PMI Virtual Library

2013 Williams Chirinos

Earned Value: Looking for an Easy
Way to Implement It
E
arned value is the value that you get after spending
or investing resources during the execution of
projects. It is the most powerful technique used to
determine the current status of projects because it is based
on the physical work completed. A comparison between
the resources planned to be spent (budget) and the resources
spent (actual cost) is not sucient to determine the project
status and performance; it is necessary to include in the
comparison the actual work accomplished in order to really
understand the level of completion of a project.
Use of Earned Value with a Better Scope Definition
One of the reasons why earned value has rarely been used
is because of the current practice to determine the project
progress through the activity/task-based percentage complete
approach, which is not only an indirect method to determine
physical completion, but also incorporates subjectivity into
the measurements.
To illustrate this, let us suppose we have a project
with the objective of generating a Software Commercial
By Williams Chirinos, MSc, PEng, PMP
Application. Under the current practices, we list all the
activities or tasks required to nish the project and include
them in a schedule; once the execution starts we estimate
the percentage of the work completed indirectly against the
completion of each activity or task.
Instead, we should focus our attention on dening the
work breakdown structure (WBS), listing the specic work
components with their deliverables and milestones (below
in blue) required to produce the Software Commercial
Application. For this case study, the work breakdown
structure is presented in Figure 1.
Here, the deliverables and milestones are separated,
distinct, or discrete results located at the lowest level of each
work breakdown structure branch.
To continue with the scope denition of this case
study, each deliverable and milestone needs to be further
dened. A specic description with a generic schedule for
each deliverable and milestone is presented below, with the
general assumption that the project execution timeline is
fourteen months:
Abstract
Earned value is the most eective way to measure project performance; this is the main reason why the application of this
technique needs to be promoted in order to help increase the probability of success of projects worldwide. Tis article
addresses one of the reasons why this methodology has not been widely applied and presents a case study to illustrate
a dierent approach in order to facilitate an eective implementation of earned value in the near future. Tis practical
approach starts with a better project scope denition and project plan creation, both based on results (instead of activities or
tasks), because project results are one of the most important targets to be obtained in order to achieve business objectives.
What is Earned Value?
PMI Virtual Library | www.PMI.org | 2013 Williams Chirinos
2
Project Execution Plan Document explaining how the
project is going to be executed, with the due date the middle of
the rst month
Twelve Monthly Project Reports Project Progress Report to
be issued on the last Friday of each month, between the second
and thirteenth months
Close-out Report Project close-out, issuance in the last month
of the project execution, which is the fourteenth month
Requirement Report Document containing the application
functionalities and features, with a due date of late the rst
month
Requirement Report Review Review of report
(functionalities and features) to happen early in the second month
Four Design Specications Documents with technical
specications to be issued in the third, fth, seventh, and ninth
months of project execution
Purchase of Tree Laptops Acquisition of three laptops
with workstations early in the third month to perform the design,
coding, and logic work
Purchase of Four Licenses Acquisition of four software
licenses in the middle of the third month, required to develop the
application
Delivery of Five Prototypes Development of prototypes, one
every two months; late third, fth, seventh, ninth, and eleventh
months
Software Go-Live Version Final version of the application
ready for commercialization, with a due date of late in the
twelfth month
Software Licensing Denition of the licensing strategy (free
trial version, license duration, license price, license agreement,
etc.) of nal version, to happen the middle of the thirteenth
month
Completion of Five Tests Execution of ve prototype tests,
one every two months; the middle of the fourth, sixth, eighth,
tenth, and twelfth months
Acceptance of Five Tests Record of a prototype acceptance,
one every two months; late fourth, sixth, eighth, tenth, and
twelfth months
User Reference Guide Document explaining how to use the
application to be issued early in the thirteenth month
Tree Help Module Development Development of three
application help modules late in the tenth, eleventh, and twelfth
months
Software Copyright Register to obtain the copyright of the
nal software version in the thirteenth month, before going to the
market
Commercialization Advertisement in key technical
communication media (Internet, magazines, conferences, etc.), to
be displayed in the fourteenth month
Support Documentation Document with technical support
for nal users, to be issued in the fourteenth month
Figure 1: Work breakdown structure with associated control accounts.

