Earned Value Management

Before I get started on the details, I’ll give you a quick definition: A CPI Forecast allows project controls professionals to predict the performance of their project using a subjective CPI value rather than the calculated CPI that’s determined based on past performance. In case you’re wondering what that all means, I’ll go on to explain.  First, CPI stands for “Cost Performance Indicator" (or Index). It’s a standard EVM metric, and is calculated using the following formula: CPI = Earned Value (EV) / Actual Cost (AC) A CPI Forecast is a mechanism for providing a subjective view on the standard calculation. Using EVM for calculating the remaining costs to complete on a project – like ETC and EAC – typically use the project’s latest Progress Measurement as the basis for that calculation. This is effectively using past performance to predict the future.  What it’s saying is, for example, “Judging from where you’re at right now, your project is underperforming at a performance index of 0.8.  With that performance to date, your ETC will be $X.” While this is important information for project analysis and forecasting, users often need an alternative way to view these projections. It may be the case that there are very good reasons for the poor performance to date, and corrective action has been taken – so that the performance metric of 0.8 might be misleading. Or maybe, unforeseen circumstances had dragged performance for a while, and things are looking better now for the remainder of the project. To give you an example, let’s say that the first 6-months of a project occurred during winter; when progress moves slower than it does during the spring & summer.  A project manager wouldn’t want to

“If you keep going at this speed, you’re going to be late!” That’s my simplistic real-life analogy of earned value management. It’s a simple bit of math that we all do in our heads anytime we’re trying to get somewhere or finish something.  If you gave yourself an hour to get there and after a half-hour you’re still less than half-way, you’re going to be late.  It’s that simple. As simple as it is, it requires us to know quite a bit of information about the current situation in order to calculate late vs. on-time.  Just like EVM, you need to know 3 key elements to make the calculation: Your speed Remaining distance to go Remaining time left Cost Variance If you know those 3 values, you can not only calculate whether or not you’re going to be late, but you’ll also know how late.  In earned value management, the “how late” answer would be called Variance. Whether we’re talking about time, cost or hours, variance is determined by knowing three things about your project: Your budget How much of that budget you’ve spent so far (actual) How much work has been completed (as a percent) To save you from having to read it here, you can have a look at this site to get the details on the math for calculating variance (and any other earned value metrics). Depending on your preference, variance can be expressed as a whole number or as a percent. Most people tend to speak about variance in percent terms since it gives you a sense of the magnitude.  For example, “we’re 17% over budget.”  It’s key to point out that that would be a

Earned Value Management? When asked about where their project stands against initial budget and schedule, most project managers will have a pretty good idea. They’d be able to tell you something like, “We’re running quite close to budget”, or “We’re almost half done”. However, without the tools and tracking to provide sufficient substance to those statements, gut-feel assertions like that are often dangerous guesses that can lead to cost overruns and delays. Earned Value Management provides the tools and techniques to tell a project manager where he or she really stands in their project. It can not only report on how much over/under budget or ahead/behind schedule a project is; it can also inform a PM as to how a project is trending, so as to better predict schedule and cost remaining to complete their project.  This provides the project manager a solid grounding on current status along with a good estimate of projected final results & timing. Armed with better analysis tools like this, the cost savings to projects – along with the improved communication and control – are clear incentives to look at adopting EVM in almost any project organization. Earned value management is much simpler than it sounds. It is simple because it’s something that we all do in everyday life – we just don’t usually use an elaborate name for it like EVM. Put simply, EVM is the technical term used for the process of getting quick and accurate answers to the “Where Am I At” questions on any project (construction, IT, or other). And we’re all continuously trying to assess where we’re at in most everything we do: whether it’s managing a complex construction project, or simply planning a birthday