Melbourne streamlining earned value with hd published

Streamlining Earned Value Management

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Ron Babich, VPHard Dollar Ron.babich@harddollar.com480-776-2934

Project COST Management

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Design(Materials)

Estimating(Budget)

Scheduling(Time)

Progress(Project Controls)

Finance(Accounting)

Overview

Building the Cost Model

Developing EVM Measurements

Case Study: Successful Process Readiness

Capital Planning Project Variance

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15%50%

Project Plan Costs

Plan Costs

EVM Requirements

Effort RequiredWBS

Period of TimeSchedule

ProgressPerformance

Measurement Baseline

Regulatory Requirements

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RegulatoryRequirements

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RegulatoryRequirements

Characteristics of Credible Cost Estimates

Clear Identification of Task

Broad Participation in Preparation

Availability of Valid Data

Standardized Structure For Estimate

Provision for ProgramUncertainties

Recognition of Inflation

Recognition of Excluded Costs

Independent Review Of Estimates

Budget/Cost Estimate Challenges

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Typical Challenges

Auditors should…

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Cost Element Valid and Applicable

Labor Includes Time Phase Break Down

Calculations on each element are correct

Program is Accurate TotalOf Sub-Elements

Escalation was applied Over time

Case Study - NASA

0 of 10 Projects followed All Basic Steps

3 of 10 Projects included detailed WBS

2 of 10 Measure Cost/Performance Identify Risk

Case Study – US Customs $1.05 BilCommercial Environmental Life Cycle

No Formal Cost Model

No Structured Documented Process for Determining Size/Reuse

No Relevant, Measured, Normalized Historical Cost Data to Calibrate Models

Spreadsheet

Size

Measurement

What is Earned Value Management?

• Earned Value Management (EVM)…– Project management process that combines schedule

performance and cost performance

– Answers: What did we get for the money we spent?

– Used since the 1960’s by the Department of Defense

– Central part of CERT and C/SCSC (Cost/Schedule Control Systems Criteria)

– Was recently revised and adopted as ANSI/EIA 748

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Example: Rail Project

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4 Miles

4 Weeks

Scope

Time

Cost $ 4 Mil

4 Miles

4 Weeks

Scope

Time

Cost $ 4 Mil

What is Earned Value Management?

• The Essence of Earned Value Management (EVM)…

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Budget X % Complete

= Earned Value

What are the Benefits of EVM?

• Brings cost performance and schedule performance into a single unified view

• Provides a true picture of a project’s value at any point in time

• Ideal method of monitoring project status and likelihood of success

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EVM Give us…

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Cash Flow

Predictive Profit/Loss

ScheduleScopeCost

Gov Report ComplianceProduction Factors

Operations Financial

Mitigate Risk

Driving Trends Affecting EVM

• Owner Budgets are Being Reduced– Credit limitations– Less capacity for risk

• …Leading to Greater Owner Scrutiny of Project Health– Are we on track?– Have we over-paid?– What is the forecast?

• …Leading to Increased Adoption of EVM– In traditional markets: Aerospace, Defense– In new markets: Oil & Gas, Mining, Power, Civil, Commercial

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What are the Key Requirements of EVM?

• Step 1:– Define the work

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What are the Key Requirements of EVM?

• Step 2:– Assign budget (planned) values

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What are the Key Requirements of EVM?

• Step 3:– Schedule the work

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What are the Key Requirements of EVM?

• Step 4:– Cost-load the schedule

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What does it tell the contractor?What are our expected costs over time

What does it tell the owner?What is our expected spend level over time

What do you need to track this value? Estimate / budget Cost-loaded schedule

Cost

Time

$500,000

$1,000,000

Budgeted Cost of Work Scheduled (BCWS)

What are the Key Requirements of EVM?

• Step 5:– Track progress (% complete)

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What does it tell the contractor?What should our costs have been based on the work we completed

What does it tell the owner?What should our spend level have been based on the work completed

What do you need to track this value? Estimate / budget Progress history (units completed)

Cost

Time

$500,000

$1,000,000

$450,000

Budgeted Cost of Work Scheduled (BCWS)Budgeted Cost of Work Performed (BCWP)

Earned Value

What are the Key Requirements of EVM?

