Project Management Institute

EVM : still proving its value

BY DONOVAN BURBA

ILLUSTRATIONS BY PETER AND MARIA HOEY

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Earned Value Management:
A methodology that combines scope, schedule and resource measurements to assess project performance and progress

Taking their time to change

is no longer an option for organizations looking to stay competitive. According to PMI’s Pulse of the Profession® In-Depth Report: Organizational Agility, nearly 90 percent of executives surveyed by the Economist Intelligence Unit ranked organizational agility as vital for business success.

As project leaders adapt to these changes—either by adjusting their existing methodologies or adopting agile approaches—it’s tempting to view older, traditional processes as outdated or cumbersome. After all, when a team is cranking out the next hot app, who wants to think about earned value management (EVM)?

Yet thinking of EVM as a holdover system from an earlier age ignores the many perspectives it can bring to an organization, says Shoaib Ahmed, senior project manager, Eagle Technology, Wellington, New Zealand. “From an operational point of view, we need to pay closer attention to those projects with lower earned-value scores. From a strategic point of view, we need to learn what we’re doing well in the projects with high earned-value scores and implement the lessons learned. In an individual project sense, EVM needs to provide me with the pattern so it is possible to identify trends before they fall below a critical reporting threshold.”

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“If you don’t do EVM and you just do status reports, you won’t know the reasons for overruns.”

—Victor Tran, PMP, CICI International, Washington, D.C., USA

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“When we talk about money instead of code lines or bricks laid, we are speaking a language that most people understand independently of their area of expertise.”

—Pablo Dimenza, PMP, Tigerspike, London, England

SPEAKING EVERYBODY’S LANGUAGE

The challenge, then, is for project professionals to craft their approach to EVM in a way that delivers meaningful benefits without appearing cumbersome—and retain executive stakeholder support in the process. As projects increasingly have more moving parts, the simple but comprehensive picture EVM provides is one of its own best selling points.

“It puts the project work in financial numbers that anyone can understand,” says Pablo Dimenza, PMP, senior project manager, Tigerspike, London, England. “When we talk about money instead of code lines or bricks laid, we are speaking a language that most people understand independently of their area of expertise.”

Done correctly, EVM also gives higher-ups better insight to the progress of the organization’s projects. “If you don’t do EVM and you just do status reports, you won’t know the reasons for overruns,” says Victor Tran, PMP, EVM master scheduler at IT firm CICI International, Washington, D.C., USA.

And EVM’s rigorous paper trail makes the lessons learned process simpler and easier to apply to similar projects in the future, Mr. Tran says. It can even be used at the portfolio level, to determine whether similar projects in the future will be profitable.

THE SELL

All of those advantages add up to EVM as a must-have. But, Mr. Tran notes, “At the project level, a lot of times EVM is seen as a box to check for government reporting. It is often seen as cumbersome and not implemented correctly by project managers.”

The problem, suggests Russell Berkeley, director of Darbus Ltd., Blackpool, England, is that EVM can be seen as prescriptive. For example, to fulfill compliance requirements on a government contract, an organization only has to meet certain criteria; the processes it uses to get there are its own to decide. Furthermore, in some regulatory environments, such as U.S. government contracts, organizations can use the outputs from an EVM system to prove compliance to government oversight bodies.

“EVM can be used only on a specific aspect of the project—such as human resources or to third-party contract management—or to the whole project, or both. That’s the beauty of it: It adapts to the level you need.”

—Pablo Dimenza, PMP

“If you’re doing good project management, all EVM becomes is a standardization of the output,” he says. When that tool can also eliminate redundancies and streamline processes, it becomes even more palatable for skeptical sponsors.

Another way project leaders can earn continued buy-in is to emphasize the scalable nature of EVM. “You can apply EVM to different levels of a project because of its flexibility,” says Mr. Dimenza. “EVM can be used only on a specific aspect of the project—such as human resources or third-party contract management—or the whole project, or both. That’s the beauty of it: It adapts to the level you need.”

The scope, timeline and budget of the effort are just a few factors that go into determining the scale of the EVM system used. “EVM is only as cumbersome as you want to make it,” says Mr. Ahmed. “There are portfolio management tools that will allow you to simply add a percentage-complete figure and then calculate EV automatically. Even if you do not use portfolio management tools, you can manage through milestones and attribute value to those. The key is to set it up in line with what you’ll need to report to.”

Securing Team Buy-In for EVM

LAURA BIER, PMP, MANAGER, EARNED VALUE MANAGEMENT OFFICE, CGI, SAN DIEGO, CALIFORNIA, USA

At its core, securing buy-in for earned value management (EVM) is no different than with any project—identify the stakeholders, clearly convey the value, and understand and overcome any obstacles. Once those elements are in place, buy-in is secured and your project is one step closer to success.

But when we say “team buy-in,” exactly what and who are we talking about?

What: Buy-in is not just acceptance, but active support. Having stakeholder buy-in is not just, “Okay, go do that” from your manager. It is, “Okay, I want to help you achieve that” from every stakeholder.

