All future events come with some degree of uncertainty. When the uncertainty affects the outcome of the event in a negative manner, it is considered a risk. The ability to quantify the likelihood of the risk’s occurrence with the monetary value of its impact is a major goal of Risk Management (RM).
For those working within the field of earned value management, a perennial problem is recognizing that there is a difference between Budgets and Funds, and understanding the distinction between the two. Failure to grasp this essential characteristic of earned value management hampers systems and practitioners alike.
When using an Earned Value Management System (EVMS), Management Reserve (MR) is both expected and considered a best practice. But the lack of understanding of MR and its use extends from government agencies to contractors. MR is an integral part of an EVM System. MR should be part of the original project estimate, but how much should you plan and how do you use MR to manage your project. This presentation discusses how MR is established (risk based) and subsequently used to keep a program on track. It also covers the common issues/misunderstandings and how to deal with them.
EVM has proven to be an effective method to measure project performance. However, the variables used to calculate EVM performance don't always clearly portray reality. One of those factors are the costs related to risk mitigation.
Earned Value curve (Planned Value, Costs and Earned Value) helps you see at any time if a delay will cost more than what we have in the budget. This delay may be in non-critical tasks in the best or worst, be in the critical path (GANTT). These situations can be avoided by good management which includes risk assessment. Place the activities that have to be done if an unforeseen event happens. With this definition, one can use Monte Carlo methods to tell the probability of success and how much time and money it will finally cost. In addition one may add the estimation uncertainty for critical activities. What will be the impact on the estimate to complete the project? All this, should be done before starting the project. During the execution of the project simulations can be used constantly. Define an early warning system which indicates critical situations early enough to take actions.
Multidimensional project control systems, which integrate the critical to quality metrics of the project quality management, risk management, and program integration requirements into the earned value management system, delivers capability for the enterprise project team(s) in measuring the performance-based earned value of the project deliverables.
One of the inputs earned value management (EVM) uses to obtain an indicator about the cost performance of projects is the cost incurred by the project until a certain date. Typically, such information is provided by finance departments. This paper reviews the different methods used by finance departments to calculate and measure the incurred costs in projects, and how these methods may impact the way the project manager applies the EVM to measure, control, and track the status of his or her project.
In this instalment of Ask the Experts I talk to Mike Clayton, author of Risk Happens! Mike, what sort of budget-related risks might projects face? “Cost over-runs” will be one of t ...
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