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Tag Archives: EVM

The Purpose of Earned Value Management (EVM)

Posted on October 12, 2022 by | 2 comments

Over the last couple of months there has been a discussion running in the Project Management World Journal around the purpose of EVM. The general consensus seems to be EVM is a performance management system, focused on measuring the performance of the managers assigned to manage the work packages, control accounts and overall project.  Identifying emerging issues early, at the work package level allows management intervention to improve the situation.

EVM was developed in the 1960s, based on PERT COST, which in turn was developed from the PERT TIME scheduling system[1]. EVM also drew on the well-established practice of cost engineering[2], but these two disciplines are designed for very different purposes. Cost engineering is focused on project cost estimating and control, EVM is focused on performance management. Appreciating the difference between financial management, cost accounting, cost engineering, and earned value management is important for their successful implementation. These terms are not, and never have been, synonymous.  

Our latest published article The Purpose of Earned Value Management summarizes the discussion and identifies the role of EVM in a comprehensive project controls framework. Download from https://mosaicprojects.com.au/PMKI-SCH-040.php#Overview

For more on the implementation of EVM and free EVM resources see: https://mosaicprojects.com.au/PMKI-SCH-040.php

[1]     For more on The Origins and History of Earned Value Management see: https://mosaicprojects.com.au/PDF_Papers/P207_EVM_History.pdf

[2]     For more on The Origins and History of Cost Engineering see: https://mosaicprojects.com.au/PDF_Papers/P207_Cost_History.pdf

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Posted in EVM & ES

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Project Controls Expo Australia 2022

Posted on August 13, 2022 by | 1 comment

I will be busy helping run PGCS 2022 in Canberra next week (16th to 18th August).  It is shaping up to be a great event with over 400 people signed up to attend: https://www.pgcsymposium.org.au/  Then my focus will shift to Project Controls Expo Australia 2022! https://projectcontrolexpo.com/aus/

Project Controls Expo Australia 2022 will run in Melbourne from 29th to 30th November and has a packed program totally focused on project controls.  I will be busy on both days:

On the 29th in the ‘back to basic’s zone’ my session is: EVM – it’s not as hard as you think! This session will look at establishing and operating and running an EVMS, based on Australian Standard AS4817:2019 (the Australian adoption of ISO 21508), using simple tools. The session will briefly cover:
–  Understanding EVM, what it is, and what it is not.
–  Define the key elements and objectives of EVM
–  Demonstrate the creation, and use of EVM on a small bridge project.

 If you cannot make the session most of the information is available from: https://mosaicprojects.com.au/PMKI-SCH-040.php#Overview 

Then on the 30th I will be looking at a major challenge to traditional CPM and forensic assessment in: Scheduling Challenges in Horizontally Distributed Projects

The challenges of scheduling, managing, and claiming delays in, ‘horizontally distributed projects’ are not well supported by traditional project controls paradigms.

Horizontally distributed projects have two dominant characteristics, the majority of the work is comprised of a series of physically separated units that are similar or identical in design, and the logical dependencies between the different units are either non-existent or minimal (think of an off-shore wind farm).

In this type of project, most of the components are identical and can be used anywhere, which means the work can be planned in almost any sequence, and that sequence can be easily changed at almost any time. This type of project is not well supported by either traditional CPM, or ‘line of balance’ scheduling.

The primary consideration in planning is optimizing resource flows, and the consequences of re-sequencing are not based around traditional CPM logic, rather the loss in resource efficiency which is much more difficult to assess and measure. Particularly when you need to separate productive efficiencies under the control of the contractor from disruption caused by re-sequencing.

This presentation will define the concept of a ‘horizontally distributed project’, and then based on some practical examples, highlight the challenges of assessing delay and disruption based on traditional paradigms of CPM scheduling.  It will conclude by offering suggested ways to adapt project controls and contractual requirements to provide a sensible assessment of project delays. As soon as PGCS is over, finishing the research and writing this presentation is my next challenge.

More to follow on this.

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Posted in EVM & ES, Project Management Conferences, Scheduling

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The Origins + History of Earned Value Management

Posted on August 9, 2022 by | 2 comments

The publication of The Origins and History of Earned Value Management in the August edition of PM World Journal (Vol. XI, Issue VIII) marks the end (almost) of a long journey.

