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Earned Value Management ‘project management with the lights on’

Earned Value Management ‘project management with the lights on’. Presentation to BCS David Galley 15-Jan-2002. Agenda. Project Management in the dark Illumination Earned Value (EV) & Variance Performance indices Forecasting Earned Value Management (EVM) 32 criteria

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Earned Value Management ‘project management with the lights on’

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  1. Earned Value Management‘project management with the lights on’ Presentation to BCS David Galley 15-Jan-2002

  2. Agenda • Project Management in the dark • Illumination • Earned Value (EV) & Variance • Performance indices • Forecasting • Earned Value Management (EVM) • 32 criteria • Organisation [WBS, OBS, RAM, CA] • Budgeting • EVM in the UK • Where to go for more information

  3. Project Management in the dark… • Project • planned duration: 12 mos • total budget: £100K • . • Status • time elapsed: 6 mos • spend so far: £64K • . • How far along are you? • 50%? 64%? • How are you doing?

  4. £ actual budget time Project Mgt in the dark • It tells you how much you’ve spent and compares it to the budget. • Does it give an accurate picture of where you are on the project? NO! It doesn’t tell you if... • you’re ahead or behind schedule • you’re over or underspent • you’ve spent money on the right thing • you’re getting value for money • your problems are over or only just begun • What’s missing?

  5. What’s missing? - knowing how much has been accomplished £ actual • Accomplishment is (planned) work that has been carried out successfully. • The budgeted cost of that work quantifies the accomplishment. • This is called ‘earned value’ budget accomplishment or Earned Value (EV) time

  6. A bit more light… • Project • planned duration: 12 mos • total budget: £100K • produce 20 units • Status • time elapsed: 6 mos • spend so far: £64K • units produced: 8 complete, 2 partial • How far along are you? • 50%? 64%? >40%? • How are you doing?

  7. How much work should be done? How much work is done? How much did it cost? Budgeted Cost for Work Scheduled (BCWS) plan schedule budget Budgeted Cost for Work Performed (BCWP) accomplishment Earned Value (EV) Actual Cost of Work Performed (ACWP) actuals Basic definitions – answer three basic Q’s

  8. Where are we? – a more likely scenario

  9. WIP - Earned Value measurement methods • Interim Milestone EV = budgeted cost (milestones completed) • Meas’d Milestone EV = budgeted cost (est. milestone pct complete) • Percent Complete EV = estimated percent complete typically used where there are tangible products • Apportioned Effort EV = dependent on another Work Package eg. QC EV assumed to be % of production EV • 50/50, 0/100 EV = % budgeted cost once started / % on completion • Scheduled Effort EV = budgeted cost (est. elapsed time pct) • Actual Effort EV = actual effort • Level of Effort (LoE) EV = budgeted cost (status date) used for Work Packages (WP’s) with no end product eg. Management

  10. Variance £ • CV (Cost Variance) • BCWP - ACWP • earned value - actual cost • SV (Schedule Variance) • BCWP - BCWS • earned value - planned value • 0 once all work completed schedule actual CV SV earned time

  11. Translating schedule variance into lead/lag • Months ahead or behind • SV • = • aver. monthly BCWS • or graphically • draw horizontal through current BCWP until it intersects BCWS • length approximates lead/lag schedule (BCWS) SV earned (BCWP) months behind

  12. positive variance zero schedule variance negative variance cost variance Variance Trend Curves • Plot cost variance and schedule variance over time. • Watch which way the lines go... • positive is good • negative is bad

  13. +10% +0% -10% -20% CV% +10% +0% -10% -20% SV% Percent Variance Trend Charts • CV% • (BCWP - ACWP)/BCWP • CV/earned value • SV% • (BCWP - BCWS)/BCWS • SV/planned value • VAC% = VAC/BAC

  14. 1.1 1.0 0.9 0.8 CPI 1.1 1.0 0.9 0.8 SPI Performance Indices • CPI (Cost Performance Index) • BCWP/ACWP • earned/actual • the one to use… • SPI (Schedule Performance Index) • BCWP/BCWS • earned/planned • of diminishing value as project progresses… tends to 1

