What is Earned Value, how is it linked to Variance Analysis and how does this form the basis of project Monitoring and Control

As noted, EVM is a technique that project managers use to track the performance of their project against project baselines. Often the progress of a project is thought of simply as being ahead or behind schedule and over or under budget. However, what if you’re ahead of schedule, but costs are higher than your planned budget? Or, what if you’re behind schedule, but costs are lower than you first calculated?

This is where knowing the earned value helps. It can provide deeper information on your project. And when learning about earned value, it’s important to remember that there are three terms associated with it, which are each slightly different.

1. Earned Value Analysis (EVA): This project management technique is quantitative. It evaluates project performance by figuring out the likely results of the project. It does this by comparing the progress and budget of work planned to the actual costs.
2. Earned Value Management (EVM): This methodology measures project performance with an integrated schedule and budget, which is based on the project work breakdown structure (WBS).
3. Earned Valued Management System (EVMS): This is the collection of tools, templates, processes and procedures that an organization uses to do EVM.

Please click the following link to see a video explaining EVM

How does resource level and specifically, the Parallel method, resolve this issue and what is the general impact on the schedule. Explain the relationship between post leveling schedule and the rolled-up (baseline) budget.

A Project Plan is prepared, which is defined as a management summary document that describes the essentials of a project in terms of its objectives, justification and how the objectives are to be achieved. It describes how all of the major activities under each project management function are to be accomplished, including that of overall project control. The project plan will evolve through successive stages of the project life cycle. A Project Plan is developed once the Business Case and Project Charter have been defined.

Developing a good schedule for managing the execution of a project is paramount to good project management practice. The Critical Path Method of scheduling is currently the most popular technique employed by scheduling practitioners. Understanding how a schedule has been created, as well as the impacts of progress and disturbances,

The Critical Path Method

The Critical Path Method (CPM) is the backbone upon which the project execution plan is built. It provides a dynamic analysis of activity sequencing and progress reporting, the foundation for excellent progress and performance analysis, such as earned value management, as well as a tool for resource deployment and management.

The CPM is a relatively simple concept. It consists of linking the activities that make up the project execution in a logical, sequential manner such that the execution is both practical and generally as fast as possible. For example, "Pour Foundation" activity must follow after the "Excavate Foundation" activity. Barring some revolutionary new construction method, anything otherwise is just not practical. However, if the foundation is of a long physical nature, it may be possible to overlap the two activities by delaying the pouring some finite time behind the start of the excavation, rather than waiting for the completion of the total excavation before starting any pouring. The point of this is that the practicality of activity sequencing is limited only by the feasibility of the actual work.

The speed of execution limited by another factor: the availability of the required resources. By resources we mean the personnel, materials and equipment that is necessary to perform a particular activity. Resource assignment and levelling is the subject of the second part of this paper.

By tying all the activities into a logical, sequential network, the CPM calculation can then proceed to determine the earliest possible time activities can be accomplished and the latest possible time activities need to be accomplished in order to meet the project completion date. The primary restriction of any CPM is that the total project execution must fit between the start and finish dates of the project. As we will see later, the CPM also provides the means to fit a particular set of activities between some intermediate dates between the project start and finish.

Calculating the start of each activity is essential as that determines the latest finish for any predecessor activities. The backward pass applies these algorithms from right to left through the entire schedule network until all activities have a late finish and a late start date assigned.

The combined picture of the forward- and backward passes looks as shown in Exhibit 3. The dates in this illustration are ordinal dates to facilitate the review of the formulas. The early dates, which resulted from the forward pass, are shown on top of each activity bar and the late dates, which resulted from the backward pass, are shown below each bar.

Since no project required finish date was specified, the backward pass started the calculations from day 22 as the default project finish date. This date came from the forward pass calculation and is the last early finish date of all activities in the project.

A project manager, when you generate a budget when setting a baseline financial project plan, you can select any active budget financial plan type that's available for budget creation. However, some financial plan types (including the default financial plan type selected in the budget generation options of the project plan type) are unavailable for selection in the following circumstances:

·         If you already selected an approved cost or revenue budget financial plan type for creating a budget version, then no other approved budget financial plan types are available.

