EARNED VALUE FOR CONSTRUCTION SUBCONTRACTORS — SIMPLIFIED AND PRACTICAL.
Earned value is not a government contract concept. It is the practice of measuring whether a project is spending money in proportion to the value it is producing. A project 60% complete that has spent 75% of the budget has earned $360K of value while spending $450K. That $90K gap is visible right now — not at closeout. Most subcontractors discover this gap at project close because they track cost without comparing it to physical completion. Earned value closes that gap.
The simplified version — percent complete times contract value compared to actual cost — requires two numbers and produces the same insight as a full earned value analysis. SPM applies this calculation monthly in every cost-to-complete.
WHAT EARNED VALUE IS AND WHY IT MATTERS WITHOUT THE COMPLEXITY.
Measuring Progress in Dollars, Not Feelings
Earned value is the practice of measuring project progress in dollars of value earned rather than dollars of cost spent. A project that is 60% physically complete has earned 60% of the contract value regardless of how much has been spent. If the same project has spent 75% of the estimated cost, the project has spent 25% more than it has earned — a cost overrun in progress that will produce a margin loss at completion unless something changes. Earned value makes that overrun visible at 60% complete. Without it, the overrun is visible at closeout.
Planned Value, Earned Value, and Actual Cost
Planned value is what the work performed to date was supposed to cost — the budget for the completed scope. Earned value is the contract value of the work actually completed. Actual cost is what was spent to produce that completed scope. The relationship between these three numbers tells the complete financial story of a project in progress. Earned value above actual cost means the project is running more efficiently than estimated. Actual cost above earned value means the project is running less efficiently. The gap between planned value and earned value indicates whether the project is on schedule.
How Subcontractors Apply Earned Value Without Complexity
For most subcontractors, the simplified version is sufficient: physical percent complete times contract value equals dollars earned. Compare dollars earned to dollars spent. The difference is the over or under budget position. A project that is 65% complete with $390,000 earned (65% of $600K contract) and $430,000 spent has a $40,000 cost overrun in progress. At 35% remaining, the job will need to recover that $40,000 plus deliver the remaining scope at estimated cost to close at break-even. The math takes two minutes. The insight is the same as a full earned value analysis.
EARNED VALUE IN THE COST-TO-COMPLETE — THE PRACTICAL CONSTRUCTION VERSION.
The connection to WIP: Earned value is the conceptual foundation of the WIP schedule. The earned-to-date column in the WIP is the earned value calculation. The overbilling/underbilling position is the comparison between billed-to-date and earned-to-date. Understanding earned value makes WIP immediately interpretable rather than a collection of columns that require explanation.
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