earned value

1. Consolidate Earned Value Principle with Integrated Cost
Management – On Project Budget Control during Construction and
Investment Period
JIA Hu, CHEN Yu Chao
School of Civil Engineering and Architecture Nanyang Normal University, P.R.China, 473061
jiahu80@163.com
Abstract Considering solitary and hysteretic nature which exist in current change control , an idea
of dynamic change control about integrated cost management change control technology about
construction period and investment is proposed to sove the two problems. The idea regards management
method of earned value as research object to seek binding model of construction period and investment.
In the end, an example is given to discuss the main content and fundamental procedure of change
control about construction period and investment integrated cost management.
Key words Construction and investment period, Integrated cost management, Earned value, Change
control
1 Introduction
When construction projects are in the process of implementing, artificial negligence or the changes
of construction projects environment usually lead to practical condition of investment and progress not
match with the plan. It needs to correct deviation or change plans by project alteration. Investment and
construction period are two target factors which interact and impact each other. During change control
of projects, it is necessary to associate them to optimize control. At present, domestic research in the
area is still very weak. In practice, the effects to construction period or investment are considered under
the control of project change, to the construction period and investment are neglected. Not selecting a
good plan from many schemes can cause an unnecessary waste. To solve the problem, the research of
construction period and investment integration cost management of change control is put out.
2 The concept of change control of integrated cost management about
construction period and investment
The general content of integration can be simply summarized as[1]: the main body of integration can
unit two or more integrated elements into an organic about behavior, process and results. The integration
is not a simple stack, but the structure and combination according to certain integrated approach. The
purpose of integration is designed to increase overall functions and to come forth new features. The
so-called change control of integrated cost management change control about construction period and
investment, regards management method of earned value as research object to seek binding model of
construction period and investment. It can take into account the two goals about project schedule and its
cost. It can also search for balance among them and achieve predictability and the dynamic control of
project changes.
3 The principle of change control of integrated cost management about construction
period and investment
3.1 The basic principle of project earned value management
Dr. Christensen, who workes in U.S. Earned Value Management Method Research Department
defined earned value as follow: Earned Value is a variable designed to measure and compare work
amounts which have been completed and plan to complete effectively[2]. Project Earned Value is actually
a intermediate variable, and it can represent the size of plan value of the completed work amounts,
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2. namely budget cost of the completed work amounts in the project. It can be represented by BCWP, and
the formula for calculating the intermediate variables are as follows:
BCWP= WP* BC (1)
In the formula: WP on behalf of Work Performance, it is the completed operation in the projects. BC
on behalf of Budget Cost. It is the Unit Budget of the completed operation in the projects.
Nowadays, authoritative departments of academic circles and commercial circles all believe that
earned value management system will be one of leading methods of project management in the 21st
century. Especially in recent years, a large number of scholars are brought together to Project
Management Institute (PMI) in the United States. They are studying on how to use the theory of Earned
Value Management to develop projects integrated management deeply. Now, some acquirement has
been obtained. But at present, research results are only be integrated Management of construction period
and projects integrated management[3].
3.2 Utilizing the Earned Value principle to dynamic integrated management of construction
period and investment.
The intermediate variable (earned value) has no exact economic meaning. But after introducing
this variable, differences of relative and absolute effects of construction period and cost, which is caused
by the change of the project operations (construction period or investment) can be analyzed as follows:
－
CSV= BCWS ACWP (2)
From the above: CSV means Cost Schedule Variance; BCWS represents the Budget Cost for Work
；
Scheduled ACWP represents the Actual Cost for Work Performed.
CSV is caused by the cost of project, which change from the the Budget Cost for Work Scheduled
to the Actual Cost for Work Performed. But the schedule change from Work Performed to Work
Scheduled.
－
CV= BCWP ACWP (3)
From the above: CV means Cost Variance; BCWP means the Budget Cost for Work Performed;
ACWP means the Actual Cost for Work Performed.
This index reflects the differences between the Budget Cost for Work Performed and the Actual
Cost for Work Scheduled. In above formula, positive results represent saving, with negative results for
increasing investment.
－
SV= BCWP BCWS (4)
From the above: SV means Schedule Variance; BCWP means the Budget Cost for Work
Performed; BCWS means the Budget Cost for Work Scheduled.
This index reflects the variance between the Budget Cost for Work Performed and the Budget
Cost for Work Scheduled, positive results represent that period is ahead of schedule, and negative
represent that delay of period.
According to the above formula, not only various deviations of construction projects can be
calculated, but also deviations caused by poor management or cost management problems of the
construction projects can be made a clear distinction by an intermediate variable named project earned
value (budget cost for work performed). The analysis of such kind of information of deviation is very
important to the guidance of construction projects period and dynamic integrated management of
investment, thus it can provide accurate information to control the project when it changes. Therefore,
project earned value is a fundamental principle of change control technology of construction period and
investment integrated cost management.
4 The basic steps of change control of construction period and integrated cost
management
4.1 How to make a plan about the change control of construction period and integrated cost
management
Before the construction is started, it is necessary to make a plan about construction period and
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3. integrated investment. To achieve the maximum interests of construction projects (that is, the minimum
investment and construction projects worth the maximum), how to allocate projects investment and
project construction period reasonablyshould be mainly considered. Such an approach can be shown as
follow.
