Using Earned Value Project Management at the Washington State Department of Transportation

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Using Earned Value Project Management at the
Washington State Department of Transportation
Rick Smith Project Control and Reporting Urban
Corridors Office
Douglas B. MacDonald Secretary of Transportation
Paula Hammond Chief of Staff
John Conrad Assistant Secretary
AASHTO Standing Committee on Quality May 24,
2007
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WSDOTs Highway Construction Program2005 2015
(Millions)
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WSDOT Expenditure Plan
2003 State Nickel Gas Tax Increase 2005
Transportation Partnership Act 9.5 cents Nov
2005 Initiative-912 Voters retained TPA tax
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Line Item Appropriations

• For every one of these projects, WSDOT is
  required to deliver
• Scope as originally submitted
• Budget as appropriated
• Schedule as required by legislature
• Each phase itemized in legislative budget
• Significant changes need Governors Office or
  Legislative approval

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Project Delivery Trends
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Project Delivery Trends
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Project Delivery Trends
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Urgent Need - Project Management Skills and Tools

• Massive amounts of funding
• Tight (impossible?) requirements
• Difficulties in recruitment and retention
• Sharply increasing construction costs

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How are you being measured?

• Did you spend the money as expected?
• or
• Did you get the results you wanted?
• or
• Did you get it done on time?

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Earned Value Concept in a Nutshell

• Answers the question
• Did we get what we planned, for the amount of
  money we planned to spend, and did we get it when
  we needed it?

But even more important How will our
performance be at the finish line?
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Earned Value Compares

• The amount of work that was planned
• with
• What was actually accomplished
• with
• What was actually spent
• To determine if the project is performing as
  planned

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History of Earned Value Management (EVM)

• Originated in 1967 for Public Sector
• DoD implemented for new projects C/SCSC
• Modern day earned value came from industrial
  engineering
• 1995 C/SCSC redeveloped to be more user friendly
• 1998 ANSI 748 Guide Issued

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Results of Using Earned Value Management

• Early warning of project issues
• Ability to resolve issues proactively
• Visibility of changes and their potential impacts
• A tool that provides a three dimensional view of
  the project

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Example - Mowing My Lawn

• Contract to mow lawn for 10
• Scheduled to take one hour
• Pay by the minute
• (10/60minutes 16.7 cents per minute)
• 45 minutes, half complete, stops
• Planned value is 7.50 (should be 75)
• Actual is only 50 complete (5.00)
• Earned value 5.00

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Ahead of or Behind Schedule?

• Planned Value 7.50
• Earned Value 5.00
• Schedule Performance Index (SPI) EV/PV
  5.00/7.50 0.67
• Less than 1 behind schedule
• More than 1 ahead of schedule

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Over Budget?

• Actual Cost 7.50
• Earned Value 5.00
• Cost Performance Index (CPI) EV/Actual
  5.00/7.50 0.67
• Less than 1 over budget
• More than 1 under budget

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Added Costs

• Actual Cost 7.50
• Buy a tourniquet - 2.50, total 10.00
• Earned Value 5.00
• Cost Performance Index (CPI) EV/Actual
  5.00/10.00 0.5
• Less than 1 over budget
• More than 1 under budget

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In Order to Utilize Earned Value
YOU MUST HAVE A PLAN
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Work Breakdown Structure

• Defines the team mission
• A deliverable - oriented grouping of project
  elements that organize and define the total scope
  of the project
• How far do you break down a task?
• To a level that makes sense for the project
• Generally to a single point of responsibility for
  delivery

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Task Planning

• Scope of work for each task
• Resources required
• Time (start with the optimal or desired duration
  for each task)
• Task Lead determined

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Task Sequencing

• Conduct team strategic planning session
• Analyze best sequence for project tasks
• Establish task dependencies
• Powerful use of Post It technique
• Once all tasks are laid out, they can be placed
  into scheduling software of choice

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Estimating Task Costs

• When estimating task duration resources needed
  and resource availability should be considered
• If specific resources are unknown, use generic
  resources, e.g. job classification.
• Dont forget indirect costs such as
  administrative costs
• Goal is to develop optimal budget at the
  deliverable level
• Determines Budget at Completion (BAC) bottom up
  verification

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Bust and Adjust

• Once the duration, task sequences and costs have
  been entered into the scheduling software.and
  the end result is calculated.
• This confirms the budget and schedule established
  by the legislature
• If the bottom up plan varies, then modify
  durations, logic or cost estimates
• This provides early indication of potential
  problem areas

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Earned Value
Now that you have a plan . . .
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Tracking Progress
How does the projects actual performance
compare to the plan?
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EVM Requires 3 Values

• Planned Value (PV)
• Actual Costs (AC )
• Earned Value (EV)

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Planned Value

• (PV)

• The budgeted costs of the work scheduled
• The projects time-phased budget
• Can only change when baseline is changed

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Planned Value
Planned Value
Time Phased Budget Based on Schedule
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Actual Costs

• (AC)

• The actual costs of the work completed during the
  month or reporting period
• Actual costs by work code
• Requires accurate charging of staff time to
  appropriate control account

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Earned Value

• (EV)

• The projects physical progress
• Progress reported in baseline or planned dollars
• Represents sum of completion for each task or
  deliverable

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Cost Variance (CV)

• Difference between the earned value (EV)
  achieved (physical progress) and the actual cost
  (AC) incurred for performing the Work
• EV - AC
• Good News Positive Number means youre under
  spending for the work accomplished
• Bad News Negative Number means youre over
  spending for the work accomplished
• REQUIRES PM ATTENTION

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Schedule Variance (SV)

• Difference between the earned value (EV)
  achieved (physical progress) and the planned
  value (PV) work scheduled for the reporting
  period
• EV - PV
• Good News Positive Number means youre ahead of
  schedule
• Bad News Negative Number means youre behind
  schedule
• REQUIRES PM ATTENTION

