Lukas

Earned Value Analysis: Making it Work

Joe Lukas, PMP, PM, CCEVice-President

609-575-9306 (c)888-762-3683 (w)

[email protected]

February 22-23, 2012

2©Joe Lukas, February 22-23, 2012

Traditional Project Cost Curve

Actual Cost

Budget – Planned Work

Status Date

Time

$’s or Hours

1. Completing work for less than the budgeted amount

2. Behind the project schedule

3. Spending less than planned

4. Behind schedule & completing work for less than the budget amount

Check all

that apply

What can you tell about the health of this project based on this graph?


Traditional Project Cost CurveThe only information you know from this graph is that spending is less than planned!

Actual Cost

Budget – Planned Work

Status Date

Time

$’s or Hours


2. Behind the project schedule


4. Behind schedule & completing work for less than the budget amount


Actual Cost

BudgetStatus Date

Time

$’s or Hours

Earned Value

Earned Value Analysis Curve


2. Ahead of the project schedule


4. Ahead of schedule & completing work for less than the budget amount

What can you tell about the health of this project based on this graph?

Check all

that apply


You have completed more work than planned, but you can’t tell if you are ahead of schedule! Why not?

Actual Cost

BudgetStatus Date

Time

$’s or Hours

Earned Value

Earned Value Analysis Curve


2. Ahead of the project schedule


4. Ahead of schedule & completing work for less than the budget amount


What Will Be Covered?

• TOPIC 1: Quick review of Earned Value Analysis (EVA) terminology, calculations, and best practices

• TOPIC 2: Top ten pitfalls that can make EVA unsuccessful and corrective actions that can be applied to your project to counter these hazards


CV

SVSPI

CPI

ETC

EAC

EVPV

AC

BAC

CV= SV =

ACWP

BCWP

BCWS

EVA Terminology & Calculations

Topic 1


Earned Value Terms• Earned Value Analysis (EVA): Quantitative calculations

that use the progress of authorized work and the budget for that work (called the earned value) for the purpose of monitoring performance and predicting the final required costs (and time) necessary to finish the project

• Earned Value Management (EVM): a method for measuring the performance of work packages, control accounts and the project; includes the integrated schedule and budget based on the project

• Earned Value Management System (EVMS): the integrated policies practices, procedures, tools and templates used to do EVM


Planned Value (PV) • Also called Budgeted Cost of Work

Scheduled (BCWS) • Portion of the approved cost estimate

(budget) scheduled to be spent on the task during a given time period

• This is the budget cost of what was scheduled to be done

Earned Value Terms: PV


0

25

50

75

126

Time Now

Time

Do

llars o

r Ho

urs

18

PV = planned orscheduled work

Planned Value (PV)


Actual Cost (AC) • Also called Actual Cost of Work

Performed (ACWP) • Costs incurred in accomplishing

work on the task • This is what the work actually cost

Earned Value Terms: AC


Actual Cost (AC)

0

25

50

75

126

PV = planned orscheduled work

Time Now

Time

Do

llars

18

AC = what the workactually cost


Earned Value (EV) • Also called Budgeted Cost of Work

Performed (BCWP)• The value of completed work calculated by

multiplying the work budget by the percent of the work completed

• This is what was actually done (earned)

Earned Value Terms: EV


Earned Value (EV)

0

25

50

75

EV =actual workaccomplished

126

Time Now

Time

Do

llars

18

AC - what the workactually cost

planned orscheduled work

PV -


Earned Value Relationships

Costs

Work

Budget Actual

Scheduled

Performed

PV

ACEV

Earned Value looks at the budget amount for the work performed

The work with the schedule and budget is the PLAN

The work performed (done) and the costs for that work are ACTUAL results


Calculating Earned Value (EV)

EV = % Complete x budget $ for that activity

• Percent complete is the physical progress of the task:

A task is 0% complete if not started A task is 100% complete when finished Different techniques can be used to evaluate progress

while a task is being done


Progressing Techniques

• Units Completed

• Incremental Milestones

• Start – Finish

• Apportioned Relationship

• Level of Effort

• Individual Judgment

• Combination Methods


• Units Completed - work with repeated production of easily measured pieces of work

• Start–Finish - some progress may be assigned at start; 100% at completion

• Incremental Milestones - work broken down in multiple measurable milestones, with specific budget values

Quantitative Progressing


• Level of Effort - assumes the progress of the activity is equal to the amount spent

• Individual Judgment - Important to get multiple opinions of progress, this provides a ‘checks and balance’ on the progress accuracy

Qualitative Progressing


• Apportioned Relationship - has a direct intrinsic performance relationship to another discrete Work Package & progress is same

• Combination Methods - Use two or more of the other progressing techniques

These techniques can be either qualitative or quantitative

Misc. Progressing Techniques


What Progressing Technique?

