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Earned Value Management

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Anand Subramaniam
Anand Subramaniam

Make critical project decisions utilising the “early warning” signs based on data, variances & trends

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Earned Value Management Make critical project decisions utilising the “early warning” signs based on data, variances & trends Anand Subramaniam
2 “Be not afraid of flying. Angels live in the clouds and the devil on the earth.” - Greg Evans
3 Highlights  Current Project Challenges  Earned Value – Overview  Earned Value – Definitions  Earned Value – Metrics  Earned Value - Variance & Management Reserve  Earned Value – Examples (including Revised Estimates)  Earned Value – Criteria
Current Project Challenges
5 Current Project Management - Challenges Project Challenges Project Challenges Whether the project funds were spent on the right tasks Whether the project funds were spent on the right tasks Project status with regard to cost & schedule Project status with regard to cost & schedule Ahead or behind schedule Ahead or behind schedule Apportioned effort due to another work package Apportioned effort due to another work package Value for money Value for money Estimated elapsed time Estimated elapsed time Cost and schedule variance over time Cost and schedule variance over time The budgeted cost of the work quantifies the accomplishment The budgeted cost of the work quantifies the accomplishment Level of effortLevel of effort Know over or under spent Know over or under spent
Earned Value - Overview
7 EV - Why & What Why Provides an “early warning” signs for prompt corrective action Provides an uniform unit of measure (dollars or work-hours) Requires different measures of progress for different types of tasks Need to consolidate progress of many tasks into an overall project status Why Provides an “early warning” signs for prompt corrective action Provides an uniform unit of measure (dollars or work-hours) Requires different measures of progress for different types of tasks Need to consolidate progress of many tasks into an overall project status What Utilising Project Management methods, practices, process & tools Accurate definition of the defined deliverable(s), timeframe & total cost (direct & indirect) to deliver the product Detailed tasks / activities and work not in the WBS is out-of-scope Baseline of budget control a/c, schedule, work measurement by Control Account (hours, $, unit) What Utilising Project Management methods, practices, process & tools Accurate definition of the defined deliverable(s), timeframe & total cost (direct & indirect) to deliver the product Detailed tasks / activities and work not in the WBS is out-of-scope Baseline of budget control a/c, schedule, work measurement by Control Account (hours, $, unit)
8 EV – Benefits Benefits Helps to make critical project decision based on actual vs. budget cost, variance, trends & to predict future performance Helps to make critical project decision based on actual vs. budget cost, variance, trends & to predict future performance Provides infor about the project in terms of accomplishment as well as how much has been spent to-date Provides infor about the project in terms of accomplishment as well as how much has been spent to-date Project’s final cost and delivery date with certainty Project’s final cost and delivery date with certainty Improves vendor / customer relations Improves vendor / customer relations Useful to make prediction based on comparative analysis Useful to make prediction based on comparative analysis Improves project performance Improves project performance Identifies the problem, by analysing the data captured Identifies the problem, by analysing the data captured Creates a culture of openness, trust and honesty Creates a culture of openness, trust and honesty Value for moneyValue for money
9 EV – Criticism  Time required for data measurement and manipulation can be considerable  Quantifying / measuring work-in-progress (WIP) can be challenging  Integration of financial expenditure information with schedule status
10 Note…  Adhere to Project Management Best-Practices  Baseline your schedule  Analyse variance from your expectations  Diligently update your schedule and expenditure  Understand work products produced by the project  Organize your estimation and schedule around work products  Do not re-baseline unless there is a formal, approved change in scope
EV – Definitions
12 Definition Planned Value (PV) Planned expenditure cash flows based on the completion of tasks in accordance with the project’s budget and schedule Planned cost of the total amount of work scheduled to be performed by the milestone date Actual Cost (AC) Actual Project Expense based on completed tasks Cost incurred to accomplish the work that has been done to date Earned Value (EV) The amount of the budget that should have been spent for a given amount of work completed The planned (not actual) cost to complete the work that has been done
