Practical Look at How Private Sector Entrepreneurial Contractors Use Earned Value

ABSTRACT

Purpose of this paper:

Much of the focus on Earned Value revolves around how governments use it, more specifically, how the US Government uses it. Given that the US Government at the Federal and State levels are technical bankrupt, should we be benchmarking what they are doing as if it were a “best practice” or would we be better off to see how the entrepreneurial private sector uses Earned Value to find out if there are any differences which might help other governments?

Design/methodology/approach:

This paper is based on the author’s 40+ years as a private sector, “hard money” general contractor and represents a compilation of “Lessons Learned” on projects where his own money was on the line if the projects “succeeded” or “failed”.

This paper is a follow up to a comparison to how private sector contractors comply with the 32 Earned Value Criteria defined in the National Defense Industrial Association’s (NDIA) “ANSI 748 Intent Guide1” which was published in the PM World Journal, Volume III Issue 4, April, 2014. 2

Findings and value: 

The findings from this paper show some seeming small but very important differences, including a much closer linkage between Earned Value and prompt payments by the owners for work done in substantial conformance to the technical specifications and in fulfilment of the contractual terms and conditions.

Research limitations/implications:

This paper is not based on any empirical evidence or grounded research. It is a “Lessons Learned” paper.

Practical implications:

Given so many governments are bankrupt and given much of this bankruptcy was the result of poorly estimated or implemented projects, the hope is that looking for small but important differences in how private sector contractors apply earned value will prove helpful to governments at the state and federal levels.

Originality/value of paper:

As this represents the author’s experiences and is not based on any prior research on this topic, it is uniquely original;

Conclusions:

The paper concludes with 8 Actionable Items:

  1. Project Managers and Project Controls Professionals need to be held legally and financially accountable for the numbers they generate and accept;
  2. The formal authority must match the level of responsibility in order to have accountability;
  3. All cost and duration estimates should be made using P90 or P95 values;
  4. All projects must have a business case the the project sponsor needs to be held accountable for the “success” or “failure” of the PRODUCT the project creates.
  5. Earned Value is nothing more than applied common sense. Do not make it a bureaucratic burden.
  6. Earned Value provides an early warning sign that a project is in trouble and consideration be given to terminate it.
  7. Focus more effort on teaching how to interpret and use the EVM data, not just generate the numbers;
  8. Projects are funded in advance at 100% of P95 values. If the project runs over, kill the project unless the business case clearly shows a positive benefit to cost ratio.

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