Earned Value Management

A Global and Cross-Industry Perspective on Current EVM Practice

Lingguang Song

• Publisher: Project Management Institute
• Year: 2010
• Print ISBN:
  9781935589068
• eBook ISBN:
  9781628251333
• Topic: Business
• Subtopic: Management
• Index: Business

Master Earned Value Management for Project Success. This insightful guide provides a global and cross-industry perspective on Earned Value Management (EVM), a critical methodology for integrating cost, schedule, and technical performance in project management. This study, funded by the Project Management Institute (PMI), offers practical guidance for project management practitioners, professional associations, and service providers involved in EVM.

Discover current EVM practices, standards, and related professional services across diverse sectors and geographic regions. Learn how to improve EVM adoption and usage, measure its contributions to project outcomes, and identify critical success factors for successful implementation. This resource is for project managers seeking to enhance project control, improve performance, and achieve greater project success through effective EVM strategies.

CHAPTER 1

Introduction

1.1 Background

In a competitive and rapidly changing business environment, project clients and their contractors from both the government and private sectors around the world are constantly under pressure to achieve better performance in their projects, regardless of their size, industry sector, or geographical location. The desire to do more with less and deliver it faster becomes even more pronounced in times of economic uncertainty. Adding to the complexity of project management practice is the temporary and unique nature of a project that creates greater challenges to the management of project scope, time, and cost performance.

Earned-value management (EVM) provides an integrated management control methodology that combines the measurement of technical, schedule, and cost performance, and it provides forecasts and early warnings of performance issues for timely corrective actions to ensure project success. EVM improves the definition of project scope, prevents scope creep, communicates objective progress to stakeholders, and keeps the project team focused on achieving progress. As EVM usage and its knowledge base continue to expand, the fundamental EVM principles withstand the test of time. Since its formal introduction in 1960s by the U.S. Department of Defense (DOD), numerous studies and several decades of industry practice have shown the value of EVM (e.g., Christensen, 1994; Fleming & Koppelman, 2000; Marshall, 2007). EVM is regarded as a “best practice” and standard for project performance management by many government agencies and private industry practitioners (e.g., DOE, 2008; Kim, Wells, Duffey, 2003). EVM has also been documented as a “best practice” and a critical component of the overall project management framework in the Project Management Institute's (PMI) A Guide to the Project Management Body of Knowledge (PMBOK® Guide), PMI's Practice Standard for Earned Value Management, and various national standards, such as the American National Standards Institute (ANSI)/Electronic Industry Alliance (EIA) 748 standard (PMI, 2004; PMI 2005; NDIA, 2007).

1.2 Problem Statement

The value of EVM is a function of both its practical application and its acceptance across industries and geographic boundaries. At one time a financial reporting requirement mandated on U.S. federally funded contract efforts, EVM has been gradually accepted and successfully applied to a wide variety of projects of various natures and complexities in industries around the world. The usage of EVM continues to expand in the government arena to meet the higher level of demand for transparency and accountability. Meanwhile, private industry, primarily driven by the desire for higher efficiency, has also started to incorporate the concept into its practice and has even developed new ways to make EVM more effective. The increasing level of EVM acceptance and usage is accompanied by the truly evolutionary growth of the EVM knowledge base, practice standards, and other supporting services that cater to the growing need for EVM implementation.

Today, globalization has created more virtual and distributed projects, and it prompts partnership among clients and contractors from different industry sectors and countries. This ever-increasing level of globalization and cross-industry collaboration in project environments generates a great need for a clear understanding of the current EVM practice across geographic and industry boundaries. Some of the frequently asked questions regarding EVM usage, practice standards, and service markets may be:

• What is the degree of EVM in use by industry, by country, and by type of project?
• What does EVM look like outside the U.S. defense industry or the U.S. regionally? How does government-mandated use of EVM differ from voluntary use in various industries?
• What do the various international/national EVM standards look like? Have new standards of practice been adopted in various industries by adapting the original version of EVM to fit specific industry needs?
• What are the size, characteristics, and trends of the EVM marketplace (goods, services, etc.)? How is this marketplace trending by industry/region?
• What are the barriers for further improving EVM acceptance and usage? What improvements to current EVM standards might make them more applicable to a greater variety of industries/regions?

