Infosys-Oracle Blog

In the world of “Project management” Earned value calculation and management is one of the most discussed topics. Once you are able to derive the earned value for a project execution phase, you can calculate various other “ratios” for checking on the state or health of a project. You can get Cost performance index and schedule performance index etc. And just looking at these values your senior management should be in a position to know what’s right (or wrong) with the current status of the project.

If we look at the various factors or measures which are essential to calculates Earned value for a project as follows

• Cost budget
• Actual cost spent till date
• And importantly the % of the work that is complete.

Lets look at these three measures and how these are derived by system to get a measure of earned value.

Cost budget planning is the most important and basic step that is followed in project management and all the project management systems will have the features to enter proper cost budget at proper level (Again, proper budget definition is also a subject in itself, project managers may opt for time phased, non time phased budgets, deciding on the levels at which they want to define the budgets, how granular you want to go for budget control etc) for a project in the system. So there is no subjectivity in calculating the cost budget for a project at all.

On similar lines, there is no subjectivity at all, when it comes to proper cost collection so that you get actual cost that is spent on a project. Most of the Project management systems, will have a proper integrations with other transactions systems like procurement, payables, inventory and manufacturing modules to collect appropriate cost for the projects.

But the real challenge lies in how you are collecting the % complete for a project. And this is where lot of subjectivity comes in. And the fact that calculating % complete can become one of the subjective measure for a project, creates some challenges in a way the “earned value” for a project can be used by senior management. So due to this subjectivity you may have a situation that inspite of having system derived “Earned value” , cost and schedule performance indices, management feels the need to get in details of project execution , transaction etc to know the real health of a project.

Typically % complete for a project should be derived based on % complete for each measureable and important task in your system. Also the way in which each tasks % complete is calculated should really depend on the “Type” of work that is completed / achieved during execution of a task or an activity. There are various methods to calculate % complete for a activity (like duration based, cost based, work quantity based  etc), but there is no way one should / can standardize on one of the methods to be applied consistently for all types of the tasks for a project.

So this is one of the important decisions that need to be taken during implementation and for each type of task appropriate method to derive % complete should be finalized.

Apart from this setup for each task, what is more important is the weightage that one has to associate to each task. When it comes to progress roll up at project level, every task or activity of a project will not have same kind of importance. The importance for rollup can not be decided based on cost or duration of a project (Ex, for typical EPC organization, the cost consumed or planned for tasks like Engineering, is very negligible as compared to total project cost.). However when it comes to tracking the progress at Project level, the task’s importance is very high. So during implementation it’s very important that a proper weightage should be assigned to each task.

Now, having considered various factors which will enable effective % complete calculations at project level the further challenge lies in institutionalizing these practices across organization. This can be achieved by using various features of PPM products (Ex, templates for Oracle Projects, Methods in Primavera methodology management etc).  So once these things are taken care, there will be consistent interpretation of earned value measurements at project level across organizations. This certainly makes it easier and effective for senior management to drill down into project status check by “tracking by exceptions”.