Earned Value Variance Reporting Dos and Don

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Earned Value Variance ReportingDos and Donts

• Presenter
• Gary Heth, PMP

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Agenda

• Earned Value Basics
• Earned Value in a Nutshell
• Performance without Earned Value
• Earned Value Framework
• Planning
• Executing
• Controlling
• Earned Value Benefits
• Earned Value Lessons Learned
• Earned Value Limitations
• Earned Value Dos and Donts

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Earned Value Basics
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Earned Value BasicsEarned Value In a Nutshell

• What is more important?
• Knowing where you are on schedule?
• Knowing where you are on budget?
• Knowing where you are on work accomplished?
• It compares the PLANNED amount of work with what
  has actually been COMPLETED, to determine if COST
  , SCHEDULE, and WORK ACCOMPLISHED are progressing
  as planned.
• Work is Earned or credited as it is completed.
• Did we get what we planned, for the amount of
  money we planned to spend, and did we get it when
  we needed it?

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Earned Value BasicsProject Analysis Without
Earned Value?Gantt Charts

• Most used PM tool for representing phases and
  activities of a WBS
• A clear way of showing schedule status to your
  sponsor and team
• Great for small projects but can be hard to read
  for larger projects with many dependencies
• Only show part of Triple Constraint (focus on
  schedule management)
• Married to waterfall development
• Does not adequately represent project size or
  size of the work element
• Magnitude of behind schedule condition can be
  misleading
• If two projects are the same of days behind
  schedule
• Which of the two has the larger impact on
  resource utilization?
• Gantt does not represent the difference
• Gantt does not show resource management
• Does not indicate if the task is front or
  back loaded
• complete may be miss-represented

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Earned Value BasicsProject Analysis Without
Earned Value?Gantt Charts
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Earned Value BasicsProject Analysis Without
Earned Value?Budget Spend Plan

• Medium to Large Projects S Curve Project
  Spend Tracking
• Provides a budget baseline for tracking actual
  costs against periodic budget targets.
• Start by creating a time-phased budget by
  plotting your weekly, monthly, quarterly budgeted
  costs or hours (time and dollars)
• Use MS Project baseline estimated project costs
  and plot graphically over time, they usually
  result in an S curve
• Add MS Project actuals to plot dotted lines at
  each chosen interval to track variances.
• Provides a simple Top-Level view of project
  financial performance useful for status reports
  and dashboards.
• If you dont have labor rates you will need to
  use budgeted vs actual hours.
• Challenges
• Works fine if your project is on schedule Spend
  plan still needs additional status information
  (for example Gantt)
• If behind schedule PM may not be able to
  understand project status from this graph
• Actual budget could be in worse or better shape
  than shown
• If your budget spend shows overspending and your
  schedule shows milestone slippage you know you
  are in trouble. You may not be able to tell how
  bad the trouble is.

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Earned Value BasicsProject Analysis Without
Earned Value?Budget Spend Plan
Budget Ceiling
Spend Plan
Actuals
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Earned Value Basics Minimal Requirements

• EVM Requires 3 values
• Planned Value (PV) - Baseline
• Actual Costs (AC) Based on Time Entry or Cost
  Entry
• Earned Value (EV) What you earned
• Work is Earned or credited as it is completed.
• Did we get what we planned, for the amount of
  money we planned to spend, and did we get it when
  we needed it?
• Answer
• Where have we been?
• Where are we now?
• Where are we going?

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Earned Value Basics Minimal Requirements
Term Interpretation
(PV) Planned Value Replaces BCWS How much work you planned to have accomplished by now? The budgeted costs of the work scheduled The projects time-phased budget Can only change when baseline is changed
(AC) Actual Cost Replaces ACWP What is the actual cost incurred ( / Hours) The actual costs of the work completed during the month or reporting period Actual costs by work code Requires accurate charging of staff time to appropriate control account
(EV) Earned Value Replaces BCWP What is the estimated value of the work actually accomplished? The projects physical progress Progress reported in baseline or planned dollars Represents sum of completion for each task or deliverable
Planned value and Actual Cost will be compared to Earned value in terms of differences / ratios Will result in variances and performances indexes Planned value and Actual Cost will be compared to Earned value in terms of differences / ratios Will result in variances and performances indexes
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Earned Value Framework
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Earned Value FrameworkSteps to Success

