Earned Value - Bringing Business Performance Management to IT

As many firms seek IT operational efficiencies to speed processes and reduce risks, they often overlook a powerful tool which may provide a resolution. Using process modifications and metric derived insight, Earned Value (EV) is the logical alternative to increasing staff in order to obtain greater throughput.

EV provides greater visibility into real project status for all stakeholders and thus creates a scenario for better management of tasks, early determination of whether a project is in trouble and estimation of what will be needed to complete it.

The EV Process:

EV is a management technique which relates resource planning to schedules.  All work is planned, budgeted and scheduled in time-phased “planned value” increments constituting a cost and a schedule measurement baseline.  EV associates a dollar value with work completed so that it can be compared with the actual spending to determine both cost and schedule variances.

The EV process requires three building blocks: defined work flow, budgeted time and money, and performance measurement.  The project must be separated into distinct tasks or milestones with specific entry and exit criteria.  Next the required resources must be identified and time frame parameters set for the completion of each task.  Finally a rigorous battery of metrics measuring performance must be put into place.  The primary metrics revolve around the following concepts:

• Planned Value – the baseline budget for each task
• Earned Value – as work is performed, it is earned
• Schedule Variance – the difference between work planned and earned
• Cost Variance – the difference between work cost and earned

Why EV?

In addition to a number of byproducts listed below, the anticipated benefits can be placed into several categories:

• Improved Performance Visibility – the combination of advanced planning and ongoing analysis outperform non-integrated methods of planning and control.
• Reduced Delivery Time – the planning process often addresses/prevents problems from surfacing later in the effort which result in rework.
• Increased Accountability – those involved in the completion of tasks not only see how they fit into the larger project, but will become better estimators as their work is measured.
• Reduced Risk – because EV measures enable realistic estimates of completion for both cost and schedule to be delivered early in the project, it is possible to make adjustments to mitigate cost overruns and schedule slippage.

Sample EV Measurers and Metrics:

Measurers:

• Performance % Complete (PPC) – percent of completed to planned work
• Schedule % Complete (SPC) – percent of scheduled to planned work
• Budget at Completion (BAC) – planned total cost through completion
• Actual Cost (AC) – total cost incurred the data date
• Resource Cost (RC) – unit cost of completed work

Metrics:

• Earned Value Cost (EVC) – the monetary value of completed work thru the data date. Formula: (BAC*PPC)
• Planned Value Cost (PVC) – portion of planned total cost to be completed through data date. Formula: (BAC*SPC)
• Estimated to Complete (ETC) – estimated cost to complete the project.  Formula: (1/CPI) * (BAC-EVC)
• Cost Performance Index (CPI) – ratio cost incurred to the work to the work value of those costs.  Formula: (EVC/AC)
• Schedule Variance Days (SVD) – work planned to work performed in days.  Formula: (EVC-PVC)/RC
• Cost Variance (CV) – work performed to work planned.  Formula: (EVC-AC)
• Estimate at Completion/Days (EACD) – new estimated days (start to finish) to complete project.  Formula: (AC+ETC)/RC
• Estimate at Completion/Cost (EACC) – new estimate total cost (start to finish) of the project.  Formula: (AC+ETC) 

Sample Byproduct Metrics:

Expanding on the set of EV metrics by adding volume, quality and productivity metrics, a Project Management Office (PMO) scorecard can be built around strategic themes.  This adds another layer of oversight that can result in operational efficiencies because without measurement there can be no management. The following are a sample of the expanded EV metrics:

Volume:

• Cost of Delivered Projects (Sum of Actual Costs)
• Delivered Projects (Count with Completed Date between x and y)

Throughput/Scheduling:

• Total Schedule Variances (Sum of Schedule Variance Days)
• Delivered On Time % (Completed On Time Count / Completed Projects Count) *100

Effectiveness/Cost Utilization:

• Total Cost Variances (Sum of Cost Variance Dollars)
• Delivered On Budget % (Completed On-Budget Count / Completed Projects Count) * 100

Productivity/Resource Consumption:

• Average Percent Complete (Performance % Complete / Number of Projects)
• Order Completion (Performance % Complete)

Quality/Accuracy:

• Quality Factor ((Work - Rework) / Work) * 100
• Accuracy of Cost Estimate (Budget at Completion / Actual Cost) * 100

Client Satisfaction:

• Delivered On Time & On Budget (On-time & On-Budget Count / Delivered Projects Count) * 100
• Business Owner Satisfaction (Input from Survey / Number of Projects)

Conclusion:

For organizations looking for new approaches to mitigate risk while improving efficiencies, they need look no further than Earned Value and its essential byproducts.  The benefits of EV come from the disciplined planning conducted and the availability of metrics which show real variances from plan in order to generate necessary corrective actions.