Earned Value Analysis in the Control of Projects

EARNED VALUE
ANALYSIS IN THE
CONTROL OF PROJECTS:
SUCCESS OR FAILURE?
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PMI College of Performance Management Measurable News Magazine
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2 Earned Value Analysis in the Control of Projects: Success or Failure?
Abstract
The objective of this paper is to present and discuss the main obstacles and ben-efits
of the use of the Earned Value Analysis in projects, including factors to be im-proved
and implemented during the project plan and actions to be taken while
the project is accomplished and controlled. Also, through a real case study in civil
construction field, the applicability of the technique is faced with a theoretical
reference, in order to identify aspects of the applicability of the tool tested in case
study. The results to be presented and discussed are subdivided in two parts:
The first one is about the different features of each business and its contribution
for the success or failure in the implementation of the Earned Value Analysis, and
the second is about the characteristics of similarity found in all businesses that
together favor or not the use of the tool.
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ricardo-vargas.com 3
Earned Value Analysis as a Control Technique
Many studies about the applicability of the Earned Value Analysis have been
made. THAMHAIN (1998) tried to evaluate the popularity of different practices of
project management. Surveys were made with 400 professionals who work with
projects (managers, directors, people in charge) in 180 projects in Fortune-1000
companies. They were asked about the popularity and value of different tech-niques
of performance evaluation. As a result, he could see that the Earned Value
Analysis is used by 41% of people who work with projects. It is more used than
critical path method, QFD (quality function deployment) and Crashing, among
others. The Earned Value Analysis is almost as popular as the net PERT/CPM.
Concerning the value of the technique, the results found for Earned Value Anal-ysis
are fitted in a layer of little value, staying below practically all techniques
analyzed, what infers that the popularity of the technique doesn’t seem to show
its applicability or value.
Trying to justify the low value proved by researchers, THAMHAIN (1998) states
that little applicability found as a result in the studies made, can be attributed to
different barriers, either being internal or from the environment. They are
• lack of comprehension of how the technique works;
• anxiety concerning the adequate use of the tool;
• use of the tool requiring a lot of work and time consumption;
• tools trimming creativity in the use of other strategies;
• inconsistency of the tool in managerial procedures / businesses processes;
• method of control as threat, concerning the freedom of the team;
• vague and inaccurate purpose and its benefit;
• high cost of its implementation;
• unsuccessful prior experience in the use of other techniques;
• low familiarity with the technique.
WIDEMAN (1999) states that a project of great importance requires a unit of plan-ning
and control that has professionals capable of collecting the information and
making the Analysis of Added Value, turning its applicability justifiable.
CHRISTENSEN (1998) states, in his studies about the applicability of Added Value
in govern organizations in the United States, that the implementation of Earned
Value requires a cultural change, which demands time and effort. This means to
make sure that policies and knowledge are taught by the organization and by the
project in order to quicken the work of the ones involved.
To Sparrow (2000), the Earned Value Analysis enables a supplementary value to
the project because it offers a premature visibility of its results, in other words,

it is possible to determine a tendency of costs and deadlines of the project in a
certain phase of it, when there is still a possibility of implementation of corrective
actions.
On the contrary, WEST & MCELROY (2001) agree that the Earned Value Analysis
is an adequate tool for the generation of reports of work done, and not a man-agerial
tool, since the control in real time of the project, using all parameters of
analysis becomes unviable: “the Earned Value Analysis shows to the project team
the performance obtained until then, and not the future forecast of the project.”
WIDEMAN (1999) supports that the technique is conceptually attractive, howev-er
it requires great efforts in its maintenance, therefore it needs a qualified team
to understand and provide reliable information. He also states that many project
managers don’t consider the analysis an appropriate cost-benefit ratio.
From those opposite points of view, we may imply that the Earned Value Analysis
is a group of powerful intrinsic characteristics, wide and varied, like payment pro-jection
and forecasting. However, it is bound to find great difficulty in either data
collection or in the low speed of information generation.
These considerations may mean that, if the data collection is made in adequate
speed and accuracy, and the information is correctly compiled accomplishing
the deadlines, the analysis has its applicability widely enlarged. Otherwise, it will
not add much to the process of project control.
TERREL et al (1998) states that, in order to make the Earned Value Analysis effec-tively
implemented, it is necessary to have the information about the resources
clearly defined. A failure in obtaining these data, motivate the creation of inac-curate
performance measurement baseline (PMB), distant from the real scenario.
FLEMING & KOPPELMAN (1999) state, also that another difficulty factor is about
an adequate work breakdown structure (WBS). If the work is subdivided in small
packages of work, it will represent a high cost of control and a lot of paperwork.
On the other hand, a badly stratified subdivision may represent an inaccuracy of
data, concerning real costs and deadlines.
This confirmation may be proved in the low application of the Earned Value Anal-ysis
in technology and marketing areas, where the creative work is the variant in
a scope previously defined, making its application limited and directly related to
the stability of a defined scope, according to PETERSON & OLIVER (2001).
They state that, the more short-term projects grow, with reduced team and a ge-nerically
defined scope, the more the Earned Value Analysis, according to Instruc-tion
5000. 2R (DOD, 1997) and by ANSI/EIA 748, is not viable, due to inaccurate

