Enhancing Traditional Earned Value Management with Three-Point Estimates to Produce Probability Based Performance Forecasts and Contingency Funding Projections for Engineering-Construction Projects Open Access
Downloadable ContentDownload PDF
Too long have engineering and construction managers overestimated their costs and durations to create a contingency buffer that ensures construction projects meet a tight plus-or-minus 10% target range for both cost and schedule performance –a range intended to assess estimating accuracy, not project performance. This praxis proposes an alternative cost performance measure based on merging two project management best practices. By using three-point estimates with its probability ranges brought into earned value performance measures, an engineering-construction project can be evaluated on statistically-produced ranges specific and realistic to the project. Three-point estimates use optimistic, pessimistic, and likely estimates in a weighted formula to establish statistical values for means, variances, and probabilities. These three-point estimate statistic values provide greater options for the earned value calculation to describe current and future performance with probability terms.Analysis of simulated and real projects found that using three-point based earned value produced more accurate and precise forecasts, provided more reliable contingency cost estimates, and produced less volatile cash flow adjustments over the project lifecycle. The practical application is an enhanced earned value technique that replaces traditional earned value and can calculate project specific contingency reserves to replace the use of generic percentage mark-up techniques.