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Earned Value

Earned Value

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Earned Value Earned Value Presentation Transcript

  • Measuring Employee Performance the Earned Value Way Developed by Jim Greer Boise State University Fall 2003 Dr Tom Foster, Instructor
  • Overview
    • Link to Quality and Corporate Growth Objectives
    • Key Definitions and Importance of Earned Value
    • Discussion of Concepts
    • How Does Earned Value Work?
    • A Real World Example, and then another….
    • Application of Earned Value
    • Training Development with an Exercise
    • Limitations
    • Summary
    • Readings
  • The Link….to Growth and Quality
    • Earned Value is a performance measurement tool. The knowledge from this measure increases a firm’s ability to boost performance. The bottom line is that performance improvements drive productivity.
  • Key Definitions
    • Performance is a dimension of quality that refers to the efficiency in which a product performs its intended purpose
    • Productivity indicates the output per man-hour of labor
  • Productivity drives our Economy
    • “ Worker productivity accelerated last year at the fastest rate in more than a half century. This high productivity means our workers receive higher wages, our nations exports get a competitive boost in world markets and our economic recovery gains momentum at a crucial time”
    • --President Bush, Labor Day 2003 Weekly Radio Address
  • Productivity Impact at the Firm Level
    • Productivity is producing more goods and services with the same resource inputs
    • Higher productivity lowers the cost of production. Lower costs increase competitiveness and build profits, and allow cost savings to pass on to consumers
    • To succeed, firms must continue to adopt practices that increase productivity. Earned Value is one such powerful tool.
  • Earned Value from a Nuts and Bolts Perspective
    • EV compares and measures…
      • … the amount of work actually completed and resources actually consumed at a certain point in a project
      • … with the amount of work planned (budgeted) to be completed and resources planned to be consumed at that same point in the project
  • More nuts and bolts….
    • EV is a performance and productivity metric for projects
    • To refresh one’s knowledge, a project consists of a scope of work directed towards a specific goal. All projects are managed with a budget and schedule. In fact, budget and schedule are the two key quality measures in any project. The third is the actual quality of the work performed.
    • The schedule is a collection of work broken down into short, specific, and interrelated tasks. The budget represents the cost of the resources allocated to the project.
  • Even more nuts and bolts…..
    • The bottom line is that EV is a powerful tool for measuring the Actual performance of a project against its Planned performance.
    • …… .It’s that simple, really! So let’s dive into the concept……..
  • How does it work? Earned Value Concepts
    • Earned Value consists of three key concepts >>
    • Budgeted Cost of Work Scheduled (BCWS) is the cost of the work scheduled or planned to be completed in a certain time period per the plan
    • Budgeted Cost of Work Performed (BCWP) is the budgeted cost of the work done up to a defined point in the project
    • Actual Cost of Work Performed (ACWP) is the actual cost of work up to a defined point in the project
  • Earned Value Math
    • Variance Metrics
    • Schedule Variance: SV = BCWP - BCWS
    • Schedule Performance Index: SPI = BCWP / BCWS
    • Cost Variance: CV = BCWP - ACWP
    • Cost Performance Index: CPI = BCWP / ACWP
    • Criteria
    • SV, CV = 0 Project On Budget and Schedule
    • SV, CV < 0 Over Budget and Behind Schedule
    • SV, CB > 0 Under Budget and Ahead of Schedule
    • CPI, SPI = 1 Project On Budget and Schedule
    • CPI, SPI < 1 Over Budget and Behind Schedule
    • CPI, SPI > 1 Under Budget and Ahead of Schedule
  • Let’s work a real example….
    • Project Statement:
    • A supplier is contracted to install ten new testers at a semiconductor manufacturing plant. The project must be completed within 6 weeks duration. 600 manhours is the estimated labor resource commitment, at a $10 per hour fully loaded time and materials cost.
    • Goal Statement:
    • Use EV to measure project performance at week 3
    • Use traditional methods to measure performance
    • Compare the results using both approaches
  • Example Continued…
    • Determine Project Status at Week 3 using traditional methods:
    • Given Information:
      • At Week 3, 4 testers have been installed
      • 400 manhours have been consumed
    • 3/6 weeks = 50% complete
    • 4/10 testers installed = 40% complete
    • 400/600 manhours “cost” budgeted = 67% complete
    • What is the project status at week 3? Is the project ahead or behind schedule and is it under budget or over budget? It is very difficult to tell
  • Example Continued…EV is introduced
    • Determine BCWP, BCWS, and ACWP:
    • BCWP = (600 mh*$10/hr )* (4 testers / 10 testers) = $2400
    • BCWS = (600 mh*$10/hr)*(3 weeks / 6 weeks) = $3000
    • ACWP = 400mh*$10/hr =$4000