• Step 6:– Track actual costs (optional)

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Cost

Time

$500,000

$1,000,000

$450,000

$400,000

Actual Cost of Work Performed (ACWP)

Budgeted Cost of Work Scheduled (BCWS)Budgeted Cost of Work Performed (BCWP)What does it tell the contractor?

What have our costs actually been for the work we completed

What does it tell the owner?What has our spend level actually been for the work completed

What do you need to track this value? Actual costs from accounting; or “Accrued” costs

Earned Value

Where is EVM trackedby: Owners, PMO’s, CM’s, Contractors

• Spreadsheets

• Finance-focused systems– ERP– Accounting

• Project-focused systems– HD + Primavera– HD + MS Project

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System Process Keys

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Schedule Cost

Scope

Level of Detail in Planning

Specifics during detailed estimating:– Using more detail instead of less

– Detail the work into small manageable steps

– Rule of thumb: No activities >1 shift

Measuring Craft Productivity

– Measure craft productivity through Earned Value Process

– Based on activity progress

– Information to forecast schedule and cost at completion

– Evaluate Resource Needs and Deployment

1

2

3

Case Study Operations: Audience – Who Owns Tracking

– Field Superintendents

– General Foremen

– Project Controls Group

– Front-Line Supervisors (Foremen) are excluded

Earned

Value Flow

Duplication of Data EntryAccuracy RiskTime Delays

Earned Hours from Progress

Progress from Field

Budget Hours times %

Complete = Earned Hours

Case Study: Cost

Earned Hours Progress From

Schedule

Timesheet Hours From

Payroll

Actual Hours divided by

Earned Hours

BilledCost

DiscussForecast

Calculations

Warning: Watch out for these common challenges

– Requests or tendencies to work on

jobs that are not in the schedule

– Sand bagging of progress

– Remaining duration on activities

– Rejections from Payroll

– Supervisors that may pencil whip a

timesheet or schedule

Case Study: Your Role

– Ultimately it is your responsibility to assure that the

progress that is turned in is as accurate as possible

– When monitoring work in the field, take the current

schedule with you to verify

– If you have a supervisor that struggles with any part

of the schedule, get the Project Controls group to

help

– Clearly communicate the expectations to your

supervisors

Case Study: Your Role

– Help to minimize down time between contractors,

crews etc…(this can be big)

– When PF’s are above 1.1 or below .80, go to the

field, find out why and communicate that to

management and project controls

– Monitor & Manage Material Movement

– Monitor & Manage Tools

– Monitor & Manage Equipment Utilization

– Manage Change Management

Case Study: Your Role

– Monitor Time Sheet accuracy

– Continuous Communication with

Management on Schedule Status

– Make time at least once a day to verify

accuracy of current schedule and

communicate findings to Project Controls

– Have Daily discussions with Project

Controls on Current Cost Report

Case Study: Your Role

– Document all delays

– Monitor and Manage Non-Working

Times

– Hold your supervisors accountable for

assuring that their progress is

accurate

– If you or one of your supervisors does

not understand something….. ASK

SOMEONE !

Case Study: Recap

– Who is responsible for Accurate Progress?

– What is affected by incorrect Progress?

– Explain the flow process for calculating

Productivity (draw flow on board)

– What can you do to support Accurate

Progress?

Case Study: Benefits of Accurate Progress

– Schedule Forecast

– Cost Forecast

– Manage Resources

– Enables the Owner to make sound Business

Decisions (Minimize Unit Down Time)

– It’s the Right Thing to Do

Best Practice Checklist

Cost Estimate to Measure Original Plan

Strong leadership demands EVM

Stakeholders make it clear on accountability

Management mitigating risk on results

EVM at the program level

EVM planned detail

Use past performance – History!

Integrate: Cost, Schedule and Performance

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Questions?

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Thank You!Contact Ron Babich ron.babich@harddollar.com480-776-2934