Earned Value Management (EVM)

Revision as of 18:06, 20 February 2021

Abstract

When managing projects, it is of greatest interest to make sure that the project delivers what has been agreed upon. In order to improve the odds to fulfill the expectations, performance measurements can be used. Performance measurements allows the project manager and other stakeholders to closely monitor the project and easier decide when it is necessary to take actions, if the project is running out of line. Projects that are not monitored properly run the risk of being late, overrun the budget and end up being out of scope, which often can lead to unsatisfied stakeholders. ^[1] Earned value management is a method used in project management to evaluate the performance of a project at any point to monitor whether the project is proceeding according to plan or not. This is done by comparing the expected outcome of the three constraints cost, time, and scope. In addition, earned value also evaluates what has been accomplished in the project so far.^[2][3] The result of the performance measurement is a value which indicates how much the current state of the project varies from the expected progress with cost, time, and scope taken into account. This value can later be used to forecast when the project will be finished and at what cost, if it proceeds at the current pace. ^[4]

This article aims to explain the purpose and concepts of earned value management and how it can be applied in order to improve projects. Further, the concept will be analysed where the advantages and disadvantages of the concept will be explained. Finally, the article will discuss the limitations of the concept, what it does and does not do.

Big idea

Earned value management (EVM) is a method used throughout the entire project life cycle to manage projects, programs, and portfolios to visualize the current status. The use of (EVM) dates back to the 1960s when the United States Department of Defense implemented a similar system to measure project performance in order to control cost and schedule. It was first implemented as many projects had become more expensive and delivered later than anticipated. ^[5][6] Add more to the background why it was developed

EVM mainly consists of the three elements that often play a big role in project management; budget of cost, project schedule as well as scope of work. The main idea of EVM is to use these elements to develop a baseline which can be used and compared to the actual outcome of the project at a certain point. It is thereby important that these elements are established with care when the project is planned. The difference between the traditional cost management and earned value is the additional component earned value measuerement which is used to measure the actual accomplishment, for example, "after spending 50 percent of the budget, is 50 percent complete?" ^[7]

EVM allows project managers to integrate these already organized components to forecast the end date and final cost of the project, which then can be used to visualize the project status. Visualization is often very powerful within projects as it can be used to make sure that all stakeholders in a project have the same picture. Visualization also makes it easier to identify issues which allows the stakeholders, such as the project manager, to make efficient decisions based on objective data. ^[1][8][5] Due to the characteristics of EVM it can be used in various key areas within projects such as cost management, schedule management, scope management, risk management and integration management.^[1] EVM can be seen as a critical method when it comes to project planning, execution and control as these areas often are related to measuring, analyzing and forecasting. ^[2]

Benefits with EVM (The abc's of earned value)

Application

Förklara planned, earned och actual, kanske ska ligga under big idea? Förklara olika begreppen BAC, EV, PV osv (hör lite till den ovan). Earned value analysis - Why it doesn't work Göra en figur över earned value under big idea?

How is it used? Setting baselines - Deciding the planned values

In order to successfully apply earned value management there are a few requisites that should be fulfilled where one of the most crucial is to define the different baselines of the project. The baselines that need to be decided are the scope baseline, schedule baseline and budget baseline, or sometimes known as the performance measurement baseline. These baselines are used to generate the performance measurement baseline which will be used as the planned values when the model is applied to the project. As the performance baseline will reflect what the project is expected to deliver at different times it is important that the underlying baselines are determined correctly. It is also important that the performance measurement baseline is determined with consideration to the fact that the changes may occur to the budget, scope or schedule during the project.^[2][7] In the planning phase it is important to convert the scope of work into a more distinct component which can be done systematically by using the Work Breakdown Structure (WBS). A well defined WBS is a core component in EVM as the different baselines are developed with the WBS used as the base. The lowest level of the WBS, also known as the work package, usually consists of a small number of measurable activities such as a product, service or action that needs to be delivered.^[5][2] In addition to the WBS the WBS dictionary is also developed, this is a document that explains each activity in the WBS more in detail. At this step the scope of work, WBS and WBS dictionary can be approved and form what is known as the scope baseline for the project.^[1] Assign resposible person?. Further, the schedule of the project can be decided with the scope baseline and resource breakdown stucture as a base. When the project schedule is approved the schedule baseline for the project is set. When applying EVM the schedule baseline will work as a base to compare the actual outcome of the project from a time perspective. ^[2] The final baseline that needs to be set is the budget baseline. In order to set this baseline the budget itself first has to be decided and approved which is done by assigning costs to each element in the WBS. However, the budget also needs to include a lot of other elements such as the management reserve - a pot of money reserved for unknown management control purposes, and the contingency reserve - a pot of money reserved to manage risk. When deciding on the budget baseline it is important to keep in mind that the project may change along the way as well as make sure that all costs are included. ^[2]

^[5][2]

Deciding measurement method - Measure the actual costs It is important to decide which method that should be used to measure the Earned Value (EV) of the project. As different work packages have unique charactheristics there are three different classes of work that are used depending on the character of the work package. These three work classes are discrete effort, apportioned effort and level of effort. Work packages are identified to belong to the discrete effort work class if it is an activity that is tangible product or service that can be measured. An example of a an activity that belongs to this work class could be to put the tires on a car. If this is expected to take four hours then we can assume that after one hour 25% of the tires are mounted.^[2] However, measuring the work done using this method is only one way that discrete effort can be measured. Discrete effort can also be measured by for example using fixed formula, weighted milestone or as the example suggests, physical measurement. Fixed formula is a method where a certain percentage of earned value is gained when the activity is started and the rest is assigned when it is finished, this is suitable for work packages that can be finished quickly. Weighted milestones are suitable for work packages that take a long time to finish, several milestones are setup for the work package and add a certain amount of earned value when reached. ^[2][9] If the work does not deliver a specific output but is a support activity for the discrete effort activities, such as quality checks or inspection, the work can be considered to be apportioned effort. As the apportioned effort is directly to the discrete activity, known as the "measurement base", the appointed effort activities are equal to the value of the measurement base.^[9] The final work class that activities can be assigned to is level of effort. An activity is considered to be a level of effort activity if it does not directly produce a product or service that can be measured but is a necessary activity for the project. Example of a level of effort activities could be team lead, accounting or customer relationship management. Earned value for Level of effort activities are often very difficult to calculate, hence it is usually calculated as money spent on the activity divided by the total budget for that activity.^[9] Too much time is often spent trying to find the perfect technique to measure the specific activity, it is important to remember that this measurement is an estimate. It is more important to focus on finding the optimal technique for larger value work packages as these have a larger impact on the overall than the smaller work packages. ^[9]

How is the actual application done?

Analyze

Forecast

When is it applicable? EVM has proven to be benefitial for use in a large variety of different projects in various industries such as construction, software development and energy.^[10][11][12] However, as EVM often requieres a significant investment it is more suitable for larger projects.^[13]Cite error: Closing </ref> missing for <ref> tag