EVM for the rest of us

Abstract

Too often, earned value management (EVM) holds the stigma of being overly complex and burdensome to implement in a useful way. This perception can hinder organizations’ adoption of EVM, and they miss the opportunity to more effectively measure, forecast, and ultimately improve project performance.

This paper will provide an overview of EVM, the misconceptions of implementing an EVM system, the project management “pillars” necessary to support a successful EVM system, as well as review best practices in implementing a simple yet robust earned value management solution for organizations that can benefit from progress measurement and the ability to forecast cost performance, but don't need to comply with more stringent standards (e.g., ANSI 748) and shouldn't undertake the overhead to do so.

This paper will also review topics such as: the integration of required data, creating a fit with organization culture and processes, developing key performance indicators (KPIs) and metrics, application of rules of credit, updating of percent complete, and automated EV reporting.

Introduction

Project managers, project controllers, cost analysts and professionals responsible for project performance are aware of the benefits of earned value management (EVM), a process to measure and forecast and ultimately improve performance. While earned value metrics are not overly complex, the reputation surrounding the design and implementation of an EVM system (EVMS), the collection of data, processes, and software systems combined to generate the metrics and reports to guide management decisions, is not a positive one. A general belief has emerged that EVM systems will be strict, complex and burdensome in their implementation and ongoing use. Much of this belief stems from the rigor and regulations of the ANSI 748 standard for EVM and systems that have been put in place to comply with the standard.

The good news is that the creation of a successful EVM system does not have to be so difficult. The ANSI standard is useful for some projects and organizations but does not have to be used for all, nor should ANSI 748 be used to define what earned value management is. The concept of EVM contains core principles that should be the basis for the implementation of an EVM system, and applied as appropriate for a particular organization's requirements. This paper will look at these principles, as well as the project controls foundation that supports a simple but robust EVM solution according to what we call “Earned Value Management for the Rest of Us” (EVM FRU). EVM FRU focuses on those principles and reduces EVM to the minimum requirements needed to track and measure project performance for an organization.

Project management practitioners should be able to use this information to demonstrate that an EVM system can be successfully executed within their organization, thus convincing executives and decision makers that EVM isn't a process they should be wary of, rather it is something that should be a part of their overall project management plan.

Case studies will outline how organizations have implemented project controls best practices that give their EVM system the data and functionality it needs to effectively measure project performance. Topics to be reviewed include: the integration of required data, creating a fit with organization culture and processes, developing key performance indicators (KPIs) and metrics, application of rules of credit, updating of percent complete, and automated EV reporting.

Typical EVM Misconceptions

Executives may be aware of the benefits of implementing EVM, but stories of rigid, costly, and unsustainable implementations sometimes give them a false understanding of what it takes to execute EVM within their organization. A number of misconceptions hinder the adoption of EVM.

A major misconception often comes from the rigorous EVM systems designed to comply with the ANSI 748 standard often used by government agencies and contractors. Confusion is caused when parties assume that the standard outlines what type of EVM process “must” be implemented. The ANSI standard is not applicable for all organizations, yet many avoid implementing any kind of EVM system for their particular project, fearing the cost and effort needed to fulfill the level of rigidness and extensive tracking details prescribed by ANSI 748.

The overhead expense — in both financial and labor resources — stemming from the implementation of an EVM system is an understandable concern for any kind of organization. With companies scaling back on resources and budgets during the global economic recession and ongoing recovery, undertaking an added (and potentially very costly) expense for performance measurement is often looked upon as an additional cost, rather than an investment that can ultimately reduce costs and improve profitability.

The sustainability of the EVM process has also been a cause for concern. Again, the requirements of an ANSI 748 compliant system imply a laborious level of detail that must be recorded and tracked to ensure an accurate measure of earned value. Organizations new to EVM, or with immature processes, would find this level of detail very burdensome. An EVM system relies on employees to accurately indicate times of productivity to measure progress. Within this data capturing struggle, many find themselves in a minefield of information, having to record data from different sources. Human error becomes a greater risk with this type of reporting. In reality, however, there are less cumbersome ways to collect data and it is not necessary to begin collecting data at a much greater level of detail if that detail does not actually provide valuable information.

