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    Humphreys.gary Humphreys.gary Presentation Transcript

    • EVMSThe Principles, Best Practices and Benefits Gary C. Humphreys Humphreys & Associates, Inc. NASA PM Challenge 2010 Used with Permission
    • PART 1Overview, Earned Value Management NASA PM Challenge 2010 1
    • What is EVM?• Earned Value Management (EVM) is an integrated project management process for assessing, understanding and quantifying what a contractor or in-house project is achieving with program/project dollars – Integrates technical, cost, and schedule with risk management – Allows objective assessment and quantification of current project performance – Helps predict future performance based on trends “Management 101” “EVM 101” Plan Organize Organize Plan & Budget EVM is simply good project management! Staff Account for Costs Direct Analyze Control Incorporate Changes NASA PM Challenge 2010 2
    • So why use EVM?EVM enhances the chances of program/project success • To Succeed, you must Manage • To Manage, you must Measure • To Measure, you must Define • To Define, you must Understand NASA PM Challenge 2010 3
    • NASA EVM Policy & Requirements• NASA EVM requirements are found in NPR 7120.5, NASA Program and Project Management Processes and Requirements and NPR 7120.7, NASA Information Technology and Institutional Infrastructure Program and Project Management Requirements. Policy is contained in NASA FAR Supplement (NFS) 1834.201. NASA EVM requirements are predicated on the principles and guidelines in ANSI/EIA-748, Industry Guidelines for Earned Value Management Systems.• NPR 7120.5 requires the project EVM approach to be in place by Key Decision Point (KDP) C (the conclusion of Preliminary Design Review (PDR)) and implemented in Phase C (Final Design and Fabrication) through KDP E [Flight Readiness Review (FRR) or Launch Readiness Review (LRR)].• Additionally, project performance reporting must begin within 60 days after the start of Phase C. To meet this timeline, it is highly recommended that projects begin implementation planning during Phase B (Preliminary Design and Technology Completion). NASA PM Challenge 2010 4
    • NPR 7120.5 Guidance• NPR 7120.5 also requires that NASA programs and projects use EVM on projects and contracts that meet the following criteria: 1. For projects with a total anticipated final value of $20 million or more, EVM principles should be applied, as defined by ANSI/EIA-748, Earned Value Management Systems. a. If the projects primary NASA Center has a validated EVMS, the project uses that system rather than the EVM principles application approach. 2. For development contracts and subcontracts valued at or between $20M and $50M, the contractor is expected to have an EVMS that complies with the 32 guidelines in the ANSI/EIA-748 Standard. 3. For development contracts and subcontracts valued at $50M or more, the contractor is required to have an EVMS that has been formally validated by the Government. 4. EVM is not required on contracts for non-developmental engineering support services, steady state operations, basic and applied research, and routine services such as janitorial services or grounds maintenance services. In these cases, application of EVM is at the discretion of the Program/Project Manager (PM).• NASA projects that do not have a validated EVMS will use the seven management principles that are contained in ANSI/EIA-748 standard. NASA PM Challenge 2010 5
    • Seven EVM Principles (ANSI/EIA-748-B-2007)1. Plan all work scope for the project to completion.2. Break down the project work scope into finite pieces that can be assigned to a responsible person or organization for control of technical schedule and cost objectives.3. Integrate project work scope, schedule, and cost objectives into a performance measurement baseline plan against which accomplishments may be measured. Control changes to the baseline.4. Use actual costs incurred and recorded in accomplishing the work performed.5. Objectively assess accomplishments at the work performance level.6. Analyze significant variances from the plan, forecast impacts, and prepare an estimate at completion based on performance to date and all remaining work that must be performed.7. Incorporate Earned Value Management in the project decision-making and review processes. NASA PM Challenge 2010 6
