A Common Sense Approach to Earned Value 5/1/2013

1. A Common Sense Approach to Earned Value5/1/2013 Presented By Michael Marcell (K2) & Tim Hart (CDP)

2. Agenda • What is Earned Value Management (EVM) • Why EVMS? • How Do I Implement EVMS? • Why Make This Investment?

3. What is Earned Value Management (EVM)? • IT IS NOT ROCKET SCIENCE!! • PMI DEFINITION – “Earned Value (EV) is the value of work performed expressed in terms of the approved budget assigned to that work for an activity or WBS Component” • Simply stated, Earned Value Management is a methodology for measuring project performance • Earned Value Management (EVM) is a very effective management technique for every organization – not just for the mega-projects!

4. What is EVM? (Cont.) • At this point of time in your project - • What had you planned to do? • What have you done (earned)? • How much did you actually spend? • What is it going to take to finish?

5. What is EVM? (Cont.) • There are plenty of charts, calculations, graphs, examples that we could show that would very quickly put everyone to sleep – we would like to bring this to a level that makes sense to each of you.

6. What is EVM? (Cont.) • There is value in EVM on an individual project – the true organizational benefit is achieved when you look across all projects – large AND small, to see where the profit margins are being realized

7. What is EVM? (Cont.) • From an article by Quentin Fleming and Joel Koppelman"Earned Value Project Management...an introduction" - bad news does not improve with time, it only gets worse. At issue: Bad news known at the 20 percent point in a project’s lifecycle gives management some opportunity to take corrective actions and alter the final results. Conversely, bad news that is ignored or not addressed until perhaps the 80 percent completion point severely limits management’s opportunities to make the necessary changes to recover performance.

8. WHY USE EVM? • Simply the best method for measuring progress during and after a project • In the Bid & Proposal area, while it is one thing to say that you have certain management capabilities, but when you show actual reports the evaluation committee awards points for proof of what you say. Historical reference (Risk Management, actual customer experience, strategic management, lessons learned) including price-to-win strategy.

9. WHY USE EVM? (Cont.) • Once awarded, EVM provides background for planning phases, early detection of potential overruns, scope creep, risk items, bid busts, etc. • During performance, project metrics for change management, risk management and performance management, and forecasting – including cash flow.

10. WHY USE EVM? (Cont.) • At close-out, when the job ends, have we • (a) completed all items? • (b) maximized all fees, bonus payments, etc.? • (c) received final payment? • During post-project lessons learned, what will help us for future projects? Did we achieve our cost and profit objectives? What could have been done differently?

11. WHY USE EVM? (Cont.)

12. HOW DO I IMPLEMENT EVM? • WHAT EVM IS NOT – Implementing EVM for your organization is NOT simply buying a software tool that supports EVM and installing it – there are specific processes that need to be in place that make sense to your organization (staff and managers). A well planned implementation of tools and processes will provide the desired results.

13. HOW DO I IMPLEMENT EVM? (Cont.) What IS EVMS? • Processes/Methodology interrelating scope, schedule & cost to support management decisions • There are a variety of software tools to simplify the processes • Processes can be developed using known industry best practices (PMI, ANSI, NDIA): • Organizational • Planning & Budgeting • Accounting • Analysis • Revision and Data Maintenance

14. HOW DO I IMPLEMENT EVM? (Cont.) • What is the current organizational structure? Resources – how many people, systems (project management, accounting, HR, etc.), hardware, experience – core competencies – will we need to go outside for help? • Where do you want to be? What is the impact of an upcoming project on your existing capabilities?

15. HOW DO I IMPLEMENT EVM? (Cont.) • Gap Analysis – • How do we get from where we are… • To where we want to be • How long do we want to take getting there? Very important to move at a pace that the organization can support and sustain. • Evaluation of the gap analysis, and lay out a plan that accomplish the objectives in a way that will fit within any organizational constraints.

16. HOW DO I IMPLEMENT EVM? (Cont.)

17. Why Make This Investment? • QUESTION - I have been told that EVM is very expensive to implement – why should Imake that kind of investment in these hard times? • Sequestration • Big business competing for smaller contracts • Much more aggressive bidding (low price) • Reduced Margins

18. Why Make This Investment? (Cont.) • More necessary in hard times that in boom times – bigger impact on resources, schedule, costs, profit • Cost vs Value of EVM – what is the cost of overrunning the program/project? • Initial implementation – software, training, institution of processes

19. Why Make This Investment? (Cont.) • Initial Implementation investment is variable; ongoing operational costs are nominal • Organizational cost vs direct project/program cost – EVM is an organizational asset • EVM is completely process-driven • a number of software products to track progress – some tools are better than others • costs are proportional – software is much cheaper than people

20. Why Make This Investment? (Cont.) • Question - a lot of guidance I have seen tells me that EVM can only be effective in Cost-Plus contracts – • What about Firm-Fixed-Price? • What about T & M?

21. Why Make This Investment? (Cont.) Cost-Plus Contracts What are Cost Plus contracts? • Pay for actual costs • Fee is established at contract award • Scope is less well defined (e.g., engineering, R & D, etc.) • Change Order to renegotiate fee

22. Why Make This Investment? (Cont.) Cost Plus (Cont.) • Contract Requires EVM – I have to do it • Owner Requires EVM • because the owner bears the risk • needs to know ongoing cost in detail • need to know how much more the contract is going to cost to complete • need to know risks and delays at all times (translates to cost) • manage project/program scope • any changes renegotiate fee

23. Why Make This Investment? (Cont.)

24. Why Make This Investment? (Cont.) What are FFP contracts? • Contract cost is set • Fee is adjustable –burden for profit is on contractor • Scope is very well defined (e.g., construction, deployment, etc.) • Change Order to renegotiate total value of contract

25. Why Make This Investment? (Cont.) Firm Fixed Price (Cont.) - Contractor assumes more requirements than the owner • Risk • Costs • Cost to Complete • Delays • Contractor must manage scope - Owner validates that the scope is clear (eliminates change orders)

26. Why Make This Investment? (Cont.)

27. Why Make This Investment? (Cont.) • Other contract vehicles? Time & Materials (T & M), Ceiling contracts • Contractor’s perspective - still need to manage cost, resources, scope in order to return a profit • Owner’s Perspective - still need to affirm that scope was completed as expected AT the cost that was expected WITHIN the timeframe that was expected • Challenges – scope is vague (e.g., staff augmentation, advanced technology, process improvement)

28. Why Make This Investment? (Cont.) Time & Materials Contracts • Contractor assumes the same requirements as the owner • Risk • Costs • Cost to Complete • Delays • Owner must manage scope - Owner validates that the scope is clear (eliminates change orders)

29. Why Make This Investment? (Cont.)

30. Wrap-up • What is Earned Value Management (EVM) • Why EVMS? • How Do I Implement EVMS? • Why Make This Investment? Questions?

31. Contact Information Michael Marcell • K2 Construction Consultants, Inc. • mmarcell@k2consulting.com • 301-656-2228 Tim Hart • CDP, Inc. • thart@cdp-inc.com • 443-472-4084