Earned Value Management - Essay Example

Xxxxxxxxxx Xxxxxxxxxx Xxxxxxxxxxx 29 October Earned Value ManagementCompanies and Organizations throughout the world undertake various types of projects. The projects can vary in size and level of urgency. But it is imperative for any company to expect timely completion of its projects and that too within the budgets allotted. But experience tells us that projects hardly run in a smooth course. There are ups and downs and possibly many vicissitudes before any result is achieved (Wirick, 7). In such a scenario it becomes important to monitor the progress of the project and make corrections whenever necessary. There are various tools to track the progress and efficiency of any project. One of them is Earned Value Management (EVM). First, we shall attempt to understand the basics of EVM. EVM is one of the pivotal links in the chain of costs control (Stratton, 24). EVM is vitally important and useful because it is linked with other component of costs control such as – 1- Forecasting 2- To-Complete Performance Index. 3- Performance Reviews 4- Variance Analysis 5- Project Management Software. Earned Value Management is associated with every other tools and techniques. It helps in forecasting and preparing to-complete performance index. We get earned value data through performance reviews. We use earned value management to calculate variance analysis. Project management software helps us in obtaining earned value data. It can be seen from the above that a lot of tools rely on the information provided by EVM. The reason EVM is so vital is that it helps us in obtaining - 1- Work performance measurements 2- Budget forecasts Until now it has been established that EVM helps in achieving a lot of clarity on the direction and efficiency of a project. Now we shall go into the whole process of deriving certain ratios that help us in achieving the above mentioned objective. First of all, there are three basic pieces of data to be derived – 1- Planned Value (PV) – The authorized budget for a planned piece of work. Sometimes called Budgeted Cost of Work Scheduled (BCWS) 2- Earned Value (EV) – The authorized budget for work actually completed. Sometimes known as Budgeted Cost of Work Performed (BCWP) 3- Actual cost (AC) – The costs actually incurred in completing the work actually achieved. Sometimes called as Actual Cost of Work Performed. The above data gives us three different values if the project is even slightly off-track in terms of cost and its schedule. After knowing the above values, the next step is to find out various ratios which shall help in the understanding of cost control. These ratios are – 1- Schedule variance = EV-PV 2- Cost variance = EV-AC 3- Schedule Performance Index = EV/PV 4- Cost Performance Index = EV/AC Positive Schedule Variance means that the project is behind on time and a –ve CV means that it is costing the company more. Similarly lesser than 1 value of SPI means that less amount of work is accomplished than planned (Song, 50). The above values derived are then used to forecast the cost and schedule of completion of the task. Four such ratios are calculated - 1- Estimate at Completion = BAC /CPI 2- Variance at Completion = BAC-EAC 3- Estimate to Complete = (BAC-EV)/CPI 4- To-complete Performance Index = (BAC-EV)/(BAC-AC) All these ratios assist in the forecasting for the project. For example, TCPI shows how efficient you have to be in the rest of the project in order to complete within budget. This is the real objective of EVM and it is has become widely popular. Until now the ratios have been derived but they have not been explained in sufficient detail. It is for this purpose that we shall take an example with very simple figures so that the whole concept is grasped properly. If we assume that the budget for out project is 10 million dollars and the time duration for its completion is 10 months. Every month 10% of the work is completed and the budget for each month is 1 million dollars. So as per our figures, after two months, 2 million dollars would have been spent and 20% of the work completed. But let us assume that we find that only 10% of the work is completed. To add to that the cost has been three million dollars as opposed to two. The above figures reveal the following information – PV = $ 2 Million. CV = $ 1 Million AC = $ 3 Million These figures mean that there is inconsistency in the progress of project with respect to our plan (we assumed that). After the derivation of the above mentioned rations we get the TCPI ration of 9/7. This index is greater than one which means that the project needs to be implemented with even greater efficiency. There are a few limitations to EVM. It doesn’t explain the quality of work achieved (Solanki, 208). EVM is not a standalone tool. It has to be synchronized with other factors such as a well demarcated plan. If a plan is full of flaws then EVM cannot be of any major help. Another limitation is the communication of results to the colleagues and stakeholders in the company. This tool is a pretty mathematical one and it has a tendency of ignoring the human element. The problems arise when actions are taken on the basis of these ratios which can be objectionable to the ‘human’ element of the company In this tutorial we have covered many different aspects of the EVM. We started off with the importance of EVM and the basic terms that assist us in deriving further complicated ratios. Those ratios were than given imaginary figures in order to have an understanding into the functioning of EVM. The whole purpose of the EVM was then described to be the forecasting and other related purposes. Finally, the limitations were briefly highlighted. EVM should be used as a tool to solve the problems in Project Management and care should be taken that other related factors such as human motivation and capabilities are considered before making any major decision in order to increase productivity. Works Cited – Wirick, D. Public-Sector Project Management: Meeting the Challenges and Achieving Results. New York: John Wiley and Sons, 2009. Print. Stratton, R. The earned value management maturity model. London: Management Concepts, 2006. Print. Song, L. Earned Value Management: A Global and Cross-Industry Perspective on Current EVM Practice on Current EVM Practice. New York: Project Management Institute, 2010. Print. Solanki, P. Earned Value Management: Integrated View of Cost and Schedule Performance. New Delhi: Global India Publications, 2009. Print. Read More