Earned Value and Risk Management

Earned Value and Risk Management

The article is Earned Value Management and Risk Management: A Practical Synergy and it is written by Dr. Davis Hillson.  The article is discusses why “both Earned Value Management (EVM) and Risk Management (RM) can and should be applied in an integrated way across the organization.”  The second section of the article Dr. Hillson writes on the weaknesses in each technique which again is EVM and RM.  The weakness in EVM is that non-experts rely too much on past performance for use in future performance when EVM should be used in the rigorous examination of what has already happened on the project.  The weakness of RM is that it is resolutely and exclusively future-focused.  Dr. Hillson writes that address their weaknesses is to use a combination of both approaches as a useful synergy.  The following section gets into more detail on the combined approach of EVM and RM with a copy of steps on how to integrate both in exhibit 1.  The three steps are creating the baseline spend plan, predicting future outcomes and evaluating risk management process effectiveness.

        Dr. Hillson is writing this article to improve decision making among organizations by using both EVM and RM instead of each alone.  In every organization it is best to try and predict what will happen but as every project is different one can only use what is currently available and using both EVM and RM the organization can be ready for what may and can happen.  This is using the past performance and future uncertainties that will potentially affect the project whether it is positive or negatively.  

        I believe that this approach can effectively benefit an organization as long as the projects are somehow the same but within that organization they usually serve the same clients and offer the same products.   When making the budgeted cost of work schedule it is important to have the risk management to accompany the EVM.