jason douglas earned value 1 0
TRANSCRIPT
Jason Douglas
Earned Value Basics and ApplicationJason Douglas– PM, Senior PM and Portfolio Lead
The Road Ahead• Earn Value Defined• Reasons why Earned Value is not used• What causes Earned Value not to be Accurate• Earned Value Pre-requisites• Simple Scenario• Formula Basics• Question 1• Question 1 Answers• Other Earned Factors to Consider• Summary and Next Steps
Earned Value Defined
Earned value management (EVM) is used to assess and grade a PM and their project based on the schedule and cost performance of a project. A PM needs to demonstrate control and one key areas is EVM:• Ahead of / on / behind schedule• Under / on / over budget• Earned value management (EVM) is based on the concept that • i) work completed will deliver value and • ii) the value delivered equals the budget put into the work.
Reasons Why Earned Value is NOT used• Too hard and expensive too• Not enough budget or time• Programme Management has not allocated enough time for
development or standardisation• Plans are not mature enough• Internal or External charge out rates will be exposed to customer or
other resources
What causes Earned Value not to be Accurate
• No documented requirements • Incomplete requirements• Just because requirements are
baselined does no make them complete• SMART* approach needs to be
used• WBS* not used or not accepted;
(Plan the Plan)• WBS incomplete;
• Plan not integrated (WBS-Schedule-Budget)• Schedule and/or budget incorrect• Change management not used or
ineffective; • Cost collection system inadequate; • Incorrect progress recorded• When is a task 0,20,80,100% complete• management influence and/or
control.• Contingencies added in to the project
Earned Value Pre-Requisites• The project must have an agreed
‘Baseline Budget’• Implications Include
• Project Outlook (budget from Account) aligned to
• Cost Model• Schedule (Effort, Duration and
Deliverables). • AS IS model to be agreed/baselined
• If there is no contingency then project slippages or additional meetings need Change Requests (CR) for money and time.
• Decision is needed on CR triggers• Raw Financial Reports need to be
timely and align with reported progress
• Requirements, deliverables, governance approach and processes need to be agreed up front.
• Good will
Simple Scenario• Build a Fence with 10 Panels, each panel takes a day. • It is day 4, 4 panels should have been built• Each panel has a value of £100
Formulas BasicsPlanned Value (PV) At end of day 4, 4 panels
should be complete 4 panels x £100 =£400
The budgeted value of the work completed so far at a specific date
Earned Value (EV) By end of day 4 only 3 panels have been built hence the EV is £300
The actual value of the work completed so far at a specific date
Actual Cost (AC) By end of day 4 actual cost is £400
The total expenditure for the work so far at a specific date
Budget At Completion (BAC)
10 Panels at £100 each = £1000
The total budget for the project
Formula Basics ContinuedSchedule Variance (SV) At end of day 4,
SV= £300-£400-£100Minus is behind schedule Plus is in front
Is the projects work ahead or behind scheduleSV=EV-PV
Schedule Performance Index (SPI)
By end of day 4 SPI= £300/£4000.75Minus now becomes below onePlus becomes higher than one
Represents schedule variance as a ratioSPI=EV/PV
Formula Basics ContinuedCost Variance (CV) At end of day 4,
CV= £300-£400-£100Minus is behind budgetPlus is in front
Is the projects costs ahead or behind budgetCV=EV-AC
Cost Performance Index (CPI)
By end of day 4 CPI= £300/£4000.75Minus is achieved less than is plannedPlus achieved more than is planned
Represents schedule variance as a ratioCPI=EV/AC
SPI and CPI Interpretation• CPI above 1 – for every £ spent, obtaining more value that is expected• SPI - how close the actual work is to the schedule – above 1 ahead of
schedule• Interesting when combining 2 ratios together
CPI 0.75 / SPI 0.90 Spending too much money and behind time. Investigate
CPI 0.90 / SPI 1.5 Spending too much money getting ahead of schedule
CPI 1.5 / SPI 0.90 Adding lots of value but slower than planned
CPI 1.5 / SPI 1.5 Adding lots of value / faster than planned. CR required and replan.
Question 1• Bid Budget of £15,000 which includes uplifts. £10,000 is the Labour Cost. The Project Lasts 5 weeks and the
money should be spent evenly• By end of week 2 The following deliverables are completed, Project Start Up, Set up in corporate system for
reporting, request for labour and requests for getting labour reports done. The project has been created a project sharepoint, Cost Model, CR Templates, DAIR Log Created, Projects Meetings Set Up, Requirements are Baselined, Capacity Sheet Submitted, Bid Charter Baselined, Pricing sheet submitted, Network Diagram created. The Cost registered in labour systems is £4500. However 3 weeks work is Completed.
• What is the BAC, EV, PV, AC• What is SV, SPI• What is the CV, CPI• Interpret the data what does it mean
PTO to see answers
Answers• What is the BAC, EV, PV, AC
• BAC = £10,000• EV = £6,000 (3 Weeks effort)• PV = £4,000 (2 weeks effort)• AC =£4,500 what has been spent
• What is SV, SPI• SV = EV-PV £6,000 - £4,000 SV = £2000• SPI = EV/PV £6,000/£4000 SPI = 1.5
• What is the CV, CPI• CV = EV-AC £6,000-£4,500 = £1,500• CPI = EV/AC =1.33
• Interpret the data what does it mean• Ahead of schedule and ahead of budget at end of week 2.
EV Considerations• Physical Measurement — directly transform the physical measurement of the amount of work
completed into EV• example: building 10 Panels each has a value of £100 expected to be completed in 10 days in proportion, earned value of 3 panel built is £300
• Percentage Complete — directly transform the percentage of the amount of work completed into EV• example: building 10 panel each has a value of £100 expected to be completed in 10 days in proportion, earned value of 30% complete is £300
• Weighted Milestone — a EV is assigned to the 100% completion of each milestone of the work packages with prior agreement with stakeholders
• Fixed Formula — a specific percentage of the overall PV is assigned to the start of a work package and the remaining assigned upon completion; these must be agreed upon in the project management plan• 0/100 rule: 0% EV at the activity begins; 100% EV upon completion• 20/80 rule: 20% EV at the activity begins; 80% EV upon completion.• 50/50 rule: 50% EV at the activity begins; 50% EV upon completion
Summary and Next Steps• Basic 101 of what is earned value• Why we use it• Covered of simple example and had a practise question
• Next Lesson on Earned value• Applying Earned Value to projects and programmes• More complex formula such as budget at completion
