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Topics: Earned Value Management
EVM and Material Purchases
Network:8


Does anyone have any insight into how material purchases should be treated in earned value management? Many of my projects have large one time material purchases at the start of the project. These represent the bulk of the budget. If I include the cost in my EVM calculations, it appears to throw off the numbers, making the project look like it is far over budget and behind schedule. If you don't earn the value upon purchase, do you earn it when invoiced or when the material is used? If that's the case, do you track and report on budget separately as well?

Thanks!
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Project is about to manage cost, not budged. EVM is about to associate cost to activities. So, what you describe, it does not mean, at lest in my understanding, is aligned with EVM
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1 reply by Jason Hardin
May 20, 2019 5:47 PM
Jason Hardin
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Sergio,

I've grappled with that thought, that EVM and budget management are different things and should be reported on separately, but if feels like you won't get an accurate Estimate to Completion if materials aren't included.
Network:9



Jason,

Good afternoon. I know MS Project has a Fixed Cost attribute for material. My organization is trying to gain 8-11% labor savings, so what I did in my project planning, I used MS Project and was able to create Summary tasks to isolate the material procurement from the labor. I did it in a way where I can create separate reports using filters.
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1 reply by Jason Hardin
May 21, 2019 10:59 AM
Jason Hardin
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Thanks Josh. Reporting separately sounds more and more like the answer.
Network:8


May 20, 2019 2:38 PM
Replying to Sergio Luis Conte
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Project is about to manage cost, not budged. EVM is about to associate cost to activities. So, what you describe, it does not mean, at lest in my understanding, is aligned with EVM
Sergio,

I've grappled with that thought, that EVM and budget management are different things and should be reported on separately, but if feels like you won't get an accurate Estimate to Completion if materials aren't included.
Network:307



Interesting question. Typically I only see EVM used to track labor, and not materials as it is used to measure progress, not cost. I can certainly see the value of including materials, particularly when they are consumables used over time. Using it for large one time expenses would tend to skew the data towards those events in my opinion, hiding the labor progress.

While a very valid business concern, I tend to think it falls more under the product owner domain than the PM. If a project is using more than the expected amount of materials the solution set isn't the same as when tasks are running long. Meanwhile, PMs do often play multiple roles. As an engineer and PM myself, I know that balancing performance goals with cost and schedule is a fact of life. It's part of the "scope" in the PM cost-time-scope triangle.

It all really depends on how you expect to use that data to make decisions. EVM is great in how it can be applied so broadly, but if you have a better metric for a specific problem, then by all means use it. If it's completely outside your control, then don't let it blur the data you're using to actively manage what you can control.
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1 reply by Jason Hardin
May 21, 2019 11:01 AM
Jason Hardin
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Thanks for the insight Keith.
Network:7174



Agree with Joshua
Network:24169



Agree with Sergio.
Network:8


May 20, 2019 2:54 PM
Replying to Joshua Bosell
...
Jason,

Good afternoon. I know MS Project has a Fixed Cost attribute for material. My organization is trying to gain 8-11% labor savings, so what I did in my project planning, I used MS Project and was able to create Summary tasks to isolate the material procurement from the labor. I did it in a way where I can create separate reports using filters.
Thanks Josh. Reporting separately sounds more and more like the answer.
Network:8


May 21, 2019 12:21 AM
Replying to Keith Novak
...
Interesting question. Typically I only see EVM used to track labor, and not materials as it is used to measure progress, not cost. I can certainly see the value of including materials, particularly when they are consumables used over time. Using it for large one time expenses would tend to skew the data towards those events in my opinion, hiding the labor progress.

While a very valid business concern, I tend to think it falls more under the product owner domain than the PM. If a project is using more than the expected amount of materials the solution set isn't the same as when tasks are running long. Meanwhile, PMs do often play multiple roles. As an engineer and PM myself, I know that balancing performance goals with cost and schedule is a fact of life. It's part of the "scope" in the PM cost-time-scope triangle.

It all really depends on how you expect to use that data to make decisions. EVM is great in how it can be applied so broadly, but if you have a better metric for a specific problem, then by all means use it. If it's completely outside your control, then don't let it blur the data you're using to actively manage what you can control.
Thanks for the insight Keith.
Network:107



Hi Jason,
You can consider the following:
If the material procured is part of the project, you could distribute the material cost to the duration of the project. For e.g. software license procured for a particular project is $1000, and if the duration if the project is 10 months. You can load the cost evenly as $100 per month for 10 months. If the material is used for multiple projects you could distribute the cost accordingly between projects. This way you will not load the cost upfront to skew the calculations. If the material procured is a capex, then the cost gets tracked elsewhere not in EVM. Hope this will help.
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1 reply by Jason Hardin
May 22, 2019 2:16 PM
Jason Hardin
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Thanks for the insight Ganesh.
Network:353



@Jason: "making the project look like it is far over budget" is just your imagine when you see project spends alot of money for purchasing. You should use EVM formulas to calculate CV or CPI and you will see the real performance.
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