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earned value in project management
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You too, can do Earned Value Management!
Presented by: Chance Reichel, PMPBoston University
Corporate Education CenterSession # ADV11
2Situation: I budgeted 5 widgets at 100 hrs per widget.At the end of the year, 400 hrs had been expended.
Budget vs. Actual Variance
500 400 100
GREAT! I'm 100 hrsunder budget!
Question: Whats wrong with this picture?
Earned Value Example
3Actual cost is not an indication of work progress, but only an indicator of hours/money spent.
Ive spent 400 hrs , so Ive accomplished 400 hrs of work?
0
100
200
300
400
500
600
J F M A M J J A S O N D
Time
H
o
u
r
s
Budget Plan
Actual Cost
100 hrs Under-run
Traditional Cost Management Method
4Budget vs. Actual Variance
500 400 100
Earned Value adds another dimension to traditional cost management methods
Earned Value
Earned Value Management
5Earned Value: an objective measure of how much work has been accomplished
Budget Plan Earned Value Actual500 300 400
Situation: I plan to build 5 widgets thisyear. Each widget should take 100 hrs.I will measure earned value based on the number of widgets completed.
Year End...1
23
(3 Widgets * 100 hrs)
Earned Value Management
3 widgets completed.
6Budget Plan Earned Value Actual500 hrs 300 hrs 400 hrs
Schedule CostVariance Variance
(200) (100)
Oh boy! I better figure out whatis going on. I've got 200 hrs worth ofwork to catch up on, and I've already overspent by 100 hrs.
Using Earned Value
7Earned Value Management is an approach to understanding and assessing what a contractor (or Government Activity) is achieving with program dollars.
Earned Value ManagementBook Definition
8An objective measure of how much work has been accomplished based on the plannedvalue, or:
What we got for what we spent!
Earned Value ManagementPractical Definition
9Earned Value Management Is:
A uniform unit of measure
A consistent method of analysis
A basis for cost performance assessment
10
Earned Value Analysis: What is it?
Method for comparing value of planned work to value of performed work
The most common method of performance measurement
Integrates scope, cost, schedule
11
EVMEarned Value Management is intended to provide data from a contractors management system to the government in standard data elements that
Relate time-phased budgets to contract tasks
Integrate cost, schedule, and technical performance
Indicate work progress objectively
Are valid, timely and auditable
Are from the internal system the contractor uses to manage
Are at a practical level of summarization
12
Integrating Project Influences
Project manager must integrate all aspects of the project to manage the interaction of time, cost, and scope and quality constraints to be able to factor Earned Value correctly!
ProjectResources
Time Cost
Scope and Quality
Triple Constraint Model
13
The EV Process
Plan the Work
Work the Plan
ExternalChanges
Collect Results
Define the Work
Analyze Deviations
TakeCorrective Action
TakeCorrective Action
Measure Performance
Change Control
14
Definition: Project Scope Statement
The narrative description of the project scope, including major deliverables, project
objectives, project assumptions, project constraints, and a statement of work, that provides a documented basis for making
future project decisions and for confirming or developing a common understanding of project scope among the stakeholders.
PMBOK Guide, Third Edition, Glossary
15
Components of the Project Scope Statement
Requirements Objectives Product Description Boundaries Major Deliverables Acceptance Criteria Constraints Assumptions Initial Project
Organization
Initial Defined Risks Schedule Milestones Fund Limitations Cost Estimate Configuration Mgmt.
Requirements Specifications Approval Requirements
16
Definition: Work Breakdown Structure (WBS)
A deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project
objectives and create the required deliverables. It organizes and defines the total
scope of the project. Each descending level represents an increasingly detailed definition
of the project work.
PMBOK Guide, Third Edition, Glossary
17
Best Management Practice:Steps for Project Decomposition
Step 1 Identify and record the Project Goal Usually the name of the project
Step 2 Identify Major Deliverables that represent large areas of project work
Step 3 Can adequate estimates of both labor and cost resources requirements needed to complete the deliverables be developed?
