Using Earned Value Analysis by Alan Bye

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Using Earned Value Analysisby Alan Bye
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Earned Value
Why Do I Need It ? What Is It ? How Do I Do
It?
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Todays Situation

• Need for accurate and consistent status
  information
• Numerous complex (and interrelated) projects
• Projects with many WBS activities
• Virtual offices
• Diverse technology platforms

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Theres Room For Improvement

• 70 of projects are
• Over budget
• Behind schedule
• 52 of all projects finish at 189 of their
  initial budget
• And some, after huge investments of time and
  money, are simply never complete
• SourceThe Standish Group

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Earned Value Analysis (EVA)

• Earned Value Analysis is
• an industry standard way to
• measure a projects progress where direct
  measures cannot be used
• Predict future performance, and
• provide schedule and budget variances along the
  way
• By integrating three measurements, it provides
  consistent, numerical indicators with which you
  can evaluate and compare projects.

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EVA the three elements

• It compares the PLANNED amount of work with what
  has actually been COMPLETED, to determine if Cost
  , Schedule, and Work accomplished are progressing
  as planned.
• Work is Earned or credited as it is completed.

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Earned Value is needed because...

• Provides an Early Warning signal for prompt
  corrective action.
• Bad news does not age well.
• Still time to recover
• Timely request for additional funds

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Earned Value Management EVolution

• 1959 US DoD began looking at Milestone
  Charts and Rate of Expenditure
• Curves.
• 1963-64 Earned Value concept begins with the
  Minuteman Titan III
• rocket programmes.
• 1966 USAF - Cost/Schedule Planning
  Control Specification (C/SPCS).
• 1967 US DoD - Cost/Schedule Control
  Systems Criteria (CSCS2).
• 1972 US DoD - Issued the Joint
  Implementation Guide (JIG).
• (revisions were to follow
  1976, 1980, 1987 and 1996).
• 1972 NASA
• 1975 US Dept of Environment (DoE)
• 1982 US National Security Agency
• 1989 Australian DoD
• 1990 Canadian DoD
• 1992 National Oceanic Atmospheric
  Administration (NOAA)
• 1994 Federal Bureau of Investigation
  (FBI), Inland Revenue Service (IRS)
• 1996 JIG replaced by Earned Value
  Management Implementation Guide (EVMIG)
• (revised 1997)
• Present World wide implementations.USA,
  Europe, Canada, Australia, Japan

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Traditional Plan vs. Actual view

• Is there a performance problem? Is it a good or
  bad position?

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Terminology

• BCWS - Budgeted Cost of Work Scheduled
• ACWP - Actual Cost of Work Performed
• BCWP - Budgeted Cost of Work Performed

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Earned Value Definitions

• BCWS Budgeted Cost of Work Scheduled
• The planned earned value to be performed by the
  milestone date.

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Earned Value Definitions (cont.)

• ACWP Actual Cost of Work Performed
• Actual Cost to date.

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Earned Value Definitions (cont.)

• BCWP Budgeted Cost of Work Performed
• The actual earned value i.e. the value of the
  work performed based on its planned value

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How to construct the baseline (BCWS) (planned
earned value)

• Establish the activities (milestones)
• Calculate a budget for each activity (milestone).
  What is the cost of completing the activity?
• Ideally one activity (milestone) per reporting
  period
• In a table, record the cumulative budget for each
  milestone and draw the graph

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How to construct the baseline (BCWS)
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How to score the Earned Value (BCWP) (actual
earned value)

• When an activity (milestone) is achieved, the
  Earned Value (EV) is scored equal to its planned
  value
• It has nothing to do with how much you get paid
• The EV is scored in the period in which it was
  completed

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How to score the EV (BCWP)
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How to record Actual Cost (ACWP)

• Actual cost of doing the work
• This may be recorded for each activity
  (milestone). This is the ideal situation, but
  you may only have information relating to actual
  cost for the entire project. This is also
  acceptable
• You may be accumulating an actual cost in a
  period prior to the activity is delivered.

