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PROJECT PERFORMANCE
98% of large-scale projects face cost
overruns or delays, and the average cost
increase is 80%.
HexagonPPM.com
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| WHITE PAPER
A recent McKinsey report estimates that 98 percent of large-
scale projects face cost overruns or delays, and the average
cost increase is 80 percent1. With the complexity involved for
such projects, it’s far too easy for stakeholders to discover
that their budgets are underwater only after it’s too late to
make a difference. But suppose there was a way to reliably
predict when a project was going to finish, and how much it
was going to cost, at less than 20 percent of the way in? This
is the extraordinary, under-hyped ability of Earned Value
Management (EVM).
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The reality is that the EIA-748 standard merely represents an This paper will explain the core principles of EVM and
extreme end of a wide spectrum of possible configurations identify best-fit approaches to implementing those
that leverage some highly useful methodologies. Earned principles. Project management professionals should be able
Value Management is, at its core, a productive method to use this information to demonstrate that an EVM system
of doing what project controls professionals already do: can be successfully executed within their organization, thus
analyzing cost and schedule data to improve project convincing executives and decisionmakers that EVM isn’t a
performance. process they should be wary of but rather something that
should be a part of their overall project management plan.
The application of EVM can be flexible, varying in rigor based
upon the needs of a project or organization. An effective Topics to be reviewed include: foundational data required
EVM implementation, optimized for an organization’s needs, for EVM; creating a fit within organizational culture and
can provide ideal insights into productivity and cost and processes; data integration to drive Key Performance
schedule forecasts for those in a stakeholder or executive Indicators (KPI) and metrics; different uses and adoption of
role. Provided as summaries, graphics, and drilldown views, EVM in select industries; and applying the “right” amount
this information can allow senior managers to roll up earned of EVM.
value across projects, whether it’s for a single portfolio
or a division of their organization, to provide insight into
enterprise-wide performance.
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The Advantage of EVM
In simplest terms, Earned Value (EV) is progress expressed 1. How much have we completed so far?
as a monetary amount: the overall percentage that a project
2. Are we on schedule?
is complete, multiplied by the total budgeted cost. For
3. Are we within budget?
example, a $1 million project at 50 percent completion has
an earned value of $500,000. Earned Value Management
is the methodology of applying EV to measure, forecast, Implemented in an organization, EVM can provide a set
and improve projects performance. Earned Value can be of guidelines, metrics that can trigger alerts at various
compared against the schedule, cost actuals, and other thresholds, alerting project managers or other users to take
information to answer critical project controls questions: corrective action on a project.
PV AC EV
PLANNED VALUE ACTUAL COST EARNED VALUE
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Visualizing Progress
A number of methods exist to track progress, percentage Variance measurements are typically calculated in the form
complete, within a project: milestones, schedule driven, of an Index, where a measurement that exceeds a given
50/50, and so on. With a decent calculation of progress, EVM threshold can signal problems worthy of attention.
can turn a percentage complete into a clear picture of how
• Cost Performance Index (CPI): EV/AC. If Earned Value is
that status measures against what was initially planned.
$90 and actuals are $100, CPI is 0.9
It provides an answer to the question, “So, is 45 percent
complete good?” • Schedule Performance Index (SPI): EV/PV. If Earned Value
is $110 and Planned Value is $100, SPI is 1.1
Consulting the schedule to determine work scheduled
for completion by a specific date, you can determine the The true benefit of EVM here is that it allows the user to
Planned Value (PV) and compare it to Earned Value. If EV understand the distinct relationship between cost and
< PV, the project is behind schedule. If EV > PV, the project schedule to a project, allowing more informed decision
is ahead of schedule. EV can be compared against actual making and, with regular project updates, allowing the
costs (AC) in a similar fashion to determine whether project user to distinguish between minor, expected fluctuations
costs are exceeding the budgeted amount. In the somewhat in a project and discrepancies that deserve attention. In
exaggerated example below, the project is behind schedule the example above, you can see that actuals diverted from
and is also accumulating higher-than-expected costs to get the predicted curve very early on, and evaluation of the CPI
less done. would have identified the problem at that point.
