Planned Value

The Planned Value (PV) is a function of the time and It represents the economic value that will
be spent in a project. The domain is time and the range is economic value ($). It associates a
value to each moment of time. It's a convention that the Planned Value (PV) starts at the time
zero and goes until the estimated duration of the project. The minimun value is zero and the
maximun value of the Planned Value (PV) is the total budget of the project.

The Planned Value (PV) is a consequence of sum the cost of the tasks of a project at the moment
when these tasks need to be executed. As you can see in the following table, the Planned Value
(PV) is the accumulated cost of the execution of a project in the time.

Click to maximize
The curve obtained of the accumulated cost is the Planned Value (PV), also known as "Baseline"
and is the reference for the cost performance for the whole project.

Earned Value

The Earned Value (EV) is a function of the time and it represents the progress of a project. It's
measured in units of economic value ($). Mathematically, the domain of the Earned Value (EV)
is time and the range is economic value ($). The Earned Value (EV) is clearly associated with the
Planned Value (PV) because the value that EV has, when a milestone is passed (or a goal is
achieved), is the same that PV has in the same circunstances. In other words, when a unit of
work has be done, EV adds the same value that was planned for that unit of work in curve PV, no
matter how much was the cost of finishing that unit of work.

In the folowing table could see an example. Suppose that we finished the first task, we are
progressing in the second and the third hasn't been started. The real cost exceeds the budget. The
earned value is composed of the completed work, valuated with the planned cost.

Click to maximize
It's a convention that the Earned Value (EV) starts at the time zero and goes until the real
duration of the project. The minimum value is zero and the maximum value of the Earned Value
(EV) is the total budget of the project. It's possible to see the last example drawn in the following
curves.

Actual Cost

The Actual Cost (AC) is a function of the time and it is a measured of how much money has
been spent in a project. It's measured in units of economic value ($). Mathematically, the domain
of the Actual Cost (AC) is time and the range is economic value ($). The Actual Cost (AC) is
clearly associated with the Earned Value (EV) because the units of work that are measured by
AC, are the same that EV has added as progress. In other words, when a unit of work has been
done, EV adds the planned value of cost for that unit of work and AC adds the real cost for that
unit of work.
In the following table could see an example. Let the red squares be the actual cost of each work
unit. Suppose that we finished the first task, we are progressing in the second and the third hasn't
been started. The real cost exceeds the budget. The actual cost is composed of the completed
work, valuated at real cost.

Click to maximize

It's a convention that the Actual Cost (AC) starts at the time zero and goes until the real duration
of the project. The minimun value is zero and there is no maximun value of the Actual Cost
(AC). It's possible to see the last example drawn in the following curves.

Budget At Completion

The Budget At Completion (BAC), sometimes named "The Budget", is not a function of time, It
is simply a constant value. It can be defined as the maximun of the Planned Value (PV) or the
Planned Value (PV) at the end of the project.
Estimate At Completion & Estimate To Complete

The Estimate At Completion (EAC) and the Estimate To Complete (ETC), are functions of time.
EAC can be defined as the answer to the question: What is the project likely to cost?. The
estimated cost to complete the project, named Estimate To Complete (ETC), is the diference
between EAC and AC. Mathematically, the ranges of EAC and ETC are economic value ($) and
the domains of EAC and ETC are time. The minimun value of EAC is zero but normally close to
BAC. The minimun value of ETC is zero. There is no maximun for EAC neither for ETC. The
EAC can be obtained by adding the ETC to the AC (Actual Cost).

Cost Performance Index & Cost Variance

A project's Cost Variance (CV) is simply the difference between the Earned Value (EV) and the
Actual Cost (AC). The value is positive if the budgeted cost of the work performed is greater
than the actual cost of the work performed. In other words, CV is positive whether a project is
under the budget.
 Click to maximize

The Cost Performance Index (CPI) is defined as the ratio of Earned Value (EV) to the Actual
Cost (AC). The value is greater than one if the budgeted cost of the work performed is greater
than the actual cost of the work performed. In other words, CPI is greater than one whether a
project is under the budget.

