Earned_Value_Management

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THE VALUE OF EARNEDVALUE MANAGEMENT

PMI P ittsburgh Chapter Meeting

February 8, 2001

Marilyn McCauley

McManagement Group703-455-0602

703-455-0598 (f)

[email protected]



AGENDA

Twelve Reasons Why Programs FailProgram Management Principles

Earned Value Management’s Role in PMWhat is Earned Value Management

History of Earned Value ManagementThe Value of Earned Value Management



REASONS WHY PROGRAMS FAILJohn Gioia, Robbins Gioio, Inc., PM Network, November 1986

1. Understanding Program Complexity

2. Lack of Management Access and Internal Communication

3. Not Integrating the Key Elements of Project Management

4. No Measurable Controls

5. Requirements Creep

6. Ineffective Implementation Strategy



REASONS WHY PROGRAMS FAIL

7. A Software Tool is Not the Only Answer

8. Different Contractor and Customer Expectation

9. No Shared “Win-Win” Attitude

10. No Formal Project Management Education

11. Lack of Top Management Commitment and Sponsorship

12. Projects Not Viewed as a Business



REASONS WHY PROJECTS FAIL1995 Standish Group Report

1. Incomplete requirements2. Lack of user involvement

3. Lack of resources

4. Unrealistic expectations

5. Lack of executive support

6. Changing requirements and specifications

7. Lack of planning

8. Didn’t need it any longer

9. Lack of IT management

10. Technology illiteracy



PROGRAM MANAGEMENT PROCESSES

Initiating Recognizing that a project or phase should begin

and committing to do so

Planning Devising and maintaining a workable scheme to

accomplish the business need that the project was

undertaken to address

Executing Coordinating people and other resources to carry out

the plan

Controlling Ensuring that project objectives are met by monitoring

and measuring progress and taking corrective actionwhen necessary

Closing Formalizing acceptance of the project or phase and

bringing it to an orderly end

Source: A Guide to the Project Management Body of Know ledge

published by Project Management Institute





Earned Value Management

EVMS fits naturally into the

Project Management Cycle

Initiate

Close out

Control

Execute

Project mana

gement

cycle

Plan

program manager needs

develop a realistic plan ofthe work scope, thebudget, and the schedule

organize the work andthe teams

authorize work properly

control changes understand variances

corrective actions forecast of final cost and schedule

performance reporting



WHAT IS EARNED VALUEMANAGMENT

EVMS IS THE PRIMARY PROJECT MANAGEMENT

TOOL……

THAT INTEGRATES THE TECHNICAL, SCHEDULE, AND

COST OBJECTIVES OF THE CONTRACT OR WORK EFFORT



WHAT IS EARNED VALUE VALUE

A Way To MeasureHow much work should be done?

How much work was completed?

How much did the work cost?How much is the job supposed to cost?

What do we expect the job to cost

A Way To ManageThe best way known to integrate scope, schedules,

Resources and risk management



EVM PROCESSES

• PLAN - The supplier establishes a system to control management processes– An integrated baseline plan is established

- work is defined, scheduled, and resources areallocated

EXECUTE - Work and resources are driven down to lowest level for execution– Budgets are “earned” as work is completed =EARNED VALUE

CONTROL - The system is used to control changes to the baseline

– Status provided against baseline

- schedule and cost variances are isolated

- Problem assistance

- early warning

- corrective plans

- Early insight provided into final estimated cost

- Project manager uses EVMS data to manage and control



FIVE CORE PRINCIPLES

Organize the project team and the scope of work ,using a work breakdown structure. Each task should have a single WBSnumber and organizational code.

Schedule the tasks in a logical manner so that lower level

schedule elements support other 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 wasplanned.

Control the project by analyzing cost and performance variances,

assessing final costs, developing corrective actions, and controlling changes to the

integrated baseline.



1. DEFINE THE WORK AND ORGANIZE TEAMS

Planning is a 3 Step ProcessPlanning is a 3 Step Process

100

40

60

15

25

30

30

2. SCHEDULE THE WORK

3. ALLOCATE BUDGETS

$

CONTRACT BUDGET BASE

TIME

IN

TEGRATED BA

SELINE







Schedule Variance

BC WS

BC WP

of the work I scheduled to have done,how much did I budget for it to cost?

of the work I actually performed,how much did I budget for it to cost?