·         If you want to select a financial plan type with budgetary control enabled on it, then it is unavailable for selection in the following circumstances:

o    The project or template is not enabled for budgetary control.

o    The business unit is not enabled for budgetary control.

o    The project is a sponsored project, then only an award budget is expected to be enabled for budgetary controls.

o    A different budgetary control enabled financial plan type is already used.

To develop a preliminary network schedule, you first need to define the activities, sequence them in the right order, estimate the resources required, and estimate the time it will take to complete the tasks. The activity definition process is a further breakdown of the work package elements of the WBS. It documents the specific activities needed to fulfil the deliverables detailed in the WBS. These activities are not the deliverables themselves but the individual units of work that must be completed to accomplish the deliverables. Activity definition uses everything we already know about the project to divide the work into activities that can be estimated. Scheduling aims to predict the future, and it must consider many uncertainties and assumptions. A variety of inputs and tools are used in the scheduling process, all of which are designed to help you understand your resources, your constraints, and your risks. The result is a plan that links events in the best way to complete the project efficiently.

Once you have outlined the primary schedule, you need to review it to make sure that the timing for each activity is aligned with the necessary resources. Below are some commonly used tools to achieve this:

What if “scenario analysis – This method compares and measures the effects of different scenarios on a project. You use simulations to determine the impact of various adverse, or harmful, assumptions – such as resources not being available on time, or delays in other areas of the project. You can then measure and plan for the risks posed in these scenarios.

Resource levelling – Here, you rearrange the sequence of activities to address the possibility of unavailable resources and to make sure that excessive demand is not put on resources at any point in time. If funds are available only in limited quantities, then you change the timing of activities so that the most critical activities have enough resources.

Critical chain method – This also addresses resource availability. You plan activities using their latest possible start and finish dates. This adds extra time between events, which you can then use to manage work disruptions.

Risk multipliers – Risk is inevitable, so you need to prepare for its impact. Adding extra time to high-risk activities is one strategy. Another is to add a time multiplier to specific tasks or certain resources to offset overly optimistic time estimation.

A Schedule Network Analysis is a graphical representation of a schedule showing each sequenced activity and the time it takes to finish each one. It’s used to identify early and late start dates, as well as early and late finish dates, for the uncompleted portions of project schedule activities. This analysis also helps determine the Critical Path, What-if Analysis, and Schedule Compression. It’s usually represented in the form of a Gantt chart or PERT Chart.

Schedule Network Analysis and diagrams are extremely useful for projects in many ways and provide many benefits such as;

·         Activity sequencing

·         Project length

·         Completion date

·         Critical Path

·         Lead and Lag times

·         Graphical representation of the entire project

·         Possible slippage

·         Possible what-if analysis

·         Possible schedule crashing analysis

Drawing the project network places, the activities in the right sequence for computing start and finish times of activities. Activity time estimates are taken from the task times in the work package and added to the network. The below diagrams shows an example of activities and the time lines associated with these tasks and how there are predecessors to some of these tasks.

In projects, float or slack is the amount of time that a task in a project network can be delayed without causing a delay to: subsequent tasks ("free float") project completion date ("total float"). Slack helps project managers run projects efficiently without compromising quality and the network diagram outlines these tasks and predecessors.

Project management and risk

Projects typically involve many dynamic aspects, one of the most crucial aspects of project management is accurate project estimates. Estimation is an invaluable tool for anticipating and managing project uncertainties. Accurate project estimates help identify cost and schedule requirements with relative precision, and reduce the risk of running out of time, resources, and budget during a project. There are ways project managers can ensure their estimates are accurate which can lead to the project being a success instead of a failure.

