Plain and simple, no project manager wants to find himself in charge of a catastrophic project that deviates from the approved budget and delivery deadline.
Imagine that the budget is 36.75 billion U.S. dollars. But when the project ends–Six years later than planned——The cost soared to 105 billion U.S. dollars.
Yes, this is 186% higher than its planned value, which is essentially a disaster. This actually happened in the International Space Station project.
Good news, if you move to a project management discipline like this Earned value management, Can avoid similar crises.
This guide will provide you with everything you need to understand earned value management and how to use it to measure project performance and progress to ensure better results.
Why is earned value management so important
Earned value management or EVM is a project management method that combines schedule, cost, and scope to measure project performance-by enabling project managers to predict the situation and adjust accordingly, each aspect helps keep things on track.
It allows you to calculate the cost and performance consumption rate, which helps you understand how the project is performing compared to the original plan. Using the value management method, you can calculate the following:
- Where is the project?
- Where is the project now?
- When is the project going on?
The EVM has four main components that can provide you with key insights. they are:
Completion budget
The budget at completion is the sum of all budget activities scheduled to a specific date. It can be the current amount or the accumulated amount.
Budgeted cost of planned work
The budgeted cost of the planned work, also called the planned value or PV, represents the total budgeted cost of the work performed according to the plan. Just like the budget at completion, the budgeted cost of planned work can be current or accumulated.
Budgeted cost of completed work
The budgeted cost of the work performed, also known as earned value or EV, shows all tasks completed so far. It depends on your current status.
Actual cost of work done
The actual cost of the completed work represents the total actual expenditure for the tasks completed so far. Again, this can be current or cumulative.
By looking at all the different elements mentioned above, you can decide whether the project is going on as planned or over or under budget, and you can view both aspects of performance.
Applying these numbers to remaining projects or future work, you can predict the results in terms of cost, performance, and scheduling-assuming no fluctuations in consumption rates.
There is no doubt that the whole thing is a big assumption. This is why you must be flexible and understand how changes affect these elements.
All in all, EVM can help you complete on time and on budget.
By comparing the current state of the project with the original plan and forecast, you can use it to track the costs and progress associated with the project. This, in turn, can help you make critical adjustments to make your project more likely to succeed.
Benefits of earned value management
Listed below are the seven main benefits that can be gained by adopting this project management strategy:
- Better early planning
- Maintain objectivity by knowing where your project is currently and where you planned it at the time, as well as the amount of work your team actually completed and the amount of work you planned to complete
- Simplified project management
- Increase accountability, managers and employees honestly and accurately track time and report their progress
- Identify problem areas early in the development and implementation phases to facilitate progress
- Better predict problem areas
- Help improve employee morale and make your team more agile
The key here is to check the total value (earned value) added by the work done at a specific point in each phase of the project. Then, the project manager can “micro-plan” the project without micro-management to control the budget and progress of each step.
use Project management software tools It is always a good idea to increase productivity and ensure better results without delays or errors.
For example, let’s talk about Aston Martin.
The luxury car manufacturer company relies on the EVM tool Microsoft Office Project to collaborate and deliver new and innovative cars with greater efficiency and resources-from concept to production.
Everyone has their own independent activity plan about what they must do in their respective departments. Then aggregate it in the cloud, so that everyone can see an overview of all the activities and progress of each vehicle. Everyone involved in the project can see and monitor every step required to push the car to the end.
Aston Martin Lagonda Project Management Director Mark Stringer (Mark Stringer) Point out Microsoft Project can help them find problems before they occur in processes or personnel, making it easier for them to find and correct errors early.
Therefore, the entire team can be more efficient, make more informed decisions, and even reduce the cost of putting the product into production. Each one helps them become more profitable businesses.
Similarly, you can also use EVM software tools to better predict the situation, which may create miracles for your company’s survival.
How to improve earned value management today
Earned value management involves measuring and measuring project performance and progress according to a clearly defined plan. This is why you can only use EVM in organizations with certain key elements.
Below, we discussed five ways you can improve and value management today. Let’s take a quick look.