  15. What was the total job supposed to cost? What do we now expect will be needed to finish the job? What do we now expect the total job to cost? How much do we now expect to eventually underspend/overspend? Budget At Completion (BAC) Estimate To Completion (ETC) Estimate At Completion (EAC) EAC = ACWP + ETC often referred to as Latest Revised Estimate (LRE) VAC (Variance At Completion) VAC = BAC - EAC More definitions – answering Q’s about the total job

  16. Forecasting – variations on the basic EAC • EAC = ACWP + ETC = ACWP + (BAC BCWP) iEAC = ACWP + FF (BAC - BCWP) • Selection of FF is based upon: • cause of the variance • technical risk • schedule deviations • trends • judgement • Sample Independent EACs based on: • FF = 1 / CPI • FF = 1 / (0.8 CPI + 0.2 SPI) • FF = 1 / CPI * SPI • FF = 3 / CPIt + CPIt-1 + CPIt-2

  17. Forecast sanity checks – an example • Example project • Total budget (BAC) = £5000 part way through project • Work scheduled (BCWS) = £2000 • Work accomplished (BCWP)= £1800 • Actual cost (ACWP) = £2400 • Supplier’s LRE = £5600 (Latest Revised Estimate) • Will supplier come in on budget? • Is the supplier’s LRE reasonable? • To-Complete Performance Index (TCPI)

  18. Will the supplier come in on budget? EV BCWP £1800 CPI = = = = 0.75 Actuals ACWP £2400 TCPI(BAC) = cost efficiency to complete on budget Work Remaining BAC-BCWP = = Budget Remaining BAC-ACWP £5000-£1800 £3200 = = = 1.23 £5000-£2400 £2600

  19. Is the supplier’s LRE reasonable? EV BCWP £1800 CPI = = = = 0.75 Actuals ACWP £2400 TCPI(LRE) = cost efficiency to complete at LRE Work Remaining BAC-BCWP = = Estimate Remaining LRE-ACWP £5000-£1800 £3200 = = = 1.0 £5600-£2400 £3200

  20. Earned Value Management tells you... Where it’s going right and where it’s going wrong Drill down through the data to where the problem is Know where you are in terms of accomplishment as well as how much you’ve spent Where you really are! EVM How much it’s really going to cost When to ask the tough questions Know the final cost and delivery date with confidence Informed decision making

  21. EVMS 32 criteria

  22. Organisation criteria 1. Establish Work Breakdown Structure (WBS) 2. Establish Organisation Breakdown Structure (OBS) 3. Integrate planning, scheduling, budgeting, work authorisation and cost accum. with WBS & OBS 4. ID company organisation responsible for controlling overheads 5. Cost & schedule performance measurement by WBS/OBS

  23. Organisational Breakdown Structure (OBS) ABC project Director K.Niche Bus. Develop. C.Spalding Consult. Services E.Ness IT Dev. Group M.Conger E-Comms Limited P.Dawson Transforma Limited T.Wolfe Support Group T.Caulter Design Team D.LaPort Test Team N.Elliott Programming Team A.Murphy QA Team S.Humphrey

  24. WBS – execution orientated example ABC project Project Defn. phase Design phase Pilot phase Roll-out phase Bus. Reqt. Change Reqt. System Design Change planning Develop pilot Assess Pilot Pilot change Comms Install. W/S Install.

