Every project generates its own set of questions. Some questions seem to be common to all, including "Will we make a profit on this job?" and "How close are we to being done?".
Knowing where you are in a project's time and/or cost budget is an important thing to know. Not only can it tell you if you're going to make a profit, but it can also warn you that things are going off track and give you the chance to make modifications before things get worse. A status that shows a project is heavy on cost but light on time may mean your staff on the project is too top heavy. You know this because the work is getting done quickly, but at a high cost. Conversely, if the status shows that the time budget is being exceeded, yet the cost is under budget may mean that the staff is too junior. The project is behind schedule for the work that needs to be done, but ahead of cost projections.
Clients may also have a habit of questioning how much work is really done when the monthly bill appears in their mailbox. A mere listing of hours expended versus hours budgeted will give an overview - but one can have spent 50% of the hourly budget but be only 40% complete with the work. Sooner or later the truth will come out, and then you have to explain why the last 20% of the work takes 30% of the time. Maybe you can use the 80/20 rule.
Earned Value Management (EVM) is a tool that project managers can use to monitor the progress of the work for both cost and time. With EVM a project manager can tell whether the work is ahead of or behind schedule, as well as under or over budget. Corrective action can be taken at an early stage to bring the project back on schedule. Use of overtime can be included in the schedule from the beginning of a project if the staff available cannot meet time committments otherwise.
EVM consists of a few basic elements. Planned Value is one: it shows the amount of work scheduled to be done at any point in the duration of a project. Planned Value is also know as Budgeted Cost of Work Scheduled. Earned Value describes the work completed at a point in time - it shows the work that has been actually completed on a certain date. Another name for Earned Value is Budget Cost of Work Performed. Actual Cost is a third element: it shows the level of resources that have been used to reach this level of completion. It's alternate name is Actual Cost of Work Performed.
Earned Value Management uses these three values to give a clear picture of the status of the work. If EV=PV, then everything is on schedule. If EV is less than PV, the work is behind schedule. If EV is greater than actual cost, the project is currently under budget. If you receive time reports weekly from staff an EVM report can be prepared weekly to monitor the progress of the work.
For EVM to work a number of things need to exist. One is an accurate Scope of Work, so that the amount of work to be done is clearly defined. Another is to have a good breakdown of the work in the scope so that realistic time and cost values can be assigned to each task. A third is an accurate tracking of time spent in coordination with how the work was broken down and defined.
EVM is not a seat of the pants operation, but its use will give the project manager a clear picture of where his project is at any point in time. When schedules are critical, or when tight fees mean costs need to be closely controlled, EVM provides an invaluable tool. It's also a way of showing the client that your bills are based on true measures of work completed, not a SWAG number.