Holistic earned value – a better metric for evaluating project portfolio performance?

We’ve all felt it – that sinking feeling in your stomach that tells you something is wrong.  During the last Ice Age, it might have been experienced when our ancestors heard the growl of a saber-tooth tiger.  These days, it is that preternatural sense you get when your project doesn’t seem quite “right”.  There is nothing wrong with instinct, but it is important to remember that “gut feelings” are driven by a part of the brain that has not evolved in thousands of years, so we need something more objective to assess project health.

Earned value is a best practice approach to evaluating project performance based on the correlation between expended costs & effort and delivered accomplishments.  However, it is not a holistic metric and does not consider criteria such as:

– Is what you are delivering still expected to create true business value?

– What about the impact of project issues?

– What about the potential impact of project risks on future work items?

Perhaps it is time to consider enhancing earned value to provide more coverage…

Start by taking each work item and give it a weighting based on a prioritization done by the customer on its relative value – must have deliverables would be weighted much higher than the nice-to-have ones.  By doing this, you can ensure that a waterfall-style project that is heavy on documentation early on will not be able to claim significant earned value until the customer starts to see real results.

You can further extend this by building in the impact of issues and risks – issues should be affecting actual costs.  The key change is to identify the work items than a particular issue impacts so as to properly allocate issue resolution costs.  Risks on the other hand would affect budgeted costs – expected impact values should also be allocated at the work package level instead of at the project level.

The key with this approach is that the value or priority-based weights, as well as the risk based updates will cause the budgeted side of your earned value calculation to change more frequently than it would with the classical approach.

By taking this approach, earned value management can be extended for use in agile methodology projects as well as traditional waterfall lifecycle ones.  It will also help to reduce the number of metrics that need to be tracked at the portfolio level to a handful.

Categories: Project Portfolio Management | Tags: , | Leave a comment

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