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Basics of Earned Value
April, 2003 -
Project Management is often defined as the integrated management and control
of Time, Cost, Resources and Quality for the successful on time and on
budget completion of projects. Traditional approaches to PM ranged from
simple Gantt Charts which help in representing the work to be done on a time
scale to techniques likes CPM and PERT that addresses the needs of
deterministic and probabilistic scheduling. All of these techniques tend to
be used primarily for managing time. Cost is often measured independently by
the accountants. This separation between cost and time is often the cause of
project failure because the executing team is often unable to detect cost
overruns until they are well past the point where they can change the
outcome of the project.
Lets start by calculating the two basic measures of performance SPI and CPI –
Just looking at SPI and CPI we know that we have a problem in that we are both over budget and behind schedule. A lot of work has been done on the use of SPI and CPI early in the project to predict the final outcome. Most of the work has been done in the US defense industry where researchers have looked at dozens of completed projects and tried to correlate their outcome with the status of their SPI and CPI early on during the project. Most studies show that the value of SPI and CPI when the project is only 20% complete can very accurately predict the final outcome. Using heuristics developed from these studies we can predict the following-
Conventional wisdom says that your ability to change the outcome of a project is maximum at the start or the project and minimum near the end of the project. So it makes good sense to detect problems early and take action when you have room for maneuver. If you think about the 20% point intuitively, you’ll note that the any estimation errors that are leading to low CPI (i.e. budget overrun) are likely to effect the remaining activities of the project at the same rate, similarly the performance of your resources in execution is unlikely to get any better than what they have proven capable of in the first fifth of the project.
Given the importance of early detection, think about conventional project management and how little it can tell you from the fact that you have completed two floors and 80% of the third and spent 28 Million Rupees. Because of this, problems often evade early detection and by the time someone detects the problem its too late in the project to do much about it i.e. in a stage where the project is controlling the project manger instead of vice versa.
One final point on EVPM, typically the presentation that you use with EVPM reporting is to plot SPI and CPI at periodic intervals i.e. fortnightly, monthly. This gets you a very clear view of the project - where you stand now and the trend. You can use the trend display to access the reaction of the project to your actions and revise the plan in response to the direction and intensity of the trends. Professional project management software packages (i.e. Primavera Project Planner) give you the ability to calculate and monitor EVPM parameters, in fact they can let you set alerts that will identify groups of activities that have moved beyond the pre set upper and lower limits for CPI or SPI, liberating your time from calculations so that your can spend your time in planning and controlling activities to keep the project on track.
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