• Condensed ANSI/EIA748 32 Step Standard
• Planning
• Step 1 Define the Scope (Planning)
• Step 2 Determine Who Will Perform the Work
• Step 3 Plan and Schedule Work
• Step 4 Establish Resources and Budgets
• Step 5 Determine Performance Metrics and
  Thresholds
• Step 6 Create Performance Measurement baseline
  and Mgmt Control
• Executing
• Step 7 Record Direct Costs
• Controlling
• Step 8 Monitor EV Performance Against Baseline
  (Control Step)
• Step 9 Forecast Final Required Costs (Variance
  Reporting Step)
• Step 10 Manage Scope Through Change Control

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Earned Value Framework Steps to Success
Planning Steps

• Planning
• Step 1 Define the Scope (Planning)
• Step 2 Determine Who Will Perform the Work
• Step 3 Plan and Schedule Work
• Step 4 Estimate Work and Procurement
• Step 5 Determine Performance Metrics and
  Thresholds
• Step 6 Create Performance Measurement baseline
  and Mgmt Control
• Executing
• Step 7 Record Direct Costs
• Controlling
• Step 8 Monitor EV Performance Against Baseline
  (Control Step)
• Step 9 Forecast Final Required Costs (Variance
  Reporting Step)
• Step 10 Manage Scope Through Change Control

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Earned Value Framework Steps to Success
Planning Step 1 Define the Scope

• Scope Definition
• Single most important factor to a sound EVM
  process and implementation
• Work Breakdown Structure
• Roadmap for analyzing the project progress and
  performance
• Each element of the WBS is broken down into
  pieces each piece defines responsibility to a
  person for that element
• 100 of scope What is not in the WBS is not in
  scope
• Work is broken down into measurable work packages
• Focus on authorized work
• Must be firm Critical for Earned Value Projects
• Break the Work Packages into activities of the
  project. These should be included within your
  WBS and will produce the project schedule
  activities.
• Organization Breakdown Structure (matrix
  organizations)
• Relates WBS elements at the work package level to
  the organizational unit responsible for
  completing the work

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Earned Value Framework Steps to Success
Planning Step 2 Determine Who Will Perform the
Work

• Who will perform the work?
• Determine Skill Level
• Experience is faster but more costly
• Task identification takes place during this step
• Make or Buy Decision (Internal or Sub
  Contracting)
• Will all or some of your project be outsourced?
• Internal projects (Make Decision) has some cost
  flexibility
• Scope definition critical for external (Buy
  Decision)
• Contracts are unforgiving Cost to change can be
  excessive
• Critical to get scope right because cost to
  change can be excessive
• Responsibility Assignment Matrix (RAM)
• Tied to the WBS with the OBS
• Responsibly Chart for activities

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Earned Value Framework Steps to Success
Planning Step 3 Plan and Schedule Work

• Scheduling is vital to Earned Value
• Formal scheduling system (i.e. MS Project) is
  required
• EV is nothing more than Scheduling system,
  authorized scope, timeframes, and budgets
• Reflects PMs baseline Planned value (PV) for
  everyone to follow
• Critical Path (Task Sequencing)
• Which tasks are sequential? Parallel
• Network Diagramming tools
• Must be aggressively managed when negative earned
  value schedule variances are discovered.
• Will help determine which task variances receive
  the most attention
• High risk tasks must also be identified for same
  reason
• Begin Scheduling

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Earned Value Framework Steps to Success
Planning Step 4 Establish Resources and Budgets

• Establish resource requirements (budgets) for all
  defined tasks
• Start-up sequence may be different for your
  organization
• Scope, Schedule, and Budget vs. Scope, Budget,
  Schedule
• Best practices should be iterative but SCOPE
  DEFINITION MUST COME FIRST
• Enter resources for each task
• Determine the costs for the activities
• Labor rates per task hour
• Fixed cost per activity or work package (need to
  be spread across each lower level activity)
• Risk Analysis and Risk Management Plan
• Resource Leveling Exercise
• Management will then approve the budget
• Contingency Never include contingency in an
  individual task why?
• Will most likely cause a variance
• Contingencies and other reserves should be
  isolated and owned by the PM
• Must plan/schedule all defined tasks along with
  the authorized budget necessary to complete each
  task. This is required to have a viable project
  baseline.

