EVM "lite"--a deliverables-based approach

Introduction

Traditional approaches to earned value management (EVM) implementation require significant capital investment and can impose large cost and administrative overhead, especially on smaller projects. Project budgets are tighter than ever before and pressure is mounting on project managers to streamline their management approach. As a result, project managers are faced with challenging decisions—for example: should we cut cost and administrative burden by choosing not to implement EVM, especially on smaller projects?

Choosing not to implement EVM can allow projects to struggle or ultimately fail, due to the lack of performance measurement and loss of internal control. Performance surprises arise and project managers who have not implemented EVM can be faced with difficult or even career-limiting situations, caused by making decisions “in the blind” without adequate project performance information.

Implementing project EVM doesn't have to be a costly decision any longer. For many projects, EVM can be implemented using only a spreadsheet and a resource-loaded schedule. Even in organizations lacking fully integrated financial data systems for project accounting, EVM-on-a-spreadsheet can still provide reliable planned value (PV), earned value (EV), and actual cost (AC) data. Also, key performances indexes CPI, SPI, IEAC along with project EAC can be easily computed in a spreadsheet-based EVM solution.

This paper proposes a streamlined, spreadsheet-based approach that the authors call EVM “Lite”, which supports 16 of the 32 EIA/ANSI-748 criteria and provides all of the key EVM performance metrics.

Traditional EVM—Implementation Challenges

Meeting all of the implementation criteria contained in EIA/ANSI-748-B (EIA, 2007) presents organizations with numerous challenges, both financial and operational. Certified compliance typically requires an initial capital investment to establish and institutionalize the EVM system solution and its application process. Applying the solution to projects in the organization incurs setup costs, training costs, and continuing operational costs. During a project's life cycle, most enterprises assess projects direct or indirect charges to administer the EVM solution, produce reports, and maintain the project data in the EVM System (EVMS). These are all challenges that often constrain or actually prevent the adoption of EVM, especially for use by smaller projects, or in smaller enterprises.

Large, Complex Projects Drove the Origins of EVM

Historically, the roots of EVM and its standards stretch back more than 100 years. In the late 19th century, industrial engineers employed earned value to determine the true cost of factory production. They established time and work standards for estimating, based on time studies they conducted (Taylor, 1911). They used the standards to plan new production work (PV of that day) and then compared actual hourly and material costs to measure their cost performance against the completed work's value (EV of that day).

Decades later in the 1960s, large, complex, risky projects in several key industries began employing EVM for project management purposes, based on a standard set of measurement and procedural criteria. The advent of mainframe computers in the 1960s largely made possible the adoption of EVM solutions in these industries, for huge projects and programs like NASA's Apollo Program, the Air Force's ICBM programs, and Department of Energy projects.

Led by Government desires to gain better cost and schedule control of their huge programs, the Cost/Schedule Control System Criteria was created. Based initially on 35 criteria, it was codified in a number of Government regulations such as DODI 7000.2; for example, in 1967 (DoD). Under the new regulations, government contracted work was to be planned and its value was to be measured at the lowest practical level in the work breakdown structure (WBS).

More importantly, responsibility for control of cost and schedule planning and control of performance measurement was given to responsible people—called Cost Account Managers (now called Control Account Managers)—who were actually doing the work in the project, as team leaders, subcontractors and not as group managers, department heads, program managers, who were far from the daily work of the project.

Today's EVM Challenge

Most of today's projects are a far cry from the size and complexity of those that drove the adoption of EVM and the original 35 criteria established in the 1960s. Most project managers spend most of their time managing small to moderate-sized projects. Only rarely do they find themselves managing a power plant or ship-building project. Application of full-featured EVM to most projects can easily create administrative work close in value to the planned value of a small project. This phenomenon has already been noted by author Geoff Roberts (n.d.) in his paper “Implementing Simplified Earned Value … the ‘Requirements’ & the ‘Rewards’,” where he observes:

“The trouble is that some of us have felt that earned value should be more than simply a government reporting requirement. However, when we have tried to employ these same basic principles (the criteria) in the management of our smaller projects, we find that they smother them…. Most projects are but a fraction of the size and the complexity of major systems being developed for the government. How do we find the proper balance to implement earned value without inundating our projects with unnecessary requirements?”

In the paper, Mr. Roberts suggests that selecting a subset of the 32 implementation criteria is key to eliminating the cost and complexity constraints that limit adoption of EVM for smaller projects.

Echoing Mr. Roberts’ suggestion, in his recent book, The Earned Value Management Maturity Model, author Ray Stratton (2006) states that: “EVM is commonly misperceived as being costly and time consuming.” He goes on to say that he has implemented EVM using spreadsheets, a resource loaded schedule and a financial forecast in less than a day. Mr. Stratton's EVM maturity model assesses such a minimal effort to implement EVM as EVM Level 2.

