Earned Value as a Survival Technique for T&M and Maintenance Projects

The Earned Value calculations rely on the assumption that you have created a Work Breakdown Structure and estimated the work for each work package. Works great when you know what you are going to be doing, but what about T&M or maintenance projects with requirements and tasks to be defined as the project progresses? Is Earned Value dead for those? Not so fast. Keep on reading, and you will learn how you can proactively identify budget issues when the WBS doesn't exist.

If you've watched one of my favorite TV shows, Survivorman, you know how it starts for Les Stroud. He looks at scarce things he has available and talks about what he can use them for in a survival situation. In our less dramatic situation, we normally have the following things available to us:

1. Budget. Even though the project may be T&M, more often than not you have the target in front of you.
   


2. Timeline. Even though you don't know what exactly you'll be doing, you should at least know how long the project will last.

This gives us plenty to work with. Below I'll show you two examples of how I survive with only these 2 numbers handy.

Example I - The client told you how much money they have to spend

For the sake of this example, let's say that your budget is $40,000, and the duration of the contract is 20 weeks. You will be providing status updates every other week so your reporting period is 2 weeks. This is a site maintenance contract so you have no clue as to what might come your way.

Step 1 - Calculate the average projected burn per reporting period.

Average Project Burn = Total Budget / # of reporting periods

In our example, Average Project Burn = $4,000

Step 2 - Put these numbers into a spreadsheet.



Step 3 - Build a chart based on this data.



If you need assistance with building this chart, you can refer to one of my earlier posts.

Step 4 - Start tracking.

At the end of every reporting period, I update the spreadsheet with the actual cost incurred during that period. After a few updates, your chart might look as follows:



This is important to you, because the chart provides you the visibility into a potential budget overrun way before the overrun becomes a problem. In this example, you see that for the last 3 periods, the project's actual burn consistenly exceeded the proejcted spend, and if all things stay equal, the project will end up costing more money than originally expected. If you include this chart into your status report, the client will become aware the issue now, with enough time for you and them to figure out an approach to either curtail the scope, improve the team's productivity, or increase the budget. Happy client = No suprises

Example II - Your estimates are resource- and time-based

In this example, you don't know the scope either, but you estimate the project spend based on the expected utilization, rates, and number of resources. So instead of dividing your total budget by the number of reporting periods, you estimate the spend using the following formula:

Spend for Period 1 = # of hours for Resource 1 * Resource 1's rate + # of hours for Resource 2 * Resource 2's rate + ....

To create a chart for this example, you can follow the technique I described in the earlier post and just replace the WBS work packages with reporting periods: