Earned Value Management in Multi-Projects and Programs - Essay Example

Earned Value Management in Multi-Projects and Programs Earned Value Management in Multi-Projects and Programs Introduction Earned value management is a technique and project management that measures project performance and how it is progressing in an objective manner. It is also a method that puts together the amounts of the project management triangle. They comprise of schedule, costs and scope. In an integrated system, it is able to provide accurate predictions and data on the problems of project management. This is an essential contribution to the system as measures are developed and implemented to solve the problems (Marshall, 2007). Several studies have shown that the principles supporting earned value management are positive analysts of a project’s success. The paper will analyse earned value management by discussing three major objectives. The first will be describing the most important factors that should be considered when monitoring and controlling programs and multi-projects. The other will be to explain the advantages of implementing Earned value management for these programs and multi-projects. Finally yet importantly will be to establish the significance of earned value management data accuracy. There are five major factors that are considered by an earned value management technique. The first is organisation: It involves creating a work breakdown structure (WBS). The WBS is supposed to detail down all activities, to describe the task to be carried out, and the relationship it has to the products that can be delivered (Humphreys & Visitacion, 2009). In organisation, there is also the OBS, which refers to the organization breakdown structure. It is responsible for identifying the person in charge of the work effort described by the WBS. Both the WBS and the OBS define a control account. It means that at this level is where the key management control point is found. Figure 1: Intersection of the OBS and WBS develops the control accounts (Humphreys Associates, 2015). Planning, budgeting, and scheduling makes up the second group that an earned value management considers. An integrated schedule is what creates the contractors map to meet their objectives in a program of multi-project they are responsible for (Humphreys & Visitacion, 2009). The schedule has to be loaded with resources so that it can determine an effective budget as scheduled. The total budget created for every task, control account, or the whole project is known as the budget at complete (BAC). Management reserve (MR) is a backup of the total project amount that is incorporated to take care of the uncertainties that may occur, such as risks. Work should only begin when a formal work authorization has been offered. The disciplined approach clearly defines schedule, work, and budget before commencing of any activity and accruing of actual costs. Figure 2: This diagram shows establishment of a baseline, which comprises three iterative steps (Humphreys Associates, 2015). Accounting is another keen consideration of the earned value management technique. Here, all the actual costs have to be taken in a way that shows consistency with how the work is budgeted and planned. The part describes the need to select appropriate time to put in place an important project material, resource, as well as, to accrue performance figures properly. In addition, it also lays down a common sense practice to accumulate the amount for the material in the similar month as the Budgeted Cost for Work Performed (BCWP), was earned. The reason is to prevent any misleading cost variance, also referred to as the booking lag (Humphreys & Visitacion, 2009). Earned value management also considers analysis and management reports. This requires an individual’s attention to schedule and costs variances, impact, documenting cause, correction action, as well as, establishing another estimate at complete (EAC); that is if it is warranted. Figure 3: This diagram shows a summary of an Earned Value Management data by OBS or WBS (Humphreys Associates, 2015). The calculations of the variance are characteristically done at the control account level. This provides the capacity to summarise the information up through the OBS and/or the WBS. As required, the control account manager can obtain data from the control account level, all the way down to the detail data to identify the origin of the variance. In addition, they can determine impact of the variance on any work effort done in the future (Humphreys & Visitacion, 2009). Identification of correction actions can also be done at this point. The application of Earned Value Management data analysis is a usual practice that assists managers consider their previous and future performances. It is used to complete the work within the agreed EAC and Estimated Completion Date (ECD). The final consideration of the Earned Value Management technique is revisions and data maintenance. The step stresses on disciplined and timely integration of customer directed changes; they include stop work orders. These rules are also applied to internal re-planning. If baseline control is not created, a project can be hopeless. Creating a budget baseline and maintaining a schedule is important, as it is able to evaluate work accomplished for every reporting duration. This step is very important in Earned Value Management especially in a place where the baseline constantly changes. Based on a certain survey on about 534 managers; of these, 70% come to an agreement that a major advantage is thorough planning. They also agree that Earned Value Management is operative in assisting them control a project’s performance. The benefits of employing Earned Value Management technique for multi-projects