earned value

You too, can do Earned Value Management!

Presented by: Chance Reichel, PMPBoston University

Corporate Education CenterSession # ADV11

2Situation: I budgeted 5 widgets at 100 hrs per widget.At the end of the year, 400 hrs had been expended.

Budget vs. Actual Variance

500 400 100

GREAT! I'm 100 hrsunder budget!

Question: Whats wrong with this picture?

Earned Value Example

3Actual cost is not an indication of work progress, but only an indicator of hours/money spent.

Ive spent 400 hrs , so Ive accomplished 400 hrs of work?

0

100

200

300

400

500

600

J F M A M J J A S O N D

Time

H

o

u

r

s

Budget Plan

Actual Cost

100 hrs Under-run

Traditional Cost Management Method

4Budget vs. Actual Variance

500 400 100

Earned Value adds another dimension to traditional cost management methods

Earned Value

Earned Value Management

5Earned Value: an objective measure of how much work has been accomplished

Budget Plan Earned Value Actual500 300 400

Situation: I plan to build 5 widgets thisyear. Each widget should take 100 hrs.I will measure earned value based on the number of widgets completed.

Year End...1

23

(3 Widgets * 100 hrs)

Earned Value Management

3 widgets completed.

6Budget Plan Earned Value Actual500 hrs 300 hrs 400 hrs

Schedule CostVariance Variance

(200) (100)

Oh boy! I better figure out whatis going on. I've got 200 hrs worth ofwork to catch up on, and I've already overspent by 100 hrs.

Using Earned Value

7Earned Value Management is an approach to understanding and assessing what a contractor (or Government Activity) is achieving with program dollars.

Earned Value ManagementBook Definition

8An objective measure of how much work has been accomplished based on the plannedvalue, or:

What we got for what we spent!

Earned Value ManagementPractical Definition

9Earned Value Management Is:

A uniform unit of measure

A consistent method of analysis

A basis for cost performance assessment

10

Earned Value Analysis: What is it?

Method for comparing value of planned work to value of performed work

The most common method of performance measurement

Integrates scope, cost, schedule

11

EVMEarned Value Management is intended to provide data from a contractors management system to the government in standard data elements that

Relate time-phased budgets to contract tasks

Integrate cost, schedule, and technical performance

Indicate work progress objectively

Are valid, timely and auditable

Are from the internal system the contractor uses to manage

Are at a practical level of summarization

12

Integrating Project Influences

Project manager must integrate all aspects of the project to manage the interaction of time, cost, and scope and quality constraints to be able to factor Earned Value correctly!

ProjectResources

Time Cost

Scope and Quality

Triple Constraint Model

13

The EV Process

Plan the Work

Work the Plan

ExternalChanges

Collect Results

Define the Work

Analyze Deviations

TakeCorrective Action


Measure Performance

Change Control

14

Definition: Project Scope Statement

The narrative description of the project scope, including major deliverables, project

objectives, project assumptions, project constraints, and a statement of work, that provides a documented basis for making

future project decisions and for confirming or developing a common understanding of project scope among the stakeholders.

PMBOK Guide, Third Edition, Glossary

15

Components of the Project Scope Statement

Requirements Objectives Product Description Boundaries Major Deliverables Acceptance Criteria Constraints Assumptions Initial Project

Organization

Initial Defined Risks Schedule Milestones Fund Limitations Cost Estimate Configuration Mgmt.

Requirements Specifications Approval Requirements

16

Definition: Work Breakdown Structure (WBS)

A deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project

objectives and create the required deliverables. It organizes and defines the total

scope of the project. Each descending level represents an increasingly detailed definition

of the project work.

PMBOK Guide, Third Edition, Glossary

17

Best Management Practice:Steps for Project Decomposition

Step 1 Identify and record the Project Goal Usually the name of the project

Step 2 Identify Major Deliverables that represent large areas of project work

Step 3 Can adequate estimates of both labor and cost resources requirements needed to complete the deliverables be developed?

Step 4 Continue to Decompose the work so that adequate estimates can be developed

Step 5 Verify correctness and project suitability

18

Work Breakdown Structure

Site Preparation

Site and Buildings

PlantBuildings

Building #1

Foundation and Substructure

Building #2

Technical Support

Equipment Data

Superstructureand Finishing

Energy Laboratory

06.1.2.1.106.1.2.1.2

06.1.2.1 06.1.2.2

06.1.1

06.1.2

06.1.3

06.106.2 06.3

06.0

WBS Level0

1

2

4

5

6

19

Detail planning at levels where work is performed allowsmanagements attention to be directed to areas where significant problems are indicated.

