The strengths of EVM and RM have been well described elsewhere, as their proponents seek to encourage wider

uptake and use. Each technique however has at least one key weakness which presents a significant danger to

those relying on the output to support strategic or tactical decision-making.

For EVM, one of the main perceived weaknesses (at least by non-experts) is its reliance on a key assumption,

that future performance can be predicted based on past performance. Calculated performance measures (CPI,

SPI, CV, SV etc) are used to predict forwards and estimate cost at completion or overall duration. Unfortunately

there is no guarantee that the basic EVM assumption will be true, and it is likely that the future will deviate from

that predicted by simply extrapolating from past performance. Einstein defined “insanity” as “doing the same

thing over and over again and expecting different results.” Indeed the management element of EVM is designed

to ensure that the future predicted by calculated performance measures does not materialise, since it encourages

the taking of corrective action in response to the analysis results. In addition to being affected by the actions

deliberately taken by management, the remaining elements of the project are also subject to risk, both positive

opportunity and negative threat, introducing variation and ambiguity into future performance.

The strength of EVM lies in its rigorous examination of what has already occurred on the project, using

quantitative metrics to evaluate project past performance. It goes on however to predict future performance by

extrapolating from the past. But it is not possible to drive a car by only looking in the rear-view mirror. A

forward view is also required, and this is what RM offers.

While project planning looks at the next steps which lie immediately ahead, RM has a horizon further into the

future. It acts as a forward-looking radar, scanning the uncertain and unclear future to identify potential dangers

to be avoided, as well as seeking possible additional benefits to be captured. However this undoubted strength of

Originally published as a part of PMI 2004 Global Congress Proceedings – Anaheim, California, USA

being resolutely and exclusively future-focused is also one of the key weaknesses in RM. Anything which

occurred in the past is of little or no interest to the risk process, since there is no uncertainty associated with past

events. RM starts with today’s status quo and looks ahead. How the project reached its current position is not

relevant to the risk process, unless one is seeking to learn lessons to assist RM on future projects. As a result

RM as commonly implemented often lacks a meaningful context within which to interpret identified risks, since

it has no means of capturing past performance and feeding this into the decision-making process.

If EVM is weakened by assuming that future performance can be predicted from past performance, and if RM is

weakened by looking only forwards with no real awareness of the past, a useful synergy might be obtained if a

combined EVM-RM approach were able to address these weaknesses. Combining a rear-view mirror with a

forward-looking radar would use the strengths of complementary approaches to compensate for the weaknesses

inherent in using each alone. Consequently it is possible to produce significant benefits by using RM to provide

the forward view required by EVM, and by using EVM to provide the context required for RM.

Given the common aims of EVM and RM to examine and expose drivers of project performance in order to

focus management attention on achievement of objectives, and given their differing perspectives towards the

past and the future, a number of areas of possible synergy exist between the two techniques. These are outlined

in the following sections. The steps required to implement these synergies are summarised in Exhibit 1.

The foundation for EVM is the baseline plan of expected spend over time, creating the profile of “Budgeted

Cost of Work Scheduled” (BCWS) or “Planned Value” (PV) against which project performance is measured.

This baseline is derived from a costed and resourced project plan, including fixed and variable costs arising

from financial and human resources. The BCWS profile is typically presented as a cumulative curve, or S-curve.

Good practice EVM recommends that allowance should be made in the baseline BCWS to account for

uncertainty and risk, and the integrated baseline review (IBR) process should verify the robustness and

suitability of this allowance. However in reality many baselines are created without proper consideration of risk,

and simply include a “contingency element” for unplanned work. Indeed contingency is often hidden in the

baseline to avoid its removal by management prior to project start. And this contingency is usually unrelated to

defined risks, but reflects an intuitive assessment of what might be required “just in case”.

The baseline BCWS exists as the benchmark against which project performance will be measured. However one

of the first things a project manager learns is that reality will never precisely match the project plan. As soon as

work starts, there are variations in productivity, resource and information availability, delivery dates, material

costs, scope etc. This is why a rigorous change control process is vital to successful project management.

Although not all changes can be foreseen before the project starts, it is possible to assess the degree of

uncertainty in a project plan, in both time and cost dimensions. This is the domain of RM. One of the first

contributions that RM can make to EVM is to make explicit the consideration of uncertainty and risk when

constructing the baseline BCWS.