Step 4 Continue to Decompose the work so that adequate estimates can be developed
Step 5 Verify correctness and project suitability
18
Work Breakdown Structure
Site Preparation
Site and Buildings
PlantBuildings
Building #1
Foundation and Substructure
Building #2
Technical Support
Equipment Data
Superstructureand Finishing
Energy Laboratory
06.1.2.1.106.1.2.1.2
06.1.2.1 06.1.2.2
06.1.1
06.1.2
06.1.3
06.106.2 06.3
06.0
WBS Level0
1
2
4
5
6
19
Detail planning at levels where work is performed allowsmanagements attention to be directed to areas where significant problems are indicated.
Cost Account 1111MCost Variance (100)Sch Var (200)
(250)
(200)
(150)
(100)
(50)
0
50Schedule
Cost
Benefits of Using Earned Value
20
An Iterative 3-Step Process
10040
60
1525
3030
3. Allocate Budgets
1. Scope the Work
2. Schedule the Work $ PM Baseline
Contract Budget Base
Time
Establish the Performance Measurement Baseline
21
Statement of Work
EVM Planning Terms
breaks down into a:
22
breaks down into a:
where the work is defined by a:
Statement of Work
Work Breakdown Structure
EVM Planning Terms
23
breaks down into a:
where the work is defined by a:
Who is responsible for Work Breakdown Structure work is identified in a:
Statement of Work
Work Breakdown Structure
Work Breakdown Structure Dictionary
EVM Planning Terms
24
breaks down into a:
where the work is defined by a:
Who is responsible for Work Breakdown Structure work is identified in a:
that identifies where the Cost of Work Breakdown StructureLabor & Material will be collected, which is a:
Statement of Work
Work Breakdown Structure
Work Breakdown Structure Dictionary
Responsibility Assignment Matrix
EVM Planning Terms
25
breaks down into a:
where the work is defined by a:
Who is responsible for Work Breakdown Structure work is identified in a:
that identifies where the Cost of Work Breakdown StructureLabor & Material will be collected, which is a:
However, where the work is actually performed is usually reflected in a:
Statement of Work
Work Breakdown Structure
Work Breakdown Structure Dictionary
Responsibility Assignment Matrix
Cost Account
EVM Planning Terms
26
breaks down into a:
where the work is defined by a:
Who is responsible for Work Breakdown Structure work is identified in a:
that identifies where the Cost of Work Breakdown StructureLabor & Material will be collected, which is a:
However, where the work is actually performed is usually reflected in a:
which is where the work is scheduled, performed, and measured.
Statement of Work
Work Breakdown Structure
Work Breakdown Structure Dictionary
Responsibility Assignment Matrix
Cost Account
Work Package
EVM Planning Terms
27
Cost (Control) Account
Work Packages
Work Breakdown Structure (WBS)
MDSS
Seminar
Series
1.0
Session 1
2.0
Session 2
3.0
Session 3
4.0
Project Management
1.1
Seminar Development
1.2
SeminarDelivery
1.1.1
Existing CoursesSurvey
1.1.2
Course Objectives/
Concepts
1.1.3
CourseMaterials
1.1.3.1
Slides
1.1.3.2
Narratives
1.1.3.3
Case Studies
1.1.3.4
Exercises
28
1.1.2Course Outline/Objectives
1.1.1Existing Course Survey
1.1.3Course Materials
1.1Seminar Development
1.2Seminar Delivery
1.0Session 1
2.0Session 2
3.0Session 3
MDSSSeminarSeries
Cost (Control) Accounts
WBSOBSPresident
VP Classroom
VP Web Based
VP Consulting
ISD Systems
Teaching Staff
Design/Graphics
Responsible Organizations
Responsibility Assignment Matrix
29
RAM Used for Resource Allocation
ISD Systems Teaching Staff Design/ Graphics
Total
Outline Objectives/ Concepts
$1,400 $1,400
Research Existing Courses
$6,000 $6,000
Prepare Materials $5,000 $5,000
Total
$1,400 $6,000 $5,000 $12,400
30
The Cost or Control AccountA Key Management Control Point
Specific functional responsibility
Specific WBS responsibility
Work planning and assignment
Performance measurement
Cost collection
Variance analysis
Corrective action
Basis of data summarization
BUDGET LEDGER
MASTER SCHEDULE
GENERAL WORKAUTHORIZATION
CONTRACT
Control AccountWBS # ______________ ORG # ______________
TASK DESCRIPTION________________________
SCHEDULE _______________________________
TOTAL BUDGET ________________
WORK PACKAGEWP # ________ ORG # __
DESCRIPTION ______
SCHEDULE ____________
BUDGET _______________
31
Work PackagesDetailed, short-span tasks or material items required to accomplish the CA objectives, typically in the near term.
