09/11/2024 | News release | Distributed by Public on 09/11/2024 03:55
Earned Value Management (EVM) is a powerful project management technique that integrates project scope, time and cost data to assess project performance and progress. One of the critical components of EVM is the establishment of earned value reporting thresholds, which serve as indicators for when corrective measures are necessary. This blog will delve into the concept of earned value reporting thresholds, explore how they are established and highlight the importance of considering both the time dimension and the significance of project activities.
Setting appropriate thresholds is crucial for effective project control. These thresholds need to be tailored to the specific project, considering its complexity, duration and criticality of activities. Here are key factors to consider when establishing earned value reporting thresholds:
A list of typical industry EVM metric triggers for corrective action are listed below.
Corrective measures are actions taken to bring the project back on track when performance deviates beyond acceptable limits. Identifying the triggers for these measures is essential for timely intervention. Common triggers include:
EVM project reporting thresholds should not be static throughout the project lifecycle. As the project progresses, thresholds may need adjustments to reflect the changing dynamics and priorities. Time-based threshold adjustments can be categorized into the following phases:
Below is a concept chart showing the Variance at Completion thresholds reduced over time.
Not all project activities are created equal. Some activities have a more significant impact on project success than others. When establishing earned value reporting thresholds, it's crucial to consider the importance of each activity. Key considerations include:
While earned value reporting thresholds are essential for project control, establishing and managing them can be challenging. Common challenges include:
To overcome challenges and ensure the effective use of earned value reporting thresholds, project managers can adopt several best practices:
As initially stated, an EVM technique integrates project scope, time and cost data to assess project performance and progress. However, scope and time considerations often become secondary when focusing on cost triggers. If the objective is to correct the course of work efforts, should the understanding of performance and progress start with work content, move through the timeline, and ultimately consider cost?
Many years ago, an industry group attempted to collaborate on the concept of early cost triggers and sought to integrate Technical Performance Measures (TPM) with EVM. During these discussions, it became evident that the technical and financial factions were at odds, despite their alignment on most issues. The primary point of contention was the establishment of variance triggers. A crucial question arose: Should the shared technical plan be valued based on its technical relevance or the resource commitments in terms of hours and dollars? This unresolved conflict led to the amicable separation of variance triggers into distinct technical and financial camps.
As a young Six Sigma practitioner and EVM specialist, it seemed to me unreasonable to abandon these discussions and somehow throw the baby out with the bathwater. Could combining technical and financial thresholds in a common environment work? Fortunately, at Pinnacle Management Systems, there was a clear understanding that EVM was a significant contributor to both cost efficiency and technical excellence. What failed in the industry discussion soon became my Black Belt qualification project.
As the project unfolded, two potential initiatives emerged, both highly complex and historically trending with 30% overrun year over year. These projects presented an opportunity to challenge the proposition of applying both technical and financial triggers for corrective measures and rendering quantifiable evidence of improvement. With the projects onboard, the TPM and EVM were now set on a collision course.
This effort garnered company support, bringing together representatives from technical communities, Systems Engineering, Finance, process leads, program offices, and customer representatives. Since these programs were confined to closed areas, concerns about impacting the company's EVM system acceptance or involving other government agencies was minimized. The project team was set for success, but the company established performance thresholds which had to be met for the project to continue. Needless to say, I had my work cut out for me.
The primary point of contention regarding variance trigger values was resolved with the assistance of Systems Engineering. Work package milestones would incorporate both technical and financial values, using a unified time framework. All work would be schedule-driven, resource loaded, with weighted milestones and a percentage of completion technique applied to discrete work packages.
Below is a concept chart illustrating how resources and technical measures were integrated.
Technical measures were developed using a point-based, weighted model similar to Agile story points, while resource management focused on headcount and skills. It quickly became evident that the use of hours, rather than dollars, alongside TPM, was most relevant to the Control Account Managers. Since the existing tools were not configured for these computations, Systems Engineering developed a database to gather the results. Standard EVM charts for Contract Performance and Cost/Schedule Variances were used, and the technical information was represented as a burndown chart to illustrate product maturity. Below is a concept chart demonstrating how common triggers were overlaid.
This project was challenging and required significant learning and adaptation, particularly in the area of scheduling. The schedule now had dual sources to consider: technical performance and resource allocation. It became abundantly clear that erosion in technical performance was a precursor to schedule and cost triggers. Discussions about variances from the plan shifted to focus on work content and technical achievement. Cost discussions transitioned from what had been spent to what was needed for containment and getting back on track. While this may seem like an obvious conclusion, the ability to measure these results and apply variance triggers to technical work fundamentally changed the understanding of variance reporting thresholds and the triggers for corrective actions.
So, what were the results? Both projects managed to contain cost growth within the 10% range, with one slightly exceeding and the other slightly under this threshold. The participants in this experiment learned to proactively apply corrective measures to technical work rather than waiting for financial triggers. Technical adjustments were often small and priority-driven, whereas cost adjustments typically resulted in significant replans and schedule delays.
While the results of this experiment were meaningful, they did not continue. The company underwent industry consolidation, and the culture shifted towards financial performance and reliance on traditional Earned Value Management (EVM) thresholds. If you are struggling with EVM thresholds and the triggers for corrective actions, my encouragement to you is to find ways to move the triggers closer to work content or schedule plans, both can be precursors to improved cost performance. If your company culture supports innovation, you may want to consider having conversations about how to bridge the gap between technical metrics and EVM. These conversations can be rewarding, and at least in my experience it is possible.
Earned value reporting thresholds are essential tools for effective project management. However, the use of TPM in combination with EVM thresholds provide truly early warning signals when project performance deviates from the plan, enabling even more timely corrective measures. Establishing appropriate technical and financial thresholds requires considering project complexity, duration, critical path activities, risk tolerance, and historical data. Time-based adjustments and the significance of activities further refine threshold settings. By understanding and implementing technical and financial variance threshold triggers for corrective measures, project managers can ensure better control over project performance and meaningful and relevant results.
Robert Jennings is the IPM Practice Leader at Pinnacle Management Systems. Over a 40-year professional career, Robert has performed in a variety of consulting and management roles affecting transformative change within organizations and companies that desire to improve enterprise performance. Robert currently serves as the V.P. of Education for the College of Performance Management (CPM) and is an active participant with the NDIA Integrated Program Management Division (IPMD) and Energy Facilities Contractor Group (EFCOG).
Pinnacle Management Systems, Inc., is a Deltek partner focusing on PPM solutions. Founded in 1993, Pinnacle has been providing implementation, integration, and training on performance-based project management systems for over 30 years. Whether you're aiming to enhance project execution, navigate regulatory landscapes, manage diverse project portfolios, or maximize capital investments, Pinnacle's expertise and innovative solutions are designed to deliver results.