CPM 300 Principles of Earned Value Implementation CPM 300B Management Use of EV Data

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CPM 300 Principles of Earned Value
ImplementationCPM 300B Management Use of EV
Data

• Eleanor Haupt
• Aeronautical Systems Center
• eleanor.haupt_at_wpafb.af.mil
• 1-937-656-5482

Lloyd Carter MTC AustralAsia Pty
Ltd llcarter_at_mtc.aust.com 61(0)3 5754
1010
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Training Objectives

• Basic concepts of measuring performance
• Examples
• EVM guidelines for project execution
• Basic concepts of reporting progress
• Basic concepts of analysis
• Examples

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Budgeted Cost for Work Performed (BCWP)
the EARNED VALUE concept
Were at the end of the second month, but only 1
section of track is complete. Earned value of
work completed 1,000

• Assess progress on recurring basis
• There are different methods of earning value
• You earn value the same way as it was budgeted
  in baseline

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General Principles of Measuring Performance (BCWP)

• Establish valid metrics as you establish the time
  phased baseline
• Relate true work status
• Objective and quantifiable
• Should be a quantitative and discrete way to
  measure the work
• May tie in with success criteria or technical
  measure
• Example successful completion of a specific
  test
• Must be consistent in following established
  metric as work progresses
• BCWP value drives both cost and schedule
  variances
• If overstated or understated, it will distort
  variances
• Can impact estimate at complete calculations

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Three Basic Methods of Earning Value

• Discrete
• Physical, tangible end product
• Common techniques milestone, complete, 0/100,
  50/50, units complete
• Apportioned
• Discrete, but dependent on another discrete work
  package
• Example quality assurance (depends on assembly
  labor)
• Planned as historical estimating factor (e.g.,
  7)
• Level of Effort
• No tangible end product
• Basis of measurement time
• When clock starts ticking, you automatically
  accumulate earned value
• Results in no schedule variance (BCWP will always
  equal BCWS)
• Example management personnel

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Be Discrete!

• Discrete EV Techniques
• Method How Value is Earned
• 0/100 no EV at opening, 100 EV at close of WP
• 50/50 50 EV at opening, 50 EV at close of WP
• Units Completed same budget value for identical
  units
• Equivalent Units planned unit standards, allows
  partial credit
• Weighted Milestone each milestone weighted based
  on planned resources
• ideal to have a milestone each month
• Percent Complete should be based on some
  quantitative assessment
• may be somewhat subjective

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Earning BCWP on Material

• Material and Subcontracts
• Earned Value taken no earlier than receipt or
  progress payments to subcontractors
• define
• order
• receipt or progress
  payments
• payment
• to inventory
• usage
• accurate cost accumulation and assignment to
  contract
• should perform price and usage variances
• should plan earned value to match expected
  payment period
• BCWP and ACWP should occur in same period to
  avoid artificial cost variance
• option may report estimated actuals based on
  invoice

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Examples of BCWP Calculations
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Different EV Methodology Yields Different Results!
WBS 1.1.2 (Workpackage) MONTH Jan Feb Mar
Total BCWS (Original Budget) 100 120 100
320 BCWP (Earned Value) ACWP (Actual
Cost) 50 120 180
350
Assume that costs overran and work was completed
behind schedule for all methods
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Example Milestone Technique
Jan Feb Mar BCWS (Original
Budget) 100 120 100 320 BCWP (Earned
Value) 0 100 220 320 Milestone 1
Planned 100 Milestone 2 Planned 120 Milestone 3
Planned 100 SCHEDULE VARIANCE -100 -20
120 0 ACWP (Actual Cost) 50
120 180 350 COST VARIANCE
-50 -20 40 -30
100
120
100
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Example Level of Effort Technique
Jan Feb Mar BCWS (Original
Budget) 100 120 100 320 BCWP (Earned
Value) 100 120 100 320 SCHEDULE
VARIANCE 0 0 0
0 ACWP (Actual Cost) 50 120 180
350 COST VARIANCE 50 0
-80 -30
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Example 50/50 Technique
Jan Feb Mar BCWS (Original
Budget) 160 160 320 BCWP (Earned
Value) 160 0 160 320 Task
Baseline Task - Actual SCHEDULE VARIANCE 0
-160 160 0 ACWP (Actual
Cost) 50 120 180 350 COST VARIANCE
110 -120 -20 -30
50
50
50
50
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Example Percent Complete Technique
Jan Feb Mar BCWS (Original
Budget) 100 120 100 320 BCWP (Earned
Value) 60 100 160 320 Task 1
(100) Task 2 (120) Task 3 (100) SCHEDULE
VARIANCE -40 -20 60
0 ACWP (Actual Cost) 50 120 180
350 COST VARIANCE 10 -20
-20 -30
60
40
50
50
100
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Which Technique Accurately Reflects Work Progress?
Jan Feb Mar Total

• Milestone SV -100 -20 120 0
• CV -50 -20 40 -30
• LOE SV 0 0 0 0
• CV 50 0 -80 -30
• 50/50 SV 0 -160 160 0
• CV 110 -120 -20 -30
• Compl SV -40 -20 60 0
• CV 10 -20 -20 -30

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EVM Guidelines for Project Execution
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Work Packages
Work Package (closed)
Work Package (open)
Work Package (open)
Work Package (open)
Work Package (not open)
Time Now
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Authorizing the Work

• Can only work on work package if it has been
  opened
• Charge costs to open work packages only
• Contractor system sets procedure
• Contractor maintains baseline log which tracks
• Distribution of budget
• Additions of authorized work
• Total equals value of contract at cost
• Contract changes incorporated in disciplined
  manner
• Cannot start work without authorization and
  budget
• Baseline changes are controlled

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• more rules of the road...
• cannot move budget and work independently
• cannot use management reserve budget to cover
  overruns
• may replan open work packages as necessary
• contractor sets internal policy
• maintain valid performance information
• cannot change budgets or costs for completed
  work
• except to fix errors

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Project Control

• So, your project has been baselined and work has
  started
• Is everything going according to plan?
• Next step in the process
• figure out your status
• figure out the problems
• figure out what you need to do to fix them
• figure out what the impact might be

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Status Reporting

• Report on periodic basic
• weekly
• monthly
• Tailor the data to match how youre managing
• Provide performance reports to
• Senior management
• Customer
• Based on contract terms
• Use data in reports and variance analysis to
  manage and control project

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Contractor Reports
(Example of data item from U.S. Department of
Defense)

• Cost Performance Report (CPR)
• Format 1 cost and schedule progress by WBS
• (specified reporting level usually at
  level 3)
• Format 2 cost and schedule progress by
  organization
• Format 3 changes to performance measurement
  baseline
• Format 4 manpower forecast
• Format 5 variance analysis

current and cum data
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Formats 1 and 2

• Contents
• header
• basic contract information (target, ceiling, name
  of contractor, etc.)
• range of final estimates
• body
• performance data
• variances
• budget at completion, estimate at completion

WBS or ORGANIZATION
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Variance Explanations

• Format 5 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
• discuss needed corrective action
• technical, schedule, and cost impacts
• impact to estimate at completion
• should be written by CAM!

A big hammer for a big variance!
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Sample of Variance Analysis
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Basic Concepts of Analysis

• or
• figuring out where the problems are

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Looking Forward
PAST PRESENT
FUTURE
Are we on schedule? Are we on cost? What are the
significant variances? Why do we have
variances? Who is responsible? What is the trend
to date? What risks have been reduced or
added?
What is the to go plan? How is it
resourced? When will we
finish? What will it cost at the end?
How can we control the trend?
How do we adjust for risk?
We analyze the past performanceto help us
control the future
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Basic Analysis Techniques

• Find significant variances
• eliminate almost complete, just starting, etc.
• Graph and analyze trends
• Look at comparative data
• e.g. cumulative performance vs. projected
  performance
• Examine written analysis by contractor
• does it answer why?
• adequacy of corrective action plans
• Analysis of schedule trends, critical path
• Analysis of EAC realism

what are the drivers? what can we do about them?
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Types of Variances

• Values can be expressed as either current period
  or cumulative
• current tends to be more volatile
• use cum data to show trends
• Easy rule of thumb
• negative value BAD positive value GOOD
• index lt 1.0 BAD index gt 1.0 GOOD
• Absolute
• expressed in terms of dollars or hours (e.g.,
  -1,000)
• may not be able to tell significance from this
  amount
• Percent
• relates absolute variance to a base (e.g., -35)
• shows significance
• Index
• compares one value to another in a simple ratio
• if you are on plan, index 1.00

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Where are the significant problems?
sorted by CV
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Graphing Techniques
Overall cost and schedule trend
EAC realism
graphs show overall trend... are you getting
better, or worse?
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Analysis of Variances

• CURRENT OR CUM TO DATE
• Schedule Variance SV () BCWP - BCWS
• SV () BCWP - BCWS x 100
• BCWS
• Cost Variance CV () BCWP - ACWP
• CV () BCWP - ACWP x 100
• 
  BCWP

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Performance Indices
COST PERF INDEX (CPI) BCWP
ACWP SCHED PERF INDEX (SPI) BCWP
BCWS
1.2
GOOD
1.1
TIME
1.0
CPI
.9
SPI
BAD
.8
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Past and Present Cost Efficiency

