This series is designed to work our way from the basics of Earned Value Management (EVM), into the best practices, and eventually beyond, to explore improvements and advanced concepts. The intent is to provide a roadmap for those looking to learn about EVM, or for those looking to review their knowledge and stimulate their advanced learning in this field.

In this, Part 1, we will look at the basic concept of EVM: what is it? why is it useful? how is it used?

Management

Earned Value Management, at its heart, is a way of managing projects. One natural approach to managing a project would be to simply hold daily meetings, asking everyone on your project team what they are doing, and them giving them direction. You would be relying on your own skills and way of managing, your own methodology. What sorts of questions would you have? Likely, you would focus on some “what” questions: “what did you get done yesterday?”, “what are you planning to work on today?”, “what is important?”, “what can we move to lower priority?”, “what exactly does our customer want in the end?”. You would likely also ask some “when” questions: “when will you finish what you are working on?”, “when can you start this other work?”, “when can you get the materials we need?”, “when will the contractor be available?”, “when does the customer need the job done by?”, “when do you think we will be done the job?”. Furthermore, since project teams use labour, material, equipment, and other resources, you will likely be concerned with “how much money” questions: “how much did we spend yesterday?”, “how much have we spent so far?”, “how much money do we have left?”, “how much will the whole job cost?”, etc. After answering your many questions, you would then direct your team, helping to overcome obstacles, with the aim at staying on track.

If this example made sense to you, or if it seems to be at least a reasonable natural approach to managing a project, you already understand the purpose of EVM; it is simply a more rigorous methodology. As in most modern project management systems, in EVM, many of the “what” questions are bundled together into the category of “scope”. The “when” questions are represented by the category “schedule”. Finally, questions about money fall into the category of “budget” or “cost”. (Kloppenborg, 2012)

Many other important and vital categories exist in EVM and in the Project Management field, yet they all seem to find their way into these three from a management methodology standpoint. Safety; it needs to be in your scope, it needs resources and time allowed for in your schedule, it reduces risks and associated costs. Quality; it needs to be considered in order to meet scope specifications, it may require additional time to achieve, and these measures are sure to affect the budget. Environment; regulatory requirements must be included in the scope, approval will affect schedule, mitigation and management requires extra funds. Risk; is tied to each scope item, considers schedule impacts, and defines the budgeted contingency amount. As you consider how you manage projects yourself, looking at your methods through the lense of “scope / schedule / budget” may help you simplify your methods. That’s one of the keys to the success of EVM; it offers a systematic approach that clarifies and simplifies project management methodology. Many are tempted to overly complicate project management, as intelligent people are often tempted to do (Lebowitz, 2015). However, success is found in employing EVM as a systematic approach, relieving the team from spending valuable brain power on how best to manage, allowing everyone instead to focus their skilled energy on solving the problems that EVM helps to bring into focus.

Here we see the second benefit to Earned Value Management. EVM offers a methodology that helps organize a comprehensive project management system into a concise, clear, and cogent framework. By doing so, project teams are able to focus on problem solving, and less on problem identification. This has the further benefit of presenting future problems earlier, allowing the team more valuable time to react. Projects are by their nature emergency-making enterprises; it’s not a production environment where all problems have been ironed out. Therefore, we should all want to spend more time on solving problems in advance instead of reacting to them. This is surely less stressful, and history tells us this approach is also more successful in the end.

Earned Value

Morin (2009) reviewed the history of Earned Value Management, showing how it emerged from struggles with the useful, but limited, Program Evaluation and Review Technique (PERT) that was in vogue in the 1950’s and 1960’s. The PERT methodology focused on constantly re-estimating total project cost, including all money spent to date and a new estimate of the cost of all remaining work. However, large projects using PERT seemed unable to get an idea of how current progress was to be assessed. Instead, teams were busy constantly updating the estimates higher and higher. During this time, several ambitious and unprecedented large military projects were being undertaken, including the notable Minuteman Missile project. EVM was proposed as as a replacement for PERT, as it was able to bring focus to progress assessment:

“Earned Value is a concept – the concept that an estimated value can be placed on all work
to be performed, and once that work is accomplished that same estimated value can be
considered to be “earned.” The utility of this concept as a management tool is that the
summation of all earned values for work accomplished when compared to what was actually
expended to perform the effort can provide management with a comprehensible, objective
indicator of how the total effort or any identifiable segment is progressing”

Morin (2009), referencing A. E. Fitzgerald, “Earned Value Summary Guide”, Feb. 25, 1965.

