Determining Measurement Methods in Earned Value Management

Revision as of 20:25, 22 February 2019

Abstract

Earned Value Management (EVM) is one amongst the many types of techniques which can be used to perform monitoring and controlling activities in project management. However, due to its complexity, it includes several topics and steps, i.e. organising project, assigning responsibility, developing schedule and so on. ^[1]

Overall, it is a very large topic to be discussed in a relatively short article, therefore this document first of all provides a brief description of the EVM technique. As it does not give a detailed insight into the EVM itself, it is highly recommended to be familiar with this management technique (precise information can be acquired about the EVM here: Earned Value Analysis). Then it aims to give a clear picture of one particular step from the whole process, namely the determination of different methods for measuring the project performance, and the selection strategy of choosing the most valuable and applicable one for the project. It itemizes the necessary inputs of the measurement and shows various outputs that could be gathered from the calculations. The main part of the article begins with the description of Control Account Plan, which is followed by several classes of work introduced, i.e. the discrete effort, the apportioned effort and the level of effort. In the class of discrete effort certain measurement methods (fixed formula, weighted milestone, percent complete, etc.) are presented in details involving their advantages and disadvantages. Each method is also illustrated with an example to show the elementary steps in practice. Guidelines are provided in the end of the article, with which the ability to choose the best suited measurement technique for a particular project is given.

Introduction to Earned Value Management

In project management, one of the most important sessions is the process of monitoring and controlling projects. The project manager is responsible for tracking the project's progress and performance with the help of predefined methods in terms of time and costs spent, and to analyze the value of work performed, in order to find out whether the current state of the project corresponds to the original project management plan. The main benefit of this task is, besides the accomplished insight into the health of the project, the ability to make corrective and preventive steps towards the successful completion of the project. ^[2]

Earned Value Management (EVM) is one amongst the many types of techniques which can be used to perform these activities. EVM analysis with the usage of the predefined work scope, timeframe for performance of the work, resources and costs, etc. as inputs can be resulted in the so called “earned value”.^[2] Earned value (EV) is the variable that shows us the value of the work performed in a specific point of the time. It is then compared with the planned value (PV), that represents the initially planned schedule position, and the actual spent resources in order to show the current cost position.^[3] The conclusion regarding the actual status of the project can be acquired after the comparison, which is a useful output for the management in order to determine the essential further modifications, such as corrective action plans. Furthermore, the forecast of expected project costs can be initially created and then updated. ^[2] To be able to measure the performance through the project’s duration, specific measurement points are needed. These dedicated control points are included in the Control Account Plan (CAP).

Control Account Plan (CAP)

According to Fleming et al. (2010) ^[3], Control Account Plan is „the fundamental building block which forms the project’s measurement baseline”. It contains all the planned information which is needed in order to perform the monitoring process, that is to say the measurement of the actual status of work throughout the project. The necessary informations are, as listed by Fleming et al. (2010) ^[3]:

• Statement of work: brief scope description
• Schedule: start and stop dates for each task
• Budget
• Responsible person
• Responsible department
• Type of effort
• Division into discrete work packages
• Method used to measure earned value (EV) performance

The CAP is created before the progress of determination of measurement methods, because apart this all of the above elements are necessary inputs of the determination process, described in the following section.

Figure 1

As can be seen in Figure 1, a CAP consists of work packages, to which different EV methods, in other words earned value measurement methods, are assigned. Throughout the predefined timescale (in this example: 3 months), dedicated planned value control points are stated (example: one per month, but it could also be one per week). When the measurement takes place, the calculated earned value is compared with these points. It can also be acknowledged that each work package has different measurement methods assigned which raises some questions:

• What is the difference between these methods?
• How is one method assigned to a specific work package?
• How are the planned value control points calculated?

The Measurement Methods section strives to give a detailed answer to these concerns.

Inputs of the Measurement Process

The PMI Practice Standard for Earned Value Management ^[2] categorizes the inputs into the following list.

