Earned value management is a single system that is capable of tracking your project with regard to money, time, and work. With one earned value management system, the project managers in your organization do not need to learn and work on multiple systems. EVM offers more information than standard project tracking. It measures the amount of work completed, compares the project performance versus the plan, forecasts the completion date and cost, as well as tracks the budget in real-time.
The Benefits of Implementing Earned Value Management for Contractors and Customers
Earned value management facilitates communications on project performance, making it an efficient methodology for both customers and contractors. Considering that earned value management system provides real-time visibility into the progress of the project and opens lines of communication, it helps increase the confidence of a customer in a contractor.
Customers feel that an increase in communication gives them better control over deciding courses of action for a project. Corrective action may be crucial if performance trends are poor. Also, contractors are also well equipped to identify and resolve performance problems; thus, increasing customer confidence.
Similarly, contractors benefit from a few other practices related to earned value management system. For one, the emphasis on thorough planning and assessing the value of every component of a work breakdown structure can boost the quality of risk planning and the accuracy of estimates.
Requiring project managers to calculate the value of every project task increases the likelihood of detecting previous errors made in estimation. A thorough examination of the activities involved in each task can give insights into overlooked risks.
Project stakeholders are alerted to problem areas that may put the project at risk throughout the implementation and development phases. As a result, they can make the necessary adjustments to get the project back on track and in line again with the original plan.
How to Implement an Earned Value Management System
It is important to note that practicing earned value management becomes more complex as projects get bigger and more sophisticated. The size of your project is relevant to the tool you use to implement earned value management. Manual calculations or spreadsheets are enough if you are learning about EVM or using it in a small project. However, larger projects would require a more comprehensive, integrated system.
Earned value management is likely to be most relevant for large projects such as huge construction jobs or advanced defense systems. This is because a big project may comprise hundreds of participants, activities, and figures. Successfully applying an earned value management system requires software that can execute the essential processes. The software should also work with other financial and project management applications.
An earned value management system should have the capacity to accomplish core objectives, whether by formulas embedded in a spreadsheet or software. After all, the rules and standards may vary, and the EVM tool should be able to adapt to these variations. The following are core objectives that an EVM system must address:
Align time-phased budgets with a breakdown of project work. This is about assigning portions of the budget to all scheduled project activities. It defines the entire scope of the work as a set of exclusive elements through a work breakdown structure. After that, it assigns value to each of these work breakdown structure components, also referred to as work packages.
Create a baseline to analyze progress and cost. When each work element of your project has an assigned value, you can create a performance measurement baseline. It efficiently tracks expected expenditure as a project is executed over time. A project manager constructs a baseline according to the schedule network analyses, using relationships between activities to figure out the expected total duration of a project.
Provide valid, timely data to allow for proactive project management. Project tracking is about comparing the performance measurement baseline with the planned and earned value, and assessing any variances on a regular basis. It is typically aided by graphs, allowing team members to determine schedule trends and historical costs. It also includes forecasting future performance expectations.
Earned value management system is popular as it enables you to interpret cost and schedule performance data easily and make use of it as a basis for action. Often, small variations from the baseline are not a cause for concern. But, project managers will recognize when overruns turn from anomalies into trends and will utilize remedial measures where necessary.
Varying Levels of Earned Value Management System
Implementing earned value management comprises different levels, which are classified as simple, intermediate, and advanced. Determining the right implementation is generally a function of the total value, goals, and specifications of a project. This also includes the skills of the project manager and team.
Simple Implementation. It does not create a performance measurement baseline or consider the actual costs. What it does is simply tracks the earned value of a project without regard to a baseline. Such implementations are ideal for repeatable projects, for example, the construction of a model car, in which cost variance is low and the major consideration is comparing the rate at which value is earned.
Intermediate Implementation. This assesses performance with the use of a baseline. This kind of assessment is used for projects where the duration of the project and the time to completion are vital. With this, an intermediate implementation utilizes schedule network analyses to know the expected duration of a project, using that as a basis to analyze performance. Keep in mind that analyzing schedule variance is the top concern here.
Advanced Implementation. This one uses three metrics, which are earned value, planned value, and actual cost, to track and analyze cost and schedule performance. It covers a full implementation of the concepts of earned value management.
Projects can face problems like lack of clear goals cause scope creep, unrealistic time frames, eating up time, frequent changes in processes and plans, destroying your bottom line, etc. Ultimately, having an earned value management system allows you to make your project team more agile so that you can overcome issues, adapt, as well as come in on schedule and under budget.