By undertaking a full risk assessment of the project plan before the project starts, addressing uncertainties in

both time and cost, it is possible to evaluate the degree of risk in the baseline project plan. Quantitative risk

analysis techniques are particularly useful for this, especially the use of Monte Carlo simulation on integrated

models which include both time and cost uncertainty. These risk models take account of variability in planned

values, also called “estimating uncertainty” (for example by replacing planned single-point estimates of duration

or cost with three-point estimates or other distribution types), and they should also model the effect of discrete

risks to reflect their assessed probability of occurrence and the subsequent impact on project time and/or cost

(using stochastic branching constructs, both probabilistic and conditional). Both threats and opportunities should

be addressed in the risk model, representing the possibility of exceeding or failing to meet the project plan. The

risk model should also take account of planned responses to risks, developed during the risk process. These must

also be reflected in the expected spend profile for the project.

The results of the risk analysis allow the best case project outcome to be determined, representing the cheapest

and quickest way to reach project completion. Similarly a worst case profile can be produced, with highest cost

and longest duration. All other possible outcomes are also calculated, allowing the “expected outcome” within

this range to be identified. These can be shown as a set of three related S-curves, as in Exhibit 2, which take

account of both estimating uncertainty (variability in planned events) and discrete risks (both positive

opportunities and negative threats). The ellipse at the end of the curves represents all possible calculated project

outcomes (90% confidence limit), with the top-right value showing worst-case (highest cost, longest schedule),

Originally published as a part of PMI 2004 Global Congress Proceedings – Anaheim, California, USA

the bottom-left giving best-case (cheapest and quickest), and the centre of gravity of the ellipse being at the

expected outcome of project cost and duration. This ellipse is known by risk practitioners as the “eyeball plot”

(or the “football plot” in US). It may be thought to correspond with the “Box of uncertainty” described by some

EVM practitioners referring to the area bounded by extrapolation from actual cost (ACWP) and earned value

(BCWP). However the risk ellipse is derived from calculations based on defined risks, rather than merely

extrapolating from past performance, so it is likely to be a more accurate representation of the range of possible

future project outcomes.

The existence of this set of possible project outcomes raises the question of where the baseline spend profile for

EVM should be set. The recommendation from a combined approach to EVM and RM is to use the expected

value cumulative profile from a quantitative time-cost risk analysis as the baseline for BCWS. In other words,

the central S-curve in Exhibit 2 would be used as the baseline instead of the original S-curve. This ensures that

the EVM baseline fully reflects the risk associated with the project plan (including an appropriate amount for

contingency which is automatically incorporated in the risk analysis results), rather than measuring performance

against the raw “all-goes-to-plan” plan.

Clearly the risk analysis must be conducted using the same units as those required for EVM, i.e. measuring cost

in monetary value (£, $, € etc), or as resource cost (man hours, days, weeks, months etc). It is also necessary to

use an integrated risk analysis model which can simultaneously vary time and cost, including the “cost of time”

(noting that some popular risk analysis tools do not support integrated time-cost risk modelling). Finally the

issue of dependency and correlation in the risk model must be carefully considered to ensure that results are

realistic and feasible.

Both EVM and RM attempt to predict the future outcome of the project, based on information currently known

about the project. For EVM this is achieved using calculated performance indices, with a range of formulae in

use for calculating Estimate At Completion (EAC). Most of these formulae start with the Actual Cost of Work

Performed to date (ACWP, or Actual Cost AC), and add the remaining budget adjusted to take account of

performance to date (usually using the Cost Performance Index CPI, or using a combined Performance

Efficiency Factor based on both CPI and SPI). These calculations of the Estimate To Complete (ETC) are used

to extrapolate the ACWP plot for the remainder of the project to estimate where the project might finally end

(EAC). However calculating EAC in this way does not take explicit account of the effect of future risks on

project outcome. One simple way to do this is by adding an amount into the EAC calculation to account for riskweighted

contingency or management reserve.

RM predicts a range of possible futures by analysing the combined effect of known risks and unknown

uncertainty on the remainder of the project. When an integrated time-cost risk model is used, the result is a set

of S-curves similar to Exhibit 2, but covering the uncompleted portion of the project. In the same way that the

initial spend baseline should be determined using both risk and earned value data, the remaining element of the

project should also be estimated using both sets of information.

