International Journal of Scientific Engineering and Research (IJSER)
www.ijser.in
ISSN (Online): 2347-3878
Volume 1 Issue 1, September 2013
Of c ourse, when the i nverse inde xes a re greater tha n t heir
respective ratios, the project manager knows his project is in
trouble. The forecast indicates the plan will be exceeded, the
reserves will b e con sumed, an d m ore reso urces (tim e a nd
funding) are needed. Understanding the project is failing, the
project m anager is in clined to tak e co rrective actio n. And ,
certainly t he pressures from upper m anagement and the
customer compel the project manager to show that corrective
action is already in progress.
It may not be, but the project manager doesn’t have anything
in his tool kit to say he should do otherwise. Therefore, being
proactive is his sole choice. Fu rthermore, the p roject
manager kno ws th at doing so mething, right o r wro ng, will
buy time. Wishfully, within that time, a miracle happens and
the project gets back on course. If good luck comes his way,
the project is “righted,” and our h ero r eceives a bonus and
maybe even a promotion.
More t han likely, the outcome of a reactionary c orrective
action will n ot b e effectiv e. As m entioned p reviously, an y
change to the execution of the plan causes inefficiency. If the
action t aken i s not t he co rrect one, t hen management has
inadvertently worsened the project performance and has not
helped t he si tuation. S ubsequently, t he m anager, bei ng
proactive, takes another “shot in the dark,” likely worsening
the situ ation, on ce ag ain. Th is pro cess rep eats until it
becomes ob vious t o al l co ncerned t hat t he o nly way to
deliver t he pro duct is to neg otiate add itional tim e an d
funding. The outcome of this negative spiral is th e company
and the project manager gain poor reputations. Additionally,
if th e produ ct is ex tremely important an d its su nk co st is
significant with respect to the amount needed for completion,
the agitated customer will l ikely agree to the ad ded cost and
delivery date extension. Unde r these circum stances, the
company cannot expect rep eat bu siness or futu re
recommendations from this customer.
Another common earned value approach is to manage using
the co st va riance (CV) pe rcentage; i .e., C V divided by the
EV. With th is m ethod th e proj ect m anager tak es correcti ve
action upon breaching an arbitrar y limit; e.g., plus or minus
10 percent. Generally, the results from the CV management
method are as poor as described for CPI.
Certainly, there are s uccessful projects, which have been
managed using earned value indicators; we are not implying
earned value management has no merit. U sing earned value
coupled wi th ear ned sc hedule a s a project m anagement
method greatly increases the opportunity for s uccess, but
improvement is nee ded. Project perform ance data is readily
available, bu t rarely is it u sed adv antageously. Th is is th e
state of today’s management practice.
Until th e mid -nineteenth cen tury, th e g eneral m ethod o f
design did not chan ge a l ot. En gineers used si mple t ools
(such as pe n, paper an d r uler) t o desc ribe t heir bui ldings.
However, with adv ances in m athematics an d building
materials, t he p rocess of design c hanged a nd i mproved
rapidly.
3. Elements of Earned Value Management
EVM in tegrates th ree criti cal ele ments of project
management: scope m anagement, cost m anagement, an d
time management. It req uires t he pe riodic monitoring of
actual expenditures and the amount of work done (expressed
in co st units). To d etermine cost performance, EVM
compares how much we have sp ent to what we planne d to
have spent to do the work we have done. To determine time
performance, i t com pares t he am ount o f work d one t o the
amount of work sc heduled t o be done. To m ake t hese
comparisons, EVM calculates co st and sc hedule va riances,
along wi th p erformance i ndices for project perform ance
management. Based on these results, it forecasts the date and
cost of the project at completion and highlights the possible
need for corre ctive action. E VM uses t he f ollowing project
parameters to evaluate project performance:
Figure 1: Earned value basics
Planned Value (PV): Th is is th e cu mulative planned cost
for the work planned to be done on the project up to a given
point in tim e. It is th e ap proved budget fo r co mpleting t he
work planned so far, and as such it is the cost baseline for the
project. It wa s previ ously ca lled th e budgeted co st of work
scheduled (BCWS).
Budget at Completion (BAC): This i s t he t otal amount o f
money expected to be s pent on the project, and as such it is
the value that PV is planned to reach at completion.
Actual cost (AC): This is the cumulative actual cost spent on
the project s o far, incl uding all accrue d c ost on the work
done. AC wa s pre viously cal led t he act ual cost of w ork
performed (ACWP).
Earned value (EV): This represents the cumulative amount
of work done up to a point in time, expressed in cost units. It
is exp ressed a s t he am ount that was planned t o ha ve been
spent on th e work th at has been co mpleted u p to this po int.
EV was previo usly called th e budgeted co st of wo rk