Earned Value Management: An Introduction and Short Tutorial: Wayne Baggett

Space Telescope Science Institute
GSET Technical Seminar Series
Earned Value Management: An Introduction and Short Tutorial

Wayne Baggett
November 21, 2005
Outline
What is Earned Value? Government Requirements Small Project Usage Why Use Earned Value? Earned Value in a Nutshell Conclusions
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What is Earned Value?

How does Dilbert know this?
November 21, 2005
What is Earned Value?

Project Management Technique
Integrates technical performance requirements, resource planning, and cost accounting with schedule Provides insight into project status Provides early warning signals for problems
Provides a disciplined means of managing the project

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Government Requirements
OMB Circular A-11, Exhibit 300 (2004)
Requires EVMS for all major acquisitions Agencies must have ANSI-compliant EVMS in place by December 31, 2005 EVMS data must be used to identify problems and provide realistic final cost estimates as a part of decision packages
Federal Acquisition Regulations (2005) amended to require contractor-maintained EVMS

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Government Requirements
These requirements apply to large projects or programs; DOD requires
Contract Value $50M: validated ANSI-compliant EVMS, structured reports and reviews, ongoing surveillance $50M > Contract Value $20M: ANSI-compliant EVMS (validation not required), tailored reports and reviews, ongoing surveillance Contract Value < $20M: EVMS optional, ongoing surveillance
Very rigid, heavily constrained system at this level

November 21, 2005 6
Small Project Usage

Small projects provide the best opportunities for earned-value employment
Consider its use for all in-house funded developmental projects where a firm commitment is made to management. Software projects can especially benefit from the employment of a simple earned-value approach.
(Fleming and Koppelman, Earned Value Project Management: A Powerful Tool for Software Projects, Crosstalk, July, 1998, p. 19.)
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Small Project Usage

The Personal Software Process (PSPSM) and Team Software Process (TSPSM) use EVM
PSP has practitioners estimate task efforts and track their actual efforts
Tasks estimated are very small about 10 hours each
Data are used to improve future estimates
TSP expands the use of EVM to the project level Use of PSP and TSP helps projects meet their commitments (Tuma, D. and Webb, D., Personal Earned Value:
Why Projects Using the Team Software Process Consistently Meet Schedule Commitments, Crosstalk, March 2005, p. 17.)
PSP and TSP are registered service marks of Carnegie Mellon University
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Small Project Usage

Several projects at STScI have used EVM:
Most used a tailored version of EVM JWST S&OC development
FOS, PPS, PRDS
JWST FITS Writer development INS Master Schedule development DMS Automated Test System development
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Why Use Earned Value?

Obligates planning to the level of task management
Less likely to overlook work
Provides objective measures of progress Allows early detection of budget and schedule problems Allows an objective projection of eventual project cost and schedule
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Key to Earned Value

Determine the value for every task prior to starting work!
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Guidelines for Setting/Earning Value

Use a consistent unit of measurement that makes sense for the project
Dollars required for large govt projects Hours useful on small projects; PSPSM Arbitrary number not recommended, but still used
Consider task duration Select Earned Value Methods that are as objective as possible
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Earned Value Methods

Method Equivalent Units 0-100 50-50 Usage Value based on completed portion of a large number of completed activities Value earned upon completing work that starts and ends within one status period Part of value earned when work starts and remainder when it ends, usually when work straddles two reporting periods; percentages are determined by the manager Value earned at the completion of objective milestones; usually for work that straddles several consecutive status periods Value earned is prorated based on a portion earned for another unit of work Value earned based on subjective estimate; usually for work that has no objective measure of completeness Value based on passage of time; usually for work that cannot be defined or measured Examples S/W Implementation, H/W Production Outlines, Document Preparation, Formal Reviews Short Engineering Analyses, System Design, Build and Acceptance Tests Long-Term Analyses, System Design, Requirements Definition QA, Configuration Management, Database Management Long-Term Studies, Maintenance and Operations Project Management, Receptionist, Help Desk 13
Interim Milestones Apportioned Effort Percent Complete Level of Effort
November 21, 2005
Objectivity
Example: Planned vs. Actuals

$250 $200
Current Date
Value ($1000s)
$150 Planned Actual $100
$50
$13,000 under budget!
$-
11/26/2005
10/28/2006
12/23/2006
11/24/2007
7/8/2006
9/2/2006
6/9/2007
10/1/2005
1/21/2006
3/18/2006
5/13/2006
2/17/2007
4/14/2007
8/4/2007
9/29/2007
1/19/2008
3/15/2008
Date
5/10/2008
Example: Earned Value

$250
PV
$200
BAC=$200
Value ($1000s)
$150
PMB
$100
PV EV AC
SV=EV-PV=($30)
$50
CV=EV-AC=($17)
AC
$11/26/2005 10/28/2006 7/8/2006 9/2/2006 10/1/2005 1/21/2006 3/18/2006 5/13/2006
EV
12/23/2006 11/24/2007 6/9/2007 2/17/2007 4/14/2007 8/4/2007 9/29/2007 1/19/2008 3/15/2008 5/10/2008
Date
Earned Value Concepts

Planned Value (PV) planned cost of doing the scheduled work (formerly BCWS) Earned Value (EV) planned cost of the work completed (formerly BCWP) Actual Cost (AC) actual cost of the work completed (formerly ACWP) Performance Measurement Baseline (PMB) the time-phased budget plan against which performance is measured
Earned Value Concepts (cont.)