Who: It’s important to identify all stakeholders for an EVM implementation—including the client, project manager, control account managers, project control/financial analyst, scheduler, contracts administrator and more. Stakeholders can be divided into two groups: those interested from a corporate perspective and those whose work will be directly impacted by EVM.

TOP-DOWN ENDORSEMENT

Establishing an EVM system takes significant time and effort, and will likely fail without significant support from top-level management. So, take time to understand the value proposition of EVM from different perspectives.

Management will want to know how EVM can increase transparency, management rigor and team accountability—and reduce risk exposure. EVM can do all of those things, so figure out how to communicate that effectively. Management gets inundated with reports, so don’t let EVM become just another set of figures. I never ask for or provide a report unless I intend to use it for better business decisions.

Help your executive team understand the value EVM can have for the corporation as well as for the individual project teams.

BOTTOM-UP COLLABORATION

Implementing EVM can be a big culture shock for those not used to a formalized project management/performance measurement methodology. To get buy-in from the team, you must convey EVM benefits from a practical perspective, and also understand and overcome any concerns the team members might have. Remind them that EVM can support client communication, facilitates cost- and schedule-management through performance measurement, and over time, provides trend data.

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Be sure to include all who are impacted. One implementation in my organization was not progressing as smoothly as usual. I reached out to the project manager and we had a productive talk. Weeks later the issues still existed—because no one had adequately communicated with the scheduler. Once scheduling concerns were addressed, the implementation continued as planned.

One of the biggest obstacles often involves perception rather than reality. EVM is often perceived as a big, complex set of reports. People may remember memorizing EVM calculations for their Project Management Professional (PMP)® exam, but if they haven’t ever had to work on a project that used EVM, they may not understand its realities.

EVM is more than just a set of monthly reports—it’s a performance measurement methodology that must be fully integrated into the management approach for a project to succeed. It’s not enough to measure and report on cost and schedule data—it’s what you do with that data that matters.

Once you’ve convinced the team of the benefits and overcome the obstacles to secure buy-in, then what? It’s time to execute on your promise and realize the value that comes from EVM.

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Laura Bier, PMP, business improvement leader, provides training, coaching and consultative guidance on performance management and process improvement to dozens of project teams and federal agencies. She can be reached at laura.bier@cgifederal.com.

It’s not enough to measure and report on cost and schedule data—it’s what you do with that data that matters.

“Even if you do not use portfolio management tools, you can manage through milestones and attribute value to those. The key is to set it up in line with what you’ll need to report to.”

—Shoaib Ahmed, Eagle Technology, Wellington, New Zealand

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AGILITY AND AGILE

There’s little question that EVM and organizational agility can coexist and even thrive. What’s less clear is EVM’s role on projects that involve agile approaches. On the surface, agile’s focus on adaptive planning and discovery-driven projects seems ill-suited for EVM’s focus on the project plan. But EVM’s extensive documentation—another characteristic anathema to agilistas—is an important resource for agile practitioners hoping to anticipate potential issues, argues Mr. Dimenza.

“EVM can help because of its great capacity to provide insight on historic information and apply that on the known future,” he says. “Historic information always helps to detect good and bad patterns of execution and take steps to profit from or correct them.”

GUEST COLUMN / PROJECT PERSPECTIVES

Selling Executives on the Predictive Powers of EVM

CHRISTEN BERGERUD, CO-FOUNDER, COO, ECOSYS, DENVER, COLORADO, USA

So often, project controls professionals receive executives’ full attention one time and one time only—right after painful and embarrassing cost or schedule overruns have come to light.

It makes little difference that project controls leadership may have been passionately advocating for months for the resources and authority to roll out effective planning, controls processes and software systems. The executives tend to scrutinize right when project controls are failing to fulfill their promise.

So how can project leadership take advantage of these moments to sell to executives the power of project controls and differentiate them from the back-office, after-the-fact reports coming from finance? In a word: forecasting.

BACK TO THE FUTURE

Project management personnel can take a lesson from the leading engineering, procurement and construction (EPC) contractor firms. Their businesses have long depended on how effectively they control cost and schedule and how well they forecast. These industry leaders have developed repeatable, standard rules for reporting progress by discipline and by task. Then, based upon that past performance, they can effectively forecast the projects’ estimates at completion.

Throughout these projects, they are comparing work completed to work planned, as of a given date. If this sounds familiar, it’s because that’s a definition of earned value. EPCs may call it progress measurement, productivity reporting or tracking “earned over burned,” but in essence they are applying the principles of earned value management (EVM).

And here’s the remarkable, sit-up-and-take-notice observation about EVM: Empirical studies have shown when EVM is effectively deployed on a project, the project’s cost performance trend is known to stabilize once a project is 20 percent complete and probably won’t change by more than plus or minus 10 percent by the time it’s done.

Leading contractors and owners/operators in every industry are effectively applying EVM principles to projects of all sizes and disciplines, by standardizing the right level of EVM planning and rigor to the project types. Then they are letting their software systems forecast cost and schedule based upon the early EVM results from these projects. As they execute more projects, their ability to fine-tune their methods for progressing and forecasting increases. Easy-to-use project controls software dashboards are giving management, and even the C-suite, the ability to identify trends early. It also allows them to drill down deeply into the project data, within seconds, to identify problem areas and learn what the team’s corrective action plans entail.

