Role of Earned Value Management Criteria in Project Management

Role of Earned Value Management Criteria in Project Management

Earned Value Management is a project management technique used to measure the performance and progress of projects. EVM can provide accurate estimates of project performance issues in one integrated system.

This estimate alone is an essential contribution to good project quality. Therefore, earned value management is often considered an approach to performance management.

A systematic EVM work process serves to find variations in the project based on a comparison of the work done with the work that has been planned.

EVM is usually used based on total cost and work schedule control, so it cannot be used for purposes outside the project.

The project’s baseline is an essential component of earned value management. It serves as a reference point for all evaluation-related activities.

After conducting an assessment, EVM will provide quantitative data that the project manager can later use as a consideration before making a decision.

Earned Value Management Principles

Earned value management is a system formed based on three essential principles: planned value, gained value, and actual cost. These principles are interrelated. Therefore, the EVM work process assesses all aspects simultaneously, not separately.

According to some employees, the principles of the EVM method seem too straightforward. However, it is actually these principles that underlie the success of a project.

To make it more transparent, the following explains each EVM principle adapted from BSTGlobal.

1. Planned venues

In earned value management, planned revenue is a principle that provides a baseline for tracking project performance. This principle represents the project’s total expected value within the agreed timeframe.

In the context of project consulting, the planned venue is the revenue that must be earned after the project is completed.

2. Earned value

The following principle in earned value management is made value, better known as the total income achieved.

There are many ways to earn income from a project. An example is revenue can be made when the management team assigns costs to projects.

Revenue can also be earned when the project manager assesses the work completed across the WBS project. This assessment is often carried out monthly and is usually based on progress and the remaining work.

3. Actual costs

The last EVM principle, the actual cost, is the market value of the expenses incurred by the project while the work is being done.

This principle provides consultation on how to compare the amount of money spent on the project with the total planned venue and earned value.

Earned Value Management Criteria

Fleming and Koppelman (1994) describes 10 criteria for the implementation of project management based on the concept of earned value, as follows:

1. Management commitment

In applying the concept of earned value, there must be a determination from the project manager to utilize the idea of accumulated value in the management system for the projects they handle.

The commitment must also exist in the company’s leading organization in supporting the decision to use the concept of earned value in project management.

2. Define project scope with work breakdown structure (WBS)

In each project, the first thing that must be done is to determine the project’s scope so that during implementation, the project’s content does not expand, causing project failure.

One technique that can be used and proven effective in limiting the project size is the WBS. WBS shows a work planning hierarchy that is oriented toward the products produced by the project.

The WBS is a reference in determining the activities and resources used to achieve project objectives.

3. Creating management control cells (cost accounts)

The cost account is the meeting between the lowest level of the WBS and the organization’s functions.

The cost account must have four elements: showing work at the task level, having a specific execution time frame for each task; having a budget for the use of resources; and having a responsible party for each cell.

4. Assign functional responsibilities for each most minor part of project management

A project organization is needed with a clear division of responsibilities. The project organization is divided into divisions and subdivisions.

Each division and subdivision has different duties and responsibilities. These duties and responsibilities are by the cost account ownership of each division and sub-division.

5. Create earned value baselines

The next step is to establish a baseline to calculate project performance. The basis for measuring project performance should include all cost accounts and indirect project costs such as incidental costs and profits.

To obtain a basis for measuring project performance, a formal project planning process is used, starting from the estimation, scheduling and budgeting process. For control purposes, management must determine the limits for assessing project performance.

6. Use of formal project scheduling processes

Using earned value requires project control tools such as master schedules, S curves, and bar charts. Project control tools are created through a scheduling process. This tool shows the time frame of each work package and its budget.

7. Indirect cost management

Indirect costs need to be grouped separately from the project’s direct costs. Sometimes indirect costs have a more significant portion of the overall project costs. Therefore, the project’s indirect costs need to be considered and appropriately handled.

8. Periodically estimate the cost of completing the project

One of the benefits of the earned value concept is being able to predict project completion costs (EAC). Based on the project’s actual performance (SPI and CPI), it can be predicted accurately how much more funds are needed to complete it.

9. Project status reporting

Variant limits determined by management are a reference for when management will act. If project performance is outside the predetermined limits, this is a warning signal for management to work.

Applying earned value in project management is an example of implementing management by exception. Management by exception is a type of management system that only takes action when there is a deviation.

10. Develop historical databases

Establishing a historical database allows project improvements to be carried out for the better. A historical database will be used as a reference in project management in the future.

Earned Value Management Benefits

Earned value management is a powerful method with many benefits, so project managers can easily do the following:

  1. Mapping work to cost, reducing unknowns to measurable factors.
  2. Compare and benchmark the current status with the project baseline and identify the critical path.
  3. Create a data-driven framework to take action and make decisions for the future.
  4. Intervene quickly and early (e.g., you can change project scope and budget, restore functionality, get more resources, invest in better technology, set customer expectations, pivot resources, etc.).
  5. Promote increased visibility and create accountability across stakeholders through clear metrics.
  6. Provide insight into the big picture at the project and portfolio level.

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