The Cost Monitoring of Construction Projects Through Earned Value Analysis

In construction industry, the term ‘procurement’ is
considered as a project based job where clients and contractors
are always keen to observe performance indicators. These
indicators represent financial and non-financial efficiency of
project activities. Among these, the monitoring of financial
indicators is an important function of project management.
Therefore, during the construction phase, it is the prime
responsibility of project managers to monitor cost and avoid
any overruns to maintain the cost baseline. Cost monitoring is
an ongoing process and its importance cannot be undermined
during the project life cycle. It can be monitored by using
traditional approach of direct reporting of actual cost against
budget. However, the comparison of budget versus actual
spending does not indicate the worth of the work which is
completed at any given time. This approach does not portray
the true cost performance of the project. Because of these
limitations, this paper discusses the applications of Earned
Value Analysis (EVA) for cost management of construction
projects in Malaysia. Besides traditional approach, EVA is a
three-dimensional technique that compares the budgeted value
of work scheduled with the earned value of physical work
completed and the actual cost of work completed. Therefore,
cost management by EVA is an objective measure of actual
work performed. This paper uses a case study, an example
application of EVA as a cost monitoring tool. This case study
reaffirms the benefits of using EVA for project cash flow
analysis and forecasting.