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Cost Performance Index (CPI)
The cost efficiency factor representing the
relationship between actual costs expended and
the value of the physical work performed CPI
EV / AC Good News A number greater than 1 means
that your spending is less than planned for the
work accomplished Bad News A number less than 1
means that your spending is more than planned for
the work accomplished REQUIRES PM ATTENTION
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Schedule Performance Index (SPI)
The schedule efficiency factor representing
the relationship between the value of the
baseline schedule and the value of the physical
work performed SPI EV / PV Good News A
number greater than 1 means that your work
accomplished (performance) is ahead of
schedule Bad News A number less than 1 means
that your work accomplished (performance) is
behind the schedule REQUIRES PM ATTENTION
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Compare Actual Performance with the Baseline Plan
Legend Planned Value Earned Value Actual Costs
Wk 1 Negative Cost Variance (EV-AC) Wk 1
Negative Schedule Variance (EV-PV)
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Compare Actual Performance with the Baseline Plan
Wk 2 Management Attention Corrective Action
Legend Planned Value Earned Value Actual Costs
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Compare Actual Performance with the Baseline Plan
Wk 5 Positive Cost Variance (EV-AC) Wk 5
Positive Schedule Variance (EV-PV)
Legend Planned Value Earned Value Actual Costs
EARLY MANAGEMENT ATTENTION
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EVM Early Attention to Issues Avoids this
Problem
BIG VARIANCE AT COMPLETION
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Tracking the CPI SPI
Early Management Attention can result in
improvement
10/06 11/06 12/06 01/07 02/07 03/07
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Predictive Measures

• Statistically Determine Estimate At Completion
  (EAC)
• Determine Threshold Values to Trigger Corrective
  Action
• Evaluate Risk Management Process Effectiveness

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Estimate at Completion (EAC)

• Three Methods Utilized for Calculating
• Method 1 AC ETC
• Method 2 AC BAC EV
• Method 3 AC (BAC-EV)/cum CPI

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EAC Method 1

• AC ETC
• Actual Costs Estimate to Complete
• Used when the original estimate assumptions were
  fundamentally flawed or no longer relevant due
  to a change in conditions
• Requires PM to perform bottom up evaluation of
  Estimate to Complete

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EAC Method 2

• AC BAC EV
• Actual Costs Budget at Completion Earned
  Value
• Used when current variances are seen as
  atypical and the expectation is that similar
  variances will not occur in the future

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EAC Method 3

• AC (BAC EV)/ cum CPI
• Actual Costs (Budget at Completion Earned
  Value)/ cumulative Cost Performance Index
• Used when current variances are seen as typical
  of future variances
• Most respected, since cumulative variances are
  indicative of future variances

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What does the cumulative Cost Performance Index
(CPI) tell you?

• If your project is more than 20 complete, the
  CPI stabilizes. In other words, if you are
  overrunning at 20, you will be overrunning at
  completion.

• Furthermore, the overrun at completion will be
  greater than the overrun to date!
• Source research on 700 DOD contracts

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Establish Earnings Rules

• To Standardize Performance Measures
• To Minimize Subjectivity

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Earning Rules Construction Example
Units Produced Method A ratio of units produced
to the total specified at completion. Units must
be nearly identical.
Examples Drilling 10 holes, 4 complete 40
complete
Paving 5 miles, completed 4 miles 80 complete
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Earning Rules Design Example
Interim Earnings Gates Method Establish the
percent of the total that is to be represented by
each deliverable. Analogous to yard markers can
not achieve a first down until deliverable is
completed.
30 - - - 60 - - - 90 - 100
everything completed
preliminary products
first review complete
draft final
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Earning Rules Permitting Example
Environmental Permits Example Environmental
Specialty Office can claim progress for work to
obtain permit up to 75 complete. Gate at
75. 100 complete can be claimed when permit is
delivered to PEO.
0 - - - - 75 - - - - 100
permit docs completed submitted
started work
permit received and forwarded to PEO
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EVM Lessons Learned

• Education and buy-in are crucial
• Executives
• Project Managers
• Staff
• Find the right owner
• Project Manager
• Program Manager
• Business Manager

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EVM Lessons Learned

• Plan the work carefully and accurately
• All parties buy in to the WBS
• WBS composed of measurable, deliverable pieces
• Honest earnings plan is critical
• Assess variances early
• ..Highest Potential for Cost / Schedule
  Recovery..

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EVM Lessons Learned

• Make sure the bad news is heard
• Take corrective action
• Staff changes?
• Mid-term evaluation of work
• Re-plan as necessary
• Budget increase?
• Scope change?
• Schedule change?

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EVM Limitations

• EVM requires thorough and accurate planning of
  cost and schedule to be effective.
• Future performance is being forecast based on
  past performance (so if your data are bad, so is
  your forecast)
• EVM is designed to ensure that the future
  predicted by EVM does not materialize as it
  encourages corrective action

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References

• Earned Value Project Management, Quentin W.
  Fleming and Joel M. Koppelman, 3rd Edition, 2005
• Practice Standard for Earned Value Management,
  Project Management Institute (PMI), 2005
• Project Management Toolbox, Dragan Z. Milosevic,
  2003
• Fundamentals of Project Performance Measurement,
  Robert R. Kemp, 2000
• Project Management Using Earned Value, Humphreys
  and Associates Inc., 2002
• Earned Value Management, APM Guideline for the
  UK, Association for Project Management, 2002
• E.V.A. for the UK, 6 th Edition, ( Earned Value
  Analysis, A Real Guide to Cost and schedule
  Control), Steve Wake, 2003
• Practical Project Management, Harvey A. Levine,
  20002