One of the biggest challenges for a program manager is to maintain control of projects. Scope creep, overspending, missed deadlines and lack of communication are all common pitfalls to project completion. Being able to reliably anticipate project performance to overcome these challenges is an invaluable asset for program managers.
Earned value management (EVM) and risk management (RM) are both control mechanisms that provide program managers the opportunity to gather data that will allow them to secure project control and make proactive decisions.
But they both take very different approaches to achieving those goals. As such, they are often practiced as independent disciplines. This puts EVM and RM in competition with one another for resource and project management attention, risk management experts Val Jonas and Lauren Bone argue.
Instead, the optimal solution for program managers is to integrate these two disciplines to realize the advantages each has to offer. Jonas and Bones posit that EVM and RM complement each other and deliver more holistic project management as a combined discipline. This integration creates added value through commonality in purpose of setting, measuring and achieving project targets.
By understanding how these two disciplines work together, the steps necessary to successfully achieve that integration and the benefits to be realized by integrating them, program managers will be more effective at managing and controlling their projects.
The Synergy Between EVM And RM
By providing a rational framework based on project performance, both EVM and RM seek to improve decision making, says Dr. David Hillson, an international risk consultant. Dr. Hillson also posits that since both EVM and RM share a focus on project performance, and both offer management intelligence that informs decisions and corrective action, that the two need to be combined to create synergistic benefits — and a comprehensive view that includes past and future performance.
Earned value management looks to the past to predict the future. It estimates a project’s future performance by establishing performance status and extrapolating that information to understand future trends and allocation of resources, says the research team at the Association for Project Management. The problem with the approach is that it does not consider environmental circumstance changes or other outside elements that could affect a project’s future performance.
Risk management, on the other hand, looks to the unknown future to identify both threats and opportunities and recommends early action to limit the impact of threat and maximize the exploitation of opportunity, the Association for Project Management team says.
Alexandria University engineering professor M. Hamdy Elwany and his research team say that the integrated technique uses the output of the risk management process with the EVM calculations to show accurate predictions of the future state of a project. The commonalities between them allow insights from one to inform the other, and the strengths of one overcome the weaknesses of the other, Dr. Hillson says.
Organizations that can discipline themselves to implement this integration will realize positive results in their program management.
Steps For Integration
Successfully integrating these two disciplines requires organizations to create a realistic project management baseline, execute the plan and manage the uncertainties.
Establish and Adjust the Baseline
The first step to any project is to establish the project baseline scope of work, schedule and budget through a rigorous requirements analysis to create a realistic, practical map for project success. It is against this baseline that earned value metrics are assessed.
To improve the control of a project, program managers need to integrate risk factors into the project baseline. Jonas and Bone suggest this is done in three stages:
- Adjusting the baseline based on uncertainty and risk appetite, which helps make the baseline more robust and sets the expectation for what levels of variance might arise.
- Allowing for known risk in the baseline by identifying and approving cost-effective risk responses that are transferred into the baseline.
- Allowing for unknown risk in the baseline.
As part of the stage that allows for unknown risk, Harry Hall, PMP explains the need to develop a management reserve in the cost baseline to cover expenses of unknown risks. The management reserve is the amount of budget reserved for unexpected work that is within project scope.
Amplify Change Management Process
As both EVM and RM are essential tools for project control, including both disciplines in change management allows organizations to better control their projects.
Earned value management measures actual performance against the baseline and quantifies variance to plan corrective action. EVM helps program managers quantitatively understand the business value and impact of changes. It helps managers keep project changes within the scope of a project.
Because even the smallest changes carry risk, organizations must adequately review the impact changes will have on organizations, says Michael S. Scarborough, instructor for Global Knowledge Training, LLC. Risk review should be carried out periodically to either identify new risks or manage current risk occurring because of project changes. Risk management accomplishes this by using proactive and reactive response actions to either minimize the impact of risk or recover from risk.
As Scarborough says, organizations that lack effective change management processes often operate in a constant fire-fighting mode. With better change management comes better control, and integrating EVM and RM provides that level of control.
Improve Estimates at Complete
Estimates at complete (EAC) — the forecasted cost of the project as the project progresses — is the earned value metric that gives the most complete picture of the likely outcome of a project. For a more complete picture of likely project deliverables, include the impact of risk management on EAC.
In their research, the Association for Project Management suggests four steps for improving the value of EAC data:
- Calculating a new EAC against both the project management baseline and the management reserve.
- Reviewing the EAC for specific risk provision through the analysis of current risks based on response activity already included in the baseline.
- Reviewing the EAC for non-specific risk provision to reflect emergent risks.
- Calculating a whole project EAC that gives data on project performance against project baseline, specific risk and non-specific risk.
The team at earned value management consulting company Humphreys & Associates explains that the level of uncertainty in EAC varies by the type of remaining work, the available information and the perceived remaining risks. By adjusting EAC for risk, program managers can identify the level of uncertainty associated with the remaining project schedule, establish a cost estimate for the remaining work and manage the impact of risk on project cost goals.
Invest in Software that Eases the Integration
The integration of these two disciplines can be simplified with the right EVM portfolio project management software. By using a single software program that combines time and budget constraints into one database, program managers can analyze project data to plan for the future and better maintain control of projects.
Joe Kerins, chief defense industry client strategist at Artemis, explains that program managers should be using a software solution that automatically adjusts project baselines based on approved changes that have already been risk-assessed. Those changes should be a result of receiving positive impact results after running multiple “what if” scenarios on various changes to assess for risk.
The ability to control a project, adjust a baseline and assess for risk all within a tool that pulls from a central database is probably the single most important asset for program managers trying to ensure their projects return the most value for stakeholders.
Who Doesn’t Want More Control?
The primary benefit of the integration of earned value management and risk management is greater project control. But there are more benefits to be realized that help support this primary goal:
- Support better proactive decision making through early identification of risks.
- Encourage effective communication through stronger data points.
- Increase the chances of delivering a successful project through regular analysis of both past performance and unknown future factors of risk.
- More robust estimates at complete that include risk.
- Confidence in the risk response actions that are included in baseline.
The more control you have over your projects, the more likely you are to successfully meet deliverables. And the seamless integration of earned value management and risk management provides that level of control for program managers. Because they both focus on project performance and developing corrective actions, they interface perfectly and maximize the odds of meeting project goals.