This paper looks at the creation of earned value management (EVM) in the 1960s and its development and evolution through to the 2020s. However, the concept of EVM did not suddenly appear, the foundations of EVM were laid by previous generations, this paper demonstrates EVM is a synthesis of ideas and concepts some of which are hundreds of years old. The four precursors to EVM are the use of computers to calculate time schedules (CPM and PERT), sophisticated engineering cost controls, the use of breakdown structures to aid management, and the emergence of the concept of modern project management.   

The use of computers to analyze project schedules in the late 1950s brought science to the management of time. There was a strong desire in the US Government for similar levels of sophistication to be applied to cost management on defense projects. This was the catalyst for the development of EVM in the early 1960s. The development of scheduling is traced in the papers listed in The History of Scheduling.

The discipline of engineering cost management was well established in the early part of the 20th century and its roots are much older. The limitation was the process of cost control using paper based manual systems tended to be retrospective. The development of cost engineering is traced in The History Cost Controls.  

The idea of using breakdown structures to define, and then control, work also has a very long history. The Work Breakdown Structure (WBS) is at the heart of EVM. The development of the WBS is described in The Origin of Work Breakdown Structures (WBS). 

Finally, a project controls system needs a defined project to control. The concept of modern project management is relatively new, although again its roots are very deep. Its development is traced in Origins, and trends in, modern project management. 

When these different strands of development were brought together in the USA in the 1960s, EVM emerged. Tracing each of the histories outlined above has been a fascinating journey.  The papers and many of the source materials are freely available to download from the history section of the Mosaic website: https://mosaicprojects.com.au/PMKI-ZSY.php.

The problem with studying history is every time you look at something, there’s other interesting facets to analyze and research. I have identified two areas where I’m likely to go next (but not for a few months):
–  Documenting the early mainframe computer software that was used for CPM, PERT and EVM.
–  In March 2023 Earned Schedule will be 20 years old, its development and the challenges will make an interesting story.

In the meantime download and enjoy The Origins and History of Earned Value Management: https://mosaicprojects.com.au/PDF_Papers/P207_EVM_History.pdf

And…. If you find any errors, or have additional information let me know. I routinely update these papers as new information comes to light. 

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Posted in EVM & ES, Project Controls

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GAO Cost Estimating and Assessment Guide Updated

Posted on May 16, 2020 by | 4 comments

The venerable Cost Estimating and Assessment Guide (Cost Guide) has been updated for the first time since 2009!  Published in March, the 2020 version of the Cost Guide has been significantly improved.

Some of the changes include:

  • Better alignment of best practices, cost estimate characteristics, and cost estimating steps
  • Clarification of some of the best practices and their related criteria
  • Additional content in technical appendixes and revision or deletion of others
  • Update case studies and references to USA government legislation and rules
  • Modernization of the Cost Guide’s format and graphics.

The Cost Guide defines the four characteristics of a good estimate: comprehensive, well documented, accurate, and credible. It also incorporates 18 best practices and shows how the best practices align to the four characteristics. Additionally, it introduces the 12 steps of the cost estimating process that produce reliable estimates, and shows how the best practices align with the 12 steps.

Earned Value Management (EVM) remains central to the Cost Guide’s approach to managing the delivery of a project once the estimate is approved.

As with the previous version, the Guide can be downloaded free of charge from: https://www.gao.gov/products/GAO-20-195G

For more on cost management see:
https://mosaicprojects.com.au/PMKI-SCH-040.php

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Posted in EVM & ES, General Project Management, Project Controls

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Cost Engineering is an Oxymoron!

Posted on May 13, 2010 by | 11 comments

Cost performance is a symptom of other management functions. It is impossible to ‘engineer costs’. The only way to change cost outcomes is to change the other processes that incur costs.

The three key areas of business operations and project management that incur costs and where a change in the process will cause a change in costs are:

  1. Changing the procurement / purchasing / supply chain processes that acquire the required inputs to the process being managed.
  2. Changing the way the work that transforms inputs to outputs is undertaken through enhanced management and leadership including skilling, motivating and directing the people involved in the work and ensuring they have the correct resources and equipment to undertake the work.
  3. Focusing on the quality of the outputs produces to ensure the ‘right scope’ has been delivered at the ‘correct quality’. Too low and there are cost consequences in rectification, too high and you may have spent money unnecessarily.