    • 32 EVM Guidelines (ANSI/EIA-748-B-2007)Guideline Categories• Organization (5 guidelines) – Define contractual effort and assign responsibilities for the work. Integrate planning, scheduling, work authorization, and accounting systems.• Planning, Scheduling and Budgeting (10 guidelines) – Plan, schedule, budget and authorize the work. Establish and maintain a time-phased budget baseline.• Accounting Considerations (6 guidelines) – Accumulate costs of work and material. – Report on progress/accomplishments to date.• Analysis & Management Reports (6 guidelines) – Compare planned, earned and actual costs, analyze variances. Develop revised estimates at complete. Identify managerial actions.• Revisions and Data Maintenance (5 guidelines) – Execute timely incorporation of contractual changes. Maintain traceability from original budgets. NASA PM Challenge 2010 7
    • Earned Value Management Process Risk Monitoring Informed Management DecisionsScheduling & Resource Allocation Systems Progress Earned Value Mgmt System (Progress) Accounting System Technical Performance Measurement NASA PM Challenge 2010 8
    • Features of a “Good” EVM system• Thorough up-front planning based on a detailed product-oriented Work Breakdown Structure (WBS), incorporating Risk Management – Timely Performance Measurement Baseline (PMB) establishment and control – Information broken down by product, as well as by organization or function• Objective measurement of technical accomplishment against the plan at levels where the work is being performed• Reporting consistency and discipline – a structured process and methodology − Summarized data reporting to higher management (performance metrics) for use in effective decision making − Provides for analysis of significant variances and their impact on the project − Facilitates proper management actions to mitigate risk and manage technical, cost and schedule performance NASA PM Challenge 2010 9
    • PART 2 EVMS Terms and thePerformance Measurement Baseline NASA PM Challenge 2010 10
    • Basic EVM Terms• Budgeted Cost for Work Scheduled (BCWS) – The sum of the time-phased budgets established for all effort (including in- process work) scheduled to be accomplished within a given time period• Budgeted Cost for Work Performed (BCWP) – The sum of the time-phased budgets for work actually completed during a specified time period – BCWP is the budgeted value for the work actually accomplished – Earned value can only be determined after the performance (or scheduled performance) of work• Actual Cost of Work Performed (ACWP) – The costs (taken from the Accounting System) actually incurred (or in some cases estimated) and recorded, in accomplishing the work performed within a given time period NASA PM Challenge 2010 11
    • Basic EVM Terms (continued)• Budget At Completion (BAC) – The budgetary goal (excluding MR) for accomplishment of all authorized work• Estimate At Completion (EAC) – Actual direct and indirect costs allocable to the contract, plus the estimate of all costs for authorized work remaining – Estimated cost to complete the entire project scope of work – Supported with a rationale – Best case, worst case, most likely NASA PM Challenge 2010 12
    • Basic EVM Terms (continued)• Total Allocated Budget (TAB) – Total Allocated Budget is the sum of all budgets allocated by the contractor against which contract performance is to be measured and reported• Contract Budget Base (CBB) – Contract Budget Base is the negotiated contract cost plus the estimated cost of authorized unpriced work• Authorized Unpriced Work (AUW) – Contract work authorized by the contracting officer, not yet negotiated, aka not yet definitized work NASA PM Challenge 2010 13
    • Contract/In-house Project – PMB Relationship Contract Price (Project Price)Total of all authorizedwork, both negotiated Total Allocated Budget (TAB) Contract Fee/Profitand un-negotiated Contract Budget Base Authorized Unpriced Over Target (CBB) or Project Work (AUW) Baseline (OTB) Budget Base (PBB) MR – Held for known The total is also Performance Measurement unknowns but in-scope called Budget at Management Reserve (MR) future effort. Not used to Completion (BAC) Baseline (PMB) cover cost overruns. UB – Temporary holding place for allocation to control accounts not to Distributed Budget Undistributed Budget (UB) exceed two accounting periods following negotiations. Summary Level Planning Control Account (CA) Package (SLPP) Work Package (WP) Planning Package (PP) NASA PM Challenge 2010 14