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Earned Value Framework Steps to Success
Planning Step 5 Determine Performance Metrics
and Thresholds

• How is planned value completion measured?
• EV Systems rely on the effective collection of
  the Performance and the Costs.
• There are basically 2 types of methods of
  collecting the Performance
• Discrete something tangible to measure against
• 0/100 no EV credit until 100 of work is
  completed.
• 50/50 and 25/75 some EV credit at 25 or 50,
  remaining EV at close of Work Package
• Weighted Milestone Each completed milestong
  completion earns a percentage of EV. Must be
  individually valued. May also consider monthly
  milestones
• Physical Complete ie. 5 start, 50 unit
  test, 75 code review, 100 signoff
• Complete based on hours necessary to complete
  the task (common) least desirable
• Units completed For physical counts of product
  or outputs
• Incremental milestones - complete based on
  individual milestone completion
• Non-discrete where the measuring of performance
  is not associated with anything tangible
• Level of effort should only be used when schedule
  performance is of no importance. A level of
  effort package can never give an indication of
  the work that has actually been performed (PV)
  will always equal the schedule work (PV)

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Earned Value Framework Steps to Success
Planning Step 6 Create Performance Measurement
baseline and Mgmt Control

• Earned Value requires a baseline project schedule
  (time-Phased budget baseline)
• Indirect costs could be included in some
  commercial type contracts
• Schedule Management focuses on the schedule
  performance of the project.
• It looks at the relationships between the
  Earned Value (EV) and the Planned Value (PV).
• This will be your Planned Value (PV) for the life
  of the project
• Remember, MS Project can handle multiple
  baselines but you should always measure against
  the last baseline required by the stakeholders.
• This information will be plotted into a
  traditional S Curve diagram.
• Results should be added to the Performance
  Management Plan
• See Next Slide for an example

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Earned Value Framework Steps to Success
Planning
Traditional Cost Analysis Budget Spend Plan
Is this Good or Bad?
Management Reserve
Budget Ceiling
Spend (PV) (Planned Costs)
Dollars
Cost to Date Actuals
Time
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Analysis
Traditional Cost Analysis Budget Spend Plan
Is this Good or Bad?

• Actual costs are below planned costs (good news?)
• Unless you look at the planned costs of the
  completed work, you dont know if this is good or
  bad
• That is exactly what is missing and what Earned
  Value will tell you

Management Reserve
Budget Ceiling
Spend Plan (Planned Costs)
Dollars
Cost to Date Actuals
Time
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Earned Value Framework Steps to Success
Executing Steps

• Planning
• Step 1 Define the Scope (Planning)
• Step 2 Determine Who Will Perform the Work
• Step 3 Plan and Schedule Work
• Step 4 Estimate Work and Procurement
• Step 5 Determine Performance Metrics and
  Thresholds
• Step 6 Create Performance Measurement baseline
  and Mgmt Control
• Executing
• Step 7 Record Direct Costs
• Controlling
• Step 8 Monitor EV Performance Against Baseline
  (Control Step)
• Step 9 Forecast Final Required Costs (Variance
  Reporting Step)
• Step 10 Manage Scope Through Change Control

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Earned Value Framework Steps to Success
Executing Step 7 Record Direct Costs

• Purpose is to show how much money they have spent
  on a project
• Update the schedule with the period progress
• PMs are required to enter actual hours on a
  consistent basis
• Costs from invoices are also entered
• After actuals are entered cost and schedule
  variances can be calculated
• This is where discrete measures come into play
• Earned value must then be relatable to the actual
  costs in order to determine the cost efficiency
  factor, called the Cost Performance Index (CPI).
• The CPI is likely the single most important
  metric for any project employing earned value.
• To-Complete Performance Index (TCPI)

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Earned Value Framework Steps to Success
Controlling Steps

• Planning
• Step 1 Define the Scope (Planning)
• Step 2 Determine Who Will Perform the Work
• Step 3 Plan and Schedule Work
• Step 4 Estimate Work and Procurement
• Step 5 Determine Performance Metrics and
  Thresholds
• Step 6 Create Performance Measurement baseline
  and Mgmt Control
• Executing
• Step 7 Record Direct Costs
• Controlling
• Step 8 Monitor EV Performance Against Baseline
  (Control Step)
• Step 9 Forecast Final Required Costs (Variance
  Reporting Step)
• Step 10 Manage Scope Through Change Control

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Earned Value Framework Steps to Success
ControllingStep 8 Monitor EV Performance
Against Baseline (Control Step)

• Next Calculate all Earned Value components
• Determine cost and variances from baseline
• Determine three Required Values (PV budget, AC
  (Actuals) EV for the work accomplished to date
• Tip EV is based on a of your budget We
  have actually completed worth of work
• Calculate Variances, indices and factors from
  baseline
• Variances (SV, CV, SPI)
• Performance Indexes (CPI, SPI) -- ratio
  expressions of the Schedule and Cost Variances
• PMs should focus on exceptions using thresholds
  determined during planning
• Management by Exception (Lessons Learned)
• Cannot simply review parent tasks or phases
• What if there is a negative task and a positive
  tasks.
• Both will need attention
• How critical is the task? Is it on the critical
  path or is it a high risk task?
• Start at the higher levels of the plan and work
  your way down
• Cost overruns are typically non-recoverable.