Accurately identify the “what” element of the project
You must carefully analyze and determine the scope of the project, as well as requirements and scope definitions. To this end, we propose to develop three key documents:
Work breakdown structure (WBS). You can create WBS by dividing high-level deliverables into smaller work packages. It is a graphical representation of the work that clarifies the scope of the project.
Organizational breakdown structure (OBS). You can create an audience, such as an organization chart, to show people, teams, and departments with hierarchical structure, rules, and responsibilities. This document mainly represents the “who” element of the project.
Responsibility allocation matrix (RAM). You can insert WBS and OBC to create a RAM document that accurately defines the tasks that the phone will perform. You can then use these mappings or control accounts to measure the progress of future phases.
Improve planning, scheduling and budgeting
EVM aims to specifically define the project baseline and set parameters to help monitor and control the project throughout its life cycle.
For example, WBS is a good starting point for the planning phase. You can group multiple activities under one work package, and then group multiple work packages under one control account. You can also assign an account manager to each control account to monitor the overall progress.
At this point, you should be able to define “when” elements for high-level and low-level milestones, and assign deadlines to each activity.
Ensure that the total budget is allocated at each activity level within the work package, including labor, materials, and subcontracting costs. It is also wise to increase the allocation of management reserves for unexpected areas.
Consider “actual” costs
The cost calculation under EVM is very comprehensive and aims to measure the actual cost of the project. It is important to have a system that tracks costs at the job level to accurately measure progress, but it is not without fair challenges.
For example, you may incur or pay actual costs later instead of liquidating them immediately. However, you must allocate a portion of this amount in advance to calculate earned value. Therefore, it is best to consider accrued fees and avoid similar booking delays.
Analyze and report project performance consistently
You should report PV, EV, and AC calculations consistently to ensure that every team member, senior leader, and client can fully understand the progress of the project. This will also enable you to determine the corrective actions you must take as a measure of the baseline and reported numbers.
Another trick is to carefully define your variance threshold. Whenever the cost performance report indicates a threshold violation in the control account, doing so will help you easily identify the problem area.
Modify project baselines only when necessary
Always maintain flexibility when designing the project baseline, especially when dealing with problem areas during the project. After all, you cannot modify the baseline every time a task is delayed or overspend.
In the case of authorized changes in project scope, cost, or schedule, it is best to limit baseline revisions. Rate fluctuations are also acceptable conditions for modifying the project baseline.
3 best practices for earned value management
The following three best practices can help you get the most value by adopting an earned value management system.
Use an independent third party for EVM analysis
Hire an independent third party with the necessary qualifications to conduct a needs analysis. It is best to look for practical “doers” who have used complex project management software before and have experience in integrated baseline review (IBR), EVMS compliance review, and supervisory review. Experience with extensive scheduling, cost management, performance analysis and risk management tools is another advantage.
It is best for experienced practitioners to have an internal understanding of what is clicked and not clicked. This can help you maximize productivity and avoid crises more effectively.
Maintain and regularly update the EVM system description
Through the EVM system description, you can understand every activity required to meet EVMS standards and functions. You can also communicate more effectively with customers and audit teams within your organization.
The system description should define the management process and include detailed procedures that define specific steps.
Although the government has no specific requirements for the EVMS description, you must prove compliance. Companies usually do this in the form of providing a description of the EVMS system and a comprehensive plan for contractors to meet the criteria.
Invest in a good EVM solution for your project
EVM is one of the most accurate project forecasting techniques, but it is still very complicated.
Fortunately, you will find multiple EVM solutions on the market that provide extensive support for all levels of EVM, from basic support for measuring project performance to ensuring compliance with EIA-748 standards. They can also make accurate calculations faster and organize all relevant data correctly.
In the meantime, please ensure that the software tools are seamlessly integrated with ERP and financial systems, as well as additional functions for tracking actual costs and resource expenditures.
There are various EVM software tools on the market, so you will not find yourself facing any lack of choice. Just make sure that your perspective tool fits your budget and integrates seamlessly with other processes and software you use.
This article was written by Daily Eggspert today.
