Earned Value Management (EVM)

Earned Value Management (EVM)

Executive summary

Earned Value Management (EVM) is an essential tool for all project professionals. This tool is necessary because it performs various functions during the implementation and the development of the whole project. The tool is mostly used by project managers to track the performance of their respective projects by checking whether it is still confined within the planned budget and timing. This tool improves the overall performance of the whole project by ensuring that there is flexibility during the entire process. Managers can forecast the future status of their projects and takes the necessary precaution where they notice a challenge. The Earned Value Analysis (AVA) is an important process involving the computation of several calculations that are needed for the proper implementation of a given project. Such benefits of the EVM help project managers when developing and implementing their projects.

Introduction

Earned Value Management (EVM) is a tool used to manage and plan projects through evaluation and analysis of the performance progress and prediction of the potential outcomes. Exceeding the projected budget or exceeding the planned time are some of the challenges that project managers face when executing their tasks. Using the EVM can help the managers solve some of these challenges and put them a step ahead when tackling new projects. Managers can adopt this tool to ensure that the execution of their project is done objectively. It combines various aspects of a project to ensure such as scope, time, and cost to ensure that projects are implemented sufficiently. Using this tool, therefore, enhances the performance of the entire project. The principle of the EVM can be described as the positive predictors of project success. The EVM has become a very vital tool both in the government contracting sector and in the private sector. EVM can benefit a project in several ways, as discussed below..

1. Scheduling

In many instances, project managers are faced with several scheduling challenges that need solutions. Managers need to track various issues in real-time to ensure that there project succeeds. Therefore, EVM is an essential tool that can help managers achieve this by enabling them to give numbers and graphs in an actual physical form. Batselier & Vanhoucke (2017, p. 28-43) explained that EVM centralizes the project’s schedule along with the budget. Project managers can gauge the progress of their work at any step more efficiently; hence they can easily give their measures the objectivity of finances and time instead of having a subjective definition of the “on-going” stunt project velocity. At any stage, the project managers can get real-time information even when there is a derailment. If the schedule is altered, it becomes easier to take the necessary steps and bring it back on track. Even if the project managers undertake a high-level risk assessment, they need to adopt the EVM tool because it can pinpoint inaccuracies, which could only be noticed during the execution of the project.

2. Budget Accuracies

Sometimes the costs and time predictions projected for the execution of a project may be different from the realities. Such variation is caused by several factors such as cad whether, new taxation policies, new legislations, unforeseen obstacles, slow market, and change in client priorities. The schedule may be different from the original draft, and the budgets may exceed too. The project is regarded as a failure if it takes longer than the client expected (Kshirsagar & Konnur, 2017, p. 1275 –1280. In the same manner, a projected is regarded as a failure if it stills due to exhaustion of the budget, which was set aside. Project managers can use schedule variances and cost variances that point towards such exact scenarios to avoid such partial failures. To achieve this, they use the following simplified formulae which help them to compute the variances easily,

1. Schedule Variance (SV)= Earned Value (EV) -Planned Value (PV)
2. Cost Variance (CV)= Earned Value (EV)-Actual Cost (AC)

These variances should be measured at every stage to ascertain the correlation between the planning and the reality during the execution process. In case of any disparities, the necessary precautions should be taken to mitigate the damage.

3. Define real success

Employees play a key role in the execution of the entire project. Employees like knowing their impact and significance in the implementation of such projects. Besides staying within the budget and the proposed timeline, employees to be provided with tangible metrics that signify their efforts. For example, updating them on the progress of the project, like telling them that a certain percentage is completed, will keep them anticipating the final launch of the project. EVM is the best way to share the success of the project with them. The progress should be included in the portfolio analysis when multiple projects are being assessed. As such, the employees will be able to know which projects are likely to be successful and by what factors. This can be achieved by computing the following performance indices-

• Schedule performance index (SPI)= Earned Value (EV)/Planned value (PV)
• Cost Performance Index (CPI) = Earned (EV)/Actual Cost

.Improvement on the entire project management

EVM makes it possible for the management to visualize and centralize the project leading to a holistic improvement in the management cycle. The managers can notice any loopholes as early as possible and fix the problem to prevent a potential failure. Through the use of EVM, the management can notify the employees about an upcoming task and ensure that they are not caught off guard. The management is well aware of the task they need to execute before the whole project is completed. This gives clarity and a better sense of purpose. EVM is, therefore, a critical tool needed for the execution of any project.

5. project planning

Through EVM, it becomes easier to formulate project goals and objectives and how they will be achieved. An ideal project plan consists of a resource list, a risk plan, a statement work, and a project schedule, and all this can be achieved through the use of EVM. Project plans provide the management with a project path to be followed to ensure that the whole product is completed within the stipulated time. EVM helps in coming up with various project components such as the baselines, risk management, communications, resourcing, and management plans. The project plan will comprise of several components such as the scope change plan, process for issue escalation, communicators plan, and the management plan. The project baselines include the cost, scope, and schedule baselines, and all these can be computed easily through the use of the EMV. The schedule and the cost baseline include the time and the budget needed to complete the whole project. The use of EVM ensures that the whole project plan is well formulated, which leads to a successful and smooth execution of the project.

6. Flexibility

The results from the EVM metrics show the changes needed in terms of budgeting and timing, and the manager can, therefore, make all the necessary changes to bring the future performance of the project in line with the projections. Miguel et al. (2019, p. 622-628) indicated that such metrics help in identifying all the inherent challenges throughout the project. The managers prepare themselves by devising methods of tackling such challenges when they arise. Besides mitigating the troubles, the project manager can put in place the preventive measures so that the same troubles do not arise again. EVM allows the changes to be implemented flexibly during the implementation and the development of the project.