These three elements exist in a risk frame. Whilst risk management will not ‘control’ the future, it will allow opportunities to be identified and grasped and threats mitigated and avoided by changing the way the work is undertaken and as a consequence optimise cost outcomes.

The two key facets that permeate all of the above are stakeholder management and time management.

  • Stakeholder management both within the team and externally, (including effective communication) is central to achieving a successful outcome at the best price. Stakeholders are in the supply chain, include the project team and contractors and can have a major impact on the risk profile of the work. For more posts on stakeholder management see: http://www.stakeholder-management.com/blog/?cat=5
  • Time management focuses on ensuring the right people are in the right place at the right time, with the right resources and equipment to do the work in the optimum sequence. For more posts on time management see: /category/project-controls/scheduling-project-controls/

Both of the above need regular reviews and adjustment within the overall frame of the emerging risk profile.

Where ‘cost engineering’ adds value is via techniques such as Earned Value (EV). Applying EV effectively allows the symptoms of a deviation from the expected performance to be highlighted through Cost Variances and other reports.

As with medicine and diseases, it is capability to recognise and correctly interpret symptoms that allows diagnosis that leads to the effective treatment of the under-laying problem. In project and business management space, this should translate to the requirement for managers not only to report a cost variance, but also to identify the cause of the variance and to recommend and/or implement corrective actions.

Whilst it is impossible to directly manage or control costs; timely and accurate information on cost performance can be a valuable diagnostic tool to remedy the real issues. What’s needed is for senor managers to stop focusing on ‘cost’ and start asking deeper questions about performance and risk. I know many readers of this blog will say this already happens in their organisations, but I also know that far too many other managers focus on the symptom of cost performance rather than the under-laying problem to the detriment of their businesses.

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Posted in Scheduling, Stakeholder Management

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Earned Schedule

Posted on February 10, 2010 by | 1 comment

In the March 2003 edition of the PMI College of Performance Management journal, The Measurable News Walt Lipke published his seminal paper “Schedule Is Different” and introduced the world to Earned Schedule (ES).

The challenge of predicting the likely completion date for a project is fraught with issues. There are no established protocols for scaling the remaining durations in a CPM schedule to take account of actual performance to date and there is no way of dealing with the consequences of a ‘bow wave’ of non-critical tasks consuming float until after they hit the critical path.

Re-scheduling the project is the same as re-estimating the work, a practice long discredited by Earned Value (EV) professional as being less accurate and more expensive than using EV formula to calculate a predicted cost outcome. And, the SPI and SV calculations cease to have any validity as the original project completion date is approached. In short, SPI does not work and CPM is wildly optimistic.

Earned Schedule

Walt solved this problem at least in part with the invention of ES. ES uses standard EV data to calculate a set of schedule indicators, which behave correctly over the entire period of project performance. The methodology and spreadsheets needed for calculation are freely available from the ES website.

Now Walt has published a sensibly priced book that explains the concept of ES and additional advances to the theory and practice of ES including the “P” factor, a measure of schedule adherence and “Effective EV,” which discounts the EV accrued by EV earned out of the correct process sequence.

I downloaded a PDF version of Walt’s book from Lulu Publishing for under $15; printed paperback books are available from Amazon, Lulu and a range of other book sellers.

Used properly, ES is the bridge between EVM cost and network schedule analysis, improving and providing the base for further developments in cost-schedule integration. ES can’t replace scheduling (and does not seek to) but it does provide a useful insight above and beyond what’s achievable using either traditional EV calculations or traditional CPM scheduling.

This is a book serious project control professionals cannot afford to ignore!

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Earned Value Confusion = No Value

Posted on January 24, 2009 by | 5 comments

I have just finished reading another article published in late 2008 where a proponent of Earned Value seems to deliberately set out to do as much damage to the general acceptance of the methodology as possible!

