Earned Value Management

1. Earned Value Management Partially adapted from Mike O’Dell. Some slides in this presentation were originally developed by Mr. Tom Rethard. Instructor: Manfred Huber

2. 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

3. 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

4. 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

5. 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)

6. Earned Value: Example Today 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) 18 8 14

7. 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)

8. Behind Schedule Earned Value: Example Today Budgeted (Planned) Spending Over Budget Cost (Person-Hours) Earned Value Actual Spending Time (Date)

9. 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

10. 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)

11. Performance Indices • Cost Performance Index • CPI = BCWP/ACWP • Schedule Performance Index • SPI = BCWP/BCWS • Analysis • CPI > 1.0  exceptional performance • CPI < 1.0  poor performance • Similar for SPI

12. 18 8 14 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 you’re getting an 73¢ return on every $1.00 (or, person-hour) spent on this project

13. 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)

14. 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

15. 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?

16. 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

17. 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?

18. 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

19. Variance Projection

20. Performance Index Trends

21. Ideal Performance Index

22. 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.

23. 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

24. 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