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Earned Value Management and RoI - what it means to you

Tue, 02/02/2010 - 11:23 — Hugo_Minney

Earned Value Management -- and return on investment -- what it means for the public good

Earned Value Management is not a new concept -- it's been around, but often not properly implemented, since the 1950s.

But what actually is it?

Earned Value Management (EVM) is a combination of continually realising benefits and performance managing a project.
With EVM, you recognise the value of each deliverable throughout the project life cycle (i.e. the value of each stage of the project). This means that; not only can you tell how much of the project budget and time has been spent, but you can also tell whether you're on track to deliver -- in a scientific manner, rather than the rule of thumb.

So what good does that actually do?

Instead of just having one magnificent prize (the big shiny thing) at the end of a project, we have clearly defined sub prizes along the way. And because they have planned values (PV) attached, people can see how much progress is being made. Put simply, Earned Value (EV) is where the Planned Value (PV, a realistic assigned value on the basis of the benefits expected) has been completed.
By using Earned Value, you can show something more important than "we've delivered a big shiny thing" -- he can show what that “big shiny thing” is for. Planned Value can include the impact, or benefit, you get when you deliver this component.
For example: preparing a job specification does not of itself deliver any benefit; but without a job specification, a new staff role can't proceed, which probably prevents a new service. Therefore, we assign a Planned Value to the work plan specification which recognises how important this deliverable is. Then the Planned Value becomes an Earned Value once it has been "delivered".
Of course the main constraint on Earned Value Management (EVM) is that the sum total of all the Earned Values of each sub prize (EVsub-project or PVcompleted sub-project) cannot exceed the total value of the benefits of the project (the realistic value of all the benefits together).

Equation for whole project Earned Value

Or for the Earned Value at any single point in the project:

Equation for Earned Value at this point of the project

This means the Planned Values have to be assigned sensibly, because the Earned Value at any point in the project represents completely Planned Values.
There are some excellent graphs on Wikipedia which illustrate this: they are in the public domain so I have linked them here.
Illustration from Wikipedia Fig 1Fig 1 illustrates project planning without Earned Value. You know what you are spent against the plan, but you don't know whether this is a good thing, or whether the project has just come to a stop. To credit, the people running this project have estimated Planned Value on the basis of Planned Cost.
Illustration from Wikipedia on Earned Value ManagementFig 2 illustrates the same thing without actual costs, which shows the project performance and as a basis for performance management.
Fig 3 illustrates the same project, comparing Earned Value with Actual Costs. This way you can see the variance, which is far more useful.
Wikipedia graph on Earned Value ManagementFig 4 combines all of the above graphs to show everything (effectively performance manage the whole project) on a single sheet of paper. Putting all of the information into one place is usually the most effective way to get everybody "on the same page".
From my personal experience, giving people the means to do a better job very results in a better job: people do what you inspect not what you expect.

Using EVM outside of IT projects

EVM was, perhaps inevitably, originally designed for the US Department of Defence. Where it is used in major government projects in the UK, it is often attached to IT projects.
But I use EVM for non-IT projects, project involving service change and benefits to patients, users, public health, public care, and delivering for the public good.

How can you use this?

One of the biggest challenges for the public good is putting a realistic and sensible value, which is measurable, onto the deliverables from a project. It means that projects are very difficult to manage; it can make it very difficult for someone taking over project partway through; and it almost universally de-motivates staff working on a project.
Perhaps the challenge is to bring in someone with outside experience who can ask the right questions; who can understand the value from inside people's heads, and then define an easy and sensible way of measuring.
With this in place, you can expect more successful delivery, and much better value for your investment.

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