Evms Presentation (July2006)Repro


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Evms Presentation (July2006)Repro

  1. 1. EARNED VALUE MANAGEMENT SYSTEMS GET SMART WITH EVMS Presented at Institute of Management Consultants, National Capital Region July 13, 2006 Jim Kendrick, CMC P2C2 Group, Inc. kendrick@p2c2group.com www.p2c2group.com 301-942-7985
  2. 2. Table of Contents GET SMART WITH EVMS PowerPoint Presentation 3 Where to Go for More Information 21 PowerPoint Appendix 22 OMB Exhibit 300 EVMS Table 27 EVMS in Civilian Agencies 29 EVMS Guide (excerpts) 31 Presenter: Jim Kendrick Certified Management Consultant P2C2 Group, Inc. Kendrick@p2c2group.com Credits: A Simple but Edible Example of EVMS Slide 14 • Courtesy of Glen B. Alleman, Niwot Ridge Consulting glen.alleman@niwotridge.com Software Demo and Contact Information Slide 32 • Ed Knox, C/S Solutions eknox@cssi.com The P2C2 Group works on the business side of federal programs and information technology. We provide expert support for IT capital programming, which integrates the planning, acquisition and management of capital assets into the budget decision-making and control process. Our consulting services assist agencies and leading contractors in improving asset management, mission results, and compliance with regulatory requirements. • Strategic Planning • Architecture & Information • IT Capital Planning and Investment • Security Control (CPIC) • Project Management • Business Cases - OMB 300s • Earned Value Management • CPIC Supporting Documents • Performance Measurement • Acquisition
  3. 3. Why EVMS Is Important EVMS is like the Project Manager’s headlights looking forward into the future. Where will the project be in six months, a year, and what can we do to get there on time and on budget? EVMS is NOT like the taillights looking backwards into the past pointing fingers at what went wrong or could have been. The headlight idea helps debunk some of the myths about Earned Value Management. - Matthew J. Morris www.p2c2group.com 3 EVMS Is … A Standardized approach to assessing value Predictive in estimating where your costs and schedules are headed Diagnostic in locating where the problems are Proactive by signaling the need for corrective action Strategic in identifying problems and opportunities across multiple projects www.p2c2group.com 4 GET SMART WITH EVMS 3
  4. 4. EVMS What It Is What It Measures www.p2c2group.com 5 EVMS is a Project and Investment Management Process Integrates: Measures project Scope performance Schedule Compares planned to Cost actual costs and Resources schedule Technical Milestones Estimates final project costs www.p2c2group.com 6 GET SMART WITH EVMS 4
  5. 5. EVMS Helps Answer Questions When will the project be completed? What is the final cost likely to be? Are we in budget? Is the schedule on track? What’s holding us up? SOX: The CEO wants to claim that the new software product under development is an asset worth $2.5 million in annual financial report. That’s what has been spent on the project, but what is the current value of work completed??? www.p2c2group.com 7 Limits of What EVMS Measures YES: Earned value is direct measurement of the quantity and timeliness of work accomplished. NO: The quality and technical content of work performed is controlled by other processes. www.p2c2group.com 8 GET SMART WITH EVMS 5
  6. 6. Official Definition of EVMS An Earned Value Management System (EVMS) is the overall methodology that organizations use to plan, manage, control, and analyze the cost and schedule performance of projects. It encompasses organizational policies, business processes, automation support, standards, and accountability for results. ANSI-EIA Standard 748 www.p2c2group.com 9 EVMS & Project Management www.p2c2group.com 10 GET SMART WITH EVMS 6
  7. 7. EVMS and Project Management © Project Management Institute, 2004, PMBOK www.p2c2group.com http://www.pmi.org 11 EVMS: An Adult Approach to Project Management Organization Cost Accumulation Work Breakdown Direct Costs Project Organization Indirect Costs Responsibility Assignments for Performance Measurement Control Accounts Indicators of work progress and schedule Work Authorization status Scheduling Relationship of planned cost and schedule Budget to actual Time-Phased Budget as Earned Value Performance Measurement Baseline Actual Cost Management Reserve for in-scope Variance Analysis Risks Using and Acting on EVMS Calculations Distributed and Undistributed Budget Planning Packages for Far-Term Replanning (must be authorized) Activities Improvements to EVMS Tracking Internal Monitoring and Control www.p2c2group.com 12 GET SMART WITH EVMS 7