It is also possible to use risk analysis results to show the effect of specific risks (threats or opportunities) on

project performance as measured by earned value. Since the risk analysis includes both estimating uncertainty

and discrete risks, the model can be used to perform “what-if” scenario analysis showing the effect of

addressing particular risks. For example, if a key threat is modelled using a probabilistic branch, a “what-if”

analysis can set the probability of the threat occurring to zero, simulating the result if that risk is removed.

Similarly the effect of capturing key opportunities can also be shown. The result is a series of cumulative

probability distribution curves (S-curves), sometimes called an “onion-ring diagram”, showing the cumulative

effect of addressing key risks. This allows identification of the most significant risks which need to be addressed

as a priority. If the same technique is applied to the planned spend profile (BCWS or PV), the risk analysis will

reveal which risks have the greatest influence over earned value and project performance, allowing management

attention to be focused appropriately.

Similarly, the risk model will show the effect of outstanding risks and planned responses on the remainder of the

project, reflected in the expected result from the quantitative risk analysis, and this information must also be

taken into account when determining the expected spend profile (BCWS or PV) from time-now to project

completion. The standard approach to EVM allows for draw-down of contingency (or management reserves)

into the baseline if significant changes arise as a result of scope change or risk occurrence. The results from the

quantitative risk analysis indicate how much contingency should be reallocated into the baseline to cover the

expected level of risk in the remaining portion of the project.

Originally published as a part of PMI 2004 Global Congress Proceedings – Anaheim, California, USA

A risk can be defined as “any uncertainty that, if it occurs, would have a positive or negative effect on

achievement of one or more project objectives”. RM aims to address this uncertainty proactively in order to

ensure that project objectives are achieved, including completing on time and within budget. As a result, if RM

is fully effective, actual project performance should closely match the plan.

Since EVM performance indices (CPI, SPI) measure deviation from plan, they can be used to indicate whether

the risk process is being effective in addressing uncertainty and controlling its effects on project performance.

of the most likely underlying causes is that the risk process is failing to keep the project on course. An

ineffective risk process would fail to avoid adverse risks (threats) proactively, and when threats

materialise into problems the project incurs delay and/or additional cost. Either the risk process is not

identifying the threats, or it is not preventing them from occurring. In this situation, management

attention should be directed to the risk process, to review its effectiveness and consider whether

additional resources are required, or whether different techniques should be used.

risk process should be focused on exploiting the opportunities created by this situation. Best-practice

RM addresses both threats and opportunities, seeking to minimise threats and maximise opportunities.

When EVM indicates that opportunities exist, the risk process should explore options to capture them

and create additional benefits for the project.

project and may not simply be due to the existence of opportunities. Typically, if actual performance is

much greater than expected or planned, this could indicate poor planning or incorrect scoping when

setting up the initial baseline plan. If this highly anomalous behaviour continues, a baseline re-planning

effort should be considered, which of course will involve the need for further risk management.

threats, but may indicate problems with the baseline plan or scope.

Exhibit 3 illustrates the relationship between the values of EVM indices (CPI and/or SPI) and RM process

effectiveness.

The key to using EVM indices as indicators of RM effectiveness is to determine appropriate thresholds where

action is required to refocus the risk process. Clearly some variation of EVM indices is to be expected as the

project unfolds, and it would not be wise to modify the risk process in response to every small change in CPI

and/or SPI. However if a trend develops and crosses the thresholds of “common variance”, action should be

preparatory steps should be taken.

The thresholds of 0.75, 0.9 and 1.25 used in Exhibit 4 are illustrative only, and organisations may be able to

determine more appropriate threshold values by reviewing historical trend data for CPI and SPI, and identifying

the limits of “common variance” for their projects.