Cumulative Cost
BAC
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Cost
A
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Va Schedule
ed Variance
ann
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Ea
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Predicting Accurately
EVM has proven to be a highly effective predictor based on
past performance, so capturing this information provides a
valuable tool for forecasting and serving as an early warning
system throughout the project lifecycle. In fact, at 20 percent
completion, EVM methods can be applied to a forecast that’s
accurate within ± 10 percent of final project costs.
EAC
Variance at
Completion
BAC
Projected
Delay
st
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A
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Va
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EV
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Common EVM Misperceptions
EVM is surrounded by misconceptions that hinder its compliant system imply a laborious level of detail that must
adoption. While executives may be aware of the benefits be recorded and tracked to ensure an accurate measure of
associated with EVM, they are relayed stories of rigid, costly, earned value. Organizations new to EVM, or with immature
and unsustainable implementations that provide a false processes, would find this level of detail very burdensome.
understanding of what is actually required. An EVM system relies on employees to accurately indicate
times of productivity to measure progress. Within this data
Possibly the most significant misconception is the frequent capturing struggle, many find themselves in a minefield of
conflation of EVM with the rigorous systems designed to information, having to record data from different sources.
comply with the EIA-748 standard, which is often mandated Human error becomes a greater risk with this type of
by government agencies and contractors on projects of a reporting. However, there are less cumbersome ways to
significant size. Interested parties assume that a particularly collect data and it is not necessary to begin collecting
complex type of EVM process must be implemented by any data at a much greater level of detail if that detail does not
organization and may avoid implementing EVM altogether, actually provide valuable information.
fearing the cost and effort needed to fulfill the level of
rigidness and the extensive tracking details prescribed Another obstacle voiced by many is the unfamiliar
by EIA-748. terminology and formulas necessary to execute Earned
Value (EV) metrics, making it difficult to train employees and
The overhead expense – in both financial and labor difficult to translate findings for executive consumption.
resources – stemming from the implementation of an
EVM system is an understandable concern for any kind of All of these concerns have hindered the support project
organization. Undertaking an added (and potentially very management professionals garner for the implementation
costly) expense for performance measurement is often of an EVM system within their organization. However, there
looked upon as an unwelcome additional cost, rather than an is a way to make EVM applicable, practical, and actionable
investment leading toward cost reduction. so that the concept is not only approachable, but also of
interest for executives and decision-makers within an
The sustainability of the EVM process has also been a cause organization, and not just practitioners of project controls.
for concern. Again, the requirements of an EIA-748
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Foundations of EVM
EVM exists within an organization’s project management some projects may require this level of precision reporting,
lifecycle, building upon a solid project controls framework it can be cumbersome and costly. Progress measurement
by adding process standards and performance metrics. with this level of detail will not work for many projects. With
EVM is tightly integrated into the existing project controls complex projects, sometimes there is simply too much data
foundation, as it depends on vital project data as pillars to or too many different departments are involved to safely
support its implementation. Before attempting to harness track measurement without error. Understandably, there
the power of EVM, an organization must first evaluate its can be opposition to this process if the project is relatively
readiness to deliver the following fundamental elements: simple and does not require that level of rigor.
EVM compares work completed against work planned, Effective Change Management
so the next step is creating a time-phased budget for the
To be truly effective, an EVM solution must integrate
project, to determine when these costs will be paid. Time
change management. Throughout the life of a project, there
and budget work together to give you a benchmark that you
will be changes and unforeseen events. A methodology
will measure against to determine Earned Value.
to identify, approve, and allocate funds to address these
changes should be inherent within the EVMS. Changing
budgets within a separate system would be a waste of time
Progress Data and resource. Tools should support initiating, reviewing,
and approving budget change requests, pulling information
Similar to scope, measuring progress at too fine a level
for distinctive contingencies; and outlining the justification
can be problematic. This is an area where the perceived
required in change management.
overhead involved with EVM can be disconcerting.