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Earned Value Terminology Steps to Success
Controlling Basic EV - Summary
Term Interpretation
(PV) Planned Value This is your baselined budget as approved by your stakeholders
(AC) Actual Cost These are your actual hours and costs as entered by the project team. PM must (at a minimum) audit these to verify Discrete Entries Verify if work completed is DONE
(EV) Earned Value What is the estimated value of the work actually accomplished? The projects physical progress Progress reported in baseline or planned dollars Represents sum of completion for each task or deliverable
(BAC) Budget at Completion The sum of all of the budgets allocated to a program. How much did we Budget for the Total Job.
Planned value and Actual Cost will be compared to Earned value in terms of differences / ratios Will result in variances and performances indexes Planned value and Actual Cost will be compared to Earned value in terms of differences / ratios Will result in variances and performances indexes
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Earned Value Terminology Steps to Success
Controlling Variance Calculations
Term Interpretation
(SV) Schedule Variance Represents the difference between the amount of work actually completed and the amount of work scheduled to complete. This variance tells us if the schedule is ahead or behind what was planned for during this period of time.
(CV) Cost Variance This is the Difference between the estimated and the actual cost to complete the same work. The cost variance tells us if the costs are higher than budgeted or lower than budgeted.
(VAC) Variance at Completion Represents how much over/under budget will we expect to be at the end of the project It calculates the difference between the budget at completion and the estimate at completion.
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Earned Value Terminology Steps to Success
Controlling Variance Calculations
1 lt1 gt1
(SV) Schedule Variance (EV PV) On schedule Poor Performance If SV is less than 1.0 than your project is behind schedule. Less work completed than planned Good Performance If SV is greater than 1.0 than your project is ahead of schedule More work has been accomplished than scheduled
(CV) Cost Variance (EV - AC) On budget Poor Performance If CV is less than 1.0 than your project is over budget. You have cost overruns Typically not recoverable Will continue to deteriorate unless corrective action is taken to mitigate Good Performance If CV is greater than 1.0 than your project is under budget You have cost under runs
(VAC) Variance at Completion (BAC EAC) A negative number means we are doing poorer with costs than we anticipated A positive number means we are doing better with costs than we anticipated
REQUIRES PM ATTENTION Why would attention be needed for a positive number? What if the schedule was over estimated? Are we using our resources efficiently? REQUIRES PM ATTENTION Why would attention be needed for a positive number? What if the schedule was over estimated? Are we using our resources efficiently?
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Earned Value Terminology Steps to Success
Controlling Performance Indices
Term Interpretation
(SPI) Schedule Performance Index Calculates a ratio of the value of what was accomplished (EV) versus what was budgeted to accomplish it (PV), up to the status date. We are (only) progressing at __ of the rate originally planned
(CPI) Cost Performance Index Calculates a ratio of the value of what was accomplished (EV) versus what was actually spent to accomplish it (AC), up to the status date. Indicates if the cumulative actual costs during the assessed period are higher or lower than budgeted for the work completed. Single most important EV calculation We are getting ___ out of every 1 spent
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Earned Value Terminology Steps to Success
Controlling Performance Indices
1 lt1 gt1
(SPI) Schedule Performance Index (EV / PV) On schedule Poor Performance If SPI is less than 1.0 than less work was completed on your schedule than what was planned Good Performance If SPI is greater than 1.0 than your work accomplished was more than planned Work done out of sequence can lead a team to believe the project is ahead of schedule when it is not
(CPI) Cost Performance Index (EV / AC) On budget Poor Performance If CPI is less than 1.0 than you are over budget. Spending is more than planned for the work accomplished Good Performance If CPI is greater than 1.0 than you are under budget. Spending is Less than planned for the work accomplished
If your project is more than 20 complete, the CPI stabilizes. In other words, if you are overrunning at 20, you will be overrunning at completion. Furthermore, the overrun at completion will be greater than the overrun to date! Source research on 700 DOD contracts If your project is more than 20 complete, the CPI stabilizes. In other words, if you are overrunning at 20, you will be overrunning at completion. Furthermore, the overrun at completion will be greater than the overrun to date! Source research on 700 DOD contracts REQUIRES PM ATTENTION Why would attention be needed for a positive number? What if the schedule was over estimated? Are we using our resources efficiently? REQUIRES PM ATTENTION Why would attention be needed for a positive number? What if the schedule was over estimated? Are we using our resources efficiently?
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Calculation Example

• You have a project to build a new fence.
• Fence is four sided (all sides are equal)
• Each side is to take one day to build
• Each side is budgeted for US 1,000
• The sides are planned to be completed
  sequentially (one after the other)
• Today is end of day three
• Using the project status chart below, calculate
  EV, etc. When completed, check your answers on
  the answer sheet on the following page.