• IS THE CONTRACTOR'S EAC REASONABLE?
• Compare the CPI to the TCPI-LRE
• TCPI-EAC Efficiency necessary to complete at
  the contractors estimate
• WORK
  5000 - 1000 4000
• BAC-BCWP REMAINING 6400 - 2400
  4000 1.00
• EAC-ACWP ESTIMATE
• REMAINING
• Cumulative performance to date (CPI)
  .42
• Contractor has been performing at 42 efficiency,
  but expects to
• complete remaining work at 100 efficiency!
  

reasonable?
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Schedule Status
scheduled BCWS x 100
BAC completed BCWP x 100
BAC
compare
example I should have completed 60 of the work
( scheduled), but I only
completed 42
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Budget Status
budget status spent ACWP x 100
BAC
compare spent vs. complete
example 60 spent vs. 50 complete
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Mutual Goal Effective Variance Analysis

• Make it meaningful
• avoid routine explanations
• Make it timely
• Make it streamlined
• significant variances
• Make it right
• work with contractor to get the information we
  need
• Get the information to the managers
• Use the information to control the project

make this a mutual goal between
contractor and customer
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What will be the final cost?

• Estimate at Completion (EAC)
• defined as actual cost to date estimate to
  complete
• contractor develops comprehensive EAC at least
  annually
• reported by WBS in cost performance report
• should examine on monthly basis
• consider the following in EAC generation
• performance to date
• impact of approved corrective action plans
• known/anticipated downstream problems
• best estimate of the cost to complete remaining
  work

EAC ACWP ETC
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Need to Estimate Costs for Remaining Work

• Budgeted Cost for Work Remaining (BCWR)
• Budgeted, baseline value for remaining work
• Update estimate of costs for BCWR
• Can be detailed estimate
• Can calculate with performance factors (CPI or
  SPI)
• Assumes performance will continue at same level
  of efficiency
• Basic formula BCWR / performance factor
• Example
• CPI .9
• BCWR 1,000
• Estimate to complete 1,000 / .9 1,111

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Common EAC Formulas

• Common EAC Formulas
• EAC BAC
• CPI
• ACWPcum Budgeted Cost
  of Work Remaining
• CPI3
• ACWPcum Budgeted Cost of Work
  Remaining
• 
  .5(CPI) .5(SPI)
• ACWPcum
  Budgeted Cost of Work Remaining
• 
  CPI SPI

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Other methods of EAC calculation

• Grass Roots or formal EAC
• detailed build-up from the lowest level detail
• hours, rates, bill of material, etc.
• Average of statistical formulae
• Statistical regression
• Complete schedule risk analysis for remaining
  work, estimate work remaining

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Past vs. Projected Efficiency
Efficiency needed to achieve EAC
1.0
CPIcum .42
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Earned Value Enables Realistic Forecasts
CONTRACT BUDGET BASE
24M
COST VARIANCE AT COMPLETE
FORECASTED ACTUALS
BUDGET
20M
SCHEDULE VARIANCE
FORECAST SCHEDULE SLIP
Cost Var
16M
PMB
12M
FORECASTED EARNED VALUE
8M
4M
2
4
6
8
10
12
14
16
18
20
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TIME PERIODS
TIME
NOW
PROGRAM IS BEHIND SCHEDULE AND OVERRUNNING COST
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The Box of Uncertainty(courtesy Swedish
Defense Material Administration)
24M
POTENTIAL COST OVERRUN
20M
POTENTIAL SCHEDULE SLIP
16M
PMB
12M
8M
4M
2
4
6
8
10
12
14
16
18
20
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TIME PERIODS
TIME
NOW
BOX OF UNCERTAINTY SHOWS POTENTIAL RANGE OF COST
OVERRUN AND SCHEDULE SLIP
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Managing with Earned Value Data
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Program Manager Responsibilities

• Assign integrated responsibility to teams
• Demand accountability
• Ask tough questions
• project office
• contractor
• Look ahead manage the risks
• Integrated analysis and reviews
• EVMS
• Integrated Master Schedule
• Risk Plan
• Manage to the baseline
• Control statement of work growth
• Lead assessment of baseline realism
• Integrated Baseline Review (IBR)
• Call for realistic estimates

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Quotes from Project Managers
Are we looking good, or are we in trouble? And,
how do we know?
CAPT Joe Dyer, US Navy F/A-18E/F Program Manager
It forces you to plan, and then to manage to the
plan.
Lt Col Paul Vancheri, US Air Force JSTARS
Production Program Manager
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Additional Referenceshttp//www.cpm-pmi.orghtt
p//www.acq.osd.mil/pm
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Summary

• Be careful to establish correct value for
  reported BCWP (earned value)
• Set up and maintain system discipline
• Maintain a realistic baseline
• Analyze earned value data
• Calculate a realistic estimate at completion
• Manage with earned value data