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The CPI is useful as a measure of the past performance of the project in the cost dimension. It
can be used to forecast the Estimate At Completion (EAC) using the Budget At Completion
(BAC), as the folowing formula shows.

Schedule Performance Index & Schedule Variance

A project's Schedule Variance (SV) is simply the difference between the Earned Value (EV) and
the Planned Value (PV). The value is positive if the budgeted cost of the work performed is
greater than the budgeted cost of the work scheduled. In other words, SV is positive whether a
project is ahead of schedule.

Click to maximize

The Schedule Performance Index (SPI) commonly is defined as the ratio of Earned Value (EV)
to the Planned Value (PV). The value is greater than one if the budgeted cost of the work
performed is greater than the budgeted cost of the work scheduled. In other words, SPI is greater
than one whether a project is ahead of schedule. As I explained in a last post (http://www.earned-
value.com/2011/03/spi-is-not-good-index-at-project-finish.html), the SPI, defined in this way, is
less effective when a project nears the end. It is clear that when EV is close to PV, the indicator
tends to 1, which is the ideal value. Even when a project is completed late, the SPI indicator
always ends in 1. A better way to define the SPI is using the concept of Earned Schedule (ES) as
I defined in an last post (http://www.earned-value.com/2011/03/practical-estimation-of-earned-
schedule.html). Then, considering AT being the Actual Time, SPI could be better defined as the
folowing formula.

Click to maximize
The SPI is useful as a measure of the past performance of the project in the time dimension. It
can be used to forecast the duration (D) at completion of a project using the scheduled total
duration (T), as the folowing formula shows.

Earned Value Management (EVM)

Introduction to EVM
Earned Value Management (EVM) was developed in the 60s as a Financial Analysis Technique.
It became popular in the next four decades as a Project Management Technique. Nevertheless,
today it is also known as a Program Management Technique. EVM was adopted by the National
Aeronautics and Space Administration of USA (NASA), the United States Department of Energy
and the Department of Defense (DoD). In the last three decades has been widely adopted by
managers and executives internationally. The ANSI/EIA-748-B-2007 has standardized the use of
Earned Value Management Systems (EVMS) that have been adopted in many countries for their
procurement programs.

EVM mainly covers the three most important knowledge areas of Project Management: Scope
Management, Cost Management and Time Management. EVM unifies those three areas in a
common framework that allows mathematically representing the relationship between them.
Even though EVM is weak in other areas of Project Management like the Stakeholders
Management, it can be used to dramatically improve the success rate in projects when it is
complemented with other techniques of Project Management.

The Actual Cost vs. Planned Cost

If the accumulated actual cost has been greater than the accumulated planned cost, is the project
going bad? The common answer is yes, but not necessarily. It depends on the actual progress of
the project. The planned cost is related to a measure of progress. If the progress has been very
high, an actual cost higher than the planned cost would be clearly justified. A high speed of
project execution could have as a consequence a high cost, because the project would ends
earlier, with a final cost lower than the planned budget. In ongoing operations, comparisons
between actual cost and planned cost are more successful. In schedule based projects, the
comparison between actual cost and planned cost would frequently be a mistake, if the progress
variable is not included in the analysis.

Earned Value Analysis

Earned Value Management is founded in the use of three variables: Planned Value
(PV)[http://www.earned-value.com/p/planned-value.html], Actual Cost
(AC)[http://www.earned-value.com/p/actual-cost.html] and Earned Value
(EV)[http://www.earned-value.com/p/earned-value.html]. The last variable is a good measure of
progress. The Earned Value Analysis mainly compares Planned Value with Earned Value in
order to know the speed of the project [http://www.earned-value.com/p/schedule-performance-
index-schedule.html]. It also compares Actual Cost with Earned Value in order to know if the
project is on budget [http://www.earned-value.com/p/cost-performance-index-cost-
variance.html].

