Simplified Earned Value Analysis

The Earned Value Analysis (or short EVA, read more in the Cost Management Section) is a common accepted method to track and forecast the project progress. Originally developed for United States Government programs in the 1960s, it has since become a significant branch of project management and cost engineering. The Earned Value Analysis has the ability to combine measurements of the project management triangle:

  • Scope
  • Time
  • Cost

The implementation of EVA in the project management environment has one major difficulty that I am observing a lot in the PMO community and this is the correct planning and retrieval of cost information out of the financial systems as the costs need to be planned on a very detailed level like for each nodes of the Work Break Down structure (WBS). During the execution of the project the costs need to be booked and retrieved on the same level, otherwise the Earned Value Analysis cannot provide its value and therefore does not make sense. 

See below an example of a WBS and how it is working in terms of aggregating costs.

WBS

The planning, forecasting and tracking is happening on the activity level (nodes). The higher level simply aggregate the figures.

This approach adds some complexity to the project management as every invoice or other cost needs to be assigned to the right activity, otherwise it won't work properly. For example if you planned a purchase for an activity let’s say for Task 1.2 but the invoice is then billed to the overall project on the top level, the Earned Value Analysis won’t give you detailed information. In this case you could only do a performance analysis on top level, but would not be able to drill down to lower levels to identify the root cause of a deviation in the project progress.

This is usually why project organizations hesitate to implement EVA in their methodology, the financial complexity that without doubt is coming on top of the anyway very complex project management work.

But who said that it is only working with dollars?

Instead of using the financial planning and accounting system the project or portfolio manager could use timesheets or fulfillment-points.

Using time sheets is very straight forward. Instead of giving each activity a price tag the hours of all tasks for the activity is summed up. This leaves out any purchases like hardware, concrete and other, but would still capture the work of the project and this is usally what creating the deviations in 90% of all cases. The project team needs then to fill out timesheets on task level which then aggregates to activity, milestone up to project level. For this you don't need to ensure that every bill is going to the right activity, the aggregation of hours can be simply done within your project management software tool or even with excel. It is as simply like that.

Another option are the fulfillment-points, a virtual value indicator. In the beginning you can assign to all of the project's activities. Here you make an estimation (gutt feeling or any other method) how "valuable" in terms of complexity and effort your activity. So if we assign 100 points for each activity in the example above then the Milestone 1 would be worth 300 points whereas the Milestone 2 only would have 200 points. The total fulfillment-points for the projects would be 500.

Using hours or simply points instead of real planned and actual costs are making the Earned Value Analysis much simpler to implement while giving back almost the same valuable progress tracking information.

One draw-back might be that using non-financial information for the tracking makes it maybe easier to "cheat". But as a good project manager you should anyway never cheat, isn't it?