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Earned Value Management is it worth the effort?

Paul Naybour Paul Naybour

Published: 20th May 2010

This is a summary of the presentation to the South West Branch of the APM on the 19th May 2010. It summarises the presentation and the feedback from workshop sessions to identify the barriers to the implementation of earned value.

Introduction

Earned Value Management (EVM) is a fundamental process in both the APM’s and PMI bodies of knowledge and has its roots in the United States Department of Defence (DOD) Cost/Schedule Control Criteria System (C/SCSC), which has been specified for all DOD contracts for which the government carries the risk since 1967.
Earned Value Management is a simple practical concept with significant benefits for project managers including:

  • An integrated view of the three key elements of project status, planned cost, project progress and actual expenditure.
  • The ability to rapidly determine the status of a project based on performance indexes.
  • The ability to rapidly highlight work packages that are overspending and / or behind plan.
  • An estimate of cost at completion and completion date based on current performance.

And yet very few project managers’ use earned value management. Those that do, tend to be mostly in the defence, nuclear and some transport sectors. In this paper we argue that successful implementation of EVM is closely linked to a development of an organisations project management maturity.

Barriers to Wider Use of EVA

Based on research with PMI and APM seminars we can identify the barriers to adoption of EVM as being focus around the three elements of process, people and systems and the implementation of the fundamental principles of basic project management. In summary these barriers are:
Embedded processes to establish project scope, define realistic but challenging norms based plans, rules assessing progress and effective control of project change are all vital processes that must be in place to support the implementation of EVM. Without these fundamental processes then the earned value data will soon lose consistency and soon become discredited.
People within the organisation need the aptitude, training and discipline to implement effective EVM. They need the ability and training required to understand and use the data produced, they need to be familiar with the jargon used and trust it to make decisions. Some project managers see the increased visibility provided by EVM as a threat to there ability to manage the clients and their own senior managers expectations. Data needs to be provided within an understood context.
The systems which support EVM need to be fed with high quality baseline data with integrate cost and time information within the plan and accurate and timely cost information in a structure consistent with the project Cost Breakdown Structure (CBS). The latter of these often requires an interface to the organisations finance systems and possible modification to coding structures.
During the workshop we identified many potential barriers and aids to the implantations of earned value in organisations. These include:

Barriers Aids
  • Lack of realistic estimating in the first place
  • Lack of any real baselines
  • <div style=”text-align: justify;”Undefined or unclear scope
  • Unrealistic targets
  • Lots of change
  • Lots of jargon (2 groups)
  • Change of process and project (2 groups)
  • Reluctance to resource and cost load programmes (2 groups)
  • Difficult to communicate and co-ordinate
  • Resources and training required
  • Difficult to identify checkpoints and milestones
  • Difficulty to ensure the actual costs measured by EVA match those on the accounts system (accruals and all that jazz) (3 groups)
  • Overhead cost to implement (4 groups)
  • Perceived at too difficult
  • Lack of integrated systems on the market so we have missing data
  • Culture now willing to accept the results (2 groups)
  • Hard to measure progress
  • Organisation lack a programme management (planning) ethos (2 groups)
  • Not applicable to smaller projects / organisations
  • Lack of confidence in data
  • Lack of knowledge / understanding
  • Time better spent working on projects
  • Not clear of links to risk management (2 groups)
  • Management don’t understand it.
  • Cottage industry
  • Doesn’t tell you how to deliver
  • Scepticism that the past can forecast the future
  • Difficult for software projects
  • Measures real progress

  • No real alternative to give a complete picture

  • Indices show clear trends

  • The project must have a rigorous structure to make it work

  • Can highlight areas lacking resources (2 groups)

  • Provides an early warning of issues

  • Basis for exec reporting

  • Factual reporting

  • Often required by the contract

  • Shows the true project status

  • Can help win contracts

  • Simple concept

  • Identify areas of weakness in the plan

  • Links to risk management

  • Trigger regular reviews

  • Good project management rigour

  • Perceived cost of earned value vs real cost of overrun and lack of information

Road to EVA Maturity

Critical to the successful implementation of EVM is the effective application of the core fundamentals of the project control cycle. In particular the following key elements need to be in place for each stage of the project control cycle

Plan the Work

The plans used for EVM need to implement key elements of good practice. They must integrate cost and time information through a resource and cost loaded Gantt chart. The work packages within this plan must be integrated with the CBS against which we are going to track costs. Finally it is useful if a rolling wave approach is used to development the detail within the plan a stage by stage.

Work the Plan

It is a basic tenet of project management that we work in accordance with the plan, but in many organisations this can be a real challenge, either because the plan lacks credibility, buy-in or commitment from the project team. For these reason many individuals or teams execute tasks in different sequences from the planned activities, complete work not included within the plan or ignore it all together. Detailed integrated baseline review of the project plan before baseline can ensure that the team has a detailed understanding of the project plan and iron out difficulties before implementation starts.

