Measuring Employee Performance the Earned Value Way Developed by Jim Greer Boise State University Fall 2003 Dr Tom Foster, Instructor
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
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.
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
Schedule Variance: SV = BCWP - BCWS
Schedule Performance Index: SPI = BCWP / BCWS
Cost Variance: CV = BCWP - ACWP
Cost Performance Index: CPI = BCWP / ACWP
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….
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.
Use EV to measure project performance at week 3
Use traditional methods to measure performance
Compare the results using both approaches
Determine Project Status at Week 3 using traditional methods:
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