The Money Files

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A blog that looks at all aspects of project and program finances from budgets and accounting to getting a pay rise and managing contracts.

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The Questions Your Sponsor Should Be Asking About Earned Value

Categories: earned value

In his book, Business Leadership for IT Projects, Gary Lloyd goes into Earned Value in some depth – enough for business leaders to understand what it is and how it can be used to provide a reality check on project performance.

He warns against ‘earned value complacency’, which is where the exercise of pulling together the EV statistics and producing the graph lull you into the sense of security that you know all you need to know about the project’s performance and expenditure.

If you’ve used EV, you’ll know that the numbers only tell part of the story, so Lloyd recommends that you use it as a tool to enable further discussion about performance. So much of what EV tells you is down to how it is applied. If you’re a supplier organisation using EV on your client projects, you could be using it in a different way to how the sponsor is used to seeing it.

Not radically different, of course – the formulae are the formulae – but just different in terms of base assumptions or presentation. Even small changes in how the data is calculated or what’s included might change how someone interprets performance.

Lloyd recommends that these are the questions that project leaders should be asking of the people putting together their EV charts for projects, whether they are internal or external. As a supplier project manager, a canny customer could end up putting you on the spot if you don’t understand the exact calculations behind the data. Even if it is produced by your company’s Project Management Office, you still need enough of an understanding to be able to answer questions from your client with credibility and accuracy. It’s reasonable of them to be asking you and a good client should want to challenge and understand the numbers. Besides, that process of challenge is good for everyone so don’t take it as a personal affront. Leaders don’t take numbers at face value; it’s not what makes them good leaders.

9 Questions Project Leaders Should Ask About Earned Value

As a project sponsor, if you’re going to choose something in the EV reports to dig into, try to pick something that you have a reasonably good understanding of where the data points are significantly large so as to help the calculations be transparent. Trying to work out whether a particular task is half a day ahead of schedule or not isn’t going to help you understand the model.

Here are the questions to help you delve into what is really going on.

  1. Is the analysis based on the completion of individual deliverables/products or on the estimated proportion completed? If the latter, how is this estimated?
  2. Do your calculations include a true estimate to complete the deliverables and products, not simply the actual cost incurred to date taken off the original estimate? [Hmm, I’ve been guilty of this!]
  3. How often are you reforecasting?
  4. Do reforecasts take into account the actual productivity levels on the project? [I would add: and how are you measuring productivity?]
  5. Have any estimates to complete been reduced to mitigate overspend elsewhere?
  6. What is the cause of overspend?
  7. What is the cause of underspend?
  8. Why has more (or less) value been earned than predicted?
  9. How is contingency for unplanned work and any change budget shown in these numbers?

Could you answer these questions about your EV reports? If not, who are you going to get to explain them to you so that you can adequately explain them to someone else?

Posted on: November 27, 2016 11:59 PM | Permalink | Comments (3)

4 Key Terms for Earned Value

Categories: earned value

Whole books have been written about Earned Value, so I won’t be able to go into much detail here. However, it’s worth having a little refresher on the key terminology, and if you haven’t come across Earned Value before, hopefully this is a gentle introduction to some of the language you’ll hear often.

To recap, Earned Value is a way of assessing project progress and lets you compare performance across projects. It can help spot trends in performance. It combines scope, schedule and cost and looks at project progress holistically with all of those elements included.

Earned Value

Earned Value (EV) is the value of the work performed. It’s the word ‘value’ here that caught me out for a long time. However, once you understand the terminology, the rest of EV becomes much easier. Project Management for Dummies (yes, that’s on my shelf and I refer to it often!) defines EV like this:

The earned value of a piece of work is defined to be equal to the amount you planned to spend to perform it.

In other words, it’s the original budget for a task. I think the terminology avoids using the word ‘budget’ because this means something very specific in EV and ‘the amount you planned to spend’ could also include resource time that is not costed in the same way as buying a cement mixer or other resource.

Planned Value

Planned Value (PV) is the amount of budget that you’ve planned to use up at a particular point in the project.

The Dictionary of Project Management Terms (another of my go to reference books) explains it like this:

Sum of approved cost estimates (including any overhead allocation) for activities or portions of activities scheduled to be performed during a given period. Also called: budgeted cost of work scheduled.

Ah, ‘budgeted cost of work scheduled’. That makes a lot more sense, doesn’t it?

Actual Cost

Actual Cost (AC) is one of the easiest to get your head around: it’s the actual cost, expressed in terms of money, for the project to the specified date.

You might also see Actual Cost of Work Performed (ACWP) which relates to the total cost for doing a task or set of tasks during the time period you’re referring to. It includes direct and indirect costs, so it should be a complete and comprehensive cost for the activities.

Budget at Completion

Budget at Completion (BAC) is also quite straightforward to understand. It’s the amount you are forecasting to spend for the project at the point that the project will be finished: in other words, the total planned expenditure.

Think of it as what has been approved: it’s what your project sponsor says you can spend to get you to the end of the project, hopefully based on your realistic and practical estimates.

With these bits of information, and a few others, you will be set to start crunching the numbers and running the formulas to start producing your Earned Value information.

Posted on: January 25, 2016 11:59 PM | Permalink | Comments (12)

What is EVM? (video)

Categories: earned value, video

Posted on: May 27, 2014 09:52 AM | Permalink | Comments (0)

5 Project Management resolutions with a financial theme

It’s the time of year when project managers (and everyone else) are looking to make resolutions. You know, the kind of promises you make to yourself in the dark days of winter and then have completely forgotten by Easter.