Now we are moving from the “management” part of EVM to the “earned value” part. Earned Value is the foundational concept that allows the entire EVM methodology to function. The 50+ year-old concept, is simply a way to match current progress against what your initially thought it would cost. For example:

Earned value, then, is simply a way to measure current progress against your original estimate. Although a simple assessment, we can now easily ascertain many other aspects of our project. For one, we can provide what the PERT methodology did; we can easily estimate our total cost at the completion of the job by applying the money we’ve spent against the percent complete. 50% complete and $2,000 spent would mean we will likely spend another $2,000 to complete the job. This puts our estimated completion cost at $4,000. However, we can also score our current progress, something PERT could not. We have earned $1,500 of value, but we’ve spent $2,000 to get it. We have a cost efficiency of 1500/2000, or 0.75. In other words, for every dollar we spend, we are only getting $0.75 worth of our planned work completed. This is a good number to know. Our project team can now ask probing questions for tasks like this that show a cost efficiency lower than 1. In fact, you could sort all of your tasks in a spreadsheet by this number and the task total budgets. This will allow your team to focus on specific big impact issues.

For longer tasks, regular assessments can point out big issues early on. For example, if we have a 4-week task that has a budget of $1,000,000, assessment in the first week can show our cost efficiency and allow the project team 3 weeks to deal with a low cost efficiency number. Now, sometimes there is a strong urge to increase the original estimate once a large cost efficiency gap is found. In our brick wall example, we could say the estimator used an out of date number, and the brick layer contractor is working efficiently. In other words, the estimate is to blame, not the contractor. However, this urge must be resisted, or else you will break the foundation of EVM, and you will lose its benefits.

Planned Value

Now we need to dig deeper into the concept of “earned value”. Above we learned how EVM assigns a value to a task’s progress using its percent complete and its original estimated cost. The original estimated cost is referred to commonly as the “planned value” (PV). However, if the original estimate is bad, how do we trust our assessments? The answer is also simple, but not often stressed; the planned value is simply a reference point. In fact, I would go so far as to say it is expected to be wrong. Often, project teams have the urge to equate the planned value with something akin to: “an accurate estimate assuming all variables that should be know to an expert in this field“. As an example, for our brick wall project, a good estimate would be one that the brick layer may estimate based on his most recent similar work. However, EVM is not interested in the absolute accuracy of the estimate. Sure, we all want an accurate estimate to create a proper budget, but EVM is about managing the project after that estimate has been approved. Unlike PERT, EVM is not in the business of estimation, it is in the business of management. Instead, we should think of planned value like a surveyor’s reference point.

As the surveyor measures targets, all data points are taken in reference to a single reference point. If the reference point changes, then this results in one of two things: garbage data, or extra effort to tie together survey data taken from one reference point with data taken from another reference point. The more reference points you have, the more time you spend processing the data than analyzing it. For project teams, planned values are their reference points. Cost efficiency assessments over or under 1.0 should be expected, we simply need to disposition them, and possibly adjust our targets. For tasks that appear to have been under-estimated, we can report the new target efficiency (say 0.75) and the resulting estimated total cost (say $4,000 for our brick wall). Upon further assessments, we can look for further deviations from the new target. Further deviations would need another explanation other than estimation issues, and this may point to mitigating actions being required. Changing the planned value to maintain a cost efficiency score of 1.0 wastes precious analytical effort, and all too often invites managing or gaming the numbers to please clients and senior managers instead of managing the work. So, like the surveyor, project teams can work best with a solid reference point, without needing to change it as data starts coming in from their measurements. This maintains the simplicity of implementing EVM while still allowing project teams to track concerning trends.

In Conclusion

Earned Value Management is a simple project management methodology that is meant to focus project teams on managing work and progress rather than managing data and estimates. The concept of “earned value” allows a task’s percent complete to translate into costs, providing simple progress assessment while allowing current and future issues to be easily identified, sorted, dispositioned, and tracked. It’s a problem identification tool. Project teams who best understand this concept and how to use it consequently become better at identifying problems, and identifying them sooner. Using EVM as intended frees up project teams to spend more time analyzing progress issues and thereby more time solving such issues. Projects that have more problems solved, and solved earlier, are more successful. They cost less, take less time, and are less stressful for staff. In the next part, we will look further into some of the analysis tools EVM provides, along with specific terminology and assessment formulas. Further on, we will discuss limitations of EVM, and will end this series discussing updates and additions to EVM that solve these limitations.

References:

Kloppenborg, T.J. (2012). Contemporary Project Management, 2e. South Western.

Lebowitz, S. (2015). 7 surprising downsides of being extremely intelligent. Available at: https://www.businessinsider.com/downsides-of-being-extremely-intelligent-2015-8 (Accessed: Dec 23, 2021).

Morin, J. (2009). How it all began. The creation of earned value and the evolution of C/SPCS and C/SCSC. PM World Today, 11(12), pp.1-8.