Our Biggest Unused Weapon

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Categories: Risk Management

The primary capital ship of most blue-water navies is the aircraft carrier. According to Rob Stern, in U.S. Battleships in Action, Part 2 a pair of aircraft carriers can deliver around 35 tons to a target in one hour. A United States Iowa-class battleship can do the same job in 90 seconds.

The U.S. Navy has four of these battleships, but, fortunately for enemies of the United States, only one is in the reserve fleet, while the others have been converted to museums.

Why is such a clearly effective weapon not in use? It may be because of the relative ease with which aircraft carriers sank battleships during World War II, leading to the conclusion that the carriers were superior naval vessels in all respects.

In the epic struggle to advance project management capability within our organizations, I think it's important to recognize that we are in competition with other management approaches and information streams. And in this competition, we may be failing to use the most powerful weapon in our arsenal: the capability of an Earned Value Management System (EVMS) to predict the future.

Accurate prediction of the future is obviously a very useful capability. In the project management world, the key pieces of future information include: How much will this project end up costing, and how long will it take?

These twin brass rings of project management information are hotly pursued in a variety of ways--most of them incorrectly, in my opinion. The most common approach is to re-estimate the remaining costs and duration of an on-going project, and to then add that amount to cumulative costs or duration.

This method, despite being notoriously inaccurate and injecting hundreds (if not thousands) of purely subjective data elements into the mix, is often defended as the only appropriate approach.

Conversely, the best approach--calculating the estimate at completion (EAC)--is commonly derided by so-called project managers, even though it's faster, easier and demonstrably more accurate than its re-baselining counterparts.

The most familiar EAC formula, the Budget at Completion (BAC) divided by the Cost Performance Index (CPI), can be algebraically reduced to dividing the cumulative actual costs by the project's percent complete. This formula works with durations as well: Divide the cumulative duration by the percent complete, and you have an accurate idea of how long a given task will take.

With such an easy, simple and powerful weapon in our arsenal, why aren't we using it more?

Posted by MICHAEL HATFIELD on: March 18, 2009 03:02 PM | Permalink

Comments (7)

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William Goelkel
Michael, Earned Value Management (EVM) is most helpful when the scope is tightly defined up front and changes are likely to be minor. For example, embedded systems or high-risk products such as medical devices, where a lot of resources typically are applied to the initial specifications. This is not characteristic of most custom business software. Business goals change and our understanding of the users’ needs evolves. If you are correct that a new estimate part-way through injects hundreds of purely subjective data elements, it seems logical that the original estimate would, too. Software development teams have more data as the project progresses, not less. So each successive re-estimate should be progressively less subjective and more accurate. EVM can lead us to make bad decisions, or forecasts, when the standard against which we measure everything is the plan we baselined at the point in the project’s lifecycle when we were most ignorant of its requirements. Variances (CPI, SPI) should always be monitored; if nothing else, they can warn us when we need to re-plan. But I’m not convinced a calculated EAC as you described is always useful. Doesn’t that depend on the type of project? Bill William Goelkel, PMP www.pm-notebook.com

Alessandro Greco
As a construction project manager, my company and I belives that EVMS are helpful in cost prediction and cost control systems. In fact our projects are all under a good grade of control. And also in Italy where the market foces us in making budget more and more cost driven , ( at the kick-off time we start by -20, -30% of GMT), we couldn't manage any projects without an accurate estimate , and a cost- effective system as EVM. Alessandro Greco, Project Leader Claudio Salini spa

Michael Hatfield
I started writing a response to Mr. Goelkel, but couldn't keep it under 400 words, so I'm just gonna do my next blog on the points he raises.

tom barnett
I believe that EVM is one of many tools to provide the 'smoke' for noticing problems. It is not an end-all unto itself. If your project is tightlyplanned with few unknowns that the concept works well at spotting deviations from plan. How projects have we had that fit into that category??? Tom Barnett, PMP StreetSmartTactics.com

Glen B. Alleman
Michael, The formula EAC = ACWP(cum) / Percent Complete does not make sense. Without a measure of what was "earned" at that percent complete, the formula only says what the cost effeciency is running at. Project Managers should be most interested in the schedule aspects of the project. Cost is important, but without a forecast of "when" we'll be done, cost has little meaning. Glen B. Alleman VP, Program Planning and Controls

Glen B. Alleman
Michael, Your formula of EAC = ACWP(cum) / Percent Complete only works if the ACWP line is straight from 0 to 100. If the S-Curve is in place - as it should for any program that is not Level of Effort, then dividing by say 50% at the mide point - which will likely have 60% of the BCWS planned results in a 120% forecast. If the planned ACWP for the periods of performance are: 0 10 20 35 45 60 65 75 85 95 100 and at the 50% point, where $60 is planned to have been spend, results in a $120 forecast. Which is clearly not the case.

Kent Achord, PMP
Earned Value Management is very helpful when the scope is defined up front and changes are updated to ensure you have a very good detailed scope to earn and track. I think with this in your tool box, it is very hard to go wrong. How many times have you seen a task show 85 to 95 percent complete only to have it continued at that percent for days if not weeks. You ask why and most of the time no one knows why, the real reason why is they were not at 85 to 95 percent complete, but maybe 75 to 85 pecent complete at best and the scope was not detailed enough to know for sure. As Project managers, we must make sure the development of the work is done up front and maintained as the project moves forward. Provided this is done, it will take time and effect, Earned Value Management can be one of the best and most accurate methods to let you know where you are at on a project and how the project outcome will be.

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