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Understand Earned Value in Under an Hour!
Wayne Brantley, MS Ed, PMP, ACP, CSM, CSPO, ITIL, CRP, CPLP
Associate VP of Professional Education
Villanova University – www.VillanovaU.com
100% online courses in critical certifications:
• Agile Management
• Project Management
• Six Sigma
• Business Analysis
• Contract Management
• Business Intelligence
• Business Process Management
• Leadership
• HR Management
• Cyber Security
• S/W Testing
• ITIL
Overview
• Establish the link between the requirements and the
performance measurement baseline
• Understand what the Earned Value calculations are
measuring
• Explain Earned Value as an easy to use tool for project
performance measurement
Why Do We Need Earned Value?
• 1994 The Chaos Report
• Approximately 70% of projects are:
o Over budget
o Behind schedule
• 52% of all projects finish at 189% of their initial budget
*Standish Group: Chaos Report
How do your projects perform today?
• Do you have projects that are over budget?
• Do you have projects that are late?
• Do you have projects that have scope creep?
Variance Analysis is the Great Lie
• Planned – Actuals
• You planned to do $100k of work in one month
• You spent $110k
• Variance = -$10k
• Now tell me how much of the work is completed?
What is Earned Value Management?
› “Earned Value Analysis” is:
• An industry standard way to:
oMeasure a project’s progress
oForecast it’s completion date and final cost
oProvide schedule and budget variances along the way
What is Earned Value Management?
› EV compares:
The PLANNED amount of work (PV)
that has actually been COMPLETED (EV)
and how much the work ACTUALLY COST (AC)
What EV Tells You
• Where you are on schedule
• Where you are on budget
• Where you are on work accomplished
Why you should know Earned Value
1. So you can say you are an EVM expert
2. Because there are some questions on the PMP exam
3. Because you need to control project delays and overruns
4. Government legislation requires it
5. RFP requires it
Earned Value Management Thresholds in the Government
Federal Agency
EVM Threshold
EVMS Threshold
DoD, NASA $20-$50 million EVMS required
DoD, NASA Greater than $50 million EVMS implementation & process must be verified
GSA Greater than $20 million EVMS required; implementation & process must be verified
DoE Greater than $20 million EVMS required
EPA Greater than $5 million EVMS required
FAA Greater than $10 million EVMS required
Six Essential Elements to Implementing an Earned Value Management System
Good requirements
A detailed WBS
Good estimates for durations
Good estimates for budgets
A good schedule
A performance measurement baseline
What You Need to Know to do Earned Value • Scope, Requirements, and the WBS
• Understand the link between requirements and the WBS
• Scheduling • Understand the development of a schedule and time estimates
• Budgeting • Understand how cost estimates are developed
• Earned Value • Identify how earned value calculations are accomplished
• Reporting • Know how earned value (EV) can be used to measure project progress
Understanding the link between requirements and the WBS
• Where do we start in order to gather requirements?
• Request for Proposal
• Statement of Work
• Contract
• Project Charter
• Any others?
The Project Charter
› What should be in a Project Charter? 1. Sponsor authorization and signs-off 2. Project Manager assigned • Other considerations?
o Requirements o Business need o Project purpose o Milestones o Stakeholder influences o Functional organizations o Assumptions and constraints o Summary budget
Obtaining Good Requirements
› How do you obtain good requirements?
• Take time to do it
• Ask the right people the right questions
• Draw a picture
• Build a model
• Build a little
• Check and re-check (CYA)
Obtaining Good Requirements
› How do you obtain good requirements?
• Take time to do it
• Ask the right people the right questions
• Draw a picture
• Build a model
• Build a little
• Check and re-check (Cover Your Activities)
Understanding the link between requirements and the WBS
› What is a WBS?
• “A deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project objectives and create the required deliverables.”
Understanding the link between requirements and the WBS • Why is a WBS so important?
• How low do you go?
• Project (1.0)
oDeliverables (1.1, 1.2, 1.3, …..) • Tasks (1.1.1, 1.1.2, 1.1.3, …….)
• Activities (1.1.1.1, 1.1.1.2,…….)
• Why an 80 - hour rule?
Scheduling
• What do we have at this point?
• Requirements
• WBS
• Who would you go to determine what must be done and in what order?
• What tools are available for scheduling?
Scheduling
• What do we have at this point? • Requirements • WBS
• Who would you go to determine what must be done and in what order?
• What tools are available for scheduling?
• What do scheduling and a game of chess have in common?
Scheduling 101
› Critical scheduling questions
• What comes first?
• What comes second?
• Any restrictions?
• Any constraints?
The Gantt Chart View
Task
1.1.1 Days 1 - 6
2.1 Days 1 - 2
1.2 Days 3 - 4
3.1 Days 3 - 4
2.2.2 Days 5 - 9
1.1.2 Days 7 - 9
2.2.1 Days 10 - 15
3.2 Days 16 - End
Days 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Budgeting
› What do you have at this point?
• Requirements
• WBS
• Schedule
› Where do your cost estimates come from?
› Where should they come from?
› What are the differences?