From its inception EV has been plagued with confusion generated by acronyms. EV ‘experts’ used to prove how knowledgeable they were by confusing business managers with a barrage of acronyms and formula. Before the turn of this Century, a decade ago, leaders in the profession recognised one of the major barriers to acceptance of EV was a general lack of understanding and sought to simplify the ‘alphabet soup’ that was making EV too hard for busy managers to understand.

ANSI EIA 748 A released in 2002, AS 4817 2003 released in 2003 and the 2000 version of the PMBOK® Guide all adopted a common, simple set of acronyms:

EV = Earned Value instead of BCWP (Budgeted Cost of Work Performed)

PV = Planned Value instead of BCWS (Budgeted Cost of Work Scheduled)

AC = Actual Cost instead of ACWP (Actual Cost of Work Performed)

These standards between them cover some 90% of the world’s Earned Value community! The intention was (and is) to demystify the process of Earned Value so managers could understand the data their project ‘controls’ staff were generating and use the information to make wise decisions. A really great idea! EV is an extremely useful and powerful tool if the data being presented to management is understood and acted upon.

What I cannot understand is why so many self professed advocates of EV are so keen to cause confusion by writing articles using the old, superseded acronyms.

  • Is it to try to look clever by confusing the ‘dumb reader’?
  • Is it to attempt to re-wind history back to the 1990s?
  • Are they actually opposed to the general use of EV and seek to prevent its general adoption by spreading confusion?

The UK (where EV is used to a very limited extent) is the only place that still published standards that use the old acronyms. These ‘standards’ are primarily from the Association for Project Management rather than British Standards.

Surely it’s time everyone used the same acronyms for the same item in an EV article and dragged themselves into the 21st century – it’s hard enough getting EV accepted in senior management circles without so-called experts and practitioners creating excuses for ‘not understanding’ by reverting to outdated acronyms, even in the UK??

What do you think?

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Posted in EVM & ES

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CPI Stability Myth

Posted on November 4, 2008 by | 1 comment

There is undoubtedly the equivalent of an ‘urban myth’ in circulation within the general project management community, arising from US Defence based research from the early 1990s, that the Cost Performance Index (CPI) always stabilizes at the 20% completion and the final outcome will be within 10% of this value and usually worse. This myth has been extended by some authors to all projects in all industries; and I would suggest that this is demonstrably false in at least some circumstances. If CPI stability was an incontrovertible ‘fact’ for all projects, there would be no need for active management of the project after 20% completion!

The erstwhile peaceful halls of the PMI College of Performance Management (PMI-CPM) are resounding to an ever increasing battle between the proponents of CPI stability and newer research suggesting CPI stability is not automatic.

 

Earned Value is a very useful project management control tool mandated by many Government agencies in the USA, UK and Australia; and the PMI-CPM is one of the leading international organisations focused on providing a forum for EV practitioners. However, the migration of the EV toolset from carefully controlled major defence projects into the general PM business community is definitely creating issues.

 

The DoD research established ‘CPI stability’ on a large number of military projects. Newer research by Henderson, Zwikael (See the Fall 2008 edition of Measurable News) has found CPI stability is not a ‘given’ and it rarely exists on commercial projects. These findings have prompted a very strong response (also in the Fall 2008 Measurable News).

 

Rather than arguing over research findings, I would the next steps should be to start identifying what underlying factors cause stability in the CPI measure as evidenced by the DoD research, determine if the factors are desirable and then find ways to improve project management practice in other industries so that the desirable factors are encouraged.

 

My feeling is that when CPI stability is shown to be established, the ‘CPI Stability’ is a strong indicator of other important (but much harder to measure) factors such as stable management, stable requirements, an efficient management system, effective project culture, etc (many of which are likely to be present in major Defence projects as evidenced by the research undertaken by Christensen).  Conversely, where CPI is unstable, significant changes in the underlying project can be reasonably assumed to be occurring, either at the management level or at the requirements/scope level. These changes may be beneficial or detrimental but are undoubtedly a risk that warrants the attention of senior management.

 

If these feelings are correct, it would also be useful to develop an understanding of the usefulness of CPI instability as a risk indicator (ie, what level of instability indicates a ‘project at risk’).

 

‘Watch this space’ there are likely to be many interesting moves over the next few months!

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