10 Section 1
In the project control process, EVM requires physical work progress assessment as well as the assessment of EV
(using a combination of domain- and product-specific measures, quality control procedures, and earned value analysis).
With these EV data—the planned value (PV) data (from the PMB) and the actual cost (AC) data (from the project
cost tracking system)—the project team performs earned value analysis at the CA level (or any other levels of the
project WBS). In addition, this analysis can be used to develop recovery action plans (preventive and corrective) for
any discovered issues or risks and update the forecast of expected project outcomes at completion. Moreover, the
information elicited from the earned value analysis also adds to the lessons learned documents of the project.
Approved project changes, either driven by stakeholders external to the project team (e.g., from the project’s
change control board [CCB] or by the project team itself), are implemented into the project baseline in a timely and
accurate fashion using the change control system established for the project. The same care taken to initially establish
the PMB needs to be continued to maintain a valid PMB throughout the life of the project. An upheld valid PMB also
involves the use of maintained configuration management knowledge repositories of the project.
1.5 RELATIONSHIP WITH PORTFOLIOS AND PROGRAMS
1.5.1 THE DOMAINS OF PORTFOLIO AND PROGRAM MANAGEMENT
A portfolio is a collection of projects, programs, subsidiary portfolios, and operations managed as a group to
achieve strategic objectives. The purpose of portfolio execution is to accomplish strategic objectives and add value to
the organization. At the portfolio level, the addition of value needs to be recognized and measured. Reliable metrics are
required for this. Portfolio practitioners need to clearly define units of measurement, a baseline to measure portfolio
performance from, and apply proven methods toward making the performance measurements. Metrics related to
the addition of value for the whole portfolio may attach to tangible and intangible business outcomes—the sum of
all portfolio acquired benefits minus all portfolio resource expenditures. One of the usual metrics is the performance
achieved by the outputs and the resulting benefits generated by the components in the portfolio.
Portfolios provide organizations with the means to execute strategies. Organizational strategies are pursued using
programs and projects sponsored within the portfolio. Programs and projects pursue strategies of change and produce
the benefits and outcomes required for achieving an organization’s strategy; they also add value to the organization.
Program and project management enable organizations to successfully release and deliver the selected business
value opportunities. Performance management lies across the entire management function and critically enhances
the ability to realize the envisioned business value. At all levels, EV is a key performance measurement process.
As mentioned previously in this section, practitioners may use the application of EVM as a reliable, proven performance
metric for portfolio and program components’ performance. It is also beneficial when portfolio practitioners use EVM
for measuring the performance of their whole portfolio system. Such analysis requires the application of EV concepts
11
at the portfolio level. Managing a portfolio is about maximizing the delivery of value (instead of the delivery of scope
at the project level) through the execution of portfolio components aligned to organizational strategy and strategic
objectives.
In addition to aggregating portfolio components’ EV metrics for the whole portfolio, portfolio management teams
may decide to create overall value realization metrics for the portfolio system. To create these, they need to:
Determine and get approval from portfolio governance as to what is most important to measure.
Create a realistic measurement method.
Set a time-phased baseline for the portfolio parameters to be measured.
Take measurements from this baseline at regular time intervals to identify variances.
Create performance indicators that depict the recorded metrics. At the portfolio level, different indicators than
the ones used for project management need to be created.
A program is defined as a group of related projects, subsidiary programs, and program activities managed in
a coordinated manner to obtain benefits not available from managing them individually. Programs are conducted
primarily to deliver benefits to sponsoring organizations. As executable program components begin to deliver, it
becomes possible to create performance metrics for the benefits of those deliverables. Performance metrics, such
as the establishment of an EVMS, enhance effective decision making at both the governance and management
levels in order to reprioritize, reschedule, or reevaluate resources. Performance metrics for each of the program’s
component projects should be provided enhance the understanding of how the program is performing and enable
prognosis of future performance. For more information on the relationship between portfolio, program, project, and
operations management, refer to Section 1.2.3 in the PMBOK
®
Guide.
1.5.2 USE OF EVM FOR MANAGING PERFORMANCE DURING THE WHOLE PORTFOLIO, PROGRAM,
AND PROJECT LIFE CYCLES
The primary reason for making business investments is to deliver the benefits that generate strategic competitive
advantage and addition of business value. This requires the alignment of organizational change initiatives—primarily
programs and projects—with organizational strategy. Effective alignment requires the application of disciplined
portfolio management and includes benefits realization management. Most enterprises need to strengthen their benefits
realization practices. Benefits realization needs to be measured in a way that is compatible with current EVM principles
and practices so that EV concepts may be applied at the program and portfolio levels. The basic principle of EV starts
with the establishment of a PMB and the measurement of progress against it. For EV to be applied, both governance and
management at the program and portfolio levels should agree to establish a PMB for either the program or the portfolio.