  8. 8. Hands On: The Cookie Project A Taste of EVMS www.p2c2group.com 13 A Simple but Edible Example EVMS © by Glen B. Alleman, www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 14 GET SMART WITH EVMS 8
  9. 9. EVMS of Our Cookie Baking Process Our “Plan” Analysis 40 cookies per batch After one (1) hour we’ve 5 batches per hour (200 produced 150 edible cookies per hour) cookies Schedule: 5 hours to Others were burnt, some make 1,000 cookies hit the floor, the kids ate Budget cost per cookie: some, the dogs begged $0.05 for others Total Budget = $50.00 Actual cost of ingredients after one hour (ACWP) + $9.00 © by Glen B. Alleman, www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 15 After One Hour of Making Cookies Simple EVMS BCWS = $10.00 BCWP = 150 cookies x $0.05/Cookie = $7.50 ACWP = $9.00 Cost and Schedule Variance SV = BCWP – BCWS = -$2.50 (we’re behind schedule) CV – BCWP – ACWP = $7.50 - $9.00 = -$1.50 (we’re over budget) SPI = BCWP / BCWS = 0.75 (we’re running at 75% of planned schedule) CPI = BCWP / ACWP = 0.833 (we’re running about 17% over budget) © by Glen B. Alleman, www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 16 GET SMART WITH EVMS 9
  10. 10. Forecasting the Cookie Schedule and Budget Independent Estimate at Completion (IEAC) = BAC / CPI = $50.00 / 0.833 = $60.00 VAC = BAC – IEAC = $50.00 - $60.00 = -$10.00 ($10 over) ISAC = 5 hours / SPI = 5 / 0.75 = 6.67 hours It will take 6-2/3 hours and $60.00 to make 1,000 edible cookies if the productivity of this project doesn’t improve. © by Glen B. Alleman, www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 17 Can We Catch Up? TCPI = “To Complete” Performance Index TCPI = (Budget – BCWP) / EAC – ACWP EAC = the amount we estimate we will spend at the end The numerator (Budget – BCWP) is how much work is left The denominator (EAC – ACWP) is how much we have left to spend If EAC = IEAC, then TCPI = CPI “If we don’t change our performance, IEAC is the correct estimate of the final cost.” © by Glen B. Alleman, www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 18 GET SMART WITH EVMS 10
  11. 11. Our “Catch Up” Plan We want to finish this little baking exercise with a $50.00 budget TCPI = (Budget – BCWP) / EAC – ACWP TCPI = (50.00 – 7.50) / 50.00 – 9.00) = 42.50 / 41.00 = 1.036 We must perform at 103.6% of the originally planned performance in order to maintain the budget goal. © by Glen B. Alleman, www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 19 A Simple EVMS Chart © by Glen B. Alleman, www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 20 GET SMART WITH EVMS 11
  12. 12. Putting this Simple Concept into Practice EVMS can be deployed in many ways. A straight forward way is to “micro-schedule” the work activities. © by Glen B. Alleman, www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 21 Micro-Schedule Micro-scheduling does NOT mean micro-managing It means planning at a sufficient level of detail to identify useful tasks that can be measured in days (3 to 5) or at most a week. Micro-schedule consists of: Objective completion criteria – so we know when we are done “Budgets” and “Values” = usually representing person days and some measurable value to the customer in terms of dollars Planned Completion Dates – so we know when to expect these tasks to be done. © by Glen B. Alleman, www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 22 GET SMART WITH EVMS 12
  13. 13. The Basic Recipe for EVMS www.p2c2group.com 23 The Standard: ANSI/EIA 748 The standard is copyrighted and may be ordered for about $60 from: GLOBAL ENGINEERING DOCUMENTS 15 Inverness Way E. Englewood, CO 80112 (303)397-7956 (800)854-7179 Related information but not the entire standard is available at the website of the Office of the Secretary of Defense: www.acq.osd.mil/pm www.p2c2group.com 24 GET SMART WITH EVMS 13
