professional development seminar series€¦ · project management institute, a guide to the...

3FOLD Education Centre 10-Feb-19

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Earned Value Management System

PMI, PMP, PMBOK and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc.

© 2019 3FOLD Education Centre . All rights reserved . [email protected] . www.pmexamstudy.com . www.3foldtraining.com . PMP® Exam Review

Professional Development Seminar Series


Feb, 2019




Agenda

▪ Introduction to 3FOLD Education Centre

▪ Definition

▪ Context

▪ Project Cost Management

▪ EVM Metrics

▪ Cost Control Formula


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Introduction

▪ Approved by PMI, AACEI, ASQ, IMA and CQI IRCA.

▪ We are also approved by KHDA.

▪ Trained more than 19000 students.

▪ Branches in Dubai, Abu Dhabi, Chennai and Mumbai.

▪ Our flagship preparation courses are PMP and CCP.

▪ Contact us: [email protected]




Definition

Introduction to Earned Value Management


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Definition

▪ Earned Value Management. A methodology that combines scope, schedule, and resource measurements to assess project performance and progress.

▪ Earned Value (EV). The measure of work performed expressed in terms of the budget authorized for that work.

▪ Earned Value is also known as Budgeted Cost of Work Performed (BCWP).

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.




Context

Earned Value Management in Project Management


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Project Cost Management

▪ As per the PMBOK® Guide 5th Edition, “Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.”

• Plan Cost Management

• Estimate Costs

• Determine Budget

• Control Cost

Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Page 193.




What is a Process ?

▪ A systematic series of activities directed towards causing an end result such that one or more inputs will be acted upon to create one or more outputs.


Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-10, Page 215.


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Process Interaction





Project Cost Management Processes

▪ Plan Cost Management—The process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs.

▪ Estimate Costs—The process of developing an approximation of the monetary resources needed to complete project activities.

▪ Determine Budget—The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.

▪ Control Costs—The process of monitoring the status of the project to update the project costs and managing changes to the cost baseline.



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1. Plan Cost Management

▪ The process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs.






Cost Management Plan - Content

▪ Units of measure

▪ Level of precision

▪ Level of accuracy

▪ Organizational procedures link

▪ Control thresholds

▪ Reporting formats

▪ Rules of progress measurement – this is where Earned value management (EVM) rules of performance measurement are set.


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2. Estimate Costs

▪ Estimate Costs is the process of developing an approximation of the monetary resources needed to complete project activities.






Contingency Reserve

▪ Cost estimates may include contingency reserves (sometimes called contingency allowances) to account for cost uncertainty.

▪ Contingency reserves are the budget within the cost baseline that is allocated for identified risks, which are accepted and for which contingent or mitigating responses are developed.

▪ Contingency reserves are often viewed as the part of the budget intended to address the “known-unknowns” that can affect a project.


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Management Reserve

▪ Estimates may also be produced for the amount of management reserve to be funded for the project.

▪ Management reserves are an amount of the project budget withheld for management control purposes and are reserved for unforeseen work that is within scope of the project.

▪ Management reserves are intended to address the “unknown unknowns” that can affect a project.

▪ The management reserve is not included in the cost baseline but is part of the overall project budget and funding requirements.




3. Determine Budget

▪ Determine Budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.




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Cost Baseline

▪ The cost baseline is the approved version of the time-phased project budget, excluding any management reserves, which can only be changed through formal change control procedures and is used as a basis for comparison to actual results.

▪ It is developed as a summation of the approved budgets for the different schedule activities.




Project Budget Components



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S-curve

▪ Since the cost estimates that make up the cost baseline are directly tied to the schedule activities, this enables a time-phased view of the cost baseline, which is typically displayed in the form of an S-curve





4. Cost Control

Earned Value Management


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4. Control Costs

▪ Control Costs is the process of monitoring the status of the project to update the project costs and managing changes to the cost baseline.






Cost Control Tools and Techniques – on focus

1. Earned Value Metrics

2. Progress Measurement

3. Performance Measurement

4. Forecasting

5. To-complete performance index (TCPI)

6. Variance At Completion


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1. EVM Metrics

Planned Value, Actual Cost, Earned Value




EVM Metrics

▪ EVM develops and monitors three key dimensions for each work package and control account:

• Planned value

• Actual cost

• Earned Value


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Planned Value

▪ Planned value (PV) is the authorized budget assigned to scheduled work.

▪ It is the authorized budget planned for the work to be accomplished for an activity or work breakdown structure component, not including management reserve.

