CS3100 S/w Project ManagementWeek 9: Earned value Sept ‘12 1 CS3100 Software Project Management November 22 nd 2012 Week 7: Earned value

CS3100 S/w Project Management Week 9: Earned valueSept ‘12

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CS3100Software Project Management

November 22nd 2012

Week 7: Earned value


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learning outcome

To be able critically to discuss some qualitative and quantitative measures for assessing project progress – and to select appropriate approaches


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Questions(Read Cadle & Yeates Ch 11) If you are working on a £100,000 job and you get to a

milestone halfway through it, but discover you have spent £80,000, what is your best estimate of what it will cost to completed?

How much do you think the work you have done is worth? The job was to have taken you 5 months to complete, but

it takes you four months to get to the milestone halfway. How long do you think it will take to finish?

How much did you intend to spend each month? How much have you actually spent each month? What is your main problem here?


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How do we know how a project is doing?

Pay day!

30, 60 or 90 days

time

Final delivery

Let’s consider a very simple example:

We’re making a great start!

We’re doing well

We’re ahead of schedule

We have some

problems, but we’re on schedule

We have a bit of a

problem…

Best tell the customer it will take another 3

months… and, by the way, we need another

£100,000 to finishWe can measure:How long it is takingHow many people are employed and how much they costOthers costs

BUTWhat progress are we making?


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Let’s go back to our work breakdown

Example based on Cadle & Yeates, (4th ed) pp 204&ff

weeks0 1 2 3 6 7 8 94 5 10

Task A

Task B

Task C

Task D

Task E

Each task requires 4 software engineers, costing £500/day for 2 weeks

Budget = £100,000

£20,000

£20,000

£20,000

£20,000£20,000


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Every month, you get something like this… (very simplified example)

Returns for Period X

Labour Grade Rate Days Cost Notes

2 £1,000 3 £3,000

4 £500 20 £10,000

5 £300 15 £4,500

Total Labour £17,500

Services

£7,500 Technical writer (FastDoc)

Total Services £7,500

Bought-in

£2,000 Software licences

Total Bought-in £2,000

Total £27,000

Rate may be hourly

Where do these come from?


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Each company will do it differently

Your finance department will set rates

Some rates are agreed with some customers

• (e.g. EU has a list of allowed costs for O/H)

PM needs to understand about rates and to know what must be recovered directly

Direct costs associated with•Salary•Tax and NI•Pension

Personal overheads accounting for•Sick pay•Holidays•General overhead activity•Etc,

Other overheads•Accommodation, heating, lighting, etc•General equipment•Shared services•Management costs•etc…


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Last week… D

irectIndirect

Indirect Building Maintenance 2,500.00

Heating, etc 1,000.00

Communications 500.00

Equipment (central/general) 2,500.00

Central services 10,000.00

School services 25,000.00

training 1,000.00

42,500.00

Direct NI & pension (approx.) 7,273.77

London weighting 2,166.00

Lecturer B (spine No. x) salary 32,471.00

Direct Equipment 10,000.00

51,910.77

Total 94,410.77

We worked out the rates for this data


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A couple of questions:

Should you cost the MD into your tasks?

If your company has only 3 people, it might be appropriate, but most companies would put

management into the day-rate of project staff through the

overhead

Should you cost a computer into your

tasks?

If you need that particular computer for that particulartask, you might cost it (or a

fraction of it) into the project. General purpose computer costs

normally go into the overhead.

Project managers do not need to know the details,

necessarily, but do have to know how to use the rates and what else needs to be

costed in.


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Review 1 month into the project – Bad news!


weeks0 1 2 3 6 7 8 94 5 10

Task A

Task B

Task C

Task D

Task E

Project hit problems – Someone was sick in the middle and work stopped for a week. However, it still took a week of effort more than anticipated and so cost an extra £10,000. Now Task B is only just ready to commence

What are the implications for cost and timescale?

£30,000

Task A

Task A

Task B

A


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Three easy scenarios:

weeks0 1 2 3 6 8 10 124 5 14

Task A

Task BTask C

Task DTask E£30,000

7 9 11 16 17 18 1913 15 20

£30,000

£30,000

£30,000

£30,000

Scenario A: The project continues in the same way as it has begun (i.e. the way we worked out our simple problem): Costs will rise to £150k – i.e. a 50% cost overrun It will take 20 weeks – i.e. a 100% timescale overrun

This is probably the fairest assumption, based on your performance so far.This is probably the fairest assumption, based on your performance so far.