  14. 14. The 32 Criteria of the Standard Category Example Criterion 2.1 Organization Define the authorized work elements for the program … 2.2 Planning, Scheduling, and Schedule the authorized work in a manner which describes the sequence of work and identifies Budgeting task interdependencies … 2.3 Accounting Considerations Record direct costs in a manner consistent with budgets in a formal system controlled by the general books account 2.4 Analysis and Management At least on a monthly basis, generate the following information on the control account and Reports other levels … (cost and schedule comparisons) 2.5 Revisions and Data Incorporate authorized changes in a timely manner, reflecting the effects of such changes in Maintenance budgets and schedules … www.p2c2group.com 25 What You Need to Do EVMS TO START: TO CONTINUE: A project Effective project management A project manager in charge Accurate project status data A defined scope of work Detailed tracking of A Work Breakdown Structure milestones, resource use (WBS) with clearly assigned including money and people, work packages and schedule Accurate cost estimates Prompt and accurate financial broken down by WBS information A Schedule tied to the WBS Status reviews at least monthly Integration with policies and Corrective action financial information Ongoing project control www.p2c2group.com 26 GET SMART WITH EVMS 14
  15. 15. The EVMS Process Lessons Learned Analyze Policy Improvement – Process Improvement Performance Review – Control Corrective Action Manage Manage Work, Schedule, Cost Plan Project Plan WBS – Schedule - Cost www.p2c2group.com 27 The EVMS Measurement Norm is 1.0 Costs Schedule Less than 1.0 is more Less than 1.0 means expensive than behind schedule, less planned efficient performance Greater than 1.0 is Greater than 1.0 is more cost efficient better than planned than planned 1.0 = 100% = as planned www.p2c2group.com 28 GET SMART WITH EVMS 15
  16. 16. EVMS Formulas CV Cost Variance (BCWP-ACWP) CV% Percent Cost Variance (CVBCWP) x 100% CPI Cost Performance Index (CPI) (BCWP/ACWP) SV Schedule Variance (BCWP-BCWS) SV% Percent Schedule Variance (SVBCWS) x 100% SPI Schedule Performance Index (SPI) (CPI) _ (BCWP/BCWS) EAC1 Estimate at Completion1 (EAC1) = ACWPcum +(Performance Factor (PF1) X (BAC-BCWP). PF1 is (1/CPI). EAC2 Estimate at Completion2 (EAC2) = ACWPcum +(Performance Factor (PF2) X (BAC-BCWP) VAC1 Variance at Completion1 (VAC1) (BAC minus EAC1) VAC2 Variance at Completion2 (VAC2) (BAC minus EAC2) VAC1% Percent Variance at Completion 1 (VACBAC x 100%) VAC2% Percent Variance at Completion 2 (VACBAC x 100%) ETC Estimated Cost to Complete (ETC) - Example Uses EAC1: (EAC1-BCWP) www.p2c2group.com 29 The Power of EVMS EVMS Transforms Your Basic Project Data into Powerful Measures of Performance www.p2c2group.com 30 GET SMART WITH EVMS 16
  17. 17. EVMS Graphs Cost EAC Cost Overrun (Forecast) BAC (Total Budget) ETC Actual Costs Planned Value Spending (ACWP) (BCWS) Variance Cost Schedule Variance Schedule Variance (CPI) Slippage (SPI) Earned Value (BCWP) Start Now Done www.p2c2group.com 31 Software for automating the EVMS process EVMS Tools Software Purchasing Accounting System Project Time Management Software Organizations use many different combinations of applications software to integrate EVMS with overall business systems www.p2c2group.com 32 GET SMART WITH EVMS 17
  18. 18. EVMS Software Large projects and enterprise-wide EVMS require software support Summary EVMS functions in products like MS Project and eCPIC cannot fully implement EVMS Several leading software companies provide excellent solutions A critical issue is how well the EVMS software integrates with other enterprise systems www.p2c2group.com 33 Demo by C/S Solutions A demo is worth a thousand words Ed Knox Sales Manager, Federal Sector C/S Solutions, Inc. http://www.cs-solutions.com/ P.O. Box 231420 Centreville, VA 20120 eknox@cssi.com (703) 266-7980 (Office) (571) 334-4214 (Cell) C/S Solutions is a leading software company supporting project management with earned value analysis, schedule risk software, and implementation services. www.p2c2group.com 34 GET SMART WITH EVMS 18
  19. 19. Putting EVMS to Use www.p2c2group.com 35 EVMS can boost consulting profits Scope WBS, IBR Detailed Budgeting & Planning Cost, Profits Optimized Monthly or Weekly Schedule Financial Results Progress Reports Status Corrective Action Change methods? Change staffing? Rebaseline? www.p2c2group.com Ask for more money? 36 GET SMART WITH EVMS 19
