© 2011 all rights reserved apm heathrow branch meeting 11 th september 2012 practical use of earned...
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© 2011 All Rights Reserved
APM Heathrow Branch Meeting 11th September 2012
Practical Use of Earned Value for Real-time Forecast and Control
Nick Brown
ARES Corporation
© 2011 All Rights Reserved
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What is Earned Value Management?
• A Collection of management practices that are used to establish and maintain a performance measurement baseline from which to measure and analyze performance, identify variances to the baseline, and forecast the project outcome
• Effectively integrates the work scope of a project or program with the schedule and cost elements for optimum program planning and control to support project management decisions-making
• Uses 3 data points to determine productivity and efficiency factors
Planned Value (How much as planned to get done?)
Earned Value (How much was accomplished?)
Actual Costs (How much did it cost?)
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BCWP:
• The value of the work that has been performed
• Often referred to as: EV, BCWP, Earned Budget
• EV = BAC * Percent Complete
Note: no reference to Actual Costs spent
• “% Complete” and the “Budget of work” are the inputs to determine Earned Value
• “% Complete” is synonymous with “Progress”– Typical question is “How much progress have we made?”
Let’s Talk about Earned Value
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Earned Value – the hard part
• The difficult task is OBJECTIVELY assessing the realistic “% Complete”
- How much work has been completed compared to how much work is remaining to complete?
• Important: “Assessing” “Accurate”
• Consistency is important (we’ll talk about that shortly)
• Consistent EV practice reduces subjectivity on progress
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Objectively Assessing % Complete
• Understand the work scope• Engineering Tasks/Deliverables (drawings, specs, plans,
etc.)• Construction tasks• Indirect Cost tasks• Procurement deliverables• Firm Fixed Price contract pay items • Research and Development tasks• Information Technology Tasks
• Requires some experience factor to establish• Subject Matter Expert• Company documented Standards (Engineering Standard)
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• Several methods for objectively assessing progress
• Discrete Effort• 0% - 100% -Either 0% or 100%, no in between values• 50/50 rule -50% when start, 100% when completed• Quantity based -Quantity installed / Quantity EAC• Milestones -Weighted Progress Milestones• Mgmt Assessment -SME’s educated guess (a little
subjectivity)
• Apportioned Effort -% based on progress of other tasks
• Level of Effort (LOE) -Planned = earned
• Being consistent and having documented rules of earning is important
Some Standard Rules of Earning
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Choosing the Right Rules
• Short duration activities (<1d to 5d)• 0-100 ; 50-50 Rule• Activity is typically done before the next progress update
• Mid duration activities (5d – 30d)• Based on Quantity• Weighted Milestones
• Long Duration Activities (>30d)• Based on Quantity• Weighted Milestones• Apportioned Effort• LOE (try to focus <20% of budget)
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Rules of Earning Paired to Task
• Engineering Tasks • Can be both short and long duration activities• 0-100 ; 50-50 Rule• Weighted Milestones
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Rules of Earning Paired to Task
• Construction Tasks • Typically short duration activities• 0-100 ; 50-50 Rule• Weighted Milestones • Quantity Installed
• Indirect Costs• Apportioned Effort
• Progress is based on the progress of other tasks (e.g. Construction Management activities, Utilities, Project Management
• LOE• Good for fixed duration activities that have little chance
of schedule delays
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Rules of Earning Paired to Task
• Procurements• Weighted Milestones
• Long Lead Procurements (typically identified in PO)
• 0-100 (payment when delivered)
• Indirect Costs• Apportioned Effort
• Progress is based on the progress of other tasks (e.g. Construction Management activities, Utilities, Project Management
• LOE• Good for fixed duration activities that have little chance of schedule
delays
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Rules of Earning Paired to Task
• Research and Development Projects• Nature of work has typically not been performed before
• SME develops accomplishment and WBS• Weighted Milestones (SME must develop as part of the
work plan)• Management’s Assessment of % complete
• Information Technology Projects • Weighted Milestones
• SME develops accomplishment and WBS• Weighted Milestones based on deliverable (documents,
testing, signoffs, etc)
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Cost Processor’s Rules of Earning
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The 4 Key Elements of EVM
• Four data points
• Budget at Complete (BAC)
• Total Budget of the Work task
• Planned Value (PV, BCWS, Scheduled Budget)
• When budget (£, Hrs, Qty) is linked to schedule, value of the work to be performed, over time, can be measured. Usually measured by reporting period or To-Date
• Earned Value (EV, BCWP, Earned Budget)
• After % complete is determined, multiply by BAC to derive EV which generates the work accomplished
• Actual Costs (AC, ACWP)
• Actual costs incurred (including Accruals)
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Efficiency and Productivity
• Using BCWS, BCWP, ACWP, the following performance values can be derived (£, Hrs, Qty)• SV - Schedule Variance is the value of work accomplishment
versus the value of work planned (BCWP – BCWS).• CV - Cost Variance is the value of work accomplishment versus
the actual cost to perform the same work (BCWP – ACWP).• SPI - Schedule Performance Index is the schedule efficiency. It
represents the ratio of work value performed vs. the work value planned. (BCWP/BCWS).