1. Requirements documentation:
   They are all documentation containing requirements which are relevant to the actual phase of the project. They can be defined by the client, the project manager, the organization, or institutions (e.g. contract-, business-, performance-, and technical requirements, standards, etc.), moreover by the government (e.g. legal/regulatory requirements).
2. Statement of Work:
   It contains the goals of the project, that has been defined by the procurer or the management. It is the description of the expected product(s) and/or service(s) and/or result(s) that will be the output in the end of the whole project process.
3. Scope Baseline:
   This document is the baseline for measuring, managing, assessing and controlling project scope. It contains a particular version set of three approved project documents: work breakdown structure (WBS), WBS dictionary and Project Scope Statement.
   The WBS contains all the deliverables of the project. It is a breakdown of the whole work, that needs to be done, into specific work packages which are executable and manageable elements in terms of their cost and duration. ^[1]
4. Integrated Master Schedule:
   It is a bilateral agreement between the organization and the contractor on what defines the event-driven program. It contains the key event accomplishments and the evaluation criteria in the development. It also provides sequential events and key decision points, generally meetings to assess program progress. All in all, it is a detailed time driven plan for program execution that helps to ensure the achievement of on-time delivery dates.
5. Project Budget:
   It gives information about the time-based distribution of funds for the whole duration of the project.

The last two inputs, namely the integrated master schedule and the project budget are crucial in terms of creating the performance measurement baseline (PMB) which development starts through the process of determining and applying the proper performance methods for each work package. ^[2]

Measurement Methods

As it was mentioned before, to be able to measure the performance throughout the project, predefined points in time with desired performance value, in other words planned value, are needed. These time-phased planned values are created with the help of a measurement method. Since every work package is unique regarding the resources, the tasks and the people involved, or its type of effort (recurring or non-recurring), it is unreasonable to apply one specific way of measuring the whole work completed. Depending on the nature of a work package, different methods are recommended to be used. Although, there are several classes of work, i.e. the discrete effort, the apportioned effort and the level of effort which can be measured differently, this article only provides an insight into the measurement of the discrete effort class of work (the other methods can be found here: ^[2])

According to the PMI Earned Value Management Standard ^[2], discrete effort is an activity which can be planned and is convenient to measure because „is directly related to specific end products or services with distinct and measurable points”. Several measurement methods are used to measure discrete effort, such as the Fixed Formula, the Milestones with Weighted Values, the Percent Complete, the Physical Measurement, the Equivalent completed units, the Earned Standards and so on. The type and actual phase of the project, the nature of the work package, and other circumstances determine the method to be used to best address the measurement process. In the following sections some methods are described in details and supplied with its advantages and disadvantages. Moreover, examples for each method are shown for a better understanding.

Milestones with Weighted Values

As is stated by Fleming et al. (2010) ^[3], the essential condition of this method is its usage for individual work packages which must exceed a short span in duration, but they are recommended to run over two, three or more performance periods to be able to define as many milestones as can represents the real state of the project. If the work package consists of only one milestone, then the appropriate method should be used is the Fixed Formula described later.

The defined milestones must be meaningful and properly distinct. During the planning of the milestones, in each performance period one or more milestones should be placed which are associated with an objective and verifiable accomplishment ^[2]. Furthermore, there is a specific budget value assigned to each milestone which means that the total planned costs for the whole project is divided up between the several milestones in respect to their weight (see Figure 2 as an example: the importance between the identified three milestones: %(1)<%(2)>%(3) and %(1)>%(3) and +3.=2. and , therefore the first gets 40%, the second 50%, while the third 10%). After the planning phase, the different budget values attached to the milestones and the milestones themselves should not be modified due to the traceable flow of the project.

