July 3, 2008

Earned Value Management and Enterprise Architecture

“Earned Value Management (EVM) is a project management technique used for measuring project progress in an objective manner. EVM combines measurements of technical performance (i.e., accomplishment of planned work), schedule performance (i.e., behind/ahead of schedule), and cost performance (i.e., under/over budget) within a single integrated methodology. When properly applied, EVM provides an early warning of performance problems.” (Wikipedia)

There is a terrific article on EVM called “If the Pharaoh Had Only Used An Earned Value System in Building the Pyramids,” by Lt. Col. William Neimann USAF (Ret.) Lt. Col. Neimann demonstrates very effectively how to use EVM (a scary topic to many) in a humorous scenario of ancient Egypt and the building of the pyramids.

The article starts as follows:

"The developer of the great pyramid of Egypt might be looked upon as the father of program management. He had one of the first programs in recorded history that required a great deal of integration and coordination (i.e. program management). He did not, however, have the relatively new concept of "earned value" to assist in the management of this ambitious program. An "earned value" concept is the heart of all defense contractor management information systems, which comply with DoD Instruction 5000.2 concerning the earned value management control system (EVMCS). But let's go back nearly 5,000 years to the construction of the pyramids to see if "earned value" would have been of any utility in managing that program.”

So what are the key measures in EVM for identifying cost and schedule variances?

(Positive is favorable, Negative is unfavorable)

  • Cost Variance (CV) = Budgeted Cost for Work Performed (BCWP) - Actual Cost for Work Performed (ACWP)

So, if the Pharaoh’s project manager budgeted 14 million shekels for the pyramid construction, but actual cost came in at 13 million shekel, then the project has a positive or favorable cost variance of 1 million shekels. The pyramids are under budget.

  • Schedule Variance (SV) = Budgeted Cost for Work Performed (BCWP) – Budgeted Cost for Work Scheduled (BCWS)

So, if Pharaoh’s project manager calculates that work performed was budgeted at $10 million shekels, but was scheduled to be 14 million shekels complete, then the project has a negative or unfavorable schedule variance of 4 million shekels. In other words, the pyramid builders have performed 4 million less work than planned. The pyramids are that behind schedule.

To calculate the overall project status at any given time:

  • % Schedule = (Budgeted Cost for Work Scheduled (BCWS)/Budget At Completion (BAC)) * 100
  • % Complete = (Budgeted Cost for Work Performed (BCWP)/Budget At Completion (BAC)) * 100
  • % Spent = (Actual Cost for Work Performed (ACWP)/Budget At Completion (BAC)) * 100

How efficient is the project?

Greater than 1 is favorable, less than 1 us unfavorable:

  • Cost efficiency = Budgeted Cost for Work Performed (BCWP)/Actual Cost for Work Performed (ACWP)
  • Schedule efficiency = Budgeted Cost for Work Performed (BCWP)/Budgeted Cost for Work Scheduled (BCWS)

(Adapted from Earned Value Management Gold Card, Defense Acquisition University)

There are a number of other measures, but you get the idea.

EVM is important to Enterprise Architecture, why?

Enterprise architecture planning and IT governance is all about making order out of chaos in managing IT. By setting strategic direction with the architecture and enforcing it with sound governance, we set the stage for more successful IT project delivery. EVM is a way to measure IT projects success in terms of cost, schedule, and performance. Through EVM, we can measure our IT projects to ensure that we are meeting our EA plan and making course corrections as necessary through the governance process.

EA, IT governance, and EVM are ways to ensure that we no longer manage IT by the “seat of our pants” approach (gut, intuition, politics, and subjective management whim). We now have tools to plan, govern, and measure transformation.


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