This study is the result of responding to such inquiries initiated by PMI and the PMI College of Performance Management (CPM). It is the hope of the authors that the study can help project management practitioners, professional associations, and service providers involved in EVM better understand and gauge the current level of EVM practice and the user base.

1.3 Objectives and Scope

The goal of this study is to provide understanding of the current practice and future trends of EVM usage, standards, and professional services across different industry sectors and geographic regions through comprehensive literature review and a practitioner opinion survey. More specifically, the objectives of this study on EVM are to:

1. Compare the current EVM practice in different industry sectors and countries. More specifically, EVM users are classified in terms of industry sector, country, or region, and contract type, etc. They are compared in terms of the level of EVM usage, implementation environment, and project outcomes.
2. Identify issues that hinder the acceptance and usage of EVM. For organizations in which EVM is not currently adopted, the study is designed to identify barriers to EVM acceptance. For organizations that have implemented EVM, it is necessary to identify barriers to further enhancing EVM practice to a broader level.
3. Provide understanding of practitioners’ perceptions of the contribution of EVM to project outcomes.
4. Identify critical success factors for EVM implementation based on practitioners’ opinions.

The study was performed during a 1-year period from May 2008 to April 2009. The findings from this study are intended to provide insights for future efforts in enhancing EVM usage and generate inputs to the continuous effort in improving EVM practice. To better understand the scope of this study, a summary of several major areas of study related to EVM practice, the marketplace, and future trends is provided as follows.

1.3.1 EVM Practice in Government Agencies and Private Industries

Originally developed for large and complex defense acquisition projects, EVM has been successful within U.S. federal government agencies for more than four decades. However, it had much less reported usage in private industry in its early years (Anbari, 2003). Although the defense industry-driven EVM was perceived by much of private industry as being overly restrictive and costly to implement, the value of the fundamental EVM principles to project management are never questioned. With efforts from both the defense industry and private industry in recent decades, EVM has been made more accessible and applicable for acquisition projects of varying natures outside the U.S. defense industry. Compared with the more rigorous implementation of EVM in government agencies, different sectors of private industry tend to interpret the EVM methodology in their own context for a more flexible implementation. This observation suggests that EVM users can be largely divided into two groups: government agencies and private industries. Although based on the same principles of EVM, the practice of EVM in these two groups may differ in a variety of ways, such as level of usage and implementation strategies.

1.3.2 Mandatory and Voluntary Use of EVM

It has been said that “motivation determines what you do,” and thus motivation is expected to have an impact on EVM adoption and usage. The use of EVM can be classified according to a user's motivation as mandatory use and voluntary use. With mandated use, mostly in government-funded projects, project clients and their contractors are required to use an EVM system that is expected to meet certain criteria-based practice standards or even be a formally certified system. These criteria-based practice standards typically establish the minimum level of EVM implementation and reporting requirements that must be satisfied. For many government applications, additional accounting requirements may also be imposed. On the other hand, the voluntary use of EVM is primarily motivated by the perceived benefits of EVM to business success, and the acceptance and usage of EVM in this category is continuously growing. Voluntary users from private industry tend to implement EVM in a simplified approach (Fleming & Koppelman, 2000).

1.3.3 EVM in Different Industries and Countries

Another way to look at the EVM user base is through geographic regions or countries and industry classifications. The U.S. has played the leading role in formalizing and disseminating EVM knowledge and applying EVM to a wide variety of industries. Many industrialized nations, such as Australia, Canada, Sweden, and the U.K., as well as some fast-growing economies in Asia and the Middle East, have also followed suit and adopted EVM in their industries. Within the U.S., due to increased business interactions at the national level and merger and acquisition activities, it remains to be seen whether EVM practice is different in various U.S. geographic regions. However, past experience shows that EVM practice does differ by industries. Its practice is affected by multiple factors, such as the nature of the work content, risk level, contract type, budget size, and a handful of organizational and human factors. EVM is less likely to be a one-size-fits-all tool, so an understanding of the industry and regional differences and their impact on EVM practice is therefore necessary.

