Earned value management (EVM), which involves the comparison of planned budgets with actual cost and work performed, has been a core project-management technique for over half a century. Combining measures of project scope, time and cost, it came to prominence following the U.S. Navy’s Polaris nuclear program, which triggered a major improvement in the project cost accounting used in U.S. Department of Defense contracts.
Service branches and military contractors now use one or more highly sophisticated methods to develop a project plan, assign value metrics to scheduled work, and set out rules to quantify completed work and attach it to liquidity events or payments. Because EVM is an effective tool to manage enterprise-wide projects, some organizations have implemented an EVM program to drive internal efficiencies and accountability. Others participating in a DoD supply chain might be contractually obligated to perform EVM reporting.
Because reporting requirements can be specific to each agency, branch of service, or contract, enterprise software becomes essential to help businesses implement EVM practices appropriate to their circumstances — even if they’re working for multiple government entities.
Ensure Project-Management Continuity
EVM programs vary from a straightforward internal processes for on-time and on-budget project delivery, to complex multi-year arrangements for systems engineering or lifecycle sustainment. A company must consider how business-critical the more granular elements of project management and cost accounting are. Not all companies require the same level of rigorous budgeting and forecasting, or cost and progress collection.
Project management is a tool to help organizations manage their operations. If a detailed schedule of expenditures is not required, basic project management without budgeting and forecasting will work. While there are gray areas, there are a few distinct stopping-off points along this continuum:
Defense-focused solutions. Some enterprise software solutions are specifically designed with defense contractor EVM requirements in mind, where users can create controlled budgets and ongoing forecasts or Estimates to Complete (ETCs). Projected amounts can be based on materials required to deliver end items to a customer, planned resource hours, and manual entries.
Forecasted values can be planned linearly throughout the project duration, spread using any number of geometric curves, or manually entered in specific periods. The software can collect accurate costs of supporting efforts such as engineering or project management, and production costs of purchases and manufacturing against their specific work breakdown structure (WBS) elements. Furthermore, each WBS element can retrieve progress as work is completed.
Properly configured, project ERP can automate EVM metrics with minimal human intervention, providing organizations with an idea of how they are performing against their budget, with no effort aside from undertaking normal functions in the software, such as purchasing and time charging.
Project management software. Stand-alone project management software has its pros and cons for EVM. It enables companies to measure both cost and schedule performance, and provides tools to analyze and present performance data against budget and schedule. The downside, however, is that this data resides in a separate silo from enterprise resource planning (ERP) software, which is the corporate system of record where business transactions occur and are rolled up to central reporting for senior decision makers.
Project ERP. ERP software may have developed in the repetitive manufacturing sphere, but some ERP products have shifted to more project-centric business models. Project ERP satisfies the needs of environments such as engineer-to-order manufacturing, research and development, plant infrastructure projects, and construction or new-product development. It is supported by other ERP functionality, such as planning, cost collection and scheduling. This integrated solution has a greater level of sophistication, and offers more benefits than standalone project-management software.
Project ERP products allow you to effectively manage a project during its lifecycle, develop flexible work packages or WBS, create budgets (including planned hours/costs/revenue), collect diverse cost/hour/revenue values, schedule and control activities, and deliver support services such as engineering and administration, among many other features.
But project ERP has limitations. Many of these solutions will calendarize costs evenly across the duration of the project, unless they are specifically configured to perform differently. A company should not assume that just because its ERP vendor offers EVM capabilities that it has licensed that portion of the software, or that it meets all of its needs. If it requires a calendarized schedule of expenditures, and tools to calculate and plan parts to be built at the correct times, it must ask hard questions to ensure it’s receiving these benefits.
Be Aware of Specific Requirements
Even among federal government contractors, a lot of companies might not need this level of sophistication, involving rigorous planning where expenses and revenue are tied so closely to specific months. Currently, it’s common for companies to use standalone software such as Microsoft Project to manage project information. Some don’t use specific project software and instead track results in spreadsheets. This method lacks sophistication, but such companies can instead simply manage customer projects or program-management activities using a less complex project ERP solution.
Companies with greater requirements might need the forecasting capabilities of an EVM ERP solution, which enables them to calendarize, budget and re-forecast. This would provide revision control on top of a clear view of the calendarized budget.
Avoid Common Selection Slip-Ups
Missteps often occur when executive teams define their EVM software requirements, and when they evaluate and ultimately implement solutions. The first is that wrong assumptions are made. Companies often make assumptions based on how they feel software should work. For instance, they assume they are getting a calendarized schedule of costs when they might not. Even if software has the ability to calculate cost and schedule for parts to be built at the right times, it doesn’t guarantee that projected costs will be in the correct periods, or the correct values for those periods. Companies need to factor this requirement into their scope. Just because a project-management module plans an activity, don’t assume that it will budget the cost in the desired period.
Companies must also ensure that they understand the fundamentals of EVM, and how the software addresses it. Many have specific and unique opinions on EVM requirements, and it’s useful to re-visit source material governing those requirements. It’s possible that the software can effectively meet requirements in a manner different from current practices. Be mindful of this when evaluating offerings.
Thirdly, it’s important to consider the revenue on investment as a result of automating EVM processes. An EVM system can eliminate non-value-added work over the duration of an ERP project. Once a WBS is set up in the software, it’s simple to copy that template and enter demands for new projects. This allows you to step back and let the rest of the ERP and planning functionality take its path, collecting information in projects through other features in the application. This straightforward approach to using ERP projects has the potential to provide significant benefit without investing in a more complex setup.
Know Your Objectives and Expectations
It’s that essential companies understand just how much detail is needed behind EVM, and that they weigh their current requirements and need for it. There’s no single piece of software that meets all company objectives, but a sophisticated solution can get you close. What companies must consider, however, is how much time, energy and investment it will take to meet their expectations.
Christopher Cummings is an application analyst for North America with IFS.
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