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.