13 Definition How much was planned to have been accomp-lished at a given point in time? Planned Value (PV) How much value (person-hours) in terms of base budget & what has been accomplished at a given point in time? Earned Value (EV) How much was actually spent at a given point in time? Actual Cost (AC)
14 Definition (Contd.) What is the total project expected to cost? Estimate at Completion (EAC) or revised estimate (LRE) EAC = AC + ETC What is the expected under / over spend? Variance at Completion (VAC) VAC = BAC - EAC What is the expected to complete the project? Estimate to Completion (ETC) What was the project supposed to cost = Budget at Completion (BAC)
15 Earned Value – AC, PV, EV Cost Time A ctual Planned Earned Planned Value: what the plan called for on the tasks planned to be completed by this date Planned Value: what the plan called for on the tasks planned to be completed by this date Today Earned Value: value (cost) of what has been accomplished to date, per the base plan Earned Value: value (cost) of what has been accomplished to date, per the base plan Actual Cost: what has been actually spent to this point in time Actual Cost: what has been actually spent to this point in time
16 Earned Value – Cost / Schedule + or - Cost Time Actual Planned Earned Over BudgetOver Budget Behind ScheduleBehind Schedule Today
EV – Metrics
18 Cost Metrics Cost Variance (CV) Difference between a task’s estimated cost and its actual cost CV = EV – AC or BCWP – ACWP Negative Value = over budget and / or behind schedule (vice versa) Deviations from the budget – not a measure of work scheduled vs. work completed Cost Variance (CV) Difference between a task’s estimated cost and its actual cost CV = EV – AC or BCWP – ACWP Negative Value = over budget and / or behind schedule (vice versa) Deviations from the budget – not a measure of work scheduled vs. work completed Cost Performance Index (CPI) Percentage of work completed per dollar spent CPI = EV ÷ AC or BCWP ÷ ACWP Ratio > 1 = ahead of schedule and / or under budget (exceptional performance) – vice versa Cost Performance Index (CPI) Percentage of work completed per dollar spent CPI = EV ÷ AC or BCWP ÷ ACWP Ratio > 1 = ahead of schedule and / or under budget (exceptional performance) – vice versa
19 Schedule Metrics Schedule Variance (SV) Difference between the current progress and originally scheduled progress SV = EV – PV or BCWP – BCWS A negative variance means the project is behind schedule Deviations from work planned – not a measure of changes in cost Schedule Variance (SV) Difference between the current progress and originally scheduled progress SV = EV – PV or BCWP – BCWS A negative variance means the project is behind schedule Deviations from work planned – not a measure of changes in cost Schedule Performance Index (SPI) Ratio of the work performed to the work scheduled SPI = EV ÷ PL or BCWP ÷ BCWS Ratio > 1 = ahead of schedule and / or under budget (vice versa) Schedule Performance Index (SPI) Ratio of the work performed to the work scheduled SPI = EV ÷ PL or BCWP ÷ BCWS Ratio > 1 = ahead of schedule and / or under budget (vice versa)
20 Earned Value Metrics  Minimum funds needed if things do not get worse  Minimum funds = Original total budget ÷ CPI  Funds needed if things continue to get worse at the same level of slippage  Funds needed = Original total budget ÷ (CPI x SPI)
EV – Variance & Management Reserve
22 Variance – SV & CV illustration Cost Time actual schedule earned CV SV
23 Variance - Do you know  What is the problem causing the variance?  What is the impact on other efforts, if any?  What corrective action is planned or under way?  What is the impact on time, cost & performance?  What are the expected results of the corrective action?
24 Variance – Depends on…  Estimate type  Life-cycle phase  Length of project  Accuracy of estimate  Length of life-cycle phase
25 Management Reserve  The padding added to a project for unexpected costs that are within project scope  NOT an allowance for changes to scope  NOT part of the cost estimate  Added by upper management, NOT the project manager
EV – Example
27 Example - Budget, Schedule, Tasks  Project Budget = $40,000  Schedule = 4 months  Tasks = 20 Tasks (evenly divided over 4 months)  $2,000 per task  5 tasks per month  Planned Value or BCWS = $10,000 / month
28 Example - Budget, Schedule, Tasks  Invoice – 1st Month Payment = $8,000 Actual Cost or ACWP  Work Completed – 1st Month, 3 tasks costing= $8,000 as against $6,000 ($2,000 x 3)  Earned Value or BCWP = $6,000
29 Comparison – PV, AC & EV
30 Cost Performance Indicators 1 month $1000 Scheduled / Budgeted to do $10,000 work over 5 tasks in a month window BCWS = $10,000 PV / BCWS 1 month $6000 $4000 EV / BCWP Schedule slippage permits only 3 tasks/$6,000 work to be performed BCWP = $6,000 Schedule variance = $4,000 1 month $8000 $2000 AC / ACWP Actual cost of work performed = $8,000 ACWP = $8,000 Actual cost variance = $2,000
EV – Example (utilising Revised Estimates)
32 Example - Latest Revised Estimate  Total budget (BAC) = $ 5,000  Work scheduled (PV) = $ 2,000  Work accomplished (EV) = $ 1,800  Actual cost (AC) = $ 2,400  Latest Revised Estimate (LRE) = $ 5,600
