Earned Value is pretty much a 5th Grade Math problem. To put it in the simplest terms, we are adding one number to the usual planned vs actual cost for a project. The number we are adding is earned value: a procedure that dollarizes the progress (percent complete) of a project.
Why then does the mere suggestion of implementing earned value on projects have people running for the door? In one case, I was bluntly told by an engineer that he’d rather pass a kidney stone than be involved in projects that require earned value. Really?
Fear not people – earned value is really not the issue at all. The math is simple.
Here are the steps:
- Planned Value – You take your planned cost and set it out into a time-phase schedule of tasks. This is called a Performance Measurement Baseline (PMB). That is your budget.
- Earned Value – Then, as you complete these tasks over time, you take credit for them by claiming their budget value as your ‘earned value’.
- Actual Cost – Finally, you collect the actual costs for completing these time-phased tasks and that is your actual cost of work performed.
With these three numbers you can do some pretty extensive and amazing analysis to determine how your project is performing compared to your original time-phased plan. And that is really all you are doing. The analysis involves simple subtraction and division; so don’t sweat it if you skipped that Calculus 101 course in college.
Now most companies will track a project using just two numbers, a planned cost (budget) and the actual cost. So the analysis may be as simple as, we have spent 50% of the budget so we must be 50% through all the work – right?
Wrong. You have no idea how far you are through the project looking at just those two numbers. If you’re overspending, you may only be a third of the way though the necessary work needed to complete the project, but have already burned half the budget. By project completion you’ll have overspent big time and were clueless of that fact until it was way too late to fix the problem.
So why have the Department of Defense and many other entities been insisting that major capital projects are tracked and reported using earned value for the last 50 years? Because it works – that’s why.
When you track a project using Planned Value, Earned Value, and Actual Costs, you have the complete picture. Here’s a simple example.
Take a look at this first ‘traditional’ project cost tracking example – planned cost vs. actual cost.
It looks like its under-spending right? The actual costs are routinely less than the planned cost at the same point in time. So we can conclude from this that the project is doing better than planned.
But if we add the value of work actually complete (earned value), we may get a different story.
Look at the gray Earned Value line. We should have earned around $700K’s worth of value (the planned value of tasks completed to date), but instead we’ve only achieved about $400K’s worth of value, and we’ve paid nearly $600K to get there.
So rather than under-spending, the reality is we have paid way too much for the limited progress we’ve achieved so far.
The reason for tracking that all important earned value figure just came into very sharp focus.
Getting an accurate earned value figure is not that complicated. In fact, most scheduling tools you use can provide some rudimentary earned value metrics without you doing more than assigning resources that have cost rates associated with them.
With proper status updating, and collection of actual costs, you will get some reasonably accurate earned value metrics being calculated without doing anything further to the project. In short, if you’re doing good project management anyway, it’s a small step to earned value management.
Like most things in life, changing an outcome has little to do with learning the mechanics, and almost everything to do with learning to change our behavior. Implementing earned value is no different. You could say that 20% of the problem is learning some new math and supporting processes, and the remaining 80% of the problem is changing people’s behavior. Changing the culture of the organization. And right there is what is so difficult about earned value!
You’ve just seen how the simplest earned value metric exposed a potentially tragic outcome for a project. Yet in many new implementations of earned value, the benefits are ignored in favor of preserving the status quo. As a result, the friction created by pushback can be disproportionately intense, and the entire process becomes unnecessarily painful and slow to roll out.
Over the years, we’ve seen people resign in the wake of an earned value implementation and even people let go because they refuse to cooperate and embrace change. Can some 5th grade math really be the issue here? Of course not – that’s the easy part. In order to implement earned value, you will need to change the organizations culture. Here are some of the ways you can start that process in your organization:
- Make sure there is 100% top-down management support – no detractors at any level
- Engage in internal marketing and PR campaigns to prepare the culture for change
- Hire and/or promote earned value champions to raise the EV profile
- Empower your project office to define and dictate project policy to all of the project teams
- Foster a blame-free environment so people are not afraid to report on project schedule and cost issues
- Develop a sustained program of earned value training and education at all levels of the organization (goes to top down)
- Observe other companies that are already winning with earned value project controls and emulate their best practices
Winning in today’s market place seldom happens by accident. Companies like Lockheed and Boeing don’t become the giant’s they are by luck. No, they have exemplary project controls in place of which earned value is a major part. They have learned to win at project management through the sustained application of industry best practices, and earned value has long been a big part of that winning strategy.
Earned value isn’t that complicated, but it is difficult. That is to say, the math is straightforward, and the processes to support it are well documented and proven. But it’s getting the culture to support it that is the make or break of any implementation. Which ultimately means it’s a people management issue, not a math issue.
The consultants here at Ten Six have been helping companies through these cultural changes for decades, and have much to offer in experience, guidance and expertise at all levels of the organization. We have been uniquely positioned to watch companies grow and win. Call us or, if you must, call someone else. But get some help if you are looking to add a winning edge to your project controls!