SCHEDULE VARIANCE is the difference between work scheduled

and work performed (expressed in terms of budget dollars)

formula: SV $ = BCWP - BCWS

example: SV = BCWP - BCWS = $1,000 - $2,000SV= -$1,000 (negative = behind schedule)

SCHEDULE VARIANCE is the difference between work scheduled

and work performed (expressed in terms of budget dollars)

formula: SV $ = BCWP - BCWS

example: SV = BCWP - BCWS = $1,000 - $2,000

SV= -$1,000 (negative = behind schedule)

BUDGET BASE

D



Cost Variance

BC WP

AC WP

of the work I actually performed,how much did I budget for it to cost?

of the work I actually performed,how much did it actually cost?

COST VARIANCE is the difference between budgeted costand actual cost

formula: CV $ = BCWP - ACWP

example: CV = BCWP - ACWP = $1,000 - $2,400CV= -$1,400 (negative = cost overrun)

COST VARIANCE is the difference between budgeted costand actual cost

formula: CV $ = BCWP - ACWP

example: CV = BCWP - ACWP = $1,000 - $2,400CV= -$1,400 (negative = cost overrun)

PERFORMANCE BASED



Variance at

Completion (VAC)

B ACwhat the total job is supposed

to cost

E AC what the total job is expectedto cost

VARIANCE AT COMPLETION is the difference between what the totaljob is supposed to cost and what the total job is now expected to cost.

FORMULA: VAC = BAC - EAC

Example: VAC = $5,000 - $7,500VAC = - $2,500 (negative = overrun)

VARIANCE AT COMPLETION is the difference between what the total

job is supposed to cost and what the total job is now expected to cost.

FORMULA: VAC = BAC - EAC

Example: VAC = $5,000 - $7,500VAC = - $2,500 (negative = overrun)



Estimate at Completion (EAC)

defined as actual cost to date + estimated cost of work remaining

supplier develops comprehensive EAC at least annually

• reported by WBS in cost performance report

customer should develop a range of independent EACs for comparison

should examine on monthly basis

consider the following in EAC generation

• performance to date

• impact of approved corrective action plans

• known/anticipated downstream problems

• best estimate of the cost to complete remaining work

WHAT WILL BE THE FINAL

COST?

ACWP + ETC = EAC



Common EAC Formulae:

EAC = BAC

CPI

=ACWPcum + Budgeted Cost of Work Remaining

CPI3

=ACWPcum + Budgeted Cost of Work Remaining

.8(CPI) +.2(SPI)

=

ACWPcum + Budgeted Cost of Work Remaining

CPI * SPI

One method: statistical formulae



THE VALUE OF EARNED VALUEMANAGEMENT

Early and accurate identification of trends andproblems

Accurate picture of project statusCost, schedule and technical

Basis for course correction

Supports mutual goals of supplier and customer

Bring project in on schedule and cost



Why do we need

EVMS?

Course corrections are easierwhen you have time to make

small adjustments

It’s too late when you’re thisclose to the iceberg!



EARNED VALUE EVOLUTION

Dept of Defense Instructions – late 1960’3Cost/Schedule Control Systems Criteria

Financial Management Subculture

Contractor “Validation” Procedures

Evolution in Late 1990’sValue reaffirmed

Industry Ownership

Principles in Federal Policy

Global Acceptance of EVM

Application to DoD In-House Activities

Enterprise-Wide Utilization

Commercial Use



ANSI/EIA-748-1998Earned Value Management Systems

INDUSTRY DEVELOPED GUIDELINES FOR EVALUATION OF SUPPLIER’S SYSTEM

32 Guidelines 1. Organization2. Planning and Budgeting

3. Accounting

4. Analysis

5. Revisions and Access to Data

Standard does not prescribe specific systems, software, orprocedures, only general guidelines



INTERNATIONAL USERS

AUSTRALIA

CANADA

JAPAN

SWEDEN

UNITED KINGDOM



REFERENCES

INDUSTRY EVM STANDARD – ANSI/EIA-748-98

www.cpm-pmi.org

www.pmi.org

www.acq.osd.mil/pm

www.deskbook.osd.mil

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Earned_Value_Management