Certainly, progress can be measured by tracking all the
activities of all resources assigned to all tasks applied
against a project’s WBS. While
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Capabilities Derived from EVM
What capabilities and information should an organization be 4. Ability to track trends over time. Typically, this is
striving for through EVM? The following describes five key understood to mean performance to date, but ideally this
areas that EVM should be delivering: capability will extend to looking at trends over different
times as well. How has performance changed recently (e.g.
1. Ability to compare performance against performance the past month or quarter on a multi-year project) and
baselines. One must be able to understand how our does this show a more appropriate trend?
current performance differs from the original budget, the
current budget, the current forecast, etc. and importantly, Drive changes in behavior. As initially stated, one of the
answer why. principles of EVM is to improve performance. As such, it
should reveal trends or warning signs to be addressed. This
2. Ability to forecast Estimate At Complete (EAC) and
information should be delivered to the individuals within the
Estimate To Complete (ETC). Inherent in these measures is
organization that can make business decisions and shape
a clear understanding of what has been spent so far and
the course of a project for the better.
the current status of the project in question.
EcoSys provides a
number of specific
capabilities that aid in
the execution of EVM at
any level of rigor.
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Right-Sized EVM
Beyond implementing the bare bones described above, • Create a full project performance picture. This means
working toward optimized EVM involves a fair amount monitoring non-EV key performance indicators (KPIs) in
of tinkering and fine tuning. Outside the constraints of conjunction with EV metrics.
compliance, EVM offers a wide range of configurations • Develop EV metrics on a cross-section of data as
that depend heavily on the needs of your projects and the appropriate – not just costs, but also hours or quantities.
needs of your organization. Given such a range of options, Then be able to roll up EV accordingly.
how do you apply the “right amount” of EVM? What is the
• Document variance analysis and justification. Reporting
minimum EVM before we’ve stripped out too much detail?
on trends and variances alone is insufficient. Having a
The following elements should be achieved:
central record of why variances are occurring provides a
stronger tool for current and future performance
• Build a solid platform for budgeting, forecasting, and
improvements.
change management.
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Achieving EVM Success with Software
Much of the effort associated with Earned Value • Ease of use. What elements of the software are familiar to
Management can be mitigated through the implementation the end user and encourage adoption?
of software. An organization considering the adoption
• Built-in API’s for scheduling and accounting application
of various EVM principles should consider the following
integration.
capabilities when evaluating Enterprise Projects
• Fully tailorable terminology, EV/Credit rules, and progress
Performance software:
cycle. Will the software allow approaches beyond strict
• Accessibility. How do users interact with the software? EIA-748 compliance and techniques?
What kind of requirements do they need? Can they make
• The ability to provide cumulative and time phased/
updates from the field? Are there limitations that may
periodic EV
cause delays in collecting accurate cost and schedule
information? • Comprehensive reports, graphs, and performance
dashboards
• Scalability. Are you confident that the solution will be as
effective across the enterprise as it is for any initial “pilot” • Robust versioning/snapshot mechanisms
implementation?
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Flexible EVM with EcoSys™
EcoSys™ Enterprise Project Performance software provides
a centralized hub all project and opportunity related • Users have real-time access to Earned Value analytics,
data. EcoSys provides a solid foundation for Earned Value including four best-practice Independent Estimate at
project, and contract data, best-practices project controls • Scalable system architecture allows large and complex
and planning tools, and role-based reporting and analytics. projects to operate side by side with smaller and more
While many organizations have leveraged EcoSys to predictable projects, with unique levels of detail assigned
facilitate full EIA-748 compliance for large government to each. Level of detail can also be applied differently
contracts, those same organizations – and many more – take within larger projects to direct scrutiny where it’s needed.
advantage of the platform’s flexibility to adopt right-sized
• Progress measurement can be imported from several
EVM for their other projects. In addition to the efficiency and
different formats, or it can be entered directly in EcoSys.
communications benefits, the tool provides a number of
Progress Measurement can also be routed through a
specific capabilities that can aid in the execution of Earned
workflow for approval.
