Understand Earned Value in Under an Hour

Earned value (EV) has grown in popularity over the last several years. To fully appreciate EV, you must understand how the performance measurement baseline links to the WBS, the schedule and the budget. If earned value is to be used, it must first be understood. Often the misunderstanding of how EV management systems are created results in the avoidance of this powerful project management reporting tool. A simple and easy-to-understand approach to EV will be presented to allow you to build upon and master EV techniques.

Introduction

Project control is often a primary focus for the project manager: We strive to control the project plan. The result of the project plan is a tangible outcome that can be quantified and measured. The triple constraint of scope, cost and time must be negotiated to ensure a successful project outcome. Project scope is the foundation of the triple constraint. Often the most neglected of the three, project scope is the foundation of the triple constraint. However, it may also be the most difficult area of the triple constraint to quantify and measure. You'll note that management is notorious for demanding reports on budget and schedule status. (Just think of the last time management inquired about your project scope.) What we do have at our disposal is the work breakdown structure (WBS). Activity-based estimating allows the work duration and cost to be assigned at a detailed level of project execution.

Once the WBS is developed, a schedule can be determined, then cost and duration can be assigned. This allows for the cumulative cost curve to be developed. Then EV can be measured against the rate at which spending is planned. The cumulative cost curve can identify the value at any point during the work schedule - this is called the planned value (PV). We can measure and ascertain the percentage of the work done. We can account for cost - the amount that was actually spent on the work. And with this information we'll be armed with a powerful tool to manage the project - EV.

WBS is dissected into parts that represent a unit of work. Through the years, the infamous 80-hour rule has been handed down from generation to generation of project managers. I have even heard of project managers who keep the unit of work down to 40 hours. Why? When you try to assess how you're doing - looking at 40 or 80 hours is much easier to assess than two months of work. If you can make better assessments of activity progress you will increase the accuracy and validity of your reporting.

How far do you break down a task? I always say, "To the level that makes sense". For customer reporting you would go to a different level of detail than you would for management reporting and yet again to a different level of detail for the employee who will do the work. The objective should be to break the work down into parts that can be measured and identified as completed while not exceeding 80 hours. Using common sense always works best. Keep in mind that the WBS is a tool to help manage your project; it is not a tool to micromanage.

The lowest level for the WBS is the "work package". By definition the work package is "a deliverable at the lowest level of each branch of the WBS" (PMBOK Third Edition, 2004). Duration and cost will be assigned at this level. Once again, remember not to exceed the 80-hour rule.

Now that a WBS has been developed we can estimate the time and cost for each activity. Let's reassess what we have so far. We have a WBS that consists of several levels; the project, its deliverables, tasks and activities.

Other Scope-Defining Products

What else do you have? You can look to contracts, statements of work, requirements, and other organizational items that may have been involved in development of the project plans. You also have subject matter experts (SMEs) and the individuals who will do the work. At the very least, people should be included! They offer valuable input and need to be factored into the estimating process.