    • The Performance Measurement Baseline (PMB) – Is all the work planned?What is the PMB?• A time-phased budget plan against which contract performance is measured• Developed by the contractor and jointly reviewed with the customer within six months of contract award• Based on the anticipated flow of work and outcomes• Incorporates dynamic, authorized project changes NASA PM Challenge 2010 15
    • PMB DevelopmentEstablishing the PMB is a 3-step process:1. DEFINE THE WORK • Statement of Work (SOW) CONTRACT BUDGET BASE • Work Breakdown Structure (WBS) • Organizational Breakdown Structure (OBS) MR • Responsibility Assignment Matrix (RAM)2. SCHEDULE THE WORK Integrated Master Schedule (IMS) • Master Schedule • Intermediate Schedule • Detailed Schedules $3. ALLOCATE BUDGETS 100 40 60 • Work Authorization System • Control Account Plan (CAP) 15 • Work Packages (WP) & 25 Planning Packages (PP) 30 30 TIME PMB – Time-phased, budgeted plan where contract performance can be measured. NASA PM Challenge 2010 16
    • Work Breakdown Structure (WBS)• A product-oriented hierarchical division of the hardware, software, services, and data required to produce the project’s end product(s)• Should not be functional or organizational oriented• Should reflect the total project scope of work• Structured according to the way the work will be performed• Reflects the way in which project costs, schedule, technical and risk data are to be accumulated, summarized, and reported• WBS is the most important data item in defining and controlling the contracted technical scope• Summary level WBS must be the sum of all lower level WBS hierarchical in nature• Supports historical cost collection necessary for future costing activities of similar scoped products “It’s the WHAT that is Going to Be Done” NASA PM Challenge 2010 17
    • Properly Structured WBS Standard Product Level 2’s Oriented Clear WBS TitlesCenter Breakoutat AppropriateLevel NASA PM Challenge 2010 18
    • Responsibility Assignment Matrix (RAM)The Responsibility Assignment Matrix (RAM) Integrates WBS with OBS. Theintersecting points are the Control Accounts. Contract Work Breakdown Structure (WBS) 1.0 1.1 1.2 1.3 WBS Reporting Level CWBS Extension Organization Breakdown Structure (OBS) Functional Org 1.1.1 1.1.2 1.1.3 1.1.4 Control Account 1.1.2.1 1.1.2.2 1.1.2.3 1.1.2.4 1.1.2.5 • Task Description • Perform. Measure • Work Authorization • Cost Accumulation SW • Work Package, Schedules, & Budget RAM Mech ENG CA Elec Work Packages NASA PM Challenge 2010 19
    • Control Account (CA)• The CA forms the hub of the technical, cost and, schedule management focus• Virtually all elements of planning and control come together at the CA level including work authorization, schedules, budgets, earned value, cost collection (actuals), problem identification/variance analysis and estimate to complete• Consists of: – Work Packages (WPs) – near term work that is well defined. – Planning Packages (PPs) - more far term effort used for budgeting and scheduling purposes. A vehicle for planning at a higher level when details may not yet be well defined. Planning packages must also reflect horizontal integration with assignment of predecessors and successors. Control Account BUDGET – 150 10 • SCOPE 10 • SCHEDULE 15 PLANNING 20 PACKAGES • BUDGET 20 45 WORK PACKAGES 30 NASA PM Challenge 2010 20
    • Schedule Development• Using the WBS: – Develop a logic network schedule for all contractual activities, including technical performance parameters/outcomes – Scheduling is a process of changing work scope into defined tasks: • WBS oriented • Defined time duration (phased over the total life of the program) • Logically connected to all other related tasks – Determine resources required to complete scheduled activities • Labor – Direct Labor – Civil Service Labor (when applicable) – Support Contractors • Material • Contracts/Subcontracts • Other Direct Costs • Indirect Costs NASA PM Challenge 2010 21
    • Horizontal & Vertical Schedule Integration (VSI)The Scheduling System: Consists of an integrated, multi-tiered hierarchy ofschedule levels. With a complete Logic Network Schedule, the time-phasedPMB will be accurate, allowing for the identification of the true critical path(s). INTEGRATED MASTER SCHEDULE (IMS) Master Schedule (Contract Summary) INTEGRATIO VERTICAL Intermediate Schedule N (Logic Network Schedule) HORIZONTA L INTEGRATIO N Detailed Schedules (Control Accounts) NASA PM Challenge 2010 22
