Earned Value and Contingency

April was a crazy month for me, as I was completing two projects and getting ready for a national ballroom dance competition in LA. Now that the madness is over, blogging can regain its spot under the sun again.

Rather than talking about something as abstract as my thoughts on Harvard Business Review, I would like to add to the subject of Earned Value today.

When you plan a project, you always account for some sort of a contingency or buffer (if you don't, you should!). Depending on the complexity and size of the project and the specific approach chosen by the project manager, the contingency could be applied to the entire project or could be calculated against individual summary tasks or even work packages. Either way, at any moment in time you should be able to calculate Earned and Planned value pre- and post-contingency.

All of the Earned Value charts I've shared so far showed a single Earned Value line. In this post, I would like to show you a chart that shows the pre- and post-contingency. Why is this important for both the Project Manager and the client? The contingency is essentially an indicator of how much risk the project can handle. For example, if your pre-contingency Planned Value is $120,000 and the post-contingency Planned Value is $150,000, the $30K delta is what you count on to address any expected or unexpected risks or changes that come up throughout the course of the project. The closer your Actual Cost to the Pre-Contingency Planned Value, the greater you ability to handle risk and changes. As you move closer to the Post-Contingency, you are using up your reserve, and your position weakens.

Showing both pre- and post-contingency Planned Value lines on your reporting chart is a quick way to relay the project risk to the stakeholders.

Here's how you can do this using the Excel spreadsheet I showed you in previous posts.

1. Rather than having a single Earned Value row for the chart data, replace them with a Pre-Contingency and Post-Contingency Earned Value rows:

2. Add the Pre- and Post-Contingency lines to the chart:

Please note that this version of the chart no longer has the Budget line. I am still deciding whether it is useful or not so please feel free to comment on it.

3. Track your actual costs as usual. Ideally, they should be between the blue and the green lines: