Earned Value

You too, can do Earned Value Management!
Presented by: Chance Reichel, PMP Boston University Corporate Education Center Session # ADV11
Earned Value Example

Situation: I budgeted 5 widgets at 100 hrs per widget. At the end of the year, 400 hrs had been expended.
GREAT! I'm 100 hrs under budget!
Budget
500
vs.
Actual
400
Variance
100
Question:
Whats wrong with this picture?

2
Traditional Cost Management Method

600 500 400 Hours 300 200 100 0 J F M A M J J A S O N D
Time
spen t 400 acco hrs mpli , so shed Ive 400 hrs of w ork?
Budget Plan Actual Cost
Ive
100 hrs Under-run
Actual cost is not an indication of work progress, but only an indicator of hours/money spent.
3
Earned Value Management

Earned Value adds another dimension to traditional cost management methods
Earned Value
Budget
vs.
Actual
Variance 100
500
400

Earned Value: an objective measure of how much work has been accomplished
Situation: I plan to build 5 widgets this year. Each widget should take 100 hrs. I will measure earned value based on the number of widgets completed. Year End... Budget Plan 500
3 2 1
3 widgets completed. Actual 400

5
Earned Value 300

(3 Widgets * 100 hrs)
Using Earned Value

Budget Plan 500 hrs
Schedule Variance
Earned Value 300 hrs

Cost Variance
Actual 400 hrs
(200)
(100)
Oh boy! I better figure out what is going on. I've got 200 hrs worth of work to catch up on, and I've already overspent by 100 hrs.

Book Definition
Earned Value Management is an approach to understanding and assessing what a contractor (or Government Activity) is achieving with program dollars.

Practical Definition
An objective measure of how much work has been accomplished based on the planned value, or:
What we got for what we spent!

8
Earned Value Management Is:

A uniform unit of measure A consistent method of analysis A basis for cost performance assessment
Earned Value Analysis: What is it?

Method for comparing value of planned work to value of performed work The most common method of performance measurement Integrates scope, cost, schedule
10
EVM
Earned Value Management is intended to provide data from a contractors management system to the government in standard data elements that Relate time-phased budgets to contract tasks Integrate cost, schedule, and technical performance Indicate work progress objectively Are valid, timely and auditable Are from the internal system the contractor uses to manage Are at a practical level of summarization
11
Integrating Project Influences

Project manager must integrate all aspects of the project to manage the interaction of time, cost, and scope and quality constraints to be able to factor Earned Value correctly!
Time
Project Resources
Cost
Scope and Quality
Triple Constraint Model
12
The EV Process
Define the Work
Plan the Work
Work the Plan
Collect Results Measure Performance Change Control Analyze Deviations Take Take Corrective Action Corrective Action
External Changes
13
Definition: Project Scope Statement

The narrative description of the project scope, including major deliverables, project objectives, project assumptions, project constraints, and a statement of work, that provides a documented basis for making future project decisions and for confirming or developing a common understanding of project scope among the stakeholders.
PMBOK Guide, Third Edition, Glossary
14
Components of the Project Scope Statement

Requirements Objectives Product Description Boundaries Major Deliverables Acceptance Criteria Constraints Assumptions Initial Project Organization Initial Defined Risks Schedule Milestones Fund Limitations Cost Estimate Configuration Mgmt. Requirements Specifications Approval Requirements
15
Definition: Work Breakdown Structure (WBS)

A deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project objectives and create the required deliverables. It organizes and defines the total scope of the project. Each descending level represents an increasingly detailed definition of the project work.
PMBOK Guide, Third Edition, Glossary
16
Best Management Practice: Steps for Project Decomposition

Step 1 Step 2 Step 3 Identify and record the Project Goal Usually the name of the project Identify Major Deliverables that represent large areas of project work Can adequate estimates of both labor and cost resources requirements needed to complete the deliverables be developed? Continue to Decompose the work so that adequate estimates can be developed Verify correctness and project suitability
Step 4 Step 5
17
Work Breakdown Structure