Task AA

Task BB

Task CC

Task DD

Task EE


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weeks0 1 2 3 6 8 10 124 5 14

Task A

Task BTask C


7 9 11 16 17 18 1913 15 20

£20,000

Most naïve Project Managers will try to argue that this is the caseMost naïve Project Managers will try to argue that this is the case

Task AA

Task B

Task C

Task D

Task E

£20,000

£20,000£20,000

Costs will rise to £110k – i.e. a 10% cost overrunIt will take 12 weeks – i.e. a 20% timescale overrun

Scenario B: The problems to date are one-off, and it will go as planned from here on:


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weeks0 1 2 3 6 8 10 124 5 14

Task A

Task BTask C


7 9 11 16 17 18 1913 15 20

This is the aim of a good Project Manager (and by far the most difficult challenge)This is the aim of a good Project Manager (and by far the most difficult challenge)

Task AA

Task B

Task C

Task D

Task E

Each Task (B-E) must now cost £17,500 or lessEach Task (B-E) must now take 1½ weeks or less

£17,500

£17,500£17,500

£17,500

Scenario C: The PM gets the project back on course and finishes within time and budget:


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Back to our analysis

Problem

1 month into the project, we are:£10k overspent &2 weeks behind

Scenario AScenario A

Fairest estimate(NOT WORST CASE)50% over budget100% over on time

Scenario BScenario B

Easy estimate10% over budget20% over on time

Scenario CScenario C

TargetWithin budgetOn time

Customer-facingquestions:

Can the customer waitanother 10 weeks and

pay another £50k?

Can the customerafford a 2 week delay

and another £10k?

Business-facingquestions:

Will my management waitanother 10 weeks and

cover a £50k overspend?

Can I ensure thatthis is really the end

of the bad news?

How can I boost myTeam’s performance by

25%-50%?

Thinkspot:What is the worst scenario?


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A Project Manager needs to…

Problem

1 month into the project, we are:£10k overspent &2 weeks behind

Scenario AScenario A

Fairest estimate(NOT WORST CASE)50% over budget100% over on time

Scenario BScenario B

Easy estimate10% over budget20% over on time

Scenario CScenario C

TargetWithin budgetOn time

Quantify this

And work towards this

The schizophrenia of Project Management


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Let’s put this on a more formal footing:Earned Value Analysis (very simplified)

weeks0 1 2 3 6 7 8 94 5 10

Task A

Task B

Task C

Task D

Task E

£30,000

Task A

Task AA

£20,000£20,000

3 critical parameters & 2 helpful ratios3 Critical questions:1. How much have I spent?2. How much did I plan to spend?3. How much is what I have done actually worth?

Actual Spend, AS = £30,000Actual Spend, AS = £30,000

I planned to have completed Tasks A & B: Planned Spend,PS = £40,000

I’ve completed Task A, which was I’ve completed Task A, which was worth £20,000 in my plan: Earned worth £20,000 in my plan: Earned Value, EV = £20,000Value, EV = £20,000


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Some trickier names:Variable Name Also known as…

AS Actual spend Actual cost of work performed (ACWP)

PS Planned spend Budgeted cost of work scheduled (BCWS)

EV Earned Value Budgeted cost of work performed (BCWP)

These provide some simple markers on how we are doing

Seminar activity – write a definition in your own words


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Some trickier names:Variable Name Also known as…

AS Actual spend Actual cost of work performed (ACWP)

PS Planned spend Budgeted cost of work scheduled (BCWS)

EV Earned Value Budgeted cost of work performed (BCWP)

Cost variance, C = (EV-AS) +ve if you are ahead on budget+ve if you are ahead on budget-ve if you are behind on budget-ve if you are behind on budget

Schedule variance, S = (EV-PS) +ve if you are ahead of schedule+ve if you are ahead of schedule-ve if you are behind of schedule-ve if you are behind of schedule

These provide some simple markers on how we are doing


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For our example…Cost variance, C = (EV-AS) = -10,000

Schedule variance, S = (EV-PS) = -20,000

Try to think of these in words – e.g. In this case the Cost Variance tells me that I have spent more than I have earned – so I am trouble

But how do we But how do we make predictions?make predictions?


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Predictions:

Q: What is the underlying assumption, here?

Cost performance index, CPI = (EV/AS) >1 if you are ahead on budget>1 if you are ahead on budget<1 if you are behind on budget<1 if you are behind on budget

Schedule performance index, SPI = (EV/PS) >1 if you are ahead of schedule>1 if you are ahead of schedule<1 if you are behind of schedule<1 if you are behind of schedule

Assume the same rate of success in turning your plans into Earned Value, will continue to the end of the project


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For our example…Cost variance, C = (EV-AS) = -10,000

Cost performance index, CPI = (EV/AS) = 2/3

Schedule variance, S = (EV-PS) = -20,000

Schedule performance index, SPI = (EV/PS) = 0.5

Try to think of these in words – e.g. In this case the Schedule Performance index tells me that I am going half as fast as I had planned


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Looking forwardPredictions:

This is going to cost (final budget outturn) = Original budget/CPI= 100,000/(2/3)= 150,000

i.e. I have only made two-thirds the progress I had expected for every pound I have spent, so it is going to take me one and a half times as much as I had planned, in order to finish

This gives us scenario A!!

