earned value variance reporting dos and don’ts
DESCRIPTION
Earned Value Variance Reporting Dos and Don’ts. Presenter: Gary Heth, PMP. Agenda. Earned Value Basics Earned Value in a Nutshell Performance without Earned Value Earned Value Framework Planning Executing Controlling Earned Value Benefits Earned Value Lessons Learned - PowerPoint PPT PresentationTRANSCRIPT
Earned Value Variance Reporting
Dos and Don’tsPresenter:
Gary Heth, PMP
2
Agenda
Earned Value Basics
•Earned Value in a Nutshell
•Performance without Earned Value
Earned Value Framework
•Planning
•Executing
•Controlling
Earned Value Benefits
Earned Value Lessons Learned
Earned Value Limitations
Earned Value Do’s and Don’ts
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Earned Value Basics
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What is more important?
•Knowing where you are on schedule?
•Knowing where you are on budget?
•Knowing where you are on work accomplished?
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.
Did we get what we planned, for the amount of money we planned to spend, and did we get it when we needed it?
Earned Value BasicsEarned Value In a Nutshell
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Most used PM tool for representing phases and activities of a WBS
A clear way of showing schedule status to your sponsor and team
Great for small projects but can be hard to read for larger projects with many dependencies
Only show part of Triple Constraint (focus on schedule management)
Married to waterfall development
Does not adequately represent project size or size of the work element
Magnitude of “behind schedule” condition can be misleading
•If two projects are the same # of days behind schedule
•Which of the two has the larger impact on resource utilization?
•Gantt does not represent the difference
•Gantt does not show resource management
•Does not indicate if the task is “front” or “back” loaded% complete may be miss-represented
Earned Value BasicsProject Analysis Without Earned Value?
Gantt Charts
6INFO 638
ID Task Name Duration Predecessors
1 1.0 Requirements Definition 10 days
2 2.0 Architectural Design 10 days 1
3 3.0 Detailed Design 20 days 2
4 4.0 Coding and Unit Testing 45 days 3
5 4.1 Coding 25 days
6 4.2 Unit Testing 20 days 5
7 5.0 Integration Testing 15 days 6
8 6.0 System Testing 10 days 7
Apr May Jun Jul Aug Sep Oct Nov Dec Jan2nd Quarter 3rd Quarter 4th Quarter 1st Quarte
Earned Value BasicsProject Analysis Without Earned Value?
Gantt Charts
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Medium to Large Projects – “S” Curve Project Spend Tracking
•Provides a budget baseline for tracking actual costs against periodic budget targets.
•Start by creating a time-phased budget by plotting your weekly, monthly, quarterly budgeted costs or hours (time and dollars)
•Use MS Project baseline estimated project costs and plot graphically over time, they usually result in an “S” curve
•Add MS Project actuals to plot dotted lines at each chosen interval to track variances.
•Provides a simple Top-Level view of project financial performance useful for status reports and dashboards.
•If you don’t have labor rates you will need to use budgeted vs actual hours.
Challenges
•Works fine if your project is on schedule – Spend plan still needs additional status information (for example Gantt)
•If behind schedule – PM may not be able to understand project status from this graph
•Actual budget could be in worse or better shape than shown
•If your budget spend shows overspending and your schedule shows milestone slippage you know you are in trouble. You may not be able to tell how bad the trouble is.
Earned Value BasicsProject Analysis Without Earned Value?
Budget Spend Plan
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Budget Ceiling
Spend Plan
Actuals
Earned Value BasicsProject Analysis Without Earned Value?
Budget Spend Plan
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EVM Requires 3 values•Planned Value (PV) - Baseline
•Actual Costs (AC) – Based on Time Entry or Cost Entry
•Earned Value (EV) – What you “earned”
Work is “Earned” or credited as it is completed.
Did we get what we planned, for the amount of money we planned to spend, and did we get it when we needed it? Answer:
•Where have we been?
•Where are we now?
•Where are we going?
Earned Value Basics Minimal Requirements
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Term Interpretation(PV) Planned Value
ReplacesBCWS
How much work you planned to have accomplished by now?
The budgeted costs of the work scheduled
• The project’s time-phased budget
• Can only change when baseline is changed
(AC) Actual Cost
Replaces ACWP
What is the actual cost incurred ($ / Hours)
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”
(EV)Earned Value
Replaces BCWP
What is the estimated value of the work actually accomplished?
