Earned Value Management (EVM) Limitations

EARNED VALUE MANAGEMENT
Incorporating Risks and integrated
Master-EVM models
Muhammad Iftikhar Anjum

“You cannot manage what you
cannot measure…and what
gets measured gets done.”
Bill Hewlett,
Co-founder Hewlett Packard

INTRODUCTION
 Earned Value Management (EVM) is an effective
tool for project performance measurement on
Time, Cost & Scope baselines
 If used properly, EVM can ensure project success
without major delays
 EVM models are mainly effective for Predictive Life
Cycle Projects
 Certain limitations are associated with use of EVM,
for which different extensions have been proposed
by various researchers

INTRODUCTION
In this Study
 EVM models (Task-EVM) for each task is proposed
that are to be integrated for Project or Master-EVM
 Risk Costs and Time Buffers are added in Planned
Value (PV) calculations based on probability-impact
factors for Risk
 In order to apply the proposed EVM extensions, a
hypothetical tourism facility project is taken as a
model

AIM OF STUDY
Aim of the study is to propose techniques for
addressing EVM model limitations based on a
Hypothetical Tourism Facility Project

BASIC CONCEPTS - EVM
PV: Planned Value
EV: Earned Value
AC: Actual Cost
SV: Schedule
Variance
SV = EV – PV
CV: Cost Variance
CV = EV – AC
Cost
TimeTime t
PV
EV
AC
Schedule
Variance
Management Reserve
Cost
Variance

COST & SCHEDULE PERFORMANCE INDICES
Excellent
Bad
Cost Performance Index
CPI = EV/AC
Schedule Performance Index
SPI = EV/PV
1 or 100%
CPI, SPI = 1, Cost & Schedule are as planned

BASIC CONCEPTS - EVM
Cost
TimeTime t
PV
EV
AC
Schedule
Variance
Management Reserve
Cost
Variance
BAC
EAC

LIMITATIONS OF EVM
 Risks are not accounted for in EVM model
 Exact measurement of Earned Value (Physical
work completed) may not be accurate
 There may be variations in Cumulative Earned
Value and Physical work done on individual tasks

HYPOTHETICAL MODEL
Vash-Rung Makran
Tourism Facility Project

HYPOTHETICAL MODEL FOR RESEARCH
 A Tourism Business Company planned for establishing a
tourism facility at Kund Malir, Balochistan
 Tourism attractions include, Beach, Landscape, Hangol
River, Nani mandar, graves of Bin Qasim’s soldiers,
Princes of Hope, Star-sighting etc
 Project is named as Vash-Rung Makran (VRM)
 Company believes in use of sustainable energy, clean
environment and use of local human resource

TASKS
Task Time (weeks) Cost (million of rupees)
Hotel Renovation 13 13
Security 12 10
Training 26 10
Patrol Pump 12 20
Shuttle Service 12 40
Wind-Solar Energy System 20 40
Marketing 26 20
Hospital 12 10
Seawater Treatment 24 40
Sewerage Treatment 24 20
Trial Trip 1 1
Plan for Expansion 1 1
Total 50 (based on PERT) 225
Project Vash Rung

PROPOSED EVM
MODELS
to address the limitations

TASK-EVMS INTO MASTER-EVM MODEL
 In order to get the real time data of AC and EV a
separate EVM for each task is to be planned and
maintained
 Task manager, with assistance of accounting/
stores professionals should keep his Task-EVM
updated
 Data for each Task-EVM is to be communicated to
Master-EVM, by a network or data link
 Periodicity of update of EVM is to be planned and
same is to be used for keeping every concerned
onboard of actual project performance

EXAMPLE
At time t, there are 3 parallel tasks A, B & C
Cumulative Calculations for Master-EVM
EVP = EVA + EVB + EVC
ACP = ACA + ACB + ACC + Ο
Ο is other associated costs, that does not add to the
Physical Work done in terms of cost

TASK & MASTER EVM
*Calculations were made from POM-QM software PERT cost-budgeting module

INCORPORATION OF RISK FACTORS
 Project Risk Management is a factor that assures a
project performance and completion as per
schedule
 PMs usually avoid maintaining a Risk Register
 A conflict situation may occur or project
performance may be affected badly, if risk
management is not done properly
 In order to avoid this situation, it is proposed that
risks are to be added to EVM planned value (PV)

0.36 here is Probability-Impact Factor

 All other Risks can be converted in terms of Cost
and Schedule
 In the model, only Cost & Schedule risks are
proposed for incorporation into EVM
 For calculation of risk values, Probability-Impact
factor (PI) is used in proposed EVM model

SCHEDULE RISKS
 It is proposed that for schedule risks, buffer times
are to be added to all tasks
 Calculations of buffer times are on the basis of PI
factors for proposed model
PIp: Probability-Impact factor (positive risks)
RVp : Risk Value (positive risks) RVp
PIn : Probability-Impact factor (negative risks)
RVn : Risk Value (negative risks)
TB: Time Buffer
Equation for Buffer Time:
TB = (PIn)*(RVn) – (PIp)*(RVp)

