Phased earned value analysis
The purpose of this paper is to introduce Phased Earned Value Analysis, which I propose as a new development of earned value management (EVM) theory and methodology that both simplifies and advances beyond standard EVM concepts. This paper demonstrates how Phased Earned Value Analysis (PEVA) can provide effective performance measurement information without the rigor and complexity that is normally required by conventional EVM.
This investigation begins with a review of relevant literature on EVM and issues related to its implementation. That is followed by a review of the key elements in PEVA and the procedures for their application. The new PEVA approach is applied to a hypothetical and simplified project situation to demonstrate the ease of application, features and benefits of the PEVA approach, compared with current EVM techniques.
Earned Value Management Context
The Project Management Institute (PMI®) defines earned value management (EVM) as “a method for integrating scope, schedule, and resources, and for measuring project performance. It compares the amount of work that was planned with what was actually earned with what was actually spent to determine if cost and schedule performance are as planned.” (PMI, 2000, p. 201)
This paper assumes the reader has an understanding of EVM concepts and methodology. If not, PMI has issued a Practice Standard for EVM (PMI, 2005) that provides a brief introduction to the basic elements of EVM, including performance analysis and forecasting. Detailed discussions on the application of EVM are also available. (Webb, 2003)
Earned value adoption has been demonstrated in the defense and aerospace industries, particularly in the United States. The Department of Defense in the USA has developed guidelines for the adoption of EVM, and has been active in both promoting and requiring the use of EVM on its projects (Fleming & Koppelman, 2000). However, despite its demonstrated benefits, EVM has not been widely adopted in all industries where projects are managed.
There are numerous factors that could have slowed the adoption of EVM, and those have been identified in other papers (Kim, Wells, & Duffery, 2003). EVM requires, of course, a degree of maturity in project management methodology that (from my personal experience) is not consistently available in many organizations. For example, many organizations do not include the cost of internal staff time when estimating project costs. The use of timesheets to track actual staff time devoted to specific projects (much less specific activities) is rare outside of consulting firms and other groups that charge clients for their time. Project schedules may be established, but project managers are under no pressure to set a baseline, without which one cannot perform an earned value analysis. And finally, poor scope definition and change control practices can make identification of work packages and related costs very difficult.
In a previous paper (Bower, 2004), I recognized that EVM does not take into account the additional information and certainty provided through the procurement practices that are extensive in construction and other industries, and proposed Assured Value Analysis (AVA) as a new technique that could do so. While AVA extends and enhances conventional EVM methodology by embracing procurement management, it adds complexity to a methodology that is already seen by many project managers as overly demanding.
If the slow adoption of EVM is in part due to its complexity, one approach is certainly to increase the level of EVM maturity in the project management profession, and also the appreciation of EVM benefits in executive ranks.
However, another valid approach is surely to determine whether EVM can be significantly simplified and thereby increase its acceptance and utility among managers in organizations with a lower level of PM maturity.
Phased Earned Value Analysis (PEVA) is introduced in this paper as a method to simplify EVM by utilizing the project phases as natural groupings of both scheduled activities and budgeted costs. In the process, it has been found the PEVA provides additional features and benefits not found in standard EVM – such as enhanced calculation of schedule variance and improved graphic display of project performance.
Integrating the Cost and Time Baselines
Conventional Earned Value Management (EVM) requires the complete integration of the scope, budget and schedule. (Cleland & Ireland, 2002, p. 413) This point is also made frequently in the key text (Fleming & Koppelman, 2000, p. 60, 79) on this technique. To date, I have not encountered a paper or journal article that suggests that EVM may be possible without this integration, or offered any procedure that would allow performance measurement and evaluation without integration of the cost and time dimensions.
Conventional EVM requires the project manager to develop a performance measurement baseline in which both the cost budget and approved time schedule are represented. The key to this activity is the creation of Control Accounts that, in total, represent all of the work to be undertaken in the project.
Control accounts are groupings of one or more work packages, which are the responsibility of a given project participant – a person, department, division, supplier, vendor, or consultant. Each control account has a specific scope of work, an approved budget, a time schedule, and actual costs can be attributed to it. Fleming and Koppleman (2000) describe the control account as a sub-project due to these self-contained characteristics.
Creating the performance measurement baseline (PMB) may seem both logical and straightforward in the context of EVM theory. In practice, many project managers find it very difficult to integrate the schedule activities with the line items in the budget.
Breaking down the scope for budget and schedule
The project manager wishes to organize the budget according to cost elements. Those cost elements may be based on standard corporate formats, standard industry formats (such as CSI) and the expected division of the work according to functional departments and external vendors.
In addition, the project manager wishes to organize the schedule according to time elements. Those time elements may be based on the planned stages of the work, the effect of annual seasons, the logical sequence of the activities, the phased rollout of the deliverables to various locations, the availability of staff or various other resources, the target milestones for deliverables, and many other determining factors.
