It runs counter to contemporary business thinking, but one of the great modern project management innovations was the result of the US government imposing regulations on private industry. That’s how earned value management was born.
The concept of using earned value management to track project progress has been around since the 1960s, when the U.S. Department of Defense (DoD) started requiring its implementation. David Kester, director of the EVM Center, notes that the DoD switched to EVM to “better track progress and spending on defense contracts, and to ensure each organization gains real value from its investments.”
He goes on to explain that “the best measure for determining relevance and reliability of cost, schedule and technical performance data is the status of the contractor’s EVM compliance.”
Today, the DoD, the Office of Management and Budget (OMB) and Federal Acquisition Regulations (DoC) have all implemented requirements that earned value management methodologies be used on all performance-based contracts in excess of $20 million.
The successful implementation of EVM in government projects has fueled the fire for program managers in the private sector, as well. The ability of program managers to provide specific data about the earned value of programs and projects positions EVM as a best practice for performance tracking in program management.
Whether or not you are required to use EVM methodologies for programs, there are a number of reasons why it just makes good business sense.
1. Accurate Performance Tracking And Predictions
The power of earned value management lies in its ability to provide accurate, up-to-the-minute performance tracking data, as well as offer predictions for the future of the project based on past performance.
As Greg Cimmarrusti, PMP notes, EVM systematically integrates measurements of cost, schedule and scope into a single system to help determine benchmark achievements, provide an early warning for performance troubles and forecast future performance. Once the EVM baselines are established, program managers will be able to calculate variances, indices and forecasts per EVM formulas, as shown in Cimmarrusti’s article.
This quantitative data can be used for better decision making on projects. By calculating this data regularly, program managers are more prepared to answer detailed questions from stakeholders about the status of projects, identify and correct any issues, and see projects through to completion.
2. Early Warning Of Scope Creep
Project manager Umesh Dwivedi describes earned value management as a systematic process that identifies variances in projects based on the comparison of work performed and work planned. These variances identify scope creep.
Scope creep in any project is inevitable, and it is one of the main reasons that projects fail. Earned value management helps program managers overcome the key causes of scope creep, such as lack of project requirements definition and poorly defined scope by requiring an accurate, well-defined baseline before a project can begin. The key to successful EVM is being able to calculate the value of a project at various points, and without that baseline there is no way to calculate the variances in a project’s scope.
The difficult part is recognizing that your project is experiencing scope creep, and identifying where the issues are. Bernie Roseke, PMP, explains that scope creep can be identified in two of the formulas within EVM metrics: cost variance (CV) and schedule variance (SV). These both give early warnings of budget and schedule issues when accurate data is input. Using these EVM metrics allows program managers to control scope creep before it derails a project.
3. Integration With Risk Management
Risk is a pressing issue for program managers, says Joe Kerins, our chief defense industry client strategist at Artemis. Developing and testing the viability of risk mitigation plans has become an important part of program management, he explains.
As such, earned value management and risk management are becoming more integrated disciplines in program management. Both disciplines offer insights into factors that are affecting a project’s performance, with earned value management examining the past and risk management looking ahead to the future.
Alexandria University engineering professor M. Hamdy Elwany led a team that studied oil and gas EPC projects, and Elwany’s team concluded that participants who integrated EVM and risk management were less likely to be behind schedule and over budget than participants who did not integrate the two disciplines.
Risk management and EVM each improve project control and provide program managers with reliable information to make proactive decisions, risk management experts Val Jonas and Lauren Bone presented at the PMI Global Congress in 2012. Integrating these two disciplines is beneficial because doing so provides an improved baseline that accounts for risk, a more robust calculation of risk management budget and forecasts, and early identification of risks.
The formulaic approach of EVM helps identify where to expect variance and, therefore, risk. Jonas and Bone also note that by quantifying variance EVM provides information that can be used to plan corrective actions, which is key to successful risk management.
4. Insightful Communication With Stakeholders
Communication between project teams and stakeholders is essential for a successful project delivery. And the more information that can be communicated from project teams to the stakeholders, the more positive the relationship will be.
One of the reasons EVM is becoming standard practice is because of the data that can be communicated to stakeholders. As Atul Gaur, PMP explains, EVM answers questions beyond those answered in traditional portfolio project management.
PPM can answer high-level questions such as how much time and money a job will require and how much money has been spent at any phase of the project. Earned value management, however, goes deeper, providing data on what work has been completed for the funds used, what it will take to complete a job, and how long it will take to complete based on pace and schedule.
By calculating the EVM performance and forecasting measures as outlined in Cimmarrusti’s article, program managers can provide answers to these questions.
As Fahad Usmani, PMP notes, stakeholders are more confident about the success of a project when EVM methods are used because EVM offers them better project insights. The broader status reports provided by EVM help them visualize money spent and the value of work completed on a project.
5. Improved Accountability
Accountability is critical to successfully delivering a project. Earned value management requires a commitment to accountability, which is another reason why organizations and project managers are choosing this management methodology for their projects. As Jeff Collins at Innovative Management Solutions points out, EVM methods provide a means of identifying the causes of delays and added costs.
Program managers are responsible for ensuring accountability from all stakeholders who are responsible for a project’s success, consultant and business solution designer Brad Egeland writes. Earned value management helps hold team members accountable for their actions and holds the program manager accountable to the client. By tracking variances throughout a project life cycle, program managers can hold their teams accountable for their performances.
6. Data-Driven Insights Can Be Easily Mined
Earned value management does require an understanding of formulas and data calculations, and program managers can quickly be overwhelmed by the formulaic approach that EVM takes to dissecting data and predicting performance. But that shouldn’t stop you from adopting these methodologies to program control.
There is software available that can make it easier on program managers to collect the right data and run the necessary calculations in EVM. When implementing EVM, program managers need a tool that has one central repository for all of the project data that can then be used to run EVM calculations.
Because EVM plays a strong role in risk management, Kerins advocates for a tool that allows program managers to run “what if” scenarios that can show the impact on the cost and schedule of future work. The more of these scenarios a tool can simultaneously run, the more effectively a program manager can make decisions based on risk.
EVM is a Standard For Good Program Management
The strength of earned value management lies in data-driven insights. You can use that data to stay informed every step of the way in a project and make smart, instantaneous decisions. Studies have proven the effectiveness of this project tracking methodology, and you would be putting yourself and your project at a disadvantage by not implementing earned value management.