    • With this information, we can determine the metrics:
    • SV = BCWP – BCWS = $2400 – $3000 = - $600
    • CV = BCWP – ACWP = $2400 – $4000 = -$1600
    • SPI = BCWP / BCWS = 2400/3000 = .8 Criteria: .8<1
    • CPI = BCWP / ACWP = 2400/4000 = .6 Criteria: .6<1
    • Our project is behind schedule and over budget!
  • Let’s try one more example…
    • Project Statement:
    • One employee is tasked with developing six new procedures for a sales group. The project must be completed within 4 weeks duration. 200 manhours is the estimated labor resource commitment.
    • Goal Statement:
    • Use EV to measure employee performance week 2
    • Use traditional methods to measure performance
    • Compare the results using both approaches
  • Second Example Continued…
    • Determine Project Status at Week 2 using traditional methods:
    • Given Information:
      • At Week 2, 5 procedures have been written
      • 100 manhours have been consumed
      • Assume a $1/hour rate. This will wash from equation.
    • 2/4 weeks = 50% complete
    • 5/6 procedures have been written = 83% complete
    • 100/200 manhours “cost” budgeted = 50% complete
    • What is the project status at week 2? Is the project ahead or behind schedule and is it under budget or over budget? It is still very difficult to tell
  • Example using EV…
    • Determine BCWP, BCWS, and ACWP:
    • BCWP = (200 mh)* (5 procedures / 6 procedures) = 167 mh
    • BCWS = (200 mh)*(2 weeks / 4 weeks) = 100 mh
    • ACWP = 100 mh
    • With this information, we can determine the metrics:
    • SV = BCWP – BCWS = 167 mh – 100 mh = 67 mh
    • CV = BCWP – ACWP = 167 mh – 100 mh = 67 mh
    • SPI = BCWP / BCWS = 167/100 = 1.67 Criteria: 1.67>1
    • CPI = BCWP / ACWP = 167/100 = 1.67 Criteria: 1.67>1
    • Our project is ahead of schedule and under budget!
  • How is EV applied???
    • Powerful performance and productivity metric for a project team using project schedule and budget
    • Measures performance of an employee
    • Provide an integrated approach versus traditional methods for task and project evaluation
    • Useful for any type of project from small in-house office jobs to complex contracted projects. For projects with multiple tasks or activities, EV can be calculated for each task
  • It’s time for an exercise…
    • Project Statement:
    • One employee is tasked with developing three databases. The project must be completed within 10 weeks duration. 500 manhours is the estimated labor resource commitment.
    • Goal Statement:
    • Use EV to measure employee performance week 7
    • Use traditional methods to measure performance
    • Compare the results using both approaches
  • Walk through Exercise Process…
    • Establish “givens”
    • Determine project status using traditional method
    • Determine BCWP, BCWS, and ACWP
    • Calculate SV, CV, SPI, CPI
    • Apply Criteria
    • 6) Summarize project performance based on EV
  • Exercise Solution
    • Givens: At week 7, 350 manhours consumed and 2 databases completed
    • 7/10 weeks = 70%
    • 350 mh / 500 mh = 70%
    • 2/3 databases complete = 67%
      • Can you tell from this traditional method the project status???
      • Apply EV……..
  • Rest of Solution…..
    • BCWP = 500 mh * (2/3 databases) = 333 mh
    • BCWS = 500 mh * (7/10 weeks) = 350 mh
    • ACWP = 350 mh
    • SV = BCWP – BCWS = 333-350 mh = -17 mh
    • CV = BCWP – ACWP = 333 – 350 mh = -17 mh
    • SPI = 333/350 = .95
    • CPI = 333/350 = .95
    • Bottom Line
    • Project is slightly behind schedule and over budget
  • EV Limitations
    • The EV math assumes linearity. Linearity doesn’t exist in the real world but is a good approximation when tasks in a project are broken into simple elements.
    • EV standing alone is a powerful measure, but only a measure. The knowledge derived from EV must be understood and used to actually drive performance and productivity improvements.
  • Summary
    • Earned Value provides an integrated, holistic approach to measuring performance of employees and projects
    • Use of the approach creates a framework for evaluating project status based on project quality objectives
    • Adoption of EV and application of the results will improve performance and drive up productivity
  • Readings
    • President Bush Weekly Radio Address, Aug 2003
    • www.whitehouse.gov/news/releases/2003
    • US Labor Sec Chao, Remarks to Joint American Enterprise Institute – US Dept of Labor Conference on Productivity in 21 st Century, ASI, Oct 23, 2002
    • Dept of Labor Statistics Homepage,
    • www.bls.gov
    • “ Retailers Can Increase Productivity and Improve the Bottom Line with Labor Analytics”, John Andersen,
    • www.executivetechnology.com
  • More Readings
    • Managing Quality – An Integrative Approach, 2 nd Ed, 2004, S Thomas Foster
    • EconDash --
    • www.econdash.net/definitions/laborprod.asp
    • “ Earned Value – Why be right when it’s so much fun to Guess?”, Ozzie Lomax, PMP, PMI KC Chapter May 2000
    • “ Project can help you better understand Earned Value”, May 2003
    • www.zdnet.com.au/builder/manage/project/story
    • Use of Earned Value Management to Mitigate Software Development Risk, Paul E Young, 21 April 1997, George Mason Univ