  20. 20. Walk on Water for Clients Help Clients to: Success Tips for Consultants: Engage in Change Learn more about EVMS Management Necessary for Use best practices for project EVMS management Use EVMS analysis to pinpoint Partner with EVMS experts problems Integrate EVMS with other Improve organizational critical capabilities necessary effectiveness for client organization Align financial systems and effectiveness: project/investment Planning and budgeting accountability Investment decisions Reduce cost and schedule Quality overruns Human Resources Implement corrective actions Financial management to address problems Strategic Outcomes www.p2c2group.com 37 EVMS: One of the Tools in the P2C2 Consulting Practice Department of Labor: Department of Homeland Security: Planning Department-Wide Integrate EVMS Into Major New Initiative Implementation Project Plan Requirements Work Breakdown Structure Status Review Phasing, Schedule, Milestones Gap Analysis Independent Government Cost Alternatives / CBA Estimate Implementation Plan Acquisition Plan Acquisition User Guide Department of Agriculture Change Management Apply EVMS to Exhibit 300s Pilot Implementation Funding Table Policy Support EVMS Status Interface with Core Financials Cost Analysis for Supporting Assessment and Recommendations Documents www.p2c2group.com 38 GET SMART WITH EVMS 20
  21. 21. Where to Go for More Information OMB’s Refers to the Office of the Project and Program Management Secretary of Defense EVMS Site: Solutions, International http://www.acq.osd.mil/pm/ http://www.ppmsintl.com/ HHS OCIO IT Earned Value Management Humphreys & Associates, Inc. Processes and Procedures: http://www.humphreys-assoc.com/ http://irm.cit.nih.gov/policy/HHS-EVM- Procedures.doc Niwot Ridge Consulting http://www.niwotridge.com/ EVM Bibliography – David Christensen, Ph.D. http://www.suu.edu/faculty/christensend/ev Project Management Institute -bib.html http://www.pmi.org/ http://www.p2c2group.com www.p2c2group.com 39 Scheduling Is Important © The New Yorker, April 24, 2006 www.p2c2group.com 40 GET SMART WITH EVMS 21
  22. 22. APPENDIX More Information www.p2c2group.com 41 EVMS Requirements for Federal Projects: Legislation Government Performance and Results Act of 1993 – Mandates the use of performance metrics. Federal Acquisition Streamlining Act of 1994 – Requires agency heads to achieve, on average, 90% of the cost and schedule goals established for major and non-major acquisition programs of the agency without reducing the performance or capabilities of the items being acquired. Clinger-Cohen Act of 1996 – Requires establishment of the processes for executive agencies to analyze, track, and evaluate the risks and results of major investments in IT and requires reporting on the net program performance benefits achieved by agencies. www.p2c2group.com 42 GET SMART WITH EVMS 22
  23. 23. EVMS and Sarbanes-Oxley Act Corporate financial statements must estimate accrued cost and investment value Will schedule delays impact revenue? What if EAC deviates from planned costs? EVMS can help provide more accurate information needed for corporate financial statements. www.p2c2group.com 43 EVMS Requirements for Federal Projects: Policy OMB Circular A-11 (Part 7, Planning, Budgeting, Acquisition & Management of Capital Asset) – Outlines a systematic process for program management, which includes integration of program scope, schedule, and cost objective; requires use of earned value techniques for performance measurement during execution of the program; specifically identifies ANSI/EIA Standard 748. OMB Memorandum M-04-24, “Expanded Electronic Government (E-Gov) President’s Management Agenda (PMA) Scorecard Cost, Schedule and Performance Standards for Success.” OMB Memorandum M-05-23, “Improving Information Technology (IT) Project Planning and Execution.” www.p2c2group.com 44 GET SMART WITH EVMS 23
  24. 24. EVMS principles: ANSI/EIA 748 Plan all work scope for the program to completion. Break down the program work scope into finite pieces that can be assigned to a responsible person or organization for control of technical, schedule and cost objectives. Integrate program work scope, schedule, and cost objectives into a performance measurement baseline plan against which accomplishments may be measured. Control changes to the baseline. Use actual costs incurred and recorded in accomplishing the work performed. Objectively assess accomplishments at the work performance level. Analyze significant variances from the plan, forecast impacts, and prepare an estimate at completion based on performance to date and work to be performed. Use EVMS information in the company’s management processes. www.p2c2group.com 45 Key Concepts STATEMENT OF WORK. The SOW communicates the work scope requirements for a program, and should define the requirements to the fullest extent practicable. It is a basic element of control used in the processes of work assignment and establishment of program schedules and budgets. If the work scope can only be defined in general terms, it will be necessary to maintain added flexibility in program plans and controls to allow for future developments. www.p2c2group.com 46 GET SMART WITH EVMS 24