Task 1Task 2
Task 4Task 5
Task 3Work Packages
Planning Packages
Planning PackagesFuture work that has not been detail planned as work packages. They are always scheduled to occur in the future.
Cost (Control) Account Elements
32
Three Types of Work Discrete effort
Specific end product or result Apportioned effort
Factored effort directly related to discrete tasks (e.g., quality control, inspection)
Dependent on other work Level of effort
No final product or result (e.g., liaison, support activities, program management)
Measure performance with the passage of time
33
; X/Y percent0/10025/7540/6050/50
; Milestone weights
; Milestone weights withpercent complete
; Percent CompleteSubjective estimateObjective indicators
; Equivalent units
Discrete Effort
34
Earned Value for Inspection = 17% * Earned Value for Manufacturing
Apportioned Effort
Inspection runs 17% of manufacturing For each manufacturing work package,
construct an inspection work package Compute earned value for each inspection
work package
35
LOE Work Packages must be kept to an absolute minimum
Level of Effort (LOE)
Program management will continue for the life of the program
Discrete work packages dont make sense Apportionment isnt necessary (we already know how
many people will be charging time) Create level of effort work packages that receive
automatic earned value each month
36
CONTRACTPRICE
CONTRACTBUDGET BASE
PROFITS ANDFEES
MANAGEMENTRESERVE
PERFORMANCEMEASUREMENT
BASELINE
WITHHELDFOR
UNKNOWNS
UNDISTRIBUTEDBUDGET
DISTRIBUTED(control accounts)
WITHHELD FORKNOWN EFFORT
AUTHORIZED,UNPRICED
Contract Budget Baseline
37
Data Element Term AcronymScheduled 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
EVM Performance Measurement
38
EVM Performance Measurement
Budgeted Cost of Work Scheduled (BCWS) The sum of the time-phased budgets
established for all effort (including in-process work) scheduled to be accomplished within a given time period
39
TIME
$
BUDGET
PV
ContractComplete
EVM Performance Measurement
40
EVM Performance Measurement
Budgeted Cost of Work Performed (BCWP)
The sum of the time-phased budgets for work completed during a specified time period
BCWP is the value of the work accomplished
BCWP is also known as EARNED VALUE
41TIME
$
BUDGET
BCWP
SVBC
WS
ContractComplete
EVM Performance Measurement
42
EVM Performance Measurement
Actual Cost of Work Performed (ACWP) The costs actually incurred and recorded in accomplishing
the work performed (BCWP) within a given time period Labor Material (subcontractor/vendor) Other, computer costs, etc. Indirect Costs
43
TIME
$
BUDGET
BCWP
CVBCWS
ACWP
ContractComplete
EVM Performance Measurement
44
EVM Performance Measurement
Budget At Completion (BAC) The budgetary goal (excluding MR) for doing
authorized work; this includes the value of all work packages, planning packages, control accounts and Undistributed Budget
Note: Total BAC at the contract level including MR = Contract Budget Baseline
45
EVM Performance Measurement
Estimate At Completion (EAC) Actual direct costs + indirect costs allocable
to the contract + the estimate of costs (direct and indirect) for authorized work remaining
Often quite subjective Usually optimistic
46
TIME
$
BUDGET
BCWP
CVBC
WS
ACWP
ContractComplete
EVM Performance Measurement
SV
ESTIMAT
E
VAC
47
EVM Performance Measurement
Management Reserve (MR) An amount of the total allocated budget withheld
for management control purposes, rather than designated for the accomplishment of a specific task or set of tasks
KEY: There is no scope of work associated with management reserve budget
48
EVM Performance Measurement
Undistributed Budget (UB) Budget applicable to contract effort which has not
yet been identified to CWBS elements at or below the lowest level of reporting
KEY: Only used for the effort associated with contractual changes
49
Earned Value Variances and Indices
Schedule Variance (SV)
SV = EV PV Positive is good, be careful!
