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Earned Value Management Reading the Roadmap to Project Success (or, Are We There Yet?)

Earned Value Management Reading the Roadmap to Project Success (or, Are We There Yet?). Steve Margolis, PMP Perpetual Technologies, Inc. March 19, 2008. Overview. EVM Background EVM Basics and Standards Variables & Metrics Integrating Cost, Schedule, Scope Summary EVM Links Q&A.

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Earned Value Management Reading the Roadmap to Project Success (or, Are We There Yet?)

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  1. Earned Value Management Reading the Roadmap to Project Success(or, Are We There Yet?) Steve Margolis, PMP Perpetual Technologies, Inc. March 19, 2008

  2. Overview • EVM Background • EVM Basics and Standards • Variables & Metrics • Integrating Cost, Schedule, Scope • Summary • EVM Links • Q&A 3/19/08

  3. EVM Background • 1960s – PERT/Cost • 1967 – 1996:- Earned value-based on Department of Defense (DoD) Cost/Schedule Control Systems Criteria (C/SCSC) • 1996 – DoD adopts 32 Industry Earned Value criteria • 1998 – ANSI/EIA 748 Issued 3/19/08

  4. EVM Basics • Industry definition: Use of an integrated management system that coordinates work scope, schedule, and cost objectives and employs earned value methods for program planning and control • EVM is not an accounting method or financial management practice 3/19/08

  5. SCHEDULE SCOPE COST EVM Basics – Triple Constraint • EVM is a tool for the Project Manager • Earned Value may point to cost or schedule issues, but does not substitute for good project management. • Don’t “Manage the Earned Value” • Critical Path Analysis • Technical, scope control 3/19/08

  6. EVM Standards • Industry standard ANSI/EIA-748 • 32 EVM system guidelines address ninemanagement processes • DoD contracts >$20M require EVM • DoD contracts >$50M require certified EVM System (EVMS) • Not used on FFP, LoE, or T&M Contracts 3/19/08

  7. EVM Variables - PMB • Performance Management Baseline (PMB); time-phased budget plan. • Earned Value measures progress vs. the PMB. • MR for “unknown unknowns” • Should not mask poor cost performance • Planning Packages for “rolling wave” WBS development • EVM is managed at the CA level: Roll-up for Reporting Contract Price Profit / Fees TAB NCC CBB OTB AUW OVERRUN Management Reserve PMB Control Accounts Undistributed Budget Summary Level Planning Packages Work Packages Planning Packages DAU “Gold Card” 3/19/08

  8. ORGANIZATIONALSTRUCTURE TEST COMPANY ENG MECHANICAL DESIGN DESIGN Electrical DESIGN MFG DRAFTING/ CHECKING Responsibility Assignment Matrix (RAM) CONTRACT WORK BREAKDOWN STRUCTURE LEVEL 1 FIRE CONTROL LEVEL 2 RADAR TRAINING LEVEL 3 RECEIVER SYSTEM ANTENNA LEVEL 4 RECEIVER PHASE SHIFTER RECEIVER CASE POWER SUPPLY APPLICATION S/W CONTROL ACCOUNT CONTROL ACCOUNT CONTROL ACCOUNT CONTROL ACCOUNT Session # 16 Work Packages 8

  9. EV Independent Variables • BCWS – Budgeted Cost of Work Scheduled, or Planned Value (PV) • BCWP – Budgeted Cost of Work Performed, or Earned Value (EV) • ACWP – Actual Cost of Work Performed, or Actual Cost (AC) • BAC – Budget at Completion • EAC – Estimate at Completion • Also Latest Revised Estimate (LRE) 3/19/08

  10. Some Earned Value Techniques • 50-50 (Short-Term, 2-3 Periods) • 0-100 (Within One Period) • Incremental Milestone (Long-Term) • Equivalent Unit (e.g.: Road Building) • Percent Complete • Supervisor’s Estimate (Subjective) 3/19/08

  11. Earned Value Metrics • CV = BCWP – ACWP • Cost Variance • SV = BCWP – BCWS • Schedule Variance (Accomplishment) in $ • VAC = BAC – EAC • Variance at Completion • Forecast Overrun or Underrun 3/19/08

  12. Earned Value Metrics • Cost Efficiency • Cost Performance Index (CPI) = BCWP/ACWP • CV% = (CV/BCWP)*100 • Schedule Efficiency • Schedule Performance Index (SPI) = BCWP/BCWS • SV% = (SV/BCWS)*100 • To Complete Performance Index (TCPI) • Work Remaining / Cost Remaining • (BAC – BCWP) / (EAC – ACWP) 3/19/08

