project management using earned value (and the problems & lessons learned from it)

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ScheduleScheduleCostCost

TechnicalTechnical

PROJECT MANAGEMENT

USING EARNED VALUE

(and the Problems & Lessons Learned from it)

Jim Pennington – Business Operations Director

[email protected]

Dated November 2007

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AGENDA

• OMB objections and requirements for EVMS• What is EVMS?• Implementing Directives• Traditional versus Earned Value Accounting• How does EV fit into the Program Management Life Cycle• Problems and Lessons Learned over the PM EVM Life Cycle• Comments

Backup Charts • Essential Elements of EVM• Tailored Earned Value Management

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According to the Third Edition of Earned Value Project Management by Fleming and Koppelman, "Earned Value is a technique to better manage projects. It is not intended for use on continuing business processes, operations that have

no unique deliverables. Earned Value is for the management of one-time-only projects, and portfolios of projects within an organization".

In alignment with this statement OMB mandates the use of EVMS within OMB Circular A-11 for major development/ modernization/enhancement (DME) projects, but not all DME projects.

OMB Circular A-11 defines a major project as:– A system or project requiring special management attention because of its importance to the mission or function of the Agency, a

component of the Agency, or another organization;– Is for financial management and obligates more than $500,000 annually;– Has significant program or policy implications;– Has high executive visibility;– Has high development, operating, or maintenance costs; or– Is defined as major by the Agency’s capital planning and investment control process– In addition, OMB memorandum M-05-23 asked each agency to work with OMB to identify “high risk” projects by August 15, 2005.

Circular A-11 defines high-risk projects as those requiring special attention from oversight authorities and the highest levels of agency management.

What is Earned Value and when does OMB want it implemented

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Agencies follows the requirements set forth in:• ANSI/EIA STD – 748• OMB Circular A-11, Part 7, Federal Acquisition Regulation Case 2004-019• OMB Memorandum M-04-24 (dated 8/23/04)• OMB Memorandum M-05-23 by using the NDIA EVMS Intent Guide, NDIA PMSC Surveillance Guide (dated

8-4-05)• NDIA* Program Manager’s Guide to the Integrated Baseline Review (IBR) Process, and EVM

Implementation Guide

To provide for a uniform approach to implementing EVMS and to confirm that the processes and procedures continue to satisfy the guidelines as they change

Note * = NDIA – National Defense Industry Association Program Management Systems Committee Working group

Where is the Earned Value Requirements and Standards the Process Defined

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Technical

CostSchedule

EVMS

EVMS is the primary project management tool that integrates the technical, schedule and cost aspects

of the project or contract scope of work

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A Program or Project’s Technical, cost and schedule performance are interrelated

Problems in one area can, and usually will, cause problems in the other areas

You can design and build the fastest, toughest and lightest widget in the world, but if it costs too much, or is late:

It may adversely affect the total funding required to complete Could impact ability to get funding for future projects or may required

greater effort to obtain enough funding for programs later in the future

Why is Earned Value Information important to the Program Manager

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Earned Value (EV)

...is a predetermined amount of value that is claimed, or earned, when the corresponding work is accomplished.

# of Widgets

# of Pages

Lines of Code

# of SysReqmts

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• Objective rather than subjective project status information

• Cost and Schedule impact of known problems

• Identification of problems not previously recognized

• Capability to trace the problem to the source

• Quantitative measure of schedule deviation in dollars

• Performance measured against a program oriented baseline

EARNED VALUE DOES NOT GUARANTEE SUCCESS

Earned Value Management provides

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GOVERNMENT

• Mandatory procedures for major defense acquisition programs (DoDI 5000.2-R)

• Defines policies governing earned value

• Earned Value Management Information Guide (EVMIG)• Provides detailed discussions of the EV criteria• Written for the Government program offices

• OMB Directives to Agencies:• OMB Circular A-11, Part 7, Federal Acquisition Regulation Case 2004-019• OMB Memorandum M-04-24 (dated 8/23/04)• OMB Memorandum M-05-23 by using the NDIA EVMS Intent Guide, NDIA