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How to record Actual Cost (ACWP)
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Graphical representation of project progress
Budget At Completion (BAC)

Planned Costs (BCWS)
Actual Costs (ACWP)
Earned Value (BCWP)
Time
Today
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• Exercise
• Describe the status of each project using EV
  terminology
• 10 minutes

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As at today, the value of the work is less than
planned, therefore we are behind schedule. The
actual cost of work is greater than plan and also
greater than the BCWP. Therefore we have been
doing the work considerably more costly than
planned.
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As at today, the value of the work is greater
than planned value, therefore we are ahead of
schedule. The actual cost of work is greater
than plan but less than the BCWP. Therefore
despite having spent more money than plan, on the
work we have completed, we are doing it cheaper
than the plan.
As at today, the value of the work is greater
than planned value, therefore we are ahead of
schedule. The actual cost of work is greater
than plan and also greater than the the BCWP.
Therefore as well as spending more money than
planned, we are overspent on the work that we
have completed.
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As at today, the value of the work is less than
planned value, therefore we are behind schedule.
The actual cost of work is less than plan but is
greater than the BCWP. Therefore despite having
spent less than the plan, on the work that we
have done we are overspending
As at today, the value of the work is less than
planned value, therefore we are behind schedule.
The actual cost of work is less than plan and
also less than the BCWP. Therefore as well as
being under the planned expenditure, we are also
doing the work cheaper than the plan
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Some Derived Metrics

• SV Schedule Variance (BCWP - BCWS)
• A comparison of the amount of work performed to
  what was planned to be performed.
• A negative variance means the project is behind
  schedule
• CV Cost Variance (BCWP - ACWP)
• A comparison of the budgeted cost of work
  performed with actual cost.
• A negative variance means the project is over
  budget.

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Some More Derived Metrics

• SPI Schedule Performance Index SPI BCWP /
  BCWS
• SPI lt 1 means project is behind schedule
• CPI Cost Performance Index CPI BCWP/ACWP
• CPI lt 1 means project is over budget

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• Cost indices and variances
• Cost Performance Index (CPI) BCWP
• ACWP
• Cost Variance (CV) BCWP - ACWP
• Cost Variance (CV) CV x 100
• BCWP
• Schedule indices and variances
• Schedule Variance (SV) BCWP - BCWS
• Schedule Performance Index (SPI) BCWP
• BCWS
• Schedule Variance (SV) SV x 100

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Graphical representation of project progress
Budget At Completion (BAC)

Planned Costs (BCWS)
Schedule slippage (time)
Cost Variance ()
Actual Costs (ACWP)
Schedule Variance ()
Earned Value (BCWP)
Time
Today
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Making Projections
Once a project is 10 complete, the overrun at
completion will not be less than the current
overrun. Once a project is 20 complete, the CPI
does not vary from its current value by more than
10. The CPI and SPI are statistically accurate
indicators of final cost results. Source
Defense Acquisition University
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Estimate At Completion (EAC)

• Formula 1 BAC
• CPI
• Considered to give a minimum EAC
• Formula 2 BAC
• CPI x SPI
• Provides an EAC that accounts for a schedule
  change
• Formula 3 ACWP BAC BCWP
• CPI
  x SPI
• Provides an EAC that accounts for a schedule
  change, but also takes
• into account the value of the work done

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Graphical representation of project progress
Estimate At Completion (EAC)
Variance at Completion
Budget At Completion (BAC)

Planned Costs (BCWS)
Schedule slippage (time)
Forecast schedule slippage
Cost Variance ()
Actual Costs (ACWP)
Schedule Variance ()
Earned Value (BCWP)
Time
Today
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Basic Analysis
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• Exercise
• 1. Read the worked example
• Do the Earned Value exercise
• 1 hour

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Now the real world!

• Activities do not always last for a reporting
  period (week, month etc)
• Some activities do not deliver anything, e.g.
  management support, but it still a cost to the
  project

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Activities do not always last for a reporting
period What can be done?

• Use an Earned Value Method of 50/50
• When constructing the BCWS (the plan), you put
  50 of the activity (as a BCWS value) in the
  period the activity is planned to start and the
  remaining 50 in the period when the activity is
  planned to finish.
• The BCWP (Earned Value) is earnt in the same
  proportions, i.e. 50 when the activity starts
  and 50 when the activity finishes

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EV Methods Internal resource
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EV Methods Material/vendor
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Some activities do not deliver anything - What
can be done?