06.0
Energy Laboratory
WBS Level 0
06.1
Site and Buildings
06.2
Equipment
06.3
Data
06.1.1
Site Preparation
Plant Buildings
06.1.2
Technical Support
06.1.3
06.1.2.1
Building #1
Building #2
06.1.2.2
4
06.1.2.1.1 06.1.2.1.2
Foundation and Substructure
Superstructure and Finishing
6 18
Benefits of Using Earned Value

Detail planning at levels where work is performed allows managements attention to be directed to areas where significant problems are indicated.
50 0 (50) (100) (150) (200) (250) Schedule Cost
Cost Account 1111M Cost Variance (100) Sch Var (200)
19
Establish the Performance Measurement Baseline

An Iterative 3-Step Process
1. Scope the Work
Contract Budget Base
2. Schedule the Work
PM Baseline
3. Allocate Budgets
100 40 15 60 25 30 30
Time
20
EVM Planning Terms

Statement of Work breaks down into a:
21
EVM Planning Terms

Statement of Work breaks down into a: Work Breakdown Structure where the work is defined by a:
22
EVM Planning Terms

Statement of Work breaks down into a: Work Breakdown Structure where the work is defined by a: Work Breakdown Structure Dictionary
Who is responsible for Work Breakdown Structure work is identified in a:
23
EVM Planning Terms

Who is responsible for Work Breakdown Structure work is identified in a: Responsibility Assignment Matrix that identifies where the Cost of Work Breakdown Structure Labor & Material will be collected, which is a:
24
EVM Planning Terms

Who is responsible for Work Breakdown Structure work is identified in a: Responsibility Assignment Matrix that identifies where the Cost of Work Breakdown Structure Labor & Material will be collected, which is a: Cost Account
However, where the work is actually performed is usually reflected in a:
25
EVM Planning Terms

Who is responsible for Work Breakdown Structure work is identified in a: Responsibility Assignment Matrix that identifies where the Cost of Work Breakdown Structure Labor & Material will be collected, which is a: Cost Account
However, where the work is actually performed is usually reflected in a: Work Package which is where the work is scheduled, performed, and measured.
26
Work Breakdown Structure (WBS)

MDSS Seminar Series
1.0 Session 1
2.0 Session 2
3.0 Session 3
4.0 Project Management
1.1 Seminar Development
1.2 Seminar Delivery
1.1.1 Existing Courses Survey
1.1.2 Course Objectives/ Concepts
1.1.3 Course Materials
Cost (Control) Account

1.1.3.3 Case Studies 1.1.3.4 Exercises
1.1.3.1 Slides
1.1.3.2 Narratives
Work Packages
27
Responsibility Assignment Matrix OBS

WBS
MDSS Seminar Series 1.0 Session 1 2.0 Session 2 3.0 Session 3
President
VP Consulting
VP Web Based
VP Classroom
1.1 Seminar Development
1.2 Seminar Delivery
ISD Systems Responsible Organizations Teaching Staff Design/ Graphics
1.1.2 Course Outline/Objectives 1.1.1 Existing Course Survey 1.1.3 Course Materials
Cost (Control) Accounts
28
RAM Used for Resource Allocation

ISD Systems Teaching Staff Design/ Graphics Outline Objectives/ Concepts Research Existing Courses Prepare Materials
Total
$1,400 $6,000 $5,000 $1,400 $6,000 $5,000
$1,400 $6,000 $5,000 $12,400
Total
29
The Cost or Control Account

A Key Management Control Point
Specific functional responsibility Specific WBS responsibility Work planning and assignment Performance measurement Cost collection Variance analysis Corrective action Basis of data summarization
CONTRACT
BUDGET LEDGER MASTER SCHEDULE GENERAL WORK AUTHORIZATION
Control Account
WBS # ______________ ORG # ______________ TASK DESCRIPTION________________________ SCHEDULE _______________________________ TOTAL BUDGET ________________
WORK PACKAGE
WP # ________ ORG # __ DESCRIPTION ______ SCHEDULE ____________ BUDGET _______________
30
Cost (Control) Account Elements

Work Packages
Detailed, short-span tasks or material items required to accomplish the CA objectives, typically in the near term.
Planning Packages
Future work that has not been detail planned as work packages. They are always scheduled to occur in the future.
Work Packages Planning Packages
Task 1 Task 2 Task 3 Task 4 Task 5

