3. Predefined “earning rules” (also called metrics) to quantify the accomplishment of work, called earned value (EV) or budgeted cost of work performed (BCWP).
The EVM application in large or complex projects includes additional features, such as indi-cators and forecasts of cost performance (over or under budget) and schedule performance
Table 2.1
Earned Value Analysis (Simplified Structure)
Weight Subtask Unit
Quantity Total
Equivalent Steel Tons
Quantity To Date
Earned Tons
0.02 Foundation bolts each 200 1 200 1
0.28 Trusses each 100 14 50 7
0.30 Columns each 30 15 20 10
0.20 Beams each 50 10 30 6
0.20 Roofing-steel deck square foot 5000 10 1000 2
1.0 steel ton 50 26
Note: Percent complete = Earned tons to date/equivalent tons = 26/50 = 52%.
Productivity and Performance Measurement in Construction 37
(behind or ahead of schedule). The most basic requirement of an EVM system, however, is that it quantifies progress using PV and EV. Definitions of these are:
BCWS (PV): Budgeted cost of work scheduled (planned value): Sum of the
bud-•
geted costs for all planned work scheduled to be completed to-date or on any given date.
BCWP (EV): Budgeted cost of work performed (earned value): Total of the
bud-•
geted costs of the activities (that make up a job or project) completed to-date or on any given date; also called achieved cost or earned value.
ACWP (AC): Actual cost of work performed:
• Actual cost incurred for the work
performed in a given period, including all labor, materials, other direct costs, over-heads, and so on.
BAC: Budget at completion: The original projected cost of the project.
•
CV: Cost variance: Difference between an
• actual cost and the associated budgeted
or estimated cost.
CV = BCWP – ACWP SV: Schedule variance: Any
• deviation from the baseline plan of a project,
mea-sured by comparing budgeted cost of work scheduled with budgeted cost of work performed.
SV = BCWP – BCWS
CPI: Cost performance index: A measure of cost efficiency on a project. It is the
•
ratio of earned value (EV) to actual cost of work performed (ACWP). A value of 1.0 means the project is on budget. A value greater than 1.0 means the project is under budget, while a value less than 1.0 means the project is over budget.
CPI = BCWP/ACWP
SPI: Schedule performance index: A measure of schedule efficiency on a project.
•
It is the ratio of earned value (EV) to planned value (PV). A value of 1.0 means the project is on schedule. A value greater than 1.0 means the project is ahead of schedule while a value less than 1.0 means the project is behind schedule.
SPI = BCWP/BCWS
Productivity Estimation Based on Worth
Alfeld (1988) equates performance (worth) to the ratio of accomplishment (value) to meth-ods (cost). Finished work is regarded as an accomplishment and a construction technique is a method. Performance is a combination of methods and accomplishment. Worthy per-formance occurs when the value of accomplishment is greater than the cost of methods used.
Alfeld developed another measure of performance, i.e., the “performance ability ratio”
(PAR) as the ratio of exemplar performance to current performance. Exemplar perfor-mance is the historically best instance in which the value of accomplishment exceeds the cost of the methods. Performance ability ratio (PAR) is calculated as exemplar per-formance/current performance. As the PAR value exceeds the ideal of 1.0, the need for improvement increases. Selecting an exemplar rate the question arises: Whose exemplar should be used?
1. This job’s?
2. The company’s best?
3. The industry’s best?
Any of these measures can be appropriate. In most cases, construction organizations prefer to set the exemplar as their historical best performance. In pricing projects, this approach can provide a competitive advantage; bids that are based on industry norms may fail to distinguish a company from other bidders. This approach is valid only if the company’s historical performance is better than the industry’s performance.
Computing Par Values
Tables 2.2 and 2.3 provide examples of calculations to establish PAR values. In Table 2.2 productivity is calculated for installing gypsum board (drywall) of different thicknesses and in different configurations. For reference purposes, this calculation is built on data from the RS Means Estimating Manual. It is based on a crew of two carpenters working for an 8-hour day. The productivity values are calculated as the ratio of square feet of gypsum board installed to the number of worker hours required. The productivity values derived are used as a starting point in productivity improvement by using them as exemplar rates;
that is, the best rate for performing each work task.