12 Section 1
EVM methodology was developed to measure scope accomplishment plus cost and schedule performance. The
term EV can be thought of as scope accomplishment—the accomplished or realized part of the project scope.
However, when referring to attaining overall organizational value or the addition of value, the application of EV
principles and concepts may be modified to address benefits realization from the outputs and outcomes of component
programs and projects. Benefits realization leads to the resulting addition of value for the whole organization through
effective portfolio, program, and project management. EVM is an excellent methodology to adapt and apply within
the organization to measure the performance of programs based on benefits realization and the performance of
portfolios based on the creation of additional value for the organization. EVM principles and concepts may be applied
to determine portfolio or program performance, as follows:
For the determination of the overall achievement of desired resulting portfolio value (economic or other) based
on aggregate portfolio component performance metrics, and
For the determination of the overall achievement of the planned performance for the portfolio or program
measured for the whole system and not cumulatively for each component. The metric becomes a measurement
of added value for portfolios and a measurement of benefits realization for programs.
EV principles and good project management practices may be applied at the portfolio and program levels in two
distinct ways.
EVM applied toward measuring the performance of each individual program or portfolio component.
This includes performance analysis results for each component that are consolidated and integrated toward
the development of benefits-based performance metrics for the whole program or portfolio. Performance
analysis results include the aggregation of component metrics for the whole portfolio or program. Weighting
factors (for relative importance) may be required to be applied to the performance results for each component
and each outcome.
EVM implemented toward measuring the overall, integrated performance of the whole program or
portfolio. This concept implies the development of an appropriate, realistic, time-phased metric to set a
benefits-focused baseline and measure delivery and variance from this baseline. Such a baseline should
include total cost, time, and benefits accomplishment for program management. The third parameter of EVM
(scope) changes to economic (or other) value-add when applying EVM concepts for portfolios. The precondition
for developing a realistic baseline plus a monitoring and prediction model is awareness and, when possible,
accounting of nonlinear phenomena, such as effects of component interdependencies, uncertainty, and
emergent phenomena. The model has to be applicable throughout the program or portfolio life cycles. Once a
meaningful, realistic, quantifiable, tangible, time-phased interdependency model has been developed, and the
appropriate baseline is set, earned value analysis based on benefit or value forecasts, as well as overall metrics
and appropriate indices may be designed and implemented.
13
Program and project reporting are positively associated with portfolio management performance. PMI’s Pulse of
the Profession
®
report [4] indicates that effective portfolio reporting to executive management is positively correlated
with achieving purpose. Practitioners should define and establish a common communication platform for all portfolio
components. When applicable, the same metrics—usually using EVM as a primary method—should be used to
measure and compare the performance of all components. A periodic review of the portfolio should be conducted
using these comparable metrics. The quality and effectiveness of these metrics depend on the maturity of each
organization. Performance management also allows for the establishment of organizational routines to ensure project
selection and prioritization based on the organization’s strategy.
The Standard for Portfolio Management [5] indicates that more than half of the variance in portfolio management
efficiency could be explained through single portfolio component factors: goal setting, decision making, and information
availability on single programs or projects. The remaining variances can be explained by (a) the efficiency of project
portfolio management (the estimation of the degree to which the portfolio has succeeded in fulfilling its objectives
of strategic alignment), (b) the balance of resources across its components, and (c) the realization of strategy and
financial yield or value maximization. In any situation, earned value analysis, when applied properly and consistently,
can prove to be valuable toward efficient portfolio and program management. Individual work for all components and
efforts of all components’ teams may be monitored. Aggregated earned value analysis results for the entire program
or portfolio can also be tracked and recorded.
Care should be exercised at all levels, but particularly at the portfolio level where the business value of the various
portfolio components is discussed. An example of this is when EVM indicates that partial deliveries add value, yet
the practitioner does not account for the commercial reality that requires completed deliverables. This means that
complete deliverables are required before any assessment of benefits realization can be made. However, even in
these cases, there are advantages to being able to have a consistent measure of portfolio component progress
and product completeness. For certain portfolio components, this may not be realistic (e.g., interdependencies that
produce nonlinear cause and effect relationships). In these cases, there is considerable uncertainty in the value of
such WPs, and EVM may need to measure something other than product completeness or activities performed. Under
these conditions, activities are not so easily understood and measured to be complete, and a product-based baseline
may be more appropriate. In principle, a product is either completed and quality approved or it is not. Moreover,
integrating aggregated performance results obtained through EVM at the portfolio or program levels gives information
on current status toward the achievement of strategic objectives. The application of EVM concepts at the portfolio and
program levels is further discussed in Appendix X3 of this standard.
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