Some types of projects are not a good fit for Earned Value Management (EVM). Short-term, low-risk, or agile development projects, for instance, would not profit from a full Earned Value Management System (EVMS), but they might from a scaled-down or customized one. Earned value management, however, is very beneficial to most projects, particularly those where there is a risk to timely and budgeted delivery and where schedule and cost need to be controlled.
Here are five benefits of earned value management (EVM) for your project:
EVM is an Excellent Measure of Progress
Anybody with a stake in a project will want to know how it’s going at any given moment. For such, an earned value management system can be useful. Status information is usually given as a percentage of completion. However, what does it imply when someone declares that a project is half way finished?
Now? Does a project that takes six months to complete at 50% mean that three months have passed?
How much? Does 50% completion indicate that 50% of the funds have been used?
Projected Advancement? Does the project manager’s estimate of 50% complete signify that just 50% of the work has been finished?
The reason the three descriptions above don’t seem like an acceptable way to report progress is that none of them actually do. Nevertheless, project progress is constantly estimated using these techniques. When late in the project it becomes apparent that it will not be finished on schedule or within budget, this frequently results in shocked and unhappy stakeholders.
This issue is resolved by EVM, which offers unbiased percentage completion measurements. First, it accomplishes this by mandating the division of projects into manageable work units with deadlines. Work packages may occasionally be further divided into milestones or completion phases. The budget (in hours or dollars) is then used to assign a weight to each finished work package and/or milestone. This weight may then be summed up using the work breakdown structure (WBS) to produce an objective percent complete that takes into account both the actual work that has been accomplished and the budgeted value of that work.
Earned Value (EV), also known as Budgeted Cost of Work Performed (BCWP), is a measure of progress represented in hours or dollars, and it is computed using an objective percent complete. EV is a performance statistic that can be used to compare actual costs to anticipated expenditures or to schedule variances to calculate cost variations. These deviations serve as the foundation for Earned Value Analysis, a useful tool that helps project managers anticipate costs and schedule at completion as well as identify and quantify cost and schedule concerns.
EVM Enables Accurate Forecasting
When a program is only 20% complete, the Cost Performance Index (CPI) can reliably forecast the final Estimate at Complete, according to a 1977 DoD study of 400 programs. Similar findings were found in an updated study conducted in 1998 by Quentin Fleming and Joel Koppelman, which included over 700 episodes. Over the years, other research on this subject has been carried out using somewhat varied criteria for somewhat different outcomes, but all of the studies have reached similar conclusions. The CPI will eventually level out and become a reliable indicator of program costs when it is over; typically, this occurs before the program is even halfway through.
One of the most effective forecasting instruments for development programs with a high degree of risk is still an earned value management system. Convincing evidence from the aforementioned studies indicates that past performance can indeed be a reliable indicator of future achievement. By utilizing high-quality EV data to predict completion costs, stakeholders in projects can effectively allocate resources, including funding, to guarantee projects provide the required benefits. They can also make appropriate portfolio adjustments to guarantee organizations succeed.
EVM Supports Management by Exception
Although producing high-quality EV data requires some effort, one of the main advantages is that it frees up project managers and other stakeholders to concentrate on the issues that provide the greatest risk to budget and schedule. This entails spending less time on issues that won’t really affect projects and more time on items that will enhance their results.
A project manager can dig down through the work breakdown structure (WBS) using business intelligence tools to determine which tasks are most responsible for schedule and cost deviations. A project manager can monitor the success of corrective efforts over time and continue to make adjustments where necessary by using trend analysis.
EVM Promotes Good Project Management Disciplines
EVM is a methodology for project management that combines scope, cost, schedule, and risk. It is necessary to use industry best practices to all four of these dimensions in order to generate high-quality EV data and use it to run the project efficiently.
Strategy: An effective critical path plan that is well-constructed, resource-loaded, logical, and has few constraints will be a great tool for projecting when deliverables will be completed and how much resource will be needed. A timetable of this kind is also required in order to establish the time-phased Performance Measurement Baseline (PMB) that will be used to assess the performance of electric vehicles.
Cost: An accurate estimate of funding requirements and a spend plan are provided by a well-phased budget and forecast that is created from a schedule with a lot of resources. By gathering actual costs at the WBS level where project performance is examined, issues can be found, forecasting can be improved, and relevant information can be gathered for future estimate improvements.
Scope: Accurate planning, ensuring that all project needs are satisfied, and providing an objective basis for tracking progress are all made possible by breaking down the statement of work and requirements through the project WBS and creating a WBS Dictionary to document the scope at a detailed level. Establishing a baseline change control procedure makes ensuring that projects don’t get derailed by activities that are outside of its scope.
Risk: Project risk management is evaluating how risks may affect costs and schedules and putting mitigation plans in place to lessen such effects. A more precise study of the effects on costs and schedules, as well as change management, are made possible by the identification of schedule activities linked to risks and mitigations. Including risk and uncertainty in the budgeting process guarantees that funds will be set aside for mitigations of project risks as they arise.
EVM is Cost Effective
A government-mandated EVMS is expected to cost 0.9% of the contract cost, according to a 1994 Coopers & Lybrand and TASC research. The majority of contractors already have management systems that include many of the components of an EVMS, according to a 2016 Joint Space Cost Council (JSCC) survey. As a result, the cost of the difference between an existing system and a fully compliant EVMS is significantly less than 0.9%.
Although there isn’t a magic pill that guarantees all projects are completed within budget, investing less than 1% of the program’s total budget on an efficient cost and schedule control system with EVM is a fantastic place to start. With very little additional cost, program managers may make timely, focused, and effective decisions that yield quantifiable benefits thanks to the information provided by EVM.
Are you thinking about putting Earned Value Management into practice, but you’re not sure where to begin? We must assist. Arrange a Call With Us to Discover More About The Possible Advantages of Earned Value Management for Your Business.