PMSC Surveillance Guide (dated 8-4-05)

INDUSTRY

• Industry guidelines for Earned Value Management Systems (ANSI-ESI 748)

• Industry Standard for Earned Value• Incorporated in DoDI 5000.2R

Some Implementing Directives

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ACWP = Actual cost of work performed (Basically costs extracted from work in process)

BCWP = Budgeted cost of work performed (Earned Value)

BCWS = Budgeted cost of work scheduled (Budget spread to time)

BAC = Budget at completion (Total budget for a given task)

CVAR = Cost variance (BCWP-ACWP)

EAC = Estimate at completion

SVAR = Schedule variance (BCWP-BCWS)

Earned Value Management Terms

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0

200

400

600

800

1000

BCWS

ACWP

TimeNow

Time

All we really know is that we spent more than we planned

TRADITIONAL VS EARNED VALUE ACCOUNTING

Budget versus Actuals

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0

200

400

600

800

1000

BCWS BCWP ACWP

TimeNow

Time

Earned value provides an objective measure of work accomplished. It tells you what you got for what you spent

TRADITIONAL VS EARNED VALUE

ACCOUNTING

(Using EVM approach)

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PROGRAM MANAGEMENT PROCESS

Initiate

Plan

Execute

Control

Close Out

Pro

ject

Man

age

me

nt C

ycle Organize

work and teams

Develop a realistic plan of work scope,

budget, and schedule

Authorize work properly

ControlChanges

Performancereporting

Understand variances

CorrectiveActions

Forecast of final cost and

schedule

PROGRAM MANAGER NEEDS

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EARNED VALUE MANAGEMENT

• Organize• Plan work scope – schedule and budget• Authorize work• Control changes• Report performance • Understand variances• Corrective actions• Forecast final cost and schedule

PROGRAM MANAGEMENT PROCESS

Initiate

Plan

Execute

Control

Close Out

Pro

ject

Man

age

me

nt C

ycle

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Earned Value Problems &

Lessons Learnedover the Program Management

EVM Life Cycle

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TechnicalTechnical Initiate Phase of Program

Problems and Lessons Learned Problems• Baseline is not stable • EVM Staffing Resources not in place

at time of ATP• Program Management as not assigned

responsibilities to CAMs• Program Team is not experienced or

trained• IBR (Integrated Baseline Review)

Deliverables not defined• Contracting Officer or COTR wants to

deviate from SOW or Contract EVM direction w/o proper modifications

• Different set of assumptions from the proposal submittal

• Variance Thresholds are not defined • Variance Analysis Guidelines not

agreed upon prior to start

Lessons Learned• Establish early baseline basis• Have contractor or internal personnel

identified during negotiations • PMs must plan to execute program like

it was proposed (Work per SOW)• Have Program Team (PMs, CAMs,

EVM and Customer) trained together• Establish specific contract SOW app.

for EVM and for Integrated Schedule• Keep CO and COTR (& PM) diligent on

proper contracting practices• Develop clear walkdown of deltas in

Scope and assumptions (document)• Variance Thresholds by % & $ off plan• Analysis must be to a specific level of

WBS, contents identified & Corr. Action

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TechnicalTechnical Planning Phase of Program

Problems and Lessons Learned Problems• No set deadline to freeze plan

(Continuous Churn)• IPTs (Integrated Product Teams) are

not working to same schedule• Baseline Changes are not controlled at

the beginning (Loss of string from Prop to Baseline-Rates, Sch, Scope)

• IBR (Integrated Baseline Review) delayed due to baseline flux or continued negotiations

• No plan for Contract Changes (No CCB board and/or no COTR involved )

• Program Management Reserve and Undistributed Budget not well defined

• Current Forecasts and recovery plans do not change the baseline planning

Lessons Learned• Establish a EVM Implementation

schedule and hold everyone to it• IPTs must complete earlier for IMS

integration with other teams and tasks• Contractor should be able to walkdown

Proposal as Submittal to IBR Baseline• Push to hold IBR schedule and work

SOW, schedule or scope changes later (as formal changes / plan maintenance)

