EVM--a disciplined approach to project management
This paper describes how earned value management (EVM) is a by-product of employing a disciplined approach to project management. Following the Knowledge Areas in A Guide to the Project Management Body of Knowledge (PMBOK® Guide), the authors discuss each technique or step that they employ to set up and execute a project to benefit from earned value management. We have found that if a disciplined approach to project management is employed, the result is the ability to quickly and easily perform earned value management on any size project. Practical examples are presented to demonstrate the techniques being discussed.
Earned Value Management (EVM) is a system of project controls based on a structured approach to planning, cost control, and schedule performance measurement. EVM is not the objective of project management; it is the outcome of a disciplined and consistent approach to project management. EVM is often thought of as a complicated and burdensome process, requiring extra resources and expertise and therefore not practical on small to medium-sized projects. It has been the experience of the authors that this is not necessarily true. We have found that if a disciplined approach to project management is employed, the result is the ability to quickly and easily perform earned value management on any size project.
The techniques that we have found to be most important in managing a project to utilize EVM are primarily associated with the PMBOK® Guide's Knowledge Areas of Project Integration Management, Project Scope Management, Project Time Management, Project Cost Management, Project Human Resource Management, and Project Communications Management. These techniques have been applied to projects that are mostly influenced by the number of man-hours tracked to the project; however, the applicability of these techniques to projects that are heavily influenced by subcontracts is fairly straightforward. One of our senior schedulers said it best, “a disciplined approach to project management is basically doing the simple things right.” When we first started implementing these techniques into our project management and scheduling functions, the task seemed daunting; now it is second nature.
Project Integration Management
Project Integration Management is primarily focused on identifying, defining, combining, unifying, and coordinating the various project management processes and activities necessary to implement a successful project. There are five data elements that are necessary to perform EVM calculations: planned value (PV), actual value (AV), earned value (EV), budget at completion (BAC), and percent complete. An integrated change control process is a particularly important part of controlling these data elements and ensuring a disciplined project management process. Without this important step in the project management process, Earned Value Management is an exercise in futility.
Exhibit 1, derived from a diagram found on the website of PMI Fellow, R. Max Wideman (Wideman, 2012), depicts how integrating the various core and facilitating project management functions with tools and techniques can lead to project success. EVM is an important tool that the project team can use to manage aspects of the project.
Integrated Change Control
An Integrated Change Control process is needed to ensure that steps are taken to control the scope, schedule, and cost elements of the project. These three elements are sometimes called the triple-constraint and are unified by the work breakdown structure (WBS). Whenever a change is identified in the scope, schedule or cost, the project manager and project controls personnel need to ask the question, “how does this particular change impact the other elements?” Rarely, if ever, does a change impact only one of the elements. The project must have a process for identifying, approving, and implementing any changes.
Our experiences have shown that most changes come from the schedule updating process. We use a tiered approach of identification, approval, and implementation of changes. All changes to the schedule must be made in a controlled, timely, and consistent manner. Configuration control of the schedule must be established to maintain the integrity of the schedule. Our projects use a Schedule Change Request (SCR) process to document the analysis of impacts and requested modifications to the schedule. Changes are categorized as low, medium, or high impact. If a change is identified (other than general status of low impact), an SCR is prepared. The purpose of this document is to give a detailed explanation of the scope, cause, and downstream effects of the change on the project schedule and provide the basis for a possible contract change request to the client. The Project Scheduler will analyze the effects of the change on key milestones, workforce demands, and critical path before it is implemented for medium and high impact SCRs.
Project Scope Management begins and ends with the WBS. The WBS should be used in the identification of the project scope, decomposition of the scope into discrete schedule activities, assignment of the cost and budget, organization of the project documentation and project communications. Controlling the scope will ensure that the BAC and PV of the project are properly allocated to the various WBS elements and maintained throughout the project life cycle.
Planning for Success
The WBS should form the basis of the scope definition. Any work scope that does not fit within the WBS is out of scope. That being said, the project manager should ensure the WBS and the contract are properly aligned. Once aligned, 100% of the work should be planned down to the lowest practical level. Make sure that the WBS elements define “buckets” of work and that activities are assigned to WBS elements. To get accurate EV data, work should be planned and tracked at the same level, and the work should be planned and tracked at the lowest level possible. Data can be summarized up through the WBS but cannot be separated to lower levels of the WBS effectively. Finally, resources need to be assigned to activities.
