2003 AACE International Transactions

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Earned Value Analysis in the Control of Projects:

Success or Failure?

Ricardo Viana Vargas

he objective of this paper is to present and discuss the • Unsuccessful prior experience in the use of other techniques

T main obstacles and benefits of the use of earned

value analysis in projects, including factors to be
improved and implemented during the project plan
and actions to be taken while the project is accomplished and
controlled. Also, through a real case study in civil construction
• Low familiarity with the technique

Wideman states that a project of great importance requires a

unit of planning and control that has professionals capable of col-
lecting the information and making the analysis of added value,
field, the applicability of the technique is faced with a theoretical making its applicability justifiable [10].
reference, in order to identify aspects of the applicability of the Christensen states in his studies about the applicability of
tool tested in a case study. added value in governing organizations in the United States, that
the implementation of earned value requires a cultural change,
which demands time and effort [2]. This means to make sure that
EARNED VALUE ANALYSIS policies and knowledge are taught by the organization and by the
AS A CONTROL TECHNIQUE project in order to quicken the work of the ones involved.
To Sparrow [6], the earned value analysis enables a supple-
Many studies about the applicability of earned value analysis mentary value to the project because it offers a premature visibil-
have been made. Thamhain tried to evaluate the popularity of dif- ity of its results. In other words, it is possible to determine a ten-
ferent practices of project management [8]. Surveys were made dency of costs and deadlines of the project in a certain phase of it,
with 400 professionals who worked with projects (managers, direc- when there is still a possibility of implementation of corrective
tors, people in charge) in 180 projects in Fortune-1000 compa- actions.
nies. They were asked about the popularity and value of different On the contrary, West and McElroy [9] agree that earned
techniques of performance evaluation. As a result, he could see value analysis is an adequate tool for the generation of reports of
that earned value analysis is used by 41% of people who work with work done, and not a managerial tool, since the control in real
projects. It is more used than the critical path method, QFD time of the project, using all parameters of analysis becomes invi-
(quality function deployment), and crashing, among others. The able: “the earned value analysis shows to the project team the per-
earned value analysis is almost as popular as the net PERT/CPM. formance obtained until then, and not the future forecast of the
Concerning the value of the technique, the results found for project.”
earned value analysis are fitted in a layer of little value, staying Wideman supports that the technique is conceptually attrac-
below practically all techniques analyzed. The popularity of the tive, however it requires great efforts in its maintenance, therefore
technique doesn’t seem to show its applicability or value. it needs a qualified team to understand and provide reliable infor-
Trying to justify the low value proved by researchers, mation. He also states that many project managers don’t consider
Thamhain states that the little applicability found as a result in the the analysis an appropriate cost-benefit ratio [10].
studies made, can be attributed to different barriers, either being From those opposite points of view, we may imply that earned
internal or from the environment [8]. They are: value analysis is a group of powerful intrinsic characteristics, wide
and varied, like payment projection and forecasting. However, it
• Lack of comprehension of how the technique works is bound to find great difficulty in either data collection or in the
• Anxiety concerning the adequate use of the tool low speed of information generation.
• Use of the tool requiring a lot of work and time consumption; These considerations may mean that, if the data collection is
• Tools trimming creativity in the use of other strategies made in adequate speed and accuracy, and the information is cor-
• Inconsistency of the tool in managerial procedures/business rectly compiled accomplishing the deadlines, the analysis has its
processes applicability widely enlarged. Otherwise, it will not add much to
• Method of control as a threat, concerning the freedom of the the process of project control.
team Terrel states that, in order to make the earned value analysis
• Vague and inaccurate purpose and its benefit effectively implemented, it is necessary to have the information
• High cost of its implementation about the resources clearly defined [7]. A failure in obtaining