EVM foundational principles neither depend on nor do they consider project size or complexity. However, many organizations have established an all-or-nothing approach to the adoption of EVM. Projects above a certain threshold must use a full-featured EVM application and those below that threshold do not use EVM at all. With the majority of projects in organizations falling below a threshold for adoption of EVM, it is entirely possible that the majority of organizational cost and schedule risk is going unmanaged and unreported, using EVM techniques.

A “Lite” Approach to EVM Requirements

The authors needed a lightweight EVM solution for projects of low complexity, moderate to high risk, and of moderate size, in a range of approximately $2 to $10 million in cost. This was the driving force for us to develop a spreadsheet-based EVM solution. It seemed prudent to implement EVM, based on the risk of many projects in this range, but there was no solution available at reasonable cost or complexity.

Considerations on Adoption of Simplified EVM Solutions

The adoption of a simplified EVM solution needs to include careful consideration of the amount and complexity of project information that will be required to:

  1. Define the work elements (or WBS)
  2. Establish the planned value for the work elements
  3. Define the value earning rules
  4. Describe the schedule for the work elements

Analyze Variances and Measure Performance of Work Elements

Work elements need to be defined simply. Smaller projects tend to have a compressed WBS, often more horizontal than vertical, where planning is based on terminal work elements usually called deliverables. This reduces the need to perform extensive EV tracking at low-level work packages and virtually eliminates the need to define Control Accounts. The deliverable becomes the control point for tasks and material. Smaller projects also tend to have the majority of their manageable costs in labor, with minimal material and other direct costs.

Planned Value

Budget expenditure planning in smaller projects is often planned and expressed as an aggregate staffing profile, spread over the project performance period, even though the project cost may have been estimated deliverable by deliverable. Cost reporting in the aggregate, cumulative by weekly period, more often than not meets management's requirements for projects where labor costs represent the bulk of the budget.

Value Earning Rules

The simplest approach for value earning is to apply a single rule such as 0/100. Using this rule, no value for the work is earned until the work element is finished. While deliverables in smaller projects tend to be fairly short in duration, using 0/100 lacks an important benefit—it fails to give work teams any incentive to identify when work is started or in progress, which can greatly improve status reporting.

In developing our simplified EVM spreadsheet solution, the authors have taken the 0/25/75/100 approach to value project work.

  • 25% of EV is awarded for work start
  • 75% EV for deliverable completion
  • 100% EV for customer acceptance.

(A variation such as 20/80/100 would also be acceptable if these measures fit more closely the value profile.)

Schedule Information

Incorporating schedule information into a spreadsheet-based EVM solution can quickly become challenging. However, most non-complex projects, schedule information can usually be described based on one of two models:

  1. Terminal work elements (deliverables) are arranged in a single, serial chain of activities described by F-S precedence relationships and the project is finished when the last deliverable is finished, or
  2. Terminal work elements are activities arranged in parallel with F-F precedence relationships—work on any deliverable can begin at any time after the project start date, but the project isn't finished until all deliverables are finished.

Analysis of Variances and Performance Measurement

Applying a final simplification, while value is earned based on the progress of each individual deliverable, EV is reported and tracked at the total project level as project EV. Variances and performance indexes therefore, are also measured and reported at the total project level.

With resource planning/budgeting expressed as the total project staffing cost profile (or planned “labor burn” curve), matching total project EV with total project PV forms a more logical, apples-to-apples approach. Similarly, smaller projects often have only a single project charge code to collect all costs for the entire project, rather than one for each work element or deliverable. So AC, in our spreadsheet-based solution is also measured and reported as total project cost. Variances (CV and SV) are then expressed at the total project level also.

CPI and SPI, in the spreadsheet EVM solution, become a project-wide index of cost and schedule performance. When projects’ costs are primarily labor hours, CPI forms an excellent resource productivity index. Values less than 1.0 can warn of a mismatch between staff skills and the planned work while values greater than 1.0 can warn of potential unbilled labor hours or even impending staff burnout.

Considerations on Adoption of Simplified EVM Solutions—Summary

Obviously something has to give when simplifications are taken in the adoption of any process or measurement standard such as EIA/ANSI-748-B. What is given up to gain simplification, lower adoption complexity and cost savings across a company's project portfolio, must be justified by the value gained from broader adoption of EVM.

Assessing the Value of an EVM “Lite” Approach

The question of degraded performance measurement and loss of transparency, resulting from adoption of a subset of implementation criteria from the Standard, needs further review.

  • Notwithstanding reduced investment and operating costs, is there inherent value from the adoption of a simplified EVM approach?
  • What subset of the implementation criteria should be selected to standardize simplified EVM?
  • What sort of performance measurement errors will be introduced by implementing a simplified EVM solution?

