21 September 2005 Earned Value Management 1

Earned Value Management

Managing Scope, Cost, and Schedule to
Improve Project Performance
Scott S. Lynde, PMP
21 September 2005
21 September 2005 Earned Value Management 2
Purpose
To communicate basic EVM theory and formulas
To propose a recommended approach for instituting
EVM in your organizations
To demonstrate a hands-on approach to EVM
using a popular project scheduling tool
To Position You to Reap the Benefits of EVM
21 September 2005 Earned Value Management 3
Agenda
Earned value management (EVM) background
Background The Basics A Process MS Project Conclusion
Basic EVM terms and formulas
A practical approach and process
Using Microsoft Project for EVM
Conclusion
21 September 2005 Earned Value Management 4
A Quick Quiz
The project budget is $200k
The project duration is 4 months
The work is evenly distributed
After 2 months, $90k is spent
Is the Project Over, On, or Under Budget?
Plan
Actual
$
50
100
150
200
Time
1 2 3 4
21 September 2005 Earned Value Management 5
The Answer: It Depends!
The project budget is $200k
The project duration is 4 months
The work is evenly distributed
After 2 months, $90k is spent
After 2 months, the planned work is $100k
What if the project is:
50% complete?
45% complete?
40% complete?
70 80 90 100
Plan (Cost/ Work) = $100k
Actual Costs = $90k
Work = $80k Work Accomplished = $90k Work Accomplished = $100k
EVM Integrates Scope, Cost, and Schedule to Improve Performance Management
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Other Questions Answered by EVM
Are we ahead of or behind schedule?
How efficiently are we using our time?
When is the project likely to be completed?
Are we currently under or over our budget?
How efficiently are we using our resources?
What is the remaining work likely to cost?
What is the entire project likely to cost?
How much will we be under or over budget at the end?
EVM Will Keep Your Sponsor/ Client/ Boss off Your Back!
21 September 2005 Earned Value Management 7
EVM Background
Background The Basics Conclusion A Process MS Project
Late 1800s - 1962
American Factories
1962 - 1967
PERT/Cost
1967 - 1996
C/SCSC
1996 - Present
EVM: ANSI/EIA 748
1962
Introduction of
PERT/Cost
1965
USAF forms
C/SPCS group
1967
DoDissues
C/SCSC
1996
32 EVMS criteria
defined; terms
simplified
1998
ANSI/EIA 748
guide published
S
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i
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i
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a
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i
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n
A
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o
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i
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n
1958
US Navy
introduces PERT
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EVM Background
Background The Basics Conclusion A Process MS Project
EVM Has Been Gaining Momentum
Published Papers on Earned Value
0
5
10
15
20
25
30
1995 1996 1997 1998 1999 2000 2001 2002
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EVM Background
Background The Basics A Process MS Project Conclusion
EVM Drivers EVM Benefits
Tracking costs to budget alone is not
enough to determine project health
EVM integrates the management of
scope, cost, and schedule performance
Estimates of total project cost are
subjective and (often
inappropriately) optimistic
EVM provides a statistical assessment
of current and future project
performance
Projects are unique and complex
and require a multidisciplinary
approach
EVM enables management by
exception by isolating variances and
providing targeted feedback
When problems are identified, it can
be difficult to estimate the degree of
corrective action required
EVM enables the determination of
efficiency indexes for both past and
future performance
The fundamentals of EVM are the same, regardless of the type or size of project to
which they are being applied. PMI Practice Standard for Earned Value Management
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Basic EVM Terms and Formulas
Background The Basics Conclusion A Process MS Project
EVMS soup
IEAC
ACWP VAC
CV PV
SV
BAC
SPI
BCWS
EV TCPI
EAC ETC
AC
BCWP
CPI
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The Project Lifecycle
Background The Basics Conclusion A Process MS Project
21 September 2005 Earned Value Management 12
A Framework for EVM
Background The Basics Conclusion A Process MS Project
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3+1 Core Data Elements
Background The Basics Conclusion A Process MS Project
Planned Value (PV)
How much work is supposed to be done at a given point in time
Prepared during planning as a (cumulative) time-phased budget
Referred to as the performance measurement baseline
AKA the budgeted cost of work scheduled (BCWS)
