CPETECET 470 Technology Project Management

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CPET/ECET 470Technology Project Management

• Class 4 - Budget Control

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Course Topics

• Focus
• Understanding project planning and control
• Specific Topics
• Planning
• Definition of Work
• Scheduling
• Budgets
• Measuring Progress/Controlling Cost
• Easy to do
• Your role in the process
• Risk Management
• Risk Evaluation
• Risk Mitigation

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Stages of Planning
Define Ultimate Goal
Construct Statement of Work
Define Work Breakdown Structure
Create Summary Level Schedule
Create Detailed Schedule
Define Budgets
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Budget

• Setting the budget is the last stage of planning
• If project funding exceeds the resources defined
  in the baseline plan, the difference is held as
  reserve funding
• Budget constraints sometimes conflict with the
  desired efforts
• Management will issue challenges to improve
  efficiencies to reduce anticipated project
  expenses
• Management will constrain efforts to hold reserve
  funding wherever possible
• Remember the objectives Meet contractual
  requirements, keep the customer happy and make
  money for your company

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EVM Teaching Objectives

• Provide Basic Understanding of Earned Value
  Management (EVM)
• Learn basic EVM terminology
• Understand the practicality of using EVM

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Earned Value

• An Objective Measure of How Much Work
• Has Been Accomplished Based on the Planned
  Value.....

What We Got for What We Spent!
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Management Systems Without EVM
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What Is Earned Value Management?

• Earned Value Management (EVM) is a process for
  measuring actual performance against a plan to
  identify and correct problem areas before control
  is lost

Plan
Execute (each month)
Measure (each month)
Evaluate
Respond
All the steps work together as an integral part
of program performance
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Why Does a Company Use EVM?

• Provides timely feedback to allow cost account
  managers to control cost, schedule and technical
  performance
• Provides summarization to allow management and
  customers to manage cost, schedule and technical
  objectives
• Integrates Work Scope, Schedule and Cost
  Objectives Into a Baseline Plan Against Which
  Accomplishments Can Be Measured
• Indicates Work Progress
• Relates Cost, Schedule and Technical Performance
• Objectively Assess Accomplishments at the
  Performance Level
• Is Valid, Timely, and Auditable
• Analyzes Significant Variances From the Plan and
  Forecast Impacts
• Supplies Managers With a Practical Level of
  Summarization

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Why Should You Use EVM?

• EVM Enhances the Overall Opportunity of an
  Activity to Succeed
• Allows you to objectively evaluate if your
  efforts are on schedule
• Allows you to objectively evaluate if your
  efficiency meets your plan
• Helps you identify holes in the plan
• Provides you an opportunity to understand/correct
  problems before they are a concern to your
  management/customer

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EVM Dependence on Teamwork

• EVM Requires Task Level Management
• Involves the whole team
• Not just the Program Manager and Project Engineer
  monitoring progress
• EVM Effort Crosses Departmental Lines
• Engineers
• Program Managers
• Business Managers
• Subcontractors
• Etc.
• Objective EVM Requires Open, Honest Communication

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EVM Terminology
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Earned Value Myth
Ive spent 400 hours, so Ive accomplished 400
hours of work. Right?

• Actual cost is not an indication of work progress
• It is only an indicator of hours/money spent

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General Terms

• Work Package (WP)
• Detailed, short-span tasks required to accomplish
  project objectives
• Has clear, measurable start and finish criteria
• WPs are summed into Cost Accounts
• Cost Account (CA)
• Sometimes referred to as a Control Account
• A single chargeable account
• Has clear, measurable start and finish criteria
• Amounts to a finite piece of the program

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General Terms

• Cost Account Manager (CAM)
• Person assigned to manage, control and report on
  the activity within a particular CA
• Work Authorization Document (WAD)
• Contract between the CAM and the Program Office
  to accomplish a clearly defined scope of work
  within a clearly defined schedule and budget
• Basis of Estimate (BoE)
• Description of why a task requires the defined
  resource hours

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General Terms

• Work Breakdown Structure (WBS)
• Organizes and defines the elements of work to be
  performed on a contract
• WBS Dictionary
• A document, organized as defined by the WBS, that
  provides product oriented descriptions for each
  element of the WBS
• Resource/Function Codes
• Business Management coding for each type of labor
  category

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Planning Terms

• Budgeted Cost of Work Scheduled (BCWS)
• The plan for what will be spent and when it will
  be spent
• Planned on fiscal month intervals
• Program Baseline
• Frozen BCWS after completion of planning
• Ideally, freezing occurs within 30 days of
  contract award
• Baseline at Completion (BAC)
• BWCS value at the end of the program as frozen in
  the program baseline

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Planning Terms

• Budgeted Cost of Work Performed (BCWP)
• The value of work accomplished relative to the
  plan
• Progress relative to the plan
• This term is the Earned Value (EV)
• If I am 50 done with a task worth 1,000 then I
  get 500 of earned value in BCWP
• Actual Cost of Work Performed (ACWP)
• Costs incurred monthly
• What was spent
• Actuals

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Planning Terms

• Management Reserve (MR)
• Contract funding held for management control
  purposes
• Only allocable to fund unanticipated scope
• Earned Value Method
• The objective criteria for claiming earned value
  within a WP or CA
• Planning Package
• Future CA that is not detail planned into work
  packages
• Planning Packages are converted to CAs and WPs
  four (4) to six (6) months prior to the start of
  the work

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Earned Value Myth
My budget for this task is exhausted. Can I
have some Management Reserve to cover my overrun?