  25. 25. Key Concepts CONTROL ACCOUNT - A management control point at which budgets (resource plans) and actual costs are accumulated and compared to earned value for management control purposes. A control account is a natural management point for planning and control since it represents the work assigned to one responsible organizational element on one program work breakdown structure element. WORK PACKAGE - A task or set of tasks performed within a control account. www.p2c2group.com 47 Key Concepts MILESTONE - A schedule event marking the due date for accomplishment of a specified effort (work scope) or objective. A milestone may mark the start, an interim step, or the end of one or more activities. PERFORMANCE MEASUREMENT BASELINE - The total time-phased budget plan against which program performance is measured. It is the schedule for expenditure of the resources allocated to accomplish program scope and schedule objectives … www.p2c2group.com 48 GET SMART WITH EVMS 25
  26. 26. Interpreting EVMS numbers: A positive variance indicates that the project is ahead of schedule or under budget. Positive variances might enable you to reallocate money and resources from tasks or projects with positive variances to tasks or projects with negative variances. A negative variance indicates that the project is behind schedule or over budget and you need to take action. If a task or project has a negative CV, you might have to increase your budget or accept reduced profit margins. Ratios, such as the cost performance index (CPI) and the schedule performance index (SPI), can be greater than 1 or less than 1: A value that's greater than 1 indicates that the project is ahead of schedule or under budget. A value that's less than 1 indicates that you're behind schedule or over budget. For example, an SPI of 1.5 means that you've taken only 67 percent of the planned time to complete a portion of a task in a given time period, and a CPI of 0.8 means that you've spent 25 percent more time on a task than was planned. http://www.microsoft.com/office/showcase/earnedvalue/default.mspx This slide © 2006 www.p2c2group.com Microsoft Corporation 49 Interpreting EVMS Charts Planned Costs and Schedule 1. The vertical y-axis shows the projected cumulative cost for a project. 2. The horizontal x-axis shows time. 3. The planned budget for this project shows a steady expenditure over the lifetime of the project. This line represents the cumulative baseline cost. Actual Costs and Schedule 1. The status date determines the values Project calculates. 2. The actual cost (ACWP) of this project has exceeded the budgeted cost. 3. The earned value (BCWP) reflects the true value of the work performed. In this case, the value of the work performed is less than the amount spent to perform that work. http://www.microsoft.com/office/showcase/earnedvalue/default.mspx This slide © 2006 www.p2c2group.com Microsoft Corporation 50 GET SMART WITH EVMS 26
  27. 27. OMB Exhibit 300 EVMS Table GET SMART WITH EVMS 27
  28. 28. GET SMART WITH EVMS 28
  29. 29. FEDERAL SECTOR REPORT June 2004 EVMS IN CIVILIAN AGENCIES Earned Value Management Systems (EVMS) are galloping into the federal civilian arena, promising to change the way agencies and their contractors conduct business. The change is occurring because the Office of Management and Budget (OMB) has mandated that agencies must comply with an EVMS standard in order to receive funding for the development, modernization, or enhancement (DME) of major information technology investments. EVMS is popping up on agency management reviews. And, if OMB has its way, there will be a requirement in the Federal Acquisition Regulation (FAR) requiring an EVMS clause in certain contracts. EVMS is a structured procedure for project and investment management. It integrates the investment's scope of work with schedule and cost elements