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 2003 AACE International Transactions
these data creates an inaccurate performance measurement base- RESULTS
line (PMB), distant from the real scenario.
Fleming and Koppelman [4] state that another difficulty fac- The results to be presented and discussed in this section are
tor is an adequate work breakdown structure (WBS). If the work is about different characteristics of each construction site and their
subdivided in small packages of work, it will represent a high cost contribution to the success or failure in the implementation of
of control and a lot of paperwork. On the other hand, a badly strat- earned value analysis. The second part is about the traces of simi-
ified subdivision may represent an inaccuracy of data, concerning larity found in the construction sites and general conclusions
real costs and deadlines. about the case study.
This confirmation may be proved in the low application of The results obtained in the interviews and the combination
the earned value analysis in technology and marketing areas, of real data provided by the planning department, as seen before,
where the creative work is the variant in a scope previously were significantly different in each business.
defined, making its application limited and directly related to the From these different characteristics (Table 1), the main fac-
stability of a defined scope [5]. tors are presented and evaluated in each construction site, just like
The more short-term projects grow, with reduced team and a the final result concerning the fidelity of the results and the pre-
generically defined scope, the higher the earned value analysis, liminary conclusions.
according to Instruction 5000. 2R [3] and by ANSI/EIA 748, is not The factors evaluated have been presented in the discussion
viable, due to inaccurate projections, the consequence of a badly and analysis of each construction site, and they are: scope, dead-
defined scope, and high costs noticed by the entrepreneurs. lines and schedules, budget process, type of contract, type of
client, partners and/or consortiums, organizational support, sup-
port by the client, geographic distribution of work, the presence of
CASE STUDY outsourced staff, and use and knowledge of the indexes and mod-
els of projection provided by the tool.
The company researched belongs to a sector of civil con- As we can see, after analyzing Table 1, we may conclude that
struction, which applies project management in a steady way. It is the implementation at construction site one was successful and at
a segment that invests in research and new tools in this field. construction site three was a failure. Both results are not neces-
Furthermore, it is the only one on the market that admits the use sarily due to an isolated factor, but from lots of linked factors.
of earned value analysis in its process of construction control. It is not possible to conclude that the unsatisfactory results
This company is the 11th in the national segment of heavy found in construction site three are linked to the existence of a
construction. It is also part of the three biggest groups in the seg- consortium or to an inadequate geographic distribution of work.
ment in the country and a leader in other segments of the econo- This failure is a consequence of a group of many unfavorable
my, such as government work and telecommunications. It has characteristics, which contributed to unexpected results.
been on the market for more than 50 years. Its turnover in 2001 On the other hand, evaluating construction sites one and two,
was about $200,000,000, with 80 engineers and about 4,000 work- we find characteristics in construction site two that are signifi-
ers. cantly closer to those in construction site one. However, the main
Concerning the case study, everything started through a difference found was the lack of detailing of scope, which conse-
process of interview in which three professionals from the south- quently made the budget process unsatisfactory. We may con-
east business planning unit of the company gave their opinion clude that it was one of the main factors that made the results dif-
about the process in a clear way. These professionals were the first ferent (see Table 1).
ones to be interviewed because they have developed the con- Similarities have been found in all three projects evaluated.
struction control system using earned value analysis. They are related to the interview process and obtained results.
After analyzing the issues discussed by the first interviewees, a Initially, we may conclude that there are factors linked to the
new series of interviews was made, based on a new open line of organizational structure and to the management model of the
interviews with construction managers and the ones in charge of company that could directly affect the fidelity of the results.
planning departments of each construction site. At this moment, Therefore, it is necessary to investigate deeply the influence in
the objective was to test the planning practices, analysis, and organizational structure in the use of the tool.
obtention of data in different levels, aiming to find possible dis- Also, concerning organizational aspects, the ones in charge of
tortions, conceptual flaws, resistance, and work style in the use of construction site planning questioned the need for a high number
earned value analysis in the construction sites. of indexes, and mentioned that the determination of performance
In a third and final moment, the final result of the projects indexes was redundant.
(deadlines and costs) was faced with the values computed for A preliminary evaluation of these considerations allows us to
earned value analysis that were under the responsibility of the conclude, at first, that the earned value analysis in all three proj-
planning department of the company. From that combination ects may show a high use of excessive indexes, superior of the
between interview results and the data available in the company, management potential of a construction site. That could make the
we tried to get evidence that could link the success or failure of construction site impossible, result in a low priority for the process
the business to maturity in the use of added value. and unnecessary use of indexes.
Concerning the evaluated construction sites, they were cate- The opinion of the interviewees about the real value of the
gorized by the company as medium-sized and average technique tool was unanimous. They all agree that earned value analysis is a
complexity projects, which will be finished by the end of this great step for the improvement and introduction to a more mod-
work. ern mechanism of construction site control. This would confirm

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Table 1—Comparative Analysis of the Main Characteristics of the Three Construction Sites Evaluated

Characteristic Construction site one Construction site two Construction site

three
Scope Clearly detailed and Defined preliminary, Detailed and specified
specified detailed as the project is satisfactorily (not in the
done same level of
construction site one )
Deadlines and Closed and previously Open with schedules to Closed, but with
schedules set up defined according to be defined while duties significant changes
clear schedules to be are accomplished throughout the project,
followed result of problems
linked to lack of
financial funds.
Budget process Structured through Traditional, not based Traditional, not based
CAP’s allowing the on the Analysis of on the Analysis of
adequate use of the tool Added Value Added Value
Type of contract Fixed price. Not One price One price
adjustable
Type of client Private Public Public
Partnerships and/or Nonexistent Nonexistent Consortium with
consortiums another contractor that
has the construction
being controlled by the
company evaluated
Organizational Support High Moderate to low Moderate
Support by the client High Moderate Moderate to low
Geographic distribution Concentrated Concentrated Distributed in 150Km of
of work geographically geographically groups of work
Presence of outsourced None None High
staff
Use of knowledge of Moderate to low Low Low
indexes and models of
projections provided by
the tool
Loyalty to official results High Moderate to low Low
presented with real
results
Preliminary conclusion Partial success Partial failure Failure
about the success of
the implementation