To Complete Performance Index (TCPI)

There is an important question that we need to answer after any analysis. How efficient do we
need to become in the remaining time of the project in order to achieve success?. Clearly, the
answer has two dimensions: time and cost. The classic theory has an index to answer the
question in the dimension of cost. This index is the To Complete Performance Index (TCPI).
TCPI could be obtained by dividing the work remaining by the budget remaining.
EVM Budget Elements

The following definitions describe the budget elements that constitute the foundations of the
Earned Value Management (EVM) and, though not equal, are aligned with the definitions found
in the standard ANSI/EIA-748-B-2007 and the Practice Standard for Earned Value Management
- Second Edition - PMI - 2011.

Project Budget Base (PBB)

This is a concept that comes from the customer/supplier relationship and has been similarly
extended to internal projects where it can be clearly identified two parts of the organization: an
owner part funding a project (client) and another that executes the project (supplier). The PBB is
the total budget that the client has, which is greater than or equal to the budget allocated to the
supplier.

The difference between these two estimates is called Management Reserve, which is not part of
the baseline of the project and cannot be used by the Project Manager, customer unless
authorized. There are many definitions of the Reserve Management and not all of them are
equivalent. We offer a definition that, personally, I find the right one.

Reserve Management (MR)

I have seen many definitions of this concept that distinguish between known-unknowns and
unknown-unknowns. Some of these definitions indicate that the Management Reserve is for
unknown-unknowns. These definitions are correct but incomplete.

Many projects are contracted leaving all or part of the unknown-unknowns in the hands of the
provider. This is a common and legal practice in many industries. In these cases the Reserve
Management is still a good practice and has a different purpose. While the baseline may include
all project risks, customer risks are not part of the project managed by the supplier. Suppose the
project includes a fraction of the scope in mode "time and materials". The risk of a bad estimate
in this case is in the client side. The Management Reserve has, in these cases, the purpose of
compensating a bad estimate.

The customer has in most cases an active role in the project. There is always a "client's project."
Its scope is a superset of the project scope and differs at least in a work package of management.
Customer participation involves risks to the organization. It is possible that a customer
representative to make a mistake when specifying the scope, negotiating the contract or during
execution. The projects are made by people and people make mistakes. The effects of the error
may exceed several times the personal responsibilities. The Management Reserve allows
managing customer risk and often prevents the project to fail for reasons attributable to the
customer.

The Management Reserve is not a contingency that can be removed from prices in subsequent
negotiations, should not be used to absorb cost overruns of the project or used to absorb cost
changes. Nor can it be seen as a source of funding for new parts of the scope.

Baseline Performance Measurement (PMB)

It corresponds to an authorized plan including cost, time and scope. It’s used to make a
comparison between the plan and project status at all times. The budget considered in baseline
consists of the sum of the Distributed Budget and Undistributed Budget.
Undistributed Budget (UB)

It is a part of the budget of the project baseline that has not been distributed into work packages
of the WBS and has not been assigned to control accounts.

Distributed Budget (DB)

It is a part of the budget of the project baseline that has already been distributed into work
packages of the WBS and has been assigned to control accounts.

Summary Level Planning Budget (SLPB)

Not all projects have this kind of budget. It’s also called a “Summary Level Planning Package”
(SLPP). It corresponds to a fraction of the distributed budget, commonly assigned to project
phases, which cannot be reasonably distributed into work packages or Control Accounts. The
budget and scope must be moved from SLPB to Control Accounts as soon as possible and, in any
case, before the related work begins.

Control Accounts (CA)

It is a relationship between scope, budget, actual cost and time for comparing the earned value
and project performance at certain moments of the project. Each Control Account can belong to a
single element of the WBS as a single element of the OBS (Organizational Breakdown
Structure). It can be broken down into work packages and/or Planning Packages.

Work Package (WP)

It is the last level in the decomposition of the WBS. The cost, start and end times and the scope
can be clearly identified and managed for a Work Package. Each work package belongs to a
single Control Account.

Planning Package
It is a fraction of the budget that is distributed to the cost and scope has been identified but has
not yet been assigned to work packages. It's associated with future work that has not been
planned in detail. Before executing, the associated work of the package planning must be
converted into one or more work packages.