Plotting the trend of CPI and SPI over time against such thresholds also gives useful information on the type of

risk exposure faced by the project at any given point. For example Exhibit 4 indicates that the project schedule

is under pressure (SPI trend is consistently below 1.0), suggesting that the risk process should focus on

addressing sources of time risk. The exhibit also suggests that cost savings are possible which might create

opportunities that can be exploited, and the risk process might be able to maximise these. These recommended

action types are illustrated in Exhibit 5, corresponding to the following four situations :

1. Both CPI and SPI high (top-right quadrant), creating opportunities to be captured

2. Both CPI and SPI low (bottom-left quadrant), requiring aggressive action to address threats

3. High SPI but low CPI (top-left quadrant), requiring focused attention to cost risk, with the possibility

of spending additional time to address this

4. High CPI but low SPI (bottom-right quadrant), where attention should be paid to addressing schedule

risk, and cost trade-offs can be considered

Originally published as a part of PMI 2004 Global Congress Proceedings – Anaheim, California, USA

Exhibit 5 also suggests that if either CPI or SPI (or both) remain abnormally high or low, the baseline plan

should be re-examined to determine whether the initial scope was correct or whether underlying planning

assumptions were unfounded.

It is important to note that these action types should be viewed only as first options, since other considerations

may lead to different actions. For example in projects with high schedule-constraints (e.g. product launch, event

management etc), the trade-off between time and cost may be prioritised differently than in cost-constrained

projects.

Both Earned Value Management (EVM) and Risk Management (RM) seek to improve decision-making by

providing a rational framework based on project performance. EVM examines past performance against clearlydefined

quantitative metrics, and uses these to predict the future outcome for the project. RM looks ahead to

identify and assess uncertainties with the potential to affect project performance either positively or negatively,

and develops responses to address each risk proactively.

Both techniques share a focus on project performance, and have the same purpose of developing effective

actions to correct unwelcome trends in order to maximise the likelihood of achieving project objectives. One

(EVM) does this by looking back at past performance as an indicator of likely future performance. The other

(RM) looks ahead at possible influences on future project outcomes.

These two approaches are not in conflict or mutually exclusive. Indeed their commonalities imply a powerful

synergy, which is available through combining the complementary strengths of each technique and using

insights from one to inform the application of the other (as summarised in Exhibit 1). The practical suggestions

outlined in this paper indicate that if they are used together, EVM and RM provide a potent framework for

managing change on a project, based on a realistic assessment of both past performance and future uncertainty.

a. Develop costed WBS to describe scope of work, without hidden contingency

b. Produce fully costed and resourced project schedule

c. Assess estimating uncertainty associated with initial time/cost estimates

d. Perform risk identification, risk assessment and response development

e. Quantify time and cost risk exposure for each risk, taking account of the effect of agreed responses

f. Create integrated time/cost risk model from project schedule, reflecting both estimating uncertainty (via 3-point

estimates) and discrete risks (via stochastic branches)

g. Perform Monte Carlo simulation on integrated risk model to generate “eyeball plot”

h. Select risk-based profile as baseline spend profile (BCWS/PV); it is most common to use the “expected values”,

although some other confidence level may be selected (say 80%)

a. Record project progress and actual cost spent to date (ACWP), and calculate earned value (BCWP)

b. Review initial time/cost estimates for activities not completed, to identify changes, including revised estimating

uncertainty

c. Update risk identification, assessment and quantification, to identify new risks and reassess existing risks

d. Update integrated time/cost risk model with revised values for estimating uncertainty and discrete risks, taking

account of progress to date and agreed risk responses

e. Repeat Monte Carlo simulation for remaining portion of project to generate updated “eyeball plot”

f. Select risk-based calculation as estimate of final project duration and cost (EAC), using either “expected values”,

or some other confidence level (say 80%)

g. Use risk-based profile as updated expected spend from time-now to project completion

a. Determine threshold values for CPI and SPI to trigger corrective action in risk process (or use default values of

0.75, 0.90 and 1.25)

b. Calculate earned value performance indices (CPI and SPI), plot trends and compare with thresholds

c. Consider modifications to risk process if CPI and/or SPI cross thresholds, enhancing the process to tackle

opportunities more effectively if CPI and/or SPI are high, or refocusing the process on threat reduction if they are

low

d. Take appropriate action either to exploit opportunities (high CPI/SPI), address threats (low CPI/SPI), spend

contingency to recover time (high CPI/low SPI), or spend time to reduce cost drivers (high SPI/low CPI)

e. Consider need to review initial baseline, project plan or scope if CPI and/or SPI persistently have unusually high

or low values

Originally published as a part of PMI 2004 Global Congress Proceedings – Anaheim, California, USA

Originally published as a part of PMI 2004 Global Congress Proceedings – Anaheim, California, USA