31
Three Types of Work

Discrete effort Specific end product or result Apportioned effort Factored effort directly related to discrete tasks (e.g., quality control, inspection) Dependent on other work Level of effort No final product or result (e.g., liaison, support activities, program management) Measure performance with the passage of time
32
Discrete Effort
X/Y percent
0/100 25/75 40/60 50/50
Milestone weights with percent complete Percent Complete

Subjective estimate Objective indicators
Milestone weights
Equivalent units
33
Apportioned Effort
Inspection runs 17% of manufacturing For each manufacturing work package, construct an inspection work package Compute earned value for each inspection work package
Earned Value for Inspection = 17% * Earned Value for Manufacturing
34
Level of Effort (LOE)

Program management will continue for the life of the program Discrete work packages dont make sense Apportionment isnt necessary (we already know how many people will be charging time) Create level of effort work packages that receive automatic earned value each month
LOE Work Packages must be kept to an absolute minimum
35
Contract Budget Baseline

CONTRACT PRICE AUTHORIZED, UNPRICED PROFITS AND FEES CONTRACT BUDGET BASE
PERFORMANCE MEASUREMENT BASELINE
MANAGEMENT RESERVE
WITHHELD FOR UNKNOWNS
DISTRIBUTED (control accounts)
UNDISTRIBUTED BUDGET
WITHHELD FOR KNOWN EFFORT
36
EVM Performance Measurement

Data Element
Scheduled Work Earned Value Actuals Authorized Work Forecasted Cost Work Variance Cost Variance Completion Variance
Term
Budgeted Cost for Work Scheduled
Acronym
BCWS BCWP ACWP BAC EAC SV CV VAC
Budgeted Cost for Work Performed Actual Cost of Work Performed Budget At Completion Estimate At Completion Schedule Variance Cost Variance Variance At Completion
37

Budgeted Cost of Work Scheduled (BCWS) The sum of the time-phased budgets established for all effort (including inprocess work) scheduled to be accomplished within a given time period
38

BUDGET
$
PV
TIME
Contract Complete
39

Budgeted Cost of Work Performed (BCWP) The sum of the time-phased budgets for work completed during a specified time period BCWP is the value of the work accomplished BCWP is also known as EARNED VALUE
40

BUDGET
$
W BC S
SV
P
W BC
TIME
Contract Complete
41

Actual Cost of Work Performed (ACWP) The costs actually incurred and recorded in accomplishing the work performed (BCWP) within a given time period Labor Material (subcontractor/vendor) Other, computer costs, etc. Indirect Costs
42

BUDGET
$
W BC S
W AC P
P
CV
W BC
TIME
Contract Complete
43

Budget At Completion (BAC) The budgetary goal (excluding MR) for doing authorized work; this includes the value of all work packages, planning packages, control accounts and Undistributed Budget Note: Total BAC at the contract level including MR = Contract Budget Baseline
44

Estimate At Completion (EAC) Actual direct costs + indirect costs allocable to the contract + the estimate of costs (direct and indirect) for authorized work remaining Often quite subjective Usually optimistic
45

BUDGET
VAC
MA STI TE
$
B CW S
W AC P
P
CV
SV
W BC
TIME
Contract Complete
46

Management Reserve (MR) An amount of the total allocated budget withheld for management control purposes, rather than designated for the accomplishment of a specific task or set of tasks KEY: There is no scope of work associated with management reserve budget
47

Undistributed Budget (UB) Budget applicable to contract effort which has not yet been identified to CWBS elements at or below the lowest level of reporting KEY: Only used for the effort associated with contractual changes
48
Earned Value Variances and Indices

Schedule Variance (SV) SV = EV PV SV% = SV/PV * 100 SPI = EV/PV Positive is good, be careful! Positive is good 1.00 or greater is good
Good means on or ahead of schedule
49
Earned Value Variances and Indices (2)

Cost Variance (CV) CV = EV - AC CV % = CV/EV * 100 CPI = EV/AC Positive is good, be careful! Positive is good 1.00 or greater is good
Good means on or under budget

50
Graphic Performance Report

PV
Cost Variance Progress
Schedule Variance
AC
EV
Update Date
Time
51
EVM Performance Measures

