Project Management Institute

Added value

BY PETER FRETTY

imag

As the pressure mounts to track ROI, many companies are turning to earned value management. But without the right formula, they may end up drowning in data.

IT DOESN'T SEEM ALL THAT COMPLICATED. Earned value management (EVM) basically comes down to analyzing the differences between planned value and actual value. And there you have it, a gauge of true project performance. Yet even with all of EVM's potential benefits—and rest assured, there are plenty—organizations can quickly become lost in the landslide of data.

“The tradeoff is the upfront effort required to plan the project at the level of detail required for EVM and the additional effort required in collecting and reporting on progress,” says Khalid Ahmad Khan, PMP, head of the project management unit in the Government of Punjab, Pakistan's planning and development department.

For EVM to truly be of value, organizations must be willing to take a good, long look at how their projects are set up—from the work breakdown structure all the way through execution.

And like anything that sparks such a seismic cultural change, EVM takes a hefty investment of time, personnel and money.

Everyone involved must understand the full scope and magnitude of effort needed, says Sonia Usih, PMP, principal of Usih Project Management Consulting Inc., Ajax, Ontario, Canada. “The key here is to obtain resource commitments from executives to complete the implementation,” she says.

At the same time, organizations must accept that EVM is not the “be-all, end-all” of monitoring project status. “It only tracks cost and work performance against plan,” says James Foreman, PMP, client solutions vice president at ESI International, Arlington, Virginia, USA. “EVM does not look at where you are on quality, stakeholder satisfaction, or various specific progress or problem aspects, such as risk.”

Project teams should also use discretion when applying EVM to smaller projects, regardless of how well they fared with previous EVM efforts. Although familiarity with EVM obviously helps lower the bill, he says, “at some point, it may not be cost-effective to apply EVM. For instance, with a two-month project that involves a few people, EVM is probably overkill. The numbers you get out of EVM are not firmly predictive of project outcome until you get to the point of being in the neighborhood of 25 percent through the project. If the EVM numbers at this point in time show cost and schedule problems, then it will be difficult to make up the deficiencies. On the other hand, good EVM numbers at this point in time are no guarantee of end-of-project success. The system does not solve the problems, and people need to realize this.”

Companies must also recognize the capabilities—and limitations—of their project managers before embracing and deploying EVM.

“It requires a level of sophistication among project managers in that they're representing work in phases and activities and aligning the work at the task/ deliverable level to the budget,” says Susan de la Vergne, president of Alder Business Services Inc., Portland, Oregon, USA. “More often, I've seen project budget managed by phase, so EVM can conceivably be done at a phase break, but often by the time it has been calculated and agreed on and approved for general publication to the organization—especially if it's at all controversial and takes a while to be scrubbed and approved to go public—by then it's out of date.”

Despite the many challenges, the mere promise of the potential rewards sparked by EVM has tempted many companies to “dive right in.” But there can be major advantages to taking small steps first. Ms. Usih estimates it typically takes 18 to 24 months to get all the procedures, policies, practices and software required of any sophisticated EVM initiative up and running. “And no amount of resources and reengineering will speed up the process,” she says.

So make the most of that time. “Use every opportunity to inform as many people within the organization as possible about EVM, the implementation as well as its current and future impacts on every individual,” Ms. Usih says.

“In addition, change management should be emphasized throughout the implementation process, and you must consistently communicate your plan and progress with stakeholders early and often to manage their expectations,” she says.

Ms. Usih also recommends leaning on the project management office (PMO) to implement the new system. “If a PMO does not already exist, create one sponsored by an executive with the authority to make decisions,” she says.

To keep things manageable, project managers should avoid counting any value as earned until after it meets all of the acceptance criteria. “This is crucial because it is too difficult to try and take value back out,” says John Zachar, principal consultant, CITI Ltd., Newport Pagnell, England. “Even if an individual deliverable passes the unit test, it may still need to meet the integration test before you can properly count it as earned.”

However, just because you start simply doesn't mean you should water down the process.

“Any size organization can implement EVM into its process, but all of the key components need to be in place,” says Greg Motayne, PMP, analyst of cost and schedule at Ontario Power Generation, a nuclear facility in Darlington, Ontario, Canada. “When used correctly, EVM provides valuable early warning information to management, project leaders, contractors—in fact, all stakeholders.”

Case in Point

HSBC Technology Services Europe, the Sheffield, England-based IT organization within financial giant HSBC Holdings plc, already had embarked on a solid project management approach. The next step was to launch an EVM program—and it couldn't simply work in theory, says Andy McDonald, PMP, project portfolio manager at the company. “We needed to add something that would serve as a tool rather than a hindrance,” he says.

OVERTHINKING IT?

Numbers undoubtedly wield power, but they can also bog a company down in analysis.

Just look at the sheer wealth of numbers typical earned value management (EVM) systems provide, says Greg Motayne, PMP, Ontario Power Generation. “The [data] can be an early warning to a project's health condition. For instance, significant variances or anomalies point to the need to investigate at the root-cause level before any action is taken,” he says. “However, taking numbers as gospel can prove dangerous. They must be supported with actual facts and reason.”