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If the organization can repeatedly predict, just 20 percent of the way into a project, when the project will finish and for how much money, this is value that the C-suite will pay for. In my observation, as enterprise software systems have begun to efficiently deliver reliable project data to their fingertips, executives have taken note. They have begun to regard these as strategic planning and controls systems, delivering timely, predictive data they can’t get from any other corporate system.

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Christen Bergerud, co-founder and COO of EcoSys, helps organizations use project controls software to measure and improve project performance. He can be reached at info@ecosys.net.

If the organization can repeatedly predict, just 20 percent of the way into a project, when the project will finish and for how much money, this is value that the C-suite will pay for.

Still, he says, organizations moving toward agile approaches must recognize a degree of unknown around future costs that might be unsettling at first. “Adapting EVM to agile processes means that the baseline should be assumed to be more changeable than on a classic waterfall,” he says. “That’s nothing to be afraid of.”

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Even simpler, organizations can use EVM or agile on a project-by-project basis, rather than trying to force a hybrid model onto everything. “If the project is something you know, then you can go ahead and safely use agile,” says Mr. Berkeley. “If it’s something newer that you haven’t done before or there’s a high risk, then I would use EVM.”

Three EVM Mistakes You Don’t Want to Make

MICHAEL HATFIELD, PMP, PROJECT LEADER, LOS ALAMOS NATIONAL LABORATORY, LOS ALAMOS, NEW MEXICO, USA

Mistake #1: Thinking It’s Bigger Than It Is

One of the biggest and most common errors earned value management (EVM) practitioners make is failing to understand the exact nature of earned value. Earned value is a method for processing data into usable cost and schedule performance information. It also happens to add a narrative of what happened in the project and why. That’s it, folks.

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Unfortunately, its erstwhile promoters have stretched and oversold it so far beyond its proper epistemological boundaries that it has taken on a whole host of negative connotations for failing to deliver that which it was never designed to produce.

Earned value is not (or, at least, shouldn’t be):

  • A way of differentiating between authentic and merely lucky project managers
  • An intellectual club that comes down on managers who disagree with project manager types
  • License to badger executives into setting up organizations that crank out strange-looking reports
  • Fodder for pseudo-management science quacks to debate endlessly at conferences and association meetings

You see my point—once separated from its true function of putting usable management information into the hands of decision-makers, earned value begins to lose its efficacy, followed closely by its attractiveness.

Mistake #2: Making It More Difficult Than It Needs to Be

Many earned value practitioners insist that all cost baselines must be estimated with the most precise, current data available, right down to being within one-tenth of a percentage point of the forecast escalation rate. This is silliness. EVM systems have an inherent self-correcting capacity that allows for highly relevant information to remain accurate even as some parameters become questionable.

For example, one of the most (if not the most) valuable pieces of information produced by EVM is the calculated estimate at completion (EAC) (those of you who like to re-estimate remaining work, add that to cumulative actuals, and call EAC victory are, well, wrong). Studies have shown that calculating the EAC by dividing the total budget by the cost performance index (CPI) yields an EAC that is accurate to within 10 percent of realized total costs, once the project has passed the 15 percent complete point. Here’s proof of my assertion: The formula EAC = budget at completion/CPI can be algebraically reduced to EAC = cumulative actual costs/ percent complete. In other words, you don’t even need

Mistake #3: Assuming the Accountants Are Your Allies

Accountants have been told all of their academic and professional lives that all relevant management information that has to do with budgets and costs originates in their department, and anyone who disagrees with that premise is an idiot. But, of course, EVM systems require actual costs, collected at the reporting level of the work breakdown structure, in order to function. Once your organization’s accountants realize this, and recognize EVM as a rival information stream, they will often pretend to be unable to provide your EVM system with this component, and find creative excuses why they can’t. It’s very frustrating, but you’ll have better luck getting your earned value system set up if you go in assuming you do not have the support of your accountants.

“EVM is predicated on the fact that you have good project management in place.”

—Russell Berkeley, Darbus Ltd., Blackpool, England

ANOTHER TOOL IN THE CHEST

Ultimately, Mr. Berkeley notes, “EVM is predicated on the fact that you have good project management in place.” Its outputs, and the benefits it delivers, are only as valuable as the project professionals around it.

“EVM is by no means a silver bullet,” says Mr. Ahmed. “Not using it is like taking a seven iron out of a golfer’s bag. That club on its own doesn’t make you win the championship, just as EVM on its own won’t be enough to run an efficient project. But without it, it will be much tougher.” PM

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Michael Hatfield, PMP, is an author (Things Your PMO Is Doing Wrong, Game Theory in Management), speaker and blogger (for ProjectManagement.com), and can be reached at varthold@aol.com.

EVM systems have an inherent self-correcting capacity that allows for highly relevant information to remain accurate even as some parameters become questionable.

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 FEBRUARY 2015 WWW.PMI.ORG
FEBRUARY 2015 PM NETWORK

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