Measure Progress

Progress can be measured or estimated in several ways, from measurement of physically completed work to estimating the work left to complete. However in all but the most physical projects this estimate progress is too subjective. To effectively implement EVM we need defined rules for assessment of progress on work types and these need to be understood and adhered to across the organisation. For example for a design or software project we might make a rule that activities only earn value once they are complete and which point they earn all the value associated with that task.

Take corrective action and manage change

Uncontrolled or sluggish control of change can cause major problems for the implementation of EVM. Completing activities not shown on the plan, changes in scope or changes to the sequence of activities need to be captured and incorporated into the baseline through an efficient change control system. Without a timely and rigorous change control system the reports and performance measures produced by EVM systems will be inaccurate, misleading and could lead to incorrect management action.
For an organisation to benefit from the implementation of EVM the organisation needs the level of PM maturity which enables it to:

  1. Prepare and agree robust plans integrating both time and cost
  2. Execute work according to the plan
  3. Accurately measure progress and record cost in a format consistent with the plan
  4. Implement efficient and effective change control process.

These in fact are the corner stones of good project management. So the question remains as to what level of maturity is required to successfully implement EVM?

The Project Management Maturity Model

A Project Management Maturity meets these needs, drawing on established concepts from existing models such as the Capability Maturity Model (CMM) from Carnegie-Mellon Software Engineering Institute and the Business Excellence Model from the European Foundation for Quality Management (EFQM). Project Mangement Maturity describes four levels of increasing project management capability, termed Naïve, Novice, Normalised, and Natural. The aim is to provide a structured route to excellence in project management, with recognisable stages along the way which organisations can use to benchmark themselves against.
 
The various levels are defined as follows:

  1. The Naïve project management organisation (Level 1) is unaware of the need for management of projects, and has no structured approach to projects. Management processes are repetitive and reactive, with little or no attempt to learn from the past or to prepare for future threats or uncertainties.
  1. At Level 2, the Novice project management organisation has begun to experiment with project management, usually through a small number of nominated individuals, but has no formal or structured generic processes in place. Although aware of the potential benefits of managing projects, the Novice organisation has not effectively implemented project management processes and is not gaining the full benefits.
  1. The level to which most organisations aspire when setting targets for management of projects is captured in Level 3, the Normalised project management organisation. At this level, management of projects is built into routine business processes and project management is implemented across all aspects of the business. Generic project management processes are formalised and widespread, and the benefits are understood at all levels of the organisation, although they may not be fully achieved in all cases.
  1. Many organisations would probably be happy to remain at Level 3, but we can define a further level of maturity in project management processes, termed the Natural project management organisation (Level 4). Here the organisation has a fully project-based culture, with a proactive approach to project management in all aspects of the business. Project-based information is actively used to improve business processes and gain competitive advantage.

Earned Value Management and Project Maturity

We are proposing that earned value management requires a foundation of project maturity before it begins to add value.
For organisations at the “Naïve” level of maturity EVM will be over complex and
inappropriate, project management development efforts should concentrate on basic roles and responsibilities, definition of project objectives, scope and basic timeline planning and control.

The ad hoc processes within a “Novice” organisation are unlikely to respond well to the rigour and visibility introduced by the introduction of EVM, significant problems are likely with robustness of baseline plans, progress reporting, understanding within the organisations of EVM performance measures. However if the organisation has the commitment to develop to a normalised level of performance then EVM, especially required by a client, may be the vehicle to achieve this improvement, although it may take some time for the benefits to be realised.
EVM is ideally suited to a ‘Normalised’ organisation seeking to move towards the best practices exemplified by a ‘Natural’ organisation. The rigor, integration and visibility introduced by EVM will rapidly highlight any weakness in the organisations people, processes or systems and act as a driver to stimulate management action to further improve the organisations capability.
Organisations that have reached a ‘natrural’ level without using EVM for project control are likely to benefit little from its introduction. It is something that they may do if they have a client need or particular requirement. With a mature organisation then the changes required to implement EVM should be relatively painless giving increased levels of confidence in the project delivery capability.

Conclusions

EVM offers project management the promises of significant benefits, however very few project managers have adopted it because of significant barriers within their organisations. These barriers are linked to the project management maturity of an organisation. In order to be ready to adopt EVM organisations should be at least at a ‘Normalised’ level of project management and for these organisations EVM will give significant benefits and support their development. In addition, to enable really effective decision making EVM needs a maturity of understanding and support by Senior Managers. Project Managers will then, not only be helping themselves and their projects to understand whether they are ‘on target’, but also their Senior Managers. This should prevent the necessity of Project Managers to continually having to sell and explain the concept to their superiors.

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