EVMS Phases

1. EVMS Phases

2. Introduction • Within an EVMS one of the most difficult areas to understand and manage is the difference between Budgets and Funding. • The following slides hope to put the concept of budget and funding forward.

3. 3 Phases of an EVMS • In a successful Earned Value Management System there are 3 distinct phases: • 1. Creating the Performance Measurement Baseline • 2. Monitoring against the Baseline • 3. Changing the Performance Measurement Baseline Each has it’s priorities, and each has it’s role to play. A full understanding of each of these is needed to appreciate the power of an EVMS.

4. Baseline Plan Current Plan Time now Slip Forecast £ Budget Time CV(£) SV (£) Basic EVM Terminology EAC (BCWS = Resource and Cost information applied to baseline schedule) (BCWP = Earned Value accrued by progress against Baseline schedule) (ACWP = Spends recorded against progressing schedule to date)

5. 100 40 60 15 25 30 30 Phase 1 – Creating the PMB 1. DEFINE THE WORK AND organise TEAMS CONTRACT BUDGET BASE MR 2. SCHEDULE THE WORK PM BASELINE 4. APPLY RATES TO RESOURCES £ 3. ALLOCATE BUDGETS TIME

6. Phase 1 – Creating the PMB • Definitions • Scope – This is the customer requirements • Assumptions – The contractors view on how they will achieve the customers requirements • Example • Scope – Build a vehicle to transport people from London to Blackpool • Assumption – As the contractor we will build a four seater car with an economical engine and enough luggage space for 4 people.

7. Assumptions • In order to come up with a plan and an estimate the contractor would come up with some lower level assumptions probably based on past information. • These assumptions need to be agreed and documented. The documented assumptions become a part of the Control Account baseline documentation suite as this forms part of the basis of estimate. • The only thing sure about the PMB and the Baseline is that it will change. • The PMB requires that to the best of the CAMs knowledge all work has been planned and therefore budgeted for.

8. BCWS - PMB ACWP cv £ sv BCWP TIME Phase 2 – Monitoring against the PMB • Once the baseline has been set all EV variances are created against the PMB.

9. EV Variances • SV – A £ showing the amount of work that has been achieved relative to the work that should have been achieved (negative value is underachievement). • CV – A £ value identifying the difference between the work performed and the cost (negative value is over cost). • SPI – An index value showing the adherence of performance against the PMB (less than 1 underachievement). • CPI – The value of work that is being performed against the cost of £1 (under 1 over costing). • VAC – The difference between the budget and funding requirement (negative value more funds needed)

10. EV Variances • BAC – Total value of the CA (budget) • LRE – The CAMs outturn view of cost based on current knowledge • EAC – The authorised Funding amount • TCPI (B) – To complete performance index against budget, the amount the CPI has to be from that point forward to achieve on budget. A check to see the validity of the BAC. • TCPI (E) – To complete performance index against Estimate (EAC), the amount the CPI has to be from that point forward to achieve to the EAC. A check to see the validity of the EAC.

11. Variance question - 1 • SV = BCWP – BCWS • CV = BCWP – ACWP • BCWS = 150 • SV = -50 • CV = -70 • In relation to the 3 line graph is the BCWP and ACWP above or below the BCWS?

12. Variance question - 2 • SV = BCWP – BCWS • CV = BCWP – ACWP • BCWS = 500 • SV = -100 • CV = 150 • In relation to the 3 line graph is the BCWP and ACWP above or below the BCWS?

13. Budget and Funding • One of the main areas of confusion in an EVMS is the difference between Budget and Funding. • In an EVMS the budget is the BAC and the authority is the CAP. This was created by the resource allocation and rates applied to the schedule. The Budget is an estimate of financial requirement to achieve the customer scope of work. • The EAC is the Funding authority. The CAM and the SMT agree that the original assumptions that supported the PMB have changed and that either more or less funds are needed to complete the customer scope. • The only point that BAC=EAC is on the initial PMB creation (Full CAP)

14. Budget and Funding • The following should help to demonstrate the difference between budget and funding: • CA – Imagine this is a bank account • BCWS – Monthly income paid into the bank account (budget) • ACWP – Monthly bills from the account (outgoings) • BAC – This is the total amount of money that is going to be paid into the account (budget) • EAC – This is the total authorised amount that is going to be withdrawn from the account (funding) • LRE – The CAMs proposed spending amount which has yet to be authorised (funding) N.B. if the EAC is more than the BAC it is like asking the bank manager for an overdraught.