Cost Account 1111MCost Variance (100)Sch Var (200)

(250)

(200)

(150)

(100)

(50)

0

50Schedule

Cost

Benefits of Using Earned Value

20

An Iterative 3-Step Process

10040

60

1525

3030

3. Allocate Budgets

1. Scope the Work

2. Schedule the Work $ PM Baseline

Contract Budget Base

Time

Establish the Performance Measurement Baseline

21

Statement of Work

EVM Planning Terms

breaks down into a:

22

breaks down into a:

where the work is defined by a:

Statement of Work


EVM Planning Terms

23

breaks down into a:


Who is responsible for Work Breakdown Structure work is identified in a:

Statement of Work


Work Breakdown Structure Dictionary

EVM Planning Terms

24

breaks down into a:



that identifies where the Cost of Work Breakdown StructureLabor & Material will be collected, which is a:

Statement of Work



Responsibility Assignment Matrix

EVM Planning Terms

25

breaks down into a:




However, where the work is actually performed is usually reflected in a:

Statement of Work




Cost Account

EVM Planning Terms

26

breaks down into a:




However, where the work is actually performed is usually reflected in a:

which is where the work is scheduled, performed, and measured.

Statement of Work




Cost Account

Work Package

EVM Planning Terms

27

Cost (Control) Account

Work Packages

Work Breakdown Structure (WBS)

MDSS

Seminar

Series

1.0

Session 1

2.0

Session 2

3.0

Session 3

4.0

Project Management

1.1

Seminar Development

1.2

SeminarDelivery

1.1.1

Existing CoursesSurvey

1.1.2

Course Objectives/

Concepts

1.1.3

CourseMaterials

1.1.3.1

Slides

1.1.3.2

Narratives

1.1.3.3

Case Studies

1.1.3.4

Exercises

28

1.1.2Course Outline/Objectives

1.1.1Existing Course Survey

1.1.3Course Materials

1.1Seminar Development

1.2Seminar Delivery

1.0Session 1

2.0Session 2

3.0Session 3

MDSSSeminarSeries

Cost (Control) Accounts

WBSOBSPresident

VP Classroom

VP Web Based

VP Consulting

ISD Systems

Teaching Staff

Design/Graphics

Responsible Organizations


29

RAM Used for Resource Allocation

ISD Systems Teaching Staff Design/ Graphics

Total

Outline Objectives/ Concepts

$1,400 $1,400

Research Existing Courses

$6,000 $6,000

Prepare Materials $5,000 $5,000

Total

$1,400 $6,000 $5,000 $12,400

30

The Cost or Control AccountA Key Management Control Point

Specific functional responsibility

Specific WBS responsibility

Work planning and assignment

Performance measurement

Cost collection

Variance analysis

Corrective action

Basis of data summarization

BUDGET LEDGER

MASTER SCHEDULE

GENERAL WORKAUTHORIZATION

CONTRACT

Control AccountWBS # ______________ ORG # ______________

TASK DESCRIPTION________________________

SCHEDULE _______________________________

TOTAL BUDGET ________________

WORK PACKAGEWP # ________ ORG # __

DESCRIPTION ______

SCHEDULE ____________

BUDGET _______________

31

Work PackagesDetailed, short-span tasks or material items required to accomplish the CA objectives, typically in the near term.

Task 1Task 2

Task 4Task 5

Task 3Work Packages

Planning Packages

Planning PackagesFuture work that has not been detail planned as work packages. They are always scheduled to occur in the future.

Cost (Control) Account Elements

32

Three Types of Work Discrete effort

Specific end product or result Apportioned effort

Factored effort directly related to discrete tasks (e.g., quality control, inspection)

Dependent on other work Level of effort

No final product or result (e.g., liaison, support activities, program management)

Measure performance with the passage of time

33

; X/Y percent0/10025/7540/6050/50

; Milestone weights

; Milestone weights withpercent complete

; Percent CompleteSubjective estimateObjective indicators

; Equivalent units

Discrete Effort

34

Earned Value for Inspection = 17% * Earned Value for Manufacturing

Apportioned Effort

Inspection runs 17% of manufacturing For each manufacturing work package,

construct an inspection work package Compute earned value for each inspection

work package

35

LOE Work Packages must be kept to an absolute minimum

Level of Effort (LOE)

Program management will continue for the life of the program

Discrete work packages dont make sense Apportionment isnt necessary (we already know how

many people will be charging time) Create level of effort work packages that receive

automatic earned value each month

36

CONTRACTPRICE

CONTRACTBUDGET BASE

PROFITS ANDFEES

MANAGEMENTRESERVE

PERFORMANCEMEASUREMENT

BASELINE

WITHHELDFOR

UNKNOWNS

UNDISTRIBUTEDBUDGET

DISTRIBUTED(control accounts)

