Earned Value Management a tool for project Portfolio management

1. Earned Value Managementa tool for project Portfolio management Jim Strong DLMP PMO Director

2. Earned Value Management: • Defined per PMI PMBOK: A management methodology for integrating scope, schedule and resources, and for objectively measuring project performance and progress. • Cost Performance is measured by determining the budgeted cost of work performed (i.e. earned value) and comparing it to the actual cost of the work performed (i.e. actual cost). • Schedule Progress is measured by comparing the earned value to the planned value.

3. Why Use Earned Value Management? “…to help better manage projects and portfolios of projects within the organization” • Adds another capability to the “tool box” for the organization and the Project / Program / Portfolio Manager • Allows Sponsor / Program / Portfolio Managers to “normalize” project / program data to enable an aggregate or portfolio view of the total effort

4. Why Use Earned Value Management? • Facilitates the analysis of project / program performance • Facilitates the monitoring and communication of the project/program/portfolio performance • Provides a means to forecast future performance based on past performance • Facilitates “lessons learned” through a review of the project performance trend

5. Why Use Earned Value Management? • Compliments the use of: • PERT analysis (estimating) • Dependency or Constraint analysis • Critical Chain analysis • Issue and Risk analysis • Resource analysis • Critical Path analysis

6. Earned Value Management: • Measures (key terms): • Planned Value (PV) = Budgeted Cost of Work Scheduled (BCWS) • Actual Cost (AC) = Actual Cost of Work Performed (ACWP) • Earned Value (EV) = Budgeted Cost of Work Performed (BCWP) • BAC = Budget at Complete; Total budget, Expense and Capital planned for the project / program • ETC = Estimate to Complete: team’s updated estimate to complete the work remaining • EAC = Estimate at Complete; Total of Actuals and estimated cost of work remaining to complete the scope of work for the project / program • Calculated EAC = Total of Actuals and estimated cost of work remaining to complete the scope of work for the project / program; factored by Cost performance to date

7. Earned Value Measurement: Positive numbers are favorable • Cost Variance • CV = EV – AC • Schedule Variance • SV = EV – PV • Performance Indices • Cost Performance Index • CPI = EV / AC • Schedule Performance Index • SPI = EV / PV • To Complete Performance Index (work remaining / remaining budget) • TCPI = (BAC – EV) / (EAC – AC) • Measurement Guidelines: • Green – favorable variance to negative 9% variance • Red - >20% negative variance = or > than 1.0 is favorable • Yellow – negative 10% to negative 19% variance

8. Establishing the project / portfolio Earned Value Baseline Each task in a project plan has a value… formed by labor or material cost…. allocated over time Value of each of the Tasks from project Plan…. form the Planned Value PV BAC BAC = cum PV at end of project $ Time

9. Unfavorable Cost Variance AC PV BAC EAC = AC + Estimate to Complete (ETC) $ EV Time Now Time Monitoring the Project performance –capturing cost of work performed – Actual Cost (AC) Hours … Or material / vendor costs…. Are expended to complete each task $ $ Cap $ Cumulative Costs to complete the Tasks from project Plan…. form the Actual cost $ $

10. SPI / CPI (cum) “worm” Chart (example) • 1.0 is optimal • Cost and schedule performance; tracked over time to indicate trend • SPI must close to 1.0 to complete the project; CPI can be at any level at completion • TCPI can be used to predict future performance based on past performance Favorable CPI 1.0 SPI Time • Measurement Guidelines: • Green – favorable variance to negative 9% variance • Red - >20% negative variance Yellow – negative 10% to negative 19% variance

11. Three EV “snake” charts to ponder (1 of 3) “Green”, CV favorable CV = +200 CPI = 1.1 PV EV “Green”, SV < 10% SV = -150 SPI = 0.95 $ AC Time • Possible Scenarios: • Unfavorable Schedule Variance: • Resources not applied at the start of the project in a timely fashion • Effort continues behind schedule; not making up project delays • What tasks are creating the unfavorable schedule variance? • Are there specific technical or other issues / risks driving the variance? • Opportunity - Can we apply more resources to pull in the schedule? • Favorable Cost Variance: • Tasks not taking as much time as estimated or planned • Tasks completed by lower cost resource • Opportunity - Can we apply more resources to pull in the schedule?