To ensure the project scope is accurately reflected across all elements of the project, it is necessary to align the WBS across the schedule, accounting system, and earned value engine. Without alignment it is extremely difficult to match the planning, earned, and actual data at the appropriate levels to effectively perform earned value calculations and then analyze the data. Analyzing the data is essential to developing corrective actions or reinforcing actions that positively affect the project outcome.
Work Authorization Process
The work authorization process is used to authorize scope, schedule, and cost responsibility for discrete portions of the project to specific individuals called Control Account Managers (CAM). The work authorization process ensures that the project transitions systematically from a planning phase to an execution phase without losing control of the project scope, schedule, and cost. The CAM is given the responsibility to develop the detailed execution plan, budget, and schedule for specific portions of the project WBS. A formal task plan is developed by the CAM and approved by the project manager. The task plan becomes the input for the scheduler for developing the level 2 planning schedule into a detailed level 3 execution schedule. The task plan provides information as to what work will be performed, how it will be performed, what resources are required, necessary inputs and deliverables, as well as sequencing of the work and budgets for each activity.
Project Time Management
The schedule is where everything comes together. Planned values are derived from the baseline schedule, earned hours are based on the progress of the activities as a percentage of the budget and the actual costs are collected against the activities in the schedule. A Project Time Management Plan is a very beneficial tool for documenting and communicating the day-to-day activities necessary to “do the simple things right.”
As soon as practical, the schedule needs to be baselined. The baseline schedule is a copy of the fully developed, resource loaded schedule. The baseline needs to be maintained throughout the life of the project and only in the event of significant scope changes or excessive variances should a re-baselined schedule be created. Planned values originate from the baseline copy of the schedule. If you are using Primavera (P6), make sure the project baseline points at the proper baseline copy of the schedule. Periodic copies of the schedule can be made and assigned as alternate or supplemental baselines. These supplemental baselines can be helpful in analysis of changes to the schedule over a period of time.
The use of financial periods provides a more accurate display and project reporting of planned and actual units and costs. Rather than spreading units and costs evenly throughout the duration of activities, the use of financial periods allows for the discrete allocation of these values to specific time periods. P6 offers this ability through the use of a financial period dictionary. The use of this feature shows how planned, earned, and actual costs are incurred by financial period. The financial dictionary should be set up to reflect the organization's financial reporting periods by week, month, quarter, or a single financial period, depending on the schedule update cycle.
Storing Period Performance
In combination with Financial Periods, P6 offers a Store Period Performance feature that enables the tracking of cost and actual units. This feature records actual units for a specific financial period in combination with earned value and planned value. It allows tracking of previous financial periods and comparing current and future trends. It is important to synchronize the schedule update cycle with the organization's financial periods. Perform store period performance upon completion of the update period but before the start of the next scheduled update cycle.
Schedule Development: Roles and Resources
As the schedule is developed from a planning schedule to a level 3 or 4 execution schedule, it may be easier to use “Roles” when resource loading the schedule, instead of named resources (individuals). As the work activities approach, roles can be replaced with named resources. There may be a delta in rates between roles and resources. This is discussed below in the section titled, “Cost Rates.” We use named resources in our schedules to facilitate resource utilization projections for the various organizations.
Many EV programs, or engines, limit the output of EV information to the project WBS. By establishing and maintaining a consistent set of global and project level activity codes for all projects, EV reporting can be performed and presented in a variety of ways across a portfolio of projects. Discipline must be exercised to ensure that global codes are assigned to each activity in the schedule. Also ensure that project-specific codes are uniformly applied. If activity codes are assigned and maintained, then not only will EV reporting be more flexible, EV analysis and management will be easier.
Schedule Update Cycle
A consistent schedule update cycle is a key factor in ensuring a disciplined, controlled, and timely update of the schedule. When entering man-hour actuals in the schedule it is important to take into consideration the organization's financial periods in your update cycle. Exhibit 2 depicts the weekly schedule update cycle used by the authors.
