Earned value management (EVM) was conceived as a method of measuring performance in a way that makes it easy to understand final outcomes based on the current trajectory of a project or program. Rigorous EVM processes are not a common practice for upstream projects where project cost has historically been less important than simply getting the project done. EVM is more prevalent with complex megaprojects, where progress can be difficult to track. As oil and gas companies seek to improve productivity and efficiency to bring more projects online with limited resources, EVM can be a beneficial practice to adopt.

Initially, EVM gained traction with the US government, specifically the Department of Defense. Agencies within the department implement EVM for control of project performance during the project execution phase on all projects with a total project cost greater than US $20 million.

However, EVM techniques are not well understood by the wider business management community and have historically been viewed as low-level metrics employed by engineers as part of the planning process. This is changing as business leaders begin to recognize the value of these methods not only in terms of measuring productivity and forecasting results but in being able to better predict project outcomes, take corrective actions, and increase the probability of success.

Building on earned value

The concept of earned value (EV) concerns putting a number on what has actually been accomplished at any given point. It provides a measure of project performance by comparing work completed against work planned as of a particular date. This approach relies on the ability to determine the physical amount of work performed, what has actually been produced for the amount of money spent, and whether it is being produced at the rate originally planned.

EVM builds on fundamental EV metrics such as cost and schedule performance and uses these metrics to automatically calculate independent estimates at completion. The latter are objective forecasts of the total cost of the project based on actual performance trends, which are calculated by measuring project progress against the agreed-upon plan.

Furthermore, the concept of EVM can be applied to almost any activity such as site surveys, electrical and equipment specifications, line drawings and piping, cabling, and architectural plans. Even obtaining permits can benefit from EVM analysis given that a series of steps must be accomplished and that any delays will have a direct impact on an organization not just in terms of cost but in terms of time and labor hours.

Rules of credit

Another important concept that goes hand in hand with EVM is progress measurement, whereby an organization agrees on a set of objective discrete steps with its contractors and suppliers. These steps are known as rules of credit or milestones and are applied within EVM to automatically signify percent complete.

EV and progress measurement also can help mitigate the impact of the invoicing process. Vendors and contractors often will be working on an hourly basis and invoicing monthly or on completion of a project phase. Therefore, measuring what is being spent from month to month would not necessarily highlight any overruns or work accomplished. If project management team members rely on seeing their actual expenditures to measure their progress, they might get a nasty surprise farther down the line.

EVM and project controls

The main benefit of EVM is that it can improve predictability. It can allow an organization to establish what has been completed against standard rules of credit and then use the level of performance (or productivity) achieved to provide a more realistic assessment of where a project is heading vs. looking at percent of budget spent.

EVM can help to identify areas of underperformance in need of correction. This can mean the difference between finishing a project successfully or incurring considerable penalties, whether financial or otherwise. If an organization is not happy with what is being forecast, it can set targets for improvement with milestones it can monitor against. Should an acceptable level of performance fail to be achieved, it can then take remedial action – reducing project scope or streamlining delivery (sometimes called value engineering), for example, or even making the decision not to proceed with a project.

All of these factors are part of the project controls cycle. Designed to protect margins and drive profitability through successful project delivery, project controls include standardized approaches, processes, and reporting, from initial estimating and budgeting to forecasting, measuring progress, controlling change, reconciling actual expenditures, and closing out a project.

A project controls solution is a business-driven technology providing a centralized repository for all project costs and standardized cost control structures with project-specific flexibility. These solutions can bridge the gap between the traditional silos of spreadsheets, enterprise resource planning/accounting software, and scheduling tools to provide the visibility into metrics and performance necessary to make proactive decisions to improve performance during delivery. They also can make it easier to evaluate performance across multiple projects, assign resources, and assess a rolled-up portfolio view of performance.

Informed decision-making

Ultimately, project controls should provide the ability to measure, forecast, and improve performance across an entire project portfolio. These three elements are critical and should serve as a philosophical basis for organizations of any size looking to adopt a standardized approach across the enterprise.

Naturally, the level of EVM applied will vary by organization. However, every organization needs at least a solid platform for budgeting, forecasting, and change management. An organization may be using templates for work breakdown structures and progress measurement rules or may have standard reports and views enabling it to see performance over time as well as cumulatively.

Decision-making can be aided by tailoring terminology to match organizational culture – e.g., referring to cost performance indices as “earned over burned” so that the implications are not lost due to technical speak. In practice, EV quickly becomes a core part of business practice when non-EV key performance indicators are already in place. For example, risk ratings, project scores, and schedule key performance indicators can sit side by side in a rolled-up dashboard, enabling project management teams to provide EVM on costs, hours or quantities, document variance analysis, and justification beyond reporting trends and variance.

EVM is simple at a granular level but can be rolled up to provide broader indication of productivity for work completed to date. What’s more, it can allow organizations to make certain assumptions based on whether performance can improve or even potentially decrease in the future and set some best- and worst-case scenarios. In a time of constrained resources – whether staff or, with offshore projects, the availability of subsea vessels and equipment – it is important to track how much work is being accomplished by these resources by project to know when to move on to the next task. These measures of productivity are critical to the business.

Senior management always has been interested in scenario analysis tools and obtaining better predictive outcomes, but what has really changed with EVM and the emergence of project controls solutions is the ability to present this information in business terms within an organizational context and relate it directly to the impact on the bottom line.