Earned Value Management

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Earned Value Management
Instructor Manfred Huber

• Partially adapted from Mike ODell. Some slides
  in this presentation were originally developed by
  Mr. Tom Rethard.

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Earned Value - What is it?

• Simply, it is a project monitoring and
  measurement system that
• establishes a clear relationship between planned
  accomplishments and actual accomplishments
• reinforces and rewards good planning practices

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Earned Value - What is it?

• Basic concepts of Earned Value Management (EVM)
• Each task in a project earns value as planned
  work is completed
• For example (perhaps), if you were paid on this
  basis, you would earn at key milestones based
  on the value of what you have completed (earned
  value)
• Earned value can be compared to actual cost and
  budgeted cost to determine variance and predict
  future performance

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Earned Value - What is it?

• The budgeted cost (e.g., dollars, person-hours,
  person-days, etc.) in terms of your baseline
  plan/budget of the work performed up to a
  specified point in time
• Also known as Budgeted Cost of Work Performed
  (BCWP)
• Each task in the Work Breakdown Structure (WBS)
  is assigned a BCWP based on its individual cost.
• Project BCWP is total of BCWP for all tasks
  required to complete the project

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Earned Value Components

• Planned Value (a.k.a. BCWS)
• How much work (person-hours) you planned to have
  accomplished at a given point in time (this is
  from the WBS in your plan)
• Actual Cost (a.k.a. ACWP)
• How much work (person-hours) you have actually
  spent at a given point in time
• Earned Value (a.k.a. BCWP)
• The value (person-hours) in terms of your base
  budget of what you have accomplished at a given
  point in time (or, complete X Planned Value)

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Earned Value Example
Today
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8
14

• On Day X
• PLANNED VALUE (Budgeted cost of the work
  scheduled, BCWS)
• 18 10 16 6 50
• EARNED VALUE (Budgeted cost of the work
  performed, BCWP)
• 18 8 14 0 40
• ACTUAL COST (of the work performed , ACWP)
• 55 (from your project tracking - not evident in
  above chart)

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Earned Value Example
Actual Cost what you have actually spent to
this point in time.
Today
Budgeted (Planned) Spending
Planned Value what your plan called for sending
on the tasks planned to be completed by this date.
Cost (Person-Hours)
Earned Value
Actual Spending
Earned Value value (cost) of what you have
accomplished to date, per the base plan.
Time (Date)
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Earned Value Example
Today
Budgeted (Planned) Spending
Cost (Person-Hours)
Earned Value
Actual Spending
Time (Date)
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Variance

• Any schedule or cost deviation from a specific
  plan.
• Used within an organization to verify the budget
  and schedule for a project
• Frequently used as a key component of plan
  reviews and performance measurement

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Variance

• Must compare scheduling and budget variance at
  the same time
• Schedule variance deviations from work planned
  not a measure of changes in cost
• Cost variance deviations from the budget not
  a measure of work scheduled vs. work completed
• Example applying more /people to a task may
  maintain the schedule, but it adds to cost
  schedule on track over budget on expenses (cost)

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Performance Indices

• Cost Performance Index
• CPI BCWP/ACWP
• Schedule Performance Index
• SPI BCWP/BCWS
• Analysis
• CPI gt 1.0 ? exceptional performance
• CPI lt 1.0 ? poor performance
• Similar for SPI

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Quiz

• The EV measurement of work you planned to have
  accomplished at a given point in time
• BCWP
• ACSP
• BCWS
• ACWS
• True or False At any point in time, the SPI
  tells you exactly how far ahead or behind
  schedule you are on your project.
• TRUE
• FALSE

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Quiz

• If BCWP is 20 pm and ACWP is 15 pm, CPI
• .75
• 1.33
• 1.0
• 0
• If BCWP is 27 pm BCWS is 25 pm, you are probably
• On schedule
• Ahead of schedule
• Behind schedule
• None of the above

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Earned Value Variance Example

• On Day X
• PLANNED VALUE (BCWS) 18 10 16 6 50
• EARNED VALUE (BCWP) 18 8 14 0 40
• ACTUAL COST (ACWP) 55 (from your project
  tracking)
• Therefore
• Schedule Variance BCWP BCWS 40 - 50 -10
  (behind schedule)
• Schedule Performance Index 40 / 50 0.8, or
  80 of plan (a B-, at best)
• Cost Variance BCWP - ACWP 40 - 55 -15
• Cost Performance Index 40/55 .73, or youre
  getting an 73 return on every 1.00 (or,
  person-hour) spent on this project

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Primary Measurement Methods

• Measurable efforts
• Discrete increments of work with definable
  schedule and tangible results (i.e., real tasks
  with a deliverable)
• Level of effort
• Work that is not discernable in discrete,
  measurable tasks (e.g., project management,
  training)

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Determining Complete When?

• Allocate based on time spent but what if you
  spend more time than allocated?
• Allocate 50 at start of task, 50 at end
• But only for small, discrete tasks
• Allocate 100 at start of task
• Allocate 100 at end of task
• Best solution if you keep tasks very small
• Allocate value at Critical Milestones
• Good solution when using with contract work
• Others?

Our approach
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Another Example Project

• Plans to spend 100K in each of first 4 weeks
  (baseline budget, per documented plan)
• Actuals, at end of week 4 show 325K spent
• BCWS 400K (100K x 4)
• ACWP 325K
• What conclusions can you draw?
• Under budget?
• Is project on schedule?

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Another Example Project

• Suppose BCWP is 300K
• How is this determined?
• What conclusions now?
• SV BCWP BCWS
• SV 300k - 400K -100K
• Behind schedule, but what does the 100K in
  variance really mean?
• CV BCWP ACWP 300K - 325K
• Over budget by 25K

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Earned Value Management

• How can you use this information?
• Careful analysis of variance and trends
• Resetting schedule or budget, when appropriate
• Variance Analysis Questions
• What is the problem causing the variance?
• What is the impact on time, cost and performance?
• What is the impact on other efforts, if any?
• What corrective action is planned or under way?
• What are the expected results of the corrective
  action?

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Earned Value Management

• Extraordinary variance or alarming trends may be
  cause for reset or cancellation of a project, but
  where do you draw the line?
• How much variance to allow depends on a number of
  factors
• Life-cycle phase
• Length of life-cycle phase
• Length of project
• Type of estimate
• Accuracy of estimate

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Variance Projection
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Performance Index Trends
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Ideal Performance Index
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Closing Thoughts Management Reserve

• The padding always added to a project for
  unexpected costs that are within project scope
• Not an allowance for changes to scope
• Not part of the cost estimate
• Added by upper management, not the project
  manager.

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Closing Thoughts Government Requirements

• U.S. government contract cost tracking often must
  include
• BCWS
• BCWP
• ACWP
• Estimated cost at completion
• Budgeted cost at completion
• Cost and schedule variances with explanations
• Traceability

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Summary

• Cost, in the form of Earned Value or BCWP, can be
  used to analyze progress of a project
• Using Earned Value data to make critical project
  decisions must be based on careful analysis of
  data, variances and trends