33 Example – LRE (Contd.)  TCPI (To Complete Cost Performance Index)  CPI = EV / AC ($ 1,800 / $ 2,400) = 0.75  TCPI (at BAC) = Work Remaining (BAC – EV) / Budget Remaining (BAC – AC)  TCPI (at BAC) = ($5,000 - $1,800) / $5,000 - $2,400) = 1.23  TCPI (at LRE) = Work Remaining (BAC – EV) / Estimate Remaining ( LRE – AC)  TCPI (at LRE) = ($5,000 - $1,800) / $5,600 - $2,400) = 1.00  Based on the LRE ($ 5,600), the project will come on budget (1.00) & revised estimate appears reasonable
Earned Value - Success Criteria
35 Criteria Organisation Detailed WBS & OBS prepared Use RASCI chart & integrate OBS & WBS & provide infor to finance WBS & OBS utilised (plan, budget, authorise work schedule, perform measurement and cost accumulation Org responsible for overhead control Budgets and Schedule Detailed schedule include interdepen- dencies, milestone Phased budgets at the a/c code / cost element to capture work complete, WIP & O/H Performance mea- surement baseline, Mngt reserve (MR), (Un) distributed budget maintained Accounts / Finance Direct and indirect costs are captured at the lowest level of the WBS / OBS Cost elements including coding are in line with the organisation’s accounting system EV Management and Reporting Mgt reports highlight schedule cost performance, actual vs. budget, variance & reasons Utilise WBS & OBS for Mngt attention (EV Management) Prepare Latest Revised Estimates (LRE) utilising EAC, VAC, ETC & BAC for further funding / project cancellation
36 “The three great essentials to achieve anything worth while are, first, hard work; second, stick-to-itiveness; third, common sense.” - Thomas Edison
37 Good Luck http://www.linkedin.com/in/anandsubramaniam

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Earned Value Management

  • 1. Earned Value Management Make critical project decisions utilising the “early warning” signs based on data, variances & trends Anand Subramaniam
  • 2. 2 “Be not afraid of flying. Angels live in the clouds and the devil on the earth.” - Greg Evans
  • 3. 3 Highlights  Current Project Challenges  Earned Value – Overview  Earned Value – Definitions  Earned Value – Metrics  Earned Value - Variance & Management Reserve  Earned Value – Examples (including Revised Estimates)  Earned Value – Criteria
  • 5. 5 Current Project Management - Challenges Project Challenges Project Challenges Whether the project funds were spent on the right tasks Whether the project funds were spent on the right tasks Project status with regard to cost & schedule Project status with regard to cost & schedule Ahead or behind schedule Ahead or behind schedule Apportioned effort due to another work package Apportioned effort due to another work package Value for money Value for money Estimated elapsed time Estimated elapsed time Cost and schedule variance over time Cost and schedule variance over time The budgeted cost of the work quantifies the accomplishment The budgeted cost of the work quantifies the accomplishment Level of effortLevel of effort Know over or under spent Know over or under spent
  • 6. Earned Value - Overview
  • 7. 7 EV - Why & What Why Provides an “early warning” signs for prompt corrective action Provides an uniform unit of measure (dollars or work-hours) Requires different measures of progress for different types of tasks Need to consolidate progress of many tasks into an overall project status Why Provides an “early warning” signs for prompt corrective action Provides an uniform unit of measure (dollars or work-hours) Requires different measures of progress for different types of tasks Need to consolidate progress of many tasks into an overall project status What Utilising Project Management methods, practices, process & tools Accurate definition of the defined deliverable(s), timeframe & total cost (direct & indirect) to deliver the product Detailed tasks / activities and work not in the WBS is out-of-scope Baseline of budget control a/c, schedule, work measurement by Control Account (hours, $, unit) What Utilising Project Management methods, practices, process & tools Accurate definition of the defined deliverable(s), timeframe & total cost (direct & indirect) to deliver the product Detailed tasks / activities and work not in the WBS is out-of-scope Baseline of budget control a/c, schedule, work measurement by Control Account (hours, $, unit)
  • 8. 8 EV – Benefits Benefits Helps to make critical project decision based on actual vs. budget cost, variance, trends & to predict future performance Helps to make critical project decision based on actual vs. budget cost, variance, trends & to predict future performance Provides infor about the project in terms of accomplishment as well as how much has been spent to-date Provides infor about the project in terms of accomplishment as well as how much has been spent to-date Project’s final cost and delivery date with certainty Project’s final cost and delivery date with certainty Improves vendor / customer relations Improves vendor / customer relations Useful to make prediction based on comparative analysis Useful to make prediction based on comparative analysis Improves project performance Improves project performance Identifies the problem, by analysing the data captured Identifies the problem, by analysing the data captured Creates a culture of openness, trust and honesty Creates a culture of openness, trust and honesty Value for moneyValue for money
