What Is Earned Value Management—and Can It Benefit SMBs?

by:
on June 27, 2016

Most organizations determine project success by how well a project adheres to the predetermined baselines for scope, budget and timeline.

However, many businesses—enterprise and small and midsize businesses (SMBs) alike—struggle with these constraints. Requirements get added and compromises to one of these areas often results in project overruns and failure.

Earned value management (EVM) provides organizations with a more structured approach for tracking progress against these baselines and categorizing project success.

Although more common in enterprise organizations, we’ll discuss in this article how SMBs can benefit from implementing EVM practices as well.

To learn more about EVM and its application in project management (PM), we interviewed Tim Boatwright, principal consultant for Ten Six Consulting, a firm specializing in implementing EVM solutions.

His expertise helps us answer the following questions:

(Click on a link below to jump directly to that section.)

What Is Earned Value Management?
What Are Some Earned Value Management Best Practices?
How Can Earned Value Management Software Benefit Project Managers?
Glossary of Earned Value Management Metrics and Terms

1. What Is Earned Value Management?

A technique for measuring project performance.

Earned value management (EVM) is a project management (PM) practice managers and stakeholders use to objectively measure performance and progress against a defined scope.

Managers measure performance using a set of metrics (see glossary below) to evaluate and control project schedule and cost over the life cycle of a project.

“Ultimately what you’re trying to measure is how far along you are with the scope. Schedule tells you how far along you are with time, accounting tells you where you are with the money. How you are doing against the scope is what earned value tells you.”    Tweet this quote

Tim Boatwright, principal consultant for Ten Six Consulting

According to Boatwright, earned value analysis is a project management best practice. Although it’s common for organizations at a level four PM maturity to practice EVM, Boatwright says that managers at a level two or three can start to implement it earlier.

“It’s easiest to start at the project level, and as you move up the maturity scale, implement EVM organization wide.”

PM maturity refers to the progressive development of an organization’s project management processes, strategy and related business goals.

PM Maturity Levels
project management maturity levels
Our research shows that of the thousands of SMBs we speak with each year, 60 percent are looking to implement their first PM solution.

Some of these SMB buyers may still be at a level one—organizations should have established PM processes in place before investing in software, but that doesn’t always happen.

But, the majority are likely at a level two and can benefit from implementing EVM at a project level.

Depending on the length and complexity of the project, Boatwright says managers and stakeholders should start to receive actionable data after performing about six months of earned value analysis.

This is roughly the amount of time it takes for trends to become apparent. Tracking this data allows teams to forecast future performance on the project.

“Ultimately, the trends will be fleshed out over a longer period. But after six months you have a pretty good idea on [whether] you are starting to zero in on execution, and if you are moving in the right direction with your earned value, your [cost performance index] CPI and [schedule performance index] SPI.”

Tim Boatwright, principal consultant for Ten Six Consulting

2. What Are Some Earned Value Management Best Practices?

Use graphic reports; focus on trends analysis.

At its most basic level, EVM is a technique that organizations can use to understand how they’re performing. The goal is that managers and stakeholders will have insights into how they can improve moving forward.

“Earned value is a tool to help you understand how you’re performing. If people look at it and use it that way as opposed to [as] a ‘gotcha tool’ it can be really beneficial,” states Boatwright.

Boatwright says that the best way managers can communicate performance and share earned value metrics with stakeholders is through graphic reports.

Reports, especially when shared via cloud-based tools, help centralize EVM data and allow managers and stakeholders to drill down and understand the data behind the metrics.

However, he cautions that one of the most valuable—and often missed—metrics for managers to share is trends analysis.

Trends analysis allows stakeholders to evaluate the consistency of project execution, to note any variances in the month-to-month delivery on schedule and cost performance.

“From a manager’s standpoint, there is a lot of focus on the point data, or ‘What is my CPI or SPI this month?’ But more valuable to a stakeholder is the trends. Trends not only with ‘Which way is my CPI or SPI going?’ but asking, ‘How consistent am I delivering month-to-month? How much earned value do I claim every month?'”

Projects inherently are more volatile at the onset than they are toward the middle. Boatwright says that a good rule of thumb is that once a project’s scope is 20 percent complete, stakeholders can expect to start seeing consistent numbers and consistent trends.

