What You Need to Know About EVM and What It Means for a Business
Originally created to refine the manufacturing process, the United States government selected one of the earliest forms of Earned Value Management (EVM) in the 1960s as its methodology for tracking cost and schedule performance in a missile program. It was so successful, giving project management teams insight into cost and schedule issues and trends, that it was adopted as the process for most of the government’s major development programs.
EVM is a set of project management best practices, not an additional set of tasks, which are performed along with the “normal” project management functions – to plan, execute and assess the projects performance against the plan. This integrates scope, schedule and cost, and allows for an objective measure of project health.
Why Use EVM?
Reasons for using EVM can vary. It can be as simple as the client requires it, or there was a previous project failure that resulted in cost of schedule overrun that reduced profitability. According to the 11th Annual Deltek Clarity Government Contracting Industry Study, 48% of study participants cited accurate project cost forecasting as a top challenge. Participants also reported a decline in projects completed on or under budget. When used, EVM can improve the likelihood of project success. EVM offers many benefits to the organization, including:
- Accurate forecast of project completion and final cost
- Objective measurement of accomplishments against scope, schedule and cost
- Early warnings to delays or overruns
- Information about schedule and cost variances during the course of the project
- Minimizing small changes in the plan that can become large over time (scope creep) and that can reduce profitability
- Improvement in the control of contract performance.
Considering implementing EVM into a business practice? Start with some basics. Establish the scope and define what is to be developed and delivered. The result will be a statement of work (SOW) document and is the basis for schedule and cost. Next, break down the work. – A work breakdown structure (WBS) is a product-oriented hierarchy that breaks your project into manageable phases of work. This is the foundational reporting structure for the project, so it should include elements that cover the entire scope of the project. Which leads to the creation of the organization breakdown structure (OBS), a functionally oriented hierarchical structure used to identify organizational responsibilities within the project.
Defining control accounts becomes the primary management point for your project. It is where the budget for each part of the scope is established, earned value is analyzed and actual costs are collected. It is traditionally defined as the intersection between the WBS (what’s going to be done) and the OBS (who’s responsible for doing it). As does creation of a schedule. A project schedule needs to contain all the time-phased activity needed to deliver the entire project scope, as well as assigned budget for each activity. Once all the activities, durations and relations are tied together, you now have the integrated master schedule (IMS). These activities can now be compiled into your scheduling software to create the project schedule. Updating the IMS regularly will help identify elements that are ahead or behind schedule. This maps directly to the WBS, providing the project team a single point of reference for all activities.
Next to the IMS, creating a budget is one of the most important basics. All project budgets are time-phased, which means there is a specification of when the money will be spent. This allows a team to calculate how much needs to be spent for each identified time period of the project. After this is established, you need to resource load your schedule by figuring out which resources are needed for each step. Resource loading your schedule is optional but considered a best practice for EVM.
One of the fundamentals of EVM is that the schedule must integrate with the cost. In other words, if the schedule says you need to finish on January 30, the budget should also end on January 30.
This basic knowledge of the project management principles is essential to understanding EVM, and now, you are ready to go. Still not sure? Still have questions? See how Deltek can help ensure consistent and accurate reporting across projects of all sizes within an organization.
This post is the first in a series discussing all things EVM, geared for those project professionals considering the implementation of EVM for the first time.
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