▪ This budget is allocated by phase over the life of the project, but at a given moment, planned value defines the physical work that should have been accomplished.

▪ The total of the PV is sometimes referred to as the performance measurement baseline (PMB). The total planned value for the project is also known as budget at completion (BAC).





Actual Cost

▪ Actual cost (AC) is the realized cost incurred for the work performed on an activity during a specific time period.

▪ It is the total cost incurred in accomplishing the work that the EV measured.

▪ The AC needs to correspond in definition to what was budgeted in the PV and measured in the EV (e.g., direct hours only, direct costs only, or all costs including indirect costs).

▪ The AC will have no upper limit; whatever is spent to achieve the EV will be measured.



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Earned Value

▪ Earned value (EV) is a measure of work performed expressed in terms of the budget authorized for that work. It is the budget associated with the authorized work that has been completed.

▪ The EV being measured needs to be related to the PMB, and the EV measured cannot be greater than the authorized PV budget for a component.

▪ The EV is often used to calculate the percent complete of a project.

▪ Progress measurement criteria should be established for each WBS component to measure work in progress.

▪ Project managers monitor EV, both incrementally to determine current status and cumulatively to determine the long-term performance trends.





Earned Value

Earned Value = % completed x Budget

✓ Progress measurement technique measures the percent complete which will assist in calculating the earned value. The budget is the budgeted cost of the measured component which could be a work package, control account, or the project.


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2. Progress Measurement

Units completion, Start/Finish, Incremental Milestone, Supervisor Opinion, Cost Ratio and

Equivalent Units/Weighted Average




Units Completion

▪ Formula

𝑰𝒏𝒔𝒕𝒂𝒍𝒍𝒆𝒅 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚

𝑻𝒐𝒕𝒂𝒍 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚x 100


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Start/Finish (Fixed Formula)

30% 100%

Start Finish

This method is applicable to tasks that lack readily definable intermediate milestones or those for which the effort/time required is very difficult to estimate.




Incremental Milestone

30%

Start Finish

60% 80% 100%

This method is applicableto any control account that includes subtasks that must be handled in sequence.


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Supervisor Opinion

In this method, the supervisorsimply makes a judgment of percent complete.




Cost Ratio

▪ This method is applicable to tasks that involve a long period of time or that are continuous during the life of a project, and which are estimated and budgeted on bulk allocations of dollars and work hours rather than on the basis of production.

𝑨𝒄𝒕𝒖𝒂𝒍 𝒄𝒐𝒔𝒕 𝒐𝒓𝑾𝒐𝒓𝒌𝒉𝒐𝒖𝒓𝒔 𝒕𝒐 𝒅𝒂𝒕𝒆

𝑭𝒐𝒓𝒆𝒄𝒂𝒔𝒕 𝒂𝒕 𝑪𝒐𝒎𝒑𝒍𝒆𝒕𝒊𝒐𝒏x 100


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Weighted or Equivalent Units

▪ This method is applicable when the task being controlled involves a long period of time and is composed of two or more overlapping subtasks, each with a different unit of work measurement.




Allowed Credit

Subtask Total U/M Total Qty To-Date Qty Earned Tons

0.02run foundation bolts each 120 120 12.00

0.03shim % 100 100 18.00

0.06shakeout % 100 100 36.00

0.04columns each 80 70 21.00

0.12beams each 987 230 16.78

0.12cross braces each 780 0 0.00

0.17girts and sag roads bay 40 0 0.00

0.08plumb and align % 100 0 0.00

0.31connection each 3000 90 5.58

0.05punch list % 100 0 0.00

1Steel Totals Ton 600 109.36

Earned Quantity = (allowed credit)*(summary quantity)*𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑡𝑜 𝑑𝑎𝑡𝑒

𝑡𝑜𝑡𝑎𝑙 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦

Earned Tons Columns=

.04 x 600 x 70

80

21 Tons

Percent Complete=

109.36

600

18.23%

Equivalent Units


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Earned Value Calculation

Wall 1

Wal

l 2

Wall 3

Wal

l 4

Schedule PlanSchedule: To complete the work in 4 weeks – work is equally distributed

Budgeted CostUSD 10,000 per side

Status at the end of week 3Wall 1 – 100% - $ 12000Wall 2 – 100% - $ 13000Wall 3 – 50% - $ 7000Wall 4 – 0% - $ 0