Earned Value Measurement Techniques / Methods

In my opinion, there is a natural tendency of humans to change the progress measurement criteria
during the execution. Normally, the change increases the importance of what we have done and
decreases the importance of what we have to do. This behavior generates a very common
consequence in the projects performance, that is, we dedicate 80% of time finishing the last 20%
of the project. A Key Practice of Earned Value Management is selecting the technique of
measurement of Earned Value during project planning and avoid doing that after the project
planning. This simple rule helps a lot in avoiding the 80/20 problem.

A second Key Practice related with Earned Value Measurement is to select an appropriate
method according with the type of effort. It’s possible to assign different methods to different
activities, depending on the nature of the work. There are discrete methods, apportioned methods
and LOE (Level Of Effort) methods. Key attributes of work are: the duration and the tangibility
of product. The following are a few and probably the most known methods.

Click to maximize

Fixed Formula
The most common measurement method is the 50/50 formula. The first number, from left to
right, is the percent of progress that is accredited when the activity has started, regardless how
much of the progress has actually been accomplished. The second number is the remaining
percent progress that is accredited when the activity has been finished. Other common rules are
25/75 and 0/100. The beauty of this method is that it is very easy to measure and very objective.

Weighted Milestone
This technique divides the work into a finite number of pieces and assigns a weight to each
piece. It’s common to use percents and the sum of weights is 100%. The weight is the percent of
progress that is accredited when the piece is accomplished. It’s important that each piece is
related to an observable milestone.

Percent Complete
This technique accredits a percent of progress according to a predefined rule that is directly
related to an observable characteristic of the work. Let’s take the example of the construction of
a wall planned to have a height of 100. The Percent Complete Method could consist in accredit a
percent of progress equal to the accomplished height of the wall.

Apportioned Effort
This technique accredits a percent of progress according to the progress of other unit of work.
The most common application is the Project Management. If we divide the scope of the project
in two Work Packages: 1) Project Execution and 2) Project Management, then we would accredit
the progress of the Project Management according with the progress of the Project Execution. In
this example, we say that the method is Apportioned To Project Execution.

Level of Effort
This technique divides the Total Planned Value in a unit of Planned Value to each measurement
period. The Planned Value is automatically accredited at the end of the period. It’s impossible to
have a Schedule Variance with this method, but it is possible to have a Cost Variance. This
method is used when it’s almost impossible to have a good measurement of tangible outcomes or
when there is not plan for those outcomes.

Practical estimation of Earned Schedule (ES)

The Earned Schedule (ES) concept is very simple. It's a time magnitude or a time measurement.
It's the instant of time in the plan which corresponds to the actual progress. If the project is
behind schedule, ES will be the instant (in the past) at which the current progress should have
been achieved. If the project is ahead of schedule, ES will be the instant (in the future) at which
the current progress was planned to be achieved.

The way of finding the ES instant in time is the following. Find the instant in time distinct to the
current instant in time (T) when the Planned Value (PV) was or will be equal to the current
Earned Value (EV). Another way to see it is to project the Earned Value (EV) horizontally over
the curve Planned Value (PV). It's explained in the following video.

Maximize before viewing

Unfortunately, finding the Earned Schedule (ES) of a project would ocasionally be a problem
because of the discrete nature of the time series. This means that the Planned Value (PV) and the
Earned Value (EV) are discrete values. Therefore, PV and EV are not continous curves. For
example: let the Planned Value at t1 be equal to 200. Let the Planned Value at t2 be equal to 250.
It is possible that there is not an instant t when the Planned Value is exactly 230. In this example,
if the Earned Value (EV) is 230, we will not find a pair of time instants t2 and t3 for wich EV(t2)
= PV(t3), excepting the origin. The example could be viewed in the following image.

Click to maximize
Theorically the described problem doesn't exist. In theory, PV and EV have the same values or
mathematically: they have the same range, because both are formed by the sum of the same
increments that came from the same WBS, the same activities and the same measurement
methods. Nevertheless, in practice, the measurement of EV and PV often have diferent range
with disjointed discrete values. What can we do in this case?. The answer is simple: interpolate.