1.3.4 EVM Practice Standards

The main objective of an EVM practice standard is to define the EVM methodology and best practices so that EVM can be consistently implemented. An EVM practice standard was first formally introduced by the U.S. DOD as an integral part of the Cost/Schedule Control Systems Criteria (C/SCSC), which specifies 35 criteria that a compliant EVM system must satisfy. Based on C/SCSC but with an intention to make the criteria more compatible with the needs of private industry, the ANSI/EIA 748 standard was introduced which requires 32 EVM criteria. The criteria-based philosophy is intended to incorporate the best EVM practices into a set of high–level, goal-oriented statements without mandating detailed system implementation (NDIA, 2007). These practice standards have been adopted by U.S. government agencies, and a number of national standards were also established by several other countries for their defense industries. As to the users in private industry, a different set of practice standards has emerged. Of particular significance, PMI's Practice Standard for Earned Value Management provides guidance on how EVM can be scaled to fit varying project sizes and situations (PMI, 2005).

1.3.5 EVM Market and Growth

The increasing level of EVM usage is also accompanied and supported by a growing service market that provides both commercialized tools and professional services for EVM applications. Many vendors offer computerized EVM tools, and some are integrated with other project management functions. Meanwhile, EVM is not merely a software tool but rather an integrated business process that involves many management functions and people. EVM consulting services are sought by EVM users in the areas of system implementation, training, and EVM system and personnel certification. The demand of U.S. government agencies and their contractors for EVM tools and services is expected to increase with the mandated use of EVM across all U.S. federal agencies. For private industry, the demand from various sectors for EVM tools and services is also expected to continuously grow along with the wider use of EVM.

1.3.6 Improving EVM Acceptance and Usage

To improve EVM acceptance and usage, the barriers for EVM adoption and critical success factors for EVM implementation must be clearly understood. An understanding of the barriers will enable the EVM community to refine EVM practice standards and provide better guidance for EVM users in a wide variety of industries and regions. Moreover, the identification of critical success factors will help current EVM users to better focus on priority issues affecting EVM implementation.

1.4 Methodology

The previously mentioned research objectives were achieved through literature review and survey research. The overall research strategy is shown in Figure 1-1. First, a literature review was conducted to gain understanding of the EVM user population, available practice standards, and EVM services. Second, comparison matrixes were defined for the comparison of EVM usage, standards, and services in different industries and countries. In the third stage of the project, data were collected through a survey and statistically analyzed. The purposes of the survey study were to: (1) compare the differences and similarities of EVM practice in different industries and regions, and (2) understand the practitioners’ perception of the contribution of EVM to project outcomes and identify barriers and critical success factors (CSF) for EVM implementation. Each of the three project phases is elaborated as follows.

1.4.1 Phase 1 – Literature Review of Current EVM Practice

The literature review gives an overview of current EVM practice in different industries and countries based on the EVM literature. This review also provided inputs to the subsequent research activities. Particularly, a better understanding of the target population ensures that the proposed survey and comparison study will be comprehensive and reliable. The EVM user population can be primarily categorized by industry and location. EVM standards are established by several countries at a national level. EVM services can be classified by the nature of the service, such as software tools, consulting, training, and certification. Table 1-1 shows the different categories of EVM users, standards, and services, as well as sample entities.

1.4.2 Phase 2 – Define Comparison Matrixes

The second phase of the project defines three matrixes that are used to compare and evaluate EVM usage, standards, and services in different user sub-populations, respectively. They are described below.

Table 1-1. Target population

Category	Subcategory and Sample Entities
EVM Users
Industry	U.S. military/defense—e.g., DOD U.S. Government—e.g., DOE and NASA Foreign Government—e.g., Defense Departments of Australia, Canada, and U.K. Private industry—e.g., IT, construction, and energy, etc.
Location	U.S. regions—i.e., Northeast, Southeast, Midwest, Southwest, and the West Coun...

Table of contents

• Cover Page
• Copyright Page
• Title Page
• Table of Contents
• List of Figures
• List of Tables
• Executive Summary
• Acknowledgement
• Chapter 1: Introduction
• Chapter 2: Literature Review
• Chapter 3: An Overview of Current EVM Practice
• Chapter 4: EVM Usage in Different Industries and Countries
• Chapter 5: EVM Practice Standards and Service Market
• Chapter 6: EVM Contributions and Usage Improvement
• Chapter 7: Conclusions
• References
• Appendix A
• Appendix B