Schedule Variance (SV) measures how project is doing relative to the schedule SV = EV PV
Positive Ahead of Sched., Negative Behind Sched.
Cost Variance (CV) measures how project is performing; productivity measure CV = EV AC

Positive Efficient, Negative Inefficient

Budget Variance (BV) measures how project is doing against the budget BV = PV AC
Positive Under Budget, Negative Over Budget
Budget At Completion (BAC) sum of the planned value plus the Undistributed Budget
Example: Earned Value

$250
EAC=AC + ETC=$233 SPI=EV/PV=0.70
$200
Value ($1000s)
CPI=EV/AC=0.81
$150
PV EV AC
$100
VAC=BAC-EAC=($33)
ETC=(BAC-EV)/CPI=$146
11/26/2005 10/28/2006 12/23/2006 11/24/2007 10/1/2005 1/21/2006 3/18/2006 5/13/2006 2/17/2007 4/14/2007 9/29/2007 1/19/2008 3/15/2008 5/10/2008 7/8/2006 9/2/2006 6/9/2007 8/4/2007
ETC
$50
$-
Date

Schedule Performance Index (SPI) measure of schedule compliance: is work being done at the planned rate? SPI = EV/PV
<1 Slower than planned, >1 Faster than planned
Cost Performance Index (CPI) productivity measure: is the work costing what was expected? CPI = EV/AC
< 1 Inefficient, > 1 Efficient

Estimate To Complete (ETC) estimate of the effort required to complete the project from the current date ETC = (BAC EV)/CPI Estimate At Completion (EAC) the estimated total cost of the project EAC = AC + ETC
Earned Value Concept Summary

Acronym PV Definition Budgeted cost of task Equation (none) Interpretation
EV
AC SV BV CV BAC SPI CPI ETC EAC VAC
Earned value for task

Actual cost of task Schedule Variance Budget Variance Cost Variance Budget At Completion Schedule Perf. Index Cost Perf. Index Estimate to Complete Estimate At Completion Variance at Completion
(none)
(none) SV=EV - PV BV=PV - AC CV=EV - AC BAC= UB + S PV SPI=EV/PV CPI=EV/AC ETC=(BAC-EV) /CPI EAC=AC+ETC VAC = BAC - EAC
>0 = Under, <0 = Over >0 = Ahead, <0 = Behind >0 = Under, <0 = Over >0 = Productive, <0 = Unproductive UB=Undistributed Budget >1 = Faster, <1 = Slower >1 = Efficient, < 1 = Inefficient
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Costs of EVMS
Marginal cost of using EVMS is estimated at less than 1% to a few% of total contract cost
Based mainly on large DOD contracts with experienced EVMS users Some costs are unnecessary according to EVMS criteria, but effort is put into those activities anyway
Expect costs to be higher at STScI due to inexperience in using EVM and our culture
Mitigated by our implementation
Christensen, David S., The Costs and Benefits of the Earned Value Management Process, Acquisition review Quarterly, Fall, 1998, p. 373.
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Benefits of Earned Value

It is a single management control system that provides reliable data. It integrates work, schedule, and cost using a work breakdown structure. The associated database of completed projects is useful for comparative analysis. The cumulative cost performance index (CPI) provides an early warning signal. The schedule performance index provides an early warning signal.
Christensen, David S., The Costs and Benefits of the Earned Value Management Process, Acquisition review Quarterly, Fall, 1998, p. 373.
Benefits of Earned Value

The CPI is a predictor for the final cost of the project. It uses an index-based method to forecast the final cost of the project. The to-complete performance index allows evaluation of the forecasted final cost. The periodic (e.g., weekly or monthly) CPI is a benchmark. The management by exception principle can reduce information overload.
Christensen, David S., The Costs and Benefits of the Earned Value Management Process, Acquisition Review Quarterly, Fall, 1998, p. 373.
The most common problem product teams face is unreasonable schedule pressure. When teams are forced to work to unreasonable schedules, they are unable to make useful plans. Every plan they produce misses managements edicted schedule and is therefore unacceptable. As a result, they must work without the guidance of an orderly plan. Under these conditions, the team will generally take much longer to complete the project than they otherwise would.
Watts Humphrey, Pathways to Process Maturity: The Personal Software Process and Team Software Process, SEI Interactive, June 1999.
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