Comment

December 2007

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

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.