The project’s physical progress
• Progress reported in baseline or planned dollars
• Represents sum of % completion for each task or deliverable
Planned value and Actual Cost will be compared to Earned value in terms of differences / ratiosWill result in variances and performances indexes
Earned Value Basics Minimal Requirements
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Earned Value Framework
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Condensed ANSI/EIA748 32 Step Standard
Planning
•Step 1: Define the Scope (Planning)
•Step 2: Determine Who Will Perform the Work
•Step 3: Plan and Schedule Work
•Step 4: Establish Resources and Budgets
•Step 5: Determine Performance Metrics and Thresholds
•Step 6: Create Performance Measurement baseline and Mgmt Control
Executing
•Step 7: Record Direct Costs
Controlling
•Step 8: Monitor EV Performance Against Baseline (Control Step)
•Step 9: Forecast Final Required Costs (Variance Reporting Step)
•Step 10: Manage Scope Through Change Control
Earned Value FrameworkSteps to Success
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Planning
•Step 1: Define the Scope (Planning)
•Step 2: Determine Who Will Perform the Work
•Step 3: Plan and Schedule Work
•Step 4: Estimate Work and Procurement
•Step 5: Determine Performance Metrics and Thresholds
•Step 6: Create Performance Measurement baseline and Mgmt Control
Executing
•Step 7: Record Direct Costs
Controlling
•Step 8: Monitor EV Performance Against Baseline (Control Step)
•Step 9: Forecast Final Required Costs (Variance Reporting Step)
•Step 10: Manage Scope Through Change Control
Earned Value Framework Steps to Success
Planning Steps
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Earned Value Framework Steps to Success: Planning Step 1: Define the Scope
Scope Definition
• Single most important factor to a sound EVM process and implementation
Work Breakdown Structure
•Roadmap for analyzing the project progress and performance
•Each element of the WBS is broken down into pieces – each piece defines responsibility to a person for that element
•100% of scope – What is not in the WBS is not in scope
•Work is broken down into measurable work packages
•Focus on “authorized” work
•Must be firm –Critical for Earned Value Projects
Break the Work Packages into activities of the project. These should be included within your WBS and will produce the project schedule activities.
Organization Breakdown Structure (matrix organizations)
•Relates WBS elements at the work package level to the organizational unit responsible for completing the work
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Earned Value Framework Steps to Success: Planning
Step 2: Determine Who Will Perform the Work
Who will perform the work?
• Determine Skill Level Experience is faster but more costly
Task identification takes place during this stepMake or Buy Decision (Internal or Sub Contracting)
•Will all or some of your project be outsourced?
•Internal projects (Make Decision) has some cost flexibility
•Scope definition critical for external (Buy Decision) Contracts are unforgiving – Cost to change can be excessiveCritical to get scope right because cost to change can be excessive
Responsibility Assignment Matrix (RAM)•Tied to the WBS with the OBS
•Responsibly Chart for activities
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Earned Value Framework Steps to Success: Planning
Step 3: Plan and Schedule Work
Scheduling is vital to Earned Value
•Formal scheduling system (i.e. MS Project) is required
•EV is nothing more than: Scheduling system, authorized scope, timeframes, and budgets
•Reflects PM’s baseline “Planned value (PV)” for everyone to follow
Critical Path (Task Sequencing)
•Which tasks are sequential? Parallel
•Network Diagramming tools
•Must be aggressively managed when negative earned value schedule variances are discovered.
•Will help determine which task variances receive the most attention
High risk tasks must also be identified for same reason
Begin Scheduling
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Earned Value Framework Steps to Success: Planning
Step 4: Establish Resources and Budgets
Establish resource requirements (budgets) for all defined tasks
Start-up sequence may be different for your organization
•Scope, Schedule, and Budget vs. Scope, Budget, Schedule
•Best practices – should be iterative but SCOPE DEFINITION MUST COME FIRST
Enter resources for each task
Determine the costs for the activities
•Labor rates per task hour
•Fixed cost per activity or work package (need to be spread across each lower level activity)
Risk Analysis and Risk Management Plan
Resource Leveling Exercise
Management will then approve the budget
Contingency – Never include contingency in an individual task… why?Will most likely cause a variance Contingencies and other reserves should be isolated and owned by the PM
Must plan/schedule all defined tasks along with the authorized budget necessary to complete each task. This is required to have a viable project baseline.
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Earned Value Framework Steps to Success: Planning
Step 5: Determine Performance Metrics and Thresholds
How is planned value completion measured?EV Systems rely on the effective collection of the Performance and the Costs.There are basically 2 types of methods of collecting the Performance:Discrete – something tangible to measure against
•0/100 – no EV credit until 100% of work is completed.
