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Key Factors for Earned Value Management

November 16th, 2007 · 995 Comments

There are some key factors that must be in place in order to put Earned Value Management into practice.  These ‘key factors’ are all .  Indeed, part of the benefit of practicing earned value management is the disciplined process that earned value demands up front!  In other words, you cannot implement earned value management without practicing good project management!

Here are the key practices that lead to the needed metrics for EVM:

  1. Project scope must be well defined – 100% – in order to have a chance at meaningful metrics.  No more, and no less, of the project scope must be defined, and the clearer it is, the greater the probably of success with earned value metrics.
  2. A detailed must be developed, and it must decompose the project work into measurable work packages.  The project management team must decide on the parameters for the work packages – in terms of duration and resources required.
  3. Identify who exactly will perform the work packages, whether done in-house or outsourced.  Decisions on resources will involve tradeoffs regarding cost and schedule.  The project plan must be based on the decision and be associated with the actual planned resources.
  4. Develop a formal schedule, incorporating the work packages from the WBS in detail.
  5. Formalize budgets for all defined tasks/work packages and resources.  This should not include contingencies or management reserves, as the potential risks and variances should be incorporated in the estimates.

In the final analysis, the following equations will hold:

Planned value – scheduled work + authorized budget

Earned value = completed authorized work + same authorized budget

So, for earned value management to be practiced effectively, the must include the budget and schedule.  In addition, there must be a plan for capturing actual costs and work completed.  On the latter point, the project team or supporting organization must be equipped to capture PROJECT costs – as opposed to functional costs – which could be a trick depending on how the organization is set up for accounting.

A final key consideration up front is to determine the metrics for converting planned value to earned value.  In other words, when is a work package complete, or partially complete?  This ideally is a consideration when defining the work packages.  A couple of approaches include a. defining specific milestones that are assigned a value, or b. defining a value for the start or completion of a work package.

The objective is to be able to manage by exception and forecast final required costs.
John Reiling, PMP
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Tags: Project Management Process