Figure 2

Figure 2 illustrates an example of this method. In this work package there are three milestones: A, B and C. Let's say that the mathematical relationship between them (It is important to note that this is just an example, this weighing method of milestones doesn't have any connection with reality!):

%_A < %_B > %_C;

%_A > %_C;

%_A + %_C = %_B;

%_A = 4 * %_C;

%_A + %_B + %_C = 100;

According to the relationships: A gets 40%, B gets 50%, while C gets 10%, which means that B is the most important milestone through the work package following with A and then C.

Furthermore, our total budget value (=budget at completition (BAC)) is 400.000 DKK, so the planned values (PV) can be calculated as:

PV_A = BAC * %_A / 100 = 400.000 * 40 / 100 = 160.000 [DKK]

PV_B = BAC * %_B / 100 = 400.000 * 50 / 100 = 200.000 [DKK]

PV_C = BAC * %_C / 100 = 400.000 * 10 / 100 = 40.000 [DKK]

The calculation of EV is not included since that is considered to be out of scope. See more details about EV calculations here: Earned Value Analysis

The method can only be used to measure performance during the project with a requirement of close working relationships between the work package manager, the scheduling people and the resource estimating function. Fleming et al. (2010) ^[3] claims, that these close working relationships reinforce the adequacy and accuracy of the milestones planned.

Although it is a widely prefered method among project managers, a big disadvantage of this method can not be disregarded: its difficulty and inconvenience regarding the initial planning phase and its administration during the project. It is mainly on the grounds of the previously detailed reasons, that is to say the difficulty of planning of milestones, and the required close working relationships ^[3].

Fixed Formula

The fixed formula method is used for small but detailed work packages with short-duration. It sees the work package as a "one-session work" which has a starting and an ending point considered as two weighted milestones, but due to its type (mainly its size), it does not have a milestone in between. This method can be divided further into several methods in accordance with the allocation of budget value between the two milestones, for instance the common 25/75, the 50/50, and the 0/100 method. In the case of the 0/100 method, 0% of the planned budget value is assigned to the start of the period while 100% is assigned to the finishing point. Besides, endless other methods can be defined which all must share the common condition that the summation of the percentages has to be 100% in total ^[3].

In order to provide a better understanding, a short example is demonstrated (see Figure 3). Let’s suppose that our project is a manufacturing of a table, and the 50/50 fixed formula method is used to track the performance of the manufacturer. First of all, we order and get the needed materials for the table. When the wood has arrived in our workshop we already have the 50% of the planned value in the beginning of the project. The rest part of the project, the other 50% will be the grinding, the roughing, the surface finishing, the assembly of the desk and so on, but it will be assigned to the project at just that point when the work package has been done.

Figure 3

This formula can be used for projects that are scheduled to start and completed in the same one or at the most two measurement period. The length of one period does not matter, it can be a week or a month as well. However, this method can be quickly acquired, one considerable disadvantage is that this arbitrary percentage may not represents the actual status of performance because it lies on a relatively subjective decision. ^[2]

Percent Complete Estimates

^[4]

Combination of Percent Complete Estimates, with Milestones

Strategy of Choosing Applicable Methods

Outputs of the Measurement Process

Limitations

Annotated Bibliography

1. ↑ ^{1.0 1.1} PMI PMBOK® Guide – Sixth Edition (2017)., Available at: https://www.pmi.org/pmbok-guide-standards/foundational/pmbok
2. ↑ ^{2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8} PMI Practice Standard for Earned Value Management – Second Edition (2011)., Available at: https://www.pmi.org/pmbok-guide-standards/framework/earned-value-management-2nd
3. ↑ ^{3.0 3.1 3.2 3.3 3.4 3.5 3.6} Fleming, Q. and Koppelman, J. (2010). Earned value project management - Fourth Edition. Newtown Square, Pa.: Project Management Institute, Inc.
4. ↑ Hamilton, B. (2019). Earned Value Management Tutorial Module 5: EVMS Concepts and Methods., Energy.gov., Available at: https://www.energy.gov/sites/prod/files/2017/06/f35/EVMModule5_0.pdf [Accessed 17 Feb. 2019]