The first step to estimating your project is to break down the actual work involved for your project. Although you may have a general idea of how much time the project overall will take, capturing scope based on estimating from the project level will likely result in wildly inaccurate estimates. Starting with estimating the effort at the task level will result in greater accuracy of the total project effort. Using a construction project as an example, you would assess the various components of the project. The amount of hours each phase will take, all the materials required, each subcontractor to perform the labour, and anything else that will be needed to complete the job. Then you can break down the project and consider the cost of each individual part. If we stay with the construction industry as an example, another way to ensure estimates are more accurate is to be aware of unit cost estimating guides. This can be a faster way of estimating cost but not always the most accurate. 

Estimating based on unit cost or extent of per square foot can be a bad choice for accurate estimating due to the many variables of a construction project. These guides should be used as Ball Park only. A more accurate way is to list all the items needed for the job. Identify each piece of assembly required to complete the job and attach a unit cost to them. The sum of all the unit costs will help you reach a more precise estimate.

The use of a master checklist can also help to make sure the project stays on track and is completed in its entirety. It can be very easy to forget things like planning permission, landscaping, landscaping etc. They is why the WBS structure and diagram is so effective. The use of a master checklist to make sure you don’t forget necessary steps and items. Providing detailed description of where you need expertise and more importantly where you don’t, can help projects manager’s cuts costs across the entire project. It’s quite easy to be detailed on the portions of the project where you have the most experience, but it’s your own grey areas that will come back and bite you with cost overruns. Being more meticulous onthe areas you aren’t familiar with help you in gain your knowledge for future projects. Contacting specific subcontractors or consultants to help out on areas that require another set of eyes can also be very useful. Specialty labour, or craftsmen, must include normal wages and benefits. Be sure to take all this into account when establishing their hourly rate when estimating the cost of labour for the project. Once you have the rate established, build out the additional members of the specialty labour force and determine an overall rate. 

Consider how many employees you will need to bring into this project. At the hourly rate, determine what it will cost for those workers. Construction projects can be very unpredictable. When you start the estimating process, you have to consider what could possibly go wrong during construction. Consider potential mishaps and factor them into the cost and timeline of the project. It is not easy to predict the future, but you can look back on old projects and try to find commonalities to determine what risks may take place. You can do this by looking at previous projects. Using this past knowledge as a guide when creating estimates for future projects can be valuable.

Understanding material and product prices can play a huge part when estimating construction projects. Material prices change, so paying close attention to factors that can affect pricing when estimating costs is a very worthwhile task. Factors such as:

• Is demand high for a specific material or product?
• Do you have specific delivery challenges?
• Is the product or material custom?
• Do you need the product or material faster than the manufacturer’s normal turnaround time?

It is also crucial to understand material availability and any potential scheduling delays that will have cost implications if you don't order the materials on time. Materials not arriving on time can have huge knock on effects for parts of the projects. If products will have a long lead time, then you should plan that accordingly during construction.

There are many different project estimation methods. Two common methods for project estimation are top-down and bottom-up. Using a high-level work breakdown structure and data from previous projects, you can add estimates for each project work item to determine the overall effort and cost. The top-down method lacks detailed analysis, which makes it best suited for a quick first-pass at a prospective project to assess its viability.

The bottom-up method uses a detailed work breakdown structure, and is best for projects you’re committed to. Each task is estimated individually, and then those estimates are rolled up to give the higher-level numbers. This process makes you think about what’s required in order to take a step back to see if the big picture still makes sense. You’ll receive more accurate results than the top-down method, but it’s also a greater investment of time.

Poor estimates are on the main contributing factors for under-performing or failed projects. Inadequate estimates are the single largest cause of projects that don’t deliver on their promises and it is a worsening trend, and has been for over a decade. These top 3 factors alone contributed to 53% of poor project performance. The top six factors contributed to 78% of poor project performance. (PWC Report on Insights and Trends: Current Portfolio, Programme, and Project Management Practices). One of the report’s most significant, and yet not surprising, findings is that poor estimation during the planning phase continues to be the largest contributor to project failures. Irelands new National Children’s Hospital and its cost overrun really backs up these findings from the PWC report.