  13. Earned Value Metrics – EAC • Forecast Final Cost (EAC) by Projecting Future Performance based on Past Performance • Estimate At Completion (EAC) • Actuals to Date + [Remaining Work / Efficiency Factor)] • ACWP + [(BAC – BCWP) / CPI] 3/19/08

  14. EVM Graphical View • Graphical view of baseline (PMB) showing end date and total Budget at Completion (BAC). • Using the past performance, CPI, as a prediction of future performance, the ACWP can be projected to forecast an Estimate at Completion (EAC). • BCWS is the PMB up to the Status Date • CV compares the actual cost to the budgeted cost of actual Work Performed. • SV compares the Budgeted Cost of actual Work Performed with Work Scheduled up to the Status Date (Time Now). EAC TAB Management Reserve (MR) BAC PMB Schedule Variance Cost Variance $ ACWP BCWS BCWP time Time Now Completion Date 3/19/08

  15. Critical Path Evaluating Schedule VarianceSV does not tell the whole story Good News May Not Be Good • 10 Day’s work Scheduled by status date • 10 Days’ work completed: Zero Schedule Variance • Critical Path shows Project will be 2 days late! 3 Days 2 Days 2 Days 3 Days Start 10 Days 2 Days 3 Days 2 Days 2 Days Completed Task Time Now Days 3/19/08

  16. 5 Days 5 Days 5 Days 4 Days Critical Path Evaluating Schedule VarianceSV does not tell the whole story Bad News May Not Be Bad • 15 Day’s work Scheduled by status date • Only 12 Days’ work completed: Negative SV • Critical Path shows Project is on schedule • Slipped Task has Float Start 10 Days 2 Days 3 Days 3 Days 2 Days Completed Task Time Now 3/19/08

  17. Integrated Baseline Review • Jointly Assess Planning • Cost, Schedule, Technical • Ensure Complete Coverage of SOW • Exclude Work not in Scope • Logical Scheduling – Critical Path • Adequate Resourcing • Identify Risk 3/19/08

  18. Integrating Cost, Schedule, Scope • DAU 12-Step Analysis Model • Highlights: • Sort for CV and SV $ and %, ID WBS elements w/ most unfavorable variances • Correlate w/ Technical Drivers / Key Performance Parameters (KPPs) • Correlate w/ Critical Path • Correlate CV & SV drivers w/ each other 3/19/08

  19. Integrating Cost, Schedule, Scope • Generate an EAC Based on Key Drivers • Select Performance Factor (PF) for Key WBS Elements • CPI for Cost Drivers • SPI for Schedule Drivers • CPI*SPI for both • Technical Risk Factor 3/19/08

  20. Validate Independent EAC • Low Range EAC: CPI(cum) • High Range EAC: CPI(cum)*SPI(cum) • Likely EAC from Analysis • Independent TCPI within 5% of CPI(cum)? • Future performance is not likely to increase more than 5% over past performance – based on OSD history 3/19/08

  21. Summary • EVM is one tool available to the PM • Use with Critical Path analysis • Integrates Cost & Schedule performance • Correlate with key technical drivers • “Report Card” on the baseline • Increased focus by Federal agencies • More interest by commercial sector 3/19/08

  22. EVM Links • AT&L EVM site: http://www.acq.osd.mil/pm/ • DAU EVM community: https://acc.dau.mil/evm • DAU EVM Training: • https://acc.dau.mil/CommunityBrowser.aspx?id=17810 • DAU “Gold Card” • https://acc.dau.mil/GetAttachment.aspx?id=19577&pname=file&lang=en-US&aid=1036 • NDIA EVM Intent Guide (32 Criteria) • http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/PDFs10/NDIA_PMSC_EVMS_IntentGuide_Jan2005.pdf 3/19/08