Project cost C
The second planning scheme
The first planning scheme
The third planning scheme
Construction period T
Figure1 Integrated cost management about
construction period and investment
As is shown in Figure 1, any construction period and integrated plan of investment have three
different configurations. The first planning scheme is such an scheme, which can balance between
construction period and projects investment. In general case, the scheme should be the optimum scheme
because it can realize the optimum configuration between them. The second planning scheme provides
such a plan, in which to ensure construction period, even if it will increase the investment. Many
construction subjects, such as military engineering and public works, have to apply the planning scheme.
When funds are shortage, and the subject allows to prolong the construction period, the third planning
scheme should be applied. Certainly, such a scheme is seldom used.
4.2 How to implement and monitor a plan about the change control of construction period and
integrated cost management
Integrated plan can be implemented after it is audited. Information should be collected, transferred,
processed, and analyzed when the plan is implemented. Work performed and integrated plan should be
compared and find gap between them. A comprehensive report about schedule and the cost used should
be done regularly. When the deviation is occurred, it is necessary to find the causes of the problems, and
some measures should be proposed to correct and improve them. Facing the new situation, the
integrated plan should be adjusted to ensure all works to work according to the plan, until the end of the
whole project.
5 Application examples of the change control of construction period and
integrated cost management
5.1 The basic data for construction projects
A new factory, located in Nanyang eco-industrial park is planned to be built. The entrepreneur
plans to invest 80 million yuan, and to complete the subject four years later. The plan investment of the
subject can be seen in curve b in Figure 2, and actual investment is shown in curve a in figure 2. The
source of the fund is sufficient, and construction period has no special requirements as long as the
subject is completed according to regulation about quota of construction period of the government. Now,
calendar of construction period is the end of the first two years, and the actual cost of the project is 60
million yuan.
5.2 Analysis of the differences
By Figure 2 we can find that the actual cost of the project is 60 million yuan, and is 20 million yuan
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4. more than the project budget in the end of the second year. To find the reasons of the change, the
principal of project earned is introduced.
First, the deviation of investment is analysised. If the project construction period is excluded, in the
end of the second tear, the actual completion of the actual operating costs is 60 million yuan and the
actual completion of the budget cost of operations is 50 million yuan, the difference between the two is
10 million yuan, exceeding 20% of the project invest plan, this is a serious construction project cost
management problems. This may be caused by improper management of the construction project cost or
the cost of construction projects market prices changes.
Then the deviation of the construction projects progress is analysised, from Figure 2 we can find that
in the end of the second year, the project operational budget for the cost is 50 million yuan (item earned
value), and the actual projects operating budget is 40 million yuan, the difference between the two is 10
million yuan. The project has exceeded 25% of the time limit, which is also a serious construction
period problem of construction project management, the construction project construction period is
caused by improper management, project implementation or content of the conditions.
Figure 2 The integrated relations of construction project cost , construction period and investment
In the end of the second year, plans invest is240 million yuan,3and the actual operations year) is 60
0 1 4 Time( cost
million yuan, the difference between the two is 20 million yuan. This is caused by the increased
1
invesment of 10 million yuan and the time limit in advance which result in 10 million yuan. This is
induced by the construction project investment and construction period.
Through the figure of construction project cost and construction period, the integration between
investment plans, we can draw a clear distinction between poor management of construction projects
and construction project cost deviation caused by management issues, and identify the root causes of
change.And it will provide the accurate information to a further analysis of the reasons and adopt some
measures to change the deviation.
5.3 The reason of deviation and the solution
We can find the reason of deviation according to the method above. The reason is project costs,
poor management of the project period, or the change of project environment and conditions.
Management problems caused by human can be eliminated or reduced by issue-specific corrective
measures, and the deviation caused by the objective conditions and changes in the environment need
increase the budget of construction project or extend the period of construction projects to solve. In
many cases, deviation of construction projects period or investment is caused by two factors mentioned
above. So a corrective measures of time limit construction projects and integrated management is not
only need to be taken to solve the problem of artificial corrective measures, but also need to deal with
the objective by increasing the budget and extending the time limit.
5.4 Preliminary making alternative of construction project change and forecast the results
After finding the way to solve the problem, the alternative of construction project change must have
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5. substitutable and comparability. Through this way, we can find optimal schem of project change.
It is necessary to forecast the consequence of various changes of construction projects after having
the alternative of construction project change, and the forecasting is based on the difference of project
cost. According to the actual implementation of project time and cost-effective management, the trends
of future project cost can be predicted.
5.5 Rational allocation of two elements, making change strategy
After having the alternative of construction project change, the most important is the rational
scheme of construction projects time limit and investment. Project 1 in Figure 1 is compatible according
the fact of the project. The project cost payout is low under rational time limit for a project. The time
limit is shorter or longer than the rational time limit means the elevating of project cost. Therefore, it is
necessary to deal with time limit for a project and project cost in orde to have a balanced rhythm to carry
out construction. This is a dynamic process through repeated practice, the rational alternative of
construction project change of time limit for project and project cost can be find.
6 Conclusion
Integrated management of the project changes is the most important element of a comprehensive
management, the method of Earned Value Management is studied. The method of project change
control is find according to the analysis of integration of construction period and investment cost
management and the establishing, optimization and controling of integration of construction period and
investment plan management. The project change can be controlled timely and predicted appropriately
through the way suggest above.
References
[1] Jun Fang. Construction project change control study [D]. Chongqing: Chongqing University, 2005(in
Chinese)
[2] Guo Xiaoxia. Construction projects on integrated management system [D]. Xi'an: Xi'an University
of Science and Technology, 2005(in Chinese)
[3] Dou Yufei of the key construction projects, investment control [J] Building of Economy, 2007, 29
(2):18~25 (in Chinese)
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