SV% = SV/PV * 100 Positive is good
SPI = EV/PV 1.00 or greater is good
Good means on or ahead of schedule
50
Earned Value Variances and Indices (2)
Cost Variance (CV)
CV = EV - AC Positive is good, be careful!
CV % = CV/EV * 100 Positive is good
CPI = EV/AC 1.00 or greater is good
Good means on or under budget
51
Graphic Performance Report
Time
Progress
PV
AC
Cost Variance
Update Date
ScheduleVariance
EV
52
Cost Variance (CV) = Earned Value (BCWP) - Actual Costs (ACWP)
Schedule Variance (SV) = Earned Value (BCWP) - Budget Plan (BCWS)
Efficiency Factors:
Cost Performance Index (CPI) = Earned Value (BCWP)Actual Costs(ACWP)
Schedule Performance Index (SPI) = Earned Value (BCWP)Budget Plan (BCWS)
Percent Complete = Earned Value (BCWP)Budget At Completion (BAC)
EVM Performance Measures
53
EAC = (BAC-BCWP) + ACWPPF*
In English: The estimate at completion takes the remaining budget, applies the performance factor, and adds the actual cost spent to date.
Basically, this calculation assumes that the indices used to develop the performance factor will remain constant for the remainder of the program.
*Performance Factor
EVMS The Estimate at Completion (EAC)
54
EAC = (BAC-BCWP) + ACWPPF
Assume:BAC =1,000,000
BCWP = 200,000
BCWS = 225,000
ACWP = 250,000
Compute an Estimate at Completion using the CPI.
Earned Value Quiz #2The Estimate at Completion (EAC)
55
EAC = (BAC-BCWP) + ACWPPF
Assume:BAC =1,000,000
BCWP = 200,000
BCWS = 225,000
ACWP = 250,000
Compute an Estimate at Completion using the CPI.
Earned Value Quiz #2The Estimate at Completion (EAC)
EAC = (1,000,000 200,000) + 250,000CPI 0.8
EAC = 1,250,000.
56
EAC Development Process Compute run out (Cum CPI formula) Evaluate CPI trends Examine differences between budget and network
targets Evaluate actual manning against base plan Examine progress against base operating plan Evaluate impact of cost reduction initiatives Identify and quantify known engineering/production issues Examine to go performance trends on similar projects at
similar points
57
Survey says Over 800 military programs show that NO program has ever
improved performance better than the following EAC calculation:
EAC = BACCPI
at 15% complete point in program.
No one pays enough attention in theearly stages!