Significance of earned value calculations/analysis

The earned value analysis (EVA) is an essential procedure because it gives the management the necessary data for proper decision making. Kim et al. (2018, p.2691-2701) explained that EVA uses the work breakdown structure to prepare a Performance Measurement Baseline (PMB). The process of breaking down work into different elements is called decomposition, and the structure formed is referred to as the Work Breakdown Structure. WBS can be further broken down into smaller units referred to as the work package. The work package is, therefore, the lowest level of the WBS in a bottom-up approach. WBS gives a general idea of the project plan, including the budget, scope, and schedule. WBS helps in determining the PMB of the entire project. The planed cost is allocated depending on the authorized project budget. The cost value is assigned to each work element separately.

The following are some of the essential EVA formulae:

Cost Variance (CV) = EV-AC

Schedule Variance (SV) = EV-PV

Cost Performance Index (SPI) = EV/PV

Variance at completion Index (SPI) = EV/ PV

The above are some of the most important formulas used in EVA, and they play a key role in the completion of the whole project. These calculations help the manager in understanding the scope, cost, and schedule estimates and make all the necessary adjustments to sustain the whole project. These calculations are easy to understand and comprehend by plotting graphs and charts, which show the various trends. Through this, the managers can understand the main area of focus and give it more priority. According to (Vanhoucke & Colin, 2016, p. 127-140), Calculations are important if they give a realistic snapshot of the project status. They give the manager a practical solution with the current project in various stages. Through this, the manager can sue the results to predict the future estimates of the project. Calculations give an ideal impression of reality, and through this, the manager can identify the existing challenges and correct them. Some logical conclusions can be drawn from the project; for example, reasonable budget deficient, in this case, the management can set aside a reserve budget early before the whole project stalls. EVA is a common language for project professionals. The project professionals can use data from such calculations to help each other in completing their respective projects. Therefore, EVA is a crucial stage in the completion of various projects.

Conclusion

EMV is an essential tool during the implementation of various projects by various managers. This tool allows managers to visualize and track the performance of a project. This tool is used during the planning process to create baselines, and it is extensively leveraged during monitoring and controlling. It is the most preferred for complex projects where there is a high level of uncertainty. Earned Value Management is a systematic tool used in the manipulation of various variances in projects based on the comparison of the work planned and the work is done. It is a vital cost and schedule control tool, especially in the forecasting of the future during the implementation and the development of the entire project. The project baseline is an essential element of EVM, and it serves as a critical reference point for all EVM related tasks. In project decision making, EVM provides quantitative data needed to arrive at certain important decisions. Through proper decision-making, managers can reduce risks, prevent scope creep, enhance profitability, and ensures that there is better accountability. This tool improves the visibility and improving communication between the stakeholders involved in the implementation and the development of the whole project. This brings harmony between those involved in the implementation of the entire project hence ensuring the whole project is completed within its set budgetary and time limits.

The basic principle of Earned Value Management is ensuring that the value of a given project is ultimately equal to the amount of money allocated to it. It presents many tools and techniques for the management of a successful project. The EVM provides a method that ensures that the project is measured depending on the progress achieved. Using the progress made, the project manager is to forecast the date of completion and the total cost based on the trend analysis. Measuring the budgeted cost of work performed allows the project manager to calculate the performance indices and the schedule performance, which helps the managers to gauge the overall performance of the project at any level. The project manager applies these indices in forecasting how the project may perform in the future, assuming that the burn rates will not fluctuate. For earned Value Analysis to be complete, a solid and an extensive plan needs to be put in place. The project scope must be properly highlighted, including several components such as the statement of work, project assumptions, major deliveries, and project constraints. Robinson et al. (2018, p. 427) indicated that Work Breakdown Structure (WBS) is another critical project deliverable that ensures that there is a common understanding among the stakeholders. WBS is executed by the projected team to create the required deliverables and also accomplish the project objectives. As seen, EVM is an essential tool that every project manager needs to complete is a project within the projected time and budget limits.

References

Batselier, J., and Vanhoucke, M., 2017. Improving project forecast accuracy by integrating earned value management with exponential smoothing and reference class forecasting. International journal of project management, 35(1), pp.28-43.

Vanhoucke, M., and Colin, J., 2016. On the use of multivariate regression methods for longest path calculations from earned value management observations. Omega, 61, pp.127-140.

Miguel, A., Madria, W., and Polancos, R., 2019, April. Project Management Model: Integrating Earned Schedule, Quality, and Risk in Earned Value Management. In 2019 IEEE 6th International Conference on Industrial Engineering and Applications (ICIEA) (pp. 622-628). IEEE.

Kim, C.W., Kim, T., Yoo, W.S., Cho, H. and Kang, K.I., 2018. Optimized Growth Curve for Estimating Performance Measurement Baseline Depended on Domestic Construction Facility Type. KSCE Journal of Civil Engineering, 22(8), pp.2691-2701.

Robinson, B., Ryan, M., and Abbasi, A., 2018. Analytical observations of work breakdown structure parameters. In Systems Engineering Test and Evaluation Conference 2018: Unlocking the Future Through Systems Engineering: SETE 2018 (p. 427). Engineers Australia.

Kshirsagar, A.B., and Konnur, B.A., 2017. Earned Value Management Tool for Controlling Project Duration and Budgeted Cost. International Journal of Engineering Technology Science and Research 1275, 1280.