What is Earned Value Management (EVM)?
EVM is a planning and control technique widely used in complex or government related projects/programs which uses the measurement and tracking of the project/program’s Earned Value to monitor its progress, alert to deviation from schedule and budget baselines, and forecast its completion date and final cost.
Earned Value (EV) is the intrinsic value of the work already performed on the project/program at a given moment in time, i.e. it’s the answer to the question: What did we get for the money we spent?
This EV is compared to the Planned Value (i.e. the value of the work that should have been performed if everything had happened according to plan), and the Actual Cost (i.e. the amount of money actually spent to perform the work).
Let’s take an example:
Why use EVM?
EVM is interesting because it corrects one of the main weaknesses of traditional techniques that use budget and actual expenditures as primary measures of progress: misleading indicators.
Let’s take an example: Project OX to develop a new electronic device has been approved with a duration of 6 months and a budget of 250,000$. The plan indicates that after 90 days, 60% of the budget will have been spent. The manager reports on day 91 that, indeed as planned 60% of the budget has been spent. A first reaction would be to say that the project is on schedule and on budget – everything is fine. However, this data could match several very different situations:
- The project is in fact on schedule and on budget.
- A prototype of the outer-case of the device has been produced as planned (and 60% of the budget has been sent to achieve this result), but unlike stipulated in the plan, the interior circuitry is only half ready and the device does not work; or
- The team made a breakthrough with the design of the device’s motherboard and finished the first prototype early. So they moved on with the plan and are already working on the second prototype.
This mismatch between the indicator and the actual situation is due to the absence of any measure of the real-life amount of work performed. EVM corrects that by integrating cost, schedule and technical performance.
In addition, EVM provides:
- A single system to provide objective and consistent status information,
- with a uniform unit of measure (dollars or work-hours),
- that can be rolled up from task to project and program level (which is ideal for managing complex projects with interrelated tasks which involve a large number of actors).
- “Early warning” signs that permit timely corrective action
- Forecasts about how the project/program is likely to perform in the future
- A consistent basis for benchmarking between projects/programs
However EVM is not the perfect solution.
Among its chief criticisms:
- Measuring and quantifying the work-in-progress can be complicated – different types of tasks will have different measures of progress
- Measuring and manipulating the data necessary for effective EVM monitoring can be very time consuming
- If a component of progress is inaccurately calculated, or two contractors involved in the same program use very different calculation formulas, the consolidated end result might be skewered and the conclusions wrong
- EVM is rife with not-very-intuitive vocabulary and mathematical formulas, and communicating the information to team members and stakeholders outside the team actively involved in EVM monitoring can be challenging
- EVM alone is not sufficient to monitor projects/programs, but must be combined with other methods for effective management
EVM Standards and Guidelines
To counterbalance these issues, several major institutions have published guidelines and standards, with detailed recommendations regarding setting up Earned Value Management Systems (EVMS). These include ANSI/EIA Standard 748 in the United States, DIN 69901 in Germany and BS6079 in the United Kingdom.
The US Department and Defence, Department of Energy, NASA, FAA and other technology-related agencies now require their contractors, in particular in the context of major capital-funded programs, to calculate EVM on a regular basis and to forward this information to the overseeing authority.