OPER 576 Project Management

1. OPER 576 Project Management Earned Value Management & Reporting Greg Magnan, Ph.D. May 27, 2004

2. Project Life Cycle Stages

3. Is This Any Good?

4. What is EVM? • EVM is an integrated management control system for assessing, understanding and quantifying what a contractor or field activity is achieving with program dollars • Integrates technical, cost, schedule, with risk management • Allows objective assessment and quantification of current project performance • Helps predict future performance based on trends • EVM provides project management with objective, accurate and timely data for effective decision making Source: http://evm.nasa.gov/brochure.pdf

5. EV History • “Instead of relating cost plans to cost actuals, which had been the custom, PERT/Cost (DoD, 1967) related the value of physical work performed against the cost actuals to determine the utility and benefits from the funds spent. What was physically accomplished for what was spent was a simple but fundamentally important new concept in program management.” • “The industry standard was called the Earned Value Management System (EVMS) and the number of criteria was reduced from 35 to 32. This major development was endorsed by the DoD in December 1996.” Source: Fleming & Koppelman, 1998

6. Industrial Engineering Roots

7. Industrial Engineering Roots

8. PM Language

9. PMVariances

10. Convert to PM Situation

11. Conversion Continued…

16. Earned Value Elements

17. Setting up Earned Value • Establish the Work Breakdown Structure (WBS) to divide the project into manageable portions. • Identify the activities to be scheduled that represent the entire project. • Allocate the costs to be expended on each activity. • Schedule the activities over time. • Tabulate, plot and analyze the data to confirm that the plan is acceptable.

18. Steps in Using EV • Update the schedule by reporting activity progress • Enter the actual costs on the activities • Execute the Earned Value calculations, print and plot the reports and charts • Analyze the data and write the performance narrative.

19. EV at a “Cost Account” Level

20. Data Element Term Acronym Scheduled Work Budgeted Cost for Work Scheduled BCWS Earned Value Budgeted Cost for Work Performed BCWP Actuals Actual Cost of Work Performed ACWP Authorized Work Budget At Completion BAC Forecasted Cost Estimate At Completion EAC Work Variance Schedule Variance SV Cost Variance Cost Variance CV Completion Variance Variance At Completion VAC Earned Value Terminology

21. Earned Value Benefits • When properly employed, it can give the project manager an early warning signal that the project is heading for a cost overrun unless immediate steps are taken to change the spending plan • “Today, it is likely that more than 99 percent of the projects in the world do not employ the earned-value cost management concept. Instead, to monitor costs status, they merely compare their spend plan to their actual costs, and that is unfortunate.” • “Earned Value is a uniform unit of measure, a consistent methodology and a basis for cost performance analysis.”

22. Benefits of EVMS • Clear definition of work prior to beginning that work • Helps the line manager credibly request appropriate resources • Provides the basis for a realistic plan against which to measure performance • Objective measurement of work accomplishment • Helps the line manager develop plans that are rooted in reality • If the task can be done within scope, schedule, budget; confidence in a successful outcome is increased • If the task cannot be done within scope, schedule, budget; that problem can be defined and resolved at a time when the resolution will be reasonably inexpensive

23. Benefits of EVMS • Reduces propensity of customer/boss to add work without adding budget • Ties budget directly to work • Requires all work transfers to include associated budget • Requires all budget transfers to include associated work • Fosters management decisions within a framework of reality, rather than latent unease • Provides true cost condition • Side-steps false cost variances • Encourages realistic projections of final cost • Enhances accuracy of funding forecasts

24. Status • What metrics are important in managing projects? • Who should know? Who needs to know? • How often should they be updated? • What form should the update take? • What options are available?

25. Budgeting • The goals of any project include bringing the project in on time and under or on budget. Accomplishing these sometimes conflicting goals requires: • a realistic initial project financial budget • a feasible project time frame • a budgetary plan linked to project activities • an understanding of the relationship between completion time and project activities and their respective costs • a methodology to track the variance between activity cost and budget

26. From Max Wideman’s Glossary • Budgeting & Cost Management • The process of estimating the proper cost that should reasonably be expected to be incurred against a clear baseline, understanding how and why actual costs occur, and ensuring that the necessary response is taken promptly to ensure actual costs come under budget. Typical information needed for cost management includes: • Budgets (including estimating), generally based on work breakdown structure or [cost] code of accounts • Obtaining and recording commitments/accruals • Measurement of work accomplished and value earned/valuation of work, including treatment of changes (change control) and claims

27. Creating an Initial Project Budget • Project budgets are typically constructed in one of three ways: • Top-down budget building • Predicable, accurate overall/at top • “Imposed” on managers • Bottom-up budget building • Costing done closer to activities; participatory • Managers may overestimate; squeaky wheel • Budget request process • Combination of top-down and bottom-up • Statement of costs given scope of work

29. SUMMARY!!! • Project Initiation (post-selection) • Kickoff; Charter; Deliverables • Work Breakdown Structure • ID activities (brainstorm); time & cost estimates; precedence relationships; RAM • Used throughout the project • Network • ES/LS/EF/LF/Slack: Critical path • Milestones • Resources • Conflicts; Resource Managers

30. SUMMARY!!! • Risk Management • Expected Loss (Le) = Pe x Pi x Lt • Project Closure • Lessons learned archive / dissemination • Teams & Communication • High-performance; vision; passion • Reducing project duration / Crashing • More products faster…but, bang for buck • Status • Gantt Charts, Stoplights, Earned Value