Calculate BAC, PV, AC and EV




Solution

Work Package

Planned Value

Actual Cost Progress EarnedValue

Wall 1 10000 12000 100 % 10000

Wall 2 10000 13000 100 % 10000

Wall 3 10000 7000 50 % 5000

Wall 4 10000 0 0 % 0

Total 40000 32000 25000


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3. Performance Measurement

Cost Variance, Cost Performance Index, Schedule Variance, Schedule Performance Index




Performance MeasurementCost Performance

Cost Variance Cost Performance Index

Earned Value – Actual Cost𝑬𝒂𝒓𝒏𝒆𝒅 𝑽𝒂𝒍𝒖𝒆

𝑨𝒄𝒕𝒖𝒂𝒍 𝑪𝒐𝒔𝒕Positive = Under planned costNeutral = On planned costNegative = Over planned cost

Greater than 1.0 = Under planned costExactly 1.0 = On planned costLess than 1.0 = Over planned cost

Schedule Performance

Schedule Variance Schedule Performance Index

Earned Value – Planned Value 𝑬𝒂𝒓𝒏𝒆𝒅 𝑽𝒂𝒍𝒖𝒆

𝑷𝒍𝒂𝒏𝒏𝒆𝒅 𝑽𝒂𝒍𝒖𝒆Positive = Ahead of ScheduleNeutral = On scheduleNegative = Behind Schedule

Greater than 1.0 = Ahead of scheduleExactly 1.0 = On scheduleLess than 1.0 = Behind schedule


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Cost Performance

Cost Variance Cost Performance Index

25000 – 32000 = (7000) 25000 / 32000 = 0.781

Schedule Performance

Schedule Variance Schedule Performance Index

25000 – 30000 = (5000) 25000 / 30000 = 0.833




4. Forecasting

Estimate At Completion & Estimate To Complete


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BAC = $ 40,000 PV = $ 30,000 AC = $32,000 EV = $ 25,000 CPI = 0.781 SPI = 0.833




Estimate At Completion


EAC EAC

𝑩𝑨𝑪

𝑪𝑷𝑰AC + (BAC – EV)

CPI is expected to be the same for the remainder of the project

Future work will be accomplished at the planned rate

EAC EAC

AC + (𝑩𝑨𝑪 −𝑬𝑽)

(𝑪𝑷𝑰 𝒙 𝑺𝑷𝑰)AC + Bottom up ETC

CPI and SPI influence the remaining work Initial plan is no longer valid


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EAC EAC

𝟒𝟎𝟎𝟎𝟎

𝟎.𝟕𝟖𝟏= 51216 32000 + (40000 – 25000) = 47000

CPI is expected to be the same for the remainder of the project

Future work will be accomplished at the planned rate

EAC EAC

32000 + (𝟒𝟎𝟎𝟎𝟎 −𝟐𝟓𝟎𝟎𝟎)

(𝟎.𝟕𝟖𝟏 𝒙 𝟎.𝟖𝟑𝟑)= 55055 32000 + Bottom up ETC

CPI and SPI influence the remaining work Initial plan is no longer valid




Estimate To Complete


ETC ETC

EAC – AC Re-EstimateAssumes work is proceeding on plan. Re-estimate the remaining work from the bottom up.


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ETC ETC

51216 – 32000 = 19216CPI is expected to be the same for the remainder of the project. Re-Estimate

Assumes work is proceeding on plan. Re-estimate the remaining work from the bottom up.




5. TCPI

To Complete Performance Index


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TCPI TCPI

(BAC – EV)/(BAC – AC) (BAC – EV)/(EAC – AC)

The efficiency that must be maintained in order to complete on plan.

The efficiency that must be maintained in order to complete the current EAC.





TCPI TCPI

(BAC – EV)/(BAC – AC)

(40000-25000) / (40000-32000)

1.875

(BAC – EV)/(EAC – AC)

(40000-25000) / (51216-32000)

0.781

The efficiency that must be maintained in order to complete on plan.

The efficiency that must be maintained in order to complete the current EAC.


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6. Variance At Completion

VAC




Variance At Completion


VAC

BAC – EACThe estimated difference in cost at the completion of the project.


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CPI = 0.781 SPI = 0.833 EAC = $ 51216 ETC = $ 19216


VAC

BAC – EAC

40000 – 51216 = (11216)

The estimated difference in cost at the completion of the project.

BAC = $ 40,000 BCWS = $ 30,000 ACWP = $32,000 BCWP = $ 25,000




End of the Seminar

Thank you

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