Task Day 1 Day 2 DAY 3 Day 4 Status
Side 1 S---F Complete, Spent 1,000
Side 2 S---PF ---F Complete, Spent 1,200
Side 3 PSS--PF Half Done, spent 600
Side 4 PS----PF Not Started
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Calculation Example
Description Calculation Answer Interpretation
PV Planned Value 1,000 1,000, 1,000 3,000 We should have done 3K worth of work
EV Earned Value Complete, Complete, half done or 1,000 1,000 500 2,500 We have actually completed 2,500 worth of work
AC Actual Cost 1,000 1,200 600 2,800 We have actually spent 2,800
BAC Budget at Completion 1,000 1,000 1,000 1,000 4,000 Our project budget is 4,000
CV Cost Variance EV AC 2,500 3,000 -300 We are over budget by 300
CPI Cost Performance Index EV / PV 2,500 / 2,800 .893 We are only getting 89 cents out of every dollar we put into the project
SV Schedule Variance EV PV 2,500 3,000 -500 We are behind Schedule
SPI Sched. Performance Index EV / PV 2,500 / 3,00 .833 We are only progressing at 83 of the rate planned
EAC Est. at Completion BAC / CPI 4,000 / 2,800 4,479 We currently estimate that the total project will cost 4,479
ETC Estimate to Complete EAC - AC 4.479 2,800 1,679 We need to spend 1,679 to finish the project
VAC Variance at Completion BAC - EAC 4,000 4,479 -479 We currently expect to be 479 over budget when the project is complete
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Compare Actual Performance with the Baseline Plan
Earned Value on Bottom Wk 2 Management
Attention Corrective Action
Legend Planned Value Earned Value Actual Costs
Wk 1 Negative Cost Variance (EV-AC) Wk 1
Negative Schedule Variance (EV-PV)
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Compare Actual Performance with the Baseline Plan
Earned Value now on top Wk 5 Positive Cost
Variance (EV-AC) Wk 5 Positive Schedule Variance
(EV-PV)
Legend Planned Value Earned Value Actual Costs
EARLY MANAGEMENT ATTENTION
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EVM Early Attention to Issues Avoids this
Problem
BIG VARIANCE AT COMPLETION
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Tracking the CPI SPI
Early Management Attention can result in
improvement
10/06 11/06 12/06 01/07 02/07 03/07
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Earned Value Framework Steps to Success
Controlling Step 8 Monitor EV Performance
Against Baseline (Control Step)

• Variance analysis should address
• Separate discussion of CV, SV (current and cum)
  and VAC
• Clear description of reason for variance
• Quantity variances (e.g., price vs. usage)
• Be specific, not general
• Corrective action
• Technical, schedule, and cost impacts
• Impact to estimate at completion
• What is a significant variance?
• variance (e.g., gt10)
• variance (e.g., gt50,000)
• Critical path element
• Risk/complexity
• impact to other elements
• Top 10, Top 20, etc.
• Owner

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Earned Value Framework Steps to Success
Controlling Step 8 Monitor EV Performance
Against Baseline (Control Step)

• Potential Causes of Unfavorable (-) Cost
  Performance
• Work more complex than estimated
• Design review comments extensive
• Rework
• Unclear Requirements
• Scope Creep (Gold Plating)
• Increased Market costs for labor or material
• Overhead Rate Increases
• Potential Causes of Favorable () Cost
  Performance
• The opposite of unfavorable cost performance

• Potential Causes of Unfavorable (-) Schedule
  Performance
• Manpower shortage
• Revised Execution Plan
• Supporting organization behind schedule
• Late Vendor deliver
• Delayed customer feedback / decision
• Rework
• Work more complete than anticipated
• Design Review comments extensive
• Unclear Requirements
• Scope Creep

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Earned Value Framework Steps to Success
Controlling Step 8 Monitor EV Performance
Against Baseline (Control Step)

