Earned Value Management 1 – Introduction

Program management philosophies routinely change, and with those changes come new tools and metrics. One of the recently accepted philosophies is Earned Value Management (EVM).

Wikipedia has a fantastic article with all of the equations if you’re interested in learning the details. But in the simplest explanation, EVM tracks progress by comparing the budget consumed and claimed accomplishments against what the schedule says should have been spent and what should have been completed. In other words, it determines if the program is on time and on budget.

It conveys this status via two numbers; the Schedule Performance Index (SPI) and the Cost Performance Index (CPI). SPI is the ratio between your earned value (what you claim to have completed) and the planned value (what the schedule says you should have completed). CPI is the ratio between your earned value and the actual cost (what you’ve spent).

In both cases, a value of one is the target, usually represented by green. Less than one means you’re behind schedule and/or over budget, usually red. Greater than one means you’re ahead of schedule and/or under budget, usually blue.
Now, you might be wondering why a value of one is the target for SPI and CPI, instead of greater than one. After all, common sense says being ahead of schedule and under budget is better than on schedule and on budget, right? Well unfortunately, common sense is not a widely accepted program management tool.
You see, an SPI and CPI greater than one will likely lead to the belief you’ve forgotten tasks or you are fudging the numbers or your proposal was purposefully high. Of course, the fact that a CPI and SPI of one doesn’t exclude those same assumptions is typically lost on many PMs.
In spite of this, EVM remains popular because it is a proactive tool rather than reactionary one. You can calculate status as frequently as you’d like – most PMs want weekly status – and thus negative trends are easily noticeable and corrective action can be taken before the situation really deteriorates.
For example, one or two weeks slightly “in the red” may not be too worrisome, but three weeks becomes a pattern indicative of small problems, which can be easily (i.e. inexpensively) corrected. Conversely, those small problems would likely become large problems needing an expensive correction if the pattern of red hadn’t been reported.
I’m actually a proponent of Earned Value Management, and have used it quite successfully throughout the last half decade. I find it a helpful and informative management tool that deserves its widespread popularity.
What I’m not a proponent of is the “end all, be all” power a lot of PMs assign to the tool. It doesn’t unlock god mode. Not only do PMs ignore other factors in deference to EVM, they don’t recognize the tool itself is highly susceptible to user error.

The follow-up articles in this series on Earned Value Management will discuss these pitfalls, how to recognize them, and the supplemental tool I create to avoid them.  Please stay tuned.

This entry was posted in Process and tagged , . Bookmark the permalink.

One Response to Earned Value Management 1 – Introduction

  1. Pingback: Earned Value Management: Issues and Complications | For Engineers Only

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s