and programs include improving the project planning process. Forming clear responsibility for work effort and fostering a clear description of the work scope are other advantages of this technique (Humphreys Associates, 2015). Others include offering early warnings of probable problems. An earned value management integrates schedule, technical, and cost performance on the programs and projects it is applied. This technique is also capable of identifying problematic areas for immediate and positive management attention (Humphreys Associates, 2015). An earned value management enables more precise reporting of cost and schedule effects of the identified problems. It provides clear and consistent communication of advancement at all levels in the management process (Humphreys Associates, 2015). It also enhances the capability to evaluate and incorporate schedule, technical, cost and risk factors. While examining historical data, one can make better decisions, which can be brought about by applying the earned value management (Wyk, 2015). Lastly, it improves project accountability and visibility. In Earned Value Management, data accuracy is very essential as the data obtained from various levels has a lot of use. If errors are made during the data generation, numerous problems would arise, leave alone making wrong decisions for the institution. This part of the essay will discuss why data accuracy in earned value management is important. As I had discussed earlier, historical data is important in making better decisions for the system using this strategy. If wrong data had been obtained in previous years, wrong decisions will be made; hence, the system will record some failure. A consistent recording of compliant projects for a period of over 30 years has led to creation of a database that is useful in comparative analysis (Wyk, 2015). Comparative analysis of these data has been essential for use by managers in creating insightful judgments on the project they are undertaking. An example of a comparative analysis on the Navy’s A-12 project on the cost performance of similar aircraft generated a compelling evidence that the project was out of control (Defence System Management College, 1997). Accuracy also comes in handy during cost management; it has to be done early so that it can be effective. The cumulative Cost Performance Index (CPI), which is the earned value at the present divided by the cost at that moment. It has been discovered to stabilise at the range of 10% by 20% of conclusion point for most defence procurement projects. Lack of accuracy can ensure the cumulative CPI becoming worse (Defence System Management College, 1997). The Schedule Performance Index (SPI) is the earned value of the project divide by the planned value. It is essential in detecting schedule problems, more so when dealing with critical path information. Data accuracy in calculation of the schedule performance index is important as it allows resolving of the schedule problems. A well calculated SPI identifies these problems; which can be rectified easily by additional spending. In case of an adverse SPI, it can also be useful in predicting future cost problems (Wyk, 2015). Therefore, it is recommended that all the work is traceable and scheduled from the control program, master program level all the way to the detailed level. In other cases, it has been shown that the CPI and SPI can be used collectively to estimate a reliable upper bound to the EAC. In case it is combined with the CPI-based lower bound, a range of EAC is established. Accuracy in data on all these parameters is important as if a multi-project or program manager’s EAC is outside this range; it shows a problem with the estimation system of the manager (Wyk, 2015). Finally yet importantly, the To-complete performance Index, denoted as TCPI, is important in assessing the reasonableness of a manager’s EAC and/or other financial objectives. This parameter represents the ratio of the remaining work to the residual financial resources. It also signifies the level of performance that a manager is supposed to incorporate in their project for them to meet the financial goals (Wyk, 2015). Hence, accuracy while calculating and obtaining data from these parameters is very important as it assists the mangers to evaluate the reasonableness of serious financial goals. They include completion of the project remaining within the targeted cost. Conclusion The systems, projects and programs that incorporate the Earned Value Management technique in their operations are at a better place as compared to those that do not. This is because one can correct certain problems that can be identified, as well as other benefits it has. It is recommended that all projects integrate this technique to ensure smooth and efficient running of activities. Accuracy, as we have established is a key principle especially in the calculation and obtaining of data. References Defense System Management College, 1997. Earned Value Management Textbook. In: Defense System Management College. Fort Belvoir: EVM Department. Humphreys Associates, 2015. EVMS Education Center: Basic Concepts of Earned Value Management (EVM). [Online] Available at: www.ms/basic-concepts-earned-value-management-evm-ta-a-74.html [Accessed 5 March 2015]. Humphreys, G. & Visitacion, M., 2009. Mastering Project Management Fundamentals Critical for Successful Earned Valeu Management. Oracle, pp. 3-11. Marshall, R., 2007. the Contribution of Earned Value Management to Project Success of Contracted Efforts. Journal of Contract Management, pp. 21-331. Wyk, D. V., 2015. 10 Benefits of Implementing Earned Value Management. [Online] Available at: www.blog.aresprism.com/10-benefits-of-implementing-earned-value-management [Accessed 5 March 2015]. Read More