• Corrective Action- How to bring the task back in
  line
• Crashing
• Goal Gain the greatest amount of schedule
  compression with the least amount of cost
• Looks at cost and schedule tradeoffs
• Add Resources to the tasks in the critical path
  (internal or external)
• Reduce project scope
• Review changing the sequence of tasks
• Often causes costs to increase
• Which is the most important of the triple
  constraints to your stakeholders? (Cost,
  Schedule, Quality)
• Fast Tracking
• Starting two tasks at the same time that were
  previously scheduled to start sequentially
• Can increase risk and might cause the project
  team to rework tasks
• Develop a process to Reuse code This actually
  can reduce defect risk
• Example We are six months into a million dollar
  project.
• CPI 1.2 (we are getting 1.2 dollars for every
  dollar spent
• SPI .89 (we are progressing only at 89 of what
  was planned)
• What can be done?
• Replace a more expensive member from the project
  team? (This would improve cost not schedule and
  add risk)
• Bring in an additional programmer to work on the
  next two tasks. (Most effective choice)

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Earned Value Framework Steps to Success
Controlling Step 9 Forecast Final Required
Costs

• This step is in place to forecast the final
  required costs based on actual performance
• Keep management apprised so corrective action can
  take place
• Actual performance results are sunk costs. These
  are unrecoverable
• Any improvements in performance must come from
  future work.
• EAC indicates where the cost is heading
• Earned value provides the capability to quickly
  and independently forecast total funds required
  to complete the project (ETC)
• ETC is a forecast for completing the total
  project.
• Considers the performance to date plus future
  estimates
• Variance Reporting

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Earned Value Framework Steps to Success
Controlling Step 9 Forecast Final Required
Costs

(EAC) Estimate at Completion A. BAC / CPI AC ETC AC BAC - EV AC (BAC EV) / CPI Gives us an idea of final costs of a project. It takes into account the original budget (BAC). The earned value and the cost performance index of the already complete work. As of now, how much do we expect the total project to cost? ____. Formulas A. Used if no variances from the BAC have occurred or you will continue at the same rate of spending B. Used when the original estimate assumptions were fundamentally flawed or no longer relevant due to a change in conditions Requires PM to perform bottom up evaluation of Estimate to Complete Example Complete change in in environmental regulations creates a need for a different design than was scoped. Need rebaseline. C. Used when current variances are seen as atypical and the expectation is that similar variances will not occur in the future. Actual to date plus remaining budget modified by performance. D. Used when current variances are seen as typical of future variances Most respected, since cumulative variances are indicative of future variances
(ETC) Estimate to Complete EAC - AC From this point on, how much MORE do we expect it to cost to finish the project? An estimated cost to complete the remaining work on the project .
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Project Earned Value AnalysisSample Dashboard
Target
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Project Earned Value AnalysisMS Project 2003
Variance Report Example
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Let software tools do the number crunching
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Earned Value Framework Steps to Success
Controlling Step 9 Forecast Final Required
Costs

• MS Project (2003) Earned Value tools (downloads)
• HelpgtPerforming Earned Value Analysis
• You will be taken to MS Project Download
  Template Page
• Manage costs during the project life cycle
  (Article)
• Use these strategies to ensure that your project
  stays within your budget.
• Goal Monitor costs (Article)
• Examine your current, actual, remaining, and
  baseline cost totals in Project 2003.
• Goal Adjust costs to keep the project on budget
  (Article)
• After you identify a budget problem, learn to
  take corrective action with Project 2003.
• Project earned value analysis (Template)
• Track time-phase expenses for projects by using
  this template.
• Cost analysis with Pareto chart (Template)
• Use this statistical method to identify the most
  critical cost problem areas to improve.
• Project resource plan (Template)
• Use this template to communicate project
  resource planning information to all key project
  stakeholders.

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Project Earned Value AnalysisMS Project 2003


XYZ Project XYZ Project XYZ Project XYZ Project XYZ Project XYZ Project XYZ Project XYZ Project XYZ Project XYZ Project XYZ Project
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Budget at Completion (BAC) 1,230 1,230 1,230 1,230 1,400 1,400 1,400 1,400 1,400 1,400
Earned Value (EV) 100 200 300 450 750 800 1,125 1,200 1,400 1,400
Actual Cost (AC) 100 205 315 600 800 1,000 1,200 1,350 1,475 1,525
Planned Value (PV) 100 220 325 550 725 925 1,175 1,275 1,450 1,500
Cost Variance (CV) 0 (5) (15) (150) (50) (200) (75) (150) (75) (125)
Schedule Variance (SV) 0 (20) (25) (100) 25 (125) (50) (75) (50) (100)
Cost Performance Index (CPI) 1.00 0.98 0.95 0.75 0.94 0.80 0.94 0.89 0.95 0.92
Schedule Performance Index (SPI) 1.00 0.91 0.92 0.82 1.03 0.86 0.96 0.94 0.97 0.93
Estimate to Completion (ETC) 1,130 1,056 977 1,040 693 750 293 225 0 0
Estimate at Completion (EAC) 1,230 1,261 1,292 1,640 1,493 1,750 1,493 1,575 1,475 1,525
Variance at Completion (VAC) 0 (31) (62) (410) (93) (350) (93) (175) (75) (125)
Status based on Average Performance Index GREEN YELLOW YELLOW RED YELLOW RED YELLOW YELLOW YELLOW YELLOW
Comments         New baseline set          

