306 480 871 146,880 266,526
10 Painting Type-2 1101 1101P1 m2 209 480 871 100,320 182,039
11 Pipe 8” CS SMLS Sch40 1101 1101P2 Lm 1,640 86 50 141,040 82,000
12 ELB 90 8” CS SMLS Sch40 1101 1101P2 Pc 2,010 18 26 36,180 52,260
13 ELB 45 8” CS SMLS Sch40 1101 1101P2 Pc 2,980 0 2 0 5,960
14 FLG 8" CS RF CL150 1101 1101P2 Pc 2,800 8 9 22,400 25,200
15 GV 8” BR RF CL150 1101 1101P2 Pc 8,020 2 2 16,040 16,040
16 Pipe 1” CS SMLS Sch40 1101 1101P2 Lm 418 0 16 0 6,688
17 GV 1” BR NPT CL150 1101 1101P2 Pc 4,100 0 2 0 8,200
18 X-RAY testing 1101 1101P2 L inch 120 179 95 21,480 11,400
19 Painting Type-1 1101 1101P2 m2 306 53 48 16,218 14,688
TOTAL 2,229,480 2,670,800 2,992,484
Table 4 Level 4 earned value calculation
Unit rate from cost estimates
1 2 3 4 5
Planned quantities as per time schedule
Actual executed quantities from monthly quantity report
Value of planned quantities (by multiplying 1 x 2)
Actual cost for (material, Labor and others)
Value of executed quantities (by multiplying 1 x 3)
6

9. October 2018
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5. Basic requirements to facilitate
EV management
Having the framework of collecting the
earned value elements data explained, below is
a listing of the most significant
modifications/improvements required to be
done by ABC company to enable earned value
management.
5.1.Deliverable Oriented WBS
The work breakdown structure sets the
pattern for accumulation of project costs, a
deliverable oriented WBS provides the insight
of how resources are spent on each deliverable
and enables comparing it to the budgeted
resources. In addition to its indisputable
advantage of facilitating project management,
risk and quality control (PMBOK guide, 2013).
When developing the Work Breakdown
Structure, WBS should answer two questions;
"what" work to be done (deliverable) and
"how" work will be done (tasks). There is a
natural tendency for planners when creating a
WBS to start thinking of tasks (which reflect
the time factor) at high level rather than
deliverables, the result will be a task oriented
WBS. A task oriented WBS answers the
question "how" at high level then answer then
question "what" at lower levels, such a
structure doesn’t adequately serve the project
control purpose. For a deliverable oriented
WBS, the planner should start by answering
"what" is the work to be done, decompose to
reach deliverables, make sure that 100%
deliverables represent 100% scope, ensure that
deliverables are presented in the way the work
will be monitored at site, then proceed in
answering the "how" question thereafter. A
common mistake happens when planners are
steered to scheduling activities before
designing the WBS, ending up with "hybrid"
structure of WBS. In summary, the deliverable
oriented WBS is the best to serve the cost
control and earn value management. Figure 2
illustrates a sample of work visibility for the
different types of WBS using the same quantity
of resources.
Figure 2 Effect of WBS Structure on Cost Control

10. October 2018
10
5.2.Establishing Unit Rates
Unit rates for work items are quite
useful for facilitating earned value calculation
at level 4. Unit rates reflect the estimated cost
of an assembly of material-manpower-tools
needed to provide one unit of a work item. A
considerable effort is spent by construction
companies to establish unit rates data base and
keep the data updated and close to what is
actually expended at site. However, the effort
is very feasible for work items that are
frequently produced under scope of delivery of
the company. Especially when the work item is
constructed in similar construction methods
among all projects and can be estimated based
upon the same unit rate.
5.3.Additional Human Resources
The more the project monitoring is
detailed, the more human resources are needed
for administrative work, increasing the cost of
monitoring. Companies should balance
between the benefits gained from closer
monitoring and the cost incurred therefrom.
Depending on project magnitude, company
culture and strategic objectives, there is always
a feasible level of control normally specified in
the project control plan. For the case of the
Ethylene Pipeline project; the additional
administrative cost to support earned value
management was marginal and the following
additional resources were needed:
 One (1) project accountant to do the
mapping of costs from the different
information sources mentioned in table
5 to the corresponding control account.
 Two (2) cost control engineers to
manage the data illustrated in tables 1,
2, 3 &4.
 Two (2) additional time keepers for
closer monitoring of labor working
hours spent per control account.
 Regarding the Control Account
Management, no additional human
resources were employed. Each control
account was managed by the
corresponding zone manager so that all
resources requested to the control
account and all costs accounted on it
should be approved by the zone
manager.
5.4.Coding on Forms
Coding is the key to cost data
collection, sorting and segregation. For the
Ethylene Pipeline project, all expenses incurred
are coded with the code of the corresponding
control account as follows:
Time sheets:
Time sheets are coded with two codes by the
time keepers. A code indicating the work
package (only control account code was used
in this project) and a code indicating the labor
category. It is very common that a single labor
works on different control accounts during a
month, so wherever the labor works every day,
the control account code on his daily time sheet
will enable accounting the cost of man-hours
per day per control account. Regarding the
labor category code, it is used to reflect the
man-hour rate for the labor category mentioned
in the time sheet. The labor category code will
correspond to the fully burdened man-hour rate
for his category as recorded in the company
database.

11. October 2018
11
Material & Subcontractors:
All material purchase orders and
subcontractors' contracts are coded with the
code of corresponding control account. The
actual cost will be only accounted based on the
delivery notes (material) or interim billing
(subcontractors and service providers).
Presenting the data in such traceable,
quantitative and discrete way accommodates
grounds for automation and integration of
earned value management process through
Project Management Information System
(PMIS). PMIS implementation would
substantially reduce administrative effort,
reduce human errors/manipulation and
facilitate database build up and update.
6. Conclusion
Using Earned Value Management
provides the project manager with helpful
indications on project progress, cost and
schedule performance. The indication resulting
from earned value analysis should not be fully
relied on for project management decisions but
rather should be used along with other project
management tools. For example, a Schedule
Performance Index (SPI) with a value greater
than one (1) indicates that the project is ahead
of schedule. This indication is based on the
reading that the monetary value of work
performed is greater than that of work planned.
But in some cases when having high-value-
short-duration packages performed outside the
critical path, the value of work performed is
high but is not critical to the schedule. The
project could be actually delayed from
schedule while SPI is still greater than one (1).
In such cases, the critical path method detects
such a deficiency and enables the project
manager to act accordingly.
For authorized work, the earned value
management allows the integration of work,
cost and time. It provides a central data source
resulting in faster reporting cycles and better
exposure to facts. To enable earned value
management, start with decomposing the
project with deliverable oriented WBS to
reflect the way the work is executed till the
work package level. At the work package level,
develop the details of each package, reflect the
time schedule, measure site progress, collect
the actual cost and then start rolling up the
results to the baseline budget level.

12. October 2018
12
References
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International.
AACE International. (2017). Cost Engineering Terminology (Recommended Practice No. 10S-90).
AACE International. (2011). Cost Estimate Classification System (Recommended Practice No. 17R-
97).
AACE International. (2017). Earned Value Management (EVM) Overview and Recommended
Practices Consistent with EIA-748-C (Recommended Practice No. 82R-13).
Stephenson, L. (2015). Total Cost Management Framework (2nd
Ed.). Morgantown, WV: AACE
International.
Project Management Institute. (2013). A guide to the project management body of knowledge
(PMBOK guide). Newtown Square, Pa: Project Management Institute.