New carpet installation in company cafeteria

1. Units Completed

2. Incremental Milestones

3. Start – Finish

4. Apportioned Relationship

5. Level of Effort

6. Individual Judgment

7. Combination Methods



Rock Excavation for new foundation

1. Units Completed


3. Start – Finish


5. Level of Effort





New pill press machine purchase

1. Units Completed


3. Start – Finish


5. Level of Effort





Factory inspector for equipment fabrication

1. Units Completed


3. Start – Finish


5. Level of Effort




Schedule & Cost: Variance & Index• Schedule Variance

measures schedule performance at a point in time:

SV = EV - PV

• Schedule Performance Index ratio of work performed to work scheduled (earned / plan):

SPI = EV \ PV

• Cost Variance measures cost performance at a point in time:

CV = EV - AC

• Cost performance index ratio of budget costs for work performed to actual costs:

CPI = EV \ AC


SV & CV – Bad Project

Do

llars

0

25

50

75

Actual Cost

Earned Value - Budget of WorkAccomplished

126

Budget - Planned(Scheduled) Work

Time Now

Time

SV = -25

189

CV = -12


SV & CV – ‘Good’ Project

0

25

50

75

Actual Cost

Earned Value

126

BudgetTime Now

Time

Do

llars

SV = +5

189

CV = +18


• Caution! The Schedule Performance Index may or may not accurately reflect the true schedule condition of the project!

SPI Warning!!!

Caution!

• Total Float must also be considered!

• SPI > 1.0 may occur by “earning” progress on non-critical activities


Key Cost Forecasting Terms

• Budget at Completion (BAC) - sum of all authorized budgets allocated to a project - the “Performance Measurement Baseline”

• Estimate to Complete (ETC) - the expected additional cost to complete the project

• Estimate at Completion (EAC) - the expected total cost of the project when the defined scope of work is completed


Key Cost Forecasting TermsD

OLL

AR

S

TIME

PV AC EV

TIME NOW

BACEAC

Project ContingenciesETC

NOTE: Most ETC & EAC formulas include an adjustment based on project performance (CPI, SPI)


• ‘Mathematical’ or ‘Overrun-to-Date’ EAC

• EAC = AC + (BAC - EV) - assumes the plan will be met for the remaining work (CPI = 1.0)

• Yields the most optimistic EAC when CPI < 1.0

CPI

Time

1.0

0.0

Time Now

Actual CPI

Project #1 & #2 CPI

‘Good Project’

‘Bad Project’

EAC Formulas: CPI = 1


• ‘Cumulative CPI’ EAC

• EAC = AC + (BAC - EV)/CPI = BAC/CPI• Assumes the performance (CPI) will remain unchanged

for the rest of the project

CPI

Time

1.0

0.0

Time Now

Actual CPI

Project #1 CPI

Project #2 CPI ‘Good Project’

‘Bad Project’

EAC Formulas: ‘Most Likely’


• ‘Cumulative CPI times SPI’ EAC

• EAC = AC + ((BAC - EV) / (CPI x SPI)) or = BAC / (CPI x SPI) [Not quite the same calculation]

• Yields the most pessimistic EAC when both SPI & CPI < 1.0

CPI

Time

1.0

0.0

Time Now

Actual CPIProject #1 CPI

‘Good Project’

‘Bad Project’

Project #2 CPI

EAC Formulas: CPI times SPI


• Cumulative CPI has been shown to stabilize as early as the 20% completion point of the project

• “…researchers found the cumulative CPI does not change by more than 10% once a contract is 20% complete; in most cases, the cumulative CPI one worsens as a contract proceeds to completion”1

1 Dr. David S. Christensen, “Using Performance Indices to Evaluate the Estimate at Completion,” The Journal of Cost Analysis of the Society of Cost Estimating and Analysis, Spring 1994, page 19.

Comments on Cumulative CPI


• TCPI – provides a forecast of the required performance level, expressed as a CPI, which must be achieved on the remaining work in order to meet the project financial goal, which can be:

Current authorized budget Project Manager’s current EAC

To-Complete Performance Index

• TCPI – provides a sanity check for the Project Manager on whether the required CPI for the rest of the project is obtainable

• Remember: “…cumulative CPI does not change by more than 10% once a contract is 20% complete…”


TCPI (BAC)

Work Remaining

Funds Remaining

(BAC – EV)

(BAC – AC)= =

TCPI (EAC)

Work Remaining

Funds Remaining

(BAC – EV)

(EAC – AC)= =

CPI

Time

1.0

0.0

Time Now

Actual CPI

TCPI (BAC)

Baseline Plan

TCPI Formulas


Actions that should be done on projects to help ensure successful use of EVA

Top Ten List on what’s needed to make EVA successful

&

Topic 2


Making EVA Work

What’s needed to make EVA Successful:

6. Integrated Project Plan (WBS-Schedule-Budget)

10. No Management influence on progress

9. Accurate Reported Progress

8. Effective Cost collection system

7. Correct Schedule & Budget


Making EVA Work

1. Defined Requirements

5. Change Management Process

4. Complete WBS

3. WBS Used and Accepted

2. Complete Requirements

What’s needed to make EVA Successful:


#1: Defined Requirements

Business Objectives

Problem or Opportunity

“Why” Business Requirements

“What”Functional &

Technical Requirements

“What”Solution

Architecture & Specifications

“How”Project Scope documented by the WBS

Project Requirements

WBS“How”


#2: Complete Requirements

Scope

Schedule

Cost

Quality

Communications

Procurement

Risk

Staffing

Project Plan

Requirements


#3: WBS Used & Accepted

• WBS lists the project deliverables, which is the input to the project schedule & budget

• Consequence if not used: Control Accounts and Work Packages not identified – making EVA calculations difficult and time consuming

• Correct Action: Prepare a WBS on your project!