WITHHELD FORKNOWN EFFORT

AUTHORIZED,UNPRICED

Contract Budget Baseline

37

Data Element Term AcronymScheduled Work Budgeted Cost for Work Scheduled BCWS

Earned Value Budgeted Cost for Work Performed BCWP

Actuals Actual Cost of Work Performed ACWP

Authorized Work Budget At Completion BAC

Forecasted Cost Estimate At Completion EAC

Work Variance Schedule Variance SV

Cost Variance Cost Variance CV

Completion Variance Variance At Completion VAC

EVM Performance Measurement

38


Budgeted Cost of Work Scheduled (BCWS) The sum of the time-phased budgets

established for all effort (including in-process work) scheduled to be accomplished within a given time period

39

TIME

$

BUDGET

PV

ContractComplete


40


Budgeted Cost of Work Performed (BCWP)

The sum of the time-phased budgets for work completed during a specified time period

BCWP is the value of the work accomplished

BCWP is also known as EARNED VALUE

41TIME

$

BUDGET

BCWP

SVBC

WS

ContractComplete


42


Actual Cost of Work Performed (ACWP) The costs actually incurred and recorded in accomplishing

the work performed (BCWP) within a given time period Labor Material (subcontractor/vendor) Other, computer costs, etc. Indirect Costs

43

TIME

$

BUDGET

BCWP

CVBCWS

ACWP

ContractComplete


44


Budget At Completion (BAC) The budgetary goal (excluding MR) for doing

authorized work; this includes the value of all work packages, planning packages, control accounts and Undistributed Budget

Note: Total BAC at the contract level including MR = Contract Budget Baseline

45


Estimate At Completion (EAC) Actual direct costs + indirect costs allocable

to the contract + the estimate of costs (direct and indirect) for authorized work remaining

Often quite subjective Usually optimistic

46

TIME

$

BUDGET

BCWP

CVBC

WS

ACWP

ContractComplete


SV

ESTIMAT

E

VAC

47


Management Reserve (MR) An amount of the total allocated budget withheld

for management control purposes, rather than designated for the accomplishment of a specific task or set of tasks

KEY: There is no scope of work associated with management reserve budget

48


Undistributed Budget (UB) Budget applicable to contract effort which has not

yet been identified to CWBS elements at or below the lowest level of reporting

KEY: Only used for the effort associated with contractual changes

49

Earned Value Variances and Indices

Schedule Variance (SV)

SV = EV PV Positive is good, be careful!

SV% = SV/PV * 100 Positive is good

SPI = EV/PV 1.00 or greater is good

Good means on or ahead of schedule

50

Earned Value Variances and Indices (2)

Cost Variance (CV)

CV = EV - AC Positive is good, be careful!

CV % = CV/EV * 100 Positive is good

CPI = EV/AC 1.00 or greater is good

Good means on or under budget

51

Graphic Performance Report

Time

Progress

PV

AC

Cost Variance

Update Date

ScheduleVariance

EV

52

Cost Variance (CV) = Earned Value (BCWP) - Actual Costs (ACWP)

Schedule Variance (SV) = Earned Value (BCWP) - Budget Plan (BCWS)

Efficiency Factors:

Cost Performance Index (CPI) = Earned Value (BCWP)Actual Costs(ACWP)

Schedule Performance Index (SPI) = Earned Value (BCWP)Budget Plan (BCWS)

Percent Complete = Earned Value (BCWP)Budget At Completion (BAC)

EVM Performance Measures

53

EAC = (BAC-BCWP) + ACWPPF*

In English: The estimate at completion takes the remaining budget, applies the performance factor, and adds the actual cost spent to date.

Basically, this calculation assumes that the indices used to develop the performance factor will remain constant for the remainder of the program.

*Performance Factor

EVMS The Estimate at Completion (EAC)

54

EAC = (BAC-BCWP) + ACWPPF

Assume:BAC =1,000,000

BCWP = 200,000

BCWS = 225,000

ACWP = 250,000

Compute an Estimate at Completion using the CPI.

Earned Value Quiz #2The Estimate at Completion (EAC)

55

EAC = (BAC-BCWP) + ACWPPF

Assume:BAC =1,000,000

BCWP = 200,000

BCWS = 225,000

ACWP = 250,000

Compute an Estimate at Completion using the CPI.

Earned Value Quiz #2The Estimate at Completion (EAC)

EAC = (1,000,000 200,000) + 250,000CPI 0.8

EAC = 1,250,000.