projections, consequence of a badly defined scope and to high costs noticed by
the entrepreneurs.
Case Study
The company researched belongs to a sector of civil construction, which applies
project management in a steady way. It is a segment that most invests in re-searches
and new tools in this field. Furthermore, it is the only one on the market
that admits publicly the use of Earned Value Analysis in its process of construc-tion
control.
This company is the 11th in the national segment of heavy construction. It is also
part of the three biggest groups in the segment in the country and a leader in
other segments of the economy, such as government work and telecommunica-tions.
It has been on the market for more than 50 years. Its turnover in 2001 was
about US$200,000,000 with 80 engineers and about 4000 workers in its person-nel.
Concerning the case study, everything started through a process of interview in
which three professionals from the southeast business planning unit of the com-pany,
gave their opinion about the process in a wide and clear way. These profes-sionals
were the first ones to be interviewed, because they have developed the
construction control system using the Earned Value Analysis.
After analyzing the issues discussed by the first interviewees, a new series of in-terviews
was made, based on a new open line of interviews, with construction
managers and the ones in charge of planning departments of each construction
site. At this moment, the objective was to test the planning practices, analysis
and gathering of data in different levels, aiming to find possible distortions, con-ceptual
flaws, resistance and work style in the use of Earned Value Analysis in the
construction sites.
In a third and final moment, the final result of the projects (deadlines and costs)
was faced with the values computed for the Earned Value Analysis that were un-der
the responsibility of the planning unit of the company. From that combina-tion
between interview results and the data available in the company, we tried to
get evidence that could link the success or failure of the business to maturity in
the use of Earned Value.
Concerning the evaluated construction sites, they were categorized by the com-pany
as medium-sized and average technique complexity constructions, which
will be finished by the end of this work.

Results
The results to be presented and discussed in this section are about different char-acteristics
of each construction site and its contribution to the success or failure
in the implementation of the Earned Value Analysis. The second part is about the
traces of similarity found in the construction sites and the general conclusions
about the case study.
The results obtained in the process of interview and the combination of real data
provided by the planning department, as seen before, were significantly different
in each business.
From these different characteristics (Table 1), the main factors are presented and
evaluated in each construction site, just like the final result concerning the fideli-ty
of the results and the preliminary conclusions.
The factors evaluated have been presented in the discussion and analysis of each
construction site, and they are: scope, deadlines and schedules, budget process,
type of contract, type of client, partners and/or consortiums, organizational
support, support by the client, geographic distribution of work, the presence of
outsourced staff, use and knowledge of the indexes and models of projection
provided by the tool.
As we can see, after analyzing table 1, we may conclude that the implementation
of construction site one was successful and of construction site three was a fail-ure.
Both results are not necessarily product of an isolated factor, but from lots of
linked factors.
CHARACTERISTIC CONSTRUCTION SITE ONE CONSTRUCTION SITE TWO CONSTRUCTION SITE THREE
Scope Clearly detailed and
specified
Defined preliminary,
detailed as the project is
done
Detailed and specified
satisfactorily (not in the
same level of construction
site one )
Deadlines and schedules
set up
Closed and previously
defined according to clear
schedules to be followed
Open with schedules to be
defined while duties are
accomplished
Closed, but with significant
changes throughout the
project, result of problems
linked to lack of financial
funds.
Budget process
Structured through CAP’s
allowing the adequate use
of the tool
Traditional, not based on
the Analysis of Added
Value
Traditional, not based on
the Analysis of Added
Value
Type of contract Fixed price. Not adjustable One price One price
Type of client Private Public Public
Table 1 – Comparative analysis of the main characteristics of three construction sites evaluated.