Project earned value analysis (Template)Track time-phase expenses for projects by using this template. Project earned value analysis (Template)Track time-phase expenses for projects by using this template. Project earned value analysis (Template)Track time-phase expenses for projects by using this template. Project earned value analysis (Template)Track time-phase expenses for projects by using this template.

Metric Abbrev. Description Formula/Value
Budget at Completion BAC Baseline cost for 100 of project. N/A
Actual Cost AC Total costs actually incurred so far. N/A
Earned Value EV Amount of budget earned so far based on physical work accomplished, without reference to actual costs. N/A
Planned Value PV The budget for the physical work scheduled to be completed by the end of the time period. N/A
Cost Variance CV Measure of cost overrun. The difference between the budget for the work actually done so far and the actual costs so far. Earned ValueActual CostEVAC
Cost Performance Index CPI Cost efficiency ratio. A CPI of 1.00 means that the costs so far are exactly the same as the budget for work actually done so far. Earned Value/Actual CostEV/AC
Schedule Variance SV Measure of schedule slippage. The difference between the budget for the work actually done so far and the budgeted cost of work scheduled. Earned ValuePlanned ValueEVPV
Schedule Performance Index SPI The schedule efficiency ratio. An SPI of 1.0 means that the project is exactly on schedule. Earned Value/Planned ValueEV/PV
Estimate to Completion ETC The expected additional cost to complete. Estimate at CompletionActual CostEACAC
Estimate at Completion EAC Expected total cost based on the current cost efficiency ratio. Budget at Completion/Cost Performance IndexBAC/CPI
Variance at Completion VAC Estimated cost overrun at the end of project. Budget at CompletionEstimate at CompletionBACEAC
Status   Average of CPI SPI. (Cost Performance IndexSchedule Performance Index)/2(CPISPI)/2
 Thresholds   GREEN On track gt1.0
    YELLOW Slightly behind schedule or budget gt0.85
    RED Needs immediate attention gt0.65
    BLACK Killed or Restore lt0.65
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Project Earned Value AnalysisMS Project 2003
Trend Analysis
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Project Earned Value AnalysisMS Project 2003
Trend Analysis
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Earned Value Framework Steps to Success
Controlling Step 10 Manage Scope Through Change
Control

• Integrated Change Control
• Without a CC process performance baselines become
  invalid
• Changes and new work due to issue management
  should be added to the schedule.
• All change requests must be addressed quickly
• Accept or reject by Change Control Board,
  Steering Committee or Sponsor
• PMs should have authority to say no to changes
• All changes should be documented
• No Gold Plating!
• Single most important factor to a sound EVM
  process and implementation

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Earned Value Benefits
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Earned Value Benefits

• Provides managers with information at a
  practical level of summarization
• Alerts PMs to potential schedule and cost risks
  early
• Provides a documented project performance trail
• Communicates project status
• Tracks and monitors discrete project metrics
• Relates time-phased budgets to specific contract
  tasks
• Provides comparisons between planned and actual
  work
• Provides accurate and reliable readings of cost
  and schedule performance
• Actual performance at the 15 complete point can
  be used to predict final performance.
• The schedule performance index (SPI) is useful in
  assessing how much work has been accomplished.
• The CPI index provides a statistical basis for a
  best case final estimate.
• The CPI and SPI indices may be combined to
  statistically forecast the most likely final
  estimate.