• Use an Earned Value Method called Level of Effort
• When constructing the BCWS (the plan), spread the
  activity value evenly throughout the duration
• The BCWP (Earned Value) is earnt in the same
  proportion to the plan regardless of whether any
  time has been spent on the activity or not
• BCWP BCWS therefore SPI 1.0 and SV 0 It
  shows that we are always on schedule for this
  type of activity

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EVMS / EVM / EV / EVA

• Earned Value Management System
• The executive Cost and Schedule system employed
• Can be a single system or many that are working
  together
• Earned Value Management
• Active management of a programme using EV
  processes EVA
• Earned Value Methods
• Metric selected to provide best possible
  reflection of Schedule performance
• Typically 0-100, 20-80, 50-50, 40-60,
  Estimates, Milestones, Apportioned,
• Level of Effort
• Earned Value
• Budgeted Cost of Work PerformedBCWP
• Executed tasks within a baseline having been
  completed in line with exit criteria
• Earned Value Analysis
• Variance Analysis of - Current month, Cumulative
  to Date, and VAC
• EAC Analysis in terms of TCPI(EAC) / Independent
  EACs if warranted

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Key EVMS Components

• Authorisation
• Planning Budgeting
• Baseline Change Control
• Analysis
• Reporting

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Authorisation

• Control Account Authorisation CAA
• Total Allocated Budget (TAB) flow-down to
  reporting WBS
• Details initial Baseline distribution of Budget
• Provides a narrative (and/or) points to
  additional documentation detailing deliverables
• Indicates open duration of Control Account
• Details specific schedule adherence
• Signed off by both Programme Manager and
  Control Account Manager
• Usually a one-time eventfuture budget
  transactions being dealt with by PCRs

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Planning and Budgeting

• Total Planning or Rolling Wave Planning
• Vertical Horizontal Integration with
  Milestones, especially if a Critical Path is
  required
• Resource allocation and management
• Management Reserve (in-scope arisings)
• Undistributed Budget (WBS earmarked budget)
• Earned Value Method (EVM) selection
• TAB (DB UB MR)
• Where (DBUBMR) gtTAB Over Target Baseline !

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Baseline Control

• Baseline Change Control is performed using
  Programme Change Requests (PCRs)
• Baseline distribution Contract Budget Base (CBB
  Log)
• Change Control (Rubber Baseline mitigation)
  performed by the usage of PCRs
• PCRs authorise both BAC/EAC and pure EAC
  changes
• An understanding of MR v EAC is required !
• PCRs are signed-off by Programme Managers

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Analysis

• Performance Current Month, CTD, and Variance at
  Completion
• History SV, SPI, CV, CPI
• Current Management Reserve level predicted
  Burn-Down
• Programme flexibility MR versus VAC delta
• Staffing..Equivalent Heads versus Forecast
• Milestones.future forecasted dates versus
  requirements (Exec, MWP, Programmatic)
• Variance Analysis Reports (VARs) and Corrective
  Actions
• Future TCPI(EAC) and Trending

History
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Variance Analysis Report (VAR)

• Thresholds
• Fixed at Baseline
• Current month SV CV
• Cumulative SV CV
• VAC
• CAM reports
• Cause of variance
• Impact to Cost Schedule
• Corrective Actions
• VARs
• Discussed at MPRs
• Agreed and signed by PM/PL
• Corrective Actions
• Reviewed at subsequent MPRs

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Reporting
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Shortcomings of Earned Value

• Quantifying / measuring work progress can be
  difficult.
• Time required for data input, data gathering and
  calculation
• It is not the only way to manage a project

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Summary

• Use indicators to manage your project and not to
  be a goal in itself. They will drive a
  behaviour.
• EV data is historical. Use it to predict and
  influence the future
• Look at Indices and Variances together and
  observe trends
• Concentrate on the parts of the project that
  trip the variances
• Not all projects are the same, i.e. do not expect
  the same sort of variances and indices on a
  technically challenging/risky project compared
  with more straight forward projects
• For EVA to be effective, it requires a credible
  baselined plan.

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Thank you and any questions?