56

EAC Development Process Compute run out (Cum CPI formula) Evaluate CPI trends Examine differences between budget and network

targets Evaluate actual manning against base plan Examine progress against base operating plan Evaluate impact of cost reduction initiatives Identify and quantify known engineering/production issues Examine to go performance trends on similar projects at

similar points

57

Survey says Over 800 military programs show that NO program has ever

improved performance better than the following EAC calculation:

EAC = BACCPI

at 15% complete point in program.

No one pays enough attention in theearly stages!

58

The To Complete Performance Index (TCPI)

Measures the efficiency necessary to achieve contractor expected final cost

Formula is based on contractors EAC Contrasted with CPI, the TCPI indicates what change is

required Provides a basis for exploring contractors basis for his

EAC Permits assessment of contractors ability to achieve EAC

59

TCPI Formula

Ratio of Work Remaining to Cost Remaining Work Remaining = BAC-BCWP Cost Remaining = Contractor EAC-ACWP

TCPI = BAC-BCWPEAC-ACWP

60

Graphing Techniques

Dollars In M

illions

Estimates at Completion MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI

Element: 3600 Name: PCC

BACLRECUM CPI

1992APR MAY JUN JUL AUG SEP OCT NOV DEC

1993JAN

5.0

6.0

7.0

8.0

5.1 5.4 5.1

5.1 5.4 5.7

5.1 5.4 5.9

5.1 5.4 6.0

5.1 5.5 6.3

5.1 5.5 5.8

5.1 5.5 6.5

5.5 5.7 7.6

5.5 5.7 6.8

5.8 6.0 6.8

MEGA HERZ ELEC & VEN Cost/Schedule VarianceF04695-86-C-0050 MOH-2 RDPR FPI POP: 01 MAR 1992 - 15 SEP 1993

Percent of D

ollars

COST VARIANCESCHEDULE VARIANCE

1992MAY JUN JUL AUG SEP OCT NOV DEC

1993JAN

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

Cost Drivers, Cause

Dollars In MillionsBCWSBCWPACWP

CVSV

0.3 0.2 0.2 0.0 -0.1

0.6 0.5 0.5 -0.0 -0.1

1.0 0.9 0.9 -0.0 -0.1

1.4 1.4 1.5 -0.1 -0.0

2.2 2.2 2.2 0.0 -0.0

2.5 2.7 3.0 -0.3 0.2

4.2 3.8 4.2 -0.5 -0.4

5.6 5.3 5.6 -0.3 -0.3

7.3 6.9 7.3 -0.5 -0.4

At CompletionKTR PO

20.8 20.8

20.8 20.8 20.8 23.0 0.0 -2.2

PMB: 20.4 % COMP: 32.9 MR: 0.4 KTR MR LRE: 0.0 PO MR LRE: 0.0CURRENT FUNDING: 10.0

PO EPC: 24.0PROJ FUNDING: 23.0

AS OF: JAN 93OPR: MR B. TECH

PROGRAM: Mohawk Vehicle

0%

-11%-7%-6%

Overall cost and schedule trend

EAC realism

Graphs show overall trend...are you getting better,

or worse?

Graphs show overall trend...are you getting better,

or worse?

61

Earned Value Management5 Basic Guidelines

Organize the project team and the scope of work, using a work breakdown structure. Each task should have a single WBS number and organizational code.

Schedule the tasks in a logical manner so that lower level schedule elements support subsequent elements and the top level milestones.

Allocate the total budget resources to time-phased control accounts.

Establish objective means for measuring work accomplishment. Budget should be earned in the same way that it was planned.

Control the project by analyzing cost and performance variances,assessing final costs, developing corrective actions, and controlling changes to the integrated baseline.

62

Earned Value ManagementThe Bottom Line(s)

EVM is a vital project management tool.

EVM basics can and should be used on projects of any size.

Constant streamlining is needed to keep focus on effective use (not just reporting).

63

EVM Home Page = http://acc.dau.mil/evmhttp://www.dcma.mil = One BookDAU POC: (703) 805-2851 (DSN 655)

eMail Address: [email protected] Feb 2004

TERMINOLOGYNCC Negotiated Contract Cost Contract price less profit / fee(s)AUW Authorized Unpriced Work Work contractually approved, but not yet negotiated / definitizedCBB Contract Budget Base Sum of NCC and AUWOTB Over Target Baseline Sum of CBB and recognized overrunTAB Total Allocated Budget Sum of all budgets for work on contract = NCC, CBB, or OTBBAC Budget At Completion Total budget for total contract thru any given levelPMB Performance Measurement Baseline Contract time-phased budget planMR Management Reserve Budget withheld by Ktr PM for unknowns / risk managementUB Undistributed Budget Broadly defined activities not yet distributed to CAs CA Control Account Lowest CWBS element assigned to a single focal point to plan & control