Actual Costs (AC)
The level of resources (typically $) expended to date
Typically obtained from an organizations accounting system
AKA the actual cost of work performed (ACWP)
Earned Value (EV)
How much work has actually been accomplished
Obtained by tracking and measuring progress on project work
AKA the budgeted cost of work performed (BCWP)
Budget at Completion (BAC)
The total planned value for the project
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A Framework for EVM
Background The Basics Conclusion A Process MS Project
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A Framework for EVM
Background The Basics Conclusion A Process MS Project
Planned Value
Actual Costs
Earned Value
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Variances
Background The Basics Conclusion A Process MS Project
Cost Variance
CV = EV AC
Determines how much the project is over or under budget
Schedule Variance
Cost: SV = EV PV
Determines how much work is ahead or behind schedule
Ignores the critical path
Converges to zero
Negative Variances are Unfavorable; Positive Variances are Favorable
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A Framework for EVM
Background The Basics Conclusion A Process MS Project
21 September 2005 Earned Value Management 18
A Framework for EVM
Background The Basics Conclusion A Process MS Project
21 September 2005 Earned Value Management 19
Forecasts
Background The Basics Conclusion A Process MS Project
(Independent) Estimate at Completion
(I)EAC = BAC / CPI (cost performance index)
EAC = AC + ETC (estimate to complete)
EAC = project manager outlook
Assumes the team will continue to operate
at the same efficiency level
Projects the final cost of the project
Forecasts the final project cost
Variance at Completion
VAC = BAC EAC
Determines how much the project will be
over or under budget when done
Studies of Hundreds or Large Defense Projects Have Shown that
EAC I s Accurate Within a Statistical Range by the 15-20% Mark
21 September 2005 Earned Value Management 20
A Framework for EVM
Background The Basics Conclusion A Process MS Project
21 September 2005 Earned Value Management 21
A Framework for EVM
Background The Basics Conclusion A Process MS Project
21 September 2005 Earned Value Management 22
Performance Indices
Background The Basics Conclusion A Process MS Project
Cost Performance Index (CPI)
CPI = EV / AC
Indicates the cumulative cost efficiency of a project how
efficiently the team uses its resources ($)
Schedule Performance Index (SPI)
SPI = EV / PV
Indicates how efficiently the team is using its time
To-Complete Performance Index (SPI)
TCPI = (BAC EV) / (BAC AC)
Indicates the efficiency required on remaining work in order to
achieve a target (BAC or EAC)
For SPI and CPI, Values Greater than 1.0 Are Favorable; Less than 1.0 Are Unfavorable
21 September 2005 Earned Value Management 23
A Framework for EVM
Background The Basics Conclusion A Process MS Project
21 September 2005 Earned Value Management 24
A Framework for EVM
Background The Basics Conclusion A Process MS Project
Official ANSI standard for EVMS has 32 criteria; only 10 are necessary
Define authorized work elements
Identify project organizational
structure and assign responsibility
Integrate planning, scheduling,
budgeting, work authorization,
and cost accumulation processes
Schedule the authorized work in a
sequential manner that identifies
the significant task dependencies
Select EV measurement
techniques
Establish and maintain a time-
phased baseline
Record direct costs consistently in
a formal manner
Periodically generate project
metrics to assess performance
Periodically develop revised
estimate at completion forecasts
Incorporate authorized changes in
a timely manner
I.e., Practice Good Project Management
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A Practical Process: Planning
Background The Basics Conclusion A Process MS Project
Cost
Accountant
Project
Manager
Project
Team
Decompose work
scope to a
manageable
level
Assign
unambiguous
responsibility
Develop a
performance
measurement
baseline
Determine EV
measurement
technique for all
tasks
Determine
reporting
frequency
Provide time-
phased budget to
cost accountant
Basic
PM
EV
PV BAC
1
2
3
5
4
6
#
MS Project Demo
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A Practical Process: Executing and
Controlling
Background The Basics Conclusion A Process MS Project
Cost
Accountant
Project
Manager
Project
Team
Execute the plan
Track progress;
report to cost
accountant
Calculate EV
metrics; provide
spreadsheet
Basic
PM
EV
EV
CV CPI SV SPI
Retrieve actual
costs from
accounting
system
Refine/supplement
spreadsheet (e.g.,
accruals); analyze
results
EAC
IEAC VAC TCPI
AC
Implement
corrective action,
as necessary
7
8
9
10
11
12
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Earned Value Recognition
Background The Basics Conclusion A Process MS Project