Cost Variance (CV) = Earned Value (BCWP) - Actual Costs (ACWP) Schedule Variance (SV) = Earned Value (BCWP) - Budget Plan (BCWS)
Efficiency Factors:
Cost Performance Index (CPI) = Earned Value (BCWP) Actual Costs(ACWP)
Schedule Performance Index (SPI) = Earned Value (BCWP) Budget Plan (BCWS) Percent Complete = Earned Value (BCWP) Budget At Completion (BAC)
52
EVMS
The Estimate at Completion (EAC)
EAC = (BAC-BCWP) + ACWP PF* *Performance Factor
In English: The estimate at completion takes the

remaining budget, applies the performance factor, and adds the actual cost spent to date. Basically, this calculation assumes that the indices used to develop the performance factor will remain constant for the remainder of the program.
53
Earned Value Quiz #2

EAC = (BAC-BCWP) + ACWP PF
Assume:
BAC =1,000,000 BCWP = 200,000 BCWS = 225,000 ACWP = 250,000
Compute an Estimate at Completion using the CPI.
54
Earned Value Quiz #2

EAC = (BAC-BCWP) + ACWP PF
Assume:
BAC =1,000,000 BCWP = 200,000 BCWS = 225,000 ACWP = 250,000
EAC = (1,000,000 200,000) + 250,000 CPI 0.8 EAC = 1,250,000.
Compute an Estimate at Completion using the CPI.
55
EAC Development Process

Compute run out (Cum CPI formula) Evaluate CPI trends Examine differences between budget and network targets Evaluate actual manning against base plan Examine progress against base operating plan Evaluate impact of cost reduction initiatives Identify and quantify known engineering/production issues Examine to go performance trends on similar projects at similar points
56
Survey says
Over 800 military programs show that NO program has ever improved performance better than the following EAC calculation: EAC = BAC CPI at 15% complete point in program. No one pays enough attention in the early stages!
57
The To Complete Performance Index (TCPI)

Measures the efficiency necessary to achieve contractor expected final cost Formula is based on contractors EAC Contrasted with CPI, the TCPI indicates what change is required Provides a basis for exploring contractors basis for his EAC Permits assessment of contractors ability to achieve EAC
58
TCPI Formula
Ratio of Work Remaining to Cost Remaining
Work Remaining = BAC-BCWP Cost Remaining = Contractor EAC-ACWP
TCPI = BAC-BCWP EAC-ACWP
59
Graphing Techniques
30.0 20.0 10.0 0.0 -10.0 -20.0 -30.0 BCWS BCWP ACWP CV SV 0.3 0.6 1.0 0.2 0.5 0.9 0.2 0.5 0.9 0.0 -0.0 -0.0 -0.1 -0.1 -0.1 Cost Drivers, Cause 1.4 1.4 1.5 -0.1 -0.0 Dollars In Millions 2.2 2.5 4.2 5.6 2.2 2.7 3.8 5.3 2.2 3.0 4.2 5.6 0.0 -0.3 -0.5 -0.3 -0.0 0.2 -0.4 -0.3 7.3 6.9 7.3 -0.5 -0.4 0% -6% -7% -11% MEGA HERZ ELEC & VEN Cost/Schedule Variance F04695-86-C-0050 MOH-2 RDPR FPI POP: 01 MAR 1992 - 15 SEP 1993 1992 1993 MAY JUN JUL AUG SEP OCT NOV DEC JAN Percent of Dollars
Overall cost and schedule trend
At Completion KTR PO 20.8 20.8 20.8 20.8 20.8 23.0 0.0 -2.2 Element: 3600 Dollars In Millions 8.0 1992 APR
EAC realism
MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI Estimates at Completion MAY JUN JUL AUG SEP OCT NOV DEC 1993 JAN Name: PCC
PMB: 20.4 % COMP: 32.9 MR: 0.4 KTR MR LRE: 0.0 COST VARIANCE CURRENT FUNDING: 10.0 SCHEDULE VARIANCE PO EPC: 24.0 PROJ FUNDING: 23.0
PO MR LRE: 0.0 AS OF: JAN 93 OPR: MR B. TECH PROGRAM: Mohawk Vehicle
7.0
Graphs Graphsshow showoverall overalltrend... trend... are areyou yougetting gettingbetter, better, or orworse? worse?
6.0
5.0 BAC LRE CUM CPI 5.1 5.4 5.1 5.1 5.4 5.7 5.1 5.4 5.9 5.1 5.4 6.0 5.1 5.5 6.3 5.1 5.5 5.8 5.1 5.5 6.5 5.5 5.7 7.6 5.5 5.7 6.8 5.8 6.0 6.8
60
Earned Value Management 5 Basic Guidelines