Another obstacle voiced by many is the unfamiliar terminology and formulas necessary to execute EV metrics, making it difficult to train employees and difficult to translate findings for executive consumption.

All of these concerns have hindered the support project management practitioners garner for the implementation of an EVM system within their organization. However, there is a way to make EVM applicable, practical and actionable so that the concept is not only approachable, but also of interest to executives and decision makers within an organization, and not just practitioners of project controls.

EVM: A Tool for Business Decisions

Lost in the concern over complexity and difficulty of implementing EVM is the value EVM delivers as a tool for making business decisions. The insights it generates are ideal for the executive level, but must be positioned in a way that makes EVM accessible and not something solely for the “back office” of project controllers. An effective, modern EVMS will provide project information through summaries, graphics (reports and dashboards), and drilldown views to support the summarized information. These tools can allow senior managers to roll up EV across projects, whether it's a portfolio or a division of their organization to provide insight into enterprise-wide performance (Exhibit 1).

Exhibit 1 – EVM Dashboard

A key component of executive adoption of EVM is to streamline technical terminology. Instead, use descriptive information that delivers the point in a more approachable way. This approach can encourage executives to WANT to look closer at the metrics and actionable insights they can reveal about project execution. EVM can succeed with executive buy-in. For them, however, EVM is not a goal unto itself. The key selling point, instead, is delivering improved performance.

Additional value from EVM is unlocked when an organization is able to view EV from an enterprise or program portfolio perspective. An organization that can roll-up EV generated at the project level to provide broader insights at higher levels of detail gains the benefit of visibility into enterprise-wide performance. The consolidation of all the data, measured and tracked, and viewable from one platform, becomes critical in providing metrics to decision-makers in a company who would need to view EVM as a whole, providing them streamlined information at an actionable level to ultimately improve project performance not just of specific projects but of the enterprise as a whole.

Once decision makers are convinced of the value of EVM and supportive of the initiative, EVM can succeed within an organization. To reiterate, discarding unnecessary complexity and using an appropriately designed approach which fulfills the minimum level of detail and rigor needed for an organization is the goal.

EVM Principles

At its essence, Earned Value is a measure of project performance comparing work completed against work planned, as of a given date. It is used to (1) measure, (2) forecast, and (3) improve project performance for an organization. The goal of Earned Value Management should be to achieve these core principles, and the basis of any EVM system should be providing the tools to help in this endeavor. Research has indicated that principles of EVM are positive predictors of project success.¹ The ANSI standard, and the processes and details associated with it, are not fundamentally required for increasing project success. Instead, the focus should be on the three principles of EVM and the appropriate level of rigor necessary for a particular organization to track, analyze and act upon earned value information.

The concept that we call “Earned Value Management for the Rest of Us” (EVM FRU) focuses on those principles and reduces EVM to the minimum requirements needed to track and measure project performance for an organization. The result is a more effective and efficient use of EVM without the overhead that isn't required for most projects.

The Pillars Necessary for EVM
Part of the Project Management Life Cycle

EVM is not separate from the overall project management life cycle. It builds upon a solid project controls framework by adding process standards and performance metrics. Therefore, if your EVM solution is separated from a solid project controls plan, accurate measures for EVM are not possible.

A successful EVM system would not only more accurately measure, forecast, and improve performance but it would also provide better scope definition upfront, and greater visibility and perspective on a project through its execution, therefore contributing to a better cycle of project performance overall.

Because EVM needs a strong project controls foundation, certain aspects of the project control life cycle are vital in ensuring the success of an EVM solution. At its essence, EV looks at how much has been accomplished according to the plan. Therefore, the project control pillars that support EVM (as they relate to either planning or actual performance) are:

(1) Budgeting;
(2) Forecasting;
(3) Schedule;
(4) Progress measurement; and
(5) Actual cost.

