Earned Value in Projects

Man Scratching Head

The current posting contains considerations about defining and collecting earned value concerning fuzzy and usually large tasks. Defining and collecting earned value are essential aspects of project management [1]. Here are two scenarios where this kind of task appears, usually on an extensive program. One might appear in the situation of integrating into the program the deliverables of an outsource. The supplier’s schedule might not appear in the baseline other than a list of milestones. However, the cost may appear associated with a task in the baseline, with the period of performance equal to the negotiated duration on deliverables. The statement of work contains the deliverables, usually associated with a relative duration and an invoicing milestone. For the sake of simplicity, let us assume that the total value of the contract is $100,000, and the duration is three months. The supplier delivers item A after a month, and the supplier can invoice $40,000 for it. The supplier delivers item B after another two months, and the supplier can invoice the leftover $60,000 for it. The baseline would contain a loaded value of $40,000 in the first month and $60,000 after three months. All the activities of the supplier appear in one task, loaded as stated before. How does someone collect the earned value for this task? The formula is shown below:Earned Value Calculation

At the end of the first month, if the supplier is on track, %A is 100% (1.00), and %B is 0%. %Complete is 40%. If the supplier does not deliver A after the first month, the collected earned value is 0% since the supplier cannot invoice until the delivery is complete.

A second situation with a delicate earned value collection appears in engineering development projects where a team has assigned a major deliverable. The deliverable has assigned considerable time and cost but is hard to decompose. That might be the case of a team designing a complex board layout. The team provided an estimate of duration and cost based on historical data. How would one define the earned value in this case? The team loads the effort based on historical data, too. If the schedule is fuzzy, the team could define the earned value based on milestones associated with the sizable task. They could earn 5% when starting the task. They would get 20% when the preliminary work is complete, 50% when the first round of reviews is complete, 80% when the team finishes the rework, and 100% when the design is released. In this case, the earned value is somewhat empirical and unprecise because it depends much on the team’s ability to estimate the effort in every stage of the task.

Government projects commonly use these ways to define the earned value. I found these two particular ways of defining the earned value instrumental in commercial applications as well.

Dr. George Gafencu, DBA, PMP, DTM

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References for Earned Value in Projects

[1]       Project Management Institute, A guide to the project management body of knowledge (sixth edition). Newton Square, PA: Project Management Institute, 2017. Retrieved from https://www.pmi.org

 

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