Application of Earned Value Management Systems to the Multi-Project Environment
By Lloyd L. Carter, September 1998

Premise
This paper addresses the application of Earned Value Management Systems (EVMS) to a multi-project environment in commercial organisations.  EVMS or Cost/Schedule Control Systems (C/SCS) originated in the United States Department of Defense in the mid 1960's.  While the approach has been widely recognised as a highly effective management discipline, the use of the approach has been primarily centered on high value governmental contracts and projects.  This has changed dramatically within the past several years.  The approach is increasingly being used in a wide variety of governmental and commercial applications and to projects of all sizes.  There are a number of factors, which are encouraging such applications:

  • Organisations are changing from bureaucratic, chain of command functional structures to a multi-project or work team environment.

  • There is an extensive list of commercially available; easy to use project management software tools, which contain earned value modules.

  • Defense applications of earned values systems are becoming more pragmatic.  This pragmatism is reducing the "not-invented-here" attitude of industry toward earned value concepts.

Management "Revolution"
A revolution is happening in western management organisations.  There is a dramatic and rapid shift away from the bureaucratic, chain of command organisations toward project management in the multi-project environment work team and in many cases, self-directed or self managed work teams.  The trend is occurring even in organisations that are not intentionally driving the shift.

The movement toward the multi-project environment and work teams is unavoidable.  It is being influenced by rapidly changing technologies and dynamic markets that create the need for a quick reaction capabilities within management organisations.  The traditional forms of bureaucratic organisations are seen as obstacles in reaching this objective in that they serve to maintain that status quo rather than to react to change.

Increasing complexities of services and products are also a factor.  In many western countries the economy has shifted from being production oriented to service oriented,  Emerging countries that have an abundance of inexpensive labor have assumed the tasks of mass production.  More and more the remaining high tech industries are dealing with the provision of knowledge rather than the provision of hardware.  In this environment the work place is becoming much more complex and multi-disciplinary.  A cooperative, work team, atmosphere is much more conducive to the generation of knowledge.

Benefits
Several organisations that have intentionally implemented project work teams have witnessed substantial improvements in efficiency.  Benefits have been experienced due to a flattening of the organisation and to better communication and cooperation within the teams themselves.  Conversely, organisations that have attempted to reduce costs without consideration of the emerging informal work team structure have encountered unsatisfactory results.

Challenges
The trend toward the multi-project environment or work teams presents many challenges in the area of management philosophies and organisational structures.  The key questions that must be addressed are:

  • How do you manage "self managed" work teams?

  • What role does the traditional bureaucratic manager play?

  • How do you assure achievement of organisational objectives?

In addressing these issues some basic assumption are that:

  • The corporate management has a right and an obligation to monitor and direct the performance of the organisation, but not to the degree of the traditional bureaucratic organisation.

  • Corporate management must assume an arm's length posture in dealing with self directed work teams.

Traditional financial accounting systems are not sufficiently flexible to accommodate the project work team environment.  Nor are they designed to monitor team performance.

EVMS as a Solution
Earned Value Management Systems are an efficient means of providing management with the necessary performance information and control.  The systems must be altered to meet the requirements of a continuing organisational endeavor rather than a definite project with finite objectives.  This is accomplished primarily through the use of an objective oriented and dynamic corporate work breakdown structure.  Top management sets the upper level objectives.  The project work teams then establish the lower level objectives consistent with upper level guidelines.  Performance to the objectives is then measure using a menu of earned value techniques.  Scheduling systems are integral part of the system but probably not hierarchical within the organisation since upper level objectives of the WBS do not have a finite nature.

The financial accounting systems interface with performance accounting must be sufficiently flexible to accommodate the dynamic nature of project oriented work team objectives and compositions.  A key component of work team performance management systems is the work authorisation system.  This attribute of the system must "empower" the teams with the necessary authority and responsibility to accomplish the objectives.  Analysis of work team performance can employ the standard earned value indicators of cost variance, schedule variance and variance at completion.  The aggregation of the performance data can be accomplished both on a functional basis and work team bases.  This enables an evaluation not only of work team performance but also utilisation of functional resources.

Finally, the baseline maintenance attributes of earned value systems enable the continual link between the budget, scope and schedule attributes, as authorised by management at the onset of the project, and the current attributes of the on-going projects.

The implementation of such systems in a commercial environment must address the implementation of a set of desirable attributes.  Each of these attributes must evolve through various levels of maturity before reaching the objective state.  During the implementation process it is necessary to plan and control the evolution through these levels of maturity.
 Copyright © 1998, MTC AustralAsia Pty Ltd ACN 083 398 556

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