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EARNED VALUE MANAGEMENT AND RISK MANAGEMENT: A PRACTICAL SYNERGY

SECOND EDITION

Dr David Hillson PMI Fellow, HonFAPM, FIRM

The Risk Doctor Partnership

UK
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INTRODUCTION 

In today’s uncertain business environment there is understandable pressure to improve the quality of decision-making at all levels in the organisation. A number of techniques have been developed to address this concern, in an attempt to introduce some rational framework to the decision-making process. Two of the leading approaches are Earned Value Management (EVM) and Risk Management (RM). These stand out from other decision support techniques because both EVM and RM can and should be applied in an integrated way across the organisation. Starting at the project level, both EVM and RM offer powerful insights into factors affecting project performance. While this information is invaluable in assisting the project management task, it can also be rolled up to portfolio, programme, departmental or corporate levels, through the use of consistent assessment and reporting frameworks.

Another key similarity between the two techniques lies in the word “management”. It is possible to conduct “Earned Value Analysis” and “Risk Analysis” to expose underlying drivers of performance. But both techniques emphasise the need to move from analysis to management, using the information to support proactive decision-making. Consequently, both EVM and RM encourage those using the techniques to take appropriate management action based on the results, and not to stop at mere analysis.

Since both EVM and RM address the same problem space (performance of projects, programmes, portfolios and businesses), and both provide management information to provide a basis for decisions and action, there has been considerable interest in the possibility of developing a combined approach to create synergistic benefits. Currently EVM and RM operate as parallel coexisting processes without systematic integration (although good project managers may intuitively link the two in practice). Much of the discussion to date on the relationship between EVM and RM has been rather theoretical, addressing the key principles underlying the two techniques. This paper however outlines practical steps that can be implemented to combine EVM and RM in order to gain maximum benefit for projects and the organisation. It is assumed that the reader is familiar with the principles and processes of EVM and RM, and these are therefore not described here.

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About the Author

flag-ukDr. David HillsonDr. David Hillson

The Risk Doctor

Dr David Hillson CMgr FRSA FIRM FCMI HonFAPM PMI-Fellow is The Risk Doctor (www.risk-doctor.com).  As an international risk consultant, David is recognised as a leading thinker and expert practitioner in risk management. He consults, writes and speaks widely on the topic and he has made several innovative contributions to the field. David’s motto is “Understand profoundly so you can explain simply”, ensuring that his work represents both sound thinking and practical application.

David Hillson has over 25 years’ experience in risk consulting and he has worked in more than 40 countries, providing support to clients in every major industry sector, including construction, mining, telecommunications, pharmaceutical, financial services, transport, fast-moving consumer goods, energy, IT, defence and government. David’s input includes strategic direction to organisations facing major risk challenges, as well as tactical advice on achieving value and competitive advantage from effectively managing risk.

David’s contributions to the risk discipline over many years have been recognised by a range of awards, including “Risk Personality of the Year” in 2010-11. He received both the PMI Fellow award and the PMI Distinguished Contribution Award from the Project Management Institute (PMI®) for his work in developing risk management. He is also an Honorary Fellow of the UK Association for Project Management (APM), where he has actively led risk developments for nearly 20 years.  David Hillson is an active Fellow of the Institute of Risk Management (IRM), and he was elected a Fellow of the Royal Society of Arts (RSA) to contribute to its Risk Commission. He is also a Chartered Fellow of the Chartered Management Institute (CMI) and a Member of the Institute of Directors (IOD).

Dr Hillson can be contacted at [email protected].

To see other works previously published in the PM World Journal by Dr David Hillson, visit his author showcase at http://pmworldlibrary.net/authors/dr-david-hillson/