Earned Value Management: The Ultimate KPI for Architects

Truth be told, over the years, I’ve penned countless articles on key performance indicators that make me feel like the proverbial dog chasing his tail. In fact, I once wrote about 46 different KPIs architects could monitor to help them manage their firms. Was that really helpful? It’s like visiting a Chinese restaurant with a 15-page menu of unique dishes. It’s stultifying. How much better is it to have a one-page menu with ten items? In the end, you’ll be just as happy and equally satiated. 

Recently, a client posed a question that echoed the well-known scenario: “If your house was on fire, what’s the one thing you would grab before fleeing to safety?” In this case, my client asked: “If their office was burning down, which KPI should they prioritize to ensure their safety?” 

After some thought, it dawned on me that Earned Value Management (EVM) stands as the pinnacle of KPIs. I extend my condolences to all the other KPIs left behind in the hypothetical office fire. Your contributions were invaluable. Over the years, you have provided me with immense inspiration and guidance. Your absence will be felt, and I honor your memory. 

For those unfamiliar with the EVM methodology, it blends measurements of project scope, schedule, and costs, offering a comprehensive snapshot of project performance measurement and progress. You can use EVM as a diagnostic tool to understand not just where your project stands today but also gain insight into the value of the work and where it might end up based on current trends. We’ll dig into the details later. 

YOUR FIRM IS BUILT WITH PROJECTS 

Here lies the problem. Certain KPIs are very easy to calculate. Profit Margin, Aged Receivables, and Revenue Growth are easily determined from nearly every accounting software program on the market. When you are in a professional services business, like architecture, you live in a project-based universe. Projects are like atoms; they’re the fundamental building blocks of your firm. Just as atoms combine in countless ways to form everything in the physical world, projects combine to define your firm. How they manifest can dramatically impact your firm’s ability to grow and succeed. Projects are the essential units from which your firm’s reputation, expertise, and financial health emerge. Therefore, the ultimate KPI ensures each project has a healthy life cycle. And that, my friends, is the grand po-bah of project metrics: Earned Value. It provides the framework for understanding and improving the atoms (projects), electrons (phases), protons (people), and neutrons (tasks) that comprise your firm. 

The notion of treating a project as the fundamental particle in an architectural firm’s universe is not just me attempting to create a metaphorical flourish—it’s actually a strategic imperative. It underscores the importance of a holistic approach to project management, considering each project's artistic, technical, and business dimensions to build a thriving, resilient, and impactful architectural practice. For most of you reading this, your care and attention to each project's artistic and technical aspects are paramount. However, you mustn’t neglect the business considerations. Firms that respect all three inspire and motivate their architects to adopt a comprehensive strategy in their project management processes. 

As a profession, architects have a relatively narrow perspective regarding the meaning or purpose of a project. They sweat over the program and the relationship between the spaces, materials, and aesthetics. They glorify the impact their work will have on people and communities. They honor the famous adage from Mies van der Rohe that “God is in the details” to such an extent that they forget those “lines on paper” don’t just miraculously jump off the page and manifest themselves physically. Earned Value management is a tool architects use to drive their projects forward. To execute an earned value management system, you must use technology that integrates the project's scope, schedule, and costs to assess its performance and progress accurately and effortlessly. 

So many of the KPIs I have shared in the past are akin to seeing your firm in 2D, whereas Earned Value Management gives you a 3D view of your firm. The interplay of costs, time, and revenue is like watching planets, stars, and galaxies move through the cosmos. It can be exhilarating while simultaneously confusing or disturbing. However, you do get a better understanding of what is going on around you and where you stand. This comprehensive view can enlighten architects about their firm's performance and keep them well-informed. 

Having engaged with over 1,400 firms over the past two decades, many had been using complex spreadsheets to manage the formidable task of tracking earned value. If you are a firm using this method today, you might as well be drafting on vellum with ink rather than using your CAD/BIM software. The manual effort expended to calculate and update a spreadsheet is not only a waste of time but opens up countless opportunities to introduce errors. 

You need to track three components: Planned Value, Earned Value, and Actual Costs. With the right technology in your firm, these are effortless. Let’s now look at what each category is about and how they are determined. 

PLANNED VALUE 

Planned value is determined by developing the project schedule and assigning resources over time. Depending on your temperament, you might have a very granular work breakdown structure or keep it very high-level. Please consider the needs of each project, as some may require extreme detail, whereas others can be monitored with a light touch. 

Hopefully, you have done some of this before signing a contract with your client. This is often an essential consideration when determining the fee.  

1. Who will be working on the project?  

2. How many hours will they need to invest?  

3. What does each hour of their time cost the firm? 

4. What is the potential revenue we can earn from the work they perform? 

With these four pieces of information, you can allocate them across each phase or each task within the phase. Regardless, this will feed the EVM graph and even a Gantt chart.  

