earned value management

An introduction to Earned Value Management

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Introduction

• A short presentation to describe WHAT Earned Value is and HOW to calculate it

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...some important definitions!

Price– The price for work to be undertaken by a contractor

Value– The amount of work carried out by the contractor in accordance with the

contract

Cost– The amount of money it cost the contractor to do the work

Contract Value– The agreed price for carrying out the work between client and contractor

Budget– The amount of money the client has set aside for the work

Cash-flow– The difference between payments received and expenses incurred

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The justification for Earned Value

The issue with this graph• One sided view only – i.e. COST• Where are we in relation to schedule ?• Have we spent the money on the right work?

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The justification for Earned Value (Cont’d)

•Integrated cost & schedule info•Predictions about future performance•Better management of budgets•Better decision making ability

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Earned Value - History

• Basic form of EV traced back to 1800s, used on the factory floor

• 1967 – EVM introduced by US federal government agencies as part of Cost / Schedule Control Systems Criteria (C/SCSC)

• C/SCSC discarded by the end of 1996• PMI PMBoK simplified EVM terminology and formulas

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Earned Value – PMI definition

A technique to measure performance of a project as it moves from project initiation to project closure.

It also provides a means to forecast future performance based on past performance.

(PMI PMBoK)

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Earned Value – APM definition

“ Earned value management is a project control process based on a structured approach to planning, cost collection and performance measurement”

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Benefits of Earned value

• Providing data to enable objective measurement of project status

• Providing a basis for estimating final cost• Predicting when the project will be complete• Supporting the effective management of resources• Providing a means of managing and controlling change

(APM EVM Guideline)

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Earned Value Structure

Control Accounts

Work Breakdown Structure

Organisation Breakdown Structure

Scope of work

Work Packages

PlanningPackages

Source: Earned Value Management APM Guideline

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Budget elements

Contract Price

Contract Budget Baseline Margin

Performance Measurement Baseline Management Reserve

Distributed Budget Undistributed Budget

Control Account Budgets

Work Packages

Planning Packages

Source: Earned Value Management APM Guideline

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Getting the WBS right !

The further you go downthe more administrationrequired in terms of datagathering

!

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Its about improving visibility

Client(Agreed Costs)

Contractor(Contractor costs that cannot be recovered from the client)

Contract

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Earned Value application to construction

• Project type (large or complex)• Imposed by the Client!• Traditional way of delivering projects• Availability of skilled resources• Ability of organisations to embrace this technique• Attitude • Culture

Earned Value Standards & Guidance

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Earned Value Guidance

Earned Value Management

PMI(Project

Management Institute)

DAU(Defense

Acquisition University)

APM(Association for

Project Management)

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Earned Value terminology

Abbreviation Description New terminology Abbreviation

BCWS Budgeted Cost for Work Scheduled Planned Value PV

BCWP Budgeted Cost of Work Performed Earned Value EV

ACWP Actual Cost of Work Performed Actual Cost AC

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Measuring actual performance

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Measurement of work

Milestones

•Roof completion•Groundwork completion

Deliverables

•Nr of drawings•Nr of reports

Split %

•50/50•20/80•0/100•Etc

% Compl

ete

Ways of measuring work

Earned Value – Worked Example

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Worked Example – Base data

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Worked Example - Work Breakdown Structure

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Worked Example – Schedule & Cost

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Worked Example – Performance in week 3

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Worked Example – Earned Value Graph

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Earned ValueReport

Earned Value Metrics

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CPI (Cost Performance Index) & SPI (Schedule Performance Index)

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CPI / SPI Index

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Cost Variance

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Schedule Variance

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EAC (Estimate At Completion)

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VAC (Variance At Completion)

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TCPI (To Complete Performance Index)

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The EV graph & metrics

Earned Value Management - Summary

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Earned Value Management

“it is a concept that integrates project scope, schedule and cost in terms of monetary value thus allowing performance to be measured and understood”

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The essential ingredients

Earned Value

Schedule

Scope (WBS)

Costs

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How it fits all together!

Project Scope

Schedule Cost Profile Performance Measurement

Changes to introduced

here

Reflected in Schedule

Reflected in Costs

Taken into account when measuring performance

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The overall aim

In theory, ACWP and BCWP should be as near enough to the BCWS as possible

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Challenges with using Earned Value

1. Client is not familiar with the method

2. The project team is not familiar with the method

3. Too many different organisations delivering the project

4. Lack of common understanding of what needs to be done

5. ‘Too many chiefs!’

6. Seen as cumbersome and an administration burden

7. Requires training

8. Takes too long before the benefits can be seen

9. Used as a weapon by senior management!

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...some words of advice!

• Understand the contract• Know your obligations• Take time to develop and create a structure• Keep it simple• Try to obtain data from the source• Don’t aim for 100% accuracy that’s NOT the objective

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Useful WebsitesWeb Address Organisation

www.dau.mil/default.aspx Defense Acquisition University

www.acoste.org.uk Association of Cost Engineers

www.apm.org.uk Association for Project Management

www.pmi.org Project Management Institute

www.aacei.org/ The Association for the Advancement of Cost Engineering

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