•50/50 and 25/75 – some EV credit at 25% or 50%, remaining EV at close of Work Package
•Weighted Milestone – Each completed milestong completion “earns” a percentage of EV. Must be individually valued. May also consider monthly milestones
•Physical % Complete – ie. 5% start, 50% unit test, 75% code review, 100% signoff
•% Complete based on hours necessary to complete the task (common) least desirable
• Units completed – For physical counts of product or outputs• Incremental milestones - % complete based on individual milestone completion
Non-discrete – where the measuring of performance is not associated with anything tangible Level of effort should only be used when schedule performance is of no importance. A level of effort
package can never give an indication of the work that has actually been performed (PV) will always equal the schedule work (PV)
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Earned Value Framework Steps to Success: Planning
Step 6: Create Performance Measurement baseline and Mgmt Control Earned Value requires a baseline project schedule (time-Phased budget baseline)
Indirect costs “could” be included in some commercial type contracts
Schedule Management focuses on the schedule performance of the project.
• It looks at the relationships between the Earned Value (EV) and the Planned Value (PV).
This will be your Planned Value (PV) for the life of the project
Remember, MS Project can handle multiple baselines but you should always measure against the last baseline required by the stakeholders.
This information will be plotted into a traditional “S” Curve diagram.
Results should be added to the Performance Management Plan
See Next Slide for an example
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Budget Ceiling
Spend (PV) (Planned Costs)
Cost to Date “Actuals”
Time
Dollars
Management Reserve
Traditional Cost Analysis – Budget Spend Plan
Earned Value Framework Steps to Success: Planning
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Analysis
Actual costs are below planned costs (good news?)
Unless you look at the planned costs of the completed work, you don’t know if this is good or bad
That is exactly what is missing and what Earned Value will tell you
Budget Ceiling
Spend Plan (Planned Costs)
Cost to Date “Actuals”
Time
Dollars
Management Reserve
Traditional Cost Analysis – Budget Spend Plan
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Planning
•Step 1: Define the Scope (Planning)
•Step 2: Determine Who Will Perform the Work
•Step 3: Plan and Schedule Work
•Step 4: Estimate Work and Procurement
•Step 5: Determine Performance Metrics and Thresholds
•Step 6: Create Performance Measurement baseline and Mgmt Control
Executing
•Step 7: Record Direct Costs
Controlling
•Step 8: Monitor EV Performance Against Baseline (Control Step)
•Step 9: Forecast Final Required Costs (Variance Reporting Step)
•Step 10: Manage Scope Through Change Control
Earned Value Framework Steps to Success Executing Steps
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Earned Value Framework Steps to Success: Executing Step 7: Record Direct Costs
Purpose is to show how much money they have spent on a project
Update the schedule with the period progress
PM’s are required to enter actual hours on a consistent basis
Costs from invoices are also entered
After actuals are entered cost and schedule variances can be calculated
This is where discrete measures come into play
Earned value must then be relatable to the actual costs in order to determine the cost efficiency factor, called the Cost Performance Index (CPI).
The CPI is likely the single most important metric for any project employing earned value.
•To-Complete Performance Index (TCPI)
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Planning
•Step 1: Define the Scope (Planning)
•Step 2: Determine Who Will Perform the Work
•Step 3: Plan and Schedule Work
•Step 4: Estimate Work and Procurement
•Step 5: Determine Performance Metrics and Thresholds
•Step 6: Create Performance Measurement baseline and Mgmt Control
Executing
•Step 7: Record Direct Costs
Controlling
•Step 8: Monitor EV Performance Against Baseline (Control Step)
•Step 9: Forecast Final Required Costs (Variance Reporting Step)
•Step 10: Manage Scope Through Change Control
Earned Value Framework Steps to Success Controlling Steps
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Earned Value Framework Steps to Success: Controlling
Step 8: Monitor EV Performance Against Baseline (Control Step)Next Calculate all Earned Value components
Determine cost and variances from baseline
Determine three Required Values (PV budget, AC (Actuals) EV for the work accomplished to date
•Tip: EV is based on a % of your budget – “We have actually completed “$” worth of work
Calculate Variances, indices and factors from baseline
• Variances (SV, CV, SPI)
• Performance Indexes (CPI, SPI) -- ratio expressions of the Schedule and Cost Variances
PMs should focus on exceptions using thresholds determined during planning
•Management by Exception (Lessons Learned)
•Cannot simply review parent tasks or phasesWhat if there is a negative task and a positive tasks.Both will need attention
•How critical is the task? Is it on the critical path or is it a high risk task?
