Ten Steps To Implement EVM

-- Vivek Prakash

EVM

It is an inherent objective of all projects to finish it within given time and budget. To achieve this, it is important that project manager should keep a close watch on the projects all the time. We as project managers need to see proactively the potential for cost overruns, hear about the risks, and speak about the likelihood of failure before it actually occurs. Project Managers have to measure variance and define trends. Take Actions to reduce the unwanted variances and the wayward trends.

Earned Value Management (EVM) is a program management technique that integrates technical performance requirements & resource planning, with schedules while taking risk into consideration. EVM is a methodology used to measure and communicate the real progress of a project, taking into account the work completed, the time taken and the actual costs incurred on completed work. Earned Value helps evaluate and control the project by measuring project progress.

Earned Value Management is a proven best practice in project management. It is an important part of PMI’s Project Management Body of Knowledge (PMBOK). PMP Exam invariably has some questions on EVM. EVMS includes integration of project scope, schedule and cost objectives, establishment of a baseline plan to measure variance and measuring performance during projectexecution. It provides a sound basis for problem identification, corrective actions, and re-planning.

Here is an 10 steps process to setup an earned value management system

1. Define project objectives in terms of technical, time and cost performance: Define what need to be achieved, quality of the end product, by when it is to be achieved and  the budget of the project.

2. Define scope in terms of WBS: Here we define all the deliverables and activities whose performances is to be  measured under EVM.  Thumb Rule is that if some thing is not in WBS, is not in the scope of the project.

3. List all the resources—Human, Material & other associate cost: Identify all skills for human resources, raw material required and all sort of cost associated with project like traveling, transportation, entertainment, food etc.

4. Setup a cost structure: Identify and assign a cost rate to each human and material resource. Estimate a planned cost for each incident of associated cost like traveling, transportation, entertainment etc.

5. Identify dependencies among various WBS items: Identify external & internal and mandatory & discretionary dependencies among various deliverables and tasks in WBS. (DSM can be used)

6. Prepare a plan: Develop a plan using above information like scope, resources, cost associated with resources and dependencies. The plan will give timeline for the project and for each measurable deliverable & activity. It will also provide who will do which activity and the planned cost for each activity.

7. Prepare a budget: Based on planned cost to be incurred on each deliverable and activity, prepare a time phased budget for the project. A time phased budget displays how cost will be incurred over a period of time during project lifecycle.

8. Baseline the plan: Before executing the project, freeze the plan by baselining it. It will provide a performance baseline against which progress of the project will be measured in terms of cost, timelines, committed dates and efforts .  This will give planned value (PV) of the project/deliverables/activities at any point of time during project lifecycle.

9. Collect the actual data: Execute the project as per plan. Hardly any project goes exactly as per plan, so some deviation may be recorded. Collect actual data on two parameters and updated in the plan for each deliverable and activity. 1. How much work is completed and 2 how much cost is incurred.

10. Measure, analyze and forecast: Measure and analyze variance  and forecast the future course at a regular interval. At any point of time when you are measuring and analyzing, your baseline will give planned value (PV), how much work is completed will give earned value (EV)  and how much cost is incurred will give you actual cost (AC). You can measure and analyze using following EVM formulas…

Cost Variance (CV) = EV-AC &

Schedule Variance (SV)= EV-PV

Cost & Schedule Perf. Index (CPI) = EV/AC &

(SPI) = EV/PV

And forecast using following formulas…

Estimate At Completion EAC = BAC/CPI  (there are other formulas as well in different conditions)

Here BAC is baselined project budget

Estimate To Complete ETC = EAC-AC

Variance At Completion VAC = BAC-EAC

S Curve: A graph is sketched with PV, AC and EV. As this graph comes in the shape of “S”, so called S Curve. It is a pictorial representation of project progress (Ref the figure)