• Must have established CCB with PM, Finance, Contracts, IPTs (Govt / Contr)

• Undistributed Budget is not Reserve, if it is not needed convert to PM Reserve

• Only Customer approved changes impact the Baseline (Establish a window for change approval and freeze the plan for near term changes)

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TechnicalTechnical Execution Phase of Program

Problems and Lessons Learned Problems• Program seems to not meet the EVM

reporting schedule • Status or Earned Performance inputs

are not consistent with period cutoffs• No established Performance Criteria

identified for tasks and completion • Errors or Inconsistent Reporting • Inconsistent Subcontractor or

Procurement Status• No reconciliations of Ledger Actuals to

EVM (Accrued Costs)• Program Management does not use or

analyze the EVM information• PMs manage to the IMS or Schedule

and EVM data must be incorrect• Program Plan Risks are not defined or

PM Reserve is not earmarked

Lessons Learned• Establish a EVM Status and Reporting

Business Rhythm • EVM Staffing Resources not in place at

time of ATP• Must have EV method and completion

criteria defined for tasks (agreed upon)• CAM/EV data reviews prior to release• Establish a ICD approach for Vendor and

Subcontractor Accruals / Receipts• Have defined reconciliation process to

validate EVM ACWP reported & deltas• Make EV data part of monthly review

deliverables and status reviews• Report number of late IMS workpackage

starts and completions by WBS• Risks that have not been realized should

have MR allotted plus mitigation plans

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TechnicalTechnical Control Phase of Program

Problems and Lessons Learned Problems• Contract Changes are too frequent and

formal plan changes are not timely• Variance Analysis is too vague or is not

determined in a timely manner• IPTs do not take ownership of their

variances or mitigation plans• Program has a large cost and/or

schedule variance that plan is relevant• Program does not properly close

workpackages when replanned• Scope Creep and workscope/rate trades

from well minded PMs and CO/COTRs• Inconsistent EVM performance and

reporting over the life of the program• EVM process adherence is not

objectively evaluated or tested

Lessons Learned• CCB process should be defined and

IPT provide estimates at CCB meetings• EVM and variance root cause analysis

must be timely to be effective• IPT must be given labor reports by

name to validate charges and resp.• Program should establish a over target

or baseline replan to make plan valid• You must close incomplete tasks and

replan them as new tasks with replan• Small unapproved changes and creep

drive variances & impacts future work• Contractor should have proven and

documented process to operate consistently

• Establish a Joint Surveillance Plan

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TechnicalTechnical Close Out Phase of Program (or task)

Problems and Lessons Learned Problems• Last months of program, data appears to

be incorrect• Final Estimates to Complete are off by a

large amount• Costs continues to come into the

workpackage after it is completed• Indirect rate impacts hit after the

program or task is completed• Subcontract or Material Costs does not

match Ledger• Final EVM Report does not match

current Invoice Totals or Balances

Lessons Learned• Be sure contractor does not get sloppy

w/ charging practices (>95%)• Be sure final EACs include remaining

material commitments, labor suspense• Be sure all charge accounts closed,

clear suspense & transfer bad charges• Understand contractor financial

calendar and rate adjustment process• Have contractor complete a walk-down

of the EVM ACWP and the ledger $s• Contractor should create a projection

when all costs will be final and on the books of record

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TechnicalTechnical Closing Comments

• With the problems on the FBI Virtual Case File Program, IT programs will continue to have additional OBM scrutiny and needs for oversight

• If you are going to spend the money on EVM, use it (effectively!)

• Manage the EVM process, do not let the process manage you

• Do not just look at the big variances, drive for better analysis and corrective actions that are meaningful (remember you have a boss too!)

• One little rule: If your TCPI is 1.06 after being more than 15%,

You will not recover to the original baseline! (LMC history)

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Questions and Answers

Comments or Questions??

project management using earned value (and the problems & lessons learned from it)

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