Why then must the cost baseline be integrated with the time baseline? Is it essential that the Work Breakdown Structure (WBS) be the common basis for structuring both the budget and schedule?
A Guide to the Project Management Body of Knowledge (PMBOK® Guide) defines the WBS as “a deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project objectives and create the required deliverables. It organizes and defines the total scope of the project.” A work package is “a deliverable or project work component at the lowest level of each branch of the work breakdown structure.” (PMI, 2004. p. 379) This definition stresses that the WBS describes the work to be executed by the project team only. It does not describe the work performed by other individuals or organizations, which impacts or contributes to the total project.
It can be reasonably argued that the WBS must represent all of that scope of the project, and that the scope must summarize all of the items included in the WBS. However, there may well be activities in the WBS that do not require any resource usage, and therefore need not be noted in the budget. For example, the WBS might include crucial project activities that are being undertaken by the client, at no cost to the project team.
The schedule may also contain activities that are not strictly speaking included in the WBS, as they are not the activities that directly contribute to the deliverables of the project. For example, the schedule may include milestones or activities related to the completion of other projects, the approval of a government regulation, or the opening of a shipping season. Those activities or milestones may need to appear on the schedule so that the project activities are properly sequenced – even though they are not actually under the control of the project team.
The net result is that the schedule may contain activities/milestones that are not integrally part of the project scope or WBS, and in turn the WBS may contain work items that do not really belong in the budget.
Another fundamental difficulty with linking the cost and time baselines stems from the fact that time and cost are essentially different dimensions. Costs accumulate due to authorized work, and money as a resource can be applied only once, to a specific activity. Time does not accumulate – it passes regardless of activities, and time as a resource can be applied to many activities simultaneously.
Applying the WBS to both budget and schedule
Given all of these difficulties, why would anyone want to use a single framework, such as the WBS, to organize both cost and time? One fears that the use of the WBS is appealing as it represents an elegant solution. The WBS represents a one-size-fits-all systems approach. Simply create a WBS, and then use it for whatever project management needs may surface. Organize the budget to the WBS. Plan the schedule according to the WBS. Perform risk identification with the WBS. It is a very attractive approach, but does it work?
A prime reason for using the WBS to organize both cost and time is that doing so improves the chance that the budget and schedule will cover all of the same activities. Certainly, it could be disastrous to have work authorized in the budget that does not appear in the schedule. Likewise, it would be awkward for the schedule to include work that does not appear in the budget. However, it is not obvious that using a single WBS is essential to ensuring that both the budget and schedule cover the same scope of work.
Separating the management of cost and time in a project is not revolutionary – it is done all the time by project managers who either are not aware that the WBS should be used for both purposes, or just find it too difficult to do so. This discussion on the relative contents of the schedule, WBS and budget is interesting on it own, but is particularly relevant to the adaptation and development of EVM as proposed in this paper.
The PEVA Concept
I developed the PEVA concept not only to address some of the difficulties of EVM, but also provide greater ease of application plus additional features not found in conventional EVM.
PEVA recognizes that structured phases are a key mechanism for the control of the scope, time and cost dimensions. Phases are logical components of the entire project. They represent the natural division of the entire scope into blocks of activities that tend to converge on a significant and defined completion point. The end of a phase provides a vantage point at which the organization can review the team's achievements in relation to the incurred costs and the elapsed time. EVM allows performance assessments at the end of a phase, but does not isolate the work of that phase from the rest of the project.
PEVA allows the cost and time baselines to be prepared and finalized separately, with each organized according to the specific demands of expenditure control and schedule control. The only requirement is that both address all of the work of the project, and that phases are adopted as the primary divisions of both budget and schedule. In contrast, EVM requires that the use of a common WBS, and the creation of control accounts with identified costs, time frame and responsible groups.
PEVA establishes the Planned Value (PV) of each phase by summing the budgets for all work taking place in that phase. Once the phase is complete, the Earned Value (EV) is simply equal to the PV for that phase. This is much simpler than EVM, which requires complex calculations based on the individual PVs for each control account, and estimates of progress for those that are not complete as of a given date.
PEVA calculates the Actual Cost (AC) of each phase by summing the expenditures or staff time reported for all of the work that has been completed in that phase. Only the costs (or man-hours) reported by the contributing groups (departments or vendors) need be tallied. This is also simpler than EVM, which requires that Actual Cost be attributed to every control account.
PEVA notes the planned completion date for each phase, and compares that with the actual date the phase was completed. The PV is baselined with the planned phase completion date, and the EV and AC are tracked with the actual completion date. In doing so, PEVA automatically embraces the Earned Schedule concept recently introduced (Lipke, 2003) and validated (Henderson, 2003) in relation to conventional EVM.