58
The To Complete Performance Index (TCPI)
Measures the efficiency necessary to achieve contractor expected final cost
Formula is based on contractors EAC Contrasted with CPI, the TCPI indicates what change is
required Provides a basis for exploring contractors basis for his
EAC Permits assessment of contractors ability to achieve EAC
59
TCPI Formula
Ratio of Work Remaining to Cost Remaining Work Remaining = BAC-BCWP Cost Remaining = Contractor EAC-ACWP
TCPI = BAC-BCWPEAC-ACWP
60
Graphing Techniques
Dollars In M
illions
Estimates at Completion MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI
Element: 3600 Name: PCC
BACLRECUM CPI
1992APR MAY JUN JUL AUG SEP OCT NOV DEC
1993JAN
5.0
6.0
7.0
8.0
5.1 5.4 5.1
5.1 5.4 5.7
5.1 5.4 5.9
5.1 5.4 6.0
5.1 5.5 6.3
5.1 5.5 5.8
5.1 5.5 6.5
5.5 5.7 7.6
5.5 5.7 6.8
5.8 6.0 6.8
MEGA HERZ ELEC & VEN Cost/Schedule VarianceF04695-86-C-0050 MOH-2 RDPR FPI POP: 01 MAR 1992 - 15 SEP 1993
Percent of D
ollars
COST VARIANCESCHEDULE VARIANCE
1992MAY JUN JUL AUG SEP OCT NOV DEC
1993JAN
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
Cost Drivers, Cause
Dollars In MillionsBCWSBCWPACWP
CVSV
0.3 0.2 0.2 0.0 -0.1
0.6 0.5 0.5 -0.0 -0.1
1.0 0.9 0.9 -0.0 -0.1
1.4 1.4 1.5 -0.1 -0.0
2.2 2.2 2.2 0.0 -0.0
2.5 2.7 3.0 -0.3 0.2
4.2 3.8 4.2 -0.5 -0.4
5.6 5.3 5.6 -0.3 -0.3
7.3 6.9 7.3 -0.5 -0.4
At CompletionKTR PO
20.8 20.8
20.8 20.8 20.8 23.0 0.0 -2.2
PMB: 20.4 % COMP: 32.9 MR: 0.4 KTR MR LRE: 0.0 PO MR LRE: 0.0CURRENT FUNDING: 10.0
PO EPC: 24.0PROJ FUNDING: 23.0
AS OF: JAN 93OPR: MR B. TECH
PROGRAM: Mohawk Vehicle
0%
-11%-7%-6%
Overall cost and schedule trend
EAC realism
Graphs show overall trend...are you getting better,
or worse?
Graphs show overall trend...are you getting better,
or worse?
61
Earned Value Management5 Basic Guidelines
Organize the project team and the scope of work, using a work breakdown structure. Each task should have a single WBS number and organizational code.
Schedule the tasks in a logical manner so that lower level schedule elements support subsequent elements and the top level milestones.
Allocate the total budget resources to time-phased control accounts.
Establish objective means for measuring work accomplishment. Budget should be earned in the same way that it was planned.
Control the project by analyzing cost and performance variances,assessing final costs, developing corrective actions, and controlling changes to the integrated baseline.
62
Earned Value ManagementThe Bottom Line(s)
EVM is a vital project management tool.
EVM basics can and should be used on projects of any size.
Constant streamlining is needed to keep focus on effective use (not just reporting).
63
EVM Home Page = http://acc.dau.mil/evmhttp://www.dcma.mil = One BookDAU POC: (703) 805-2851 (DSN 655)
eMail Address: EVM@dau.milRevised Feb 2004
TERMINOLOGYNCC Negotiated Contract Cost Contract price less profit / fee(s)AUW Authorized Unpriced Work Work contractually approved, but not yet negotiated / definitizedCBB Contract Budget Base Sum of NCC and AUWOTB Over Target Baseline Sum of CBB and recognized overrunTAB Total Allocated Budget Sum of all budgets for work on contract = NCC, CBB, or OTBBAC Budget At Completion Total budget for total contract thru any given levelPMB Performance Measurement Baseline Contract time-phased budget planMR Management Reserve Budget withheld by Ktr PM for unknowns / risk managementUB Undistributed Budget Broadly defined activities not yet distributed to CAs CA Control Account Lowest CWBS element assigned to a single focal point to plan & control