• CPI - Cost Performance Index is the cost efficiency. It represents the ratio of the value of work performed, to the actual cost to perform the work (BCWP/ACWP).
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EV Basics
• Some Basics about SV and CV• Negative values indicate behind schedule / behind costs• Positive values indicate the opposite• Usually set to thresholds for variance analysis reporting• Does not replace a critical path analysis of key schedule dates• By itself does not indicate project is going to miss their dates• Based on the Early Dates of a schedule, doesn’t evaluate float
• Some Basics about SPI and CPI– Stated as a ration where 1.0 is even (on schedule/on cost)– Less than 1.0 indicates trending behind schedule– Above 1.0 indicates trending ahead of schedule
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• Estimate at Completion (EAC)
• Total anticipated cost of the project
• Estimate to Complete (ETC)
• Total anticipated cost of the remaining work of the project
• Simple equations are:
• EAC = Actuals + ETC
• EAC – Actuals = ETC
• Many more equations are available
• Variance at Completion (VAC) EAC-BAC=VAC
Forecasting
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• EAC calculations aid in determining the EAC
• Some methods work better at different phases of the job
• Different methods provide for worst case, best case, and most likely EACs
• There is no one correct answer until all true costs of the job have been incurred. Use the best information available to predict the EAC
Determining the EAC
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• Calculations can give an indication but many factors contribute to making a final decision on the EAC
• Procurements costs not hitting at the time expected• Temporary shifting of resources• Performance trends• Changes to the scope• Changes in key resources
• EAC determination must consider all these factors
Determining the EAC
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• EAC Calculation Methods
• Independent EAC (i-EAC)• BAC / CPIcum • Which also equals Actuals / % Complete• £1,000 / 0.63 = £1587
• Basic• Actualscum + (BAC - EVcum)• £900 + (£1000 - £600) = £1300
• Composite• Actualscum + ((BAC - EVcum) / (CPIcum + SPIcum))• £900 + ((£1000 - £500) / (0.63 + 0.71)) = £1273
• 3 Month Ave• Actualscum + ((BAC - EVcum) / CPI3 ))• £900 + ((£1000 - £500) / 0.63)) = £1693
Determining the EAC (cont)
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We need to be able to answer the follow question…..
• How well do we have to perform to get back on track?
• T-CPI• (BAC - EVcum) / (EAC – Actualscum)• (£1000 - £500) / (£1200 - £800) = 1.25• £1.25 of work has to be completed for every dollar
spent
• Different derivatives of this calculation can be used to include focus on schedule performance, cost performance and the specific phase of the project
One Last Bit of Data
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Benefits of using Earned Value
• Proven to reduce the risk of unforeseen cost increases
• Focuses on true work completed
• Early Warning System
• Course corrections are easier to make when you have time to make small adjustments
• If react too late, there may be costly risks and schedule delays incurred
• Management by Exception
• Focus on the areas that have performance issues and need management attention
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Benefits Continued
• Provides reliable data and predictive data
• Only caution is the 1st 15% and last 15% of a project
• The cumulative cost performance index (CPI) provides an early warning signal.
• The schedule performance index provides an early warning signal.
• The CPI is a predictor of the final cost of the project.
• EVM uses an index-based method to forecast the final cost of the project, “less guessing”
• The "to-complete" performance index allows evaluation of the forecasted final cost.
• The periodic (e.g., weekly or monthly) CPI is a benchmark.
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With “Earned Value” Performance
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PlannedActual
In £
1,00
0’s
Budget at Completion (BAC)
1 2 3 4 5 6 7 8 9 10Months
Tar
get
Com
plet
ion
Dat
e
200
400
600
800
1000
1200
11
1300
BCWS = £500K : Data DateBCWP = £300KACWP = £400K
200
400
600
800
1000
1200
1300
Cur
rent
Com
plet
ion
Dat
e
Probable Schedule Delay = 4 weeks
Probable CostOverrun= £300K
Estimate at Completion (EAC)
Cost Variance -£100K
Schedule Variance(Time)- 4 wks
Schedule Variance (£) -£200K
Earned
Typical EV Performance Graph
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Typical EV Performance Report
Thank you [email protected]
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