Earned value management (EVM)

Abstract

Controlling and monitoring are key phases for project, program and portfolio management. In particular, in project management it is fundamental not only to initiate, plan and execute a project in the best possible way, but also to be able to monitor and control it so that project managers can evaluate during the life of a project whether it is proceeding as planned, and eventually implement corrective actions if there are any deviations in terms of budget and schedule.

There are many techniques project managers can use to correctly monitor their projects and earned value management is one among these. Earned value management is one of the tools most extensively used due to its straightforward practical application and allows to control activities of a project and check whether they adhere to the original plan. Moreover, earned value management has a versatile nature as it can be applied for the monitoring and controlling in project, program and portfolio management. More specifically, in the case of projects, EVM falls into the “project cost management” and “plan schedule and cost management” phases of the Project Management Standard of Project Management Institute .

This article will describe the earned value management methodology for project management, with motivations of its relevance as well as concrete examples and applications of each of its key metrics. Even though earned value management is a topic already widely discussed and analyzed in project management, this article will focus on outlining a special case which might occur for some projects and how project managers should adapt apply EVM in this case. Moreover, the relevance of the tool for programs and portfolios will be tackled. Finally, some limitations of EVM will be presented and, among these, risk and quality assessment integration will be discussed.

Introduction to Earned Value Management

Earned value management is a tool created and applied for the first time by the US Department of Defense in 1967 and later used to monitor the Department of Education projects, and more specifically the U.S. Large Hadron Collider (LHC) of CERN , the world's largest and most powerful particle accelerator . The ability to connect cost and schedule, to create numerical project performance indicators and express cost and technical performance understandable way, then led to the diffusion of this tool and to its increased application in the field of project management . Earned value management represents a method to control both costs and schedule, and encompasses earned value analysis, variance analysis and forecasting of future trends. It is important to point out that the difference between earned value management and earned value analysis is that while the latter is limited to define and calculate a set of indices to monitor the project’s schedule and cost, the former uses the data from EVA to then also calculate variance and trend analysis, as well as predictions for the future. Therefore, earned value management provides a holistic view on the project’s progress and clarifies any deviations from the project plan and budget, allowing project managers to react to these discrepancies by implementing corrective actions.

The main prerequisites to perform earned value management in project management is to apply the work breakdown structure (WBS) in order to decompose all the activities in work packages, which are the smallest unit of work in a project. Subsequently, human and material resources have to be allocated to each work package . For a complete evaluation of the performance of a project, EVM, other than the numerical calculations of indices, should also consist in reporting activities in order to interpret the data obtained and subsequently communicate it to the relevant stakeholders.