Organize the project team and the scope of work, using a work breakdown structure. Each task should have a single WBS number and organizational code. Schedule the tasks in a logical manner so that lower level schedule elements support subsequent elements and the top level milestones. Allocate the total budget resources to time-phased control accounts. Establish objective means for measuring work accomplishment. Budget should be earned in the same way that it was planned. Control the project by analyzing cost and performance variances, assessing final costs, developing corrective actions, and controlling changes to the integrated baseline.
61

The Bottom Line(s)
EVM is a vital project management tool. EVM basics can and should be used on projects of any size. Constant streamlining is needed to keep focus on effective use (not just reporting).
62

Defense Acquisition University
EAC
Gold Card
Contract Price
TAB
CBB OTB
OVERRUN
Profit / Fees
NCC
AUW
Management Reserve
PMB
TAB BAC
PMB Undistributed Budget Control Accounts
Management Reserve Summary Level Planning Packages Planning Packages
$
BCWS
Schedule Variance ACWP
Cost Variance
Work Packages TERMINOLOGY

NCC AUW CBB OTB TAB BAC PMB MR UB CA WP PP BCWS BCWP ACWP EAC Negotiated Contract Cost Authorized Unpriced Work Contract Budget Base Over Target Baseline Total Allocated Budget Budget At Completion Performance Measurement Baseline Management Reserve Undistributed Budget Control Account Work Package Planning Package Budgeted Cost for Work Scheduled Budgeted Cost for Work Performed Actual Cost of Work Performed Estimate At Completion
BCWP
time
Time Now
Completion Date
VARIANCES
Favorable is Positive, Unfavorable is Negative
Cost Variance CV Schedule Variance SV Variance at Completion VAC
= BCWP ACWP CV % = (CV / BCWP) *100 = BCWP BCWS SV % = (SV / BCWS) * 100 = BAC EAC
PERFORMANCE INDICES Favorable is > 1.0, Unfavorable is < 1.0 Cost Efficiency CPI = BCWP / ACWP Schedule Efficiency SPI = BCWP / BCWS OVERALL STATUS % Schedule = (BCWSCUM / BAC) * 100 % Complete = (BCWPCUM / BAC) * 100 % Spent = (ACWPCUM / BAC) * 100 ESTIMATE AT COMPLETION # EAC = Actuals to Date + [(Remaining Work) / (Efficiency Factor)] = ACWPCUM + [(BAC BCWPCUM) / CPICUM ] = BAC / CPICUM EACCPI EACComposite = ACWPCUM + [(BAC BCWPCUM) / (CPICUM * SPICUM)] TO COMPLETE PERFORMANCE INDEX (TCPI) # TCPIEAC = Work Remaining / Cost Remaining = (BAC BCWPCUM) / (EAC ACWPCUM)
#
LRE Latest Revised Estimate SLPP Summary Level Planning Package TCPI To Complete Performance Index
Contract price less profit / fee(s) Work contractually approved, but not yet negotiated / definitized Sum of NCC and AUW Sum of CBB and recognized overrun Sum of all budgets for work on contract = NCC, CBB, or OTB Total budget for total contract thru any given level Contract time-phased budget plan Budget withheld by Ktr PM for unknowns / risk management Broadly defined activities not yet distributed to CAs Lowest CWBS element assigned to a single focal point to plan & control scope / schedule / budget Near-term, detail-planned activities within a CA Far-term CA activities not yet defined into WPs Value of work planned to be accomplished = PLANNED VALUE Value of work accomplished = EARNED VALUE Cost of work accomplished = ACTUAL COST Estimate of total cost for total contract thru any given level; may be generated by Ktr, PMO, DCMA, etc. = EACKtr / PMO / DCMA Ktrs EAC or EACKtr Far-term activities not yet defined into CAs Efficiency needed from time now to achieve an EAC
EVM POLICY: EVMS = DFARS 252.234-7000; 252.234-7001; & C/SSR = DFARS 252.242-7005; 252.242-7006;
ANSI/EIA-748-A Jan 2002 / Mar 2003; DoDI 5000.2, Table E3.T2; & Defense Acquisition Guidebook
MANAGEMENT REQUIREMENTS: Select pair of Contract Clauses based on cost, risk, criticality:
EVMS EIA-748 Management System Validated as Consistent with EIA-748 Standard at detailed level Non-FFP contracts / agreements for R&D > $73M; & Proc or O&M > $315M (CY00$) Cost/Schedule Status Report (C/SSR) Management System not required to meet EIA-748 Standard; Non-FFP contracts / agreements > $6.3M (CY00$) & > 12 months duration Integrated Baseline Review (IBR) Mandatory for both EVMS & C/SSR within 6 months of Contract Award
REPORT REQUIREMENTS: Tailor Data Requirements via CDRL, Select One:

Cost Performance Report = DI-MGMT-81466 = Formats 1-5 (WBS, Organization, Baseline, Staffing, & Explanations) CPR is Mandatory for EVMS EIA-748 contracts & optional for C/SSR contracts Cost/Schedule Status Report = DI-MGMT-81467 = 2 Formats (WBS & Explanations) or Tailored CPR EVM Home Page = http://acc.dau.mil/evm http://www.dcma.mil = One Book DAU POC: (703) 805-2851 (DSN 655) eMail Address: EVM@dau.mil Revised Feb 2004
To Determine Either TCPI or EAC; You May Replace BAC with TAB
63
In Summary: The EV Process

Define the Work
Plan the Work
Work the Plan
Collect Results Measure Performance Change Control Analyze Deviations Take Take Corrective Action Corrective Action
External Changes
64
Contact Information
Name: Company: Phone Contact Email Session # Chance Reichel, PMP Boston University Corporate Education Center 1(800) BUTRAIN creichel@bu.edu ADV11 : You Too Can Do Earned Value Management
65

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Earned Value

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You too, can do Earned Value Management!

Earned Value Example

Whats wrong with this picture?

Traditional Cost Management Method

100 hrs Under-run

Earned Value Management

Earned Value Management

3 widgets completed. Actual 400

Earned Value 300

Using Earned Value

Earned Value 300 hrs

Actual 400 hrs

Earned Value Management

Earned Value Management

What we got for what we spent!

Earned Value Management Is:

Earned Value Analysis: What is it?

Integrating Project Influences

Scope and Quality

Triple Constraint Model

Plan the Work

Work the Plan

Definition: Project Scope Statement

Components of the Project Scope Statement

Definition: Work Breakdown Structure (WBS)

Best Management Practice: Steps for Project Decomposition

Work Breakdown Structure

Site and Buildings

Foundation and Substructure

Superstructure and Finishing

Benefits of Using Earned Value

Cost Account 1111M Cost Variance (100) Sch Var (200)

Establish the Performance Measurement Baseline

2. Schedule the Work

EVM Planning Terms

EVM Planning Terms

EVM Planning Terms

Who is responsible for Work Breakdown Structure work is identified in a:

EVM Planning Terms

EVM Planning Terms

However, where the work is actually performed is usually reflected in a:

EVM Planning Terms

Work Breakdown Structure (WBS)

4.0 Project Management

1.1 Seminar Development

1.2 Seminar Delivery

1.1.1 Existing Courses Survey

1.1.2 Course Objectives/ Concepts

1.1.3 Course Materials

Cost (Control) Account

Responsibility Assignment Matrix OBS

1.1 Seminar Development

1.2 Seminar Delivery

ISD Systems Responsible Organizations Teaching Staff Design/ Graphics

Cost (Control) Accounts

RAM Used for Resource Allocation

$1,400 $6,000 $5,000 $1,400 $6,000 $5,000

$1,400 $6,000 $5,000 $12,400

The Cost or Control Account

Cost (Control) Account Elements

Work Packages Planning Packages

Task 1 Task 2 Task 3 Task 4 Task 5

Three Types of Work

Milestone weights with percent complete Percent Complete