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Using Earned Value Management Concepts to Improve Commercial Project Performance

R. Scott Brunton, PMP, PMI-RMP/SP, EVP

Principal Solutions Consultant

Lewis Fowler, LLC – www.lewisfowler.com

Welcome to the PMI Houston Conference & Expo and Annual Job Fair 2015

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EV Within PMI®

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Project Cost Management Knowledge AreaControlling and Monitoring Process Group

Reference: PMI PMBOK and PMI

EV Within PM Methodology

• As an analytical technique for assessing progress of technical maturity through cost and schedule Performance Measurement

3Reference: PMI PMBOK

Capabilities of EV Management

• Objective, measurable metrics• Informs the organization decision

making process• Supports project controls to enable

successful project execution through Performance Measurement

• Relevant to internally driven business efficiency requirements for commercial programs

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Why EV Was Developed

• Late 1800s– Optimize performance of factories

• 1950s and 1960s– Navy developed into PERT/Cost techniques– Cost/Schedule Control Systems Criteria (C/SCSC)

• 1998– 32 guidelines in ANSI/EIA-748 by NDIA

• Performance Measurement as a means to make better business decisions

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What’s In A Name

• Historically driven and mandatedwithin the defense industry

• Perception of being operationallyburdensome

• “Uncomfortable”– Involves “a priori” planning and periodic reporting– Requires root cause analysis and mitigation– Drives accountability and active management

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Earn

ed V

alue

Man

agem

ent

Reference: Earning Value from Earned Value Glen Alleman, Aug 2013

What EV Isn’t or Won’t Do

• Performance Measurement– Will not ensure project success by itself– Is not a one size fits all strategy– Does not make up for a bad plan, incomplete

requirements, or poor project management– Is not just a government reporting requirement

• Performance Measurement is not a solution as much as it is an efficiency enabling methodology

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Here’s The Value

• Success enabler– Element of PM fundamentals– Disciplined project controls and performance

monitoring• Performance Measurement enhances program

management capability through insight• Increase the probability of program success• Equally applicable in commercial business

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Cost of EVM Process

9Reference: The Costs and Benefits of the EVM Process D. Christensen, Fall 1998

Author (Year) Source of Estimate Cost Range

Kouts(1978)

Survey of Industry 0.5% to 5%

MITRE Corp.(1982)

Survey of Industry 0.1% to 0.2%

DOD IG(1984)

Survey of DoD Experts 5.0%

Decision Planning Corp. (c1992)

Industry Cost Estimating Model 0.6% to 1.0%

Humphreys and Assoc. (c1992)

Consultant Experience 0.5% to 4.0%

Lampkin(1992)

Average of Five Studies Above 0.4% to 1.63%

Program Customer Satisfaction

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Best

Worst

MinimalCapability

CompositeWorld Class

QualifiedPerformer

Program Management Capability

Reference: DCMC Conference, March 2000

When to Consider EV

• High value programs• Long duration programs• Progress payment programs• Contract types: Firm Fixed, Cost Plus, T&M• In support of broader corporate mission to

drive efficiency and effectiveness in program execution and utility of organizational resources

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Performance Measurement

• In support of objective technical maturity• Objectively validated and measured time-

phased cost and schedule performance• Alerts program to potential execution problems

– Absolute or trend measures• Enables problem diagnosis by variance analysis

that leads to active program risk management

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Why Measure Performance?

• To further increase the probability of program success through:– Risk and opportunity management– Program governance and controls

• Answer the questions– Is the program performing according to plan?– Are there performance trends emerging?– How does this program relate to corporate success?

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Concepts

• Validate the technical scope• Establish ‘The Plan’

– What scope, by when, for how much• Measure performance and assess variance• Analyze to reveal root cause• Implement corrective actions• Inform the organization

– Project and Portfolio levels

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Portfolio Dashboard

PerformanceMeasurement/Analysis

Scope

Schedule

Cost / Resources

Concept as a System

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Earned Value Management

System

• Performance Analysis• Root Cause Determination• Corrective Action Planning

Cost and Schedule PerformanceData Collection

ProgramFunding

Performance Measures

• Cost Measures: CV = EV – AC ; CPI = EV / AC• Schedule Measures: SV = EV – PV ; SPI = EV / PV• Estimate-at-Complete (EAC): Various• Estimate-to-Complete (ETC): ETC = EAC - AC

16Reference: PMI PMBOK, Table 7-1

Establish the Plan• Plan what you know in objective terms

– Entire plan, Rolling Wave• “Don’t create variances during planning”

17Reference: 8-31-2013 © Scott Adams, Inc

Measure Performance

• Collect cost and schedule data based on predefined, objective, measureable criteria

• Scope management through governance

18Reference: Jorge Cham © 2014

Assess Variance

• Mechanical process of determining performance as compared to ‘The Plan’

• Provides visibility in objective terms• Focus on primary drivers of plan variance

– Absolute and relative measures

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Root Cause

• Meaningful level of detail• Ask ‘Why’ more than once• Recommend and

implement solutions• Capture in risk action register• Informs the program of risks and opportunities

20Reference: MindToolshttp://www.mindtools.com/pages/article/newTMC_5W.htm

Implement Corrective Action

• Supports the program controls function• Assess cost and schedule impacts• Baseline program governance• Log, track, and report• Archive

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Broader Context

• Risk and opportunity management• Dashboard reporting• Project portfolio management

– Projects | Programs | Portfolios• Supportive of enterprise strategic objectives

and “Value Chain” of the organization

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Deploy Incrementally

• Reconcile objective sources of performance information for cost and/or schedule

• Measure performance period-over-period• Allow the variance analysis to inform next

steps in evolving measurement maturity– Rigorous management of baseline plan– Reveal need for scope management

through governance

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• ANSI/EIA 748: Compliant versus Certified• Begin with cost or schedule performance

Tailored Solution

24Reference: Earning Value from Earned Value Glen Alleman, Aug 2013

Overhead Burdens

• Training and education– Stakeholders, PMO Team,

Project Managers• Supporting IT infrastructure

– Cost and schedule information collection– Excel spreadsheets to enterprise solutions

• Reporting and analysis time• In comparison to value of improved performance

and project delivery

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Frame the Conversation

• Speak in terms ofPerformance Measures

• Recognize the value ofperformance insight

• Recognize performance data as a corporate asset• Value of improved probability of program success

outweighs organizational cost factors• Improved internal/external customer satisfaction• Align to corporate objectives

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Prepare for Implementation

• Shared vision of whatsuccess looks like

• Stakeholder alignmentand visible support

• Project identity and organizational brand• Motivated, capable, and visionary team• Integrated governance, change management• Build open cross functional relationships

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Company Return On Sales

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+15%

MinimalCapability

CompositeWorld Class

QualifiedPerformer

Program Management Capability

Reference: DCMC Conference, March 2000

+10%

+5%

-15%

-10%

-5%

0%

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Using Earned Value Management Concepts to Improve Commercial Project Performance

R. Scott Brunton, PMP, PMI-RMP/SP, EVP

Principal Solutions Consultant

Lewis Fowler

383 Inverness Parkway, Suite 475

Englewood, CO 80112

www.lewisfowler.com

Phone: 719.339.0748E-mail: sbrunton@lewisfowler.comLinkedIn: www.linkedin.com/in/sbrunton

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