Documenting Schedule Changes
As we have already said, changes to the schedule must be done in a controlled, timely, and consistent manner. Configuration control of the schedule must be established to maintain data integrity. The use of logs enables the traceability of what changes were made, when they were implemented, and who requested the change. Key schedule changes logged are: (1) activity start/finish dates, (2) modifications to budget, (3) duration changes, (4) SCR number, and (5) notes from project team and/or client.
The use of integrity reports assists in identifying areas of concern during the schedule update cycle. It is highly recommended that integrity reports be run prior to and after the update cycle. The concerned areas can then be addressed prior to project reporting. Listed below are some of the integrity reports we run on a weekly basis:
- Activity Starts – Schedule for Week
- Activity Finishes – Schedule for Week
- Activity Starts > DD+6 Days
- Activity Finishes >DD+6 Days
- No assigned Predecessor and/or Successor
- Expected Finish < Data Date
- Activity Not Started with Expected Finish
- Activity Complete < 100%
- Activity Not Finished = 100%
- Activity Not Started w/% Complete
- Constrained Activities
- Activities with no assigned Roles
Objective Progress and Schedule Updates
Earned value is an objective assessment of the progress achieved on discrete activities. Each project needs to establish an objective method of measuring progress. For us, engineering activities are updated one of three ways. The first method, if the activity is greater than six reporting periods long (a reporting period is typically 1 week long), utilizes the STEPS feature of P6 to provide a weighted method of measuring progress. The STEPS feature adds schedule details without the complexity of extra logic. The second method is similar but does not involve STEPS; the project establishes “claiming rules” for progress. For example, starting an activity allows the activity owner to claim 10% completion of the activity. Issuing the first draft of a document or calculation may be worth 50% toward the completion of an activity. Finally, the least preferred method is to allow the responsible individuals to project the percent complete each reporting period based on either their judgment of the work performed to-date or the amount of effort required to complete the activity.
Planned Starts and Finishes
The use of planned start and finish dates in P6 can be beneficial in certain instances, such as when a baseline has not been established. However, it is recommended to establish a baseline as early as possible. P6 features an option to link the planned start and finish dates of the activities with the assigned resources. This link forces the alignment of both activity and assigned resources in a planning state. Once the activity has been statused, the link is broken, and the planned dates can become skewed; forced alignment of the dates is then necessary. To keep both activity and assigned resources aligned, synchronization of the planned start and finish dates is a must. This can be accomplished through a global change within P6 which identifies the misalignment so that manual corrections can be implemented. Exhibit 3 provides examples of an alignment and misalignment of planned dates using an original planned start of 7/1/12 and planned finish of 7/31/12:
It is important to note that unless the planned dates of the resources are changed to match the activity planned dates, the resource will appear to be starting earlier or finishing later than the activities' actual dates.
Project Cost Management
From the standpoint of EV, cost management involves collecting cost data and ensuring it is properly assigned to the activities to which it applies. The actual cost information can either be entered into P6 or integrated into an EV engine along with planned and earned value from P6. Exhibit 4 shows two methods that can be employed for integrating EV data.
The advantage of the method on the left is that if extensive EV analysis is not performed or if elaborate reports are not needed, a separate EV engine is not necessary. And if moderate reporting enhancements are desired, then Microsoft Excel can be used to achieve the desired outcome. If, however, portfolio management and extensive analysis and reporting are required, then an EV engine is necessary in either case. The method on the right would be employed when there is no need or desire to get actual data into P6. In this case, only schedule performance can be measured in P6. There is a third method not shown, where all schedule information is sent to the Cost engine for EV reporting. This method usually limits EV reporting to the WBS.
Alignment of Actual Cost to Planned Cost
As stated before, it is necessary to collect data at the same level to which the project is planned. For us that is the resource-loaded activity. Each activity is resource loaded and each resource receives a budget, or planned cost. Multiple activities roll up to the same charge number because our charge numbers are aligned to our WBS. The lowest level of the WBS is called a “work package.” Charge numbers are assigned to work packages. To facilitate proper collections of actual cost data against specific activities in the schedule, we developed an interface between our timekeeping system and P6 that enables individuals to select the activity they are assigned to work during the particular time period from a drop-down box. The timekeeping system drop-down box allows the individual to indicate what schedule activity was being worked and how many hours were charged to the activity for a given time period. All resource hours (planned and actual) are rolled up to the activity for EV calculations because the earned hours are activity based.
