Earned value management

a driver of organizational strategy ; the power of EVM in managing project portfolios for strategic results

J.W. Heinlein, Manager, Deloitte Consulting, LLP

Christopher Craig, Specialist Master, Deloitte Consulting, LLP

John Perotti, Senior Manager, Deloitte & Touche, LLP

Megan Pearson, Senior Manager, Deloitte Consulting, LLP

Teressa Wooten, Specialist Master, Deloitte Consulting, LLP

Lucas Balderson, Senior Consultant, Deloitte Consulting, LLP

Abstract

Growing pressure on federal budgets creates the strategic imperative to increase the transparency of the performance of agencies' mission-critical investments, as well as heighten their realized benefits. At certain thresholds, federal policy stipulates that an earned value management system (EVMS) must be used to plan and manage major IT investments. Government entities, however, frequently view earned value management (EVM) practices as reporting overhead and resist disciplined EVM execution, thus failing to realize its full value as a strategic enabler.

The goal of this paper is to explore how EVM serves as a vital tool for public sector agencies to achieve their mission and overall strategies through integration with project portfolio management. This paper introduces EVM as a proactive management practice that can be employed as part of performance measurement, describe legislation that justifies the need for improved performance, and connect EVM with portfolio management to achieve measureable results.

Introduction

Hall of Fame college basketball coach John Wooden once said, “Don't mistake activity with achievement.” While the revered coach was delivering this piece of information to a team of college athletes, today's federal agency project managers should also adhere to this call for caution. Almost daily there seems to be a new mandate to reel in government spending and, clearly, over the last decade, there has been plenty of activity taking place. The question, however, remains: How much of this activity has actually led to achieving agencies' goals and objectives?

According to recent reports, federal agencies are still struggling to achieve the objectives of their programs. As the Office of Management and Budget (OMB)'s Deputy Director Jeff Zients has said, “Too often, programs go 0-for-3. They run over budget, fall behind schedule and fail to deliver promised functionality” (Miller, 2010). Unfortunately, Zients' observations are not unsubstantiated. In fact, according to The Standish Group, approximately 66% of global IT projects are “challenged” or outright failures (The Standish Group, 2012). Although this statistic on its own is alarming, when applied to federal agencies, the impact is even more unsettling, because fiscal year (FY) 2013 discretionary appropriation levels may be reduced by 5% to 10% from FY 2011 levels. This means that program managers may now be expected to achieve results with fewer resources.

With this information in mind, federal agencies require tools to better monitor project performance toward objectives. Moreover, they require tools that can effectively communicate project progress up and down the management chain of command to determine whether project costs, schedule, and performance are aligned with expectations. To meet these needs, agencies should enhance their program management strategies and methodologies. Leaders should implement techniques to better manage resources across their portfolio of projects, improve transparency, boost the value of their investments, and achieve organizational objectives. Such techniques can serve as tools for agencies to see their activities translate into achievements.

EVM data and methods can link project performance to strategy. The performance data that EVM provides can aid portfolio managers in determining whether the projects are meeting their current performance targets, which in turn can predict whether they may ultimately meet their intended strategic outcomes.

EVM as a Keystone in Organizational Strategy

Program managers in the federal government have used EVM for decades to improve visibility into the program cost, schedule, and other key performance indicators. EVM methods provide a lens from which to view performance throughout the project management life cycle. While the traditional use of EVM provides several significant benefits for measuring, monitoring, and improving project performance, EVM has the potential for strengthening operations beyond cost and schedule control.

EVM can increase project visibility and provide reliable risk, cost, schedule, and performance management data. Today, EVM plays a role in responding to OMB Exhibit 300 (E300) business case justifications for IT acquisitions that drive budget allocations aligned to strategic goals. Understanding the power of EVM in driving project performance can increase strategic planners' confidence that their strategic objectives can be realized through the effectiveness of the projects within their portfolio.

EVM data can serve as an integral part of project business cases to align project baseline benefits with project strategic objectives, which is imperative to establishing a strategy-driven project portfolio. Then, over the course of a project, EVM methods can drive more reliable execution of that strategy through improved project performance.