  25. WBS – product orientated example ABC project Project Charter Transition documentation Central facility Shop systems Reqt. Spec. Bus. Case Promotion material Training courseware Server LAN Comms box Shop LANs Shop terminals

  26. 1 2 3 4 5 6 7 8 A B C D E F Responsibility Allocation Matrix (RAM) Work Breakdown Structure (WBS) Organization Breakdown Structure (OBS) Control Account (CA)

  27. Control Accounts • Intersection of WBS and OBS • WBS element • Control Account Mgr (CAM) • Key control point • Schedule, time-phased budget (BCWS) • Actual cost accumulation (ACWP) • Earned value determination (BCWP) • Variance analysis (cost& schedule) • Corrective action • Estimate At Completion (EAC)

  28. Planning, Scheduling+Budgeting criteria 6. Schedule (sequence, interdependencies) 7. ID products, milestones, tech. perf. goals to measure progress 8. Time-phased budget at Control Account (CA) level 9. Budget IDs significant cost elements 10. Budgets in terms of money, hours or other units 11. CA budget = Sum WP budgets+planning budgets 12. ID & control LoE activity by time-phased budget 13. Overhead budgets.. Overhead pools 14. ID Mgt Reserve (MR) and Undistributed Budget (UB) 15. Reconcile program tgt cost with internal budgets+MR

  29. Budget Breakdown Contract Price Contract Budget Base (CBB) Profit Performance Measurement Baseline (PMB) MR Distributed Budget (DB) UB Mgt Reserve Undistributed Budget CA Budgets Summary PP’s Discrete WP’s AE WP’s LoE WP’s PP’s Planning Packages

  30. Accounting considerations criteria 16. Record direct costs 17. Each CA child of a single WB 18. Each CA child of a single OBS 19. Record all indirect costs 20. ID unit costs, equiv. unit costs or lot costs 21. Accounting system

  31. Analysis & Mgt Reporting criteria 23. ID signif. differences in schedule/cost performance, provide reasons 24. ID budgeted and actual costs, reasons for signif. differences 25. Summarise data & variances through the WBS/OBS… 26. Implement managerial action resulting from EV info. 27. Develop revised EAC… compare with PMB… funding…

  32. Revisions & Data Maintenance criteria 28. Incorp. authorised changes… record effects in budget & schedule 29. Reconcile current budgets to prior budgets 30. Control retroactive changes… 31. Prevent unauthorised changes to program budget 32. Document changes to performance measurement baseline (PMB)

  33. Potential Benefits of EVM • Improved project performance • Management by exception • Good predictive capability • Database of completed projects, useful for comparative analysis • Enabler for a new culture of openness, trust and honesty • improved contractor/customer relations • “the main problem with EVM is that it works”

  34. EVM in the UK • Defence • MoD - 30 IPT’s intend to or are using EVM • BAe Systems, Rolls-Royce, Stracham & Henshaw, GKN Westlands, Thales, BAe Systems (Nimrod, Hawk, Eurofighter, FOAS, JSF, Type 45, Astute, CVF) • Construction • Laing, Millenium Dome, BAA Terminal 5 • Software • IBM • Unisys • EDS

  35. Where to go next? • Websites www.acq.osd.mil/pm www.cpm-pmi.org www.evm.nasa.gov www.apm.org.uk/apm/evsig.htm • ‘Earned Value Project Management’ • Quentin Fleming & Joel Koppelman • ISBN: 1-880410-27-3 $35 • APM EV SIG • Quango: NAO, OGC, MoD, EDS, IBM, Unisys, PMI, BAA T5, Laing, Rolls-Royce, BAe Systems • UK standard • Implementation Guidelines (AIM)

  36. Who to go to next? – Steve Wake • Head of APM EV SIG • swprojects@cableinet.co.uk • 7th ‘EVA in the UK conference’ • Church House, Westminster • 20-June-2002 • Sir John Bourn Auditor General – keynote speaker • Royal Shakespeare Company

  37. ‘EVA in the UK’ Church House, Westminster www.churchhouseconf.co.uk/facilities/assembly-pan.htm

  38. Integrated Baseline Review • IBR - a formal and continual process conducted to assess the content and integrity of the Performance Measurement Baseline (PMB) • Purpose – is to achieve and maintain a joint project/customer understanding of the risks inherent within the baseline and the management control processes that will operate • highlight expectations and assumptions early • clear understanding of the plan and risks • sound basis for • measuring & reporting project performance • proactive project management

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