scope / schedule / budgetWP Work Package Near-term, detail-planned activities within a CAPP Planning Package Far-term CA activities not yet defined into WPsBCWS Budgeted Cost for Work Scheduled Value of work planned to be accomplished = PLANNED VALUEBCWP Budgeted Cost for Work Performed Value of work accomplished = EARNED VALUEACWP Actual Cost of Work Performed Cost of work accomplished = ACTUAL COSTEAC Estimate At Completion Estimate of total cost for total contract thru any given level;
may be generated by Ktr, PMO, DCMA, etc. = EACKtr / PMO / DCMALRE Latest Revised Estimate Ktrs EAC or EACKtrSLPP Summary Level Planning Package Far-term activities not yet defined into CAsTCPI To Complete Performance Index Efficiency needed from time now to achieve an EAC
EVM POLICY: EVMS = DFARS 252.234-7000; 252.234-7001; & C/SSR = DFARS 252.242-7005; 252.242-7006; ANSI/EIA-748-A Jan 2002 / Mar 2003; DoDI 5000.2, Table E3.T2; & Defense Acquisition Guidebook
MANAGEMENT REQUIREMENTS: Select pair of Contract Clauses based on cost, risk, criticality:EVMS EIA-748 Management System Validated as Consistent with EIA-748 Standard at detailed level
Non-FFP contracts / agreements for R&D > $73M; & Proc or O&M > $315M (CY00$)Cost/Schedule Status Report (C/SSR) Management System not required to meet EIA-748 Standard;
Non-FFP contracts / agreements > $6.3M (CY00$) & > 12 months durationIntegrated Baseline Review (IBR) Mandatory for both EVMS & C/SSR within 6 months of Contract Award
REPORT REQUIREMENTS: Tailor Data Requirements via CDRL, Select One:Cost Performance Report = DI-MGMT-81466 = Formats 1-5 (WBS, Organization, Baseline, Staffing, & Explanations)
CPR is Mandatory for EVMS EIA-748 contracts & optional for C/SSR contracts Cost/Schedule Status Report = DI-MGMT-81467 = 2 Formats (WBS & Explanations) or Tailored CPR
Management Reserve
Work Packages Planning Packages
OVERRUN AUW
Control Accounts
NCC
UndistributedBudget
OTB CBB
TAB Profit / Fees
PMB
Summary Level Planning Packages
Contract PriceEarned Value ManagementGold CardGold Card
Defense Acquisition University
VARIANCES Favorable is Positive, Unfavorable is NegativeCost Variance CV = BCWP ACWP CV % = (CV / BCWP) *100 Schedule Variance SV = BCWP BCWS SV % = (SV / BCWS) * 100Variance at Completion VAC = BAC EAC
PERFORMANCE INDICES Favorable is > 1.0, Unfavorable is < 1.0Cost Efficiency CPI = BCWP / ACWPSchedule Efficiency SPI = BCWP / BCWS
OVERALL STATUS% Schedule = (BCWSCUM / BAC) * 100% Complete = (BCWPCUM / BAC) * 100% Spent = (ACWPCUM / BAC) * 100ESTIMATE AT COMPLETION #EAC = Actuals to Date + [(Remaining Work) / (Efficiency Factor)]EACCPI = ACWPCUM + [(BAC BCWPCUM) / CPICUM ] = BAC / CPICUMEACComposite = ACWPCUM + [(BAC BCWPCUM) / (CPICUM * SPICUM)]
TO COMPLETE PERFORMANCE INDEX (TCPI) #TCPIEAC = Work Remaining / Cost Remaining = (BAC BCWPCUM) / (EAC ACWPCUM)
# To Determine Either TCPI or EAC; You May Replace BAC with TAB
Management Reserve
Cost Variance
Schedule Variance
ACWP
BCWP
BCWS
$
EAC
TimeNow
Completion Date
PMB
TABBAC
time
64
In Summary: The EV Process
Plan the Work
Work the Plan
ExternalChanges
Collect Results
Define the Work
Analyze Deviations
TakeCorrective Action
TakeCorrective Action
Measure Performance
Change Control
65
Contact Information Name: Chance Reichel, PMP Company: Boston University Corporate
Education Center Phone
Contact 1(800) BUTRAIN
Email creichel@bu.edu
Session # ADV11 : You Too Can Do Earned Value Management
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