Bob is a software professional with 24 years in the industry. He has a bachelor's degree in Geology, and also has extensive experience in the Oil and Gas industry.
So You Want to Build a House
Suppose you wanted to build a house. After securing funds, you might go find a piece of land and just start building, adding on a bit more every day. This might work out if you are both conscientious and lucky, but without paying attention to what you are spending, you are just as likely to get part way through your construction project before running out of funds.
You would definitely have part of a house on your land, but it would be much less valuable than what you had originally intended.
A more realistic approach would be to create a plan of work and assign a budget to each of the tasks in your plan. In project management, using Earned Value Analysis (EVA) provides a useful way to then monitor how well you are doing against your overall plan and budget over time. This analysis can help you make critical decisions that will affect the value you ultimately receive from your efforts.
The Earned Value Analysis Baseline
Once a project gets approval to begin work, using Earned Value Analysis starts with the creation of a Work Breakdown Structure, commonly referred to as the WBS. The WBS comprises a list of tasks and milestones that you will use to monitor the progress of the project.
A simple example of a WBS in our house construction example might look like this:
- Buy land
- Clear land
- Build the foundation
- Build the exterior framework
- Rough in the utilities
- Finish the exterior
- Finish the interior
- Furnish and decorate
Once the WBS is created, each entry is assigned a value that attempts to quantify the cost of delivering the item. In some cases the value will be directly tied to the project budget by assigning a percentage of the overall budget to each WBS item.
Value can also be biased by other factors though. For example, if you want your house to be on a lake front, you might consider the value of obtaining the right property to be much greater than simply what it will cost.
Once values are assigned, they are combined with the estimated schedule delivery dates. The cumulative value plotted over time forms a baseline for the subsequent analysis portion of the EVA process.
Completing Work Items
As work progresses, the value of the completed work items are considered to be earned, and can be accumulated and plotted against the EVA baseline. This comparison of value planned to actual value delivered provides the basic measure of the cost and schedule performance of the project delivery.
Note that in assessing earned value some work items may simply be Yes/No answers indicating whether or not the work was entirely completed. Other work items might require interim milestones, or may need to be broken into finer detail in the work breakdown structure.
For example, imagine the house you are building is at the end of a long and steep access. In this case you might expect to accumulate a partial credit for clearing the land for the access road itself, even though everything else might not be cleared.
It is important to obtain agreements on how value will be earned and accumulated prior to starting work, particularly when working with contractors or if someone outside your own organization is financing the project. The earned value needs to be quantified against specific, measurable completion criteria in order to avoid disputes about the value calculation.
Quantifying and accumulating earned value makes this process different than simply comparing budget and costs measured over time. It provides a way to communicate the progress of a project in terms that more accurately reflect actual work completed.
Comparisons of the EVA plot to the baseline plot also highlight variances that can be used to make timely decisions about scope, schedule and resource commitments as the project progresses.
Issues Using Earned Value Analysis
One challenge to this process comes from handling any changes in scope made after the original baseline is created. Both the baseline and the value of the WBS items need to be re-calculated and apportioned in relation to the scope of the entire project.
Earned value analysis is highly dependent upon accurate reporting and tracking, and may require access to external tracking systems such as an organization's accounting system. The process itself also requires a significant amount of time and effort to implement accurately.
A full list of 32 suggested EVA compliance standards can be found in the ANSI/EIA 748 document published by the American National Standards Institute.
Earned Value Analysis, or EVA, is a project management tool used to measure a project's progress based on the amount of work actually completed. It requires a Work Breakdown Structure, or WBS, which lists the project's required delivery items or key milestones, along with an associated value for each.
A baseline is obtained by accumulating the value with the schedule delivery dates. As WBS items are completed, they are considered to be earned. The completed items value can be accumulated over time and compared to the original baseline to highlight variances from the original plan.
This can then be used to change the scope, schedule or resource commitments as necessary. If changes are necessary, the baseline for the earned value needs to be recalculated, and line items re-valued.
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