  • 9. 9 EV – Criticism  Time required for data measurement and manipulation can be considerable  Quantifying / measuring work-in-progress (WIP) can be challenging  Integration of financial expenditure information with schedule status
  • 10. 10 Note…  Adhere to Project Management Best-Practices  Baseline your schedule  Analyse variance from your expectations  Diligently update your schedule and expenditure  Understand work products produced by the project  Organize your estimation and schedule around work products  Do not re-baseline unless there is a formal, approved change in scope
  • 12. 12 Definition Planned Value (PV) Planned expenditure cash flows based on the completion of tasks in accordance with the project’s budget and schedule Planned cost of the total amount of work scheduled to be performed by the milestone date Actual Cost (AC) Actual Project Expense based on completed tasks Cost incurred to accomplish the work that has been done to date Earned Value (EV) The amount of the budget that should have been spent for a given amount of work completed The planned (not actual) cost to complete the work that has been done
  • 13. 13 Definition How much was planned to have been accomp-lished at a given point in time? Planned Value (PV) How much value (person-hours) in terms of base budget & what has been accomplished at a given point in time? Earned Value (EV) How much was actually spent at a given point in time? Actual Cost (AC)
  • 14. 14 Definition (Contd.) What is the total project expected to cost? Estimate at Completion (EAC) or revised estimate (LRE) EAC = AC + ETC What is the expected under / over spend? Variance at Completion (VAC) VAC = BAC - EAC What is the expected to complete the project? Estimate to Completion (ETC) What was the project supposed to cost = Budget at Completion (BAC)
  • 15. 15 Earned Value – AC, PV, EV Cost Time A ctual Planned Earned Planned Value: what the plan called for on the tasks planned to be completed by this date Planned Value: what the plan called for on the tasks planned to be completed by this date Today Earned Value: value (cost) of what has been accomplished to date, per the base plan Earned Value: value (cost) of what has been accomplished to date, per the base plan Actual Cost: what has been actually spent to this point in time Actual Cost: what has been actually spent to this point in time
  • 16. 16 Earned Value – Cost / Schedule + or - Cost Time Actual Planned Earned Over BudgetOver Budget Behind ScheduleBehind Schedule Today
  • 18. 18 Cost Metrics Cost Variance (CV) Difference between a task’s estimated cost and its actual cost CV = EV – AC or BCWP – ACWP Negative Value = over budget and / or behind schedule (vice versa) Deviations from the budget – not a measure of work scheduled vs. work completed Cost Variance (CV) Difference between a task’s estimated cost and its actual cost CV = EV – AC or BCWP – ACWP Negative Value = over budget and / or behind schedule (vice versa) Deviations from the budget – not a measure of work scheduled vs. work completed Cost Performance Index (CPI) Percentage of work completed per dollar spent CPI = EV ÷ AC or BCWP ÷ ACWP Ratio > 1 = ahead of schedule and / or under budget (exceptional performance) – vice versa Cost Performance Index (CPI) Percentage of work completed per dollar spent CPI = EV ÷ AC or BCWP ÷ ACWP Ratio > 1 = ahead of schedule and / or under budget (exceptional performance) – vice versa
  • 19. 19 Schedule Metrics Schedule Variance (SV) Difference between the current progress and originally scheduled progress SV = EV – PV or BCWP – BCWS A negative variance means the project is behind schedule Deviations from work planned – not a measure of changes in cost Schedule Variance (SV) Difference between the current progress and originally scheduled progress SV = EV – PV or BCWP – BCWS A negative variance means the project is behind schedule Deviations from work planned – not a measure of changes in cost Schedule Performance Index (SPI) Ratio of the work performed to the work scheduled SPI = EV ÷ PL or BCWP ÷ BCWS Ratio > 1 = ahead of schedule and / or under budget (vice versa) Schedule Performance Index (SPI) Ratio of the work performed to the work scheduled SPI = EV ÷ PL or BCWP ÷ BCWS Ratio > 1 = ahead of schedule and / or under budget (vice versa)
  • 20. 20 Earned Value Metrics  Minimum funds needed if things do not get worse  Minimum funds = Original total budget ÷ CPI  Funds needed if things continue to get worse at the same level of slippage  Funds needed = Original total budget ÷ (CPI x SPI)
  • 21. EV – Variance & Management Reserve
  • 22. 22 Variance – SV & CV illustration Cost Time actual schedule earned CV SV
  • 23. 23 Variance - Do you know  What is the problem causing the variance?  What is the impact on other efforts, if any?  What corrective action is planned or under way?  What is the impact on time, cost & performance?  What are the expected results of the corrective action?
