The Top 10 Secrets of Earned Value Management

What every public CIO should know about earned value management.

by / November 9, 2008

Project management continues to challenge IT executives. It's one thing for CIOs to expertly match IT solutions to their organizations' business needs, but a whole other thing to develop and implement the solution.

The Standish Group research firm perhaps first dramatized the challenge with the release of its CHAOS report, which found low success rates for many software projects. According to the U.S. Government Accountability Office, in the public sector, "at-risk" IT projects have also been reported as commonplace. There's no shortage of data about underperforming, troubled and - worse still - failed IT project efforts. CIOs responsible for IT projects continually look for - and must have - the latest project management tools and best practices to help them achieve operational and strategic success. Earned value management (EVM) is one methodology that's steadily gaining recognition for doing just that.

For the first 30 years of its existence, EVM was the exclusive tool of large, defense-related projects and was called cost schedule control system criteria (C/SCSC) . C/SCSC was a rigid application of project management rules as prescribed by the U.S. Department of Defense (DoD). In recent years, EVM has expanded into the U.S. private sector and abroad.

In 1998, EVM was adopted by industry and codified by the American National Standards Institute/Electronics Industries Alliance as ANSI/EIA-748-B, and in Australia as Australian Standard 4817-2003. The Japanese Project Management Association has also included EVM in its PM2 methodology.

In contrast to its early use, EVM has emerged as a flexible yet principles-oriented methodology that covers project management's life cycle.

EVM's use in the IT industry has already begun and is showing growth. Between 2000 and 2007, EVM's use in the IT industry grew from 7 percent to 11 percent, according to a research report I completed with EVM researcher E. H. Kim.

EVM has a number of benefits: IT executives can expect improved project delivery, increased return on investment and smarter resource allocation in the short term.

Equally important are EVM's long-term benefits to government strategy. CIOs can expect to further the organization's business objectives by ensuring that their project portfolios are properly, consistently and systematically managed, and that portfolio values are maximized while risks and costs are minimized. EVM offers IT executives a common platform for planning, executing, monitoring, measuring and controlling one or more projects simultaneously.

Much of what's found in print about EVM focuses on promoting its use, defining and interpreting the acronyms, or describing various projects that have applied it. But the following are highlights of lesser-known data about EVM. Here are 10 important points CIOs should know:

1. If a project has a scope, schedule and budget, EVM can be an effective project management tool. As long as the three main ingredients of a project are present - a defined scope, schedule and budget, also called the "triple constraint" - EVM can provide considerable utility.

However, if any one of the three basic project elements is absent, EVM will be of little use. That's because EVM relies entirely on the relationship of these three constraints (expressed as values in various formulas) in order to represent a project's past, present and future. It doesn't matter the size, type or nature of the project as long as its triple constraint elements are measurable. EVM's use over three decades has shaped the evidence in favor of its effectiveness.

There are a multitude of practitioner accounts and equally supportive research findings. From every angle, EVM's utility as a project management methodology has been substantiated and its contribution to the project's success validated.

2. EVM's principles are reliable predictors of project success. Underlying EVM is a handful of rules from the ANSI/EIA-740 standard. These principles have been shown to significantly and positively correlate with project success. This means that increasing the applied intensity of a project's EVM principles is accompanied by a rise in the success of that project, according to an article I wrote for the Journal of Contract Management.

The correlation makes practical and theoretical sense because EVM's principles cover many key aspects of solid project management. The power of EVM's principles to predict project success is comparable to the power of the popular Graduate Management Admission Test (GMAT) in forecasting graduate students' grades. Like the GMAT, EVM isn't the only indicator of success, but a reliable one nevertheless. Although other factors significantly influence project success (e.g., leadership, resources, etc.), just as other factors influence a student's success (e.g., motivation, persistence, finances, etc.), one thing is true: Good project management contributes to a project's success. And while you can have good project management without EVM, it doesn't work vice versa.

3. First and foremost, expert planning is required to use EVM effectively. Contrary to popular assertions, EVM is overwhelmingly a planning tool. That's not to say it doesn't impact accounting and control; it does. Most definitions of EVM overlook this point.

For example, according to the book Earned Value Project Management by Quentin Fleming and Joel Koppelman, one popular definition of EVM is "an approach that integrates the technical scope of work, the schedules and the costs, allowing for the continuous measurement of integrated performance throughout the life cycle of the project." According to the Project Management Institute, another definition is: "a method for integrating scope, schedule and resources, and for measuring project performance and progress."

Each specifically mentions measuring, which is a function of monitoring and controlling, and neither mentions planning. Yet research by L.S. Marella has shown that EVM's greatest impact is defining the work to be accomplished. EVM's significant effect on planning is due to the way in which work is scoped and budgeted using a "bottom-up, detailed work breakdown structure (WBS)."

Using EVM requires the ability to define, schedule and budget the entire body of work from the ground up. It's not surprising, then, that as a project's level of detail increases, the frequency of using EVM decreases, according to Kim. It's EVM's planning dimension that likely accounts for the common assertion that "EVM is hard to apply."

