In the last episode we learned about Earned Value Management (EVM) and the benefits it can bring to a project. A downside of EVM is that it is not commonly understood in many organizations. So if the project stakeholders do not understand what you are reporting they are more likely to ignore the indicators that as a PM you may see as a call to action.
Let’s look at Batman again.
The Bat signal has claimed many origins over the years. In this episode, I am going to focus on Batman’s “Night in the City” Season 2, Episode 13. In this episode Commissioner Gordon invented the bat signal to summon Batman. The idea of the bat signal is really rather simple. Send an alert to Batman in times when Gotham City was in danger. Suppose Gordon or any other member of Gotham City had not communicated to Batman the intent of the signal. What would be the expected response vs. the actual response? Likely, Gotham City would not see the immediate result desired.
Earned Value Management (EVM) is a powerful signal to alert of a projects distress. Project Managers that use EVM need to understand how to communicate and report the signals appropriately to project stakeholders. EVM provides performance measurements based on schedule and cost as well as provide forecasting. Following are typical stakeholder questions and the appropriate EVM tool to answer those questions.
Stakeholder: Are we on schedule?
This question is answered with schedule variance. The schedule variance indicates if the project is currently tracking according to the baseline plan. SV provides the variance in a monetary value.
Schedule Variance (EV-PV = SV)
SV = 0 – This is good. The project is performing according to schedule
SV > 1 – This is great. The project is performing better than scheduled
SV < 1 – This is bad. The project is currently behind schedule
Stakeholder: Are we over budget?
To answer this question we are going to look at cost variance. The cost variance indicates if the project is spending according to the budget. CV provides the variance in a monetary value.
Cost Variance (EV-AC = CV)
CV = 0 – This is good. The project is spending according to budget
CV > 1 – This is great. The project is spending better than budgeted
CV < 1 – This is bad. The project is spending more than budgeted
Stakeholder: How much more will we have to spend?
This is a good question and one that is needed to answer the next question of how much is this going to cost us? To answer this question a project manager can use Estimate to Complete for a statistical answer. ETC is expressed in a monetary value.
Note: ETC can also be calculated by summing up the estimates on the remaining work packages.
Estimate to Complete ((BAC – EV)/CPI = ETC)
Stakeholder: How much is this going to cost us?
This question is answered with Estimate at Completion. EAC is the expected total cost to complete the project. EAC takes into consideration what has been spent (AC) and what is projected to be spent (ETC). EAC is expressed in a monetary value.
Estimate at Completion (AC + ETC = EAC)
Consider a tolerance for measuring the health of EAC. For this example we are using a stop light indicator to show the health. A status of green shows the project is within a 10% tolerance. Red shows the project will exceed the 10% tolerance. Yellow shows the project is nearing a 10% tolerance and needs review.
Things to consider before implementing EVM on your project:
- How is status being reported today? How will this change what your stakeholders see on a regular basis? If the change is completely new to the organization offer a reference guide or training so stakeholders can become comfortable with the new metric.
- Explain the math. A project status report holds more weight when there is quantifiable math rather than a feeling or perception.
- Report the status early and often. Nobody likes to think things are on track only to find out at the end of the month the project is red and will not make its scheduled milestone.
- Constantly evolve. Once the new reporting metrics are rolled out, you may find that adjustments need to be made. Don’t be afraid to make small adjustments until you are providing value to your project and to the organization.
Empowering your stakeholders with knowledge of your PM tools will help to ensure the project receives the support it needs and helps the team to succeed. A project management superhero will find EVM a valuable part of the PM tool belt.