Vital Checks for Better Health: How Earned Value Management Can Keep Your IT Projects on Track
R Admin | May 30, 2009
Regarded as a solid means of forcing discipline on project teams and contractors, EVM provides a method for program officials early on to determine if a project will be successful — whether it will come in on budget and on schedule or abysmally miss both marks. What follows is a list of frequently asked questions and explanations gleaned from EVM experts, who described this method of project management and its use in government.
What is EVM?
With Defense Department roots dating to the 1960s and widespread use in the aerospace industry, EVM is a rigorous cost-containment strategy now undergoing a bit of a renaissance in federal information technology contracting. Specifically, Office of Management and Budget officials, in a drive to impose cross-agency performance measures, are demanding that program managers show proof that they have technology programs under control. EVM is a way to give OMB the wealth of budgetary feedback now required, experts say.
For instance, OMB directives spurred the Pension Benefit Guaranty Corp. (PBGC) to use EVM techniques for more than 100 projects, said Valerie Sandy, PBGC’s project office administrator. “Most of our earned value calculations are driven by OMB, which is the agency that provides funding for our initiatives,” she said. “Risky cost-based, rapid-response contracts involving complex technology are also forcing government to embrace earned value as the most effective tool for managing such contracts.”
How does EVM work?
Basically, EVM involves breaking down an IT project into manageable chunks at the project’s inception and then clearly delineating individual work tasks and affixing budget figures to each of those measurable work packages. At prescribed points during the project, officials will do more than simply compare how much an agency has spent on the project against how much was earmarked for expenditure — the basic steps that make up traditional planned vs. actual expense methods.
Instead, project managers using EVM will take the amount spent on a particular task during the time frame and tie it to the amount of work a contractor has accomplished. Then, officials will compare those figures with what program managers had planned to spend and the work contractors had promised to finish. Comparing those numbers yields earned value.
How would EVM work in a government IT setting?
To get a feel for EVM in action, consider this example offered by Quentin Fleming, an author of books about EVM and senior consultant at Primavera Systems: Suppose there is a 12-month, $1 million software project with 10 deliverables, each of which is budgeted at $100,000. At the end of the first quarter, assume the project team in charge has spent $300,000.
In a traditional planned vs. actual analysis, the project would seem to be on target. But what if the vendor had completed only two of the 10 tasks instead of three as prescribed at the project’s onset? This means that $300,000 in funds was spent to accomplish $200,000 worth of work. It soon becomes obvious that this project’s future, which appeared so bright at first, is now “not so good when we realize that for each dollar we spent, we got only 67 cents of value earned,” Fleming said.
Although planned vs. actual analysis is standard operating procedure for most contracts, it is a practice that often lacks accountability measures, said Wayne Abba, an independent EVM consultant who used the techniques extensively in his earlier DOD career. “By just showing expenditures, you have no idea how much work has actually been performed,” he said.
What are the major benefits of EVM?
More than anything, EVM is a method of imposing new levels of accountability on a project and shining a light on potential problems while there is still time to fix them, said Gary Humphreys, another former DOD official who has used EVM extensively. He is now chief executive officer of Humphreys & Associates. “This sets up an early warning system for the program,” he said. “Basically, it forces you to do your homework upfront.”
Further, EVM gives program managers a way to anticipate and cope with the unexpected expenditures and events that plague many projects. “One of the big things possible with EVM is management by exception,” said Ruthanne Schulte, EVM software product manager at Welcom, which develops project portfolio management software. “Cost variances can be highlighted in red, for example, and officials can investigate these areas before they run out of budget.”
Will government agencies buy into EVM?
Experts appear split on the technique’s future in government, with no consensus on whether a significant migration to EVM will take place. “EVM is still not widely accepted in the agencies,” said Schulte, who expects that OMB management processes will push more agencies toward EVM. “New contracts will require EVM in order for the agency to receive high scoring to get all of their projects funded,” she said.
Others aren’t so sure. “Despite its benefits as a management tool, use of EVM will not increase significantly in the next few years,” said Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources.
Bjorklund said EVM will remain strong at DOD, NASA and other agencies that build complex systems. “But there are fewer and fewer IT contracts of the scale that would warrant EVM,” he added. “Similarly, there are far more fixed-price type contracts than the cost type contracts where EVM may be used.”
Still, opportunities to use EVM exist. For instance, officials at U.S. Customs and Border Protection’s Modernization Office incorporated EVM into the Automated Commercial Environment program, said Dave Morrell, the office’s team leader for project management. “EVM is employed on cost-reimbursement task orders only,” he said.
Morrell predicts wider adoption of EVM among government IT program managers. “A broader understanding of EVM and its benefits within the IT industry will further expand its use throughout the federal government,” he said. “EVM is a substantial improvement over the subjective indicators often used in projects reporting past performance, and [the strategies] provide the project manager with more reliable tools with which to predict future performance.”
How difficult is it to incorporate EVM into projects?
Beyond the initial challenges in setting up an EVM system, which still requires a good deal of planning, project managers should prepare for the negative reception the new methods are likely to get from staff members and contracting teams. EVM is almost always a tough sell, and all involved are likely to balk at the level of discipline they will face once the technique is enforced, experts say. “Yes, there is going to be some resistance,” Fleming said. “Some project teams will fight it.”
Much of this reluctance will be tied to the tendency to avoid more disciplined work processes, but other factors could be in play, Schulte said. “I’ve seen some of the biggest problems with people who know they are in trouble and don’t want to open the kimono,” she said, adding that some contractors may fall into this category.
How can managers encourage staff to buy into EVM mandates?
To get past initial EVM resistance, program managers can walk teams through the many reasons why EVM will bolster a project’s performance. Coaxing has its limits, however, so officials likely will have to drive home the fact that using EVM is not optional. It then becomes a matter of giving staff members time to adjust to the new level of discipline, experts agree.
PBGC executive managers and stakeholders began requiring standardized, EVM-compliant monthly reports to get past resistance to the new processes. “This is how we overcame the human factor of any potential noncompliance,” Sandy said. “Users did not want to have reports generated from nonstandard project plans.” With personnel quickly onboard, agency officials were able to accomplish a series of goals. “Project planning is standard, resource leveling is realistic, and all tasks are capturing actual hours worked,” she said.
What potential pitfalls come with EVM?
Failure to properly define a project’s scope and map tasks as they relate to the larger context are the quickest ways to sabotage EVM. Program managers must study all aspects of a project before work is dissected into measurable tasks. “You have to define the scope of project you are working on in order to measure the percentage of work completed,” Fleming said.
It is also important not to get carried away, micromanaging every detail of a project and figuring costs down to the penny. “Resist overkill,” Humphreys said. “If you can measure the status of a project at the milestone level, don’t go to the ‘yardstone’ level. If you can do it at the ‘yardstone’ level, don’t go to the ‘footstone.'” Managers also must be careful not to apply EVM too broadly. “It may not be right for every project,” Abba said. “See how a particular program fits in a portfolio of projects that are related.” Sometimes a particular effort should be given a more flexible budget, he added.
Once program officials have decided where best to apply EVM and have come up with sound baseline plans and reasonable measurements for assigned tasks, it is crucial to make expectations clear to all involved. “Make target costs open and visible,” Abba said. “Let people know exactly what they will be accountable for.”