Earned Value Management | By Keith Custer | minute read
After decades of using and teaching Earned Value Management techniques, we have seen a lot of misinformation about Earned Value, and the advent of the Internet has only made the problem worse. Sometimes these misconceptions reflect simple ignorance of what Earned Value "really is," fear of the difficulty of implementing Earned Value methods, associations with stodgy government and defence contractors, or, increasingly often, misleading and/or meaningless new marketing terms. The fact is, the Earned Value Management techniques laid out almost 40 years ago continues to be one of the best ways to manage almost any project, and should be a key part of any Project Manager's toolkit. With that in mind, we set out to "bust" seven of the most common myths about Earned Value Management.
1. Only Government Agencies and Contractors Need to Implement Earned Value Management
It is true that Earned Value was originally developed by the US government, and that governments have led the way in implementing EVM. The reason they have pushed so hard for its use, and this has been confirmed by many government studies, is because EVM is the most effective set of tools for monitoring and forecasting project performance.
With a $3 trillion budget, the US federal government is by far the largest project-managing entity in the world, and for many years the most incapable of managing these projects. Many individual US government projects are larger than all but the largest private corporations. This is true in other countries as well, where the government is typically in charge of the largest and most complex defence, research, energy, and public works projects (whether through contracts or by managing them directly). Recent studies in "Mega Projects and Risks" by Bent Flyvbjerg found that almost ALL very large projects around the world initially significantly underestimate their project costs and, just as notoriously, they often vastly overrun their project budgets in the final analysis.
Governments also face unique pressures on their very large projects from politicians and the taxpayers who elect them to keep track of where all this money is going. Because of this, governments spend significantly more time and energy studying which project management techniques work (and which don't) than private companies.
In the United States we have two powerful, independent agencies that frequently monitor the spending and performance of government agencies and contractors, the Office of Management and Budget (part of the White House) and the Government Accountability Office (part of Congress). Both have performed many studies showing that EVM is the most effective method for addressing the problems of under-estimating and managing to intended result. Similar studies by similar agencies in other countries have confirmed this result.
EVM's Work Breakdown Structures, schedule constructs, and Organisational Breakdown Structures provide a significant boost to the accuracy of scoping and estimating project budgets. EVM's variance reporting, monitoring of project performance, and ability to forecast project outcomes provides the best estimates at almost any point in a project of what it will ultimately cost to complete. So government has learned that EVM provides significant insight to help hold Project Managers accountable. This accountability, and a long positive track record on numerous large projects, has led many governments to absolutely mandate EVM use on all their projects both internal and external. Private sector companies are now learning (if they had not already) the same lessons about EVM and are mandating EVM as well. Often commercial enterprises learn from their government projects the value of EVM and implement it throughout all of their programmes to ensure commercial success.
Myth 1: Only government agencies and contractors need to implement Earned Value Management - is BUSTED!
2. Earned Value Management is Only Useful for Large or Long-Term Projects
Almost every project, regardless of size or duration, can benefit greatly from Earned Value Management (EVM) techniques. Numerous studies have confirmed the value of EVM in large projects. You might also note that the US government now mandates EVM techniques on any internal or external project over $20 million (which by today's standards is not that large!)
On smaller and usually shorter projects it may be necessary to increase the reporting cycle frequency to get timely results, from monthly to, say, weekly, or even daily for very short projects. Many smaller projects find that their Actual Cost reporting systems can't easily report in these short periods, so Project Managers either do a good deal of extra manual tracking or forego some of the benefits (like weekly cost variances) of EVM. Project Managers can still continue to get the schedule reporting benefits of EVM on shorter reporting cycles because weekly (or even daily) schedule reporting is fairly easy to achieve. By making this compromise, frequent schedule reporting and less frequent actual cost reporting, all of the EVM benefits CAN still be had on a monthly basis as costs are finally reported for the month and matched up to weekly (or daily) schedule data.
It has also been observed that large projects can be viewed as just a conglomeration of smaller projects. This is often expressed as projects being part of a programme. If you understand EVM methods then you will realise that HOW the smaller projects build up to the larger project or programme is easier to see and understand because the roll-up logic is greatly facilitated by EVM's Work Breakdown Structure (WBS). These roll-up features are why EVM is so useful for Work Package type construction methods and summarising projects into programmes.
