EARNED VALUE MANAGEMENT SYSTEM A Project Performance Tool

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EARNED VALUE MANAGEMENT SYSTEMAProject
Performance Tool

• By
• Roy T. Uemura, PMP, P.E., MBA
• Project Management Consultant
• Project Professionals, LLC

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How Is Your Project Doing?

• Ahead of schedule?
• Within your approved Budget?

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How Is Your Project Doing?

• What is your cost estimate at completion?
• Will you be ahead or behind the scheduled
  completion date?

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Agenda

• Explanation of Earned Value Management (EVM)
• The traditional Two Dimensional System of
  Evaluation
• EVM Three Dimensional System of Evaluation
• Critical Variables in EVM
• EVM Formulas
• Applying EVM on projects
• Example

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Earned Value Management

• Method for integrating scope, schedule, and
  resources, for measuring project performance.
• Compares what was planned with what was actually
  spent with what was actually earned

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Earned Value Management

• Developed in the 1960s
• Popular method for reporting and controlling
  project in the Department of Defense
• A common language to report progress and cost
  against a project
• Helps answer the questions
• Are we on schedule?
• How much did the work we do cost?
• Are there variances?
• Based on these trends, how much will it cost by
  the end of the project?

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Early Warning System

• based on the Project Performance Plan
• and Projects Actual Performance against
• the Plan,
• the project will likely take this much time to
  finish, and
• spend this much money.

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Traditional System(Two Dimensional)

• Cost compares what was planned to be expended
  versus what was actually expended
• Time Compares the date you are on a project
  versus when the project is to be completed
• Production Compares how much work was planned
  to be completed versus how much was actually
  completed.

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Earned Value(Three Dimensional)

• 1. Actual work that was earned
• versus
• 2. Work that was accomplished
• versus
• 3. Work that was scheduled to be accomplished

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Critical Variables to EV Performance Indices

• Quality of the project baseline plan
• Actual performance against baseline plan
• Managements determination to control (change)
  the final results

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Project Baseline

• Basis of performance measurement
• Represents technical, cost and schedule
  objectives of the project
• Cashflows
• Outside Material
• Outside Services

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Scope of Work

• The scope of work of entire project must be
  defined
• The Work Breakdown Structure (WBS) identifies and
  groups major deliverables
• Integrate scope with budget and schedule.

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Performance Measurement Methods

• Fixed formula by task
• 0/100 , 25/75, 50/50
• Weighted Milestones Percent complete based on
  specific work
• (milestone) accomplished.
• Percent Complete
• Increment completed / total activity or task
• Equivalent Completed Units

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Cost Account Plan
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Project Description

• Installed approximately 14.5 miles of
  transmission line of which about 4,000 feet was
  installed underground.
• Installed 93 steel poles 52 poles were direct
  buried and 41 were mounted on pier foundations.

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Kuilima
Waialua
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Visual Progress Report

• Foundation Dug Concrete Poured
• Pole Erection
• Lines Strung
• Trench
• Conduit Installed
• Cable Installed
• Trench Covered

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Kuilima
Waialua
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Controlling Change

• Essential Change Management Control System in
  the Project Plan prevents incorrect,
  inappropriate, or unauthorized changes to the
  project.
• Inform appropriate stakeholders of authorized
  changes to the Baseline (scope/quality, schedule,
  cost)

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EVM Input Data Required

• PLANNING PHASE
• Planned Value (PV)
• Budget At Completion (BAC)
• Complete - Planned
• EXECUTING CONTROLLING PHASES
• Actual Cost (AC)
• Complete - Actual

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Calculations from Input Data

• Earned Value - EV
• Cost Variance - CV
• Schedule Variance - SV

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Calculations for Analysis

• Cost Performance Index - CPI
• Schedule Performance Index - SPI
• Budget at Completion - BAC
• Estimate to Completion - ETC
• Estimate at Completion - EAC
• To Complete Performance Index - TCPI

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Primary Data Elements

• PV (Planned Value)
• The value of the amount of work that was
• planned to be accomplished on a task (or a
• project) as of a certain date in the baseline
• plan.
• BAC (Budget at Completion)
• Total cost of a task (or project) according to
• the baseline plan.

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Primary Data Elements (contd)

• AC (Actual Cost)
• The actual amount of money spent
• on a task (or project) as of a certain date.

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Performance Analysis

• EV (Earned Value).
• The value of the amount of work actually
• completed on a task (or project) as of a
• certain date, according to the baseline
• plan.
• EV Actual Complete x BAC

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Performance Analysis (contd)

• CV (Cost Variance)
• The difference between the value of work
• that was actually completed (EV) on a task
• (or project) and the cost that was actually
• spend (AC) on the task (or project) as of a
• certain date.
• CV EV - AC
• ( spending less than planned)

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Performance Analysis (contd)

• SV (Schedule Variance)
• The difference between the value of work
• that was actually completed (EV) on a task
• (or project) and the work that should have
• been done (PV) as of a certain date.
• SV EV - PV
• ( Ahead of Schedule)

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Performance Analysis (contd)

• CPI (Cost Performance Index)
• The ratio of the value of work actually
• completed (EV) on a task (or project) and
• amount actually spent (AC) on a task (or
• project) as of a certain date.
• CPI EV/AC
• (gt1 Spending less than planned)

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Performance Analysis (contd)

• SPI (Schedule Performance Index)
• The ratio between the value of work that was
• actually completed (EV) on a task (or project)
• and the work that should have been done
• (PV) as of a certain date.
• SPI EV/PV
• (gt1 Ahead of Schedule)

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Performance Analysis (contd)

• ETC (Estimate To Completion)
• The forecasted cost of the remaining task
• (or project) is calculated by CPI or
• CPI x SPI
• ETC Remaining Work / CPI
• (BAC - EV/ CPI
• or
• ETC Remaining Work/ (CPI x SPI)
• (BAC - EV/(CPI x SPI)

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Performance Analysis (contd)

• EAC (Estimate at Completion)
• The value expressed in either dollars or hours
• to represent the projected final cost of work
• when completed. The EAC equals the actual
• costs (AC) incurred plus the estimated costs
• to complete the remaining work (ETC).
• EAC AC ETC

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Performance Analysis (contd)Ranges of Estimate
at Completion

• High-End Projection (Cumulative CPI x SPI)
• EAC AC (BAC - EV) / (CPI x SPI)
• In-Between Projection (80 CPI x 20 SPI)
• EAC AC (BAC - EV) / (0.8 CPI x 0.2 SPI)
• Low-End Projection (Cumulative CPI)
• EAC AC (BAC - EV) / CPI

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To Complete Performance Index

• TCPI Project performance which must be
• achieved on all remaining work in order to
• meet the financial goal by management
• TCPI Work Remaining / Funds Remaining
• (Total Budget - Earned value)
• (BAC - Actual Costs)
• (BAC - EV)
• (BAC - AC)

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PMP Exam

• Estimate At Completion (EAC)
• EAC BAC
• CPI
• Estimate to Complete (ETC)
• ETC EAC - AC
• Rita Mulcahy, PMP Exam Prep 5th Edition (2005)

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Example

• Time 4th month of 10 month schedule
• Budget at Completion BAC 10,000
• Planned Value PV 4,000
• Actual Cost AC 3,800
• Actual Complete 36
• Earned Value
• EV 0.36 x 10,000 3,600

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Earned Value Analysis
Status Date
BAC
10,000
5,000
PV 4,000
AC 3,800
EV 3,600
3
1
6
7
2
4
5
8
9
10
Time
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Performance Analysis

• Traditional Analysis
• Cost Variance Planned Expenditure - Actual Cost
• CV PV - AC
• CV 4,000 - 3,800 200 (under spent by 200)
• Earned Value Analysis
• CV EV - AC
• CV 3,600 - 3,800 -200 (spending more than
  planned for work performed)
• SV EV - PV
• SV 3,600 - 4,000 -400 (less work was done
  than planned)

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Performance Analysis

• Cost Performance Index (CPI)
• CPI EV / AC
• CPI 3,600/3,800 0.95 (lt1, for every 1
  spent, only 0.95 in physical work was done)
• Schedule Performance Index (SPI)
• SPI EV / PV
• SPI 3,600 / 4,000 0.9 (lt1, for every 1 of
  physical work planned, only 0.9 was done)

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Performance Analysis

• Estimate To Complete (ETC)
• ETC (BAC - EV) / CPI
• ETC (BAC - EV) / (CPI x SPI)

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Performance Analysis

• Estimate At Completion (EAC)
• EAC AC (BAC - EV)/(CPI x SPI)
• 3,800 (10,000 3,600) / (0.95 x
  0.90)
• 11,285 (high end)
• EAC AC (BAC - EV) / CPI
• 3,800 (10,000 3,600) / 0.95
• 10,537 (low end)

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Performance Analysis

• To Complete Performance Index (TCPI)
• TCPI (BAC - EV) / (BAC - AC)
• TCPI (10,000 - 3,600) / (10,000 - 3,800)
• TCPI 6,400 / 6,200
• TCPI 1.03

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Analyzing Data for Trends
10
5
0
(5)
Schedule Variance
(10)
(15)
Cost Variance
(20
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Earned Value Analysis
EAC 9.5 M
CPI
EAC (7.5 M)
SPI
Baseline Budget CPI SPI 1
1.0
Time
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Performance Report
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Float and Management Reserves

• The project manager should control contingency
  reserve and schedule float
• The work at hand expands to fill the time
  available
• Expenditures will rise to meet the budget.
• The remaining management reserves should be
  added to EAC until such time when the reserve is
  no longer needed.

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Earned Value Management SystemPerformance
Management

• Accurate Baseline Estimate
• Measure Performance against the Plan
• Analyze variances to Plan
• Assess impacts to Overall Plan
• Identify corrective actions
• Implement the corrective actions

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• Questions?