Earned Value Management (EVM): How to Forecast Project Outcome and When Does EVM Help?
In an ideal world, IT projects are completed with less or no issues than expected and lead immediately to a successful outcome. A company releases its final product to end-users, and it’s done. You can close the case. However, reality is a bit harsh. Unfortunately, there are cases when a project is finished, but it turns out that the ‘overtime’ and ‘over budget’ situations were following you along the way.
Sometimes, problems can be technical (ex. the lack of experience of a service provider), but in most cases, the issues are caused due to poor communication and workflow management. For example, some details weren’t taken into account, some vital notes weren’t mentioned, or maybe one stakeholder didn’t understand another. As a result, the outcome differs from the initial expectations, and the value of a project may be minimized. In such cases, a team introduces amendments into the scope and SRS (Software Requirements Specification) document. This type of amendments is known as Change Requests, and, once in a while, there can be loads of them.
When considering each Change Request, one should think if it should be performed, because it can postpone product release. If there is only one change to make, it is easier to decide. But when there is a need in dealing with a whole list of them, all stakeholders have to understand how to balance the tasks between the amount of features and reasonable release date. Considering that these requests may appear at any time during the entire development period, it is vital to constantly monitor time and budget spent on a project and calculate forecast to completion. For this type of monitoring, EVM is a good choice, so let’s know more about this tool.
What Main Purpose Does EVM Have?
EVM, or Earned Value Management, is a project management technique that is usually a major part of a bulky project management system that may also include task management tools, Gantt charts, and employee reporting system. Often, companies take the components they lack from different service providers, which makes it difficult to connect them properly. It means that monitoring tools are also usually from third-party service providers. However, in simple cases of developing IT projects, it is possible to create your own EVM by using Google Sheets or Microsoft Excel.
As for the main purpose of EVM, it compares actual progress (EV, or Earned Value) of the project execution, scheduled progress (PV, or Planned Value), and the resources that were spent on it (AC, or Actual Cost). After you compare all of them, you can proceed with the forecast to completion and estimate the expected date of completing a project.
To better understand the state of your project, it is important to pay attention to the following indicators:
There are also other useful estimates that are based on Initial Estimate (IE), and they are known as the following:
- ETC (Estimation to Completion) shows how much more you need to spend to complete a project (ETC=IE-EV);
- EAC (Estimate at Completion) tells the total costs of a project once completed (ETC=AC+ETC);
- EED (Estimated End Date) defines the date of the project competition.
It is more than enough to use the indicators and estimates that we mentioned in order to monitor the current state of the development process and its forecasting.
Read Also How to Estimate Cost of Fixed Price Projects
- What to Choose: Time or Money?
- Is It Really So Bright and Easy as in Theory?
- What About Change Requests?
- What to Do Then?
We covered these and other questions in our article on detail: https://xbsoftware.com/blog/earned-value-management-evm/