The Need for Improved Performance

Legislation, such as the Government Performance and Results Modernization Act of 2010, has been enacted to create a more defined performance framework as well as connect agency plans, programs, and performance information. For FY 2013, the OMB E300 and Exhibit 53 Business Case requirements are revised to require agencies to more succinctly demonstrate sound performance-based management and effective management of risks. New requirements include improved control and monitoring of investment health, elimination of one third of underperforming IT investments by June 2012, and monthly reporting updates in the OMB IT Dashboard for E300. Ultimately, agencies' strategic plans should guide the deployment of resources (money, people, and time) to achieve measurable results on schedule and within budget.

EVM provides a performance framework that can enable agencies to meet OMB business case requirements. EVM data can tie program outcomes with strategic mission objectives, and EVM methods enable proper program planning and performance at expected levels.

Integrating EVM with Portfolio Management to Enable Strategy Execution

Project Portfolio Management (PfM) and EVM are both performance management disciplines. They both address program managers' desire for increased transparency on the performance of the projects within their portfolio. PfM focuses on the strategic layer of performance management, which analyzes the alignment of an agency's investments to its vision, mission, and strategic goals. In the federal government, PfM focuses on enhancing the portfolio by unifying financial management, enterprise architecture, Capital Planning and Investment Control (CPIC), budgeting, project and program management, and operations.

EVM can be a valuable technique to analyze portfolio performance against targets. EVM metrics indicate not only how much money and effort were spent on a project, but also what “value” the organization received for the money spent. EVM data can enable portfolio managers to take corrective action to bring performance back in line with strategic objectives.

The transparency and efficiency resulting from combining EVM and PfM together can allow for timely decisions to terminate low-value and redundant projects. They provide an evidenced-based decision-support bridge between the agency's strategic plan and project performance. Through these sound management processes, agencies can select the leading projects to move their business in the direction of the agency mission.

High-performing organizations have portfolios with the following characteristics:

  • Projects aligned with the organization's strategy.
  • Balance in the project type (e.g., balance of long-term versus short-term benefits, higher risk versus lower risk, and new products versus enhancements).
  • Balance between resource availability and the number of projects underway.

Many agencies are implementing EVM with PfM solutions to identify which projects are mission critical and to improve project execution. In these times of high scrutiny, limited resources, and cost reductions, using EVM as part of a PfM implementation can improve decision making surrounding whether the leading projects are commissioned, whether the projects are being done effectively, and whether adjustments are necessary to achieve their intended objectives.

Industry has also recognized the strong ties between PfM and EVM, evidenced by several software vendors acquiring EVM software and incorporating it into their suite of PfM tools. Although program and project managers are the primary users of PfM to report status and make recommendations to leadership, the average manager is not in a position to implement these performance capabilities alone. Meaningful performance management cannot exist without the support and active involvement at the highest levels of the organization. Symptoms that indicate a need for these methods to select the right mix of projects for enhanced value are:

  • Need to address cost reduction mandates or percentage budget cuts.
  • Cost is a main prioritization method as opposed to weighted impact to value/benefits.
  • Inability to link project results to realization of a specific mission or strategic goal.
  • Excessive project delays due to insufficient resources or too many projects.
  • Frequent investment status changes (moving from “active” to “on hold” to “top priority” and back).
  • Intense competition, rather than cooperation, among departments for staffing and funding projects.

Conclusion

While EVM can greatly aid an individual project in monitoring and improving its cost, schedule, and technical performance, organizations that apply EVM across their portfolio of projects with clear ties to strategy can realize even greater benefits. After aligning projects with strategic objectives, EVM can guide portfolio managers to better monitor their execution against their strategy and determine whether the projects with a high impact on the strategy are receiving the necessary attention during execution. Managers who apply this strategic approach to their EVM implementations can better understand how well they are executing their strategy, enabling early adjustments to bring performance in line with objectives.

References

Miller, J. (2010). OMB Plans 25-Point Reform. Retrieved from FederalNewsRadio.com: http://www.federalnewsradio.com/?nid=697&sid=2194228

The Standish Group (2012). 2011 CHAOS Report. Boston: The Standish Group.

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.

© 2012, J.W. Heinlein
Originally published as a part of the 2012 PMI Global Congress Proceedings – Vancouver, British Colombia

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