The authors addressed the first question using a survey of project managers. The survey was sent to a large number of practicing project managers in a multi-national company. The results were analyzed and key conclusions are shown next.

The authors addressed the second question by comparing the criteria in EIA/ANSI-748-B to the capabilities of a spreadsheet-based EVM tool they developed for use by projects in Microsoft Enterprise Services.

The third question requires additional study. Adoption of the EVM “Lite” spreadsheet-based tool described next has been enthusiastic and at the same time, it is being adopted for use by projects that don't have data from a traditional full-feature EVM solution. So, we don't have the data to address the last question yet.

EVM Attitude Survey Results

The authors conducted a survey of project managers to capture their attitudes about the value of EVM solutions. The detailed results of that survey are included as Appendix 1 to this paper. Highlights of the survey, relating to EVM value are as follows:

  • Fifty-two percent of respondents who have used EVM to manage a project in the past five years estimated the overhead cost of EVM to be greater than 5% of the project total costs; 33% said that EVM overhead cost is greater than 10%.
  • Eight-five percent of respondents agreed with the statement: “EVM is an improvement over traditional management approaches.”
  • Sixty-three percent of respondents agreed with the statement: “EVM is practical only for large projects.”
  • Four key reasons for not using EVM on projects offered were:
    • Projects were too small for EVM (29%)
    • Didn't have access to a good solution (29%)
    • EVM was too expensive (cost, time) for my projects (13%)
    • EVM is too complicated for my project (13%)
  • Ninety percent said they would consider EVM for future projects if their concerns were addressed.

Traditional EVM implementation Versus EVM “Lite”—Standards Comparison

The authors reviewed the set of 32 implementation criteria contained in EIA/ANSI-748-B (EIA, 2007), to determine how many of the criteria are supported by our spreadsheet-based EVM solution. Of the 32 criteria, we feel that 16 criteria are supported by the spreadsheet solution we developed. The table in Appendix 2 lists the criteria and shows which are supported by our EVM “Lite” spreadsheet-based solution.

An EVM “Lite” Spreadsheet Solution

From our roles in the Project Management Excellence function, a group within Microsoft Enterprise Services Headquarters, the authors saw a strong need for a lightweight EVM solution for many customer projects that fell well below the nuclear submarine or commercial skyscraper level of complexity and cost. We wanted a solution that was easy enough for the project manager to setup and operate, without employing a full-time project administrator as well as one that would easily integrate with other Microsoft Office applications and the Services Delivery Methodology (Microsoft, 2008). We also wanted the solution to support as many of the 32 criteria in EIA/ANSI-748-B as possible.

Prologue to the EVM “Lite” Spreadsheet Solution

Projects in the IT services industry are predominantly labor intensive. WBS structures tend to have less depth and greater width than projects in other industries. WBS structures with deliverables defined at level 3 and project phases defined at level 2, are not unusual. In such a structure, deliverables are terminal work elements that can function as work packages and project phases can represent a form of control account.

IT project estimates are often created by using a parametric estimating model, whose output is a resource profile comprised of a mix of resource types over the duration of the project. Deliverables are standard, repeatable, predefined underlying work products of the resource profile. This approach results in what is, essentially, a project planned as a single, very large, level-of-effort (LOE) work package. When a time and materials (T&M) contract is employed to deliver a project, deliverables are not separately priced. Contractually, the only measured deliverables is labor hours, so traceability between work products and planned versus actual cost is completely lost in the LOE nature of the contract terms.

Because LOE work earns value at its hourly rate, hour by hour, there is no transparency or visibility into the progress of the underlying work products being designed, built, and tested in a T&M project. Performance measurement is essentially impossible, if it is based on the LOE budget and actuals. Customers, of course, have an intense interest in the status of and expected completion dates for work products, no matter if from a T&M contract. They want to know more than just how many labor hours have been “burned” and invoiced to date.

The authors wanted to find a practical way to provide greater project team and customer visibility, with good control, performance measurement, and variance analysis for T&M projects.

Building a Spreadsheet-based EVM “Lite” Solution

Building a spreadsheet EVM “Lite” solution for fixed-price projects seemed fairly straightforward. Our estimation and pricing process focuses on the cost of the work elements that sum up to each fixed-price deliverable. For fixed-price projects, PV would be easy to map out in a spreadsheet divided into fiscal weeks and EV would be easily measured by applying the 0/25/75/100 earning rule to known estimated deliverable values.

The challenge would be to construct the solution so that it would provide the same useful information for T&M projects. Most T&M projects use some form of parametric estimation tool, the output of which is a staffing profile expressed in so many FTE's per fiscal week for the estimated duration of the project. For these projects, there is often no explicit estimate of the hours to create any of the underlying work products.

