Firms are always looking for ways to improve their project financial performance.  It’s widely recognized that one of the few aspects of a project that are within a firm's control is the ability to track and manage the project’s progress and identify budget overruns early.  But, with all of the moving parts of a project, this can be difficult to do. 

One of the best techniques a firm can use for project tracking is called Earned Value Management.  Earned Value Management can give firms the visibility they need into a project’s progress from beginning to end, with very little additional input required from what they are already gathering today. 

Most firms have heard of Earned Value Management but very few have actually instituted it.  In most  cases, firm leaders rely on ‘tried and true’ methods that involve estimating project performance based on subjective project progress reports coupled with keeping a close eye on what’s been billed and what is left in the contract.  This method is the financial version of applying Kentucky windage to a project’s financial progress.  It can get you close, but is not a repeatable process for achieving success. 

If Earned Value Management is such a great way to manage projects, then why is it so poorly adopted across the industry?  It does require some additional tracking points, but nothing very difficult to do.  In my experience, most firms don’t apply Earned Value Management techniques because they feel like they don’t have the time or that adoption will be difficult.  Regardless of the excuse, it’s important for firms to take a closer look at how adopting Earned Value Management can lead to sustainable improvement in the financial performance of their projects.

How does Earned Value Management work?  It’s actually a fairly simple process of gathering a physical percent of completion estimate from your project managers and converting that percentage into a dollar value by multiplying it by the total contract value.  So if you’re 20% of the way toward completion of a $50,000 job, then the Earned Value would be $10,000.  This number is completely separate from what you’ve billed or scheduled.  It’s a value that is purely based on the physical progress of the job.

Once you have your Earned Value figure, you can then make some comparisons to evaluate your project’s progress and how you can expect the project will finish.  Comparing the project’s Earned Value amount to what you’ve already spent on the job will help you determine if you are currently over or under budget.  You can also divide the spent amount by the physical percent complete estimate to get your burn rate.  The burn rate reflects the rate at which the project budget is being burned (spent,) and helps you determine how much of the budget remains to complete the project.  When you know the burn rate and the amount of work you have left, it’s a simple calculation to determine where you will be at the end of the project.  As an example, if it takes you $2,000 to complete 1% of the job, and you have 10% of the job left, then it will take you approximately $20,000 to finish the job.  This is powerful information to use for managing your projects.

The benefit of Earned Value doesn’t stop there.  If you add the element of expected start and end dates for your project, you can determine if you are ahead of, or behind schedule using a three-line chart.  The three-line chart plots your expected contract start and end dates, with the accumulation of what you spend and the progress of your physical job completion over time.  Once you get accustomed to using this management technique, you can quickly ascertain the health of your project with one quick look at this chart.

The biggest challenge can be getting the physical completion estimate on your jobs.  The trick, is to use the lowest level of tasks or phases that you can to make your estimate.  This helps to avoid making a broad judgement about a project’s progress as a whole.  It’s much easier to estimate the smaller tasks, and then roll that estimate up to show the job’s total progress. 

Driving adoption of a new technique within your firm can be challenging.  To promote the adoption of Earned Value Management, I recommend starting with just one or maybe a few projects, and working with project managers that are eager to try something new.  As with anything, top-down support will be necessary to make this initiative a success.  After all, if a firm’s leaders don’t care about adoption of Earned Value, it will be very difficult to get the rest of the team on board.  With all of the benefits to gain from Earned Value Management, firms should make it a standard part of all of their project review meetings.

To learn more about how to use Earned Value for managing your projects, you can attend my class, Using Earned Value to Manage Your Projects at THRIVE 2016 - THE A/E/C INDUSTRY SUMMIT in Nashville on October 13. All attendees will receive a free copy of the Deltek EVM for Dummies book. 

Also Deltek and PSMJ recently collaborated on a special presentation on Mergers and Acquisitions. In this complimentary webinar M&A Trends and Practices in the AE Industry, PSMJ M&A Expert Karl Wohler shares his first-hand insight on best practices and trends in the architecture and engineering industries.

About the Author: Brian Siefkes is Product Marketing Manager at Deltek. Brian has specialized in providing solutions designed specifically for architects and engineers for over eight years.  His focus is on working with customers and industry leaders to understand the market needs and best practices.  By recognizing what firms need, Brian is able to help shape the solutions that empower firms with the tools they need to succeed. 

You can also learn more about Deltek at THRIVE 2016 - THE A/E/C INDUSTRY SUMMIT! They are a sponsor and exhibitor at the event to be held October 12-14 in Nashville. This is just one of the many reasons why you should join us in Nashville!  Over the years, CEOs, CFOs, COOs, and other senior-level A/E/C firm leaders from around the world have made sure they don’t miss out on this unique two-day event.  In fact, we see many firm leaders come with five, ten, or more members of their leadership team to absorb all that the conference has to offer.