Earned Value Management - Coursework Example

?Earned Value Management (EVM) Table of Contents Introduction 3 2.Management of a Project 3 3.Background of Earned Value Management (EVM) 5 4.Role of Earned Value Management (EVM) in Project Management 6 5.Earned Value Management (EVM) Techniques for Project Management 7 11.Conclusion 9 Reference 10 1. Introduction The complexities in the post-modern organisation have increased significantly due to a number of reasons. Globalisation is the prime factor that has caused to bring these changes in the business activities. International trade, technological advancement, and intensified competition in the world market are the outcomes that have directly influenced the nature of prevailing business activities. The business organisations engaged in competition strives to take an upper hand position in the market by achieving a sustainable competitive advantage. In this regard, they aim to utilize effective management tools and techniques to strengthen their position in terms of finance, market share, operational efficiency etc (Huggins and Izushi, 2011, p.227). To achieve a sustainable growth and development, managements must strive to manage their assigned projects in a systematic way for optimum outcomes. Efficient and effective Project management is a challenging task which includes multiple activities, and management generally uses certain specific techniques, tools and systems for handling a project. Earned Value Management (EVM), an approach for project management is the most popular and widely used technique for project management (Dinsmore and Cabanis-Brewin, 2010, p.107). This report will attempt to present importance and use of EVM for analysing and assessing planning, scheduling, costing, budgeting, evaluating and performance monitoring of a project. 2. Management of a Project An organisation including profit making or non-profit making performs a number of tasks. Each group of tasks have a certain specific goal and this group of tasks can be termed as ‘project’. Organisations get themselves engaged in the multiple projects to achieve the common and overall goals and objectives. Therefore, successful completion of project is very vital for the organisational success and project management has evolved as key process in business related activities. With increasing pressure of the workloads, project management is gaining recognition in all types of organisation including SMEs and multinational enterprises. In simple terms, project management can be defined as “the task of managing work” (Cooke and Tate, 2005, p.1). In case of business management, a project can involves any types of tasks e.g. product development; implementing new machines or system in operation for increasing efficiency; or marketing promotions and advertisement. Generally, the project management can be completed through a set five sequential processes. These five processes are initiation, planning, execution, controlling and closure (Choudhuri, n.d. p.3). However, in each process there are various tasks that strive to support each of the aspects and criterions in the course of project management. Cost management, risk and quality management, budgeting, operational management, scheduling etc are the example of these tasks. The above sated tasks can also be termed as project management knowledge that includes nine areas and each of them are crucial of the effective project management. These nine areas also include certain tasks and these areas are explained in the following chart. Figure 1: Project Management Knowledge Areas (Source: Choudhuri, n.d. p.4) 3. Background of Earned Value Management (EVM) In the previous section, the tasks involved in a project management have been discussed, and each of these tasks is critical having direct influence on the profitability and organisational growth. If the project management team is able to complete these tasks efficiently, they are able to meet the goal of a project. In the course of these tasks, maintenance of efficient, accuracy, and reliability are key factors for the success. Hence, for completing these tasks, it necessitates proper systematic and integrated approach, and earned value management (EVM) strives to fulfil this requirement. The concept of EVM is not too old and its historical background of EVM can be traced during the mid of 1960 in United States. United States defence system used to implement the process of EVM for complex programs by focusing on the cost and schedule controlling system. Later, it evolved with time and became one of the most widely accepted tools for the best practises in industry (USAID, 2006). However, many scholars and academics argued that the origins of earned value can be found since late Industrial Revolution and it was to be integral part of scientific management. Basically, the manufacturing companies used to manage by the engineers rather than the business men during that period. These engineers used this EVM for making the comparison between the planned costs against the actual cost of a project of investment made for manufacturing activities (Stevens and Association for Project Management, 2002, p.319). Since initial 1990s, it started becoming very popular among the business communities as an effective technique for planning, scheduling, costing, budgeting, evaluating and performance monitoring of a project. At present, the EVM can be defined as “project control tool for comparing the achieved value of work in progress against the project schedule and budget” (Basu, 2008, p.8). 