Table 2.3 shows calculations of work productivity for each of the four reference codes in Table 2.2. Productivity values are determined in column C by dividing production by work hours. Those values are compared with the exemplar values in Table 2.3 to calculate the PAR for each work activity.
Table 2.2
Productivity Calculations for Gypsum Board Installation
Reference
(standard) unfinished 2 16 2000 125
0200 3/8″ ceiling installation
unfinished 2 16 1800 112.5
0350 ½″ walls (standard)—
taped and finished 2 16 965 60.31
1050 ½″ ceilings—taped and
finished 2 16 765 47.81
Productivity and Performance Measurement in Construction 39
using Par Values to Prioritize Corrective action
The PAR values in excess of 1.0 indicate that a task has room for improvement relative to the exemplar values on which it is based. Those tasks that have the largest PAR value are the ones that have the greatest improvement potential and should be addressed first in planning for productivity improvement. In column E the exemplar rate (in column D) is divided by the job productivity (C). In this case, the PAR values range between 1.2 and 1.9; they are prioritized in column F. The PAR value of 1.2 for ½″ ceilings—taped and finished—indicates performance that is slightly worse than the exemplar rate. By contrast, the PAR value for 3/8″ wall installation is 1.9 and indicates great improvement potential.
The ranking in column F shows how these work activities should be prioritized for per-formance improvement. This exercise should be carried out for all work activities, espe-cially those on the critical path of a project.
using Par Values in Project Management
A project management team can use the methodology above to decide how best to increase crew performance to be in line with the initial estimates. To do this, changes in the meth-ods may be needed. Simply adding crews to a job may defeat the purpose by increasing labor costs disproportionately. Whereas the example shown uses industry-wide values from the Means manual, foremen can work with crews to identify best methods that have higher levels of productivity. These best methods can then become the new exemplar rates for a contractor and for the job. These values are critical. Low-productivity levels are likely to result in schedule delays as the rate of work production will fall short of the estimator’s projections. On the other hand, the attainment of higher exemplar rates will lead to earlier job completion, at lower labor costs, and very likely higher profits.
In the deployment of The Last Planner® System, weekly work plan (WWP) meetings may be used to continually improve exemplar rates and work performance. Quite often, performance below exemplar rates is due to poor planning, poor coordination, and prom-ises not kept. The LPS process seeks to improve coordination through a detailed, ongoing evaluation of reasons for noncompletion (RNC).
Table 2.3
PAR Value Calculations for Gypsum Board Installation
Work Activity A B C = A/B D E = D/C F
and finished 637 16 39.81 47.81 1.2 4
Setting up a Performance Measurement Program
Productivity measurement is essential for a construction organization’s leaders to gauge performance on a number of selected indicators. These indicators provide measurements that serve as a foundation for improvement—as the old adage goes “what gets measured, gets done.” Performance measurement systems should track several factors representing components of organizational performance such as: productivity indices, quality measure-ments, safety measuremeasure-ments, schedule compliance, and budget compliance. Improvement can be achieved by a variety of initiatives that include lean construction, total quality man-agement (TQM), six sigma, and ISO 9001:2000. While most organizations have systems that keep track of financial performance, construction productivity calls for a number of specific measures. They include:
Labor productivity is a critical component of construction productivity. Labor costs account for approximately 40% of total costs for a broad range of projects. These costs may account for an even greater percentage in the case of small projects. Work sampling stud-ies of construction operations indicate unproductive labor activity in the range of 40–60%.
Figure 2.2 shows typical reasons for non-productive labor hours. In light of the probability of lost labor hours, the performance measurement of labor productivity offers perhaps the highest return on investment (ROI) of all productivity measurements.
A successful program starts with the top management’s vision. They must have a com-mitment to excellence, with an emphasis on a culture of continuous improvement and on management by fact. It should be included in their strategic management program, integral with their vision, mission, and values statement. In that context, productivity measurement provides the organization with the facts that it needs to make the tactical changes that are required to achieve and sustain higher levels of performance. Leaders must communicate to the entire organization its vision, mission, and values so that the continuous improvement philosophy can be incorporated in all activities, especially with construction projects.