I propose the following sequential steps in the implementation of PEVA:
Prepare time schedule by phases
Even a project with a minimal amount of planning will have a basic time schedule, often in the form of a Gantt chart which can be readily prepared by common PM software packages. While a schedule may be structured with various major groupings of activities, it is common for the primary division (i.e. the first level of the WBS) to be according to the implementation phases. Those phases may overlap or be sequential, and are typically arranged in order of phase completion. The number of phases is determined in relation to the project particulars, and may vary from a few phases to hundreds, if the project is enormous and/or being implemented in many locations or iterations.
Prepare budget by cost elements
This is the preferred way to prepare a budget for PEVA. One identifies the sources of cost in terms of the groups that may charge the project, either as expenditures or staff-hours. For external costs, obtain firm quotes or reasonable estimates from each consultant or supplier to the project. For internal costs, obtain a firm estimate or commitment of the staff hours that may be charged to the project by staff in various departments. These estimates or quotes, once approved by senior management, represent the approved budget. Estimates that are prepared by other methods, such as through parametric models or elemental breakdowns (as in construction estimating) will need to be converted.
Group budget elements by phase
The budget may initially be arranged according to the estimating format, the order of the cost codes, or many other possible formats. For PEVA, the budget elements must be rearranged on the PEVA table by the project phases in which they occur. Divide any cost elements occurring in more than one phase, so that separate costs for that element are estimated or calculated for each phase on the PEVA table. A consultant contract will state the total fees payable, but such contracts frequently indicate how that fee is calculated or billable by project phase. Vendor deliverables in a single order may be attributed to specific phases. For example, the cost of air conditioning units that are installed in separate phases of a building complex can be established for each phase. Total up all of the budget costs within each phase on the PEVA table, and tally the total project budget.
Confirm activities and transfer phase completion dates
Ensure that each of the activities on the Gantt chart for a given phase is covered by a contributing group listed in the PEVA table for that same phase. This can be confirmed by inserting a column in the Gantt chart titled “Cost Code” where one can record the budget cost code for that activity. Alternately, that may be tracked using the Resource column, naming the responsible group. Confirm the duration of all activities, but especially those on the critical path. Transfer the completion date for each phase from the Gantt chart to the PEVA table.
Deal with approved changes
Make changes to the Gantt chart or PEVA table as the project progresses, ensuring all added activities are covered by formal arrangements with the contributing groups, such as change orders, purchase orders, etc. Activities that have no cost impact (such as board meetings) can be readily added to the project. Activities can be rescheduled within any given phase as required. Resources can be moved from one activity to another on the Gantt chart without concern for cost impact – as long as the contributing groups do not claim added charges or staff hours. Additional approved costs (e.g. for a more expensive equipment model) may be added to the budget (normally as a separate line item) without the need to add a corresponding work package to the WBS and schedule, as long as the original activities cover that revised work item.
Track progress and completion
As each activity is underway, estimate its progress and enter the percent complete value on the Gantt chart. The percent complete for each phase is automatically calculated by the PM software. If desired, the PEVA table may be updated with that information; however, the key information is 100% completion of each phase. As each phase is completed, enter the actual completion date on the PEVA table.
Tally actual costs
Calculate the actual costs for the work performed and deliverables provided by the contributing groups (departments, vendors, etc.). This is done in the same manner as conventional EVM, except that it is not necessary to sub-divide all costs to the level of control accounts. For internal staff, it is only necessary to determine the work hours claimed by all personnel assigned to the project; it is not necessary to attribute staff-hours to each work package or control account. For vendors and consultants, it is only necessary to determine the project costs claimed by each firm for that phase. Actual staff-hours and billed costs will include fees and charges for all approved changes, but it is not necessary to attribute those to specific changes. Actual costs may be tracked on a separate spreadsheet or a sophisticated cost control system. Enter the actual costs for each contributing group on the PEVA table, which will calculate the total Actual Cost for that phase.
Review variances and take action
Entering 100% completion for a phase, the phase completion date and the actual costs for all cost categories within that phase will cause the PEVA table to calculate the cost variance (CV) and cost performance index (CPI) for that phase, and also cumulative variances and cumulative indices for the entire project to the end of that phase. The project manager can review these indicators and take necessary actions to address any cost overruns or schedule slippage issues.
Sample PEVA Project
The implementation of PEVA may be best illustrated by a simple project. To minimize exhibits, the number of phases and budget elements in this sample has been limited to the minimum necessary to convey the concept. The sample project is provided at the end of this paper, showing the PEVA calculations and chart as they would appear at the end of this project. The Gantt chart is not shown due to space limitations, and because the content of the time schedule is not relevant to the PEVA table – other than the recognition of the completion date for each phase.