We have used EVM on projects as small as $200,000 and 6 months in duration and found the methods extremely useful. We have also used EVM on projects as short as 4 weeks with major costs into the tens of millions of dollars, such as nuclear power plant refuelling outages, with similar success. It is clear that EVM delivers major benefits in all scenarios.
Myth 2: Earned Value Management is only useful for large or long-term projects - is BUSTED!
3. Earned Value Management is Too Rigid
Given EVM's emphasis on strict, detailed up-front project planning and quantifying of expected results, many Project Managers have promoted the misconception that EVM is a "rigid" tool best suited, for example, to large-scale construction projects. Our experience is contrary.
In fact, EVM is extremely flexible, and can easily accommodate even major scope changes, with the added benefit of immediately reflecting their effect on the project's costs, schedule, and performance. All of the basic EVM constructs can be modified "on the fly" without invalidating the data that has already been collected. Skeptics might note that EVM has been widely (and successfully) implemented in the defence sector, where contractors are often building something completely new and untested with technology that may not have even been developed yet! In many of these projects only the near-term scope is known and the details of the later work only emerge years after the project is underway. If EVM works for these risky, R&D heavy types of projects, then it can also be employed effectively in the more mundane day-to-day work of the typical medium-sized private company.
The trick perhaps to enjoying a "flexible" EVM implementation comes from developing a robust and flexible work breakdown structure (WBS) to help scope the work and set up the EVM for any given unique project. If the WBS is set up correctly Project Managers will find EVM to be a powerful and flexible set of tools for project management.
Myth 3: Earned Value Management is too rigid - is BUSTED!
4. There is Such a Thing as "EVM Lite."
Recently terms (we would call them "slogans") like "EVM Lite" or "Tailored EVM" have become popular, implying an "easier" way of implementing EVM. Our review of the available literature confirms that these are mostly marketing constructs intended to spotlight certain vendors' software and consulting services. These pitches target the least informed executives who wish there was a very easy, "magic" way to implement EVM that wouldn't require them to really learn the criteria or how they should be applied. So the promoters seem to have come up with these concepts, which of course promise to be easier to implement than the full EVM criteria. From what we have seen, the proponents of "EVM Lite" have not bothered to write enough about their concepts to make them understandable except to the most uninformed, who wouldn't know the difference anyway. These concepts seem to depend heavily on the software and consulting services that they sell. We don't see how the apparently "left out" EVM criteria can be ignored without potential issues in the management of a project. For example, one "EVM Lite" framework claims to require only 10 of the 32 ANSI criteria, ignoring, for example, #26: "Implement managerial actions taken as the result of earned value information." What is the point of going through the trouble of collecting the information if you aren't going to act on it!?
Government (OMB and GAO) recommend that these methods be avoided and we can't agree more.
EVM is expressed as a set of criteria and is thus not all that rigid, readily allowing for many exceptions or levels of application that accomplish the apparent goals of "EVM Lite" (without the marketing hype). These exceptions can be applied across projects, so for example one part of a project may be monitored and reported at one level of detail while other parts are managed in summary. Reporting levels and periods can vary from project to project as well, without affecting the value of the data for project management or even for comparing performance on different projects. In our opinion, projects intending to gain the benefits of EVM should set out to meet all 32 ANSI/EIA criteria, adjusting the timing and depth of application of each feature to their project in a way that gains the most benefit for the project at that time.
Myth 4: There is such a thing as "EVM Lite" - is BUSTED!
5. Implementing Earned Value Management Creates a Lot of Extra Work
This is one of the most frequent objections project managers, and the people they oversee, have to implementing EVM. However, EVM does not require any data that good project managers are not already collecting. Most of the EVM requirements (especially in the project planning stage) only reinforce good project management standards, such as having a Work Breakdown Structure designed around deliverables rather than tasks or organisations.
One of the more difficult-to-implement EVM criteria requires "…integration of the company's planning, scheduling, budgeting, work authorisation and cost accumulation processes with each other and, as appropriate, with the programme work breakdown structure and the programme organisational structure." All of these project management constructs likely exist on most projects, they just are not integrated! This typically occurs because estimators estimate in categories they like and schedulers schedule in categories they like and cost accountants collect costs in categories that they like and all maintain their fiefdoms vigorously, to the harm of all the projects they serve. So the "extra work" is really just a matter of finding the common ground between all these interests. This can usually be done by allowing all the interests to keep their categories while creating roll-ups or breakdowns that allow correspondence and thus integration between the parts. Although this can be some very contentious work, finding the appropriate compromise is usually a one-time task that serves all projects (with some future refinements) from then on.