Each of these facets must exist in order to successfully track the project control life cycle.

Pillars: Budgeting and Forecasting
One of the pillars necessary for a well-planned EVM solution is budgeting. A well-formed and accurate work breakdown structure (WBS) is the starting point. Planning at the correct level of the WBS is imperative. Both the budget and forecast should be granular enough to identify important trends, but not so specific that you are adding too much information. It is important not to track detail simply because it's possible. When more granular information does not add value to your project management or decision making, it should be eliminated and budgeting and/or forecasting should occur at a higher level.

Once EV Metrics are available, they in turn, can help form additional forecast models. The example in Exhibit 2 shows how an EVMS is supporting multiple formulas for Estimate At Complete. The most appropriate method can then be selected to revise forecasts or initiate changes to the project execution.

Exhibit 2 – Example of Independent Estimates At Complete

Pillar: Schedule

Again, the foundation of EVM is reviewing progress against the plan. Inherent within this is the schedule and planned timing for completion of the project and the stages along the way. It is the barometer that defines much of the success of a project, and therefore to calculate EV, a planned completion date must have been established. In our EVM FRU concept, even small projects can be measured with EV, and therefore warrants note of the importance of a schedule.

Pillar: Progress Measurement

Similar to budgeting and forecasting, measuring progress at too fine a level can be problematic. This is an area where the perceived overhead involved with EVM can be disconcerting. Certainly, progress can be measured by tracking all the activities of all resources assigned to all tasks applied against a project's WBS. While some projects may require this level of precision reporting, it can be cumbersome and costly. Progress measurement with this level of detail will not work for many projects. With complex projects, sometimes there are simply too much data or too many different departments are involved to safely track measurement without error. Understandably, there is rejection of this process if the project is relatively simple and does not require that level of rigor.

Instead, alternate simpler methods can be used to determine progress, for example:

• Defining rules of credit, such that a certain percent complete is marked on a task based on specific milestones achieved
• Self-reporting of percent complete by contractors or sub-contractors
• Progress based on physical work accomplished (e.g., having laid 10 miles of piping on a 20-mile project yields 50% complete).

Pillar: Actual Cost

Measures such as cost variance and schedule variance will require actual cost data to be used for an accurate EV reading. These real-time measurements, whether they come from a commercial enterprise resource planning (ERP) system or any internal cost tracking system, are vital in measuring earned value.

Occasionally, when an organization refers to actuals, they may be referring to committed amounts. Therefore, obligations to committed contracts should be integrated and automated within the EVM system so that they are not a source of error and an organization is able to create EV performance reports without having to remember these committed amounts.

The Importance of Change Management

To be truly effective, an EVM solution must integrate change management. Throughout the life of a project, there will be changes — scope, cost, exchange rates, risks planned for and realized, and unforeseen events. A methodology to identify, approve, and allocate funds to address these changes should be inherent within the EVMS. Changing budgets within a separate system would be a waste of time and resources. Tools should support initiating, reviewing and approving budget change requests, pulling information for distinctive contingencies; and outlining the justification required in change management.

Capabilities Derived from EVM

Through the use of EVM, what capabilities and information should an organization strive for? The following describes five key areas that EVM should be delivering:

(1) Ability to forecast Estimate At Complete (EAC) and Estimate To Complete (ETC). Inherent in these measures is a clear understanding of what has been spent so far and the current status of the project in question.

(2) Ability to perform Scenario Impact Analysis. Your EVMS should deliver a model to answer to what degree will performance (as measured by cost and schedule) be impacted if we experience changes in project scope, design, etc.

(3) Ability to compare performance against performance baselines. One must be able to understand how our current performance differs from the original budget, the current budget, the current forecast, etc., and importantly, answer why.

(4) Ability to track trends over time. Typically, this is understood to mean performance to date, but ideally this capability will extend to looking at trends over different times as well. How has performance changed recently (e.g., the past month or quarter on a multi-year project) and does this show a more appropriate trend?

