Manage value to get projects on track
By Kwek Keong
As part of project risk management, a key toward today’s project success is being able to identify, anticipate, and communicate project issues effectively during initiating, planning, executing, controlling, and closing. This is crucial so project managers can take action before things get out of control.
Today, updating project schedules with milestones on the traditional Gantt chart and correlating it with a disparate project costing report can no longer adequately address project issues and quantify project health based merely on the cost of historical data per se. This qualitative evaluation process is tedious, fragmented, and inaccurate, hence, it will not help project managers to make an informed decision on the actual project situation.
Earned value management
The earned value management (EVM) is an effective tool to measure project performance. Government agencies and construction industries have embraced the EVM for years.
EVM methodology deploys a multi-dimensional approach to integrate project schedule and budgeted costs graphically. It also facilitates resources and financial planning to reflect an updated project status and a predicted project outcome through variance analysis. It compares the amount of work planned with what was actually earned and with what was actually spent to determine if cost and schedule performance are going as planned. So long as the data inputs to the EVMs are constantly updated and readily accessible, project managers and project stakeholders are able to visualize where they are today and how far they have to go. It enables project managers to devise an action plan to turn the situation around at the early stages of a project.
The earned value is the physical work accomplished plus the authorized budget for this work. The sum of the approved cost estimates may include overhead allocation for activities (or portions of activities) completed during a given period, usually project-to-date. The backbone of EVM is the variance analysis as a methodology to measure accomplishments by comparing earned value with the expected schedule value, as well as the earned value with the actual costs incurred on the same reference point.
Performance management on projects is the integrating process of planning, managing, and controlling project performance. You should articulate measures of progress in terms of cost, schedule, and technical performance by using techniques and metrics for expressing and evaluating progress within cost, schedule, and technical issues. Other guidelines include embracing EVM systems as integrated project management; adopting EVM as a management tool that integrates work scope with schedule and budge resources; establishing a performance management baseline; measuring work progress as an earned-value yardstick; isolating schedule and cost variances and reporting them to the project manager for corrective action. This allows projects to be managed on time and on budget. Finally, you should not treat the EVM as a specific system or tool set but as a set of guidelines of the company’s management control system.
Pros and cons of EVM
1. EVM presents information on schedule and budget in a graphical form that allows project managers and project stakeholders to learn the overall project status with a glance without spending hours on other documents to improve project efficiency.
2. EVM helps project managers make better judgments with more time to spare on project deliverable and customer satisfaction.
3. EVM displays a real-time project status at any phase of the project and facilitates material planning and resources allocation.
4. The estimated cost at completion allows project managers to optimize and plan for resources to complete within the committed schedule.
5. EVM is most appropriate for long-haul and complex projects where project risks are higher with more uncertainty.
1. Project managers and stakeholders can sometimes mistake the EVM for an ordinary S curve for project monitoring, so they need to have a basic understanding of EVM to really experience the essence.
2. Project managers and stakeholders must agree on the basics of BCWP, or Budgeted Cost Work Performed, reporting to ensure no over- or under-reporting of project performance.
3. Project managers must spare no effort to collaborate with other functional departments to identify potential problem areas, which may deteriorate the cohesive working relationship.
4. EVM requires additional checks and balances to ensure data inputs are reliable and real time from the system database. This means additional resources and costs, although errors and omission for date entries can still happen.
5. Not all the project management software packages include EVM, and not many can perform data exchange with the corporate accounting system.
6. EVM is not one-size-fits-all, and may not be suitable for small-scale, less complex, fast-track, and short-haul projects.
7. EVM must be top-down driven, and every department must play their part to support it.