PEVA Cost Table
The cost table serves as the entry point for key budget and expenditure amounts during project planning and implementation. The project is divided into the desired number of phases, and the budget for each phase is subdivided according to the contributing groups – not the number of work packages or control accounts. The PM enters actual costs per department or vendor as they are realized, and marks the phase completion at 100% once all project activities on the time schedule have been completed. The table then shows the Earned Value per phase to be equal to the Planned Value, and totals the Actual Cost per phase. The CV and the CPI are automatically calculated per phase. Since the EV is equal to the PV at the end of every phase, there is no point in calculating the conventional SV and SPI – they would always be zero and 1.0 respectively – so those columns are not provided here.
PEVA Cumulative Summary Table
This table summarizes the totals and dates so that it can be displayed in the PEVA Chart below it. The PM enters the planned end dates for each phase once the schedule is approved, and the actual dates as they occur. The total PV, EV and AC per phase (in the Cost Table) are used to create cumulative CV and CPI values here. The Cumulative CPI figure can be used to prepare an Estimate at Completion at the end of each phase, using the standard formula EAC=BAC/CPI. The table calculates the difference between the planned and actual phase completion date, expressed in days. As note above, this is an Earned Schedule measure, and is therefore labeled Phase SV(t). This is far more useful than conventional SV, which has well-known deficiencies. Another Earned Schedule indicator, the Cumulative SPI(t) is the number of days planned from project start to the end of that phase, divided by the number of days elapsed from the project start to the end of that phase. In this example the SPI(t) improves (approaches 1.0) because the time overrun becomes increasingly less significant in comparison with the project duration.
These cumulative values for PV, EV and AC and their associated dates generate the three sets of points on the PEVA Chart. Note that a conventional EVM baseline chart will show these three values at the same date, and therefore vertically aligned. Phased Earned Value Analysis illustrates these values on the dates they occur – clearly demonstrating graphically the Phase SV(t) by the horizontal time delay between PV and EV, and the Phase CV by the vertical cost difference between EV and AC. These characteristics make the PEVA Chart much easier to comprehend and explain than a conventional EVM baseline chart – which may increase the acceptance and appreciation of the earned value approach in organizations.
Phased Earned Value Analysis (PEVA), as introduced in this paper, represents a promising variant on conventional EVM methodology that may be particularly attractive to project managers who wish to implement earned value performance measurement without the inherent demands of an integrated cost/time baseline. Of particular interest is the ability to develop cost budgets and time schedules independently – without the need for common control accounts- linked only by the structure of the project phases.
As the name implies, it focuses on performance at the end of each phase – which is an appropriate point at which to assess and report on project results. PEVA also provides features not found in standard EVM, including improved calculation and presentation of schedule variance on the basis of actual days early or late – rather than expressing schedule in dollars as required by EVM – though the Earned Schedule approach.
As a new concept, PEVA requires implementation in a wide range of industries and in projects of varying scale in order to demonstrate its effectiveness, and to identify any areas for improvement. However, the simple example provided in this paper clearly demonstrates the feasibility of the concept, procedures and calculations that underlie Phased Earned Value Analysis.
Bower, D. C. (2004, October). Assured Value Analysis: Earned Value Extended. Paper presented at the PMI Global Congress North America 2004, Anaheim, CA, USA.
Cleland, D. I., & Ireland, L. R. (2002). Project Management Strategic Design and Implementation (4th ed.). New York, NY: McGraw-Hill.
Fleming, Q. W., & Koppelman, J. M. (2000). Earned Value Project Management (2nd ed.). Newtown Square, PA: Project Management Institute.
Henderson, K. (2003). Earned Schedule: A Breakthrough Extension to Earned Value Theory? The Measurable News (Summer 2003), 13-23.
Kim, E., Wells, W. G., & Duffery, M. R. (2003). A model for effective implementation of Earned Value Management methodology. International Journal of Project Management (21), 375-382.
Lipke, W. (2003). Schedule is Different. The Measurable News (March 2003), 31-34.
PMI. (2000). A Guide to the Project Management Body of Knowledge (PMBOK® Guide) (2000 ed.). Newtown Square, PA: Project Management Institute.
PMI. (2004). A Guide to the Project Management Body of Knowledge (PMBOK® Guide) (3rd ed.). Newtown Square, PA: Project Management Institute.
PMI. (2005). Practice Standard for Earned Value Management. Newtown Square, PA: Project Management Institute.
Webb, A. (2003). Using Earned Value: A Project Manager's Guide. Aldershot, Hants, UK: Gower.
Appendix – Sample Project
The exhibit on the following page provides a chart and tables, which illustrate PEVA as it might be applied to a sample project, but one that contains only enough detail to indicate the procedures and concepts inherent in PEVA.
Phased EVA Sample Project
© 2005, Douglas Bower
Originally published as a part of 2005 PMI Global Congress Proceedings – Toronto, Canada