Earned value management (EVM) emerged in the 1960’s in the Department of Defense. When the federal government funds a project, it wants to know if it’s getting its money’s worth. And, that’s not such a bad thing!
For those of you who have lived your entire life without ever hearing about earned value management or earned value analysis, let me reduce it to the basics. Earned value management is a complicated project management technique for measuring what we’ve actually done against what the work has actually cost. It looks at the intersection of scope, schedule, and costs. Some people think it’s really important. I think it’s time to rethink earned value management and I’ll soon tell you why.
To use EVM well, a project manager needs four things:
1. Project budget – This is typically the original budget; occasionally, there might be enough change in a project to warrant starting over and revising the budget.
2. Actual cost – How much has been spent to date? This value can be periodically understated when companies use independent contractors who are not entering time on a daily basis.
3. Earned value – This is the value of the work that has been done to date. It is one of the foundational metrics for all earned value analysis, and can be a very flawed metric on certain types of projects.
4. Remaining work – this is tough when the future is unknown and the work hasn’t evolved.
To calculate earned value on traditional projects, we need to be able to estimate progress. It’s relatively easy to estimate progress when the activity is to install 50 windows in a house. You can simply count the number of windows that have been installed.
It’s harder when you are measuring progress on software development. Maybe you can come up with something, but it won’t be as accurate as the windows example.
Now, if you are trying to measure progress on a training manual that you are writing, and six people have to approve the final manual, good luck!
While EVM produces a number of nice sounding data points, earned value is the base of many. When that metric is flawed, and it often is, the rest of the data points are meaningless.
So, why spend time on earned value management? Because we need to know how much more this project is going to cost. And it might be nice to know when you are going to have to pay out those monies. Maybe we need to rethink earned value management. Here’s why.
Frequently, teams can’t always estimate the progress they’ve made.
In projects today, teams are often flying by the seat of their pants and at the end of the month, they look back and wonder if any progress has been made. When activity deliverables have to be approved by multiple people, the work product is not done until everyone has approved it.
Self-managing teams can improve team performance over time.
The premise behind self-managing teams is that teams can improve their effectiveness over time. Thus, we can’t use the speed at which the team has worked in the past to predict the future. Earned value management, as it is currently done, gives no credit for improving team performance.
We work in a world of changing resources.
While I applaud the increased focus on self-managing teams, I’m also pragmatic. In technology projects, we may see teams that form and stay together for long periods of time quite successfully. Those teams likely work more effectively than the new team that has just been brought together to solve a new problem.
The business world lives in a world of changing resources. It could be that you use outside contractors, who may experience long periods of unavailability, or your projects use large numbers of subject matter experts, who are more committed to their own research/work than your project. You may even be using volunteers.
To use EVM successfully, the project manager has to schedule the work based on the availability of the people who will be doing the project. Increasingly, smart people cannot give you a schedule of availability. They are in demand, and juggling a lot of balls. Without that schedule of availability, EVM is unreliable.
Spending time on earned value management is time that can’t be spent on delivering products.
EVM can be fairly time consuming, particularly if the tools that you are using don’t do it for you. Even if you have tools that do some calculations for you, there is a need for judgment. For example, there are a number of ways to calculate the estimate to complete, and the formula choice depends on the assumptions. Has so much changed that the original budget needs to be re-estimated?
Does this subject interest you? I’d love to chat about it. Give me a call.
