Earned Value Management (EVM)
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re-cite: [1]
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 control cost and schedule. It was first implemented as many projects had become more expensive and delivered later than anticipated. [5] 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?" [6]
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][7][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]
Application
Förklara planned, earned och actual, kanske ska ligga under big idea? Förklara olika begreppen BAC, EV, PV osv (hör lite till den ovan). 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. 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][6] In the planning phase it is important to the 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 acticities 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 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.[5][2]
Deciding measurement method - Measure the actual costs
This will be used to determine which progress measurement method that should be used to measure the progress 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.
NOTES
- Discrete effort; An activity that can be planned and measured and yields a specific output. four different measurements are often used here:
- Fixed formula: Assigns for example 0/100, 50/50 or 25/75 of earned value to the activity. When activity is started the first percentage of earned value is gained, when project is finished the second is gained. Only used in smaller work packages. Easy to
use but the numbers are arbitary which may not explain the actual work that has been done.
- Weighted milestone, Divides the work package into measurable segments, each ending with and observable milestone. Assignes a weighted value to the achievement of each milestone. Suitable for longer duration work packages that have tangible results or
milestones. Can have several milestones in a single work package that are reported eg. weekly.
- Percent complete, Shows an estimate of the percentage of work that is complete at the end of each measurement period. EV is generated by multiplying BAC of the work package by percentage complete. Important that work hours does not reflect EV here, if
50% of work hours is spent that does not mean 50% of work is done!
- Physical measurement, measures any units that can be explicitly related to the completion of work, for example length of cable laid, the area and quantity of concrete poured etc.
- Apportioned effort;
- Used for work with a direct, supportive relationship to discrete work. Can include work such as quality assurance, inspection and testing activities, these activities are done in direct proportion to the main work. Apportioned work effort is estimated
as a percentage of the referenced discrete work effort.
- Level of effort;
- Activities that do not directly produce definitive end products that can be delivered or measured. May be activities such as contract management and other activities necessary to support the discrete and apportioned effort. It consumes resources and
should be included in the EVM planning. EV us accured in line with PV which means that Level of effort activities will not have a schedule variance, however a cost variance can be include as the actual cost may be different to the expected value.
The next stage is to develop a schedule by using the WBS to decide how long the different steps should take and when these should be finished.
When is it applicable?
Limitations
Critically reflect on the tool/concept/theory and its application context. What can it do, what can it not do? Under what circumstances should it be used, and when not? How does it compare to the “status quo” of the standards – is it part of it, or does it extent them? Discuss your article in the context of key readings / resources provided in class. Substantiate your claims with literature
Annotated bibliography
Provide key references (3-10), where a reader can find additional information on the subject. The article MUST make appropriate references to the and reference material provided in class – either incorporating it as a source, or critically discussing aspects that are missing from it but covered by this article. Summarize and outline the relevance of each reference to the topic (around 100 words per reference). The bibliography is not counted in the suggested 3000 word target length of the article.
References
- ↑ 1.0 1.1 1.2 1.3 1.4 Project Management Institute (2017) A guide to the Project Management Body of Knowledge (PMBOK guide). 6th ed. Newton Square, PA: Project Management Institute.
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 Project Management Institute (2012) Practice standards for earned value management. 2nd ed. Newton Square, PA: Project Management Institute.
- ↑ Sparrow, H. (2002). Integrating scheduling and earned value management (EVM) metrics. Paper presented at Project Management Institute Annual Seminars & Symposium, San Antonio, TX. Newtown Square, PA: Project Management Institute.
- ↑ Levine, H. A. (2005) Project portfolio management: A practical guide to selecting projects, managing portfolios, and maximizing benefits. London, England: Jossey-Bass.
- ↑ 5.0 5.1 5.2 5.3 Stephen P Warhoe (2004) The Basics of Earned Value Management. AACE International transactions. CS71–.
- ↑ 6.0 6.1 Chen, M. T. (2008) ‘The ABCs of earned value application’, in AACE International Transactions. 2008 Morgantown: American Association of Cost Engineers. p. EV31.
- ↑ (No date) Pmi.org Earned schedule value management. Available at: https://www.pmi.org/learning/library/advances-earned-schedule-value-management-6217 (Accessed: February 17, 2021).