  23. Q&A 3/19/08

  24. BASELINE EXECUTION INDEX (BEI) (Schedule Metric) BEI = # of Baseline Tasks Actually Completed / # of Baseline Tasks Scheduled for Completion CRITICAL PATH LENGTH INDEX (CPLI) (Schedule Metric) CPLI = (Critical PathBaseline Duration + Float Duration) / Critical PathBaseline Duration Earned Value Management ‘Gold Card’ Contract Price Profit / Fees TAB NCC CBB EAC OTB AUW OVERRUN TAB Management Reserve PMB Management Reserve BAC PMB Summary Level Planning Packages Undistributed Budget Control Accounts Schedule Variance Cost Variance $ Work Packages Planning Packages ACWP TERMINOLOGY NCC Negotiated Contract Cost Contract price less profit / fee(s) AUW Authorized Unpriced WorkWork contractually approved, but not yet negotiated / definitized CBB Contract Budget BaseSum of NCC and AUW OTB Over Target BaselineSum of CBB and recognized overrun TAB Total Allocated BudgetSum of all budgets for work on contract = NCC, CBB, or OTB BAC Budget At Completion Total budget for total contract thru any given level PMB Performance Measurement Baseline Contract time-phased budget plan MR Management Reserve Budget withheld by Ktr PM for unknowns / risk management UB Undistributed Budget Broadly defined activities not yet distributed to CAs CA Control Account Lowest CWBS element assigned to a single focalpoint to plan & control scope / schedule / budget WP Work Package Near-term, detail-planned activities within a CA PP Planning Package Far-term CA activities not yet defined into WPs BCWS Budgeted Cost for Work ScheduledValue of work planned to be accomplished = PLANNED VALUE BCWP Budgeted Cost for Work PerformedValue of work accomplished = EARNED VALUE ACWP Actual Cost of Work PerformedCost of work accomplished = ACTUAL COST EAC Estimate At Completion Estimate of total cost for total contract thru any given level; may be generated by Ktr, PMO, DCMA, etc. = EACKtr / PMO / DCMA LRE Latest Revised Estimate Ktr’s EAC or EACKtr SLPP Summary Level Planning Package Far-term activities not yet defined into CAs TCPI To Complete Performance Index Efficiency needed from ‘time now’ to achieve an EAC EVM POLICY: DoDI 5000.2, Table E3.T2 .EVMS in accordance with ANSI/EIA-748 is required for cost or incentive contracts, subcontracts, intra-government work agreements, & other agreements valued > $20M (Then-Yr $). EVMS contracts > $50M (TY $) require that the EVM system be formally validated by the cognizant contracting officer. Additional Guidance in Defense Acquisition Guidebook and the Earned Value Management Implementation Guide (EVMIG). EVMS isdiscouraged onFirm-FixedPrice,Level ofEffort, &Time&Materialefforts regardless of cost. EVM CONTRACTING REQUIREMENTS: Non-DoDFAR Clauses – Solicitation – 52.234-2 (Pre-Award IBR) or 52.234-3 (Post Award IBR) Solicitation & Contract – 52.234-4 DoD( ≥ $20M) DFAR Clauses - 252.242-7001 for solicitations and 252.242-7002 for solicitations & contracts Contract Performance Report – DI-MGMT-81466A * 5 Formats (WBS, Organization, Baseline, Staffing & Explanation) Integrated Master Schedule – DI-MGMT-81650 * (Mandatory for DoD EVMS contracts) Integrated Baseline Review (IBR) - Mandatory for all EVMS contracts * See the EVMIG for CPR and IMS tailoring guidance. BCWS BCWP time Time Now Completion Date VARIANCESFavorable is Positive, Unfavorable is Negative Cost VarianceCV =BCWP– ACWP CV % = (CV / BCWP) *100 Schedule Variance SV =BCWP– BCWS SV % = (SV /BCWS) * 100 Variance at Completion VAC = BAC – EAC OVERALL STATUS % Schedule =(BCWSCUM/ BAC) * 100 % Complete = (BCWPCUM/ BAC) * 100 % Spent = (ACWPCUM/ BAC) * 100 DoD TRIPWIRE METRICSFavorable is > 1.0, Unfavorable is < 1.0 Cost Efficiency CPI =BCWP / ACWP Schedule Efficiency SPI =BCWP / BCWS TO COMPLETE PERFORMANCE INDEX (TCPI) # § TCPIEAC = Work Remaining / Cost Remaining = (BAC –BCWPCUM)/ (EAC –ACWPCUM) ESTIMATE AT COMPLETION# EAC =Actuals to Date + [(Remaining Work) / (Efficiency Factor)] EACCPI =ACWPCUM + [(BAC –BCWPCUM) / CPICUM ]=BAC / CPICUM EACComposite =ACWPCUM + [(BAC – BCWPCUM) / (CPICUM* SPICUM)] #To Determine a Contract Level TCPI or EAC; You May Replace BAC with TAB § To Determine the TCPI BAC,LRE Replace EAC with either BAC or LRE EVM Home Page =https://acc.dau.mil/evmeMail Address: EVM.dau@dau.mill DAU POC: (703) 805-5259 (DSN 655) Revised December 2006

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