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

1. Explanation of Earned Value Management (EVM)
2. The traditional Two Dimensional System of
   Evaluation
3. EVM Three Dimensional System of Evaluation
4. Critical Variables in EVM
5. EVM Formulas
6. Applying EVM on projects
7. 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

1. Quality of the project baseline plan
2. Actual performance against baseline plan
3. 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?