for better investment planning and control. The qualities and operating characteristics of earned value management systems are described in American National Standards Institute (ANSI)/Electronic Industries Alliance (EIA) Standard -748. Earned Value is also becoming an area of practice recognized by the Project Management Institute, a certifying body for project managers. EVMS has been used for years and years at the Department of Defense, but the emphasis that OMB is placing on the ANSI/EIA standard ensures that it will be widely applied at civilian agencies as well. Defense uses it largely to track and evaluate contractor performance, take corrective action to avoid or mitigate cost overruns, and follow through on performance management of its planning and budgeting system. It fits in very well with the emphasis on Performance Based Service Acquisition (FAR 37.6) and annual performance plans. There are software tools for tracking EVMS--with names such as C/S wInsight, Welcom Cobra, and Dekker Trakker. Primavera has a powerful EVMS component, and Microsoft has been busy adding EVM functions to MS Project. However, EVMS is primarily a business process and project management method, not a "software thing." As business process, EVMS is a methodology for: • Planning all work for the program to completion. • Breaking down the program work scope into finite pieces that can be assigned to a responsible person or organization for control of technical, schedule and cost objectives. • Integrating program work scope, schedule, and cost objectives into a performance measurement baseline plan against which accomplishments may be measured (including the control of changes to the baseline). • Using actual costs incurred and recorded in performing the work. • Objectively assessing accomplishments at the work performance level. • Analyzing significant variances from the plan, forecast impacts, and preparing an estimate at completion based on performance to date and work to be performed. • Applying EVMS information in the agency management processes. The ANSI/EIS standard is based on 32 criteria, which are accessible at http://www.acq.osd.mil/pm/faqs/criteria.htm. Additional links: GET SMART WITH EVMS 29
  30. 30. • A helpful listing of articles about EVMS is at Niwot Ridge Resources, http://www.niwotridge.com/Resources/DomainLinks/EarnedValue.htm. • David Christensen maintains a huge EVMS bibliography at http://www.suu.edu/faculty/christensend/ev-bib.html • The EVMS website referenced by OMB is http://www.acq.osd.mil/pm/. WHAT CAN YOU DO WITH EVMS? Now that you're required to embrace EVMS, what can you do with it? For a fairly simple-minded management tool (costs, schedule, work performed), you can actually do quite a bit with it: It's "project management for adults," as one person put it. It builds on project management software, like MS Project and Primavera, to give you a very good idea of how you're doing in terms of schedule and cost … and whether you will complete the project over or under budget. Agency leaders, even non-quantitative types, get the idea very quickly. EVMS results can be summarized visually with bulls-eye charts and trend analyses. Projects that are over budget, behind schedule, or crash diving into oblivion will be identifiable immediately. For government project managers, EVMS can quickly identify which work packages in the Work Breakdown Structure are causing problems. It is also a tool for monitoring contractor performance, and EVMS gives the government mid-level manager some leverage: Shape up, contractor, or top management will know you're a turkey because of the EVMS results. On the other hand, well-managed contracts look really good, and this can be a competitive edge for winning new business. What's more, financial executives in contracting firms love it: The project is tracked by the value of work completed, and you have a pretty good idea of whether the contract is profitable or headed for doom. For the increasingly popular firm-fixed price contracts, the EVMS tool is crucial. Of course, good management doesn't happen through artificial intelligence. It takes qualified managers-- on both the government and contractor sides--to use EVMS well. This means a carefully planned work scope, Work Breakdown Structure, milestones, realistic metrics, and a realistic cost baseline. Accurate data about the schedule, work performed, and costs are needed