Most project managers who implement EVM properly soon find that the knowledge and control they gain (mainly through the benefits afforded by integration) is well worth the minimal effort it takes to collect and interpret the data once the integrated correspondence can be seen. So once the integration is accomplished (and usually automated) very little additional work is required except for interpreting and acting on the data reported.
Myth 5: Implementing Earned Value Management creates a lot of extra work - is BUSTED!
6. Companies Need to Change Their Organisation to Implement EVM
EVM requires that projects define which organisational units are responsible for each element (work product) of the Work Breakdown Structure (WBS). Usually this is just the organisational project team. The WBS should also include any subcontractors (current or planned) that may be responsible for delivery of some work products. Organisational unit(s) responsible for indirect or overhead costs which might not be normally considered a part of the project team should also be included.
Difficulties arise because some companies have functional organisations that have some responsibilities in their projects. This is OK with EVM, which only requires that these functional organisational units also show up on the project organisation chart known as the Organisational Breakdown Structure (OBS). The OBS is a virtual construct for any given project and does not require any changes in how a company is actually arranged. What EVM wants to know is who, or at least which organisation, is responsible for delivering which work products.
Another difficulty sometimes arises because EVM wants to roll up costs along the lines of the OBS, which may cross some traditional organisational responsibility lines. Again, the OBS is just a virtual construct for the sake of making meaningful EVM reports and does not require any actual changes to organisations. It is true that some companies might want to study these OBS relationships as there might be better ways of organising, but no such change is required by EVM.
Myth 6: Companies need to change their organisation to implement EVM - is BUSTED.
7. Implementing EVM Requires Expensive New Software Packages
All of the data required for EVM is data that good project managers should already be routinely collecting. For various historical and legacy reasons, at many companies this data may be spread over a number of different applications and systems (scheduling, time reporting, financials, estimating, etc.) Quite likely, the way data is created and collected in existing systems follows whatever method is best for the type of work that system supports. So estimating systems usually categorise cost data by functional categories and constructs that lend themselves to quantification and metric estimating. Scheduling systems arrange data by tasks and task hierarchies that likely reflect phases and sequences of the project. Finally, accounting systems typically capture costs in greater detail, such as labour, material, subcontracts, equipment, etc., but often are not organised by tasks or subs-tasks and are frequently not on the same time periods as, say, schedule reporting, nor do they necessarily have any relation to the functional estimating categories.
One temptation that faces many implementers of EVM is loading the data from one or more of these systems into one of the other systems. This is at best problematic. If you really re-key the data from one system to another there is a high chance of error and you may be further tempted to introduce additional labour processes to double check data (which will never work). If you automate the loading process then you risk limiting the flexibility of both systems because of the need to maintain the interface. In any case you will likely reduce the efficiency of the receiving system, now burdened with additional data it was not intended to carry.
Another temptation is to buy an expensive new system that "does it all." In our experience no single system can efficiently deliver both the primary system need, such as estimating or accounting, and EVM reporting. Certainly the initial cost of such a system is a major hurdle, not to mention the training and data conversion that would be necessary to make such a change.
We have found that with a bit of ingenuity, EVM measurements can be easily accommodated by most existing software packages. The key is to extract the data from each of the existing systems and compile the data in the prescribed formats of EVM, making the integration links as needed. Usually this can be done by exporting data from the existing systems into an EVM repository set-up in one of any number of inexpensive desktop database systems. Sometimes this can be as simple as a Microsoft Excel spreadsheet, which is enough to fully implement EVM for smaller projects without any special new software or "EVM Lite" compromises.
Small changes might be needed, for example, to the way that labour time is collected in the financial system, but in almost every case, these changes are in accordance with good project management standards anyway. In fact, EVM is a great way for project managers to spot and correct procedural discrepancies in their project, for example, hours being billed to a task that has not been started and is not reporting progress, or the inverse, progress being reported without any labour or material costs.
So in our experience, implementing EVM does NOT require expensive new software packages.
Myth 7: Implementing EVM requires expensive new software packages - is BUSTED!
Keith Custer, PE, is an electrical engineer with over 30 years of consulting and management experience and is an expert in project management and the use of integrated cost and schedule techniques. He first learned about Earned Value in the 1970s, when it was still new, and has advocated its use ever since.