SCHEDULE RISKS - CALCULATIONS
 Following table, taking hypothetical values of risks,
in 4 tasks was created
RV, PS, PR in weeks
Petrol
Pump
Energy
Plant
Seawater
Plant
Sewerage
Plant
PIp 0.4 0.2 0.3 0.7
RVp 1 1 2 1
(PIn)*(RVn) 0.4 0.2 0.86 0.7
PIn 0.68 0.74 0.7 0.9
RVn 5 7 3 4
(PIp)*(RVp) 3.4 5.2 2.6 3.7
Time Buffer 3 5 4 3
Planned Schedule 12 20 24 24
Planned Schedule with Risks 15 25 28 27

COST RISKS
 It is proposed that for cost risks, additional cost,
based on PI factor is to be added to tasks
PIp: Probability-Impact factor (positive risks)
RVp : Risk Value (positive risks) RVp
PIn : Probability-Impact factor (negative risks)
RVn : Risk Value (negative risks)
RC: Risk Cost (in million of rupees)
Equation for Risk Cost:
RC = (PIn)*(RVn) – (PIp)*(RVp)

COST RISKS - CALCULATIONS
 Following table, taking hypothetical values of risks,
in 4 tasks was created
RV, PB, PR in million of Rupees Training
Shuttle
Service Marketing
Sewerage
Plant
PIp 0.4 0.2 0.3 0.7
RVp 1 1 2 1
(PIn)*(RVn) 0.4 0.2 0.6 0.7
PIn 0.7 0.6 0.7 0.9
RVn 2 2 3 2
(PIp)*(RVp) 1.4 1.2 2.1 1.8
Risk Costs 1 1 1.5 1.1
Planned Cost 12 20 24 24
Planned Cost with Risks 13 21 25.5 25.1

IMPLICATIONS OF STUDY
 In practical approach, some risks cannot be quantified and are
based on previous experience and expert judgment of PM.
 There are Force Majeure Risks, like natural disasters, those
can only be dealt with by a project team’s efficiency,
experience, knowledge and resources.
 Efficiency in upkeep of Task EVMs by Task-Managers can
vary as per the priority of the task itself, associated works,
time and expertise in finance/management.
 Model of Vash-Rung tourism facility project is based on
hypothetical company, costs, schedules, team members and
potential for revenue in the project. It is not to be used for any
practical approaches, except for getting an idea for such
projects.

CONCLUSION
 Earned value management methodology takes into account
all three triple constraints that may delay a project or cost
extra expenditure.
 There always remain an element of error and difference
between on-ground project status and management level
documentation and tools like EVM. Proposed model for
dividing Master-EVM into task-EVMs will keep all stakeholders
onboard at any instant of time and real-time project
performance will be measured affectively.
 Project Risk Management is another major factor that assures
project performance and efficiency of team. Project Managers
generally avoid maintaining a risk register. Proposed model
for incorporating risks into EVM at planning level will give a
clear insight to all stakeholders. Moreover, during the project
life cycle, clear visibility of forthcoming risks will ensure early
risk responses.

FUTURE RESEARCHES
 Future researches can target reducing the gap between
theoretical/financial models and practice/physical status
of a Project.
 Identifying and quantifying risks is core competency of
any project management organization. Project Risk
Management integration with planning, execution and
monitoring & controlling of a project can be another area
of research.
 Hypothetical model of a tourism facility in Kund Malir
can be a full fledge research and business project, that
can be studied and implemented practically.
 Use of sustainable energy resources, capacity building
of local population and self-sufficiency in water
resources are few other areas that can be researched
for business as well as for poverty alleviation.

REFERENCES
 PMI’s Project Management Body of Knowledge
PMBOK®.
 Practice Standard for Earned Value Management.
 Practice Standard for Project Risk management.

 "Technical Performance Measurement, Earned Value, and Risk
Management: An Integrated Diagnostic Tool for Program
Management". Defense Acquisition University Acquisition
Research Symposium, 1999.
 "ANSI EIA-748 Standard - Earned Value Management Systems",
Electronic Industries Alliance. 1998.
 F. T. Anbari, “Earned value management: method and
extensions”, Project Management Journal, Dec 2003; 34:4.
 Andrzej Czemplik, “Application of Earned Value Method to
Progress Control of Construction projects”, seminar, Theoretical
Foundation of Civil Engineering, 2014.
 Quentin W. F., Joel M. K., “Earned Value Management: Mitigating
the Risks Associated with Construction Projects” Project
Management March-April 2002.
 Azeem S.A., Hossam E. Hosny, Ahmed H. Ibrahim, “Forecasting
project schedule performance using probabilistic and
deterministic models” HBRC Journal (2014)10, 35–42.

 Fernando A., Javier P., José M. G. & Adolfo L. P.,
“Beyond Earned Value Management: A Graphical
Framework for Integrated Cost, Schedule and Risk
Monitoring”, 26th IPMA World Congress, Crete, Greece,
2012.
 Robert T., Shaw C. & Mark B., “Earned Value
Management: Moving towards government-wide
implementation”, Acquisition Advisory, August 2005.
 Quentin W. F. & Joel M. K., “Earned Value Project
Management: A Powerful Tool for Software Projects”,
Crosstalk The Journal of Defense Software Engineering,
July 1998, 19-23.
 A. Naderpour & M. Mofid, “Improving Construction
Management of an Educational Center by Applying
Earned Value Technique”, The Twelfth East Asia-Pacific
Conference on Structural Engineering and Construction,
2011.

THANK YOU
Dedicated to:
Dr. Muhammad Zaki Rashidi
Mr. Syed Ahsan Rizvi
Mr. Kashif Siddiqui
Mr. Muhammad Iftikhar Mubashir

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