What the bleep is EVM? And why do I care? — Managing AEC project performanceJune 27th, 2019
‘How many hours did we spend? And how much money did we charge on that?’ ‘How many hours have we spent and how much money have we invoiced?’ Those two questions are important to the CFO. But they’re a terrible way to manage a project. Sorry to burst your bubble.
Accounting selfies — a good technique for knowing if you’ve botched your project already
A CFO is interested in that kind of hours-versus-invoices report and it’s clearly important — if you’re a consulting company you make your money from consultants filling out their timesheet hours and if they don’t bill all their hours, you don’t make any money. So, that is a really important report, and it gives the company a snapshot of how profitable they’re being at that point in time. That’s the important part — it’s an accounting version of a selfie. It captures a particular moment.
A lot of our customers were trying to manage their expected outcomes based on this sort of accounting report. This makes perfect sense, broadly speaking. You’re measuring your project’s time against cost, but that’s not the whole story.
When I’m looking at that in terms of managing my project, is the hours that I’ve actually spent compared to the hours that I’d intended to spend — budget versus actual.
You say, “In my budget I allocated 1,000 hours for this project work, but my timesheets show that I’ve only used 500 hours… So, I’m under my budget. I’m fantastic. I’m doing really well!”
Again, that’s a dreadful way to manage a project, because it’s telling you how things are right now, it’s not actually telling you how things are going to end up.
Most of our customers and the people we visit use this method. What they’ve got there is a good technique for knowing if they’ve ruined their project … to date.
Introducing the earned value management method — project performance magic
Our June 2019 release introduced what we call ‘project performance’ and it uses the earned value management (EVM) technique. EVM combines measurements of the project’s scope, time, and cost. It’s adding that extra dimension to how you measure the health of your project. It takes the context of what’s happened up to this point, and it adds the context of what you can predict into the future, to tell you how you’re doing.
The project performance release is saying, “based on what we can see of the actual project, and on what you’re telling me about where you are, we think you’re in a good state”. Or not.
And frankly, every boss, every client, will come to the project managers and owners and say, “Can you just let me know when it’s going to be finished and how much it’s going to cost me?”
That’s the most common question anybody’s going to ask when anyone has to deliver anything. The accounting selfie can’t answer it, but Synergy project performance can.
What is EVM?
McKinsey did a study that said, “Large projects across asset classes typically take 20 percent longer to finish than scheduled and are up to 80 percent over budget”.
Those numbers are woeful! They show just how poor we are at managing projects. I was just in a customer meeting the other day and the practice owner said, “What we want is early warning signals. It’s not that we’re angry at anybody, it’s that we want to know when something’s likely to be a problem, so we can jump in and help.”
EVM in project performance does that.
Like I said, EVM is a project management technique employed within Synergy’s project performance feature.
How does it work? — Twinkle, twinkle little star (rating)
Synergy applies complex accounting methodology (EVM) to project data and visualizes it in a simple star rating system, so decision makers can easily make sense of complex data in real-time. You can quickly identify and compare the performance of projects in your business (like a health star rating system on food labels, only more honest).
The way it works is straightforward. We make a very rough assumption that, if you said you were going to do this body of work over this period, you should be doing that work at an approximately even pace.
That’s never exactly true. But if you start off with that as a rough assumption, it means that you can make some predictive calculations from it without having to do a boring week-by-week schedule.
With this assumption Synergy can say, “we expected that, over the period of that stage, you were going to burn 1,000 hours and we’re halfway through the duration of that stage, I’m guessing you will have burned about 500 hours by now”.
Now, if you come back and say, “no I’ve actually burnt 1,000 hours”, Synergy will say, “you seem to be burning hours at a much greater rate than we expected” — which still doesn’t really matter, yet.
It doesn’t matter until your project manager inputs their estimates to tell Synergy how far through the work you think you are.
Then, the system will do the rest. Synergy will come back and tell you the estimated cost of completion. It’ll say, “you budgeted this many hours, but based on how you’re going, we think it’s going to take this many hours” and it’ll also give you an estimated date of completion. It can say, “at the rate you’re going, unless you change your behavior, this is the date that we expect you’ll be finished, and this is what we expect that’ll cost”. Your project’s star rating is applied to reflect that at a glance.
So, you can keep going as you are, and you’ll get approximately that outcome (5-star or otherwise). Or, you can course-correct to avoid your project hitting the proverbial rocks if you need to.
The future is ablaze with possibility
It’s taken a lot of effort to release this update, but from our users’ perspective, they’ve got this awesome reporting that tells them when the job’s going to be finished and what it’s going to cost. And it changes Synergy, because Synergy has been focused on that snapshot, accountant’s view of the world of your project.
With EVM in project performance the question becomes, am I going to hit my target? Not, am I looking good right now? At the end of the day, if you complete 20% late and 80% over budget, nobody cares if you were looking good six months ago.