Start at the higher levels of the plan and work your way down
Cost overruns are typically non-recoverable.
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Earned Value Terminology Steps to Success: Controlling
Basic EV - SummaryTerm Interpretation(PV) Planned Value
This is your baselined budget as approved by your stakeholders
(AC) Actual Cost
These are your actual hours and costs as entered by the project team.PM must (at a minimum) audit these to verifyDiscrete Entries: Verify if work completed is “DONE”
(EV)Earned Value
What is the estimated value of the work actually accomplished?
The project’s physical progress
• Progress reported in baseline or planned dollars
• Represents sum of % completion for each task or deliverable
(BAC) Budget at Completion
The sum of all of the budgets allocated to a program.
How much did we Budget for the Total Job.
Planned value and Actual Cost will be compared to Earned value in terms of differences / ratiosWill result in variances and performances indexes
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Term Interpretation
(SV) Schedule Variance
Represents the difference between the amount of work actually completed and the amount of work scheduled to complete. This variance tells us if the schedule is ahead or behind what was planned for during this period of time.
(CV) Cost Variance
This is the Difference between the estimated and the actual cost to complete the same work.The cost variance tells us if the costs are higher than budgeted or lower than budgeted.
(VAC)Variance at Completion
Represents how much over/under budget will we expect to be at the end of the projectIt calculates the difference between the budget at completion and the estimate at completion.
Earned Value Terminology Steps to Success: Controlling
Variance Calculations
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= 1 <1 >1
(SV) Schedule Variance
(EV – PV)
On schedule Poor PerformanceIf SV is less than 1.0 than your project is behind schedule. Less work completed than planned
Good PerformanceIf SV is greater than 1.0 than your project is ahead of scheduleMore work has been accomplished than scheduled
(CV) Cost Variance
(EV - AC)
On budget Poor PerformanceIf CV is less than 1.0 than your project is over budget.You have cost overruns Typically not recoverableWill continue to deteriorate unless corrective action is taken to mitigate
Good PerformanceIf CV is greater than 1.0 than your project is under budgetYou have cost under runs
(VAC)
Variance at Completion
(BAC – EAC)
A negative number means we are doing poorer with costs than we anticipated
A positive number means we are doing better with costs than we anticipated
REQUIRES PM ATTENTION
Why would attention be needed for a positive number?•What if the schedule was over estimated? •Are we using our resources efficiently?
Earned Value Terminology Steps to Success: Controlling
Variance Calculations
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Term Interpretation
(SPI) Schedule Performance Index
•Calculates a ratio of the value of what was accomplished (EV) versus what was budgeted to accomplish it (PV), up to the status date.
•We are (only) progressing at __% of the rate originally planned
(CPI)Cost Performance Index
•Calculates a ratio of the value of what was accomplished (EV) versus what was actually spent to accomplish it (AC), up to the status date.•Indicates if the cumulative actual costs during the assessed period are higher or lower than budgeted for the work completed.•Single most important EV calculation
•We are getting ___$ out of every $1 spent
Earned Value Terminology Steps to Success: Controlling
Performance Indices
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= 1 <1 >1(SPI) Schedule Performance Index
(EV / PV)
On schedule
Poor PerformanceIf SPI is less than 1.0 than less work was completed on your schedule than what was planned
Good PerformanceIf SPI is greater than 1.0 than your work accomplished was more than planned Work done out of sequence can lead a team to believe the project is ahead of schedule when it is not
(CPI) Cost Performance Index
(EV / AC)
On budget
Poor PerformanceIf CPI is less than 1.0 than you are over budget.
•Spending is more than planned for the work accomplished
Good PerformanceIf CPI is greater than 1.0 than you are under budget.
• Spending is Less than planned for the work accomplished
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
REQUIRES PM ATTENTION
Why would attention be needed for a positive number?
•What if the schedule was over estimated? •Are we using our resources efficiently?
Earned Value Terminology Steps to Success: Controlling
Performance Indices
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Calculation Example
You have a project to build a new fence.
Fence is four sided (all sides are equal)
Each side is to take one day to build
Each side is budgeted for US $1,000
The sides are planned to be completed sequentially (one after the other)
Today is end of day three
Using the project status chart below, calculate EV, etc. When completed, check your answers on the answer sheet on the following page.
