Why You Should Use Earned Value Management

Earned Value Management is a sophisticated approach to assessing the progress of a projectEarlier in my career I remember reviewing a book on Earned Value Management and Analysis. It was well over 100 pages long. I thought to myself, “What have we done?”

Seriously. 100+ pages to describe a process to track project progress. To use in controlling costs. I began to long for the days when as a developer all I had to do was meet my timelines with quality working code.

Our firm had a reasonably straightforward approach to assessing project performance and progress. It was based on each Project Manager’s monthly calculation of estimates to complete. Then someone back in accounting would use these estimates along with actual expenditures, apply some black magic, and derive the revenue to be recognized. I was not sure what all corporate did with my numbers, but I always felt the exercise was for them, and not for the benefit of my project.

As we began to take on larger projects in the tens of millions of dollars, we found that many of our projects were not as profitable as previous engagements. Various analyses showed that our ability to estimate these larger projects needed to mature. Our Project Managers needed more training. But as we looked closer, it appeared that we were not particularly good at tracking and forecasting our progress. Without a more accurate picture of project performance it was difficult to make the necessary adjustments to stay on track.

Enter Earned Value Management. While the length of that book concerned me, I soon came to see the value of this technique.

I think for the first time I began to connect the dots among schedule, costs, and scope measurements to provide a combined view of project performance and progress. I could use past performance to help provide a reasonable projection of likely future performance. Estimates to complete the project became more refined. The process was helpful to the team in knowing where to make adjustments along the way.

However, it was not the process that accounted for more successful delivery. It was the judicious analysis and application of what the process told us that helped mitigate negative variances along the way. The process helped, but it was the expert judgment of people – our Project Managers – that used the process to improve our delivery success rate.

Why use Earned Value Analysis?

First, as noted above, Earned Value Analysis compares actual costs and schedule performance to the original baselined costs and schedule to expose any variances. Negative variances can then be dealt with before they become major problems.

In my earlier description of using project performance as input to revenue recognition, we would typically compare actuals to baseline costs without truly considering where we were on the project timeline. This, of course, was bound to skew our results. We operated under the erroneous assumption that costs when compared to budget (without relation to schedule) gave us a good picture of project progress. This worked fine when our projects were smaller, but soon failed us as we bid and won much larger engagements.

Secondly, Earned Value Analysis provides the IT team with a standardized methodology to measure project performance and progress. Estimates to complete based on schedule progress are an invaluable indicator of the estimate at completion as team members learn to estimate their remaining work more accurately. When used with other indicators such as SPI (Schedule Performance Index – the ratio of the earned value to the planned value at this point of the project) and CPI (Cost Performance Index – the ratio of the earned value to the actual costs at this point of the project), Project Managers can quickly determine where to make necessary adjustments to keep the project on track.

When every engagement uses this process, when practitioners employ it consistently, the rate of successful delivery is improved across the entire organization.

Thirdly, Earned Value Analysis goes directly to the heart of an IT provider’s ability to compete for projects. Similarly, if the IT provider is internal, Earned Value methods are valuable for the IT department to be able to maintain the confidence of its user base and senior management. In fact, in recent years it has become a requirement in certain sectors for IT firms to have a proven Earned Value Management process just to be able to bid on contracts.

IT providers that use Earned Value Analysis to recognize and stop scope creep, track progress more accurately, make better forecasts, provide better project accounting, reduce costs and/or increase profitability, and report to senior management with more confidence are at the forefront of the industry.

Why not use Earned Value Analysis?

There really is no good reason not to use Earned Value Analysis in the management of projects – unless the organization already has an effective management process in place. This is seldom the case, however.

Probably the best reason not to implement Earned Value Analysis is that many organizations flounder in their delivery because of poor basic project management skills. If an organization does not follow good project management methods in the first place, adding the sophistication of Earned Value Analysis would only serve to detract further. The organization must see the value of bringing its project management professionals up to speed. It must be able to manage its projects in a consistent fashion across the entire organization before tackling something like Earned Value Management.

I still believe that a book of 100+ pages to describe a single project management process like Earned Value Management may be overkill. However, the practice of consistently using it on every engagement is anything but.

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