Monday, September 8, 2008

Effective Use of Earned Value Management

The first in a multi-part series of articles on Earned Value Management

“Are you on schedule?”  

If you have ever lead or been a part of a project, you have probably been asked this question.  The trick is to answer objectively.

You may have answered the question with a percent complete (e.g. we are 50% complete).  The problem with this answer is that it addresses only the work that has been completed and leaves out the consideration for the work left to do.  What the question is really asking is “will you finish on time” and you cannot truthfully answer that by only looking at the work you have completed.   

Regarding the work you have completed to date, did you complete it ahead of plan? How much work do you have left to do?  Where are you at with the budget?  As you can see, percent complete only gives us part of the picture.  If you are 90% complete, what if the last 10% takes half or more of the schedule?  

Project managers are expected to know the progress of their engagements at all times. Are you meeting expectations? Staying within budget? Staying on schedule? These can be tough questions to answer.  Fortunately, finding the right answers doesn’t require a different approach to project planning and management. Rather, it requires extracting useful information from planning work that you’re routinely doing.

This article introduces the concept of Earned Value Management (EVM).  We can use EVM to fully and objectively answer the schedule question; in order to define EVM, let’s start by looking at a case study.

Case Study: Tax Returns

You are the new Tax Consultant.  Your client has asked you to produce 5,000 tax returns over the next two months with a budget of $2 million.  

Your client approaches you and says “We’ve got a problem.  We spent $1.2 million in just the first month!  We’re over budget!”  

How do you respond? 

Like any good consultant, you calmly ask the following question in order to determine more facts: “How many tax returns did we produce?”

·         What if you found out you had produced 3000 tax returns?
·         Are you on track for schedule?
·         Are you on track for budget?

Earned Value Management (EVM) can help you answer these questions

History of EVM

The practices we now call EVM developed out of cost management techniques used in large factories as early as the 1800s. Industrial engineers of the time compared planned vs. actual output, timing, and cost to provide a picture of performance relative to expectations. Modern EVM does exactly the same thing.

Formally, EVM was initiated by US government in the 1960s as a means to avoid cost and schedule overruns.  It was first used on the Minuteman project in 1963.  Since that time, it has become a standard (sometimes required) government practice.  Within private industry, it is a recommended best practice by the Project Management Institute (PMI) and typically found in use by leading organizations.

EVM is intended for general use by project managers working on any type of project where senior management wants to be kept informed of project progress, not just the final outcome.  Keeping management informed is important as studies have shown that once a project is behind schedule (both hours and cost), rarely does the project ever get back on track.  

In fact, the US Government and others have amassed a database of historical project cost and schedule metrics.  
After just 15% into the schedule of a project:
·         Cost or schedule overruns at the end of the project will not be less than they have to date
·         The percent overrun at completion will be greater than the percent overrun to date

EVM is not a silver bullet that will suddenly cause your engagements to come in on time, on budget!
It is a:
·         Tool for evaluating progress to date.
·         Tool to help predict future costs and schedules.

In the next article, we will walk through the EVM process together.  Roughly speaking, the process is
·         Build the project plan
·         Calculate Planned Value
·         Track Progress Using Earned Value and Actual Costs