Task Day 1
Day 2 DAY 3 Day 4 Status
Side 1 S---F Complete, Spent $1,000
Side 2 S---PF ---F Complete, Spent $1,200
Side 3 PS—S--PF Half Done, spent $600
Side 4 PS----PF Not Started
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Calculation Example
Description Calculation Answer Interpretation
PV Planned Value 1,000 + 1,000, + 1,000 3,000 We should have done $3K worth of work
EV Earned Value Complete, Complete, half done or 1,000 + 1,000 + 500
2,500 We have actually completed $2,500 worth of work
AC Actual Cost 1,000 + 1,200 + 600 2,800 We have actually spent $2,800
BAC Budget at Completion 1,000 + 1,000 +1,000 + 1,000 4,000 Our project budget is $4,000
CV Cost Variance EV – AC
2,500 – 3,000 -300 We are over budget by $300
CPI Cost Performance IndexEV / PV
2,500 / 2,800 .893 We are only getting 89 cents out of every dollar we put into the project
SV Schedule Variance EV – PV
2,500 – 3,000 -500 We are behind Schedule
SPI Sched. Performance IndexEV / PV
2,500 / 3,00 .833 We are only progressing at 83% of the rate planned
EAC Est. at Completion BAC / CPI
4,000 / 2,800 4,479 We currently estimate that the total project will cost $4,479
ETC Estimate to CompleteEAC - AC
4.479 – 2,800 1,679 We need to spend $1,679 to finish the project
VAC Variance at Completion BAC - EAC
4,000 – 4,479 -479 We currently expect to be $479 over budget when the project is complete
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1w 2w 3w 4w 5w 6w 7w 8w 9w 10w
$10K
$20K
$30K
$40K
$50K
$60K
Compare Actual Performance with the Baseline Plan
Legend:Planned ValueEarned ValueActual Costs
Earned Value on Bottom:Wk 2: Management AttentionCorrective Action
Wk 1: Negative Cost Variance (EV-AC)Wk 1: Negative Schedule Variance (EV-PV)
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1w 2w 3w 4w 5w 6w 7w 8w 9w 10w
$10K
$20K
$30K
$40K
$50K
$60K
Compare Actual Performance with the Baseline Plan
Legend:Planned ValueEarned ValueActual Costs
Earned Value now on top: Wk 5: Positive Cost Variance (EV-AC)Wk 5: Positive Schedule Variance (EV-PV)
EARLY MANAGEMENT ATTENTION……
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1w 2w 3w 4w 5w 6w 7w 8w 9w 10w
$10K
$20K
$30K
$40K
$50K
$60K
EVM – Early Attention to Issues Avoids this Problem
Legend:Planned ValueEarned ValueActual Costs
BIG VARIANCE AT COMPLETION
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Tracking the CPI & SPI
Cost and Schedule Performance Trends
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07
Period Ending
Perio
dic
Inde
x Va
lue
Performance AsPlanned
CPI
SPI
Early Management Attention can result in improvement
10/06 11/06 12/06 01/07 02/07 03/07
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Variance analysis should address:
•Separate discussion of CV, SV (current and cum) and VAC
•Clear description of reason for variance
•Quantity variances (e.g., price vs. usage)
•Be specific, not general
•Corrective action
•Technical, schedule, and cost impacts
•Impact to estimate at completion
What is a significant variance?
•% variance (e.g., >10%)
•$ variance (e.g., >$50,000)
•Critical path element
•Risk/complexity
•impact to other elements
•Top 10, Top 20, etc.
•Owner
Earned Value Framework Steps to Success: Controlling
Step 8: Monitor EV Performance Against Baseline (Control Step)
Performance Metric
Green
Yellow
Red
CPI/SPI 0.95 – 1.25 .85 - .89 Or
1.15 – 1.25
<0.85 Or
> 1.25 CV/SV <10% <10% and
Corrective action in motion
> 10% or Correction
action in not in place
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Potential Causes of Unfavorable (-) Cost Performance Work more complex than estimated
Design review comments extensive
Rework
Unclear Requirements
Scope Creep (Gold Plating)
Increased Market costs for labor or material
Overhead Rate Increases
Potential Causes of Favorable (+) Cost Performance The opposite of unfavorable cost performance
Potential Causes of Unfavorable (-) Schedule PerformanceManpower shortage
Revised Execution Plan
Supporting organization behind schedule
Late Vendor deliver
Delayed customer feedback / decision
Rework
Work more complete than anticipated
Design Review comments extensive
Unclear Requirements
Scope Creep
Earned Value Framework Steps to Success: Controlling
Step 8: Monitor EV Performance Against Baseline (Control Step)
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Earned Value Framework Steps to Success: Controlling
Step 8: Monitor EV Performance Against Baseline (Control Step)Corrective Action- How to bring the task back in line
•CrashingGoal: Gain the greatest amount of schedule compression with the least amount of costLooks at cost and schedule tradeoffsAdd Resources to the tasks in the critical path (internal or external)Reduce project scopeReview changing the sequence of tasks Often causes costs to increase Which is the most important of the triple constraints to your stakeholders? (Cost, Schedule, Quality)
•Fast TrackingStarting two tasks at the same time that were previously scheduled to start sequentiallyCan increase risk and might cause the project team to rework tasksDevelop a process to “Reuse” code – This actually can reduce defect risk
•Example: We are six months into a million dollar project.CPI = 1.2 (we are getting 1.2 dollars for every dollar spentSPI = .89 (we are progressing only at 89% of what was planned)What can be done?
