Earned value is one metric frequently used to analyze project progress. The concept is simple: it is an estimate of the value of the work that has actually been done. Earned value is often combined with other metrics to estimate schedule and cost variances, as well as the estimate at completion. The problem is that we are using it on many projects where it has limited usefulness. I have a video which explains why construction projects are not like business projects. In this blog, we analyze several factors which can help you decide whether earned value is a useful management technique on your project.
Take this example: In a house construction project, consider several key activities:
- Pour concrete foundation
- Erect framing
- Staple in wiring
- Hang sheetrock
- Install windows
- Paint walls
Periodically, we need to estimate the work that has been accomplished. It’s relatively easy to walk around and count or measure the work that has been done.
Now, let’s look at a different project – a project to create a new website. Here are some activities:
- Develop site architecture
- Define purpose of each site page
- Write website copy
- Find photos or other visual files
- Create site mock-up – or define what is needed on each page
- Build pages
For these activities, no one can walk around and really count or measure the progress. Yes, files are created to layout the architecture, copy, purpose, etc. But frequently, these things change as more and more work is done, and so, the value of work finished on any of these items is very hard to estimate. And if the earned value estimate is substantially off, it will impact every other metric that is created to measure progress.
On projects where we are relying on human creativity to initiate, execute, and complete the activities on a project, earned value is simply unreliable. Several critical factors are worth considering.
Complexity of the project
There are a number of ways to measure project complexity but it’s often quite subjective. How many people are working on the project? How hard are the objectives? Are the project tasks new and innovative, or have similar tasks been done before? The more complex the project, the harder it will be to accurately estimate earned value, and the less reliable the data.
For example, planning a recurring international sporting event might be complex, but the activities have been done before. Developing a new piece of research equipment for fighting breast cancer would involve activities that have never been done before.
An e-discovery legal matter with highly repetitive tasks might profit from earned value analysis while a piece of unusual and complex litigation probably won’t.
Number of approvals
The most simple wedding reception will suddenly become complex when there are multiple sets of parents footing the bill. Suddenly, everyone wants a say on every decision. The same is true in the business world, and the construction world.
Generally speaking, the more people who have to sign off on each step of the project, the longer it will take, and the less reliable any estimate of earned value will be. When you are working with people who are in other geographic locations, speak different languages, and/or have different style preferences, you can count on delays and disagreements.
Rate of change in the environment
We live and work in a rapidly changing environment, particularly when technology is involved. Scope frequently changes. The “how to” often has to be reassessed. Projects may get cancelled or re-evaluated. This rapid change can complicate any earned value analysis.
There still seems to be a lot of support for earned value estimates and it is certainly being taught in project management classes. In construction management, it has value. I see far less value on business projects and other strategic initiatives.
Some companies are particularly interested in seeing earned value data, while others are not. If you have a choice, and your project is highly complex, unusual, rapidly evolving, or involves a large number of people, I’d skip the earned value analysis.
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