At its simplest level, a productivity measurement program may be headed by an analyst that reports to a senior management level, such as a VP. In turn, the VP should maintain an active productivity agenda in executive meetings to keep all decision makers aware of the trends in the organization’s productivity through its respective measures. Productivity
Productivity and Performance Measurement in Construction 41
measures should be selected based on key performance indicators (KPI). Critical success factors (CSF) should be identified and these should be closely linked with the organiza-tion’s KPI.
lean Construction Measurement
If the organization adopts lean construction as its protocol, performance measure-ment is an absolute requiremeasure-ment in order to determine the extent of accomplishmeasure-ment for a WWP. It is also a necessity to determine the reasons for not completing a task as planned. The analyst role may be assigned to a scheduler or other staff member who has been trained in the lean construction methodology. Other traditional measurements such as labor and crew productivity are still relevant as a means of tracking overall project performance.
Transitioning from Productivity Measurement to Performance Improvement and Lean Construction
The foregoing discussions emphasize the importance of productivity measurement as a component of the greater issue of performance improvement. In this context, the underlying purpose of measurement is to support initiatives to improve construction performance. These initiatives can include lean construction and integrated project delivery, TQM, ISO 9000, or six sigma. Construction organizations have a particular challenge to adopt this paradigm. Traditional construction project management tools do not address productivity; they include schedule slippages and cost overruns. Forbes and Golomski (2001) observe that the construction industry as a whole measures per-formance in terms of completion on time, within budget, and meeting construction codes.
Code enforcement officials ensure that minimum standards are met for building rein-forcement and mechanical and electrical systems that have life-safety implications, but these standards may be met while the quality of finish and workmanship can be below
Typical worker’s hour
Percent of total Cumulative total
32 100
50
0
29
13 8 7 6 5
Direct work Waiting Traveling Instructions Tools, material, transport
Early quits/late
starts
Personal breaks
Figure 2.2
Workers’ time utilization. Typical worker’s hours.
expectations. Owner/client satisfaction is rarely considered under this scenario. Contracts are often awarded on the basis of low bids; most construction activity is subcontracted, and as a whole there has been a tendency to offer minimally acceptable quality in order to be price-competitive.
Construction organizations (designers and constructors) would benefit significantly by establishing formal performance improvement programs that build on the knowledge gained from the measurement approaches that have been discussed above. Lean construc-tion can be deployed through this organizaconstruc-tional structure. To be effective in improving the organization, management needs to commit to having a support staff for one or more individuals trained in the use of productivity/quality improvement techniques. Having them trained in lean construction methodologies would be a plus. Industrial engineers could be appropriate candidates for this position, provided they understand the construc-tion environment.
This position should report to top management, and should be versed in the construc-tion process as well as in the use of such tools as Pareto charts, cause and effect diagrams, activity sampling, time studies, histograms, and stratification. This position should also have experience with facilitating and leading team efforts such as assisting workers with identifying process improvement approaches. Top management should empower this posi-tion to develop and conduct programs and activities that infuse productivity and quality thinking in the workforce from the lowest to the highest levels. Productivity and qual-ity reporting should become part of the organization’s operating procedures, to the same extent as project progress and financial status reporting. These efforts can only succeed if management sets a clear example for the importance of productivity and quality and, very importantly, the use of measurement information to continuously improve the efficiency and effectiveness of procedures and activities. It is good to remember the following words of Albert Einstein:
Not everything that counts can be counted, and not everything that can be counted counts.
(Sign hanging in Einstein’s office at Princeton—
documented by K. Harris, 1995) Productivity measurement is both quantitatively and qualitatively vital to the profitability of a construction company. The central task is the systematic collection of data based on measured levels of output of different workers performing similar tasks, across sectors, and within particular sectors. This exercise will establish norms or reference output rates.
On each specific construction project, measurements should be taken and measured rates should be compared with reference rates. Management must keep up with technological innovations worldwide and seek to adapt as well as motivate employees with improved management systems.
To facilitate performance measurement and improvement, constructors need to develop a culture of “building in” quality, and convey that philosophy to management and work-ers alike. They should begin to adopt Deming’s fourth point “End the practice of awarding business on the basis of price tag alone.”
Overall, as has been experienced in the manufacturing and other service industries, top management of all involved organizations—owners, designers, constructors, and con-struction management companies—must be committed to the concept of performance and quality improvement and must provide necessary funding and staff support to ensure success.
Productivity and Performance Measurement in Construction 43
Guidance from the Malcolm Baldrige National Quality Award
A design or construction organization can incorporate performance improvement think-ing in its business model by adoptthink-ing selected portions of the award’s seven criteria (2007).
