4 Persistent Myths About Earned Value Management

Myths are great material for the movie screen. The lost kingdom of Atlantis, bloodthirsty vampires, or fire-breathing dragons: these are all the “good” kind of myth and will fill theaters. Of course, everyone usually knows that these myths are just that. The danger is when myths are confused with reality.

When large amounts of money, reputations, and even careers are at stake – such as in the execution of large-scale projects – risk aversion can easily blur the line with fear, and fear is where the “bad” kind of myth can take hold. Even when large-scale projects are failing at an unacceptable rate, change of any kind is intimidating, and the various myths that pervade business thinking can hold back progress.

Consider Earned Value Management (EVM) as an example. It’s proven time and again to be a highly effective forecasting tool, it makes for clear visualization of progress, and it reliably leads to better scope definition. So why isn’t it more widely adopted? Let’s debunk four myths about EVM.

It’s too complicated! Probably the most rampant misunderstanding about EVM is that it is synonymous with the EIA-748 guidelines for compliance with large US government contracts. Interested parties assume that EVM requires a complex and rigid set of processes for all projects, and so they avoid implementing EVM altogether.

Reality: EVM is a highly adaptable methodology. Outside of projects where the EIA-748 guidelines are specifically mandated, the level of effort applied can be tailored to fit the needs of a project. An organization can – and should – apply entirely different EVM processes to the construction of a power plant and a maintenance shed. Apply vigilance where it’s needed.

It’s too costly! The overhead expense – in both financial and labor resources – stemming from the implementation of an EVM system is an understandable concern for any kind of organization. Undertaking an added (and potentially very costly) expense for performance measurement is often looked upon as an unwelcome additional cost, rather than an investment leading toward cost reduction.

Reality: An entry-level EVM process can leverage information provided by systems most organizations already use for project management and project controls. If you can provide a well-defined scope, a linear time-phased budget, and actual costs, then you require no additional investment to get started.

It’s not sustainable! Again, the requirements of an EIA-748 compliant system imply a laborious level of detail that must be recorded and tracked to ensure an accurate measure of earned value. Organizations new to EVM, or with immature processes, would find this level of detail very burdensome. An EVM system relies on employees to accurately indicate times of productivity to measure progress. Within this data capturing struggle, many find themselves in a minefield of information, having to record data from different sources. Human error becomes a greater risk with this type of reporting.

Reality: At the most basic level, progress measurement can be captured as a basic percent complete from each person responsible for their part of the work. While it is subjective and vulnerable to those notorious “stuck at 99%” situations, it’s an easy way to wade into EVM with no additional work required in the project planning.

It’s not accessible! Another obstacle voiced by many is the unfamiliar terminology and formulas necessary to execute Earned Value (EV) metrics, making it difficult to train employees and difficult to translate findings for executive consumption.

Reality: The workers assigned to specific EVM calculations need only learn a handful of terms, and the formulas in question involve rudimentary math. “How much did we do?” compared to “How much did we think we would do?” is the fundamental question EVM asks. The answer translates quite easily into more descriptive “productivity” language, which is sufficient to capture the attention of stakeholders.

With even the most rudimentary implementation of EVM, organizations can achieve a number of benefits, including comparison against performance baselines, better forecasting, and scenario impact analysis, to name a few. It is a highly flexible, highly adaptable approach to project controls that can lead directly to improvement over time. To achieve the best performance, don’t rely on anecdotes. Do the research. EVM is legitimate.

For more information on implementing EVM that best fits your organizational needs, please refer to our white paper, “Adopting Right-Sized EVM to Drive Project Performance.”


Selling the C-Suite on the Predictive Powers of Earned Value Management

Selling the C-Suite on the Predictive Powers of Earned Value Management

A version of this post was originally published as a guest column for PMI’s PM Network

When Executives Pay Attention

Have you noticed that C-Suite executives tend to get religion about performing proper project controls exactly at the wrong moments? So often, project controls professionals receive the C-Suite’s full attention at one time and one time only – immediately after painful and embarrassing cost or schedule overruns have come to light.

It makes little difference that project controls leadership may have been passionately advocating for months for the resources and authority to roll out effective planning and controls processes and software systems. The executives tend to take a close look right when project controls is failing to fulfill its promise.

So how can project controls leadership take advantage of these moments to sell to executives the power of project controls and differentiate it from the back-office, after-the-fact reports coming from Finance?

In a word… forecasting.

Driving Predictability

Project management personnel in all industries can take a lesson from the leading Engineering, Procurement, and Construction (EPC) contractor firms. Their businesses have long depended on how effectively they control cost and schedule, and in particular, how well they forecast. The leaders in this industry have developed repeatable, standard rules for reporting progress by discipline and by task. Then, based upon that past performance, they can effectively forecast the projects’ Estimates at Completion (EACs).

Throughout these projects they are comparing work completed to work planned, as of a given date. If this sound familiar, it’s because that’s a definition of Earned Value. EPCs may call it progress measurement, productivity reporting, or tracking “earned over burned”, but in essence they are applying the principles of Earned Value Management (EVM).

And here’s the remarkable, CXO-sit-up-and-take-notice observation about EVM. Empirical studies have shown that when EVM is effectively deployed on a project, the project’s cost performance trend is known to stabilize once a project is twenty percent complete and “will not likely change by more than plus or minus 10% at the point of project completion.”1

Leveraging Software to Maximize EVM Results

Leading contractors and owners/operators in every industry are effectively applying EVM principles to projects of all sizes and disciplines, by standardizing the right level of EVM planning and EVM rigor to the various project types. Then they are letting their project controls software systems forecast cost and schedule based upon the early EVM results from these projects. As they execute more projects and learn from them, their ability to fine tune their methods for progressing and forecasting increases. Easy-to-use project controls software dashboards are giving management and even the C-Suite the ability to identify trends early, at the click of a button. And to drill-down as deep as they want to into the project data, within seconds, to identify problem areas, and learn what the project controls team’s corrective action plans entail.

Delivering Value to the Project and the C-Suite

If the project controls organization can repeatedly predict when the project will finish and for how much money, when just 20% of the way into a project, this is value that the C-Suite will pay for. What priority will the C-Suite assign to project controls initiatives for assurance that they won’t get a knock on the door, once it’s far too late, that they just far exceeded their capital budgets? In our observation, as enterprise project controls software systems have begun to efficiently deliver reliable project data to their fingertips, the C-Suite has taken note. Executives have begun to regard these as strategic planning and controls systems, delivering timely, predictive data that they can’t get from any other corporate system.

 

 

1 Fleming, Q.W., and Koppelman, J.M. (2006), Earned Value Management.

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