Earned Value Management Versus Traditional Management

Earned Value Management Versus Traditional Management
By Atul Gaur

Earned Value Management (EVM): is a technique used to track the progress and status of a project and to forecast its future performance. EVM systematically integrates measurement of cost, schedule, and scope accomplishments on a project. EVM was developed in 1960’s by Department of Defense (DOD) to keep track of defense projects and currently is most preferred Project Management technique world over. EVM provides organizations with methodology needed to integrate the management of project scope, schedule and cost.

How Management Can Benefit? EVM can play a crucial role in answering the following management questions that are crucial to success of every project.

1. Are we ahead or behind schedule?
2. How efficiently are we using our time?
3. When is the project likely to be completed?
4. Are we currently over or under budget?
5. How efficiently are we using our resources?
6. What is the remaining work likely to cost?
7. What is the entire project likely to cost?
8. How much we will be over or under budget at the end?

How Project Managers Can Benefit? EVM helps project managers identify the following:

1. Where problems are occurring
2. Whether the problems are critical or not
3. What it will take to get the project back on track

The Traditional Management Approach: In traditional approach, there are two data sources, the budget (or planned) expenditures, and the actual expenditures. The comparison of budget versus actual expenditure merely indicates, what was planned to be spent versus what was actually spent at any given time. It does not indicate what has actually been produced for the amount of money spent, neither does it indicate whether it is being produced at the rate, or according to schedule, originally planned. In other words it does not relate the true cost performance of the project.
How EVM Differs? In EVM there are three data sources:

1. The budget or planned value of work scheduled
2. The actual value of work completed
3. The earned value of physical work completed

Consider the following graph:

Figure 1: Earned Value Graph

The three lines in the above graph correspond to the three components of the earned value: budget (in red), actual expenditure (in blue) and the earned value of the production ( in green) From the above graph it can be inferred that:

1. Project is expending (blue line) more than it was budgeted (red line). Given the progression of the line it is also apparent that the trend has continued since the beginning of the project.

2. By tracking the budget line (in red) to the earned value line (in blue) it can be concluded the project is producing more than it was budgeted to produce to date.

3. By comparing the actual expenditure (in blue) to earned value (in green), it is immediately apparent that the project spending more than it has earned.

Two conclusions can be drawn from the above:

1. Schedule Variance: Earned (55) and Budget (30) indicates that the project is experiencing a schedule variance of (25). Another way of stating is that the project is ahead of schedule in comparison for what was supposed to be done for the time frame measured.

2. Cost Variance: Comparing Earned (55) and Actual (60) reveals that the project is experiencing cost variance of (-5). Another way of stating is that the project is experiencing a cost overrun of 5.

Along with schedule and cost variance EVM enables a project manager to forecast the final result of the project (the orange line).

Conclusion: It can be concluded that in traditional management provides answers to questions like how much money and time a particular job is likely to require prior to starting and once started how much money was spent at any given time. Where as EVM can provides answers to questions like how much money and time a particular job is likely to require prior to starting and once started how much money was spent at any given time in addition to that it also answers questions like what work has been completed to date for the funds expended, what it will take to complete the total job and how long will it take to complete it.

Atul Gaur has aggregated over twelve years of professional experience and devoted more than ten years in the field of Project Management. He’s a Mechanical Engineering graduate from Manipal Institute of Technology (Manipal) and has Operations Management qualification from Management development Institute in Gurgaon. You can read more from Atul on his blog.