The Gantt Chart View - Cost at $10,000/day per task Task
1.1.1 Days 1 - 6
2.1 Days 1 - 2
1.2 Days 3 - 4
3.1 Days 3 - 4
2.2.2 Days 5 - 9
1.1.2 Days 7 - 9
2.2.1 Days 10 - 15
3.2 Days 16 - End
Days 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Spending Rates
• Budget at completion is $290k
• Why at day 9 (half of 18 days) are we at $200k and not $145k (half of $290k)?
• Why is the cost curve not linear?
• How does this correlate to EV? Spending Rates?
Tying in the Cumulative Cost Curve and EV • Planned Value (PV) = Planned costs for the planned work
to be done at a particular time (BCWS)
• Earned Value (EV) = The percentage of the planned work that was accomplished (BCWP)
• Actual Costs (AC) = Amount spent on the work that was accomplished (ACWP)
• Budget At Completion (BAC) = Total of all planned costs
Tying in the Cumulative Cost Curve and EV
• BAC = $290k is the total costs of all work to be done
• PV (BCWS) = $200k is amount spent through Day 9
• EV (BCWP) = The % assessed of the work completed
• AC (ACWP) = The actual costs spent on the work done
Earned Value Formulas › Variance Analysis = subtraction formulas
• Cost Variance (CV) = Earned Value (EV) – Actual Costs (AC) (EV-AC)
• Schedule Variance (SV) = Earned Value – Planned Value (PV) (EV-PV)
› Performance Indices = division formulas
• Cost Performance Index (CPI) = Earned Value / Actual Costs (EV/AC)
• Schedule Performance Index (SPI) = Earned Value / Planned Value (EV/PV)
How to create the EV formulas on test day
› SV =
› SPI =
› CV =
› CPI =
› EV
› PV
› AC
EV
EV
EV
EV
-
/
-
/
How to create the EV formulas on test day
› SV =
› SPI =
› CV =
› CPI =
› EV
› PV
› AC
EV
EV
EV
EV
-
/
-
/
AC
AC
How to create the EV formulas on test day
› SV =
› SPI =
› CV =
› CPI =
› EV
› PV
› AC
EV
EV
EV
EV
-
/
-
/
PV
PV
AC
AC
How to create the EV formulas on test day
› SV =
› SPI =
› CV =
› CPI =
› EV
› PV
› AC
EV
EV
EV
EV
-
/
-
/
PV
PV
AC
AC
EAC =
How to create the EV formulas on test day
› SV =
› SPI =
› CV =
› CPI =
› EV
› PV
› AC
EV
EV
EV
EV
-
/
-
/
PV
PV
AC
AC
EAC = BAC/CPI
How to create the EV formulas on test day
› SV =
› SPI =
› CV =
› CPI =
› EV
› PV
› AC
EV
EV
EV
EV
-
/
-
/
PV
PV
AC
AC
EAC = BAC/CPI = AC + (BAC-EV) = AC +[BAC-EV)/ (CPIXSPI)]
How to create the EV formulas on test day
› SV =
› SPI =
› CV =
› CPI =
› EV
› PV
› AC
EV
EV
EV
EV
-
/
-
/
PV
PV
AC
AC
EAC = BAC/CPI
How to create the EV formulas on test day
› Notice all formulas are dependent on EV
› Typical variance analysis is planned – actual dollars spent or in earned value language PV – AC
› We are determining the percent of the work that was completed (= EV) based on what we planned to do (= PV)
› EV shows you what you did versus what you said you would do
Dilbert Looks at EV Meetings
74
Dilbert Looks at EV Meetings
75
Earned Value
Earned Value Calculations
› Time to do the Math!
› We know the following: • BAC = $290k • Day 9 PV – what is it?
oPlanned Value (PV) to spend is $200k
› If at day 9 we have accomplished 80% of the scheduled work we can calculate the EV. What is it? • Earned Value (EV) is $160k = 80% of PV ($200k)
› Accounting tells us we have spent $175,000 – what does this tell us? • The Actual Cost (AC) is $175k
Earned Value Calculations - Costs
› PV = $200k
› EV = $160k
› AC = $175k
› CV = EV - AC • 160k-175k = -$15k (Over Budget)
› Rule of thumb = negative is BAD!
› CPI = EV / AC • 160k/175k = $.91 or 91%
Earned Value Calculations - Schedule › PV = $200k › EV = $160k › AC = $175k
› SV = EV - PV
• 160k - 200k = -$40k (Behind Schedule)
› SPI = EV / PV • 160k / 200k = $ .80 or 80%
› How are we doing? +/-15% › How about as compared to CPI?
Earned Value Calculations - EAC
› The CPI? .91
› BAC? $290k
› Now you can calculate the EAC = BAC/CPI
$290k/.91 = $318k
Forecasting -
› Where are you trending?
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
BAC = $290k
EAC = $318k
Forecasting calculations
› EAC = BAC / CPI = $290k /.91 = $318k
› ETC = EAC – EV = $318k - $160k = $158K
› VAC = BAC – EAC = $290k - $318k = -$28k
› TCPI = (BAC – EV) / (BAC – AC) =
› $290k - $160k / $290k - $175k
› $130k / $115k = 1.13