Earned Value Project Management

Muli's Construction Accounting Software provides a systematic way of applying Earned Value Project Management principles. 

When the company wins a new project, the key project details and contract value are added to the Muli project master-file. 

The Budget is then input as a series of trade elements, including an entry for project contribution - the sum of money that the project intends to make which will contribute to overheads; and once overheads are paid, should leave a profit. 

Risk2Do items verify the correct execution of processes and may identify expenditure by the contractor to have the project completed. Labour orders are added for the employment costs.

On Day 1, the budget project contribution is equal to the forecast Gross Margin. 

Progressively, subcontracts are let for the various trade elements and detailed reviews will compare the allowed budget with the subcontract order value (i.e. committed cost).  

The addition of the committed costs and Risk2Do items produces a Final Forecast cost which, when compared with the original budget plus any approved variations, provides an allocation variance.  

The original budget will be updated by changing the scope of works where head contract variations are approved and budget upgraded. 

Facilities exist where unapproved variations awaiting client's formal approval will be displayed in the allocation to ensure the elements are not overlooked. The sum of the variations of all the trades is then committed or subtracted from the original project contribution value to provide a forecast gross margin.

Because project managers are optimists, Muli calculates %complete by taking the sum of approved for payment divided by final forecast cost.  This process is slightly conservative as the value of work done, but not approved for payment, is not directly recognised.  

The calculation is:

Projected Income less Projected Costs = Projected Gross Margin

Projected Gross Margin multiplied by % complete (approved for payment divided by final forecast cost) = Earned Value

With the value of work done = approved for payment + margin earned.

Compared with the funds received this gives a more realistic prepayment position for individual projects. (It's a more stringent test than head contract progress claims submitted).

Muli has adopted the principles of Earned Value Project Management because it helps  management focus on short term liquidity and long term profitability.