Earned Value Management (EVM) is a project control technique which combines measurements of scope, schedule and costs. Applying an EVM-like process should prove an invaluable aid to case management. It’s reasonable to suggest that following an EVM-like method is now essential for litigators who have to prepare, and thereafter manage, cost budgets.
So how does EVM work? How can lawyers, and their clients, benefit from it?
In this article I will do a high level walkthrough of an EVM-like process in operation. I will assume there is a newly appointed legal project manager in post. Let’s call him Clive.
To try and illustrate things a little more clearly I will assume Clive does not have a background in law. He is however, well versed in project management techniques generally. Hence his default starting point will be to apply known and trusted project management techniques and then seek to adapt them to the legal environment as his legal experience grows.
Clive’s first case as a legal project manager is to help manage a fairly complex civil litigation matter.
The first thing Clive does when asked to scope a project is to chunk it down into smaller components. It is easier to scope smaller components of a whole than the whole thing itself (whatever the ‘thing’ is).
For project managers this chunking leads to the creation of a Work Breakdown Structure (WBS). A WBS is usually represented graphically by means of a hierarchical tree-like diagram. Each leaf or node is a discrete body of work.
So for Clive the lowest WBS elements should be capable of being summarised as succinct Statements of Work (SoW) for an individual (or perhaps a workgroup) to perform.
Once tasks have been categorised according to the WBS (simply chunked-down) the amount of effort, time and cost required to complete the SoW can be gauged with increased confidence.
I have written previously about some heuristic rules regards scoping and estimating and sought to raise awareness of the ‘cone of uncertainty’ surrounding estimations, so I won’t say any more about these in this article.
Individual SoW’s are likely to contain several discrete tasks. These tasks will clearly be related to each other, perhaps dependent on each other and will most usually need to be sequenced.
When most people think of project management, they think of Gantt charts: tasks plotted against timelines. Gantt charts provide a graphic representation of the project schedule. Lots can be done with Gantt charts. Tasks can be linked, milestones highlighted and work progress tracked to name but three.
Some lawyers find Gantt charts helpful, but I suspect that most don’t. I sometimes wonder whether this is ‘fault’ of the charts or the lawyers. It is comparatively easy to overload Gantt charts with all sorts of data. This is great for project professionals. Not so good for people who have less time and enthusiasm for detailed project planning.
Clive has of course produced a Gantt chart. Interestingly, after looking at a first high level draft Gantt chart, the litigation team see they do not have as much time and resources as they had thought. This generated constructive discussion about how some things may be speeded up or, perhaps even certain aspects of scope decreased given the time and resources available.
If a Gantt chart is constructed at the right level of granularity (ie not too much detail) this early project assessment often happens with project teams in any industry. Good for Clive – he is starting to earn the respect of the legal service delivery team.
Project costs are made up of two elements: labour costs and materials.
Clive soon realises that what the lawyers refer to as ‘disbursements’ (payments made to third parties in order to progress matters), equate to ‘materials’. Moreover he is delighted to find that at the outset the legal team has a pretty good idea about the cost of the potential disbursements and that they have to keep precise record of all disbursements paid during a matter. This will really help him when monitoring cost of ‘materials’.
He was somewhat disappointed however to find that no-one on the legal team actually knew how much their true labour costs were. Everyone kept referring their chargeable hour rates but he realised the chargeable hour includes an element of profit as well. Nevertheless, he has resolved to do the best he can and will use to the hourly rates as a proxy for labour costs.
However Clive is pleased to see that lawyers are actually very good at recording their time spent working, and the type of work being done. This will also help him with his project monitoring and control.
Estimated Cost at Completion
After scoping the mater and setting against a timeline reasonably accurately, Clive has been able to provide an initial Estimated Cost at Completion (EAC) of the matter. This figure was arrived at by adding together all of the cost estimates for each chunk, or work package, of work identified in the WBS.
Monitoring Cost, Schedule and Scope
Throughout the life of the matter Clive will monitor:
a) the amount of work which has actually been done
b) the cost of doing this work.
Each week Clive checks with the team to find out the amount of work which has been done. He knows that the cost of the work actually done to date, applying the rates which made up the original budget estimate, is the Earned Value (EV). Clive does not use this phrase with the legal team though. He is a quick learner and notes that although lawyers love their own professional jargon, they are not too keen on anyone else’s!
Another key element of cost data for Clive and the legal team is the Actual Cost (AC) of the work done to date.
Looking for Variance
EVM is really about looking for variances. Variances between what was planned at what is really happening.
Clive has been doing the weekly work and cost monitoring and all is well until the end of week 4. At week 4 the Earned Value stands at £10,200.00 but the Actual Cost of the work performed amounts to £13,200. A cost variance of £3,000. In reality this a cost overrun, compared to the budget cost of the work performed. The project now has a cost overrun of just over 30%.
Re-estimating and re-calculating
Clive also re-estimates the projected Estimated Cost at Completion (EAC) in light of progress made, and cost incurred, when he does his weekly project review. Clearly, if this level of overrun continues, Clive is faced with a total cost of over 30% compared to the original budget.
It is also necessary to assess how much actual work is left to complete the project as a whole. To make this task more manageable, Clive concentrates on getting estimates from the team for each work package currently being worked on. Obviously the amount of work left to do will affect the Estimated Cost to Complete figure.
It is not at all unusual for people to realise, once they start work on a project that, in fact, more work will be required than planned. Sadly for Clive this is also happening with his litigation matter. On the evidence he has gathered so far, total cost at completion look like being way over 30% compared to budget.
But let’s look on the bright side for a moment. Applying some basic EVM principles forces project managers, and project teams, to monitor work completed and its cost; it also requires that these items be re-estimated as the project progresses. At least Clive now has hard evidence that things are going awry.
A Variance has occurred – now what?
Clive can now take corrective action to bring the project back on track. The corrective action need not be major, nor dramatic. Weekly checking means that Clive has his hand on the tiller, and so has a much greater chance of steering the ship home without too much trouble before things get disastrously out of hand.
He finds that during week 4 a higher grade of fee earner had been put on the document review work than had been planned. The legal team were not too concerned as they just wanted to crack-on and get the work done for the client. All very laudable but, as Clive points out, this has not been budgeted for. As a result a lower grade of fee earner has now been substituted in.
The legal service delivery team are getting used to Clive. They are also becoming a little more cost conscious, becoming comfortable with more explicit project planning and appreciating the value of more assertive project monitoring and control.