This is going to take (timescale) = Original timescale/SPI= 10/0.5= 20 weeks

i.e. I have only made half the progress I had expected for every week I have spent, so it is going to take me twice as long as I had planned, in order to finish


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This is not magic…

It assumes• Time and money will stay roughly linked in the

same way as you originally planned• That you will carry on in the same way, on the

whole, as you have behaved in getting to the point of assessment

It will not work so well• When time and money run out of synch (i.e. you

get different predictions from the two calculations)• When the cost and effort levels vary widely with

time.


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Let’s go back…


weeks0 1 2 3 6 7 8 94 5 10

Task A

Task B

Task C

Task D

Task E

Original predictions: £100,000 and 10 weeksEV-predictions: £150,000 and 20 weeks.

Task A Can both of these be true at once – i.e. it will take twice as long, but you will only overspend by 50%?


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Let’s go back to the start…

weeks0 1 2 3 6 7 8 94 5 10

Task A

Task B 75%

Task C

Task D

Task E

Another scenario – Assume that you test after 3 weeks and get the following feedback.

Task A

What are the key choices here?


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Worse still…

weeks0 1 2 3 6 7 8 94 5 10

Task B

Task D

Task E

This situation is virtually out of control and you have no way of estimating real progress

Task A

Task C

You want to keep the emphasis on finishing!


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Options for assessing incomplete tasks

Task B 75%1. Take a guess and use the fraction completed in your calculation

Problem: This guessing is difficult and people tend to be optimistic


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Task B 75%1. Take a guess and use the fraction completed in your calculation

Problem: This guessing is difficult and people tend to be optimistic

Task B 50%2. Use 50% as your estimate while Task B is underway, 100% after completion

Problem: This still gives an optimistic view at critical times

Task B 0%3. Use 0% as your estimate while Task B is underway, 100% after completion

This provides a pessimistic estimate and gives you a nice boost when it its complete

Options for assessing incomplete tasks


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The story so far

The concept of ‘earned value’ enables us to:• compare what we have done with what we

expected to have done by that stage• Make predictions about final spend and timescales

Earned value works best for completed tasks• We can make some estimates for incomplete

tasks

We can probably do a little better…We can probably do a little better…


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Milestones

Task B

weeks0 1 2 3 6 7 8 94 5 10

Task D

Task E

Task A

Task C

Agree a milestone with the customer – plus a part payment to be made once you hit it

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Deb

t (£)

Payment delay – usually Payment delay – usually much longer than a weekmuch longer than a week


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Some guidelines for milestones

They formalise ‘earned value’ inside the project• May be used for part-payments internally• Staff bonuses• Staff performance assessment

They can be used to obtain part payments from the customer

So why not have a milestone at the end of every task?


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Task B

Milestones

weeks0 1 2 3 6 7 8 94 5 10

Task D

Task E

Task A

Task C

Milestones may cost quite a lot to prepare (i.e. checking, sign-off, special formats, extra tests, etc)

We spent ages agreeing the formats and writing a special set of reports instead of getting on with papers


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Key messages

You need a reliable means of measuring real progress• Earned value is one such approach

Earned value analysis helps to:• Assess where you are• Make predictions for planning options• Support internal team processes• Obtain part-payments from customers

It’s only a rough guide


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For homework:

weeks0 1 2 3 6 7 8 94 5 10

Task A

Task B

Task C

Task D

Task E

£30,000

Task A

Task AA

£20,000£20,000

Task B

Difficult negotiations with team – they improve work-rate and deliver

to original time estimates

Task C

Replace 2 low-cost coders with a top class coder who doubles productivity

AS = £60,000Tasks A-C completeWhat is the latest forecast on cost & timescale?

Actual

Planned

Summary: Following a poor First Review, the Project Manager brought Task B to completing in a further 2 weeks at a cost of £20,000 and then changed the staff mix for Task C. This resulted in Task C being completed within a week for a cost of £10,000. At the end of week 7, a Second Review is conducted and the result is that Tasks A-C have been completed, while the Actual Spend is £60,000. What is the new estimate for the final cost and the delivery date?


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Homework

Part 2: Suppose you are the Project Manager's boss. You look at how well the project has improved between the First Review and the Second Review. You decide that the Project Manager is doing quite well and might continue to recover the situation. How might you try to estimate the impact of continued improvement (any ideas are worth working on)? What is your best estimate of the final cost and finishing date?


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Next week: Monitoring & control

Cadle, J. and Yeates, D. (2008). Project Management for Information Systems (5th edition) London, UK: Pearson Education Ltd, Chapters 11 &12

Documents

CS3100 S/w Project ManagementWeek 9: Earned value Sept ‘12 1 CS3100 Software Project Management November 22 nd 2012 Week 7: Earned value