    • Schedule Considerations• Is the schedule logic (activity sequence) established and valid?• Are the schedule milestones compatible with the schedule logic?• Is the critical path analysis valid?• Are durations reasonable compared with other project’s history?• Are resources used to their maximum?• Are parallel activities reasonable or risky, i.e., flight hardware being built before qualification is complete? NASA PM Challenge 2010 23
    • Understanding the Baseline• Is the plan fully defined?• Is the plan realistic?• What are the risky areas of the plan? How can we understand and assess inherent risk in the plan? NASA PM Challenge 2010 24
    • Determining Earned Value• How is Earned Value determined? – When planning work three basic classifications are used: • Discrete Work – Definable end product • Level of Effort (LOE) – End product not defined • Apportioned Effort – Budgeted based on a percentage of another (base) related task (e.g., Quality Assurance) – Earned Value must be taken in the same manner in which the work was planned NASA PM Challenge 2010 25
    • Discrete Earned Value Techniques0/100 Method Milestone• 1 accounting period • Identifiable milestone• No EV at start • Milestone weighting should correlate to the resources required to accomplish the task –• 100% EV at completion 1 milestone per month • 3 or more accounting periods50/50 Method Percent Complete• No more than 2 accounting periods • Least desirable• 50% EV at start • Somewhat subjective• 50% EV at complete • If used, apply quantitative back-up data NASA PM Challenge 2010 26
    • Earned Value TechniquesApportioned Effort (AE) • Work that is dependent on or related to the performance of other discrete effort in direct proportion (i.e., Quality Control effort in production) • Percentage and base task must be identified • Take the percentage of the AE for the base task, and that is what is earned Production Effort Inspection Effort NASA PM Challenge 2010 27
    • Earned Value TechniquesLevel of Effort (LOE)• Contract effort that does not produce any definable end product(s) – General or supportive activities; i.e., management, administrative, etc.• Used when no other EV method is applicable• Over-use will distort project performance measurement• Budget is spread over the scheduled period of performance• Value of work is earned based on passage of time• Planned Work Budget (BCWS) = Earned Value (BCWP) – Never a Schedule Variance NASA PM Challenge 2010 28
    • Characteristics of a “Good” Milestone• Tied to a specific product or event• Within the authority of the person who will perform the work• Clear, objective criteria for measuring accomplishment• Directly related to the control account statement of work• Weighted in relationship to the time-phased budget• Expressed in calendar dates and identified to control account and summary schedules NASA PM Challenge 2010 29
    • What are some potential causes of deviations from a Project Plan?• Poor beginning estimates• Poor understanding of requirements• Lack of risk assessment/planning• Requirements creep• Poor management• Unforeseen technology difficulties• Jumping to conclusions about causes NASA PM Challenge 2010 30
    • Future Performance Predictors• Estimate At Completion (EAC) – Actual direct and indirect costs allocable to the contract + the estimate of all costs for authorized work remaining, or Estimate to Complete (ETC). – Estimated cost to complete the entire scope of work – Supported with a rationale – EAC trends usually do not reverse – Best case, worst case, most likely required in the CPR• Comprehensive Estimate at Completion – Bottoms-up estimate reviewing all remaining work and a thorough estimate of that work – Required annually NASA PM Challenge 2010 31
    • EVM - Key Data Elements Estimate At Completion (EAC) Budget at Contract or Project Budget Base Completion (BAC) Over Budget Variance at Completion Management Reserve (MR) Estimate to Complete (ETC) Actual Cost Actual Cost of Work Performed (ACWP) Cost Variance Planned Value$ Budgeted Cost for Work Schedule Variance Performance Measurement Scheduled (BCWS) Baseline (PMB) Earned Value (Accomplished) Budgeted Cost for Work Performed For Projected (BCWP) Slippage (check schedule)Start Time Now CompletionDate Date NASA PM Challenge 2010 32