4. EVM works best in collaborative organizations where teamwork and frequent communications are present. Because EVM involves routinely collecting, synthesizing, analyzing and disseminating project information from the bottom up, the methodology requires effective coordination and communication throughout the organization in order to produce timely EVM data. This is less an issue on smaller projects, where members of the project team are often close and under one organizational umbrella. In larger projects, however, it can be a significant challenge.

Effective collaboration and communication links are critical when project teams are cross-functional, and many times cross-company, such that activities and personnel are often physically and organizationally separated. Project schedulers, job cost specialists, engineers, functional managers, planning and control specialists, and other key project personnel must be in frequent and close contact throughout the project's life. If an organization's separate entities don't work well together, it may not be ready for EVM.

5. EVM complement other project management techniques. While practitioners who use EVM overwhelmingly endorse it, it's but one tool among many for project managers and isn't meant to be used in isolation.

One technique commonly used with EVM is the critical-path method. EVM's WBS activities can be readily converted into a project network whereby the critical path is determined. The two techniques go hand in hand. Other techniques that can be used alongside EVM include Gantt and milestone charts, line of balance, standard delay impact analysis techniques, work authorization methods, quality control techniques and methods for determining management reserve amounts.

Using commonly accepted techniques in conjunction with EVM enhances the benefit of all.

6. EVM metrics are reliable. The most conspicuous attribute of EVM is its unique metrics for evaluating and forecasting project performance. EVM metrics have been a topic in project management literature for years. The metrics combine three dimensions of a project's performance - scope, schedule and cost - into unified performance measures, which differentiates them from other performance measurement methods and proves them to be realistic and accurate.

According to David Christensen and Kirk Payne in the Journal of Parametrics, research conducted by the U.S. Air Force in the early 1990s showed that a project's cumulative cost performance index at the 20 percent project completion mark doesn't change by more than 10 percent for the remainder of the project. On one hand, a stable cost performance index might indicate that a project's management controls are working effectively. On the other hand, if a project is financially underperforming at the 20 percent mark, it generally won't improve with time, unless significant corrective measures are taken.

In either case, when developed and calculated properly, EVM's metrics can be relied upon to provide insight into a project's performance.

7. Contract type doesn't influence EVM's benefit. The assertion that EVM is ideally suited for cost-plus type of contracted projects has long since been disproved. Policy development in most large, public organizations, such as the DoD, is the outcome of balancing the agency's interests, surrounding industry, congressional oversight and resource availability.

The DoD's use of EVM on 30 percent or less of its contract work was a compromise generally acceptable to all and not a reflection on EVM's utility. Recent research has shown EVM's benefit is actually greater on contracted projects where scope, schedule and costs are fixed, therefore making EVM effective with any project regardless of contract type.

The primary difference between implementing EVM on cost-plus contracts as compared to fixed-price contracted projects is the accounting dimension. Fixed-price projects have a less-intense accounting burden.

8. Retrofitting EVM after a project is under way is a bad idea. For every benefit EVM brings to project management, it can bring equally detrimental effects if attempted on a project that's in progress. EVM significantly affects the way a project's scope of work is defined and budgeted.

To a lesser extent, EVM affects how a project is scheduled. The main reason is EVM requires a bottom-up approach to defining the full scope of work by using a "deliverable-oriented" WBS focused on end products. To the contrary, most projects in today's industries are planned along the lines of the trades to be used, the functions to be performed or the process to be followed.

Attempting to redefine EVM's scope of work on a live project is tantamount to disaster. It will disrupt the work, organization (i.e., its resources, communications, milestones, budget and schedule) and ultimately the project's performance. The time to implement EVM is in the preplanning stages of the project or, in other words, during project initiation.

9. EVM's mechanics can be emphasized individually for maximum benefit. EVM's three fundamental techniques - the WBS, the S-Curve and its integrated metrics - can be emphasized individually in varying degrees depending on the project's circumstances, to assure optimal project planning, execution and control. For example, in cost-plus contracted projects, one way to control costs is to control the schedule, following the logic that "time is money."

EVM users have found the WBS makes an important contribution to developing a project schedule, which in turn allows better control of time - and as a result, better control of money. Likewise, when using EVM on fixed-price contracted projects, where the cost risk is less and performance risk is more, practitioners have found the WBS makes an important contribution to payment planning in order to incentivize performance and work accomplishments.

Similarly EVM's metrics have shown themselves as an important contributor to evaluating and processing the progress payment requests in fixed-price contract environments. Giving the three basic EVM mechanics individual attention, when needed, will help drive maximum project results.

10. Active, top-down support is required to increase EVM acceptance. The old adage, "what gets measured, gets done," has a corollary in enterprise project management: "What techniques get promoted, get used."

EVM will be accepted and used more readily when supported by top management. The obvious reason is that EVM requires resources to implement. On simple projects, EVM can be implemented using readily available tools, such as Microsoft Excel and Project. Smaller projects require minimal resources, time and effort. On more complex projects, however, such as those carried out by the largest public and defense organizations, more sophisticated technology, accounting and organizational support are required. Regardless of project size or type, staff will require training on the methodology.

Supporting the EVM effort from the top will go a long way in making it a commonly used tool and improving an organization's project performance.