Contributor: John Hoffman, CFM, PMP
More and more federal contracts require an earned value management system—a technique for measuring project performance through tracking scope, schedule, and cost—as a basis for tracking project performance. Most believe this is a complicated system. However, once you get past the formulas and terminology, it’s easy to see how earned value can be a valuable management tool to any project.
Say You’re Building a Shed…
Upon being awarded a project, the project manager develops the initial baseline, setting the budget and schedule against the work breakdown structure.
To demonstrate this concept, say you’re building a shed in your backyard. Think about your:
- Total budget – $1,000
- Start and completion date – 10 days to complete the project, with 10 milestones you’ll measure daily. This indicates that you’re scheduled to perform 10 percent of work each day.
- Baseline for knowing how much money has been spent – At the end of day four, you assess that you’ve completed all of the scheduled milestones and have actually completed half of the tasks scheduled for day five. Therefore you “earned” 45 percent of the total project value ($450 earned value) while the planned value was set at 40 percent (or $400)—you’re ahead of schedule!
Real-World Application: The Project Management Information System
Under Dewberry’s FEMA Risk MAP contract, the RAMPP Joint Venture (Dewberry, URS, and ESP) have customized MicroSoft Project Server to track all project schedule and cost performance in a system called the Project Management Information System (PMIS). The PMIS tracks more than 350 individual projects with a total contract value of approximately $175 million. This is a performance-based contract with a significant amount of award fee tied to schedule performance, measured and reported based on the PMIS. To date, RAMPP has achieved 100 percent of our award fee for Regional Task Orders. Additionally, PMIS allows our RAMPP project management office to review resource allocation, perform workload analysis, and forecast and develop customized reports for project managers to better manage projects.
Back to your shed: By applying earned value management, you reviewed your performance and determined that you’re ahead of schedule with a Schedule Performance Index (earned value/scheduled value) of 1.125.
There are other similar measures that assess cost performance to determine the effectiveness of how much you “earned” versus how much you “spent.” These index values contain generally accepted industry thresholds to determine if a project is within control parameters or if something needs to be changed. The earned value management process is congruent with the Project Management Institute’s Project Management Body of Knowledge as the standard for terminology and guidelines for universal project management.
The backyard shed is a very simple example but the concepts of earned value management prove to be a valuable tool for project managers to assess performance of projects.