    • PART 3Performance Reporting, Variance Analysis and Data Usage NASA PM Challenge 2010 33
    • Where are we headed?• First we need to analyze current trends (current performance indicators) – What are our problem areas? – What are the causes of our problems?• Forecast the future based on performance to date – How can we stay on plan? – What are the impacts to the project? – Any technical, cost, or schedule surprises? – When will we finish all the work? – What is the estimated cost at completion? – Is it achievable?• Indicate areas for management action – What should we do now to mitigate problems? NASA PM Challenge 2010 34
    • Project Data Trace (Storyboard)Contractor Example Time / Accounting EVM System System Actuals (ACWP) WBS Dictionary CPR IMS (Resource Loaded) Planned (BCWS) & Accomplished WAD (BCWP) WBS XMLSOW CAPs RAM Page 2 Organizational Owner Requirements Development Packaging Technical Manager Support Project Design Test WBS # 1.2.7 1.2.8 x x wInsight OBS 1.2.9 x 1.3.1 x 1.3.2 x 1.3.3 x 1.3.4 x 1.3.5 x 1.4.1 x 1.4.2 x 1.4.3 x 1.4.4 x Mgmt Reporting & Data Analysis NASA PM Challenge 2010 35
    • Variance Calculations• Cost Variance (CV): The difference between BCWP and ACWP – CV = (BCWP - ACWP) – Favorable is positive (Cost underrun) – Unfavorable is negative (Cost overrun)• Cost Variance Percent (%): The CV divided by the Earned Value times 100 CV% = (BCWP - ACWP) X 100 BCWP• Schedule Variance (SV): The difference between BCWP and BCWS – SV=BCWP-BCWS – Favorable is positive (Ahead of schedule) – Unfavorable is negative (Behind schedule)• Schedule Variance Percent (%): The SV divided by the BCWS times 100 SV% = (BCWP - BCWS) X 100 BCWS NASA PM Challenge 2010 36
    • Variance Calculations (conclusions)• Variance at Completion (VAC): The difference between BAC and EAC – VAC = BAC - EAC – Compares what the work was budgeted (BAC) to what it is currently estimated to cost (EAC) – Favorable is positive (Forecasted under run) – Unfavorable is negative (Forecasted over run)• Variance at Completion Percent (%): The VAC divided by the BAC times 100 VAC % = VAC BAC X 100 NASA PM Challenge 2010 37
    • Variance Analysis Objectives─ A clear explanation of the cause─ A comprehensive impact assessment─ A corrective action plan─ A revised Estimate at Completion (EAC) • Cost • Schedule NASA PM Challenge 2010 38
    • “Root Causes” of Cost Variances Rate Variance (Earned Value-Actual Rate) x Actual Hours Labor Usage (Efficiency) Variance (Earned Hours – Actual Hours) x Earned Rate Price Variance Material (Earned Price – Actual Price) x Actual Quantity Cost &Variance Usage Variance Equipment (Earned Quantity – Actual Quantity) x Earned Price Price Variance Other (Earned Price – Actual Price) x Actual Quantity Direct Cost (ODC) Usage Variance (Earned Quantity – Actual Quantity) x Earned Price NASA PM Challenge 2010 39
    • Analysis ConsiderationsFavorable and unfavorable variances should be carefully evaluated. The project analystshould examine and understand the reasons for underruns, as well as overruns becausethey could be masking a serious problem.• Establishing Thresholds for Reporting and Analysis – Establish threshold reporting based on risk and tailored to WBS by specific dollar amount and/or variance percentage – Identification of threshold reporting should also consider program phase, risk and WBS criticality• Good Variance Analysis Identifies – The Problem – Cause of the Problem – Impact to the Program (Cost, Schedule and Technical) – Corrective Action – Get well date• Areas to Address – Poor initial planning or estimating – Technical breakthroughs or problems – Cost (or usage) of labor, material, or Other Direct Costs higher or lower than planned – Inflation and new labor contracts – Front-end loading• Reconciliation Analysis – Other budget/funding documentation – Labor resource planning documentation – Schedules NASA PM Challenge 2010 40
    • EVM ReportingContract Performance Report (CPR) - Required EVM data report on contractswhere full EVMS compliance is required Contains Five Reporting Formats: • Format 1 – Work Breakdown Structure • Format 2 – Organizational Categories • Format 3 -- Baseline • Format 4 – Staffing • Format 5 – Explanations and Problem Analysis – Total contract – Cost & schedule variance analysis – Other analyses (6 topics) – OTB & OTS (as applicable) NASA PM Challenge 2010 41
