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Project management systems – Earned value management – part 1



Earned value management – part 1

Introduction

Earned Value Management (EVM) is a project management technique that measures forward progress objectively.
It is based upon identifying performance to date and using this as the best indicator of future performance.
It could be used to spot problems early and implement solutions.

The Earned Value method for project control overcomes the problem of managers making decisions based on isolated information.

It requires the cost of work in progress to be quantified.
This allows the project manager to compare the work completed against the expected completion or work at a given point.

The project manager can use Earned Value Management as an objective way of measuring performance and predicting future outcomes.
This allows greater confidence in reporting progress.

In addition to more accurate project status assessment, Earned Value Management makes it easy for a project manager to analyse both schedule and cost performance in a variety of ways.

It is a combination of:

Technical performance

That is, what is the progress of planned work

Schedule performance

That is, is are the tasks completing on time or is the schedule running late

Cost performance

That is, are the actual costs running above or below budget.

EVM helps to provide evidence that might indicate future performance problems while there is time for corrective action.
In addition, Earned Value Management can improve the definition of the project scope and prevent scope creep.
Also, it aids in the communication of objective progress to stakeholders, and focuses the project team on achieving progress.

There is suggestion that the use of Earned Value Management can contribute to project management success.
The methodology can be scaled to fit projects of all sizes and complexity.

It is also known as Performance Measurement, Management by Objectives, Budgeted Cost of Work Performed and Cost Schedule Control Systems.

Definitions

Here are a few definitions:

‘A methodology used to measure and communicate the real physical progress of a project taking into account the work complete, the time taken and the costs incurred to complete that work.’
(Project Magazine)

‘A management technique that relates resource planning to schedules and to technical cost and schedule requirements.
All work is planned, budgeted, and scheduled in time-phased increments constituting a cost and schedule measurement baseline.’

“A method for measuring project performance. It indicates how much of the budget should have been spent, in view of the amount of work done so far and the baseline cost for the task, assignment, or resources."
(User guide for Microsoft Project 2003)

‘The physical work accomplished plus the authorised budget for this work.
The sum of the approved cost estimates, (which may include overhead allocation), for activities, (or portions of activities), completed during a given period, usually project-to-date.’
(Field Operative)

‘Earned value management is a project management technique for estimating how a project is doing in terms of its budget and schedule.’
(Wikipedia)

‘An integrated management control system for assessing, understanding and quantifying what a contractor or field activity is achieving with program dollars.
Earned Value Management provides project management with objective, accurate and timely data for effective decision making.’
(NASA)

History

It is now recognised as a very useful tool for project management.

It was used initially in financial analysis within United States Government programs in the 1960s in particular the Department of Defence (DoD).
It had its roots in the early part of the 20th century in industrial manufacturing.

The early concept was known as PERT / COST but was inflexible and hard to use.
Other variations began to emerge.

The DoD devised an approach based upon 35 criteria in 1967 and called it the Cost / Schedule Control Systems Criteria (C/SCSC).

In the 1970s and early 1980s, C / SCSC analysis grew, but the technique was often ignored or even actively resisted by project managers in both government and industry.

C / SCSC was often considered a financial control tool that could be delegated to analytical specialists.

Following these techniques Earned Value Management emerged in the late 1980’s and 1990’s.
It was understandable and useable by normal managers and not just specialists.

In 1991, the Navy A-12 Avenger II Program was cancelled by Secretary of Defence Dick Cheney, following performance problems indicated by Earned Value Management.

Earned Value Management survived changes occurring in USA government reforms during the 1990’s.
From 1995 to 1998, ownership of Earned Value Management criteria (reduced to 32 from 35 in 1967) were transferred to industry by adoption of ANSI EIA 748-A standard.

Earned Value Management was quickly expanded from use just within the Department of Defence.
It was quickly adopted by technology-related agencies, for example, the National Aeronautics and Space Administration and the United States Department of Energy.

The construction industry was an early user of Earned Value Management.
It was also taken up by other industrial nations.

The Performance Management Association, focussing on Earned Value Management, merged with the Project Management Institute (PMI) in 1999 to become PMI’s first college, the College of Performance Management.

The first PMBOK Guide® First Edition in 1987, contained an overview of Earned Value Management, it has been expanded in later editions.

It began to be used across all government agencies.
It was then used for projects other than for contractors.

Requirements for Earned Value Management

There are a few features that are needed before Earned Value Management can be implemented.

The project schedule

There must be a project schedule that comprises all of the tasks from a work breakdown structure (wbs).
The schedule should be detailed enough to allow the costing of the individual tasks.

Planned work value

The project manager must know the cost of each of the tasks that are in the schedule.
That is, the ‘Planned’ Value (PV). These will be defined with other terminology later.

Earning rules

The progress of tasks are tracked in terms of their status in terms of completion.
They will either be:

  • Not started
  • Partly completed
  • Completed

A set of rules are assigned that provide an ‘Earned Value’ or (EV) of cost depending on the task status.
These may also be referred to as metrics.

As the project gets more complex they usually include many more features.
These additional features allow forecasts of performance against cost and schedule performance.
See the later terminology section.

Any Earned Value Management must be able, as a minimum, to evaluate Planned Value (PV) and Earned Value (EV).

PRINCE2® 2009 describes project monitoring within the Progress theme.
The purpose of the Progress theme is to establish mechanisms to monitor and compare actual achievements against those planned; provide a forecast for the project objectives and the project’s continued viability; and control any unacceptable deviations.
Two of the principles of PRINCE2 [see ‘The Complete Project Management plus PRINCE2’] are managing by stages and continued business justification.
The Progress theme provides the mechanisms for monitoring and control, enabling the critical assessment of ongoing viability.
[see Progress - purpose]

PRINCE2® is a Registered Trade Mark of the Office of Government Commerce in the United Kingdom and other countries.

Non - PRINCE2 information