12. Three EV “snake” charts to ponder (2 of 3) “Green”, CV favorable CV = +300 CPI = 1.2 EV PV “Green”, SV favorable SV = +200 SPI = 1.1 $ AC • Possible Scenarios: • Favorable Schedule Variance: • Tasks not taking as much time as planned • Slack time / schedule buffer built into project plan • Not as many issues encountered • Anticipated risks well and applied mitigation into plan or effort to date • Planned effort “padded”?; what is the basis of estimate – higher rate of probability applied to project (100% probability versus most likely 50/50?) • Favorable Cost Variance: • Tasks not taking as much effort as estimated or planned • Tasks completed by lower cost resource • Check for any material / labor costs not realized • Is the favorable CV long term? What is the EAC? Does TCPI support the EAC? • Should we re-baseline the project and put funding back into the Management Reserve for the Program / Practice? Time

13. Three EV “snake” charts to ponder (3 of 3) AC “RED”, CV > 20% CV = -200 CPI = 0.79 PV “Yellow”, SV >9% SV = -100 SPI = 0.9 EV $ • Possible Scenarios: • Unfavorable Schedule Variance: • Effort continues behind schedule; team not making up project delays • What tasks constitute the majority of the variance? • Do issues continue to linger or are they being resolved? • Is / are there technical issues / risks driving the negative variance trend? • Unfavorable Cost Variance: • Tasks taking more effort than estimated • What tasks constitute the majority of the variance? How much effort remains? • Do we have the right skill level of resources versus plan? • Are we managing the scope, do we have scope creep? (Change Request log?) • What is the EAC? Should we cancel the project?

14. Considerations for Implementing • Time recording system, or equivalent manual process, absolutely required to capture actual labor costs • Quality estimates for the project tasks • Allow adequate time for creation of requirements and task estimates • Creation of project performance measurement plan – • Usually in the form of MS Project (project schedule) • Forms the basis for the “Planned Value” (PV) • Large material costs need not be included in the EV as they can represent major “step functions” in the EV plans; possibly masking the labor effort of the project

15. Recommendations • Gain Leadership support • Train the PMs and core Project teams • Start small, consider pilot • Keep it simple: keep EV milestones and associated cost accounting activity points to a minimum (i.e. 600 line MS project plan lines may consolidate to 20 EV milestones or less)

16. EAC PMB BAC Control Accounts PMB Work Packages Planning Packages Schedule Variance Cost Variance $ AC PV EV time Time Now Completion Date 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’ TERMINOLOGY BAC Budget At Completion Total budget for total contract thru any given level PMB Performance Measurement Baseline time-phased budget plan 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 PV PLANNED VALUEValue of work planned to be accomplished EV EARNED VALUEValue of work accomplished AC ACTUAL COSTCost of work accomplished EAC Estimate At Completion Estimate of total cost 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 (DAU = Defense Acquisition University, US DoD training & policy support for their acquisition workforce) (tool downloaded from https://acc.dau.mil/CommunityBrowser.aspx?id=17810) Modified for DLMP PMO use 02/06/2007 VARIANCESFavorable is Positive, Unfavorable is Negative, Green if <10%,10%<Yellow<20%,Red >20% Cost VarianceCV = EV – AC CV % = (CV / EV) *100 Schedule Variance SV = EV – PV SV % = (SV / PV) * 100 Variance at Completion VAC = BAC – EAC BCWS = PV BCWP = EV ACWP = AC OVERALL STATUS % Schedule = (PVCUM / BAC) * 100 % Complete = (EVCUM / BAC) * 100 % Spent = (ACCUM / BAC) * 100 TRIPWIRE METRICSFavorable is > 1.0, Unfavorable is < 1.0, Okay>0.91, 0.90>concern>0.80, escalate<0.79 Cost Efficiency CPI = EV / AC Schedule Efficiency SPI = EV / PV TO COMPLETE PERFORMANCE INDEX (TCPI) TCPIEAC = Work Remaining / Cost Remaining = (BAC – EVCUM)/ (EAC – ACCUM) ESTIMATE AT COMPLETION# EAC = Actuals to Date + [(Remaining Work) / (Efficiency Factor)] EACCPI = ACCUM + [(BAC – EVCUM) / CPICUM ]=BAC / CPICUM EACComposite = ACCUM + [(BAC – EVCUM) / (CPICUM* SPICUM)] EVM Home Page = https://acc.dau.mil/evm eMail Address: EVM.dau@dau.mil DAU POC: (703) 805-5259 (DSN 655) Revised December 2006