• Replace a more expensive member from the project team? (This would improve cost not schedule and add risk)• Bring in an additional programmer to work on the next two tasks. (Most effective choice)
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Earned Value Framework Steps to Success: Controlling
Step 9: Forecast Final Required Costs
This step is in place to forecast the final required costs based on actual performance
Keep management apprised so corrective action can take place
Actual performance results are sunk costs. These are unrecoverable
Any improvements in performance must come from future work.
EAC indicates where the cost is heading
Earned value provides the capability to quickly and independently forecast total funds required to complete the project (ETC)
ETC is a forecast for completing the total project.
Considers the performance to date plus future estimates
Variance Reporting
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(EAC) Estimate at Completion
A. BAC / CPI
B.AC + ETC
C.AC + BAC - EV
D.AC + (BAC – EV) / CPI
Gives us an idea of final costs of a project. It takes into account the original budget (BAC). The earned value and the cost performance index of the already complete work.
As of now, how much do we expect the total project to cost? $____. Formulas:
A. Used if no variances from the BAC have occurred or you will continue at the same rate of spendingB. 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• Example: Complete change in in environmental regulations creates a need for a different design than was scoped. Need rebaseline.
C. Used when current variances are seen as atypical and the expectation is that similar variances will not occur in the future. Actual to date plus remaining budget modified by performance. D. Used when current variances are seen as typical of future variances Most respected, since cumulative variances are indicative of future variances
(ETC) Estimate to Complete
EAC - AC
From this point on, how much MORE do we expect it to cost to finish the project?
An estimated cost to complete the remaining work on the project .
Earned Value Framework Steps to Success: Controlling
Step 9: Forecast Final Required Costs
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1.50
140
130
1.20
1.10
0.90
0.80
0.70
0.60
0.50
Behind Schedule and Under Behind Schedule and Under spentspent
Behind Schedule and Over Behind Schedule and Over spentspent
Ahead of Schedule and Over Ahead of Schedule and Over spentspent
0.30 0.50 0.70 0.90 1.10 1.30 1.40 1.60
SPI
CP
I
07/15/05
SPI = 0.48CPI = 0.81
1.50
140
130
1.20
1.10
0.90
0.80
0.70
0.60
0.50
TargetTarget
06/28/05
=====
==========
SPI = 0.71CPI = 0.86
08/25/05
SPI = 0.61CPI = 0.74
Ahead of Schedule and Under Ahead of Schedule and Under spentspent
Project Earned Value AnalysisSample Dashboard
Target
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Project Earned Value AnalysisMS Project 2003
Variance Report Example
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Let software tools do the number crunching
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Earned Value Framework Steps to Success: Controlling
Step 9: Forecast Final Required Costs
MS Project (2003) Earned Value tools (downloads)• Help>Performing Earned Value Analysis• You will be taken to MS Project Download Template Page
Manage costs during the project life cycle (Article)• Use these strategies to ensure that your project stays within your budget.
Goal: Monitor costs (Article)• Examine your current, actual, remaining, and baseline cost totals in Project 2003.
Goal: Adjust costs to keep the project on budget (Article)• After you identify a budget problem, learn to take corrective action with Project 2003.
Project earned value analysis (Template)• Track time-phase expenses for projects by using this template.
Cost analysis with Pareto chart (Template)• Use this statistical method to identify the most critical cost problem areas to improve.
Project resource plan (Template)• Use this template to communicate project resource planning information to all key project stakeholders.
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Project Earned Value AnalysisMS Project 2003
Project earned value analysis (Template)Track time-phase expenses for projects by using this template.
MetricAbbre
v. Description Formula/ValueBudget at Completion BAC Baseline cost for 100% of project. N/AActual Cost AC Total costs actually incurred so far. N/A
Earned Value EV
Amount of budget earned so far based on physical work accomplished, without reference to actual costs. N/A
Planned Value PV
The budget for the physical work scheduled to be completed by the end of the time period. N/A
Cost Variance CV
Measure of cost overrun. The difference between the budget for the work actually done so far and the actual costs so far.