15. Example of Budget and funding • The following slides will demonstrate the mechanics of dealing with budgets and funding. • Remember that profit is created from the EAC. • Once the PMB and budgets are in place the focus then becomes understanding the variances created relative to the baseline. • After the PMB is in place the total agreed funding needs to be managed.

16. Is it budget or funding • The following should be used as a guideline. • Budget changes • Significant new scope or CR agreed with customer • Significant reduction in scope agreed with the customer • Total re-plan • Funding • Work more or less complicated than planned, with no change in scope. • Small CR (that increases work to achieve scope and not the scope itself) that will occur within 3 months of time now

17. Example of budget vs funding • In this example the CA is going to overspend. The scope of work has not changed, however the cost to achieve scope has increased. • In the bank account scenario this cam needs an authorised over draught of £1,250

18. Example of Budget vs funding • In this example the work is less complicated than planned. Again the deliverable has not changed but the route to deliverable is less than originally thought. • In the bank account scenario this CAM is not going to spend £2,400. This will be left as a credit in his account.

19. Example of Budget vs funding • The net effect of these 2 CA at the IPT level means that the IPT will be in a position to spend less money than originally thought. This underspend against the PMB cannot be moved anywhere, however the IPT is ‘capped’ with a funding authority lower than the BAC. • In the bank account scenario this IPT is intending to spend £1,150 less than budget.

20. Budget vs funding PD BAC = 36000 EAC = 36850 Funding = 850 IPT 3 BAC = 15000 EAC = 14000 Funding = -1000 IPT 1 BAC = 12000 EAC = 10850 Funding = -1150 IPT 2 BAC = 9000 EAC = 12000 Funding = 3000 CAM 1.1 BAC = 6000 EAC = 7250 Funding = 1250 CAM 1.2 BAC = 6000 EAC = 3600 Funding = -2400 CAM 3.3 BAC = 5000 EAC = 4000 Funding = -1000 CAM 2.2 BAC = 2000 EAC = 3000 Funding = 1000 CAM 2.3 BAC = 5000 EAC = 6000 Funding = 1000 CAM 3.1 BAC = 5000 EAC = 6000 Funding = 1000 CAM 3.2 BAC = 5000 EAC = 4000 Funding = -1000 CAM 2.1 BAC = 2000 EAC = 3000 Funding = 1000

21. Explanation In this example IPT 1 are going to under spend by £1,150 IPT 2 are going to over spend by £3,000 IPT 3 are going to over spend by £1,000 The effect of these are than potentially the contract will over spend by £850. This does not mean that £850 is needed from MR. MR can only be used where scope has been defined. Basically the project will over run. This is now £850 less profit being made, unless the customer is happy to fund it. IPT 1 and IPT 3 have funding authority less than their budget, and are therefore required to under spend. IPT 2 is given authority to over spend. This assumes that these CAMs EAC figures have been challenged and agreed by the IPTLs.

22. EAC Authorisation • The CAM identifies the funding required (LRE) and agrees this with the IPT. • The IPT Leader summates the CAM inputs and proposes the required IPT funding (LRE) to the Project Director. • The Project Director reviews the overall proposed funding requirement (LRE) and authorises the monthly EAC. • Note : • The project EAC position is agreed on a quarterly basis. • The quarterly EAC figures should support the IBPP • The EAC should contribute to the RPS inputs.

23. CA management • It is also important to note that if a Control Account manager looks after several Control Accounts he cannot off-set any under or over spends between his Control Accounts. He has been identified as the most appropriate person in the organisation to look after identified Control Account. If the CAM leaves it does not necessarily mean that a single person will be given the same CAs to manage.

24. Changing the PMB • There are examples of when the PMB should/could be changed, please note that an EVMS is DESIGNED to create variances. Therefore, any baseline changes should not be requested that specifically equalise any variances. • If work package has been completed for less money than originally thought (BCWS = £200K, ACWP = £150K) this is left as a positive cost variance in that control account. If everything else in the control account is expected to go as planned then the EAC should reflect this reduction. It cannot be removed from the budget as the scope of work has been achieved.