  • 24. 24 Variance – Depends on…  Estimate type  Life-cycle phase  Length of project  Accuracy of estimate  Length of life-cycle phase
  • 25. 25 Management Reserve  The padding added to a project for unexpected costs that are within project scope  NOT an allowance for changes to scope  NOT part of the cost estimate  Added by upper management, NOT the project manager
  • 27. 27 Example - Budget, Schedule, Tasks  Project Budget = $40,000  Schedule = 4 months  Tasks = 20 Tasks (evenly divided over 4 months)  $2,000 per task  5 tasks per month  Planned Value or BCWS = $10,000 / month
  • 28. 28 Example - Budget, Schedule, Tasks  Invoice – 1st Month Payment = $8,000 Actual Cost or ACWP  Work Completed – 1st Month, 3 tasks costing= $8,000 as against $6,000 ($2,000 x 3)  Earned Value or BCWP = $6,000
  • 30. 30 Cost Performance Indicators 1 month $1000 Scheduled / Budgeted to do $10,000 work over 5 tasks in a month window BCWS = $10,000 PV / BCWS 1 month $6000 $4000 EV / BCWP Schedule slippage permits only 3 tasks/$6,000 work to be performed BCWP = $6,000 Schedule variance = $4,000 1 month $8000 $2000 AC / ACWP Actual cost of work performed = $8,000 ACWP = $8,000 Actual cost variance = $2,000
  • 31. EV – Example (utilising Revised Estimates)
  • 32. 32 Example - Latest Revised Estimate  Total budget (BAC) = $ 5,000  Work scheduled (PV) = $ 2,000  Work accomplished (EV) = $ 1,800  Actual cost (AC) = $ 2,400  Latest Revised Estimate (LRE) = $ 5,600
  • 33. 33 Example – LRE (Contd.)  TCPI (To Complete Cost Performance Index)  CPI = EV / AC ($ 1,800 / $ 2,400) = 0.75  TCPI (at BAC) = Work Remaining (BAC – EV) / Budget Remaining (BAC – AC)  TCPI (at BAC) = ($5,000 - $1,800) / $5,000 - $2,400) = 1.23  TCPI (at LRE) = Work Remaining (BAC – EV) / Estimate Remaining ( LRE – AC)  TCPI (at LRE) = ($5,000 - $1,800) / $5,600 - $2,400) = 1.00  Based on the LRE ($ 5,600), the project will come on budget (1.00) & revised estimate appears reasonable
  • 34. Earned Value - Success Criteria
  • 35. 35 Criteria Organisation Detailed WBS & OBS prepared Use RASCI chart & integrate OBS & WBS & provide infor to finance WBS & OBS utilised (plan, budget, authorise work schedule, perform measurement and cost accumulation Org responsible for overhead control Budgets and Schedule Detailed schedule include interdepen- dencies, milestone Phased budgets at the a/c code / cost element to capture work complete, WIP & O/H Performance mea- surement baseline, Mngt reserve (MR), (Un) distributed budget maintained Accounts / Finance Direct and indirect costs are captured at the lowest level of the WBS / OBS Cost elements including coding are in line with the organisation’s accounting system EV Management and Reporting Mgt reports highlight schedule cost performance, actual vs. budget, variance & reasons Utilise WBS & OBS for Mngt attention (EV Management) Prepare Latest Revised Estimates (LRE) utilising EAC, VAC, ETC & BAC for further funding / project cancellation
  • 36. 36 “The three great essentials to achieve anything worth while are, first, hard work; second, stick-to-itiveness; third, common sense.” - Thomas Edison