Risk-Based Decision Model for Determining the Applicability of an Earned Value Management System in Construction
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New policy mandated by the Undersecretary of Defense for Acquisition, Technology and Logistics has lowered the dollar thresholds of contracts requiring earned value management (EVM). This policy directed that a risk-based decision be made to determine if EVM should be used on firm-fixed price contracts under $20 million. Although not previously applicable to Military Construction (MILCON) building projects or other Air Force Civil Engineer (CE) managed contracts, the new threshold requires that CE projects be evaluated for risk. Therefore, the focus of this research was to analyze the risk fac...
New policy mandated by the Undersecretary of Defense for Acquisition, Technology and Logistics has lowered the dollar thresholds of contracts requiring earned value management (EVM). This policy directed that a risk-based decision be made to determine if EVM should be used on firm-fixed price contracts under $20 million. Although not previously applicable to Military Construction (MILCON) building projects or other Air Force Civil Engineer (CE) managed contracts, the new threshold requires that CE projects be evaluated for risk. Therefore, the focus of this research was to analyze the risk factors associated with construction contracts in an attempt to build a decision model to determine if EVM is warranted on the project. Due to the cost of implementing EVM, this model should probably be used only on Air Force construction projects with cost estimates over $5 million. If the cost growth predicted by the model is greater than 5%, the use of EVM is recommended to monitor the risk factors. However, this recommendation should be tempered with the overall risk associated with a given project. In other words, if the calculated cost growth is high but the probability of occurrence is low, the decision-maker may want to forego the use of EVM and the associated costs.
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