PBEV benefits for the FD
For the FD or CFO the benefit of PBEV is visibility around major projects at an executive level. The use of PBEV in reporting allows for dashboards providing an instant overview on status and achievement indicators. Key indicators can include:
- schedule variations
- timing variations
- cost variations
- differences in scope
- defects discovery and correction.
The dashboards allow a board to understand the business’s exposure and risk from underperforming or overspending projects.
The value of earned value management (EVM) is well recognised by organisations that run major projects and large complex portfolios. It has been used by business for more than 50 years as a way to measure project progress and performance, and, not surprisingly, is prized by finance teams for making project status transparent. Even UK government departments now require contractors to use EVM to report on contracted works.
Companies working within manufacturing, infrastructure, technology, construction or engineering that have innovative research and development programmes, complicated production processes or intricate builds rely on EVM to report on progress against the original plan. EVM’s metrics allow teams to produce progress reports that show actual versus planned performance for costs, schedules and scope.
However, EVM is not infallible. It can still lead to vagaries around actual progress. For example, relying on costings to reflect progress can be difficult if there are budget overruns or unexpected costs. And using completion milestones for timings and schedules without quantifiable deliverables can make effective progress tracking difficult. Similarly, the correction of defects or bugs and unexpected additional works will confuse the picture further when it comes to reporting.
Based on performance
So a new methodology has been sought to enhance the value of EVM by including a quality element. Based on a number of lessons learned in the US defence industry and the Indian software sector, a performance-oriented approach to EVM has been developed: performance-based earned value (PBEV).
The advantage of PBEV for finance professionals is that it combines traditional EVM metrics with technical performance and quality measures, capturing quality within the reporting. PBEV is based on standards and capability models for systems engineering and project management, making it suitable for organisations involved in major projects. The PBEV approach bases the earned value calculations on product quality requirements, technical performance and technical maturity. Risk management is also incorporated into revised plans and an estimate at completion, so that organisations can limit exposure.
PBEV enables businesses to integrate project costs, to schedule technical performance properly into their projects and to provide the CFO with true visibility on progress
PBEV benefits for project participants
PBEV gives project managers, suppliers and users clarity on:
- agreed product requirements and planned quality
- the baseline review
- regular performance reporting
- predictive analysis assessments
- success criteria for technical reviews.
- measures for monitoring supplier performance
- how risk management will be integrated.
One of PBEV’s main benefits is its cost-effective approach. It allows the user to identify clear measures for cost, schedule and product quality performance. Project progress is plotted against the fulfilment of user requirements, so remedial action can be taken if necessary. This rapid implementation of corrective actions creates additional efficiencies by preventing time and resource overruns when specified user requirements are not being met.
Stipulating these measures at the outset brings clarity for all about the expected outcome. However, the data used needs to be reliable. This means measuring the project’s indicated quality, ensuring the correct technical performance measures are set and that all progress is assessed objectively.
In action
Finance teams in companies as different as engineering and agriculture are using PBEV successfully. One of the main US manufacturers of combustion engines uses it to ensure that scope, schedule, cost and technical performance are integrated into projects throughout the life of product research and subsequent manufacture. A PBEV-based project can cater for technology evolution throughout the life of the project by reviewing technical objectives; when the use of existing technology means technical objectives are not met but are within a specified range, the project can still be accepted.
Brazilian agriculture has used PBEV to calculate the return on harvesting soybeans. By using quality in addition to EV in its metrics, it has improved harvesting performance.
In a similar vein, many IT organisations adopt PBEV because it naturally supports agile development. It allows a project to be scalable so that it can be matched to the risk and be responsive to changing product requirements.
Many organisations use EVM, but FDs who want to include a quality element should look at PBEV. By supplementing the benefits of EVM with best practice and leading-edge methodology, it enables businesses to integrate project costs, to schedule technical performance properly into their projects and to provide the CFO with true visibility on project progress.
