Earned Value Management

A version of this post was originally published as a guest column for PMI’s PM Network

When Executives Pay Attention

Have you noticed that C-Suite executives tend to get religion about performing proper project controls exactly at the wrong moments? So often, project controls professionals receive the C-Suite’s full attention at one time and one time only – immediately after painful and embarrassing cost or schedule overruns have come to light.

It makes little difference that project controls leadership may have been passionately advocating for months for the resources and authority to roll out effective planning and controls processes and software systems. The executives tend to take a close look right when project controls is failing to fulfill its promise.

So how can project controls leadership take advantage of these moments to sell to executives the power of project controls and differentiate it from the back-office, after-the-fact reports coming from Finance?

In a word… forecasting.

Driving Predictability

Project management personnel in all industries can take a lesson from the leading Engineering, Procurement, and Construction (EPC) contractor firms. Their businesses have long depended on how effectively they control cost and schedule, and in particular, how well they forecast. The leaders in this industry have developed repeatable, standard rules for reporting progress by discipline and by task. Then, based upon that past performance, they can effectively forecast the projects’ Estimates at Completion (EACs).

Throughout these projects they are comparing work completed to work planned, as of a given date. If this sound familiar, it’s because that’s a definition of Earned Value. EPCs may call it progress measurement, productivity reporting, or tracking “earned over burned”, but in essence they are applying the principles of Earned Value Management (EVM).

And here’s the remarkable, CXO-sit-up-and-take-notice observation about EVM. Empirical studies have shown that when EVM is effectively deployed on a project, the project’s cost performance trend is known to stabilize once a project is twenty percent complete and “will not likely change by more than plus or minus 10% at the point of project completion.”¹

Leveraging Software to Maximize EVM Results

Leading contractors and owners/operators in every industry are effectively applying EVM principles to projects of all sizes and disciplines, by standardizing the right level of EVM planning and EVM rigor to the various project types. Then they are letting their project controls software systems forecast cost and schedule based upon the early EVM results from these projects. As they execute more projects and learn from them, their ability to fine tune their methods for progressing and forecasting increases. Easy-to-use project controls software dashboards are giving management and even the C-Suite the ability to identify trends early, at the click of a button. And to drill-down as deep as they want to into the project data, within seconds, to identify problem areas, and learn what the project controls team’s corrective action plans entail.

Delivering Value to the Project and the C-Suite

If the project controls organization can repeatedly predict when the project will finish and for how much money, when just 20% of the way into a project, this is value that the C-Suite will pay for. What priority will the C-Suite assign to project controls initiatives for assurance that they won’t get a knock on the door, once it’s far too late, that they just far exceeded their capital budgets? In our observation, as enterprise project controls software systems have begun to efficiently deliver reliable project data to their fingertips, the C-Suite has taken note. Executives have begun to regard these as strategic planning and controls systems, delivering timely, predictive data that they can’t get from any other corporate system.

¹Fleming, Q.W., and Koppelman, J.M. (2006), Earned Value Management.