When EVM yields complex numbers, the focus should be on understanding and reporting the story behind the numbers, says Khalid Ahmad Khan, PMP, Government of Punjab, Pakistan. “Reports should look at trends, variations, causes and fixes” he says. “Filling data and charts with EVM jargon tends to create an impression of putting up a smoke screen.”

Organizations should always keep numbers in context, says James Foreman, PMP, ESI International. They're part of an overall monitoring system and should then lend themselves to a reactive system that prompts action. “If the system starts to support the organization's ability to take prompt action, then the company is recognizing the payoff,” he says. “The most important aspect is what you do when you have the information.”

Adopting EVM has certainly offered benefits, but it hasn't been an entirely painless process. Along the way, the company has learned the hard way to pay attention to detail. “We have recognized that not all of the plans we typically incorporated were at the correct level of granularity to succeed within an EVM-friendly environment,” Mr. McDonald says. As a result, HSBC made a few changes to its project-level accounting, review processes and data-collection systems to allow for easy-to-analyze, bite-sized chunks.

Actually being able to gather the proper data and efficiently enter it into the EVM software to create a desired graph has also proven an intensive task. “That was definitely an obstacle that required more proficiency with data programs like [Microsoft] Excel,” he says. “Although this is only a one-time challenge, you cannot overlook this aspect as you first start with EVM.”

AVOIDING THE PITFALLS

Adopting earned value management (EVM) can be a relatively smooth process—as long as you can avoid these common mishaps:

1 TOO MUCH COMPLEXITY. Take a scaled-back approach to remove the temptation to focus on all the acronyms and to concentrate entirely on the principles involved, says John Zachar, CITI Ltd. “Most of the companies that stray away from EVM do so because of the complexity. You need to focus on the spend that you make in terms of effort. Having an effort-only budget, it is easy to track the actual.”
2 CULTURAL CONFLICT. EVM uncovers things that people do not want to hear, and that can lead to organizational culture issues. “We have to learn to accept news and mentor the project manager rather than punish him or her. You seldom have a plan that is perfectly on track,” says Dorothy Tiffany, National Aeronautics and Space Administration.
3 DEFICIENT UPFRONT INVESTMENT. “Moving to EVM requires investment in people, tools and systems and a change in the way projects are initiated,” says Khalid Ahmad Khan, PMP, Government of Punjab, Pakistan. “One has to be willing to put in additional time and effort before starting out, something that is difficult in an environment where quick starts are prized.”
4 MANAGEMENT MISUNDERSTANDING. Not training everyone who EVM touches severely hampers its potential impact. Executives need to see how the concept integrates scope, cost and schedule into the process. “Just training the project managers is not good enough. After all, there is no use producing a graph that stakeholders cannot understand,” says Andy McDonald, HSBC Technology Services Europe. “As a result, it is important to explain the concepts to sponsors and senior leaders to best capitalize on what EVM offers.”
5 BAD TIMING. “You must adequately return actual effort expended within a reasonable amount of time,” Mr. Zachar says. “You cannot mistakenly rely on the accounting department to run time sheet systems, or you may end up months behind. You need to find variances far sooner for EVM to have the most value.”

It's a useful tool, but EVM isn't something to be used in isolation. “Preplanning is a perquisite, and solid work breakdown structures are vital,” he says. “There needs to be a format in place that can facilitate timely use. All the pieces need to be in place and granularity is necessary, or EVM will fail or frustrate.”

Mr. McDonald says the success of EVM at HSBC hinged on having three crucial items in place:

1. The right tools. “Many of us have an assortment of project planning tools within our organizations [that] enable us to plan consistently,” he says. “The fact that these tools are already in place makes it easier to embrace something like EVM.”

2. Solid training. “You need to realize that no matter how experienced the project manager, you need training to help with the consistency and understanding of the process and concepts you are hoping to put into place,” he says.

3. A true champion behind the integration. “We had someone who was enthused by the training and really went out applying it to our company,” Mr. McDonald says. “Plus, from the senior management layer, we were fortunate to have undying support.”

Securing that support and training is essential to ensure EVM doesn't just become a cool new toy—the kind that ends up sitting on the shelf.

Organizations need to put teams through their paces on scheduling, budgeting and reporting, Ms. Usih says. “Training should take place at all levels of the organizational structure,” she says. “Identify the key stakeholders within each sub-organization to help with the acceptance, implementation and maintenance of the EVM system.”

EVM training is most beneficial when there's an understanding of existing systems, such as accounting and scheduling, and how they integrate with the EVM system, explains Dorothy Tiffany, PMP, earned value management program executive at National Aeronautics and Space Administration, Washington, D.C., USA.

“You need to sort through the documentation prior to training in order to individualize the EVM program to fit your organizational needs,” she says. “Embracing discipline and rigor in how you follow the process also helps ensure your ability to obtain solid useable data out of the system.”

And that is the point, after all. PM

Peter Fretty is a freelance business writer based in Whitehall, Michigan, USA. His work has appeared in Advanced Manufacturing, Family Business and Style.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM NETWORK | OCTOBER 2007 | WWW.PMI.ORG
OCTOBER 2007 |

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