Click to maximize
Supposing that PV(t1) <= EV(t) and PV(t2) >= EV(t), then we can approximate:

Click to maximize
This is a good and practical approximation to ES that I widely recommend.

Earned Value Management Systems ANSI/EIA-748-B-2007 compared with PMI

Practice Standard for EVM

There are two good sources to learn about Earned Value Management Systems (EVMS), both of
which are very useful when considering the implementation of EVMS. The first is a book of the
Project Management Institute titled "Practice Standard for EARNED VALUE
MANAGEMENT" published by Project Management Institute, Inc. in 2005. The second is the
ANSI/EIA-748-B-2007 about Earned Value Management Systems. It's not easy to choose
between both authorities in the field. I'm going to say a few important things about both sources
so that you can make a decision.

The PMI Practice Standard is clearer, more practical and it has images and formulas that you can
use in a simple way. The EIA-748-B is a good text without formulas nor images. Both are short
and easy to read. The PMI Practice Standard is oriented to Project Management and the EIA-
748-B is oriented to Program Management (http://www.earned-value.com/2009/04/author.html) .
With a few differences, both are useful for the overseeing of projects.

The PMI Practice Standard has chapters dedicated to Performance Analysis and Forecasting
while the EIA-748-B is more dedicated to the basics. Both propose Key Practices. While the
PMI Practice Standard presents the CPI and SPI, the EIA-748-B only presents the concepts of
Variations. The fault of PMI Practice Standard is the proposal of using the SPI defined in an old
way that today is recognized as a bad index (http://www.earned-value.com/2011/03/spi-is-not-
good-index-at-project-finish.html).

The PMI Practice Standard defines five (5) different Earned Value Measurement Techniques
while the EIA-748-B only presents three (3). The EIA-748-B takes care of changes in deeper
way, expressing points of view about Retroactive Changes and Internal Replanning.

I think that the EIA-748-B could be used as a more flexible standard in order to allow evolution
and the work between different organizations. The Program orientation is something good for
project overseeing and PMOs. The PMI Practice Standard could be a good guide for Project
Management and a more precise definition to automate the processes or to create a software.

As a conclusion, both sources are useful. My recomendation is that you use the EIA-748-B as the
standard and create a more precise and practical guide based on the PMI Practice Standard.

Program Overseeing

Let's remember first that a Program is "a group of related projects managed in a coordinated way
to obtain benefits and control not available from managing them individually". Interpreting the
definition, there are actions that could be taken in order to improve the whole result, even though
some of these actions could be bad for a project in particular. In this article, I'm going to explore
the basic actions for a program.

I have used certain common graphs to oversee programs for years that I'm going to change in this
article, in order to present a new graph that bears in mind concepts of "earned schedule".

In the following graph, every bubble is a project. As it was explained at definition, I have
replaced the x-axis by SPI, calculated as ES/AT instead of EV/PV. Otherwise, using the classical
definition of SPI, every project is going to finish over the y-axis. Using SPI=ES/AT, the final
position of a project will be determined by the time performance.

In this graph, the size of a bubble is determined by ETC. According to this, every project is
going to end as a point.

In the following quadrant, we see the result of a bad estimation or a remarkable execution. In any
case, it's better to analyze details because there is an opportunity of improvement. If the EAC
confirms the tendency, my recommendation is to cut budget of the yellow project as a formal
change control and increase the budget of the red project in the opposite quadrant. With the
increment of budget, the red project should "buy time" that means to use the new economic
resources to improve the time performance.
In the following quadrant, we see a more common situation. The blue project has a bad cost
performance with a good time performance. If the EAC confirms the tendency, my
recommendation is to "sell services" to the green project in the opposite quadrant. It means that
blue project is going to be delayed because of a new charge of work, but this is not a problem. In
return, the green project is going to release the economic resources that the blue project needs.
Both changes need to be formal; otherwise we are going to patronize a bad practice: scope creep.
The last recommended actions are only ideas for an hypothetical ideal situation. Not always the
proposed changes can be done. Naturally, the program manager needs to apply his own criteria
after consider the real conditions.