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Earned Value Key Lessons Learned
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Earned Value Key Lessons Learned
Lesson Attributed To Corrective Action
1 Schedule Compression incurs additional project cost Work cannot be scheduled and resourced in an optimal fashion Schedule compression almost always results in inefficiencies due to resource loading and reword
2 Education and buy-in are crucial Through time not just to start Lack of Senior Level Commitment Executives Project Managers Staff
3 WBS Quality / Reliability Plan the work carefully and accurately WBS Quality not maintained All parties buy in to the WBS WBS is simple - composed of measurable, deliverable pieces Risk-adjusted SPI/CPI
4 Sustenance Perceived Complexity Keep Process Simple and Tool Supported See 2
5 No variance reports / dashboards No policy in place or no standard Weekly high level metrics, Monthly Dashboard reporting with full EV Graphs and text Period/period compare
6 Manage by Exception Too much management will scare your PMs Micro Management Manage by exception. Focus on significant variances to the plan. Apply timely corrective actions.
7 Tracking conducted inconsistently. PM Discipline Track Track Track No Pain NO Gain
8 Time for data measurement, input, and manipulation can be considerable. Growing Pains Plan ahead Provide amble PM time to create and research results
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Earned Value Limitations
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Earned Value Limitations

• Traditional EV is not intended for non-discrete
  (continuous) effort.
• When a plan contains a significant portion of LOE
  intermixed with discrete effort, EVM results will
  be contaminated
• The use of EVM presumes that stakeholders care
  about measuring progress objectively.
• Quantifying/measuring work progress can be
  difficult.
• Time required for data measurement, input, and
  manipulation can be considerable.
• EVM requires thorough and accurate planning of
  cost and schedule to be effective.
• Future performance is being forecast based on
  past performance (so if your data is bad, so is
  your forecast)
• Earned Value does not measure quality
• EVM is designed to ensure that the future
  predicted by EVM does not materialize as it
  encourages corrective action

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Earned Value Dos and Don'ts
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Earned Value Dos and Don'tsDos

• Take the necessary building steps seriously
• Integrate the scope of work, schedules, and costs
  using a WBS.
• Train your stakeholders. It is critical they can
  understand the variance reports
• Document all performance metrics and thresholds
  in the Project Plan (Performance Plan)
• Determine how you will measure your tasks
  (discrete options)
• Assess variances early No later than 15 in
• ..Highest Potential for Cost / Schedule
  Recovery..
• Make sure the bad news is heard
• Take corrective action
• Staff changes?
• Mid-term evaluation of work
• Crashing
• Fast Tracking

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Earned Value Dos and Don'tsDos

• Request and monitor that staff enters actual
  hours each week
• Provide PMs with a reliable labor and overhead
  rates for each resource.
• Without the rate CPI does not mean much
• Have policies in place for rebaselining
• Keep your original baseline in tact and always
  measure against it
• If for no other reason, it keeps historical
  estimates in place
• Re-plan as necessary
• Budget increase?
• Scope change?
• Schedule change?
• Create a weekly or Monthly Variance Report
• Use standard templates for reporting
• Helps with the learning curve
• Helps to compare or aggregate data across
  projects
• Institute Standard Reporting Cycles

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Earned Value Dos and Don'tsDos

• Perform scheduling and WBS creating at the same
  time.
• There is a documented order defined in the PMBOK
• Most Common Error
• Dont set up your project with level of effort
  planning.
• Creating one task (i.e. design) and allocating a
  certain number of people to it over a fixed
  amount of time.
• Earned value will not be possible. The only
  measurement possible will be cash flow
• Leave planning until your financials and WBS are
  integrated through Cost Control
• Cost account structures and the level of detail
  to be tracked must support the earned value
  management system.
• Each cost account should have a unique identifier
  to enable an accurate calculation of the actual
  cost of work performed (ACWP).
• Manage at only the contract / engagement level
• Rarely are projects managed at the WBS
  Deliverable Level EV Loses Control

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Earned Value Dos and Don'tsDon'ts

• Focus solely on schedules. This is the typical
  PM Mindset by Business Culture. PMs
• Are focused on Schedules --NOT Costs
• Manage at the contract level vs the WBS
  Deliverable Level
• Leave real Billing Rates out of the WBS
• Competition Sensitive Data
• Artificial Blended Rates
• Fixed Price, So Why Bother
• The 1.00 per hour fix
• Let your tasks or milestones get too large in
  duration, cost and scope
• Could impact PMs ability to identify variances
  at a level that can be corrected
• Include multiple individuals on the same task
  whenever possible
• Helps identify root cause of variances easier
• Forget Success factors
• A full WBS is required (all scope)
• Beware of GIGO Garbage-in, garbage-out
• No Gold Plating!
• If you know there is a significant variance dont
  wait until you create the monthly report to begin
  corrective action planning
• Assume adding a resource or adding paid overtime
  will fix the schedule variance most likely
  will create a CPI issue. Cover this with
  stakeholders early.

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Why do we need early warning
Course corrections are easier when you have time
to make small adjustments Its too late when
youre this close to the iceberg!