Budget at Completion
The total planned value is also called the budget at completion. The planned value curve is sometimes called the Performance Measurement Baseline (PMB). The PMB consists of distributed and undistributed budgets, control accounts, planning packages and work packages as shown in Exhibit 5. For most of our projects, we not only include the PMB, we also include Management Reserve in P6. This allows us to present a complete picture of the project's financial and earned value situation and facilitate the allocation of risk reserves and contingency as part of our integrated change control process.
Financial Periods versus Averaging
When presenting the EV data from P6 it is important to understand that if financial periods are not set up and used, then P6 will average the planned, earned, and actual data for each activity over the duration of the activity. Even if financial periods are set up, it is important to store period performance, as discussed in the Project Time Management section of this paper. Finally, data need to be presented as financial period data or cumulative data to properly present the EV information in time-interval format.
The Big Freeze
One of the most frequent questions we field is: “If I under spend on my activity, can I use the excess budget on other activities?” The answer is and should always be: “NO!” Establish a freeze period prior to the start of an activity. Once the freeze line has been crossed, no changes to the budget for an activity can be changed. We recommend that the freeze period be set at least six reporting periods prior to the start of any activity. This will allow an orderly, controlled method for changing the baseline for a given activity. Failure to establish a freeze period and allowing the movement of budget from completed activities will invalidate the baseline and thus the planned value.
Actual Units Validation Process
Prior to entry of actual man-hours in the schedule, a strict validation process should be implemented. The validation process is a series of questions and the purpose is to clear any discrepancies with regard to resource timecards prior to entry into P6. Man-hour actuals reports are generated from our financial system and the data are validated against the schedule. The validation includes activity start and finish dates, resource, activity ID, and charge number. Exhibit 6 shows the steps used in our validation process:
Upon completion of the validation process, actual man-hours are entered into P6 utilizing the financial periods and the store period performance features. The process is summarized below in Exhibit 7.
Project Human Resource Management
Project Human Resource Management is essential for establishing the planned values and actual values. In order to effectively implement an EVM system you must have a resource dictionary that includes cost for the resources. Our resource dictionary includes both roles and resources. Roles are generic, resources are specific. Examples of roles include Mechanical Engineer, Civil Engineer, Draftsman, Scheduler, and Project Manager. Resources are named individuals. Our resource dictionary establishes a blended cost rate for roles, and each named resource has a fixed cost center rate. Because we are using a blended cost rate for roles at the initial planning phase and then switch to named resources with a fixed cost rate at the execution phase, there is a built-in rate variance introduced into the planned versus actual cost analysis. Each week we account for any variance created by replacing a role with a named resource. This adjustment is applied to a specific activity in the Management Reserve section of the WBS.
Project Communications Management
Earned Value reporting is considered part of Project Communications Management because it is here that the information collected, analyzed, and summarized is reported to the project's stakeholders. Just like a doctor monitors several parameters to assess a person's health, many parameters must be monitored to assess the health of a project. A project health report requires monitoring several parameters, such as EVM. To the extent practical, project reports should be consistent from project to project and tailored to the particular audience. Shown in Exhibit 8 is an example of the type of project health report we produce for each project.
EVM is not the objective of project management; it is the outcome of a disciplined and consistent approach to project management. EVM is often thought of as a complicated and burdensome process, requiring extra resources and expertise and therefore not practical on small to medium-sized projects. Hopefully, this paper has shed some light on some of the steps that can be employed to implement an effective EVM system that can be employed for any project.
Wideman, R. Max, (1990). Why do we need a body of project management knowledge? Retrieved from http://www.maxwideman.com/papers/framework/pmbok.htm.
© 2012, Michael S. Terrell, PE, PMP
Originally published as a part of the 2012 PMI Global Congress Proceedings – Vancouver, BC