(5) Drive changes in behavior. As initially stated, one of the principles of EVM is to improve performance. As such, it should reveal trends or warning signs to be addressed. This information should be delivered to the individuals within the organization that can make business decisions and shape the course of a project for the better.

The Right Amount of EVM

For EVM, one size does not fit all. The manner in which it should be implemented for an organization should depend upon the needs of the projects and the needs of the organization. Given this, how do you apply the “right amount” of EVM? With EVM FRU, what is the minimum EVM before we've stripped out too much detail? The following elements should be achieved:

(1) Build a solid platform for budgeting, forecasting, and change management.

(2) Use templates for WBS and progress measurement rules.

(3) Standardize reports and views for periodic and cumulative trends.

(4) Match EV terminology to the culture of an organization to make it accessible, user-friendly, and better understood. CPI can instead be named “Earned/Burned” or “Productivity.” Avoid the burden of using the ANSI standards when an organization has already developed its own processes and expertise.

(5) Create a full project performance picture. This means monitoring non-EV key performance indicators (KPIs) in conjunction with EV metrics.

(6) Develop EV metrics on a cross-section of data as appropriate — not just costs, but also hours or quantities. Then be able to roll up EV accordingly.

(7) Document variance analysis and justification. Reporting on trends and variances alone is insufficient. Having a central record of why variances are occurring provides a stronger tool for current and future performance improvements.

Case Studies
Nuclear Power Contractor

A nuclear power contractor that has several projects in R&D, construction, and services across North America has been able to successfully implement EVM within their organization. The company was standardized on industry leading ERP and scheduling systems. They were looking to build a centralized platform to provide accurate forecasts for a high profile project while providing visibility into performance for their customers. To accomplish this, they added a project controls platform that would integrate the other systems and serve as the EV reporting engine.

They were tracking percent complete in the scheduling system, which served as the source for progress measurement (see Exhibit 3). Resource loading was also supplied from the scheduling system, and actual costs and commitments were sent to the project controls system from the ERP. Approved change order and time sheet data from contractors were then integrated within the project controls hub, which became their EVM environment. Highlights of the project include: (a) allowing the EV techniques to vary by work packages, utilizing the concept of the right EV tracking for the right work package; and (b) keeping the full time phased history of EV over a month so they were able to see how EV was improving over time.

Exhibit 3 – EVMS System Integration

They looked at performance based on month, year, and project life to highlight long-term and local trends starting to develop. The have also integrated changed management into their current budget and forecasts.

They were able take EV reports and reference them not only on baseline budget but also current budget and current forecast, thus allowing the organization to change the budgets or forecasts in real time. This gave them the ability to analyze performance not just by work breakdown structure but by discipline, by alternate breakdown structure of different sorts.

Federal Transportation Agency

Another example of how EVM was implemented within an organization was the system that was a part of the U.S. federal transportation program. The multi-billion dollar program was scheduled to modernize core transportation infrastructure in multiple locations across the country. The goals for this program were: standardizing progress measurement, milestone percent completion, and the ability to use standard project templates in their scheduling system.

For this project, it was important to consolidate funding information, budget commitments and obligations that were coming out of their enterprise financial system. It was also vital for the agency to check what its vendors were reporting so they could submit their Cost Performance reports based on standard percent completion templates from their contractors. With real time data being added into the system, they were able to reconcile what their vendors were submitting for payment with and what they were reporting in terms of performance and progress.

Conclusion

Not all organizations are equal. They are different sizes, execute different scopes and scales of projects, and have different internal processes. “EVM For the Rest of Us” looks to apply the right amount of EVM for an organization. Fundamentally, this means delivering on the central principals of EVM — measuring, forecasting, and improving project performance — while minimizing the overhead and processes to achieve these principals to only what is essential. With this approach, project management professionals can elicit buy-in from executives and decision makers that EV can be easily and effectively measured within their organization and that it is a necessary aspect of their overall project management plan.

© 2013, Christen Bergerud
Originally published as a part of 2013 PMI Global Congress Proceedings – New Orleans, Louisiana