Earned value management
Earned value management, earned value project management, or earned value performance management is a project management technique for measuring project performance and progress in an objective manner.
Overview
Earned value management is a project management technique for measuring project performance and progress. It has the ability to combine measurements of the project management triangle: scope, time, and costs.In a single integrated system, EVM is able to provide accurate forecasts of project performance problems, which is an important aspect of project management.
Early EVM research showed that the areas of planning and control are significantly impacted by its use; and similarly, using the methodology improves both scope definition as well as the analysis of overall project performance. More recent research studies have shown that the principles of EVM are positive predictors of project success. The popularity of EVM has grown in recent years beyond government contracting, a sector in which its importance continues to rise, in part because EVM can also surface in and help substantiate contract disputes.
EVM features
Essential features of any EVM implementation include:- A project schedule that identifies work to be accomplished. Sometimes incorrectly called a Project Plan.
- A valuation of planned work, called planned value or budgeted cost of work scheduled
- Pre-defined "earning rules" to quantify the accomplishment of work, called earned value or budgeted cost of work performed
- Actual Cost which is also known as Actual Cost of Work Performed
- A plot of project cumulative costs vs time especially to show both early date and late date curves
Application example
Project A has been approved for a duration of one year and with a budget. It was also planned that the project spends 50% of the approved budget and expects 50% of the work to be complete in the first six months. If now, six months after the start of the project, a project manager reports that he has spent 50% of the budget, one may presume that the project is perfectly on plan. However, in reality the provided information is not sufficient to come to such a conclusion. The project can spend 50% of the budget, whilst finishing only 25% of the work, which would mean the project is not doing well; or the project can spend 50% of the budget, whilst completing 75% of the work, which would mean that project is doing better than planned. EVM is meant to address such and similar issues.History
EVM emerged as a financial analysis specialty in United States government programs in the 1960s, with the government requiring contractors to implement an EVM system. It has since become a significant branch of project management and cost engineering. Project management research investigating the contribution of EVM to project success suggests a moderately strong positive relationship. Implementations of EVM can be scaled to fit projects of all sizes and complexities.The genesis of EVM occurred in industrial manufacturing at the turn of the 20th century, based largely on the principle of "earned time" popularized by Frank and Lillian Gilbreth.
In 1979, EVM was introduced to the architecture and engineering industry in a Public Works Magazine article by David Burstein, a project manager with a national engineering firm. In the late 1980s and early 1990s, EVM emerged more widely as a project management methodology to be understood and used by managers and executives, not just EVM specialists. Many industrialized nations also began to utilize EVM in their own procurement programs.
An overview of EVM was included in the Project Management Institute 's first Project Management Body of Knowledge Guide in 1987 and was expanded in subsequent editions. In the most recent edition of the PMBOK guide, EVM is listed among the general tools and techniques for processes to control project costs.
The construction industry was an early commercial adopter of EVM. Closer integration of EVM with the practice of project management accelerated in the 1990s. In 1999, the Performance Management Association merged with the PMI to become its first college, the College of Performance Management. The United States Office of Management and Budget began to mandate the use of EVM across all government agencies, and, for the first time, for certain internally managed projects. EVM also received greater attention by publicly traded companies in response to the Sarbanes–Oxley Act of 2002.
In construction projects, Earned Value Management serves as a valuable tool. For effective implementation, costs within the construction domain need to meet specific criteria:
- Costs must be verifiable, objective, current, and granular.
- They should be based on local market rates for labor, materials, equipment, and productivity.
- The costs must be itemized in a detailed Scope of Work within a standardized format, like an expanded MasterFormat.
- All involved parties should agree on these costs.
In Australia, EVM has been codified as the standards AS 4817-2003 and AS 4817–2006.
US defense industry
The EVM concept took root in the United States Department of Defense in the 1960s. The original concept was called the Program Evaluation and Review Technique, but it was considered overly burdensome and not very adaptable by contractors whom were mandated to use it, and many variations of it began to proliferate among various procurement programs. In 1967, the DoD established a criterion-based approach, using a set of 35 criteria, called the Cost/Schedule Control Systems Criteria. In the 1970s and early 1980s, a subculture of C/SCSC analysis grew, but the technique was often ignored or even actively resisted by project managers in both government and industry. C/SCSC was often considered a financial control tool that could be delegated to analytical specialists.In 1989, EVM leadership was elevated to the Undersecretary of Defense for Acquisition, thus making EVM an element of program management and procurement. In 1991, Secretary of Defense Dick Cheney canceled the Navy A-12 Avenger II Program because of performance problems detected by EVM. This demonstrated that EVM mattered to secretary-level leadership. In the 1990s, many U.S. Government regulations were eliminated or streamlined. However, EVM not only survived the acquisition reform movement, but became strongly associated with the acquisition reform movement itself. Most notably, from 1995 to 1998, ownership of EVM criteria was transferred to industry by adoption of ANSI EIA 748-A standard.
The use of EVM has expanded beyond the U.S. Department of Defense. It was adopted by the National Aeronautics and Space Administration, the United States Department of Energy and other technology-related agencies.
Project tracking
It is helpful to see an example of project tracking that does not include earned value performance management. Consider a project that has been planned in detail, including a time-phased spend plan for all elements of work. Figure 1 shows the cumulative budget for this project as a function of time. It also shows the cumulative actual cost of the project through week 8. To those unfamiliar with EVM, it might appear that this project was over budget through week 4 and then under budget from week 6 through week 8. However, what is missing from this chart is any understanding of how much work has been accomplished during the project. If the project was actually completed at week 8, then the project would actually be well under budget and well ahead of schedule. If, on the other hand, the project is only 10% complete at week 8, the project is significantly over budget and behind schedule. A method is needed to measure technical performance objectively and quantitatively, and that is what EVM accomplishes.Progress measurement sheet
Progress can be measured using a measurement sheet and employing various techniques including milestones, weighted steps, value of work done, physical percent complete, earned value, Level of Effort, earn as planned, and more. Progress can be tracked based on any measure – cost, hours, quantities, schedule, directly input percent complete, and more.Progress can be assessed using fundamental earned value calculations and variance analysis ; these calculations can determine where project performance currently is using the estimated project baseline's cost and schedule information.
With EVM
Consider the same project, except this time the project plan includes pre-defined methods of quantifying the accomplishment of work. At the end of each week, the project manager identifies every detailed element of work that has been completed, and sums the EV for each of these completed elements. Earned value may be accumulated monthly, weekly, or as progress is made. The Value of Work Done is mainly used in Oil & Gas and is similar to the Actual Cost in EVM.Earned value (EV)
EV is calculated by multiplying %complete of each task by its planned valueFigure 2 shows the EV curve along with the PV curve from Figure 1. The chart indicates that technical performance started more rapidly than planned, but slowed significantly and fell behind schedule at week 7 and 8. This chart illustrates the schedule performance aspect of EVM. It is complementary to critical path or critical chain schedule management.
Figure 3 shows the same EV curve with the actual cost data from Figure 1. It can be seen that the project was actually under budget, relative to the amount of work accomplished, since the start of the project. This is a much better conclusion than might be derived from Figure 1.
Figure 4 shows all three curves together – which is a typical EVM line chart. The best way to read these three-line charts is to identify the EV curve first, then compare it to PV and AC. It can be seen from this illustration that a true understanding of cost performance and schedule performance relies first on measuring technical performance objectively. This is the foundational principle of EVM.