Earned Value Management – A Very Simple and Effective Tool for Project Managers

Every morning waking up, have you ever asked yourself the following three questions which of PMs/TLs are responsible for? Firstly, where are you on project schedule? on time, late, how late, how early…? Secondly, where are you on the budget? currently using more than or less than estimated? How more and how less? Thirdly, where are you on the work completed? How much completed?

I got someone answered like below:

“Most of my project tasks completed as scheduled, so I am on track”

“Just a few tasks behind schedule, so I am ok”

But how about when many tasks are behind schedule, when and how to take corrective actions?

By using Earned Value Management (EVM), you will be able to answer like I’m currently ahead schedule 10% now, I’m over budget 25% and so I need to analyze to find corrective actions now, etc.

This article helps you to quickly understand the method which you can start using immediately. It will not go through all concepts of EVM.

1.       Background

EVM method is simple (actually so simple) because you only need to remember three elements:

·         Plan Value (PV): How much you plan to archive up to date.

·         Earned Value (EV): How much you have actually archived/earned up to date.

·         Actual Cost (AC): How much you have spent up to date.

Let do not think too much on these 3 elements now, just remember there are 3 elements, PV, EV and AC.

2.       Case Study:

I have trained EVM a few times, I realize one case study which is very good to get started. Let’s take a look on the article telling about Bill Gates’ 10 advices to young people

There’re totally 51 sentences in the article and I want it to be translated to Vietnamese and here are what happened:

Step 1 (Estimating): I asked groups of 4 trainees, including the project manager (PM), to estimate how much it cost with assumption that cost per minute for a normal translator is 1 dollar. Then:

·         The best estimate would take 40 minutes to complete

·         Total cost of the project then would be 40 dollars.

·         Unit cost per sentence would be 40/51 = 0.78 dollars.

Step 2 (Resourcing): PM of the selected group had to pay for other 3 members with rates as below:

·         Intermediate level of English would be paid 1 dollar per minute, two of them were at this level.

·         Advance level of English will be paid 2 dollars per minute, the remaining member was at this level.

Step 3 (Planning): PM planned to use only one member at Intermediate level to do the whole work. She committed to me to deliver the Vietnamese version after 40 minutes. This meant she planned in every 5 minutes, she would complete a number of sentences which worth 5 dollars in average. I was the project sponsor and I agreed with the plan which meant the plan was baselined/agreed and it looked like below chart.

Step 4 (Implementing): I requested to stop translation every 5 minutes and report the result of how many sentences were translated.

After the first 5 minutes, 5 sentences were completed translation, let’s take a look at the three elements at this point:

Firstly, PV = 5 dollars as planned above.

Secondly: there were 5 sentences completed translation and so I would pay some money to PM (or PM earned from me some money) and this was where we calculated for EV: EV = 5*0.78 = 3.9 dollars

Thirdly, PM had used one member for 5 minutes, she had to pay salary and this was where we calculated for AC: AC = 5*1=5 dollars

Similarly, every 5 minutes PM collected and recorded the three elements and after 15 minutes she had the below result:

What did it mean at this point?

PM planned to complete 15 dollars while she only earned 9.36 dollars, this meant she was behind schedule.

PM spent 15 dollars for paying salary while she only earned 9.36 dollars, this meant she was over budget.

At this point, she needed to do some corrective actions to be able to deliver the project on time. She decided to add the member at Advance level of English. After 5 minutes, the result looked like this:

She seemed back to track now with schedule because what she earned was more than to what she planned. However, she was still in trouble with budget when spending too much more comparing with what she earned. She believed the first member at Intermediate level learned some experiences from the last period, so she decided to use only one member to continue. After 10 more minutes the result looked like this:

She spent all approved budget, 40 dollars for paying salary, but she needed to continue to deliver the project on time. However, there were only 4 sentences left to be translated and her member only needed to spend 2 minutes to complete everything and here was the final result.

It was still good when she could deliver the project on time, she only run out of budget 2 dollars which meant 5%, an acceptable variation.

3.       Lesson learned:

Although I composed the above case study with some markup, it showed that by using EVM, we can see the project health in term of cost and schedule very early to take corrective actions in time.

Moreover, this method not only tells us the potential issue of project but also gives us an objective judgment of how much critical the problem is quantitatively. At the minute 15^th, PM was behind schedule 30% = (7.02-10)/10 and over budget 42% = (7.02-10)/7.02. This helped PM to take corrective action to put more resource to speed up the schedule.

Similarly, at the minute 20^th schedule PM was back to track and it was about time to focus on cost to get it back on track and this was why she reduced the resource by keeping only one member. At the minute 30^th, she decided not to use the working member for 5 minutes, but only 2 minutes to save the cost.

4.       Follow up

This article aims to help you to understand the 3 fundamental elements of EVM (PV, EV and AC). Once you understand them clearly, there shouldn’t be any problem with using other elements like CV, SV, CPI, SPI etc. For all concepts of EVM, below are some references:

http://www.tutorialspoint.com/earn_value_management/index.htm

http://en.wikipedia.org/wiki/Earned_value_management