The art and science of implementing software packages to manage projects is maturing. As a result, in addition to “planning your work and working your plan,” you should be measuring progress against the plan.
Earned value management (EVM) is a method for evaluating project performance. It relies on three primary measurements to calculate a snapshot or “to date” cost and schedule performance index. Furthermore, it enables users to forecast the same indexes at the end of the project.
The three primary EVM measurements are
1) planned value (PV), or the value of the work to be completed. PV answers the question “How much work did you plan to have done by now?” To keep things simple, let’s say that the configuration phase of a software implementation project requires 1,000 hours of work at a blended cost of $100 per hour, for a total PV of $100,000.
2) earned value (EV), or the value of the work actually completed to date. EV answers the question “How much work is actually done?” If only 80% of the tasks required to complete the configuration phase are complete, the EV is $80,000.
3) actual cost (AC), or the actual cost incurred to date on the particular tasks being measured. AC answers the question “What is the cost of the work you have already completed?” For this example, let’s estimate that the AC is $90,000.
After gathering the data, two critical performance indexes can be established:
1) cost performance index (CPI). The CPI gives a project manager an indication of whether he is ahead of or behind budget as it relates to cost. To calculate the CPI, divide the EV (earned value) by the AC (actual cost). In the example, the CPI is $80,000 divided by $90,000, which results in a CPI of .88.
2) schedule performance index (SPI). The SPI gives a project manager an indication of whether he is ahead of or behind schedule as it relates to work actually completed. To calculate the SPI, divide the EV (earned value) by the PV (planned value). In the example, the SPI is $80,000 divided by $100,000, which results in an SPI of .8.
What do the numbers mean?
When the CPI and the SPI equal 1.0, the budget and work schedule are “on plan.” If the index is greater than 1, the project is moving ahead of plan. In the case of the CPI, the project is costing less than planned, and in the case of the SPI, the project team is accomplishing more work than was planned to be accomplished to date.
In instances when the indexes are less than 1, the project can be categorized as “below plan,” meaning that it costs more and that the team is accomplishing less work than was planned to be accomplished to date. Using the example above, where the CPI is .88 and the SPI is .8, the project is costing more and taking more time than planned. Based on this information, the project’s manager, executive sponsor, and steering committee should put together a plan that “catches up” the work not yet completed, containing costs or readjusting the budget or schedule budget accordingly. In addition, the project manager can estimate what it will take – in time and dollars – to complete the project, based on the indexes to date and by making assumptions about the project going forward.
A cornerstone requirement of EVM is the establishment of an accurate baseline—the PV– which can be accomplished by performing thoughtful and thorough scoping and estimating, up front, for every project. The project manager should consult with all core team members to build a “bottoms up” plan for the amount of effort that will be needed to successfully complete the project. The project’s executive sponsor and steering committee must validate the scope of the plan to ensure that the project team will be completing all the required work, including the work that must be completed to achieve the project’s predefined success criteria.
Establishing costing standards is also required for successful implementation of EVM. The actual “labor cost” calculation can be as simple or as complex as your organization requires. You can use a blended cost of all project resources, assign a cost per role, or even assign a cost per individual assigned to the project. You should also include other costs such as hardware, software, training, travel, and consulting fees.
Establishing EVM as a measurement method does not preclude good old-fashioned hard work, communications, and teamwork. If the project team is rewarded for positive indexes, EVM encourages everyone involved to stay focused on the scope of the project and not digress to other tasks, which would require the factoring of a change order into the overall project plan and indexes.
Implementing EVM enables project teams to save time and cut to the chase in biweekly steering committee meetings. The agenda for these meetings should focus solely on CPI and SPI reporting and analysis; significant decisions made since the previous meeting; critical path tasks that have slipped behind budget and/or schedule, and the recommended plans to get them back on track; risk identification and mitigation plan review; and, a discussion of issues for which the project team needs feedback or guidance from the steering committee.
Todd Misemer is director of professional services for Ecometry Corp., a supplier of software for multichannel merchnts. For more about Ecometry, visit www.ecometry.com.