Are you considering using earned value management (EVM) on your projects? Or wondering what it can do for you?
Well, do you want to know the answer to any of these questions?
- Are we currently over or under budget?
- Are we delivering more or less work than we planned?
- How much is the project going to cost overall?
- How much do we have to spend to finish the work?
- How much money will be left in the budget (if any) by the end of the project
- What is causing variations in the budget and schedule?
And the one most executives want to know the answer to:
- When will this project finish?
EVM techniques give you detailed, objective, numerical answers to all those questions. The earned value method is a robust way of providing reports that project teams can use to make smart choices about how to manage the outstanding work.
Here’s how EVM tracking can help you answer those exec questions with believable, data-driven answers.
Are we currently over or under budget?
You can take the amount of money the project has spent and make an educated guess about whether that feels on track… or you can use earned value to give you a fact-based answer.
Earned value formulas let you calculate the budget in relation to the amount of work that has been delivered.
Use the Cost Variance formula to work out the difference between the forecasted cost of the planned work and the actual cost of the work completed. The Cost Performance Index is another formula to use here as that lets you track performance over time in a more meaningful way.
If you are over budget, you can dig into the reasons and uncover what’s going on. Some possible causes of being over budget include:
- Having to do rework
- The work being more complicated or complex than expected
- Unclear requirements
- Scope creep
- Changes to market conditions like having to pay more for resources than expected.
While you won’t get the ‘why’ from a set of numbers, you can drill down into the underlying data and find out which are the tasks driving the overspend because you’ll have that information. We recommend you get some specialist help with earned value data analysis to make sure the team know how to interpret the reports.
Are we delivering more or less work than we planned?
Schedule Variance (SV) gives you the answer to this question. The formula uses the Earned Value and Planned Value to work out the variation between what activities were planned and what has been completed so far. The output is a financial amount that shows the value of the work, not a description of scope delivered of a ‘percent complete’ amount.
How much is the project going to cost overall?
Estimate at Completion (EAC) is the formula to reach for here. It’s a way of describing how much the project will cost overall by the time it’s finished. It will give you the whole cost of the project, and there are a couple of different ways of calculating EAC depending on how you think project performance will go.
For example, you can work on the basis that current performance sets the trend going forward, or assume that all problems are now resolved and performance will continue at the originally forecasted rate. You can also account for the fact that cost might be on track to continue as is but schedule performance may impact future delivery or vice versa. Plug your numbers into your earned value management engine and see what comes out.
How much do we have to spend to finish the work?
If stakeholders want to know how much is left to spend, take the actual cost away from EAC to give you the outstanding forecasted budget. This is the Estimate to Complete formula.
How much money will be left in the budget (if any) by the end of the project?
The Variance at Completion formula will tell you the answer to this one. Start with the current Budget at Completion figure – this is simply the amount of money allocated to the project for the budget. It may have changed due to change requests as the project progressed, so make sure you have the right number.
Then subtract the EAC amount. The result will be represented in monetary terms. If it’s a zero, you’re on track to spend exactly what was budgeted so there will be no money left. If it’s a positive figure, you can report that there will be money left at the end of the project based on your current calculations.
When will this project finish?
Schedule Performance Index (SPI) is what to use to forecast forward progress on the schedule. SPI works out the relative relationship between earned value (i.e. progress towards the goals) and the schedule.
If the project is on track to complete on time, the answer will be 1. You could also get a result that is greater than or less than one. A number less than one shows the project is behind schedule. Use that information to forecast forward based on current performance to give you an idea of when the project will finish.
If that all sounds a lot, don’t worry! These days, you don’t have to work out the formula by hand. There are plenty of enterprise earned value management systems that will do it for you (and if you need some help choosing and implementing one, we can do that). Good EVM reporting will allow you to see all of this information at a glance. Executives will soon get used to the EVM dashboards produced by your tools and be able to answer some of these questions themselves!