EVM for Small Projects and Big Projects

Have you ever managed a small project?. Off course, small projects are the rule and big ones are
the exception. Nevertheless, all of us have learned about how to manage big projects and only a
few of us have learned how to manage small ones.
If you only have experience in small projects, don’t be ashamed of that. Small projects have
small budgets and go very fast. If you don’t think that fast projects with small budgets are
difficult, probably you don’t know too much about projects. Sometimes, I have thought that good
project managers really are tested in small projects.
It’s easy to say what a kick-off meeting needs to have, when you have weeks and even more to
prepare it. When you have only a couple of days to prepare it, you don’t have too much time to
think about philosophy. In that case, you better know today what is necessary to say, because
you will not have another opportunity.
Have you ever tried to oversee a small project using EVM?. Well, tell me if this doesn’t sound
familiar to you: It’s is almost impossible to know how the cost that has being spent. If you are
not agreeing with last statement, think again. A few of main reasons for this are:

 The first report of accountability probably is going to be as late as the project.

 The majority of bills are received close to the end of the project.
 Human resources efforts are controlled counting (with the fingers of your hands) how
many people you can see and comparing with how many people have you planed.
Receive a few suggestions of an expert in small projects (me):

1. Maintain it as simple as possible

2. Is there a simpler form of EVM that can be used in small projects? Yes, there is. EVM
doesn’t mean you need to measure every hour spent in your project. A good way to avoid
the task of oversee each hour, is to define mean values and big units of efforts, like
month-person.
3. EVM's standard measurement methods include the alternative of LOE (Level of Effort).
It means you can measure human resources efforts, like project management, to be
accounted automatically when the time goes on.
4. Another simplification is possible. The Accounting Principles say that a cost is accounted
when it occurs. No matter if the bill was printed and, certainly it doesn't matter if it was
in your hands. Define at the beginning of project a mechanism to formalize the cost, even
though the accounting could go slower.

Off course, using a good and simple EVMS will be a big help to diminish the efforts to oversee a
project. Let's remember that I promised to launch a web based EVMS in July 2011. I’m working
on it.

PI is not a good index at the end of a project

The Schedule Performance Index, SPI = EV / PV, is commonly used as value to monitor how a
project achieves the milestones in a timeline. However, this indicator is less effective when a
project nears the end. It is clear that when EV is close to PV, the indicator tends to 1, which is
the ideal value. Even when a project is completed late, the SPI indicator always ends in 1.

To understand the problem, consider what happens to the analog index Cost Performance Index,
CPI = EV / AC. Clearly, when AC passes PV, ie, there is economic loss, then EV will never
reaches or passes AC, and then, if a project ends with economic losses, the CPI indicator is
always <1, even after completion project.

To solve the problem, the literature suggests to use a value called Earned Schedule ES. It is
possible to find adequate information on the use of this indicator in
http://www.earnedschedule.com/.

EVM Forecasting Analysis

It's good reviewing graphically EVM forecasting in order to understand possibilities and
limitations. The EVM most known formulas need certain corrections to be used in practical
applications. These corrections came from the practice of "earned schedule". Let's remember the
definition of Earned Schedule (ES), projecting the current value of EV over the PV curve. We
could use the "t" following the acronym to differentiate the Schedule Performance Index
calculated with ES from the classical Schedule Performance Index calculated as EV/PV, as you
can see at following picture.

Click to maximize

Using triangles similarities, it’s possible to obtain the Estimate At Completion (EAC) in the time
dimension, as you can see at following picture.

Click to maximize

Now we can remember that the maximum value of EV is BAC. Then we have an end point and
with it we can trace a linear forecasting of EV.
 Click to maximize

Analogically, Cost Performance Index can be used as a ratio to forecast the Estimate At
Completion in the dimension of cost. Using EAC it's possible to have a forecasting for AC.

