Have you Earned it?

For a Project Manager, one of the most important activities once the project is underway is to monitor & track the project progress and communicate its status to the stakeholders. The key is to accurately measure the current progress and forecast future trends. Earned Value Management (EVM) is one such technique which lets you do that. According to PMI, EVM has proven to be the most effective performance measurement and feedback tools for managing projects.

What is Earned Value Management?

Earned Value Management (EVM) is a project management technique for measuring project progress in an objective manner.

• It combines measurements of scope , schedule and cost of a project in a single integrated system.
• It provides quantitative data regarding the performance of the project.
• It can be used to show past performance of the project, current performance of the project and forecast the future performance of the project by use of statistical techniques.
• Good planning coupled with effective use of the EVM technique will reduce a large amount of issues arising out of schedule and cost overruns.

 For a more detailed understanding of EVM, you can visit NASA’s EVM tutorial.

Why use it?

In order to understand the use of EVM let’s see an example of project tracking that does not include EVM. Consider a project that has been planned in detail, including a time-phased spend plan for all elements of work. Figure 1 shows the cumulative budget for this project as a function of time (the blue line, labeled PV). It also shows the cumulative actual cost of the project (red line) through week 8. To those unfamiliar with EVM, it might appear that this project was over budget through week 4 and then under budget from week 6 through week 8. However, what is missing from this chart is any understanding of how much work has been accomplished during the project. If the project were actually completed at week 8, then the project would actually be well under budget and well ahead of schedule. If, on the other hand, the project is only 10% complete at week 8, the project is significantly over the budget and behind schedule. A method is needed to measure technical performance objectively and quantitatively, and that is what EVM accomplishes.

EVM introduces a term called “Earned Value” which is nothing but the cost of work that has been accomplished or “earned”. As work is performed, it is “earned” on the same basis as it was planned, in dollars or other quantifiable units.  As the work units are completed, the project earns the budgeted value associated with those work units.  This method associates a dollar value with work completed so that it can be compared with the actual spending (to determine cost variance – potential cost overruns), and the planned spending (to determine schedule variance – potential schedule slippage).  In this manner, planned and actual spending are integrated with actual work performed.  The integration provides greater visibility into the real project status for all stakeholders and thus creates a scenario for better management of risks, for early determination of whether a project is in trouble, and for estimating what will be needed to complete it.

Consider the same project, except this time we will introduce Earned Value (EV) figures in the progress chart. Figure 2 shows all 3  curves together – which is a typical EVM line chart. The chart indicates that technical performance (i.e., progress) started more rapidly than planned, but slowed significantly and fell behind schedule at week 7 and 8. At the same time, it can be seen that the project was actually under budget, relative to the amount of work accomplished, since the start of the project. This is a much better conclusion than might be derived from Figure 1. As a PM, this snapshot provides me with valuable insights on how to get this project back on track. Since the project is behind schedule but under budget, one of the options I have is to add more resources (developers, off-the-shelf software etc.) to speed up the project.

Traditional project management practice tends to compare actual costs with planned expenditures, and confuses actual costs with actual progress.  EVM provides a third reference point that is an objective view of the status of the effort, i.e., the value to the end goal of the work completed to date. To implement EVM requires a disciplined approach to planning & reporting and hence may be considered an overhead for smaller projects. However for larger projects, the value of implementing EVM is too good to ignore.

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