It is not possible to conclude that the unsatisfactory results found in construc-tion
site three are linked to the existence of a consortium or to an inadequate
geographic distribution of work. This failure is a consequence of a group of many
unfavorable characteristics, which contributed to unexpected results.
On the other hand, evaluating construction sites one and two, we find character-istics
in construction site two that are significantly closer to those in construction
site one. However, the main difference found was the lack of detailing of scope,
which consequently made the budget process unsatisfactory. We may conclude
that it was one of the main factors that made the results different (see Table 1).
Similarities have been found in all three projects evaluated. They are related to
the process of interview and obtained results.
Initially, we may conclude that there are factors linked to the organizational
structure and to the management model of the company that could affect di-rectly
the fidelity of results. Therefore, it is necessary to investigate deeply about
the influence in organizational structure in the use of the tool.
Also, concerning organizational aspects, the ones in charge of construction sites
planning, questioned the need of a high number of indexes, and mentioned that
the determination of performance indexes was redundant.
CHARACTERISTIC CONSTRUCTION SITE ONE CONSTRUCTION SITE TWO CONSTRUCTION SITE THREE
Partnerships and/or
consortiums Nonexistent Nonexistent
Consortium with another
contractor that has the
construction being
controlled by the company
evaluated
Organizational Support High Moderate to low Moderate
Support by the client High Moderate Moderate to low
Geographic distribution
of work
Concentrated
geographically
Concentrated
geographically
Distributed in 150Km of
groups of work
Presence of outsourced
staff None None High
Use of knowledge of
indexes and models of
projections provided by
the tool
Moderate to low Low Low
Loyalty to official results
presented with real
results
High Moderate to low Low
Preliminary conclusion
about the success of the
implementation
Partial success Partial failure Failure
Table 1 – Comparative analysis of the main characteristics of three construction sites evaluated.

A preliminary evaluation of these considerations, allows us to conclude, at first,
that the Earned Value Analysis as we can see in all of the three projects, may show
a high use of excessive indexes, superior of the management potential of a con-struction
site. That could make the construction site impossible, result of low pri-ority
in the process and unnecessary use of indexes.
The opinion of the interviewees about the real value of the tool was unanimous.
They all agree that the Earned Value Analysis is a great step for the improvement
and introduction to a more modern mechanism of construction site control. This
would confirm the first result of THAMHAIN’S (1998) study about how popular
the technique is, however, in the same study (THAMHAIN, 1998), they all agree
that the conditions of market and the necessity of a quicker generation of results,
made the dedication to the use of the tool, difficult, proving the low value of the
technique presented in the study of THAMHAIN (1998).
According to prior quotations, we can also see that in all three cases, there was an
active participation of the planning departments of the business unit. However,
this participation was different in each construction site. We can imply that the
success of construction site 1, concerning the implantation of the tool, is directly
linked to a strong presence of the professionals of planning department.
Therefore, we may conclude that, very often, the efforts of the construction site
team are divided in many different groups, and the team dedicates to the tool,
directly used by top executives to evaluate the businesses. As a result, the dedica-tion
to other competitive tools is ignored or left behind, as seen in Earned Value
Analysis in projects two and three.
In construction site one, this process inverted. In this project, the Earned Value
Analysis was the main mechanism of construction site control. It gathered all the
necessary support to be successful. Finally, we may conclude that the case study
proved the characteristics of the projects that favor the use of the tool and the
use of others which show to be difficult in the process.
It was also proved that the implementation of the Earned Value Analysis is a com-plex
process that involves several aspects, since the kind of business until its or-ganizational
structure, its scope, its geographic distribution and the relationship
with the client, among others, that deserve a more detailed study.
Conclusions
From this paper, we may conclude that the Earned Value Analysis is a power-ful
tool in the control of performance evaluation. However, most of the projects
have insufficiently detailed scope, staff with little experience in the use of the tool

