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Streamlining Earned Value Management
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Ron Babich, VPHard Dollar [email protected]
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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