Blog · Contracting and projects
Is your project profitable or draining you? Earned value and cash flow for contractors
Percent complete alone does not tell you a project is healthy. Earned value compares work done with plan and spend, and cash flow shows the month you will need funding.
A contractor asks the project manager, “How much have we done?” and hears “sixty percent”. A true answer that can hide two problems: the plan assumed eighty percent by this date, and what has been spent so far would have been enough for seventy. Only a method that ties progress to both the plan and the cost reveals that — earned value management, the approach the Project Management Institute (PMI) has standardised for years.
Four numbers are enough to understand a project
- Budget at completion (BAC): the estimated cost of the whole project — quantities after approved variations multiplied by unit cost.
- Planned value (PV): the part of that budget that should have been completed by today according to the schedule.
- Earned value (EV): the budget corresponding to work actually done — quantities approved in progress certificates multiplied by unit cost.
- Actual cost (AC): what has actually been spent on the project to date.
What the indicators tell you
- Cost variance = EV − AC: a negative figure means you spent more than the work done was worth.
- Schedule variance = EV − PV: a negative figure means you are behind plan.
- Cost performance index (CPI) = EV ÷ AC: below one means every riyal spent produces less than a riyal of work.
- Schedule performance index (SPI) = EV ÷ PV: below one means progress is slower than planned.
- Estimate at completion (EAC) = BAC ÷ CPI: what the project will cost if performance continues as it is; the gap to the budget is the variance at completion.
A simple hypothetical example
Take a project with a budget at completion of one million riyals. According to the schedule, work worth 400,000 should have been completed by today; quantities approved in certificates are worth 300,000; and 360,000 has actually been spent. Schedule variance is minus 100,000 — the project is a quarter behind what was planned. Cost variance is minus 60,000, and the cost performance index is about 0.83: every riyal spent produces 83 halalas of work. If performance continues as it is, the estimate at completion is about 1.2 million — an expected overrun of two hundred thousand riyals. These figures tell you this in month four, not in the handover month when there is nothing left to do.
More important than the figures is their direction: a cost index falling for three months in a row is an early warning, even if it is still close to one. When both indices fall together, the first question is usually about productivity on site rather than prices.
How to read the S-curve
The curve plots three cumulative lines over time: planned, earned and actual. When the earned line sits below the planned line the project is behind; when the actual line rises above the earned line the project is spending more than it delivers. The gap between the lines matters more than where they sit: a gap that widens month after month means the problem has not been dealt with, while a narrowing gap means corrective action is starting to work.
Review the figures at least once a month, right after the monthly certificate is approved, because earned value does not move before it.
Cash flow: paper profit does not pay wages
A project can be profitable at the end and still need funding in the middle. The contractor pays labour, suppliers and subcontractors before a certificate is approved and paid; the client retains a percentage of each certificate until handover; and the advance payment is recovered from certificates as they come. Knowing the project’s profit is not enough — you need its cash position month by month, and the month when the cumulative figure turns negative.
Where cash usually leaks
- A certificate submitted late because quantities were not measured on time.
- Retention whose condition has been met but whose release was never requested.
- Variations carried out before approval, so they never make it into a certificate.
- Purchases not tagged to the project, so they vanish from its actual cost and show up somewhere else.
How Arttop 360 handles it
Every project has a «Financial performance» tab with two views: «Earned value» and «Cash flow». The budget comes from the bill of quantities after approved variations, with unit costs from the cost study; an item without a cost is not guessed but excluded, and the count is shown. Planned value is spread over the baseline schedule’s activities using the establishment’s working days, earned value comes only from quantities approved in certificates, and actual cost only from posted records: approved subcontractor certificates, purchase invoices tagged to the project, and journal lines on expense accounts tagged to the project or its cost centres.
The indicators are shown with plain-language explanations, alongside an S-curve of planned, earned and actual values. Cash flow runs month by month: actuals from approved vouchers, and expected amounts from invoices due, upcoming certificates net of retention and advance recovery, retention releases, subcontractor commitments and open purchase orders — with a running total and an alert on the first month it turns negative. The report prints on your letterhead or exports to Excel.
Where Arttop 360 AI is enabled, the «Engineer» persona reads quantities, certificates, schedules and site reports, and prepares purchase orders and certificates for you to review and save yourself.
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