3. How Can Earned Value Management Software Benefit Project Managers?

It centralizes data and streamlines and automates data calculations.

While capabilities vary, EVM software typically includes:

EVM Software Capabilities

Schedule management Plan projects, allocate resources, track actual versus planned progress against the schedule. Calculate earned value scheduling metrics and perform scheduling analysis.
Cost management Create budget, allocate resources and track actual versus planned progress against the budget. Calculate earned value cost metrics and perform cost and budget analysis.
Reporting Perform high-level project data analysis and gain insight into performance. Drill down into data via various dashboards and customizable reports. Forecast current and future project performance.
Accounting integration Integrate with accounting platforms to ensure data transfer between systems and accurate reporting and analysis.

 

Note: Highly regulated fields, such as federal organizations, government contractors and aerospace industries, have strict compliance standards outlined under American National Standards Institute/Electronic Industries Alliance (ANSI/EIA) 748 guidelines.

For organizations and industries not governed by these guidelines, teams have more options for EVM software:

Scheduling tools, such as Microsoft Project, can help teams with a lower PM maturity perform basic earned value analysis and would be a good fit for SMBs at a level two PM maturity.

More advanced cost and EVM tools, such as Deltek Cobra, would be a better fit for teams at a higher level of PM maturity, such as a level three or four.

“When you start moving up and you start to look at organizational level earned value, then you need to look at an earned value engine.”

Tim Boatwright, principal consultant for Ten Six Consulting

Additionally, organizations may opt to purchase EVM software as an integrated suite that combines the capabilities listed above in a single solution. Examples of robust EVM software systems include Unanet and Safran.

For those purchasing standalone scheduling, cost management or reporting solutions, teams should first ensure the software integrates with the other tools in place at their organization. This helps guarantee seamless data transfer between applications.

4. Glossary of Earned Value Management Metrics and Terms

Many assume that earned value analysis is very complex. This is due in large part to the many acronyms and jargon that surround EVM calculations.

Luckily, Ten Six has waded through the jargon and outlined four key data points that can help calculate most earned value metrics. These four data points form the building blocks for EVM analysis.

The Building Blocks for EVM Analysis
EVM analysis building blocks

 

Example: Say a project has a total budget (BAC) of $20,000, and the work is planned in four equal phases. If the project is 50 percent complete the planned value, earned value and actual costs should, in theory, all equal $10,000.

Using these building blocks, you can calculate various EVM metrics, including schedule performance index (SPI) and cost performance index (CPI).

  • Schedule performance index (SPI) measures how efficiently you’re executing the project schedule, i.e., the return on invested time: SPI = EV / PV

If your earned value is greater than your planned value, this calculation results in a number greater than one. This indicates your project is ahead of schedule. If your earned value is less than your planned value, the calculation results in a number less than one, meaning you’re behind schedule.

Example: If your project has a total budget (BAC) of $20,000 and you planned to spend $10,000 by the time your project is 50 percent complete (PV), but instead have accomplished less than that, then your SPI calculation would result in a number less than zero, indicating you are behind schedule.
 
Schedule performance index = earned value / planned value
Schedule performance index = $8,500 / $10,000 = .85
  • Cost performance index (CPI) measures how efficiently you’re executing the project budget, i.e., the return on invested funds: CPI = EV / AC

If your earned value is greater than your actual cost, this calculation results in a number greater than one. This indicates your project will likely finish under projected costs. If your earned value is less than your actual cost, the calculation results in a number less than one. This means you’re earning less than every dollar you’re spending, i.e., project overrun.

Example: Say your project has a total budget (BAC) of $20,000 and you’ve accomplished 50 percent of the work (EV). If you’ve spent $12,000, your actual costs have exceeded your earned value.
 
Cost performance index = earned value / actual value
Cost performance index = $10,000 / $12,000 = .83

^ Back to Top

Next Steps

For more information about EVM software, visit our PM Buyer’s Guide to read reviews and compare solutions.

Or, email me at eileen@softwareadvice.com. I’m available to answer any questions you might have about EVM analysis or solutions.

You may also like

How Understanding Critical Path Can Drive Project Management Success

IT Project Management Tools – Buyer Report 2016

Project Management Software Buyer’s Guide

Get a FREE Custom Quote for Top Project Management Systems