#3: Use of a WBSW

BS

Ele

men

ts

Major Deliverables

May not be needed for small or medium projects, probably >1 level for large projects

Deliverables

Lowest level for control Work Package Deliverables

Steps needed to create the WBS deliverable

Activities

Proper Naming of Deliverables & Activities


• Data Flow Diagram• Risk Management Plan• Training Manual Outline• Test Plan

Deliverables are

written as a noun!

#3: Naming WBS Deliverables

• Conduct unit test for program 21A• Review requirements document• Prepare report specification draft• Write script for interface module

Schedule

Activities are

written as an

active verb-noun

combination!


#4: Complete WBS

Project Product

Major Deliverable 1

Major Deliverable 2

Major Deliverable 3

Deliverable 1.1 Deliverable 1.2Deliverable 3.1 Deliverable 3.2

Sub-Deliverable 3.1.1 Sub-Deliverable 3.1.2= Work Packages

= Control Accounts

Need to verify WBS covers all project requirements!


#5: Change Management Process

• Consequence if not used: Cost / schedule deviations for Work Packages not

documented Scope changes not captured – baseline not updated

• Correct Action: Implement a change management process on your

project for both deviations and scope changes


#6: Integrated Project Plan

• WBS, Schedule and Budget are not integrated

• Consequence if not used: Makes doing EVA calculations difficult

• Correct Action: Use WBS as the starting point in preparing project schedule and budget


#7: Correct Schedule/Budget

• Schedule logic incorrect, work package estimates incorrect

• Consequence if happens: Incorrect EVA calculations

• Correct Action: Follow good scheduling practices Estimate at Work Package activities level Use a contingency fund to handle cost & schedule

deviations


#7: Use of Contingency

Task P

Schedule Contingency

11 days

Project Complete

Task Q~

~WP # WP Title/Description WP Estimate

15 Package Implementation $ 50,000

- Sub-total $1,545,000

- Contingency $ 155,000

- Project Total $1,700,000

~ ~ ~

Cost

Contingen

cy

Sched

ule

Contingen

cy


50

$0

$10k

Project Timeline

Dollars

$20k

$30k

$40k

5

10

15

20Days

Nov Dec

JanOct Feb Mar Apr May

001

002

003

004

Cost Contingency Start = $38k

Schedule Contingency Start = 15 days001

002

003

004

Status Date

$29.4k

6 days

EAC = -9 days~

EAC = $15k

Sample Contingency Drawdown Graph

#7: Contingency Management


#8: Effective Cost System

• Internal labor hours not captured, costs not captured at Work Package level, multiple cost systems in place

• Consequence: Difficult or impossible to report actual costs

• Correct Action: Use SV and SPI only for internal work if costs not available, have contractors report EVA information for their work


Project

External Work Internal Work

Deliverable A Deliverable B Deliverable 1 Deliverable 2

Work Package 1.1 Work Package 2.1

Divide the project into internal and external work:

Use SV, SPIUse SV, SPI, CV, CPI

#8: Adequate Cost System


#9: Accurate Reported Progress

• Reported progress must be accurate – can be team bias (usually too optimistic)

• Consequence if not accurate: Incorrect EVA results

• Correct Action: Minimize subjective progress techniques - if use of Individual Judgment and Level of Effort >10%, EVA results probably not valid


#10: Management Influence

• Management pressures teams to show only good results

• Consequence if happens: Reported progress too optimistic - results in incorrect EAC

• Correct Action: Resist management influence


Back to the Earned Value Curve

0

25

50

75

Actual CostEarned Value

126

BudgetTime Now

Time

Do

llars

189

This was the graph for a real project…


The Results?

• Final Costs = 4x

• Final Schedule = + 1 year

• The good news – the software worked!

So What Happened?


EVMS Standard

• In 1995, National Defense Industrial Association (NDIA) started work to rewrite Cost/Schedule Control System Criteria (C/SCSC) to make it more compatible with the needs of private industry

• Result was American National Standard Institute-Electronic Industries Association ANSI/EIA 748 standard


EVMS Standard

• New version is called Earned Value Management System (EVMS) Criteria and contains 32 criteria in five groups: Organization Planning, Scheduling and Budgeting Accounting Considerations Analysis and Management Reports Revisions and Data Maintenance


Conclusion

• Earned Value is a methodology that, if used properly, provides project performance measurement

• EV requires complete requirements, scope definition and a Project Plan!

• Properly used, Earned Value is a flexible process that provides timely information on the project health


Questions?

Joe Lukas, PMP, PM, CCEVice-President

609-575-9306 (c)888-762-3683 (w)

[email protected]

February 22-23, 2012

Lukas

Technology

project schedule

scheduled work

value terms

planned value pvtime

budget cost

value analysis curvewhat

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