Earned Value–Actual CostEV–AC
Cost Performance Index CPI
Cost efficiency ratio. A CPI of 1.00 means that the costs so far are exactly the same as the budget for work actually done so far.
Earned Value/Actual Cost
EV/AC
Schedule Variance SV
Measure of schedule slippage. The difference between the budget for the work actually done so far and the budgeted cost of work scheduled.
Earned Value–Planned Value
EV–PV
Schedule Performance Index SPI
The schedule efficiency ratio. An SPI of 1.0 means that the project is exactly on schedule.
Earned Value/Planned ValueEV/PV
Estimate to Completion ETC The expected additional cost to complete.
Estimate at Completion–Actual CostEAC–AC
Estimate at Completion EAC
Expected total cost based on the current cost efficiency ratio.
Budget at Completion/Cost Performance Index
BAC/CPI
Variance at Completion VAC Estimated cost overrun at the end of project.
Budget at Completion–Estimate at Completion
BAC–EAC
Status Average of CPI & SPI.
(Cost Performance Index+Schedule
Performance Index)/2(CPI+SPI)/2
Thresholds GREEN = On track >1.0
YELLOW = Slightly behind schedule or budget >0.85
RED = Needs immediate attention >0.65 BLACK = Killed or Restore <0.65
XYZ Project
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Budget at Completion (BAC) $1,230 $1,230 $1,230 $1,230 $1,400 $1,400 $1,400 $1,400 $1,400 $1,400
Earned Value (EV) $100 $200 $300 $450 $750 $800 $1,125 $1,200 $1,400 $1,400
Actual Cost (AC) $100 $205 $315 $600 $800 $1,000 $1,200 $1,350 $1,475 $1,525
Planned Value (PV) $100 $220 $325 $550 $725 $925 $1,175 $1,275 $1,450 $1,500
Cost Variance (CV) $0 ($5) ($15) ($150) ($50) ($200) ($75) ($150) ($75) ($125)
Schedule Variance (SV) $0 ($20) ($25) ($100) $25 ($125) ($50) ($75) ($50) ($100)
Cost Performance Index (CPI) 1.00 0.98 0.95 0.75 0.94 0.80 0.94 0.89 0.95 0.92
Schedule Performance Index (SPI) 1.00 0.91 0.92 0.82 1.03 0.86 0.96 0.94 0.97 0.93
Estimate to Completion (ETC) $1,130 $1,056 $977 $1,040 $693 $750 $293 $225 $0 $0
Estimate at Completion (EAC) $1,230 $1,261 $1,292 $1,640 $1,493 $1,750 $1,493 $1,575 $1,475 $1,525
Variance at Completion (VAC) $0 ($31) ($62) ($410) ($93) ($350) ($93) ($175) ($75) ($125)
Status based on Average Performance Index
GREEN YELLOW YELLOW RED YELLOW RED YELLOW YELLOW YELLOW YELLOW
Comments
New baseline set
47
Project Earned Value AnalysisMS Project 2003
Trend Analysis
48
Project Earned Value AnalysisMS Project 2003
Trend Analysis
49
Earned Value Framework Steps to Success: Controlling
Step 10: Manage Scope Through Change Control
Integrated Change Control
Without a CC process performance baselines become invalid
Changes and new work due to issue management should be added to the schedule.
All change requests must be addressed quickly
•Accept or reject by Change Control Board, Steering Committee or Sponsor
PMs should have authority to say no to changes
All changes should be documented
No Gold Plating!
• Single most important factor to a sound EVM process and implementation
50
Earned Value Benefits
51
Provides managers with information at a practical level of summarization Alerts PMs to potential schedule and cost risks early Provides a documented project performance trail Communicates project status Tracks and monitors discrete project metrics Relates time-phased budgets to specific contract tasks Provides comparisons between planned and actual workProvides accurate and reliable readings of cost and schedule performanceActual performance at the 15% complete point can be used to predict final performance.
The schedule performance index (SPI) is useful in assessing how much work has been accomplished.
The CPI index provides a statistical basis for a “best case” final estimate.
The CPI and SPI indices may be combined to statistically forecast the “most likely” final estimate.
