Overview
The success of construction projects largely depends on effectively managing its finances. However, the complexity of large construction projects may pose challenges to accurate budgeting, progress tracking, and proper allocation of funds. Schedule of Values, a comprehensive finance management practice, is the answer to these challenges. It further leads to the effective execution of the project when integrated with PMIS (Project Management Information System).
This blog post discusses the Schedule of Values and how you can implement it in your construction project.
Schedule of Values (SOV) in Construction – Definition
A Schedule of Values, or SOV, is an extensive record of every billable task in a project, its corresponding cost, and the status of the completed work. It is a financial snapshot of the construction project covering every major and minor project activity of financial importance. The allocated cost of all these activities, when summed, is equal to the total contract value of the project.
It is an essential tool that helps the stakeholders monitor the progress of project tasks in contrast to the planned tasks. When construction projects create a Schedule of Values, all members, such as project owners, general contractors, designers, and architects, get a single point of reference to understand the project’s progress and payment flow.
Importance of Schedule of Values
A construction project has a constant cash flow in the form of payments, billing work items, and other miscellaneous expenses. For successful project management, these transaction tasks must follow a standard approach. An SOV helps track these transactions effectively and minimize potential risks such as funds mismanagement, overspending in initial project stages, exceeding the contract price, and delays in payments.
Use Cases of Schedule of Values
While SOV is of immense help in construction projects; it is ideal to understand when to use it. An SOV proves to be very effective for large-scale projects that require monitoring of multiple components such as budget, payment application, cost tracking, etc. Further, smaller projects with fixed budgeting or a guaranteed maximum price contract also benefit from an SOV. In such fixed-price projects, where the total cost of the project is predetermined, SOV makes it easier to monitor the costs and work within limits by providing a project breakdown and proper tracking of each project activity.
Important Elements of Schedule of Values
To harness the full advantage of an SOV, keep the following points in consideration while creating an SOV:
- Identify tasks: Break down your project into smaller manageable tasks and prepare a comprehensive list of tasks that require a financial investment from the conception phase until the end.
- Assign costs: Allocate the budget to each task in the list above. Along with direct costs such as labor salaries, material, etc., this budget also includes indirect costs such as water facilities at the construction site, administrative costs, etc.
- Organize expenses by phases: Identify the major stages of your construction project and list the expenses at each stage. It helps in better management of finances that prevents overspending while ensuring the funds are paid on time at each stage. However, make sure not to front-load the SOV as it can result in a bad reputation with clients and risk future relationships.
- Include contingency: Keep uncertain events in mind and include contingency costs. Unexpected events could hamper the progress and even cause financial losses if unprepared.
- Update regularly: Update the SOV regularly as the project progresses and project owners release payment. Also, it helps evaluate project progress as you record the percentage of work completed.
- Get client approval: Share the SOV with your client to get budget approval, reduce gaps, and build trust. With the client’s approval of the SOV, the team can execute the project confidently.
- Attach with payment applications: Tie your SOV to payment applications. With SOV in hand, it is easier for project owners to verify the payment claims and release payment for the completed work. If needed, they can also use the SOV to verify the accuracy of the information and resolve payment-related disputes.
- Cash flow monitoring: Monitor the cash flow and understand the distribution of funds across various project tasks. The cash flow monitoring helps in gauging the financial health and liquidity of the project.
- Handle changes: Update the SOV for any changes in the project scope and make the cost and budget adjustments as needed. This ensures efficient change order management and keeps team members in sync.
- Customize for specifics: Record the line items with ample details to prevent any gaps or confusion at later stages.
Structure of Schedule of Values
An SOV usually comprises of three main sections, as shown below:
- Heading and basic project details: This topmost section of the SOV document starts with a relevant heading followed by the basic project details such as project name and number, details of the contractor, client, architect, etc.
- Project spreadsheet: This section contains a detailed spreadsheet divided into rows and columns listing every task/item and its details, such as item number, description of work, estimated cost, construction dates, task progress details in percentage of completed work, details of payment, etc.
- Consent and acknowledgment: The SOV document closes with the final section of consent and acknowledgment from all the key stakeholders, such as the contractor, project owner, or architect. They express their consent by signing the SOV document and recording their responses.
Benefits of Schedule of Values
- Creates and maintains orders: An SOV acts as a visual timeline for the entire team of construction projects. It helps team members follow the plan established by the document and finish the tasks in the mentioned order, which results in the optimization of the costs involved.
- Increases accountability and trust: A detailed SOV helps project managers adhere to the budget limits and monitor their expenses. It also lets them showcase their accountability through detailed order of task accomplishment, which helps foster clients’ trust.
- Sets clear expectations: An SOV is a common platform that shares project goals and timelines with everyone on the team. It not only sets the expectations right but also helps them to follow the schedule and reduces miscommunication.
- Simplifies payment collection: Construction projects usually release staggered payments, which makes the role of SOV all the more crucial. Sharing the SOV with the client and getting his consent on project items, delivery dates, and costs ensures a smooth payment process.
Components of Schedule of Values
The Schedule of Values construction projects follow essentially includes the following details:
- Business information such as details of the project, client, contractor, etc.
- Breakdown of work scope and detailed description of each activity or item.
- Estimated cost against each activity
- Payment status and dues
- Progress of each activity with the percentage of completion
- Costs for the current billing cycle
- The remaining expenses required to complete the project
- Retainage costs, including percentages and amounts for every activity
- Consent and acknowledgment
Conclusion
A Schedule of Values, with all the detailed information mentioned above, not only provides financial clarity and control but also makes your PMIS more effective. Hence, at OnIndus, we leverage the power of this detailed instrument to empower your PMIS and lead to the successful and timely completion of construction projects.
FAQs
1. What is SOV in construction?
SOV stands for Schedule of Values. A Schedule of Values construction projects use is a comprehensive breakdown of the project items and their cost allocation. An SOV plays a significant role in project management through cost tracking, payment release management, and billing.
2. What is the meaning of scheduled value?
Scheduled value is the estimated budget for a specific work item in a construction project. The Sum of scheduled values of all the items gives the total contract value of the project.
3. What is included in an SOV used by construction projects?
A Schedule of Values construction project employs a document that represents a detailed work breakdown structure listing all line items, along with their progress status, allocated budgets, payment details, etc. Apart from this, it contains information about the project, project owners, contractors, etc., on top and a section for the consent of all parties involved at the end of the document.
4. What is a schedule example in construction?
A schedule example could be a plan having a chronological list of construction project tasks along with their timelines. In construction, such a timeline covers specific activities such as excavation, electrical work, etc.
5. What is the difference between progress billing and the Schedule of Values?
Progress billing is a method of presenting invoices to request payment of the completed work to date. The Schedule Of Values (SOV) is a detailed document that contains a breakdown of the entire project in the form of individual tasks and their corresponding costs. Usually, the Schedule of Values construction project is used becomes a basis for progress billing as the former contains the status of the work completed.