PMI Virtual Library | www.PMI.org | 2013 Williams Chirinos
3
With this scope denition, we are able to determine
more objectively the project progress as a function of the
completion of work components, as deliverables are nished
or milestones are achieved at some point in time during the
project execution.
Consistently, the previous scope of work allows the
denition of a work plan based also on project results
(deliverables and milestones). For this case study, the work
plan is established grouping the work breakdown structure
deliverables and milestones with their corresponding due
dates in control accounts (CA) and estimating the cost of the
resources required to produce these planned deliverables and
milestones during the project time frame execution (fourteen
months for this example). Te work plan is developed by
an iterative process; at this stage, resources are allocated in
agreement with the convenient due dates and proportional to
the amount of work involved or required. Tis approach also
supports the establishment of a consistent budget baseline (or
planned value curve), once the cost estimate is approved.
Te work plan for our case study is determined grouping
the previous deliverables and milestones in the following four
control accounts:
CA1: Plan and Support
CA2: Design
CA3: Development
CA4: Deployment
Figure 2 shows a chart with the deliverables and
milestones (blue circles) distributed among the four control
accounts (CA1, CA2, CA3, and CA4) as shown at the bottom
of each WBS branch, in a timeline of fourteen months:
Te cost to produce the deliverables and achieve the
milestone is calculated for labor, material, equipment, sub-
contractors, and others. As an example, the expansion of the
third month reporting period in Figure 2 shows that CA Plan
and Support has US$12,000 as the labor cost to generate the
Project Report 3; CA Design has a labor cost of US$15,000
to produce the Design Specication 1; and CA Development
has US$20,000 as labor and US$16,000 as the material and
equipment cost to acquire Laptops and Licenses and produce
the software Prototype 1. Te sum of the Control Account
estimated costs in a particular reporting period generates the
planned value at the project level (US$63,000 for the third







Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14
24,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000
12,000 15,000 30,000 15,000 30,000 15,000 30,000 15,000 40,000 15,000 40,000 8,000
36,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 20,000
6,000 60,000
Planned Value (PV) 24,000 24,000 63,000 82,000 67,000 82,000 67,000 82,000 67,000 92,000 67,000 92,000 46,000 72,000
Cumulative Planned Value 24,000 48,000 111,000 193,000 260,000 342,000 409,000 491,000 558,000 650,000 717,000 809,000 855,000 927,000
Software Commercial Application - Work Plan
Control Accounts
Time
Budget ($)
CA1: Plan and Support
CA3: Development
CA4:Deployment
416,000
66,000
CA2: Design 265,000
927,000
180,000
Amount
($)
3 Plan and Support Labor (Project Manager) 12,000 Project Report Month 3
3 Design Labor (Software Designer) 15,000 Design Specification 1
Labor (Software Developer) 20,000 Purchase of 3 Laptops
Material & Equipment 16,000 Purchase of 4 Licenses
Delivery of Prototype 1
63,000
Reporting
Period
Control
Accounts
Description
3 Development
Deliverables /
Milestones
Figure 2: Work plan afer the planning process and an expansion of the third month.
PMI Virtual Library | www.PMI.org | 2013 Williams Chirinos
4
month). Te cumulative sum of the estimated daily cost
of all control accounts with time generates the cumulative
planned value. Te approved cost estimate or project budget,
as a function of time, represents the planned value curve,
performance measurement baseline, S-curve, budget baseline
or, simply the baseline.
Using a project plan based on results is important,
because companies want to know the real project progress and
status based on facts instead of opinions. In addition, this
scenario will facilitate the implementation of earned value,
because people will be able to directly measure the physical
work completed more easily and objectively.
How to Apply Earned Value with a Result-Based
Work Plan?
A simplied and practical approach to help implement earned
value is to credit value only if the results have been obtained.
If we work with a result-based work plan, it is possible to
apply the binary completion theory. Tis theory states that
something is either done (you earned a one) or not done
(you earned a zero). During the project execution, as time
goes by, the completion of deliverables and achievement of
milestones are veried with a Yes/No question posted to
the project performers and conrmed by observation. Tis
question reduces the subjectivity at the moment of reporting
project progress and facilitates the use of earned value. Te
planned earned value, therefore, is credited on discrete
amounts only if deliverables are completed or milestones are
achieved during a measurement reporting period; if not, the
earned value will be credited when the work is accomplished
in a future measurement reporting period. To illustrate this,
the chart in Figure 3 shows the completed deliverables and
milestones (green circles) up to the third month or after
closing the rst, second, and third month reporting periods.
Because earned value is updated each time we close a
reporting period, for this particular case study, when closing
the rst and second months, the earned value credited by the
Control Account (US$24,000 in CA1 for the rst month
and US$12,000 in CA1 and CA2 for the second month)
was possible because the deliverables and milestones were
completed. When closing the third month, US$12,000
was credited to CA1; US$15,000 was credited to CA2; and
US$24,000 (two thirds of US$36,000) was credited to CA3
(Development), because the software Prototype 1 was not
completed (deliverable still in blue). Tis example shows
that we credited value only for what we got (planned value
associated during the planning process), which means that
value has been credited only for the results that have been
obtained to generate the Software Commercial Application.
In the same fashion, if some work was completed in advance,
the planned value associated is credited at the moment of
completion. Te application of this proposed binary result
completion technique allows for a maximum objectivity,
because the completion of each deliverable and milestone is
checked as planned during the timeframe of fourteen months
to ensure that the project is progressing according to plan
and to determine the physical project progress at some point
in time. Te actual cost is also updated each time we close a
reporting period to track and record the actual cost incurred.
Planned value, earned value, and actual cost are cumulative
values at the time of measuring project progress in order to
perform earned value analysis and forecasts.
Figure 3: Work plan during the project executon.




Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14
24,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000
12,000 15,000 30,000 15,000 30,000 15,000 30,000 15,000 40,000 15,000 40,000 8,000
36,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 20,000
6,000 60,000
Planned Value (PV) 24,000 24,000 63,000 82,000 67,000 82,000 67,000 82,000 67,000 92,000 67,000 92,000 46,000 72,000
Cumulative Planned Value 24,000 48,000 111,000 193,000 260,000 342,000 409,000 491,000 558,000 650,000 717,000 809,000 855,000 927,000
Earned Value (EV) 24,000 24,000 51,000
Cumulative Earned Value 24,000 48,000 99,000 99,000 99,000 99,000 99,000 99,000 99,000 99,000 99,000 99,000 99,000 99,000
Actual Cost (AC) 23,000 26,000 64,000
Cumulative Actual Cost 23,000 49,000 113,000 113,000 113,000 113,000 113,000 113,000 113,000 113,000 113,000 113,000 113,000 113,000
927,000
99,000
113,000
CA2: Design 265,000
CA3: Development 416,000
CA4:Deployment 66,000
Software Commercial Application - Work Plan - Execution
Control Accounts
Time
Budget ($)
CA1: Plan and Support 180,000
PMI Virtual Library | www.PMI.org | 2013 Williams Chirinos
5
In conclusion, we believe the result-based concept, in
conjunction with a simplied application of earned value
proposed in this article, facilitates the implementation of
earned value. Te main reason for this is because stakeholders
are focused on generating the agreed-on results, and project
progress is credited only if deliverables are completed or
milestones are achieved. As a result, this approach increases
the objectivity and probability of project success during
the execution phase and also improves the overall project
performance measurement.
References
Harbour, J. (2009). Te basics of performance
measurement, p. 3, second edition. Boca Raton, FL: CRC
Press.
Miller, M. (2009). Building a project work breakdown
structure, p. 193. Boca Raton, FL: CRC Press.
Norman, E., Brotherton, S., & Fried, R. (2008). Work
breakdown structures, p. 67. Hoboken, NJ: John Wiley &
Sons.
Project Management Institute. (2006). Practice standard
for work breakdown structuresSecond edition (p. 32),
Newtown Square, PA: Author.
Project Management Institute. (2011). Practice standard
for earned value managementSecond edition (p. 56),
Newtown Square, PA: Author.
Song, L. (2010). EVM: A global and cross-industry
perspective on current EVM practice (p. 15). Newtown Square,
PA: Project Management Institute.
About the Author
Williams Chirinos is president of INEXERTUS, Inc.
a project management consulting rm specializing in
providing software applications, consulting, and training
services to implement the latest and most eective project
management techniques. He has project management
experience and expertise, with more than 20 years of
work experience in the Oil and Gas Industry and EPC
environments. He obtained his Industrial Engineering
degree in Venezuela and a Master of Science degree in
Petroleum Engineering at the University of Tulsa in Tulsa,
Oklahoma, USA. He is Project Management Professional
(PMP)

credential holder and has been an active PMI

member since 2006. Currently, he is an Associate Editor
of the Oil and Gas Facilities for the Society of Petroleum
Engineers and was a Technical Editor Reviewer from 2005
to 2012. He is also the Vice President of Education at the
PMI Southern Alberta Chapter Toastmasters Club.
Mr. Chirinos can be contacted at williams.chirinos@
inexertus.com.