On the off chance that you’ll be making resolutions this year, here are some you could consider. They all have a money-related theme, so if you want to brush up your budgeting or polish your financial management skills in 2013, these could be great resolutions for you to adopt. So here we go: 5 promises for better money management over the next 12 months.

1. I will look at historical data for forecasts

When you are managing projects that are repetitive in nature and that the team has a lot of experience of, it’s very tempting to simply let them estimate the length of tasks and assume that they know what they are doing. Most of the time, they probably will. But it is worth validating their estimates against historical data from timesheets and previous project schedules. Use your online project management software to pull up reports of how long things took the last time you did them.

This could be at the level of an individual task, like completing a particular piece of coding, or a project phase, like testing. Or both. The purpose of checking is to make sure that your estimates really are sound and that the people who are estimating are not making the same mistakes about task duration on every project.

2. I will do my timesheets in a timely fashion

This is a personal resolution for you, although you could extend it to all your project team members. The risk of not doing your timesheets on time is that you forget exactly what it was that you were doing. As a result, you block out 8 hours per day for a task called ‘project management’ which doesn’t give you any breakdown of how you actually spent the time. Worse, you could be booking time to one project when in reality you got pulled off that project to spend half a day on some other project. These things happen in real life, to you and your team members.

By aiming to complete your timesheets at least weekly you’ll not have long enough to forget what you were working on!

Training

3. I will understand Earned Value Analysis (or teach someone else how to do it)

If you don’t understand EVA, make 2013 the year when you get your books out and study how it works. If you do understand EVA, make a resolution to share your knowledge with someone else this year. Even if you don’t use EVA on your projects, it is a very useful skill to have.

4. I will do my expenses on time

Most project managers will incur expenses in the course of their job, such as travel to meetings. Not doing your expenses on time means that you are out of pocket. Many companies only pay expenses once a month in the monthly pay run, so don’t let your expense bill mount up – that’s effectively a loan to your company.

Get your personal paperwork in order by keeping receipts together, noting down your mileage after every trip and understanding the schedule for submitting expenses so that you don’t miss the deadlines.

If your expenses are being cross-charged to your project it is even more important to get your expenses in on time. If you don’t, your project budget will reflect that you have more ‘in the bank’ than you actually do.

5. I will review my budget quarterly

You do this already, don’t you? If not, make 2013 the year when you review your project budget forecasts regularly. If your project runs over two quarters you’ll probably be asked to do this by your finance team anyway, but even if you are not, it is still good practice to get out your spreadsheets and just check that you are still on track to stick within your budget tolerance limits.

Have you chosen any of these as your resolutions for 2013? If not, what are you having as your resolutions instead?

Elizabeth Harrin is Director of The Otobos Group, a project management communications consultancy. Find her on and Facebook.

Posted on: January 17, 2013 03:10 PM | Permalink | Comments (0)

Budgeting for the Olympics

At Synergy, the UK’s main event for International Project Management Day earlier this month, Louise Hardy, infrastructure manager for the construction work for the London Olympic and Paralympic Games, gave a presentation about how the budget for this vast piece of construction was managed.

The construction involved all the civil engineering works required to get that area of London ready for the Games. It required building:

  • 20km of roads
  • 13km of tunnels
  • 26 bridges
  • 11 venues.

The Games team had committed to developing the site in a sustainable way, which was a challenge in itself given the level of contamination in the soil and the risk of unexploded ordnance left over from the Blitz. Needless to say, that area of London wasn’t used for much before the Games bid was won, and a strong focus of the construction work has been on making sure the investment leaves a legacy for the surrounding area.

Louise said that there were 3 things that kept them on track.

1. Rigorous change control

Louise said that clear reporting at project level was one thing that helped keep the whole project on track. Changes were discussed at this level. When the project started, there were 60-80 people in the project reporting meetings, which took about 4 hours. A strong change control process, with everyone involved, meant that the cost of change could be properly analysed.

2. Rigorous management of cost

Cost management involved a firm hand establishing and monitoring contingency spending. Contingency levels were based on quantitative risk analysis (QRA) with an 80% level of confidence. All contingency budgets were identified as part of a project or programme; there were no general buckets of money to be drawn from at a later date.

Cost management was particularly important because “the media were fierce in the early days.” Louise said that there was wide belief that the UK in general was not capable of managing the civil engineering works required to put on an Olympic and Paralympic Games. The media were on the look out for examples of where projects were overspent or poorly managed.

3. Performance management

The most important area for controlling cost seemed to be performance management. There were several techniques in use at the Olympic Park for performance management, including project reporting meetings. The reports did not just focus on historical information. While this was useful, it doesn’t help the stakeholders see what could happen in the future, so Louise and her team put some effort into preparing monthly trend reports. “It’s given us good visibility and enhanced reporting at government level,” she said. She also showed us an example of the monthly report, which was a graphic representation of the project’s performance that fitted on piece of A3 paper. Variance analysis, total cost and key milestones were also reported.

Once stakeholders felt that the project was being well managed and the performance was on track, the number of people attending these meetings dropped significantly. In the end, the project reporting meetings were only attended by 6 people, and they took about an hour.

The main message from Louise was that earned value analysis was a critical part of keeping the project on track. “It was absolutely essential to undertake earned value analysis on all areas of the programme,” she said. “There was a surprising amount of resistance.” She knew it was the only way to generate trust and belief in the schedule and the project’s achievements. In order to overcome the resistance, the project team undertook a training and education initiative to bring everyone on board with EVA.

It all paid off. The construction work is already complete, and it finished a year before the Games begin. This gives the other Olympics teams plenty of time to make the final preparations before Olympics fever descends on London in 2012.

Posted on: November 09, 2011 01:20 PM | Permalink | Comments (2)
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