Click to maximize

This way, we can have a forecast for cost and time. This way of forecasting EV and AC is taking
the past as enough information to predict the future. A better result is obtained if we categorize
activities such way that the past performance is applied only to similar activities in the future.

Recruitment of Project Managers

One of the most important activities of Program Management is to assign Projects to Project
Managers. That's why I often think about ways of recruiting people for each component. The
people of Human Resources many times have told me how difficult is, for them, to find persons
for this special profile. I have already made a kind of structured advice that I would like to share
with whom be interested.

There are good and bad Project Managers, nobody is perfect, but you would be interested in
finding the best person that your budget and circumstances allow. My advice is to put attention
in three characteristics or skills:

1. One of these skills is easy to obtain, if the candidate hasn't got this skill, he/she could
quickly obtain it.
2. The second skill is not so easy to obtain, if the candidate hasn't got this skill, he/she could
slowly obtain it, as long as somebody else gives opportunities to him/her.
3. The third skill is so difficult to obtain that if the candidate hasn't this skill, it could be
almost impossible to change that fact. Don't waste your time with that candidate.

The three skills are esential part of a good Project Manager and are described as follows.

The first skill, the one that is easy to obtain, is knowledge. If you want to be a Project Manager
and you don't have this skill, don't worry, it is very easy to obtain, you can learn. Many trainers
are dedicated to help people like you with these themes and you can learn the basics in a short
time. For the people of Human Resources, my advice is that you can train people, do never reject
a good candidate because he/she hasn't had formal education in Project Management.

The second skill, the one that is very difficult to obtain, is experience. You can't quickly obtain
experience. There is an intrinsic contradiction in that. You need to be dedicated, pacient and
open minded to get experience. It's slow and are no much things we can do to accelerate that.
There is no such a thing as a good Project Manager that has never failed in a project. You get
more experience when you fail and easy success creates dangerous people. For the people of
Human Resources, my advice is never hire a Project Manager that seems perfect. The best one is
somebody that has made mistakes and is still learning about it. Never reject a good candidate
because he/she has made mistakes.
The worst part of getting experience is the cost. Not too many organizations want to pay for the
mistakes of Project Managers because it is very expensive. You can take advantage of the
mistakes of Project Managers in other organizations. These other organizations have already paid
the cost of the experience that you can obtain for free. Nevertheless, it is obviously a dangerous
bussiness, the next asignment for that person needs to be at the level of the experience that he/she
has. A huge challenge is going to burn the person. A tiny one is so boring that you are going to
loose the person in the midle of the project.

The third skill, that fact that is almost impossible to change, is personality. According to many
definitions, personality is something that define's you, those characteristics that comes with you
since your birthday. A good Project Manager is not shy, has good communication skills, is so
smart that you can't notice that, is a balanced person and strong in values. It's easy to distinguish,
give this person an opportunity and she/he will become a leader. If you are not such a person, let
me say that you wouldn't be easily.

The three winners are: knowledge, experience and personality, ordered from fast to slow, easy to
impossible, cheap to expensive. A simple recipie for the most difficult dish that you ever have
prepared.

Progress Measurement in Activities with Zero Cost

How much is the cost of waiting? Sometimes there is a financial cost because of the frozen assets, at
other times there is an indirect cost related with waiting human resources. Nevertheless, this indirect
cost is commonly modeled as a general separated work package. In the most common case, there are
activities without cost; at least, there are activities without “direct cost”. This is the reason why you can
find the field called “delay” in the majority of the project planning tools. See the following example of
the second coat of painting.
The Planned Value, as we commonly know it, doesn’t change during the waiting time. This is because
the PV is measured in the dimension of cost and the “delay activity” doesn’t have cost. As a
consequence, EV1 and EV2 have the same value at t2. Seeing Earned Value, it looks like the project is
equally good in both situations. Unfortunately, the project is delayed by time “d” in the second case.

Somebody could say that the solution is to observe earned schedule (ES), because ES is measured in
time. Well, my answer is no, according with the most common way to define ES, earned schedule fails
too. Let’s take a look, ES is commonly defined as “the time at which the amount of earned value (EV)
accrued should have been earned”. Then, when t=t2, ES1 = ES2. It doesn’t help.