Value at any level of rigor :
• Analytical dashboards can be configured specifically for
• Users can establish various thresholds for different
Earned Value Management, with drill-down capabilities
projects, or a different scope within the same project
for quick root-cause analysis.
– monetary thresholds, percent thresholds, or a
combination of the two. • The collaborative capabilities of the tool allow for timely
and meaningful input from various key stakeholders,
• Best practice progress measurement techniques can be
on topics like risk mitigation, RFIs, cost and schedule
applied to unique elements of the project – for example
analysis, and change management, all viewable in
through the work breakdown structure – to properly
determine percent complete. one location.
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Examples of Flexible EVM
The following examples illustrate successful best-fit approaches to EVM adoption.
A nuclear power contractor with several projects in R&D, • Allowing the EV techniques to vary by work packages,
construction, and services across North America has utilizing the concept of the right EV tracking for the right
successfully implemented EVM within their organization. work package;
Standardized on industry leading ERP and scheduling • Keeping the full time-phased history of EV for a month so
systems, the company desired a centralized source of they were able to see how EV improved over time.
project data that would provide accurate forecasts for a high
profile project while providing visibility into performance for They looked at performance based on month, year, and
their customers. To accomplish this, they added a project project life to highlight long-term and local trends starting
controls platform that integrated with their other systems to develop. The have also integrated changed management
and served as the EV reporting engine. into their current budget and forecasts.
They were tracking percent complete in the scheduling The organization was able to take EV reports and reference
system, which served as the source for progress them not only on baseline budget but also current budget
measurement. Resource loading was also supplied from and current forecast, thus allowing them to change the
the scheduling system and actual costs and commitments budgets or forecasts in real time. This gave them the
were sent to the Enterprise Projects Performance system ability to analyze performance not just by work breakdown
from the ERP. Approved change order and time sheet data structure but by discipline, by alternate breakdown
from contractors were then integrated within the Enterprise structure of different sorts.
Projects Performance hub, which became their EVM
environment. Highlights of the project include:
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Federal Transportation Agency
Another example of how EVM was implemented within an coming out of their enterprise financial system. It was also
organization was the system that was a part of the U.S. vital for the agency to check what its vendors were reporting
federal transportation program. The multi-billion dollar so they could submit their Cost Performance reports
program was scheduled to modernize core transportation based on standard percent completion templates from
infrastructure in multiple locations across the country. their contractors. With real time data being added into the
The goals for this program were: standardizing progress system, they were able reconcile what their vendors were
measurement, milestone percent completion, and the ability submitting for payment with and what they were reporting in
to use standard project templates in their terms of performance and progress.
scheduling system.
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Engineering & Construction Firm
A direct-hire contractor with a 40-year resumé For small projects, they create a document that outlines
and construction expertise in power, oil & gas, and how work and performance will be measured. In this simpler
petrochemical industries has adopted EVM tailored to the approach, the organization would track CPI and SPI as its
requirements and complexity of any given project. For large key performance indicators. When performing according
cost-plus or time-and-materials contracts, they utilize to plan, these metrics equal 1. With designated thresholds
an EVM approach that fully complies with the 32 EIA-748 (e.g. below 0.9, signaling lower than planned productivity),
guidelines. For medium projects and Firm Fixed Price (FFP) this triggers a red flag that needs to be investigated right
projects, they use a risk-based and scalable EVM system away. These measures would also be used in revising the
that complies with the seven principles of EVMS contained periodically updated forecast.
in EIA-748, and adopt selected EIA-748 guidelines.
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Measure Progress.
Predict Outcomes.
Improve Performance.
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