Fixed formulas
Used on short-duration tasks
Used when product is well-
understood
E.g., 50/50 or 25/75, or 0/100
Weighted milestone
Used on long-duration tasks
Used when there are observable
intermediate milestones
Value is assigned to milestones
Percent complete
Simple and easy
Subjective
Used when no objective
indicators exist
Apportioned effort
Used when a task has a direct,
supportive relationship to another
task (e.g., quality assurance (QA))
Typically calculated as a
percentage of main task EV
Level of effort
Used for activities that do not
produce tangible outcomes e.g.,
project management
PV is automatically credited as
EV at end of each period
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Earned Value Recognition
Background The Basics Conclusion A Process MS Project
Duration of Work Effort
Product of Work
1-2 Measurement Periods >2 Measurement Periods
Tangible
Fixed Formula
Weighted Milestone
Percent Complete
Intangible Apportioned Effort
Level of Effort
Recognition Methods for Project Activities Should Be Determined During Planning
21 September 2005 Earned Value Management 29
Using Microsoft Project for EVM
WBS developed
Activities durations estimated
Activities sequenced
Resources assigned
Resource costs assigned
Resources leveled
Result: simple project plan
(Risks not incorporated)
Background The Basics Conclusion A Process MS Project
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Our Project: Painting
Background The Basics Conclusion A Process MS Project
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Our Schedule
Background The Basics Conclusion A Process MS Project
WBS Task Name
0 Painting the Room
1 Design
1.1 Browse catalogs for ideas
1.2 Obtain swatches
1.3 Evaluate swatches and choose paints
John Doe,Jane Doe
John Doe,Jane Doe
8 AM 12 PM 4 PM 8 PM 12 AM 4 AM 8 AM 12 PM 4 PM 8 PM 12 AM 4 AM 8 AM 12 PM 4 PM
Tue Oct 25 Wed Oct 26
WBS Task Name
2 Procurement
2.1 Procure paint and supplies
3 Preparation
3.1 Take down pictures
3.2 Remove electrical outlets
3.3 Tape walls
3.4 Room ready for painting
4 Painting
4.1 Paint wall 1
4.2 Paint wall 2
4.3 Paint wall 3
4.4 Paint wall 4
4.5 Room painted
4.6 Paint dried
5 Cleanup
5.1 Remove tape
5.2 Touch up mistakes
5.3 Install electrical outlets
5.4 Hang pictures
6 Painting complete
John Doe,Paint and supplies[1]
Jane Doe
Jane Doe
John Doe
10/27
John Doe
Jane Doe
John Doe
Jane Doe
10/28
10/28
John Doe,Jane Doe
John Doe
Jane Doe
Jane Doe,John Do
10/29
8 AM 12 PM 4 PM 8 PM 12 AM 4 AM 8 AM 12 PM 4 PM 8 PM 12 AM 4 AM 8 AM 12 PM 4 PM
Fri Oct 28 Sat Oct 29
21 September 2005 Earned Value Management 32
5
Producing a Time Phased Budget
Option 2: Analysis Toolbar Option 1: Cash Flow Report
Background The Basics Conclusion A Process MS Project
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Producing a Time Phased Budget
(cont.)
5
Background The Basics Conclusion A Process MS Project
Option 2: Analysis Toolbar
21 September 2005 Earned Value Management 34
9
Track and Report Progress
Background The Basics Conclusion A Process MS Project
First, save a baseline
Set the status date
Track progress
View the % complete
or earned value
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Retrieve Actual Costs;
Analyze Data
10
Plug AC and EV into spreadsheet model
If necessary, calculate EV from % complete:
EV = BAC * % complete
Background The Basics Conclusion A Process MS Project
21 September 2005 Earned Value Management 36
Presentation Formats
Background The Basics Conclusion A Process MS Project
Project
S-curves
Dashboard speedometers
Bulls-eye chart
Portfolio
Bulls-eye chart
SPI/CPI trending
21 September 2005 Earned Value Management 37
Presentation Formats: Project
Background The Basics Conclusion A Process MS Project
3 0 . 1
9 9 . 0
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Presentation Formats: Portfolio
Background The Basics Conclusion A Process MS Project
21 September 2005 Earned Value Management 39
Conclusion
EVM is NOT HARD! (But the acronyms are!)
EVM can be applied to any project with a defined
scope, schedule, and budget
EVM provides a closed-loop
feedback system
EVM is predictive
EVM will impress your friends
EVM is gaining momentum
Background The Basics Conclusion A Process MS Project
EVM Is Coming to a Project Near You
21 September 2005 Earned Value Management 40
Earned Value Management
Managing Scope, Cost, and Schedule to
Improve Project Performance
Scott S. Lynde, PMP
21 September 2005
21 September 2005 Earned Value Management 41
Reference
Fleming, Quentin W. and Koppelman, J oel M.
Earned Value Project Management, 2
nd
Ed.
Project Management Institute, J une 2000.
Practice Standard For Earned Value Management
Project Management Institute, October 2004.
Christensen, David S. and Heise, Scott.
"Cost Performance Index Stability
National Contract Management J ournal 25, Spring
1993, pp. 7-15.