Need of EVM
It establishes tangible tasks in the form of a plan. Set milestones for them in time at a budget value for each milestone tied out to the total budget. The milestones should be things we can look at and say, "That's done".It states our plan regularly. When milestones are completed, credit the budget value as earned. Tasks may cost more than their budgets to complete. That is cost variance for completed tasks.
If milestones are not completed by their scheduled date do not credit their budget value as earned. Behind schedule tasks are thus contributing to a cumulative budgeted schedule variance in time.
If we are running an unfavorable schedule variance for incomplete tasks and an unfavorable cost variance for completed tasks we are in trouble.
Corrective action, additional resources or a work around plan will be necessary to recover from negative variances. We will investigate the tasks behind schedule and over cost to determine the problem, the cause, the resolution, the corrective action and the likelihood of overrunning our total budget or being late due to events at time now. We will have time to do something about it.
The above technique can be used for starting a company or running a project. This technique is commonly referred to as Earned Value Management. It should not be driven to a level of detail that is unmanageable.
Prudently used this approach gives insight into the dynamics of physical accomplishment driving status as opposed to plan versus actual cost tracking which tells we only that we are spending money.
In short, the technique:
1. Ties budget to schedule
2. It establishes measurable means to track project status
3. It accounts not only for the money being spent but also for what is being accomplished with the expenditure.
4. Allows in-process cost and schedule corrective action in time to favorably influence the project outcome.
Scaling EVM from simple to advanced implementations
The foundational principle of EVM, mentioned above, does not depend on the size or complexity of the project. However, the implementations of EVM can vary significantly depending on the circumstances. In many cases, organizations establish an all-or-nothing threshold; projects above the threshold require a full-featured (complex) EVM system and projects below the threshold are exempted. Another approach that is gaining favor is to scale EVM implementation according to the project at hand and skill level of the project team.Simple implementations (emphasizing only technical performance)
There are many more small and simple projects than there are large and complex ones, yet historically only the largest and most complex have enjoyed the benefits of EVM. Still, lightweight implementations of EVM are achievable by any person who has basic spreadsheet skills. In fact, spreadsheet implementations are an excellent way to learn basic EVM skills.The first step is to define the work. This is typically done in a hierarchical arrangement called a work breakdown structure (WBS) although the simplest projects may use a simple list of tasks. In either case, it is important that the WBS or list be comprehensive. It is also important that the elements be mutually exclusive, so that work is easily categorized in one and only one element of work. The most detailed elements of a WBS hierarchy (or the items in a list) are called activities (or tasks).
The second step is to assign a value, called planned value (PV), to each activity. For large projects, PV is almost always an allocation of the total project budget, and may be in units of currency (e.g., dollars or euros) or in labor hours, or both. However, in very simple projects, each activity may be assigned a weighted “point value" which might not be a budget number. Assigning weighted values and achieving consensus on all PV quantities yields an important benefit of EVM, because it exposes misunderstandings and miscommunications about the scope of the project, and resolving these differences should always occur as early as possible. Some terminal elements can not be known (planned) in great detail in advance, and that is expected, because they can be further refined at a later time.
The third step is to define “earning rules” for each activity. The simplest method is to apply just one earning rule, such as the 0/100 rule, to all activities. Using the 0/100 rule, no credit is earned for an element of work until it is finished. A related rule is called the 50/50 rule, which means 50% credit is earned when an element of work is started, and the remaining 50% is earned upon completion. Other fixed earning rules such as a 25/75 rule or 20/80 rule are gaining favor, because they assign more weight to finishing work than for starting it, but they also motivate the project team to identify when an element of work is started, which can improve awareness of work-in-progress. These simple earning rules work well for small or simple projects because generally each activity tends to be fairly short in duration.
These initial three steps define the minimal amount of planning for simplified EVM. The final step is to execute the project according to the plan and measure progress. When activities are started or finished, EV is accumulated according to the earning rule. This is typically done at regular intervals (e.g., weekly or monthly.)
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