Earned Value Analysis for Project Management

An essential challenge in Project Management is determining whether a Project is delivering the expected Earned Value while the Project remains in progress. During the 1960s, the U.S. Department of Defence Developed a strategy called PERT (Project Estimation and Review Technique). When combined with CPM (Critical Path Method), it provided an unbiased assessment of Project progress. It helped the project team to determine whether the Project was on track.

At first there was some resistance to utilizing this method within project teams. It was quite cumbersome. The method went through some modifications until it became the Earned Value Management as we know it today. In the 1980s, the building, construction and engineering markets were the very first to embrace EVM for Project Management. It gradually entered into the toolset recommended for Scrum Projects. EVM was then integrated as an ANSI EIA Standard 748-A. This standard was published in 1998.

Earned Value Analysis (EVA) – the Theory Behind it

The objective of EVA is to measure a Project according to the interaction between the Project Scope, the resources (or costs) and the time (or Effort) put into it in order to deliver the final Product. This is the traditional Project Management “Triangle” and applies to both Traditional and Agile Projects. The fundamental distinction in between the two approaches is that Scope is maintained and known in a traditional Project. Time and expenses may vary. An Agile Scrum Project has the inverted approach, where the Scrum Team (Agile Scrum Master, Scrum Product Owner and Scrum Development Team) are fixed and the delivery time is also fixed. As Agile is designed for Change, the unknown is the Scope. These changes are discussed within the Sprint Review Meetings. These changes can be planned as early as the next Sprint within the Sprint Planning Meeting.

The Traditional Approach to EVA

To get a handle on Earned Value Management, here is a short description of Earned Value Analysis. Traditional EVA relies on different formulae utilizing the variables defined below, listed in alphabetic order:-.

  • ‘AC’ = ‘Actual Cost’ – the total of the costs incurred in achieving Work on the activity in a given period.
  • ‘EV’ = ‘Earned Value’ – the Value of the Work actually completed.
  • ‘PC’ = ‘Percentage Complete’ – which can be specified in a different way according to the Organization’s preference.
  • ‘PV’ = ‘Planned Value’ – that portion of the approved cost Estimate Planned to be spent on the given activity during a given period.

Determining the Planned Value.

For Traditional Projects, an in-depth Work Breakdown Structure (WBS) needs to be identified. Each Work Breakdown item needs to be appointed a Value. This is usually specified in Man-Days or Man-Hours of Effort. Once this has been Done, the Planned Value is a sum of the Value of all the Work Breakdown Tasks that are to be analysed. This might be for the entire Project, or a Project stage. Where it is a project stage this could be a subset of Requirements.

Determining Completion for Earned Value.

There are different methods for determining completion, ranging from all-or-nothing to assigning some Value for having started a WBS item. The Organization should choose the category that best fits the type of Work and type of Project. Here are the commonly used variants, or “earning rules”:-

  • 0/100 rule. the Work is either not begun or finished. No incomes are represented unless a Task or activity is finished. This is the most Risk-averse option.
  • 50/50 rule. If a Task has been started, 50% of the overall Task Value is earned. This is the Riskiest assessment, due to the fact that the Task might be really far from half-completed.
  • 25/75 or 20/80 rule. This acknowledges where a Task has been begun. It offers some credit and motivation to the resource( s) involved, without being too optimistic about the Work that remains to be completed.

In an agile Scrum Project, the only acceptable earnings rule is the 0/100 rule.

Does EVM Work in an Agile Environment?

Earned Value Analysis is invaluable for Agile Projects. It is an objective approach for showing whether a Project is delivering the anticipated Value both during and on completion of the Project. The Agile Values and Principles promote the early and frequent delivery of Value. To achieve this there need to be a means of assessing this value. Stakeholders can then decide what action is to take before the next Sprint. This is based on whether the Value earned to date and the Project costs are aligned with the Planned Value.

Our Favourite Agile Books

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