Earned value management


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Earned value management

  1. 1. An introduction toEarned Value Management Simplex project management Education|Training|Mentoring|Coaching|Consulting
  2. 2. Introduction • A short presentation to describe WHAT Earned Value is and HOW to calculate itwww.simplexpm.co.uk
  3. 3. ...some important definitions!Price – The price for work to be undertaken by a contractorValue – The amount of work carried out by the contractor in accordance with the contractCost – The amount of money it cost the contractor to do the workContract Value – The agreed price for carrying out the work between client and contractorBudget – The amount of money the client has set aside for the workCash-flow – The difference between payments received and expenses incurredwww.simplexpm.co.uk
  4. 4. The justification for Earned Value The issue with this graph • One sided view only – i.e. COST • Where are we in relation to schedule ? • Have we spent the money on the right work?www.simplexpm.co.uk
  5. 5. The justification for Earned Value (Cont’d) •Integrated cost & schedule info •Predictions about future performance •Better management of budgets •Better decision making abilitywww.simplexpm.co.uk
  6. 6. Earned Value - History• Basic form of EV traced back to 1800s, used on the factory floor• 1967 – EVM introduced by US federal government agencies as part of Cost / Schedule Control Systems Criteria (C/SCSC)• C/SCSC discarded by the end of 1996• PMI PMBoK simplified EVM terminology and formulaswww.simplexpm.co.uk
  7. 7. Earned Value – PMI definitionA technique to measure performance of a project as it moves fromproject initiation to project closure.It also provides a means to forecast future performance based onpast performance.(PMI PMBoK) www.simplexpm.co.uk
  8. 8. Earned Value – APM definition“ Earned value management is a project control processbased on a structured approach to planning, cost collectionand performance measurement”www.simplexpm.co.uk
  9. 9. Benefits of Earned value• Providing data to enable objective measurement of project status• Providing a basis for estimating final cost• Predicting when the project will be complete• Supporting the effective management of resources• Providing a means of managing and controlling change(APM EVM Guideline) www.simplexpm.co.uk
  10. 10. Earned Value Structure Scope of work Work Breakdown Structure Work PackagesOrganisationBreakdown Structure Planning Packages Control Accounts Source: Earned Value Management APM Guidelinewww.simplexpm.co.uk
  11. 11. Budget elements Contract Price Contract Budget Baseline Margin Performance Measurement Baseline Management Reserve Distributed Budget Undistributed Budget Control Account Budgets Work Planning Packages Packages Source: Earned Value Management APM Guidelinewww.simplexpm.co.uk
  12. 12. Getting the WBS right ! ! The further you go down the more administration required in terms of data gatheringwww.simplexpm.co.uk
  13. 13. Its about improving visibility Client (Agreed Costs) Contract Contractor (Contractor costs that cannot be recovered from the client)www.simplexpm.co.uk
  14. 14. Earned Value application to construction• Project type (large or complex)• Imposed by the Client!• Traditional way of delivering projects• Availability of skilled resources• Ability of organisations to embrace this technique• Attitude• Culture www.simplexpm.co.uk
  15. 15. Earned Value Standards & Guidancewww.simplexpm.co.uk
  16. 16. Earned Value Guidance DAU (Defense Acquisition University) PMI APM (Project (Association for Management Project Institute) Management) Earned Value Managementwww.simplexpm.co.uk
  17. 17. Earned Value terminologyAbbreviation Description New terminology AbbreviationBCWS Budgeted Cost for Work Scheduled Planned Value PVBCWP Budgeted Cost of Work Performed Earned Value EVACWP Actual Cost of Work Performed Actual Cost AC www.simplexpm.co.uk
  18. 18. www.simplexpm.co.uk
  19. 19. Measuring actual performancewww.simplexpm.co.uk
  20. 20. Measurement of work • Roof completion Milestones • Groundwork completion • Nr of drawings Deliverables • Nr of reports Ways of measuring work • 50/50 • 20/80 Split % • 0/100 • Etc % Completewww.simplexpm.co.uk
  21. 21. Earned Value – Worked Examplewww.simplexpm.co.uk
  22. 22. Worked Example – Base datawww.simplexpm.co.uk
  23. 23. Worked Example - Work Breakdown Structurewww.simplexpm.co.uk
  24. 24. Worked Example – Schedule & Costwww.simplexpm.co.uk
  25. 25. Worked Example – Performance in week 3www.simplexpm.co.uk
  26. 26. Worked Example – Earned Value Graphwww.simplexpm.co.uk
  27. 27. Earned ValueReportwww.simplexpm.co.uk
  28. 28. Earned Value Metricswww.simplexpm.co.uk
  29. 29. CPI (Cost Performance Index) & SPI (SchedulePerformance Index)www.simplexpm.co.uk
  30. 30. CPI / SPI Indexwww.simplexpm.co.uk
  31. 31. Cost Variancewww.simplexpm.co.uk
  32. 32. Schedule Variancewww.simplexpm.co.uk
  33. 33. EAC (Estimate At Completion)www.simplexpm.co.uk
  34. 34. VAC (Variance At Completion)www.simplexpm.co.uk
  35. 35. TCPI (To Complete Performance Index)www.simplexpm.co.uk
  36. 36. The EV graph & metricswww.simplexpm.co.uk
  37. 37. Earned Value Management - Summarywww.simplexpm.co.uk
  38. 38. Earned Value Management“it is a concept that integrates project scope, schedule andcost in terms of monetary value thus allowing performance tobe measured and understood”www.simplexpm.co.uk
  39. 39. The essential ingredients Scope (WBS) Schedule Costs Earned Valuewww.simplexpm.co.uk
  40. 40. How it fits all together!Changes to Reflected in Reflected in Taken into account whenintroduced Schedule Costs measuring performance here Project Scope Schedule Cost Profile Performance Measurement www.simplexpm.co.uk
  41. 41. The overall aim In theory, ACWP and BCWP should be as near enough to the BCWS as possiblewww.simplexpm.co.uk
  42. 42. Challenges with using Earned Value1. Client is not familiar with the method2. The project team is not familiar with the method3. Too many different organisations delivering the project4. Lack of common understanding of what needs to be done5. „Too many chiefs!‟6. Seen as cumbersome and an administration burden7. Requires training8. Takes too long before the benefits can be seen9. Used as a weapon by senior management!www.simplexpm.co.uk
  43. 43. ...some words of advice!• Understand the contract• Know your obligations• Take time to develop and create a structure• Keep it simple• Try to obtain data from the source• Don‟t aim for 100% accuracy that‟s NOT the objective www.simplexpm.co.uk
  44. 44. Useful WebsitesWeb Address Organisationwww.dau.mil/default.aspx Defense Acquisition Universitywww.acoste.org.uk Association of Cost Engineerswww.apm.org.uk Association for Project Managementwww.pmi.org Project Management Institutewww.aacei.org/ The Association for the Advancement of Cost Engineering www.simplexpm.co.uk
  45. 45. www.simplexpm.co.uk