the first result of Thamhain’s study about how popular the tech- In construction site one, this process inverted. In this project,
nique is; however, in the same study, they all agree that the con- earned value analysis was the main mechanism of construction
ditions of market and the necessity of a quicker generation of site control. It gathered all the necessary support to be successful.
results made using the tool, difficult, proving the low value of the Finally, we may conclude that the case study proved the charac-
technique presented in the study [8]. teristics of projects that favor the use of the tool.
According to prior quotations, we can also see that in all three It was also proved that the implementation of earned value
cases, there was an active participation of the planning depart- analysis is a complex process that involves several aspects, since
ments of the business unit. However, this participation was differ- the kind of business, its organizational structure, its scope, geo-
ent in each construction site. We can imply that the success of graphic distribution, and the relationship with the client, among
construction site one, concerning the implantation of the tool, is others, deserve a more detailed study.
directly linked to a strong presence of the planning professionals.
Therefore, we may conclude that very often, the efforts of the
construction site team are divided in many different groups, and e may conclude that earned value analysis is a
the team dedicates to the tool directly used by top executives to
evaluate the business. As a result, the dedication to other compet-
itive tools is ignored, as seen in projects two and three.

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W powerful tool in the control of performance eval-
uation. However, most projects have insuffi-
ciently detailed scope, staff with little experience
 2003 AACE International Transactions
in the use of the tool, and a natural dissociation in the control of the technique demands a strong effort that, if not analyzed wide-
costs and deadlines. These elements make the results question- ly, should not have good results. This consideration justifies the
able. results presented in the research [8].
We may also conclude that the results are not very obvious on Training—earned value analysis suggests a cultural change in
a short-term basis. They will only be evidenced in future phases of the process of projects control, therefore people who have experi-
the project, especially in cost reduction of operations and rework. ence in dealing with the tool are really necessary in this process.
As a third conclusion, we may see that in projects with clear- Moreover, intense training is needed to reduce resistance to
ly defined scope, or in contracts with price and work established, implementation.
earned value analysis shows a favorable cost-benefit ratio. Other Organizational support—the way an organization imple-
elements that might favor the application of the tool are the qual- ments the tool directly influences the results. As seen empirically
ification of project teams in the use of the tool and organizational in construction site one, organizational support results in better
support, which allows the tool to be simplified to meet the specif- application. However, organizational support has a cost that has to
ic needs of the project and the organization. be determined and accounted for, otherwise the obtained results
To sum up, the combinations of the conclusions obtained might be distorted.
from the analysis of the theoretical reference, with the case study
are shown as follows.
Nature of the project—the application of earned value analy- REFERENCES
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analysis, as evidenced in the case study (construction site one). Management Institute Seminars & Symposium.
Projects with incomplete final products or services, or projects 2. Christensen, D.S. (1998) “The Cost and Benefits of the
that involve aspects of creativity that make a precise plan impossi- Earned Value Management Process.” Acquisition Review
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be determined (construction sites two and three). Guide. Washington: US Department of Defense.
Scope definition—from empirical evidence obtained from 4. Fleming, Q.W., and Koppelman, J.M. (1999) Earned Value
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scope permits the tool to be favored or disfavored, since a tangible Value Control for Fast Paced Projects.” Nashville: 32th
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Consequently, it facilitates the process of measurement of real and Symposium.
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detailed scope is a process that comes from the nature of the proj- Results in Early Visibility and Management Opportunities.”
ect and from the model of business established (contract, type of Houston: 31st Annual Project Management Institute
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analysis. Project Performance Tools—A Case Study.” Long Beach:
Informality in management and resistance to changes—we 29th Annual Project Management Institute Seminars and
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model of control, and this cannot be ignored. This resistance is Tools with the Project Team.” Long Beach: 29th Annual
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ate both factors, Antvik states that the resistance comes from a cul- Tool vs. a Reporting Tool.” Nashville: 32th Annual Project
tural process of informality in the control of projects [1]. In this Management Institute Seminars and Symposium.
way, it is implied that it is necessary to create a different work of 10. Wideman, R.M. (1999) Cost Control of Capital Projects and
management of changes, for example the training of management the Project Cost Management Systems Requirements. 2nd ed.
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als of this area, with prizes and bonuses. Everything aims to mini-
mize the resistance found in the implementation and to favor the
project environment. Ricardo Viana Vargas
The value of the technique—based on the evidence of the Professor, Getulio Vargas Foundation
case study and on researches presented on theoretical references, Chair, Grupo A&C
we can say that earned value analysis is considered by the ones Brazil
who have already used it or known it, as attractive and complete. E-mail: [email protected]
However, this fact is not true concerning the use of the technique.
The interviewees and several authors who were cited agree that

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