    • Performance Indicators• Cost Performance Index (CPI): The average cost efficiency with which work has been performed to date – Formula: CPI = BCWP / ACWP – If CPI > 1.0, Effort is under-running budget – If CPI < 1.0, Effort is over-running budget• Schedule Performance Index (SPI): The ratio of the budgeted value of work performed to the budgeted value of work scheduled – Formula: SPI = BCWP / BCWS – If SPI > 1.0, Effort is ahead of schedule – If SPI < 1.0, Effort is behind schedule – Is only an indicator – More important early in the project NASA PM Challenge 2010 42
    • Current Status Indicators• How much of the program SHOULD have been accomplished at this point? – Percent Scheduled = (BCWS / BAC) X 100• How many of the forecasted funds have been SPENT at this point? – Percent Spent = (ACWP / BAC) X 100• How much of the program has been ACCOMPLISHED to this point? – Percent Complete = (BCWP / BAC) X 100• What is the budgeted value of the work remaining? – Work Remaining = BAC - BCWP cum NASA PM Challenge 2010 43
    • Performance Forecasting• To-Complete Performance Index (TCPI): – Cost (CPI) efficiency required to complete the remaining work – TCPIEAC= (BAC-BCWP) / (EAC-ACWP)• Performance Indicator Comparison – CPI versus TCPI – Cost efficiency to date compared to cost efficiency to complete the work remaining – Note spread point when more than 20% complete – Thoroughly evaluate all point degradations, e.g. 1.42 versus .67 – Very helpful in reviewing EAC rationales NASA PM Challenge 2010 44
    • Future Performance Predicators Independent Estimate At Completion (IEAC)• There are many ways to calculate an IEAC• An example: Independent Estimate At Completion (IEAC) – IEAC = Actuals + (Work Remaining/Performance Factor) • EAC = ACWP + [(BAC-BCWP)/Performance Factor] – SPI as an indicator of EAC is better in first 50% (early stages) of a project – There is no substitute for GOOD program information• Common Performance Factors – Cost Performance Index (CPI) – Schedule Performance Index (SPI) – WEIGHTED (80/20 or some other ratio) NASA PM Challenge 2010 45
    • Using EVM Data as a Predictor *• When a contract is more than 15% complete & more than 10% over-run: – The over-run at completion will be more than the over-run incurred to date• The final cost variance (in dollars or as a percentage) will be worse than the cost variance at the 20% completion point.* Based on OSD database of more than 500 major DOD contracts since 1977 NASA PM Challenge 2010 46
    • PART 4SummaryNASA PM Challenge 2010 47
    • EVM Process OverviewDefine the Work Plan the Work Work the Plan Collect Results PMB Risk? (Schedule/Budget) Measure Work in Process Change Control (Earned Value) Changes Analyze Variances External Changes Internal Changes Implement Corrective Actions An iterative process used throughout the life of a contract. NASA PM Challenge 2010 48
    • Benefits of using EVM• Provides Project Management with objective, accurate and timely data for effective decision making (much more than plan versus actuals)• Early warning of issues• Allows more efficient use of management resources, by identifying and focusing on problem areas – Detail planning at levels where work is performed allows management attention to be directed to areas where significant problems are indicated• Provides better capability to trace problems to their source• Provides better historical performance data• EVM is an “Industry Best Practice” for project management (ANSI/EIA-748 – Earned Value Management Systems) NASA PM Challenge 2010 49
    • Conclusions about EVM• An integrated management process for gaining valuable insight into project performance.• Only management process that effectively integrates technical, cost, schedule and risk.• Provides valuable quantifiable performance metrics for forecasting at- completion cost and schedule.• Promotes early visibility to cost and schedule variance sooner than any other practice---reduces the ‘shock syndrome’• Focuses on significant technical, cost and schedule problems---avoids swatting mosquitoes while the elephants charge on by• Establishes funding authority’s confidence in program management NASA PM Challenge 2010 50
    • Questions? NASA PM Challenge 2010 51