Earned Value Project Management - A Powerful Tool For Software Projects

Peter Kitson

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Sample Chapter From Earned Value Project Management - A Powerful Tool For Software Projects
     Copyright © Quentin W. Fleming, Joel M. Koppelman



Introduction


Over the last three decades, a proven but yet underutilized project management technique has emerged and taken its place alongside other valuable tools: earned value. In its formal application, it has been found to be an effective device to oversee and manage major new systems acquisitions by U.S. government agencies. In a more basic form, earned value can be a useful technique in the management of any project—including, and in particular, software projects.

Earned value requires that the project be fully defined at the outset and then a bottom-up plan be created. This allows measurement to take place during the entire period of performance, from 1 percent to 100 percent of the project’s lifecycle. The power in this tool is that it provides accurate and reliable readings of performance from as early as 15 percent into the project. As shown in Figure 1, any project manager can use these performance readings to predict how much it will cost to complete the project within a narrow band of values. If these early warning signals convey unacceptable readings to the project manager, steps can be immediately taken to avoid the undesired results.

This technique is of particular interest to software project managers. No longer must software projects use up all their resources before there is a harsh realization that much of the work has not been completed, forcing features to be dropped to stay within the added budget authorized by management. Earned-value project management can be most helpful to any software project manager who has made a firm commitment to complete all the features within a definitive schedule and for a finite amount of funds.

Introduction to the Earned-Value Concept

Earned value has been mandated by the U.S. government for decades in an inflexible, formalized manner that has kept many organizations from attempting to use the technique. This mandated, formalized version began in 1967 when the Department of Defense (DoD) issued a directive that imposed 35 Cost/Schedule Control Systems Criteria (C/SCSC) on all private industrial firms that wished to participate in future major government systems in which some type of cost-reimbursable or incentive contract was to be used. Thereafter, any time a new major system would be procured by the U.S. government in which the “risk” of cost growth was retained by the government, these 35 criteria had to be satisfied by the contractor.

The effect of the C/SCSC mandate was to require a formal version of the “earned-value” concept of cost and schedule management on selected major new projects. A certain minimum contract dollar value (in millions) and a minimum program duration (of 12 months or more) had to be present before the criteria were to be applied. Essentially, these earned-value criteria were intended only for major system procurements.

The C/SCSC concept has been consistently applied for over 30 years and has set the standard for major government systems acquisitions. Other government agencies in the United States and in other nations such as Australia, Canada, and Sweden have adopted similar earned-value criteria in the management of their major system acquisitions. A practical body of scientific management knowledge has been developed on the use of the earned-value concept, primarily compiled by the DoD and by the Air Force Institute of Technology (AFIT).