Exploring The Perception Of Earned Value Analysis For The Malaysian Construction Industry

Abstract

The management of construction projects are becoming more challenging for civil engineers in the 21st century due to increasingly competitive performance expectations from the project stakeholders. However, among the financial and non-financial performance indicators, time and cost monitoring of construction projects are the critical issues for an effective project management. Due to the limitations in traditional time and cost monitoring practices, Earned Value Analysis (EVA) integrates the work scope, cost and schedule to enable effective project performance measurement and as well as future analysis and forecasting. Therefore, this study has proposed EVA and extends its applications for the Malaysian construction industry. The research is based on a quantitative survey that aims to obtain a perception, understanding, enablers and barriers of EVA practices in Malaysia. Feedbacks of the survey reveals that majority of the respondents are not practicing EVA in their working environment. The study has found that there is a good degree of agreement among the respondents regarding the potential enablers of EVA. The survey has also identified the lack of EVA knowledge, expertise and experience as the most important barriers that inhibit its practices among the professionals. The overall findings of this study support the application of EVA as a standardized project control method for the Malaysian construction industry.

Keywords: Earned valueearned value analysisperformance monitoringEVMproject monitoring

Introduction

A project time is defined as the agreed duration of completion for the delivery of product or services by the contractor whereas the cost is the total expenditures that may consumed for providing the resources to produce that product physically. Time overrun is defined as the extension in time required by the contractor in order to complete the project scope of work (Salunkhe, & Patil, 2014). Similarly cost overrun is due to the spending of surplus capital as compared to the planned budgeted amount. This is also known as ‘cost escalation’, ‘cost increase’, or ‘budget overrun’ (Zhu, & Lin, 2004). The past research mentioned that time and cost overruns always remained foremost apprehension for the project stakeholders. These parameters directly affect the financial viability of a client’s investment and negatively impact the profit margins for the contractors (Endut, Akintoye, & Kelly, 2005). In Malaysia, the Ministry of Finance issued a circular in 2009 and directed Public Works Department (PWD) and other government agencies to identify the projects that are falling in the category of time overruns. In this perceptive, the Ministry has declared criteria for distinguishing the delayed projects in Malaysia. According to this criterion, any project whose completion had been delayed by more than 20 per cent or two months is considered as delayed project. A new terminology is being used for such type of projects and called it as a ‘sick’ project. With this circular, the existing criterion has been changed. As the former one categorizes a project as ‘sick’ when the completion delay exceeded 30 per cent or three months after the scheduled completion (Ministry of Finance Malaysia, 2008). The National Audit Department of Malaysia (2008) in its Auditor’s General report also highlights the time and cost overruns in public sector infrastructure projects. According to this report a total of 92,687 projects were implemented under Public Infrastructure Maintenance Programme, Basic Infrastructure Programme and Parliamentary Constituency Rural Development Projects. The audit report indicates that many programmes / projects were not delivered efficiently due to the following main causes but not limited to delay in project completion; increased project cost; unsatisfactory project monitoring and supervision; deviation from original project scope and improper payment mechanism to the contractor (The Auditor General of Malaysia, 2009).

The traditional approach of project time and cost monitoring is based on simple parameters using two data sources that is the budget (or planned) and the actual expenditures. The comparison of budget versus actual values merely indicate what was planned to spent versus what was actually spent at any given time. Beside this, it does not relate any current performance trend to forecast future performance. Due to these limitations in traditional practices, Earned Value Analysis (EVA) methodology integrates project scope, cost and schedule for an objective performance measurement (PMI, 2013). It is an emerging concept and an internationally recognized project management technique to monitor and control project performance. It provides a system to determine the actual amount of work performed on a project in order to predict cost and completion timelines. It also indicates that how well a project is performing compared to its baseline, and given the information to anticipate how well the project will perform in the future (Fleming, & Koppelman, 2006). In Malaysia, EVA has not yet become widely practiced as the current industry trend is more towards the traditional planning and controlling tools such as S-curve, progress curves etc. (Mohamad, 2003). Hence, this study investigates the current understanding and perceptions of EVA and its applications to the Malaysian construction industry.

Problem Statement

An effective project performance control cannot be achieved by traditional approach as it only monitor the actual physical progress with the planned progress and actual cost expenditures with the budgeted values. Nevertheless, this approach may be deceptive as it does not consider the worth of the work which is completed during a particular period (Ahuja, Dozzi, & Abourizk, 1994). As a remedy of these limitations in traditional monitoring practices, EVA methodology integrates the work scope, cost and schedule to produce objective performance control. It allows the organizations to ensure that the project is progressing as per work plan and within the approved budget (Seshadri, 2009). The concept of EVA is widely accepted and practiced in developed countries. In United States, NASA has mandated the use of EVA on its strategic procurements (Putz et. al., 2007). South Korean Congress in 2004 passed a bill i.e. ‘The Effective Plan of the Public Construction Industry Bill’ which also mandated the construction firms to adopt Earned Value Management System (EVMS) in their projects (Kwon et. al., 2008).

Therefore, to study and promote the applications of EVA method in the Malaysian construction industry, it is important to investigate its current state of understanding and perceptions before a project monitoring system based on EVA methodology can be developed to suit the needs of the local construction industry.

Research Questions

This research reviewed available literature to give a clear and precise understanding of EVA method in time and cost performance monitoring of construction projects. It discusses the significance advantages of EVA applications with respect to the limitations of traditional time and cost monitoring approach. This data is further used for the development of research questions that aims to explore the understanding of EVA methodology in the Malaysian construction industry and investigate its current level of applications.

• What is the current level of EVA usage and its perception as a monitoring and controlling method?