scope / schedule / budgetWP Work Package Near-term, detail-planned activities within a CAPP Planning Package Far-term CA activities not yet defined into WPsBCWS Budgeted Cost for Work Scheduled Value of work planned to be accomplished = PLANNED VALUEBCWP Budgeted Cost for Work Performed Value of work accomplished = EARNED VALUEACWP Actual Cost of Work Performed Cost of work accomplished = ACTUAL COSTEAC Estimate At Completion Estimate of total cost for total contract thru any given level;

may be generated by Ktr, PMO, DCMA, etc. = EACKtr / PMO / DCMALRE Latest Revised Estimate Ktrs EAC or EACKtrSLPP Summary Level Planning Package Far-term activities not yet defined into CAsTCPI To Complete Performance Index Efficiency needed from time now to achieve an EAC

EVM POLICY: EVMS = DFARS 252.234-7000; 252.234-7001; & C/SSR = DFARS 252.242-7005; 252.242-7006; ANSI/EIA-748-A Jan 2002 / Mar 2003; DoDI 5000.2, Table E3.T2; & Defense Acquisition Guidebook

MANAGEMENT REQUIREMENTS: Select pair of Contract Clauses based on cost, risk, criticality:EVMS EIA-748 Management System Validated as Consistent with EIA-748 Standard at detailed level

Non-FFP contracts / agreements for R&D > $73M; & Proc or O&M > $315M (CY00$)Cost/Schedule Status Report (C/SSR) Management System not required to meet EIA-748 Standard;

Non-FFP contracts / agreements > $6.3M (CY00$) & > 12 months durationIntegrated Baseline Review (IBR) Mandatory for both EVMS & C/SSR within 6 months of Contract Award

REPORT REQUIREMENTS: Tailor Data Requirements via CDRL, Select One:Cost Performance Report = DI-MGMT-81466 = Formats 1-5 (WBS, Organization, Baseline, Staffing, & Explanations)

CPR is Mandatory for EVMS EIA-748 contracts & optional for C/SSR contracts Cost/Schedule Status Report = DI-MGMT-81467 = 2 Formats (WBS & Explanations) or Tailored CPR

Management Reserve

Work Packages Planning Packages

OVERRUN AUW

Control Accounts

NCC

UndistributedBudget

OTB CBB

TAB Profit / Fees

PMB

Summary Level Planning Packages

Contract PriceEarned Value ManagementGold CardGold Card

Defense Acquisition University

VARIANCES Favorable is Positive, Unfavorable is NegativeCost Variance CV = BCWP ACWP CV % = (CV / BCWP) *100 Schedule Variance SV = BCWP BCWS SV % = (SV / BCWS) * 100Variance at Completion VAC = BAC EAC

PERFORMANCE INDICES Favorable is > 1.0, Unfavorable is < 1.0Cost Efficiency CPI = BCWP / ACWPSchedule Efficiency SPI = BCWP / BCWS

OVERALL STATUS% Schedule = (BCWSCUM / BAC) * 100% Complete = (BCWPCUM / BAC) * 100% Spent = (ACWPCUM / BAC) * 100ESTIMATE AT COMPLETION #EAC = Actuals to Date + [(Remaining Work) / (Efficiency Factor)]EACCPI = ACWPCUM + [(BAC BCWPCUM) / CPICUM ] = BAC / CPICUMEACComposite = ACWPCUM + [(BAC BCWPCUM) / (CPICUM * SPICUM)]

TO COMPLETE PERFORMANCE INDEX (TCPI) #TCPIEAC = Work Remaining / Cost Remaining = (BAC BCWPCUM) / (EAC ACWPCUM)

# To Determine Either TCPI or EAC; You May Replace BAC with TAB

Management Reserve

Cost Variance

Schedule Variance

ACWP

BCWP

BCWS

$

EAC

TimeNow

Completion Date

PMB

TABBAC

time

64

In Summary: The EV Process

Plan the Work

Work the Plan

ExternalChanges

Collect Results

Define the Work

Analyze Deviations



Measure Performance

Change Control

65

Contact Information Name: Chance Reichel, PMP Company: Boston University Corporate

Education Center Phone

Contact 1(800) BUTRAIN

Email [email protected]

Session # ADV11 : You Too Can Do Earned Value Management

earned value

Documents

value actual500 hrs

value of planned work

hrs of work

value example3actual

project constraints

project objectives

project assumptions

statement of work