4. Role of Earned Value Management (EVM) in Project Management The prime role of EVM in project management is to measure the financial gain from the given financial investment and the difference between these two is known as the ‘earned value’. Another role of the EVM is to assess the difference between the planned and actual schedules. In project management, cost and schedule are the two most important areas, and EVM is effective in focusing on these two areas specifically. Therefore, it can be claimed the overall goal of EVM is to measure the performance and to monitor the multiple task (give in figure 1) in project management (CDC, 2009, p.1). Garrett and Rendon has identified ten basic areas for project management that includes “(1) organising, (2) authorizing, (3) scheduling, (4) budgeting, (5) cost accumulation, (6) performance measurement, (7) variance analysis, (8) change management, (9) internal audit, (10) performance formulae” (Garrett and Rendon, 2006, p.132). Besides, the EVM methodology is also helpful for problem identification, rectification and for adjustment required in an ongoing project (Solanki, 2009, p.86). 5. Earned Value Management (EVM) Techniques for Project Management It has been already discussed that EVM plays a critical role in project management by taking a number of activities into account. To meet these roles, the earned value analysis is needed to be conducted. This analysis is basically based on the certain value in financial terms. Basically, the entire analysis revolved around three major values i.e. actual cost of work performed (ACWP), budget at complete (BAC) and percentage complete. These three measures are needed to calculate the three values for the final analysis i.e. earned value, planned value and actual cost. As the names of three values suggests, planned value is budgeted cost; earned value is actual earned value and actual cost is the spent money in a project. The calculations of these values are based on monetary terms (CDC, 2009, p.5). Using the above stated three values, another performance indexes and variances are determined. The calculation of variances and indexes includes two major factors i.e. cost and schedule. Performance index and variance serve the same purpose i.e. to measure performance of cost and schedule. The calculation of cost performance index and variance and the calculation of schedule performance index and variance are given below. Cost Performance Index = (Earned Value/Actual Value) and should be greater than 1 Cost Variance = (Earned Value-Actual Value) and should be greater than 0 The calculation of schedule performance index and variance and the calculation of schedule performance index and variance are given below Schedule Performance Index = (Earned Value/Planned Value) and should be greater than 1 Schedule Variance = (Earned Value-Planned Value) and should be greater than 0 (Holliday, 2008, p.1-2). However, the above values are for performance measurement of a project, but role of EVM covers a greater area as discussed in the previous section. The entire process of project management using EVM is known as Earned Value Management System. The tasks in EVM system consists of ten major criterions which are key factors in project management and these are given below. 1. Identify and define elements in assigned work 2. Determine the organisational structure of the project 3. Develop the processes for integrated planning though proper budgeting, work authorization, scheduling and cost accumulation. 4. Sequence the authorised work as per their priorities 5. Determine the required organizations and physical products 6. Develop and sustain baseline for time–phased budget 7. Keep recording the direct costs in a formal way 8. Generation of project metrics at a regular interval 9. Develop and revise performance wise cost estimates–at–completion 10. Incorporate necessary changes in accordance to its requirements (Niwot Ridge Consulting, 2006, p.19) 11. Conclusion This paper has presented the basics of the project management using the earned value management (EVM). Project management is challenging task that requires proper management for analysing and assessing the planning, scheduling, costing, budgeting, evaluating and performance monitoring of a project. In the regard, EVM is the most effective method and technique which also used to utilise in defence system and for scientific management in manufacturing industries. However, at present it has become a key process a business management for the successful completion of a project. EVM is helpful in a number of ways as it manages entire tasks in project management. In this respect, the EVM analysis is financial technique for evaluation the performance of project in terms of cost and schedule. EVM system is the comprehensive system for managing the entire task in a project. Reference Basu, R. (2008). Implementing Six Sigma and Lean: a practical guide to tools and techniques. Butterworth-Heinemann. CDC. (June 26, 2009). CDC Unified Process Practises Guide: Earned Value Management. Retrieved on June 30, 2011 from http://www2.cdc.gov/cdcup/library/practices_guides/CDC_UP_Earned_Value_Practices_Guide.pdf. Choudhuri, N. M. (No date). Project Management Fundamentals. Retrieved on June 30, 2011 from http://www.nasscom.in/download/Project_Mangement.pdf. Cooke, H. and Tate, K. (2005). The McGraw-Hill 36-hour project management course. McGraw-Hill Professional. Dinsmore, P. C. and Cabanis-Brewin, (2010). The AMA Handbook of Project Management. AMACOM Div American Mgmt Assn. Garrett, G. A. and Rendon, R. G. (2006). U.S. Military Program Management: Lessons Learned and Best Practices. Management Concepts. Holliday, A. D. (February 27, 2008). Earned Value Management. Retrieved on June 30, 2011 from http://allenh.ecs.fullerton.edu/files/Handouts/Earned%20Value.pdf. Huggins, R. and Izushi, H. (2011). Competition, Competitive Advantage, and Clusters: The Ideas of Michael Porter. Oxford University Press. Niwot Ridge Consulting. (April 06, 2006). A Gentle Introduction to Earned Value Management Systems. Retrieved on June 30, 2011 from http://www.niwotridge.com/PDFs/EVMSCookies.PDF. Solanki, P. (2009). EARNED VALUE MANAGEMENT: Integrated View of Cost and Schedule Performance. Global India Publications. Stevens, M. and Association for Project Management. (2002). Project Management Pathways. APM Publishing Limited. USAID. (July 04, 2006). Earned Value Management. Retrieved on June 30, 2011 from http://www.usaid.gov/our_work/economic_growth_and_trade/info_technology/tech_series/EVM_508.pdf. Read More