• What are the enablers and barriers of EVA implementation for the Malaysian construction industry?

Purpose of the Study

The purpose of this research is to highlight the importance of EVA method as an integrated time and cost monitoring approach for the Malaysian construction industry. The encouraging results towards the acceptance of EVA method envisage its further application for the project organizations. The survey analysis would help the project planners and practitioners to establish confidence level in order to successfully integrate EVA method in their project monitoring practices. In addition, the ranking of EVA barriers also facilitate the senior management to prevail the key underlying issues that hinder the EVA usage in the current scenario. The EVA benefits as outlined in this research may be adopted by project organizations in improving the effectiveness of their overall project planning process.

Research Methods

The primary data required for this study was collected through questionnaire survey. For the purpose of achieving the desired research objectives, a structured or close-ended questionnaire was designed to gain the views from the industry practitioners. The information that elicited from the questionnaire is primarily a form of descriptive survey. Its main concern was to explore the existing usage of EVA approach in the Malaysian construction industry, its enablers and barriers, and the perception about its implementation among the project professionals. A four-page structured questionnaire was developed to meet the initial research objectives. The format consists of two sections i.e. Section A comprises of general information about the responder and his associated organization whereas Section B focuses on usage of EVA technique. A five-point Likert scale is used for rating the respondent’s feedbacks. The data collected in this research was analysed by using SPSS and several types of statistical analysis were applied such as frequency analysis, cross-tabulation, average index analysis, spearman’s correlation and Kendall’s coefficient of concordance to establish findings. A pilot test was conducted prior to carrying out the actual questionnaire phase. Its main purpose is to refine the contents and reduce the ambiguity that overall effect the validity of data. A total of 130 questionnaires were sent to two groups of respondents including government ministries; Construction Industry Development Board (CIDB) of Malaysia and Public Works Department of Malaysia (24 Nos.) and private sector contractors (106 Nos.). The respondents were selected due to their direct involvement in major infrastructure developments and key construction projects during the Tenth Malaysian Plan Period (2010 – 2015). The questionnaires were sent to these targeted respondents by using postal, fax and electronic-mail. The private sector organizations are concerned with heavy/civil engineering, industrial, general/commercial buildings, housing and expressways construction. The respondents include senior managers, project managers, contract managers, quantity surveyors, procurement managers, financial managers and estimators. The majority of them have experience of more than 15 years in the industry. Beside this survey, a semi structured interview was also conducted from the senior government official of Malaysian Public Works Department for getting substantial arguments in this research work.

Findings

A total number of 130 questionnaires were sent to the professionals of different trades. Out of which, 30 complete responses were received, leading to a return rate of 23%. The findings of the survey are as follows;

Respondents background

In context of Malaysian construction industry, it is very much important that questionnaire must send to the relevant construction organization. So, demographic information will assist the researcher to fix this constraint. As the aim of research is focused on the construction phase of the project, so it was envisaged to get on board all the key players of a project management team from varying civil contracting companies having satisfactory professional experience in different domains of construction industry. The information was assessed by using frequency analysis and in the form of percentages and numeric values. This mixed distribution of respondents represents an appropriate involvement of managerial positions in the survey. Figure 01 shows their pie-chart distributions which describe their percentage as primary job function. The data analysis indicates that the feedbacks from senior management are relatively higher (39%) as compared to the other categories of respondents.

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Organizations role in projects

The role of organizations involved in construction projects were also sought through the survey. Figure 02 represents pie chart distribution of the participating organizations. The findings show that 47% of the respondents belonged to turnkey contractors. Whereas, participation from the private sector consortiums and non-turnkey contractors remained 23% and 20% respectively. It is noteworthy that inputs from government ministries / public sector clients were relatively very low.

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Conclusion

The time and cost are the critical parameters that can be monitored to measure the success or failure of a construction project. Any overruns in these performance indicators affect the overall economic viability of the project which is one of the important pillar of sustainable construction. This exploratory study has investigated the current perception level of EVA, its usage and understanding among a group of local construction firms in Malaysia. Based on the results of survey, it was revealed that EVA is relatively a less accepted project performance measurement technique for the Malaysian construction industry. It has a low level of usage as 80% of the respondents are not using EVA at all. The respondents have stated different reasons for this limited usage of EVA in their practices. According to the survey, the lack of EVA knowledge and expertise are the most dominating factors. It was also found that the current perception about the implementation of EVA in construction projects is vague. EVA is still not fully understood by many personnel involved in the construction industry. It is not widely utilised especially for projects in Public Works Department of Malaysia. Thus there is still a long way to go to have it understood throughout the government and private organizations. The results also indicates that about 8% of respondents rated their perception about the implementation of EVA as ‘very difficult’ compared with the majority of them i.e. 80% who remain neutral. Nevertheless, this technique has encouraged the majority of the construction organizations in Malaysia who are largely motivated with its potential benefits and envisage for using it in their monitoring practices. About 60% of the respondents have shown their interest to adopt the procedures of EVA within next 5 years. In this regard, the primary motivation that attracts the respondents is better project monitoring and controlling that can be achieved through EVA.

In order to enhance the acceptability of EVA on a wider scale, there is a need that industry practitioners must be aware with the utilities of EVA that can be derived by this method. Moreover, EVA if adopted, could support the financial sustainability of construction organizations by effectively monitoring time and cost performance measures. Thus, benefits are in direct relation to the successful completion of the project then it may be received by the industry players. This research helped to identify the views of project professionals about EVA as a standardised technique to estimate time and cost. Above all, the applications of EVA and its perception among the Malaysian construction industry support its anticipated usage for time and cost estimates during project execution.

References

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