Earned Value Management,Essay Example

Abstract

EVM has become very popular in today’s business environment where cost and project schedule changes without any prior notice. Cost variation and schedule difference creates great tension to project managers. Further these issues also cause huge loss for company. With EVM all these issues can be solved and project can be successfully completed on time for amount found at first. This paper explains the benefits of EVM and describes the importance of this method in present business environment.

Earned value management

 Introduction

Project managers face several issues and the most critical among them is the performance of the project. Two most common complaints from project managers are schedule overruns and cost which makes it impossible to complete the project at times. Most of these issues are caused by schedule slip or cost soar which is quiet unexpected and there is no way to explain the impact of such an issue. It is at this stage that Earned Value Management (EVM) can be of help to project managers. It helps the project managers to measure performance of a project (Henderson, 2007).

EVM has been used by defense departments, industry projects and government for years. With EVM project managers can check project progress and performance in objective manner. With this systematic process it is possible to find project variance on the basis of comparison of performed and planned work. EVM is useful in schedule and cost control and is very helpful for forecasting of project. All activities related to EVM need to have a project baseline which will be considered as a reference point for activities. During the decision making f a project EVM will provide with quantitative data (Robert, 2007).

Features

Implementation of EVM necessitates three conditions a project plan, planned value and earned value. Project plan must be able to identify the work that is to be accomplished. Planned work must be values and this is called as budgeted cost of work scheduled or planned value. Third condition is predefined metrics or earning rules for quantifying the accomplishment of work and this is called as budgeted cost of work performed or earned value (Robert, 2007). Other than these three basic features implementation of EVM for complex and large projects includes several other features like forecasts and indicators of cost performance both under and over budget and performance of schedule whether performance is ahead of schedule or behind schedule. Basically every EVM system requires progress quantification using planned value or earned value (Marshall, Ruiz, & Bredillet, 2008).

Benefits

EVM can provide with accurate forecast of problems associated with project performance. This is because EVM is able to combine schedule, scope and cost measurements in a system that is single integrated. Other than this EVM have several benefits.

EVM requires internal report for it is not effective or efficient to manage with a system and report from a different system. EVM necessitates that internal management control systems are used by the company provided internal system meets standards of management prescribed by company criteria. EVM requires that all works that are authorized and the resources related to it are integrated and defined with the help of a work breakdown structure that is product oriented. This will help the organization to coordinate and organize the contributions made by each area and make sure that schedule, work and cost are integrated properly. This method also helps in the formation of a database that can be used for comparative analysis. It can help in the creation of insights for managers (Kwak & Anbari, 2012).

Two tools used by EVM are Cost Performance Index (CPI) and Schedule Performance Index (SPI). Cost management is to be implemented at earlier stage for effectiveness. Schedule Performance Index (SPI) will help in identification of scheduled problems. This is more effective when it is used with information of critical path. This is because additional spending often resolves scheduled problems. Later issues likely to arise of cost can also be predicted with adverse SPI (Robert, 2007). EVM recommends scheduling of work in a traceable form from master level of program in detail. Lower limit can also be fixed for final contract estimated and this is called as “Estimate At Completion”. This is helpful in planning as well as control matters. Along with this an upper bound that is reliable is also to be fixed. With EVM it is also possible to evaluate reasonableness of financial goals of contractors. Managers can evaluate critical financial goals reasonableness like completion of remaining work with in the cost that is targeted. EVM also helps to reduce overload of information by directing attention of management to problems that are most critical. This also encourages tailoring and variance thresholds to reduce chances of overload (Marshall, Ruiz, & Bredillet, 2008).

Biggest benefit is that EVM is a single system for tracking the project in terms of money, time and work. There is no need for project managers to learn multiple systems. EVM is capable of measuring actually completed work, forecasting completion date and cost, compare between project plan and actual performance and track budget of project on time. One examination method used by EVM is variance by which reason behind the difference between actual performance and projected baseline can be found out. There are three levels at which this can be measured. They are estimated to planned, estimated to actual and planned to actual. Process by which variance is determined is dependent on various factors like industry, standards set and parameters used. While analyzing variance it is necessary that the data is always verified. While conducting calculations it is necessary to have accurate and complete information. Difference found in calculations will help to understand how far project is from normal stage. It will also help to track down the root cause of problem (Henderson, 2007).