THE IMPERATIVE OF PROJECT PLANNING 

Regardless of experience, project planning is something every architect needs to pay more attention to. Having gone through the process hundreds (if not thousands) of times, architects relish the dopamine kick generated when designing. Since the design process is rather mysterious, planning it out impedes creative sensibilities. 

Every design project is a journey with a destination. While we don’t know what we will find at the end of the trip, to ensure our safe arrival, proper preparation, and planning are essential for success. Most firms are satisfied when the destination is beautiful, the client is pleased, and the project is worthy of publication. These are the fruits of months or years of work. The finished project will often stand for decades, if not centuries, and is enough reward for the firm. The fact that the firm lost money or operated inefficiently is either subordinate or quickly forgotten. 

Imagine if you did arrive at your destination and had all the benefits of a successful completion: a happy client, a beautiful project, and a significant profit! The latter only comes by having a project manager who correctly plans and regularly monitors project budget, schedules, and milestones. 

ACTUAL COSTS 

The actual cost of work performed can only be determined by using intelligent time-tracking software. The easier it is to use the technology, the better the project cost data will be. Many firms struggle because their employees hate tracking their time and do so only under duress when an administrator demands they turn in a timecard. Trying to recreate the time you spent working on a project accurately is impossible if you do it days (or more typically a week) after the work was performed. The chance of making a mistake of an hour isn’t a big deal, but when an employee is wrong for nearly every entry on their timecard, it makes your analysis useless. The closer an employee completes their timecard to when the work was performed, the more accurate the analysis will be. 

PROJECT SCOPE CHANGE 

Before we look at the Earned Value chart, I would be remiss if I didn’t mention the ubiquitous problem of project scope change. Everyone (other than the client) understands that scope creep is baked into the recipe of design and construction. However, with their penchant for pleasing clients, architects are reticent to bring it up as it occurs. Some firms include a cushion in their fees to accommodate changes that occur along the way but have no way of gauging where they stand. In post-mortems of unprofitable projects, we can see a total absence of documentation regarding scope changes. If we aren’t tracking them, how will we ever know if that cushion we provided is sufficient? 

Formally documenting scope change is a best practice we see in the top-performing firms. It starts with a written memorandum for the benefit of the client and all stakeholders involved. As with change orders in construction, it does not need to be accompanied by a change in fee or schedule, but you must be clear in communication when these must occur. Tracking costs incurred by the scope change needs to occur. Using technology that allows all time and expenses related to the change to be tracked and reported is essential.  

I have encountered many firms that don’t utilize timecards when projects are fixed fees. However, tracking your project team’s time and all direct costs enables your firm to truly understand the costs invested in every phase until project completion. This information is like a mirror; it doesn’t lie about what it sees. Once you see the truth, you’ll realize and start to change your behavior regarding monitoring scope changes and its impact on your profitability. 

EARNED VALUE ANALYSIS 

This last item is tricky since it involves determining the level of completion. When one is not yet complete with a phase of work, someone needs to make a somewhat subjective determination as to the level of completion. Some firms think that if an employee spends 10 hours working on a task that requires 20 hours of their time, it’s 50% complete. For any manager who has been on the job for more than one week, we all know that time spent isn’t always correlated with progress. This is why your system needs to calculate project costs and billable value not only by the hours invested but also by the actual progress made. When you enter your project progress, you have completed the required information, and the earned value management chart is complete.  

INSIGHTS 

In the example above, we see how the first five months of the project performed far below expectations (blue line). To make matters worse, from March through May, the firm incurred costs beyond their progress, which tells me that people were continuing to work on the project and either made no progress or were spending time redoing work that wasn’t satisfactory. It isn’t until mid-May that the project corrects course and catches up with the plan, and they do so quite effectively while keeping costs low. The firm should look into what factored into the increased productivity in the period between May and July. Learning what causes the problems is great, but understanding where efficiencies are made is equally enlightening. Based on the current chart, the firm looks well positioned to bring the project to completion six weeks ahead of schedule while exceeding the planned profit. 

TECHNOLOGY 

There are a few software solutions on the market that have earned value management built in. Please don’t try and manage this with a spreadsheet. The types of insights and performance data that EVM brings must be presented in real-time so managers can make appropriate decisions that impact resource allocation, invoicing, and cash flow. BQE CORE is my favorite tool for bringing together all the moving parts that contribute to EVM. If you aren’t familiar, I encourage you to get a demo. At the same time, look on the market for other tools purpose-built for the architecture and engineering professions and evaluate BQE CORE against them. Always do your due diligence when it comes to introducing new technologies into the workplace. 

CONCLUSION 

I’m not suggesting you throw away all the other KPIs your firm uses today. However, if you aren’t already using Earned Value Management, the sooner you adopt it into your standard processes, the better off everyone in the firm will be. It is the best “fire insurance” for your firm because, when used properly, it ensures your firm is noncombustible.