Earned Value Benefits
52
Earned Value Key Lessons Learned
53
Lesson Attributed To Corrective Action
1 Schedule Compression incurs additional project cost
•Work cannot be scheduled and resourced in an optimal fashion•Schedule compression almost always results in inefficiencies due to resource loading and reword
2 Education and buy-in are crucialThrough time not just to start
Lack of Senior Level Commitment
• Executives• Project Managers• Staff
3 WBS Quality / Reliability Plan the work carefully and accurately
WBS Quality not maintained
• All parties buy in to the WBS• WBS is simple - composed of measurable, deliverable pieces• Risk-adjusted SPI/CPI
4 Sustenance Perceived Complexity
Keep Process Simple and Tool Supported – See #2
5 No variance reports / dashboards
No policy in place or no standard
•Weekly high level metrics, Monthly Dashboard reporting with full EV•Graphs and text – Period/period compare
6 Manage by Exception – Too much management will scare your PMs
Micro Management Manage by exception. Focus on significant variances to the plan. Apply timely corrective actions.
7 Tracking conducted inconsistently.
PM Discipline Track – Track – Track No Pain NO Gain
8 Time for data measurement, input, and manipulation can be considerable.
Growing Pains Plan ahead – Provide amble PM time to create and research results
Earned Value Key Lessons Learned
54
Earned Value Limitations
55
Traditional EV is not intended for non-discrete (continuous) effort.
•When a plan contains a significant portion of LOE intermixed with discrete effort, EVM results will be contaminated
The use of EVM presumes that stakeholders care about measuring progress objectively.
Quantifying/measuring work progress can be difficult.
Time required for data measurement, input, and manipulation can be considerable.
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 is bad, so is your forecast)
Earned Value does not measure quality
EVM is designed to ensure that the future predicted by EVM does not materialize – as it encourages corrective action
Earned Value Limitations
56
Earned Value Do’s and Don'ts
57
Take the necessary building steps seriously
•Integrate the scope of work, schedules, and costs using a WBS.
Train your stakeholders. It is critical they can understand the variance reports
Document all performance metrics and thresholds in the Project Plan (Performance Plan)
Determine how you will measure your tasks (discrete options)
Assess variances early – No later than 15 % in
..Highest Potential for Cost / Schedule Recovery..
Make sure the bad news is heard
Take corrective action
•Staff changes?
•Mid-term evaluation of work
•Crashing
•Fast Tracking
Earned Value Do’s and Don'tsDo’s
58
Request and monitor that staff enters actual hours each week
Provide PMs with a reliable labor and overhead rates for each resource.
•Without the rate CPI does not mean much
Have policies in place for rebaselining
•Keep your original baseline in tact and always measure against it
•If for no other reason, it keeps historical estimates in place
Re-plan as necessary
•Budget increase?
•Scope change?
•Schedule change?
Create a weekly or Monthly Variance Report
Use standard templates for reporting
•Helps with the learning curve
•Helps to compare or aggregate data across projects
Institute Standard Reporting Cycles
Earned Value Do’s and Don'tsDo’s
59
Perform scheduling and WBS creating at the same time.
•There is a documented order defined in the PMBOK
•Most Common Error
Don’t set up your project with “level of effort” planning.
•Creating one task (i.e. design) and allocating a certain number of people to it over a fixed amount of time.
•Earned value will not be possible. The only measurement possible will be cash flow
Leave planning until your financials and WBS are integrated through Cost Control
•Cost account structures and the level of detail to be tracked must support the earned value management system.
•Each cost account should have a unique identifier to enable an accurate calculation of the actual cost of work performed (ACWP).
Manage at only the contract / engagement level
•Rarely are projects managed at the WBS Deliverable Level – EV Loses Control
Earned Value Do’s and Don'tsDo’s
60
Focus solely on schedules. This is the typical PM Mindset by Business Culture. PMs: • Are focused on Schedules --NOT Costs• Manage at the contract level vs the WBS Deliverable Level
Leave real Billing Rates out of the WBS•Competition Sensitive Data•Artificial Blended Rates•Fixed Price, So Why Bother•The $1.00 per hour fix
Let your tasks or milestones get too large in duration, cost and scope•Could impact PM’s ability to identify variances at a level that can be corrected
Include multiple individuals on the same task whenever possible•Helps identify root cause of variances easier
Forget Success factors•A full WBS is required (all scope)•Beware of GIGO: Garbage-in, garbage-out
No Gold Plating!If you know there is a significant variance don’t wait until you create the monthly report to begin corrective action planningAssume adding a resource or adding paid overtime will “fix” the schedule variance – most likely will create a CPI issue. Cover this with stakeholders early.
Earned Value Do’s and Don'tsDon'ts
61
Why do we need early warning
Course corrections are easier when you have time to make small adjustments
It’s too late when you’re this close to the iceberg!