• Management Reserve Cannot be used to cover
• Budget Overruns

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Performance Terms

• Schedule Variance (SV)
• Difference between the earned value and the plan
• Are you ahead or behind schedule?
• Earned value - plan schedule variance
• BCWP - BCWS SV
• Cost Variance (CV)
• Difference between the earned value and actuals
• Are you overrun or underrun?
• Earned value - actuals cost variance
• BCWP - ACWP CV

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Performance Terms

• Cost Performance Index (CPI)
• Provides a single number that defines the
  efficiency of use for a Cost Accounts budget
• Are you overrun or underrun?
• Earned value divided by the actuals equals the
  cost performance
• BCWP / ACWP CPI
• Why not just use CV?
• As a manager, what do I know quantitatively from
  an CV -1,000?
• Answer Not much - because the CV shows no
  insight to the amount spent
• If the ACWP 4,000 then there is a really large
  problem
• If the ACWP 100,000 then there isnt much of a
  problem
• What is the CPI in both these cases?

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Performance Terms

• Schedule Performance Index (SPI)
• Provides a single number that defines the
  relative health of a Cost Accounts schedule
• Are you ahead or behind schedule?
• Earned value divided by the plan equals the
  schedule performance
• BCWP / BCWS SPI
• Why not just use SV?
• As a manager, what do I know quantitatively from
  an SV -1,000?
• Answer Not much - because the SV provides no
  insight to the size of the account
• If the BCWS 2,000 then there is a really large
  problem
• If the BCWS 50,000 then there isnt much of a
  problem
• What is the SPI in both these cases?

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Updating Terms

• Estimate to Complete (ETC)
• A bottoms-up cost estimate of the remaining work
• Estimate At Completion (EAC)
• Cost of the work performed plus the ETC
• ACWP ETC EAC
• Identical to Latest Revised Estimate
• Latest Revised Estimate (LRE)
• Cost of the work performed plus the ETC
• ACWP ETC LRE
• Identical to EAC
• EAC LRE

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Updating Terms

• Variance At Completion (VAC)
• The difference between your budget and your
  projected final cost
• BAC - EAC VAC

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Elements of EVM
Now
Contract Value
Contract Complete
Contract Start
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Variance Terms

• Variance Analysis Report (VAR)
• Form that the CAM completes to describe a
  variance and projected future state of a cost
  account
• Program Thresholds
• Trigger levels where particular items, such as
  VARs or ETCs are required for a particular
  program
• Scope Growth
• Work required in a cost account beyond the scope
  defined in the WAD for that account
• Work defined for a program beyond the scope of
  any cost account

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Variance Terms

• Baseline Change Request (BCR)
• Form used by a CAM to request modification of a
  cost account contract
• BCRs are used for
• Defining a change in the scope of a cost account
• Defining a change in the schedule for performance
  of activity within a cost account
• Defining a change in the cost for performance of
  activity within a cost account
• BCRs are used prior to the start of work in a
  cost account
• Exception When changes are driven by program
  level contract changes, A BCR can occur after the
  start of effort in a cost account

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To Complete Performance Index (TCPI)

• The CPI required for the performance of remaining
  work to meet the budget
• The remaining work divided by the estimate to
  complete equals the To Complete Performance Index
• (BAC - BCWP) / (EAC - ACWP) TCPI
• How Is TCPI Calculated at Program Start (Prior to
  Performance of an ETC)?
• EAC BAC at program start
• TCPI, compared to current CPI, will indicate
  the realism of an EAC

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TCPI Example 1

• A cost account has the following present
  characteristics
• BAC 10K BCWS 5K BCWP 4K ACWP
  4.5K
• So, CPI 0.89
• The remaining work (BAC - BCWP) 6K
• And, the remaining budget (BAC - ACWP) 5.5K
• Making TCPI 6000 / 5500 1.09

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TCPI Example 2

• Upon completion of your analysis of example 1,
  you recognize there is a problem and perform an
  ETC
• Two months later you have the following
  information on the same cost account
• EAC 12K BCWS 10K BCWP 9K ACWP
  9.5K
• What is the TCPI now?
• What can you conclude about the state of the
  account?
• Do you think the CAM adjusted the process at all?

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Class 4 Assignment

• Answer questions 12-5, 12-6, 12-13 through 12-16,
  15-15 and 15-17
• Due Monday
• Use Microsoft Project to assist you in providing
  answers if you want (good practice to learn the
  software)
• Read paragraphs 15.4 15.5