The organization does not have to compete for an award, but can benefit from the core beliefs on which it is based. The MBQNA’s Criterion No. 4 (Measurement, Analysis, and Knowledge Management) represents the practices of best-in-class organizations that seek to establish leadership in management procedures. These organizations continually mea-sure their performance across a number of key success factors (KSF), and use these metrics for the purpose of continuous improvement. The criteria are described as follows:
4.1 Measurement, Analysis, and Improvement of Organizational Performance How an organization measures, analyzes, reviews, and then improves its
per-formance through the use of data and information at all levels and in all parts of the organization.
4.2 Management of Information, Knowledge, and Information Technology
How an organization manages information, organizational knowledge, and information technology.
By implementing such measurement systems, construction organizations can maintain the information necessary for high levels of performance, then use it as a foundation for the deployment of lean construction.
Questions for Discussion
1. How do you define productivity in construction?
2. How does lean construction impact construction productivity?
3. What are the methods available for measuring construction progress?
4. What are their advantages and disadvantages?
5. How are exemplar rates determined?
6. Briefly explain how the terms “exemplar performance” and “PAR” values can be applied to crew production rates to identify productivity improvement opportuni-ties. To help your explanation, consider a tile-setting task in which crews produce 700 square yards per week. Exemplar performance is 800 square yards per week for a crew of the same size.
References
Alfeld, L. E. 1988. Construction productivity. New York: McGraw-Hill, Inc.
Ballard, G., and G. Howell. 1994. Implementing lean construction—stabilizing work flow. Conference on Lean Construction. Santiago, Chile, September 1994.
Crosby, P. B. 1979. Quality is free: The art of hassle-free management. New York: McGraw-Hill.
Forbes, L. H., and W. A. Golomski. 2001. A contemporary approach to construction quality improve-ment in The Best On Quality, ed. M. N. Sinha, IAQ Book Series, 12: 185–200. Milwaukee, WI:
ASQ Quality Press.
Forbes, L., M. Ahmed, and S. Azhar. 2003. Productivity management, improvement, and cost reduc-tion. In System-based vision for strategic and creative design, ed. F. Bontempi. Lisse, The Netherlands:
A.A. Balkema Publishers, Swets and Zeitlinger, B.V.
Griffis, F. H., J. V. Farr, and M. D. Morris. 2000. Construction planning for engineers. New York: McGraw-Hill.
Koskela, L., and G. Howell. 2002. The underlying theory of project management is obsolete.
Proceedings of PMI research conference 2002. Seattle WA, eds. D. P. Slevin, D. I. Cleland, and J. K. Pinto. Project Management Institute.
Malcolm Baldrige National Quality Award. 2007. Criteria for performance excellence. Milwaukee:
American Society for Quality.
Sanvido, V. E. 1988. Conceptual construction process model. Journal of Construction Engineering and Management 114(2): 294–311.
Sumanth, D. J. 1984. Productivity engineering and management. New York: McGraw Hill, Inc.
Thomas, H. R., W. F. Maloney, M. W. Horner, G. R. Smith, V. K. Handa, and S. R. Sanders. 1990.
Modeling construction labor productivity. Journal of Construction Engineering and Management 116(4): 705–726.
Bibliography
Adrian, J., and D. Adrian. 1995. Total productivity and quality management in construction. Champaign, IL: Stipes Publishing, LLC.
Alarcon, L. F. and A. Serpell. 2004. Performance measuring, benchmarking, and modeling of construction projects. Santiago, Chile: Pontificia Universidad Catolica de Chile.
Ashford, J. 1989. The Management of quality in construction. London: E & F.N. Spon.
Forbes, L., 1999. An engineering-management-based investigation of owner satisfaction, quality and performance variables in health care facilities construction. Dissertation. Miami: University of Miami.
Gerald, F. 1997. Building a strong economy: The economics of the construction industry. Livonia, MI:
Sharpe, Inc.
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Web Sites
Bureau of Labor Statistics (BLS) On line: http://www.bls.gov http://www.businessdictionary.com/
http://www.bls.gov/iif/osheval.htm
http://www.cit.cornell.edu/computer/robohelp/cpmm/Glossary_Words/CPI.htm http://en.wikipedia.org/wiki/Earned_value_management
http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html