With the help of SPI and CPI current status of a project can be found out. It will help to find out whether the project is going out of track and to estimate the time frame and total cost. Early understanding of these factors will help the project to perform in right track and complete on time with in stipulated cost. SPI is used to measure all works that are performed as part of project and to calculate whether it is possible for the project to meet beat, meet or miss the date planned for completion (Makar, 2008). CPI is used by project managers of most cases as the most valuable metric of EVM. With CPI it is possible to measure the cost efficiency of a work that is completed. It can help you to understand whether the project is over or under budget during any point of progress. When changes are required by matrices used in EVM project manager will be able to adjust or change the work or budget to enable future performance of project as scheduled. This can be done with projections to achieve goal as set during initial stage. Matrices are also helpful to understand the issues or troubles during a project performance and they will pinpoint such matters (Kwak & Anbari, 2012). With such information project manager can take preventive measures to eliminate such issues or to reduce or avoid possibility of occurrence of such issues in future. Changes can be made in timely and flexible manner during any point of project performance at any stage from implementation and development.

EVM affects the areas of planning and control significantly in every organization it is implemented. Methodology helps to improve analysis of overall performance of project and scope definition. During recent years EVM has become very popular and is used in companies other than that of government or in government contracts. Importance of EVM is growing as it can help and surface in contract dispute substantiation (Abramowicz & Flejter, 2009).

 Sensitivity

Schedule risk analysis output are some measures with which degree of activity is sensitively and critically defined. With these measures it is possible to view critical path black and white and thus understand whether an activity is critical or not to a certain degree of sensitivity (Abramowicz & Flejter, 2009). These are as follows.

Criticality Index (CI) is used for measuring the probability of an activity whether it is on critical path or not. Significance Index (SI) is used to measure an activities relative importance. Schedule Sensitivity Index (SSI) measures an activities relative importance on account of CI. Cruciality Index (CRI) is used for measuring the correlation between total project cost/duration and activity cost/duration.

Each of these measures helps the project manager to get an idea about the sensitivity of activity towards total cost or final project duration. It is on completion of simulation run that sensitivity measures values are available and they are used as triggers for focusing on risk activities that need greater attention for achieving success of project fulfillment (Makar, 2008).

Conclusion

EVM thus benefits organization by helping it to complete projects on time. With the help of EVM project managers can find out whether there is any lag or deviation of project at any stage. This also helps projects managers to avoid any extra cost during different stages and thus avoid any loss or extra cost for project fulfillment. They can also know whether project is achieving its targets at various stages and whether it is able to complete it on time. Thus on a whole EVM helps in successful completion of project on time at estimated cost and thus reduces the burden of project managers.

References

Abramowicz, W., & Flejter, D. (2009). Business Information Systems Workshops:BIS 2009 International Workshops, Poznan, Poland, April 27-29, 2009, Revised Papers. Heidelberg: Springer.

Henderson, K. (2007). Earned Schedule: A Breakthrough Extension to Earned Value Management. PMI Asia Pacific Global Congress Proceedings (pp. 1 – 10). Hong Kong: http://www.earnedschedule.com.

Kwak, Y. H., & Anbari, F. T. (2012). History, practices, and future of earned value management in government: Perspectives from NASA. Project Management Journal , 77–90.

Makar, A. J. (2008). Assessing Critical Success Factors in Earned Value Management. ProQuest.

Marshall, R. A., Ruiz, P., & Bredillet, C. N. (2008). Earned value management insights using inferential statistics. International Journal of Managing Projects in Business , 1.

Robert, M. (2007). The Contribution of Earned Value Management to Project Success of Contracted Efforts. Journal of Contract Management , 21-331.