Earned value management system is a robust methodology to integrate schedule, scope, and cost baselines of a project. EVM is an analytical tool that also uses variances to track schedule and cost performance of a project. It further uses efficiency indicators to forecast project health. Though EVM analysis offers numerous benefits, implementing this technique offers some challenges. The following paragraphs enumerates important earned value management challenges that impede implementation of this technique.
- 1 Earned Value Management Challenges
- 2 Conclusion
- 3 Author’s Profile
Earned Value Management Challenges
Earned value management system greatly depends on availability project performance data. Hence its implementation requires timely availability of work progress data. Many organizations and project teams lack resources to collect data regularly and accurately. However, this should not deter any project team or organizations in implementing this effective schedule and cost control technique.
The succeeding paragraphs briefly describe important earned value management challenges. Further this blog post also proposes simple solutions to resolve these earned value management challenges.
Senior Management Support
Support of senior management is essential for successful implementation of new initiatives. Hence project managers should appraise c-suite executives of how evm analysis can enhance monitoring and controlling of portfolio of projects. Additionally, project manager should also highlight evm’s core capability to forecast project budget and calculate project variances.
Team Member Support
Not everyone in the organization is aware of the earned value management concepts. Therefore, project manager should also appraise project team members of basic concepts of evm analysis. He should further demonstrate how earned value management variance analysis can effectively control schedule and costs.
Identification of Project Activities
A project consists of several types of activities. The project team performs these activities to produce project deliverable. Therefore, selecting correct activity types is by far the most critical of all earned value management challenges. Earned value management analysis categorizes project activities into three distinct groups. Each of these activities have an appropriate method to measure the quantum of work performed. The following list enumerates different activity types.
- Discrete effort
- Apportioned effort
- Level of effort
Inability to identify various project activity types and associated methods of measurement impairs the accuracy of evm analysis. Hence identification of correct project activities and selecting the appropriate measurement methods makes yields correct evm analysis results.
Assessment of Work Completion
As far as possible project teams should use quantitative measures to measure percentage of work completed for activities. Use of S-Curve to track completion of deliverable greatly assists in arriving at accurate assessment of percentage of work completed. For example, if the activity type is discrete effort project teams can use the following methods to measure work completion.
- Percent work complete
- Measurement of physical work completed
- Fixed Formula
- Weighted Milestone
Therefore, project team should choose the correct measurement method and use it consistently throughout the project. It is also pertinent to mention that section of project activity types and work measurement methods are complementary.
Acquiring Project Progress Data
One of the major earned value management challenges is non availability of project performance data at fixed period. Inconsistent data can lead to errors in reporting and can also result in wrong analysis of the project performance. If the project manager is handling multiple projects and has to manually collect project progress data; this further accentuates the problem. Therefore, organizations MIS and reporting tools have a major role in ensuring availability of performance data at regular intervals.
Availability of Actual Cost Data
Another critical earned value management challenges is access to actual cost data for work packages. Actual cost is the most important data in evm analysis. Without availability of actual cost data the evm analysis is incomplete. Assumption or extrapolation of actual cost is not possible in any way. At times there is considerable time lag between completion of activity/work packages and availability of actual cost data.
This problem is very evident for procurement and manufacturing activities where delivery lead times could be in months. The actual cost booked on the project may not be available until bills payable department pays the invoices. Moreover, vendors have different credit periods varying from 30 days in most cases to even 90 days in some instances. Hence this adds a variation in reporting of actual cost booked on the project between organization’s MIS and evm analysis. Some ERP systems consolidate cumulative actual cost booked on certain control accounts. This makes it difficult to ascertain cost booked over a certain period. Hence actual costs need logical distribution over a period to apply earned value management techniques.
Measurement of Contract Activities
Most of the projects have contracted activities this also includes project procurement activities for both domestic and imported goods. For some large organizations, manufacturing of project deliverables can also be part of procurement activities. Accurate measurement of procurement work package poses major earned value management challenges. Especially if the procured material needs transportation and installation at construction site. A good way is to categorize procurements such as Internal work orders, services, domestic items and imported goods. Project team should select the appropriate work measurement method and use it consistently.
Earned value management challenges could vary depending upon the nature of projects or organizations accounting and reporting processes. However, the project team may encounter few of the above earned value management challenges. Despite the challenges of earned value management system. EVM is undoubtedly the most effective tool to monitor and control project performance.
For those who have not implemented evm analysis in their projects. A good way to start is to implement on a work package level. While implementing evm technique on work package level choose the package where scope, schedule, and cost integration is possible. Use evm graphs to present status even if it is of work package level. This helps to build curiosity among project review board members. Using EVM data to present project progress also helps in organization wide acceptance of earned value management technique.
For a solved example of earned value analysis you may read Earned Value Management Example