My recommendation is to use a measured ES instead of a calculated ES. What does this mean? Well,
divide the Schedule Progress Value in units of time to each measurement period. The Schedule Progress
will be automatically accredited at the end of the period if the “waiting time” already started, otherwise,
if the delay didn’t start, then no progress will be accredited. It’s impossible to have a Schedule Variance
in the cost dimension with this method but it is possible to have a Schedule Variance in the time
dimension if the delay didn’t start on time. Doing this, when t=t2, ES1 = t2 and ES2 will be t1.

It is important to warn you about people trying to sell “earned schedule calculators”. This problem
continues if you use an “earned schedule calculator”. This problem is only solved using “earned schedule
measuring”.

Publicado por Rodrigo Buzeta en 7:10 AM 0 comentarios

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Etiquetas: cost of waiting, delay, Earned Schedule, earned schedule calculator, earned schedule
measuring, Earned Value, Earned Value Management, EVM, Project Management, project software,
waiting time, zero cost
Wednesday, September 14, 2011

Risk in Project Management

Project appraisers have the tendency to be over optimistic. There are two clear tendencies that govern
this behavior. One comes from a natural human characteristic and the other comes from voluntary,
deliberate and ethically reprehensible actions.

Wishful thinking is the formation of beliefs and making decisions according to what might be pleasing to
imagine instead of appealing to evidence, rationality or reality. Holding all else equal, subjects will
predict positive outcomes to be more likely than negative outcomes. In one straightforward experiment,
all other things being equal, participants assigned a higher probability to picking a card that had a
smiling face on its reverse side than one which had a frowning face.

In other way, planners may deliberately underestimate costs and overestimate benefits in order to get
their projects approved, especially when projects are large and when organizational and political
pressures are high.

No matter the origin of over optimism, you need to overcome it. The result of a project will be always
better if you work with reality. Let me say something important: risk is part of reality. Even more, risk is
part of the cost. That part of the cost is named “Expected Monetary Value of Risk” (EMV) and it exists.

Let’s make a physical analogy. Quantum mechanics, also known as quantum physics or quantum theory,
states a fundamental limit on the accuracy with which certain pairs of physical properties such as the
position and momentum of a particle, can be simultaneously known. This is also known as the
uncertainty principle.

In practice, it means that we work with the probability of being at a position in a determined moment. It
does not mean that matter doesn't exist. It means that there are properties that can't exactly be known,
in certain conditions. Try to kick a brick of quantic matter without shoes. You are going to realize that
matter exists. You are going to feel exactly the same if you ignore the Expected Monetary Value of Risk
when calculating ETC (estimate to complete) of a project. The same is valid to calculate the budget of a
project.

How is EMV calculated?

Publicado por Rodrigo Buzeta en 8:07 AM 0 comentarios

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management, it project, management, Manager, optimism, Project, Project Management, risk, Wishful
Thinking

Monday, August 1, 2011

EVM Forecasting Analysis

It's good reviewing graphically EVM forecasting in order to understand possibilities and limitations. The
EVM most known formulas need certain corrections to be used in practical applications. These
corrections came from the practice of "earned schedule". Let's remember the definition of Earned
Schedule (ES), projecting the current value of EV over the PV curve. We could use the "t" following the
acronym to differentiate the Schedule Performance Index calculated with ES from the classical Schedule
Performance Index calculated as EV/PV, as you can see at following picture.
 Click to maximize

Using triangles similarities, it’s possible to obtain the Estimate At Completion (EAC) in the time
dimension, as you can see at following picture.

Click to maximize

Now we can remember that the maximum value of EV is BAC. Then we have an end point and with it we
can trace a linear forecasting of EV.
 Click to maximize

Analogically, Cost Performance Index can be used as a ratio to forecast the Estimate At Completion in
the dimension of cost. Using EAC it's possible to have a forecasting for AC.

Click to maximize

This way, we can have a forecast for cost and time. This way of forecasting EV and AC is taking the past
as enough information t