The approach we chose for the T&M contract challenge was to construct the cumulative PV curve for the project from the weekly staffing cost estimates, for the estimated duration of the project. The project manager must identify the underlying work products for which EV will be measured. As a rough rule, there should be at least one work product planned for completion every month or for each 10% of PV. A project with at least 10 identified work products, all things being equal, is desirable.

Governance or other level of effort (LOE) activities earn value on a weekly basis, using the simple formula:

Weekly value of LOE activity = Total value of LOE activity / Total number of weeks of project

Next, the total PV (or budget at complete [BAC]) is allocated across the selected work products in such a way that each has a value that reasonably represents the work required to complete it. If the T&M project was estimated in such that the value of work products is known, or approximately known, this value is used. The total value of all work products must sum up to the project BAC.

The spreadsheet solution was also designed to manage project reserve or any as yet, unplanned work. Both reserve and unplanned work must be accounted for within BAC and when these are moved into the performance measurement baseline after planning, they need to be managed with the rest of the work.

Spreadsheet-based EVM “Lite” Features

The EVM “Lite” Excel® workbook has a project EVM dashboard, shown in Exhibit 1, and is comprised of several linked worksheets containing input data fields, project metadata, “help” information and the EVM calculation “engine.” Examples of the input data required are as follows:

  • PV for each deliverable, determined either from estimates or apportioned allocation of BAC
  • PV for total project, spread by week
  • Planned labor hours and rates by labor category
  • Deliverables state information (start date, completion date, acceptance date)
  • Project total actual costs and actual hours consumed, entered by week
  • Basic project information such as start/finish date, etc.
Spreadsheet EVM “Lite” Dashboard

Exhibit 1 – Spreadsheet EVM “Lite” Dashboard

After initial project data is input to the spreadsheet, actual cost and EV information is updated weekly, following a very simple process:

  1. Update progress on each planned deliverable in the deliverables worksheet (see Exhibit 2) by entering the date of the event—“started,” “complete,” or “accepted.”
  2. Enter total project cost incurred for the week, from the system of record, in the proper AC cell on the EVM engine worksheet (see Exhibit 3)
  3. Enter total labor hours incurred for the week from the system of record, in the proper cell on the EVM engine worksheet
  4. Review the dashboard for CV, SV, CPI, SPI, TCPI, EAC and IEAC. Analyze variances and indexes for changes from previous week and plan any necessary corrections to project performance indicated.
Deliverables Status Input Worksheet

Exhibit 2 – Deliverables Status Input Worksheet

EVM “Engine” Worksheet

Exhibit 3 – EVM “Engine” Worksheet

Conclusions

The EVM “Lite” spreadsheet-based solution has been tested and used successfully in a number of projects. Its use on T&M projects has been especially beneficial where, lacking this spreadsheet tool, the status and performance of these projects would quite opague. Actual hours “burned” versus planned hours does not communicate much useful information to the project manager or customers who are ultimately paying the bill.

The insights gained by use of this solution—particularly in the areas of forecasting and trend analysis—appear likely to address some of the key concerns about and barriers to the use of earned value in relatively small or short-duration projects. We have shown that it is possible to develop a lightweight EVM solution supporting a 16-criteria subset of EIA/ANSI-748-B, that produces traceable, usable earned value project performance data.

The benefits of this development can lead to a substantial increase in the number of projects that are using EVM to manage their performance and to report more meaningful status information at decreased cost and complexity.

Spreadsheet-based EVM solutions can provide the means for companies to realize the benefits of EVM without introducing unnecessary complexity and cost on projects. A solution such as the one described in this paper, can be easily setup and maintained individually by a project manager, without the need for a full-time project administrator.

References

DoD. (1967). DODI 7000.2, Performance Measurement for Selected Acquisitions. US Dept of Defense.

Electronic Industries Alliance (EIA). (2007). ANSI/EIA Standard EIA-748-B, Earned Value Management Systems (pp. 9-18). Arlington, VA: Electronic Industries Alliance.

Microsoft Corporation. (2008). Microsoft Services delivery methodology, a repeatable process definition used to deliver consulting services projects for enterprise customers.

Roberts, Geoff. (n.d.). Implementing Simplified Earned Value …the Requirements & the Rewards. Available at http://www.zulanas.lt/images/adm_source/docs/2_Geoff_Roberts_paperENG.pdf

Stratton, Ray W. (2006). The Earned Value Management Maturity Mode. Vienna, VA: Management Concepts, Inc.

Taylor, Frederick W. (1911). Principles of Scientific Management, New York and London: Harper & Brothers.

Appendix 1 – Survey Results and Analysis

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Appendix 2 – EIA/ANSI-748B-to-EVM “Lite” Comparison Chart

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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 or any listed author.

©2009 James B. Forman & Dermot Somerville
Originally published as part of Proceedings PMI Global Congress 2009 – Orlando, FL

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