What are the best practices for choosing and applying EVM forecast indicators?
Earned Value Management (EVM) is a widely used project management technique that measures the performance and progress of a project based on its scope, schedule, and cost. By comparing the planned value, earned value, and actual cost of a project, EVM can provide valuable insights into the project's status, risks, and future outcomes. However, to make the most of EVM, project managers need to choose and apply appropriate forecast indicators that can help them estimate the project's completion time, cost, and variance. In this article, we will discuss some of the best practices for selecting and using EVM forecast metrics and indicators.
EVM forecast metrics are mathematical formulas that use the current EVM data to predict the future performance and results of a project. The most commonly used EVM forecast metrics are Estimate at Completion (EAC), which predicts the expected total cost of the project at completion; Estimate to Complete (ETC), which predicts the expected remaining cost of the project; Variance at Completion (VAC), which indicates the project's cost overrun or underrun; and To Complete Performance Index (TCPI), which indicates the project's efficiency. All of these metrics provide valuable insights for understanding the potential outcome of a project.
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The iEAC is a calculated forecast of the cost at completion factored by the past historical cost and schedule performance, SPI & CPI. It aims to statistically assess the ‘Integrity’ of a bottom up estimate & current forecasts. iEAC = ACWP ((BAC- BCWP)/CPI*SPI) If CPI & SPI are equal to 1, the formula will output a result equal to the future budget for the remaining work the actual costs to date. But if the CPI and SPI is less than 1, the formula outputs an outturn cost that reflects past performance & will be greater than the budget for the remaining work, the actual costs. iEAC is used to assess the reasonableness of the bottom up forecast. A bottom up forecast should be completed annually & updated with risk & trends, monthly.
EVM forecast indicators are graphical or numerical representations of the EVM forecast metrics that can help project managers visualize and communicate the project's status, trends, and risks. Cost Performance Index (CPI) measures the project's cost efficiency by calculating the ratio of earned value to actual cost. If the CPI is less than 1, it indicates that the project is over budget. Schedule Performance Index (SPI) measures the project's schedule efficiency by calculating the ratio of earned value to planned value. If the SPI is less than 1, it means that the project is behind schedule. Cost Variance (CV) and Schedule Variance (SV) indicate the project's cost performance and schedule performance respectively by calculating the difference between earned value and actual cost/planned value. A negative CV/SV means that the project is over budget/behind schedule, while a positive CV/SV means that the project is under budget/ahead of schedule. Lastly, an S-Curve graphically displays the cumulative planned value, earned value, and actual cost over time to show the progress and deviations of a project.
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What Does £10M negative Schedule Variance Mean? Depending the activities behind schedule in the baseline, the project may/not be behind, if activities are on/near the critical path the project could be behind, but the delay may relate to other non critical issues. Accurate SV relies on baseline change & extension of time being implemented in a timely manner. The project needs to review the CP before knowing if the project is delayed. SV/SPI converge to 1 near the end of the project. CV accuracy is dependent on timely implementation of change into the baseline. If change is not implemented in a timely manner, CV analysis should take account of the change that has not been implemented into the baseline and has contributed to the variance.
When selecting the right EVM forecast indicators, there are several factors to consider, such as the project's size, complexity, duration, objectives, and stakeholders. Generally, it is best to pick indicators that are relevant, reliable, and realistic for the project's scope, schedule, and cost. Additionally, they should be easy to understand, calculate, and communicate to the project team and stakeholders. Furthermore, they should offer meaningful insights into the project's performance, risks, and opportunities. Ultimately, they should support decision-making and corrective actions for the project's success.
For effective application of EVM forecast indicators, regular monitoring, analysis, and reporting of the EVM data and indicators is necessary. To ensure successful project delivery, it is important to apply indicators consistently and accurately throughout the project's life cycle, using the same baseline and assumptions. Additionally, they should be applied frequently and timely according to the project's reporting cycle and milestones. Furthermore, these indicators should be applied comprehensively and holistically, considering the interrelationships and trade-offs among the scope, schedule, and cost of the project. Finally, they should be applied critically and constructively, identifying the root causes and impacts of the variances and deviations, and taking appropriate actions to improve the project's performance. By following these best practices for choosing and applying EVM forecast indicators, project managers can enhance their project management skills and competencies.
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The implementation of EVM systems and process will not solve a projects difficulties but will help drive: - • greater performance clarity • involvement from the delivery teams • consistent and standardised reporting at all levels of the project • early warnings notice to allow mitigation actions to be established to help change cost and programme overs run. Ultimately it will help ensure project performance information is readily available to assist with informed cost and programme decision making.
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It ultimately comes down to fidelity of planning in the first place. Percentage of LOE and how material/sub EV is taken. If you put the effort into the planning up front or in your rolling waves, then you have a chance for it to be more meaningful. I have been partial to the dance floor plot metric.
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Establishment of EVM systems should be setup & alined to ANSI-748 & should ensure the integration of programme & cost reporting, they key points to address are: 1. Organisation, 2.Planning & Budgeting, 3. Accounting, 4.Reporting, 5.Data Maintenance. It is documented, project cost & schedule overruns at the 20% point will not be less than the overrun to date. Which means if a project has a CPI of 0.85, at the 20% point, it will likely maintain that level of cost performance through the reminder of the project & may not improve, but is likely to decrease. This is because, if a project underestimated the near-term planning (when detailed known plans should be in place) there is little hope the project will do better on the long-term planning.
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