and a natural dissociation in the control of costs and deadlines. These elements
make the results questionable to a necessary effort.
We may also conclude that the results are not very obvious in short-term basis.
They will only be evidenced in future phases of the project, especially in cost re-duction
of operations and rework.
As a third conclusion, we may see that, in projects of clearly defined scope, or in
contracts with price and work established, the Earned Value Analysis shows a fa-vorable
cost-benefit ratio. Other element that might favor the application of the
tool is the qualification of project teams in the use of the tool and the organiza-tional
support, which allows the tool to be simplified to meet the specific needs
of the project and the organization.
To sum up, the combinations of the conclusions obtained from the analysis of the
theoretical reference, with the case study are shown as follows.
Nature of the project – the application of the Earned Value Analysis can be con-sidered
more successful in projects of clear and tangible objectives, with a de-tailed
scope, simple and direct. This type of project presents better results in the
use of the analysis, as evidenced in the case study (construction site one). Proj-ects
with incomplete final products or services, or projects that involve aspects
of creativity that make a precise plan impossible, show high inviability in the use
of the technique. Since the planning has not been established, the date of perfor-mance
can be determined (construction sites two and three).
Scope definition – from empirical evidence obtained from the evaluated con-struction
sites and based on theoretical discussions presented in the theoretical
reference, we may imply that the facility or difficulty concerning detailing and
specification of scope, permits the tool to be favored or disfavored, since a tan-gible
scope, controllable and detailed provides better specification of the work
to be made. Consequently, it facilitates the process of measurement of real and
added values. The establishment of tangible, controllable and detailed scope
is a process that comes from the nature of the project and from the model of
business established (contract, type of client, etc). Therefore, a strong dedication
to the process of development of the scope improves results in the use in the
Earned Value Analysis.
Informality in management and resistance to changes – we can see in the case
study that the informality in the control of project is high, and resistance found in
the implementation of a new model of control exists and cannot be ignored. This
resistance is associated to a perception that the planning work and control rise in
an unjustifiable way, when using the tool. Trying to associate both factors, ANT-

VIK (1998) states that the resistance comes from a cultural process of informality
in the control of projects. In this way, it is implied that it is necessary to create a
different work of management of changes, for example the training of manage-ment
of projects, workshops, an efficient support of the professionals of this area,
with prizes and bonuses. Everything aims to minimize the resistance found in the
implementation and to favor the project environment.
Attractively and value of the technique – Based on the evidence of the case
study and on researches presented on theoretical reference, we can say that
the Earned Value Analysis is considered by the ones who have already used it or
known it, as attractive and complete. However, this fact is not true, concerning
the use of the technique. The interviewees and several authors that were cited
and in this theoretical reference agree that the technique demands a strong ef-fort
that, if not analyzed widely, should not have good results. This consideration
justifies the results presented on the research of THAMHAIN (1998).
Training – The Earned Value Analysis suggests a cultural change in the process of
projects control, therefore people who have experience in dealing with the tool
are really necessary in this process. Moreover, it is also necessary a process of in-tense
training, in order to reduce the resistance to its implementation that comes
originally from a low technical knowledge of the tool.
Organizational support – The way an organization implements the tool, influ-ences
directly the results. As seen empirically in the case study, the construction
site one, that had an organizational support, provided by specialized resources,
had better results in terms of application. However, the organizational support,
has a cost that has to be determined and accounted, otherwise the obtained re-sults
might be distorted.
References
ANTVIK, L. C. S. (1998). Earned value Management – a 200 Year Perspective. Long
Beach: 29th Annual Project Management Institute Seminars & Symposium.
CHRISTENSEN, D. S. (1998). The Cost and Benefits of the Earned value Management
Process. Acquisition Review Quarterly.
DOD (1997). Earned value Management Implementation Guide. Washington: Unit-ed
States of America Department of Defense
FLEMING, Q. W. & KOPPELMAN, J. M. (1999). Earned value Project Management, 2nd
Ed. Newton Square: Project Management Institute.

PETERSON, C. D. & OLIVER, M. E. (2001). EV-Lite – Earned value Control for Fast
Paced Projects. Nashville: 32th Annual Project Management Institute Seminars &
Symposium.
SPARROW, H. (2000). EVM = Earned value Management Results in Early Visibility and
Management Opportunities. Houston: 31st Annual Project Management Institute
Seminars & Symposium.
TERREL, M. S., BROCK, A. W., WISE, J. R. (1998). Evaluating Project Performance Tools
– A Case Study. Long Beach: 29th Annual Project Management Institute Seminars
& Symposium.
THAMHAIN, H. J. (1998). Integrating Project Management Tools with the Project
Team. Long Beach: 29th Annual Project Management Institute Seminars & Sym-posium.
WEST, S. M & MCELROY, S. (2001). EVMS: A Managerial Tool vs. a Reporting Tool.
Nashville: 32th Annual Project Management Institute Seminars & Symposium.
WIDEMAN, R. M. (1999). Cost Control of Capital Projects and the Project Cost Man-agement
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