on at least a monthly basis. What's more, the bottom line is to use the EVMS results regularly to monitor results and take corrective action. EVMS tools require smart and experienced managers who are proactive. For Exhibit 300s, Circular A-11 requires agencies to use EVMS for DME investments. So obviously, Section I.H. Funding Plan requires considerable detail. But EVMS should also tie to the Acquisition Plan, since major contractors are required to have/use an ANSI/EIA-748 compliant EVMS system. EVMS also is a tool for mitigating Project Risks, and generally the project risk cost should be monitored in EVMS. LINK OF THE MONTH: OMB UPDATES Go to http://www.feapmo.gov for updates to the Federal Enterprise Architecture. Jim Kendrick Certified Management Consultant P2C2 Group, Inc. 4101 Denfeld Avenue Kensington, MD 20895 kendrick@p2c2group.com 301-942-7985 GET SMART WITH EVMS 30
  31. 31. P2C2 Group, Inc. Federal Applications of EVMS Earned Value Measurement Methodology Earned Value Management What Is Earned Value Management? Federal Agencies are implementing an Earned Value Management Methodology. It will be applicable to the Earned Value Management (EVM) is "Select" and "Control" phases of large information an approach to project and investment technology (IT) investments. It will also be applicable to management that integrates the projects in a mixed lifecycle where large investments are investment's scope of work with made to upgrade or extend systems or applications in the schedule and cost elements for operations and maintenance phase. optimum investment planning and control. OMB Guidance for IT Capital Investment According to Office of Management and Budget (OMB) Why Is an Earned Value System Circular A-11, "you should use earned value management Important? (EVM) and an EVM system that meets ANSI/EIA Standard 748-A, to plan and control both government and contractor EVM puts schedule variances in the cost and schedule for any development work whether spotlight—something that generally conducted during the planning phase (like building and cannot be seen in traditional financial testing prototypes) or in the full acquisition phase (like reporting, which is usually limited to designing, developing, producing, implementing or planned and actual costs. With EVM, integrating assets). Comprehensive planning, performance it is possible to compare the value of baseline maintenance and earned value analysis provides work actually performed to the work early insight into performance trends and variances from that had been scheduled. initial plans, allowing decision makers enough time to take corrective action." In addition, OMB suggests that agencies To illustrate, perhaps an annual "require contractors to use earned value management to budget of $20,000 has been planned plan, manage and report contract performance, especially to train 100 system users. Over the for technically complex and high risk development or year, the actual cost is $18,000 but integration efforts." only 50 users have been trained. Cost reporting alone would make it appear Goals for the EVM initiative are to: that the training expenditure is under • Achieve compliance with OMB requirements and the budget, but in fact the training activity ANSI/EIA standard is behind schedule and ultimately may cost much more than the $20,000 • Provide the CIO and Agencies with a structured originally planned. method for reviewing IT cost and schedule performance • Implement automation support for IT project Work managers that is practical and usable • Integrate EVM into a comprehensive IT management strategy that fits well with project management best practices, the capital planning and investment Cost Schedule control, acquisition planning, and system development and lifecycle management. • Implement a cost-effective solution for launching and maintaining an ongoing EVM system. EVM GET SMART WITH EVMS 31
  32. 32. P2C2 Group, Inc. INTRODUCTION TO EVM You Already Use the Data Elements for Tracking Earned Value Costs Earned value measurement depends on data elements that are already developed or monitored by project Schedule managers: • The foundation is the work scope, which drives the overall requirement. • The Work Breakdown Structure (WBS) WBS with Milestones organizes the overall work into manageable activities with milestones. • The schedule orders the activities and milestones in the WBS into a logical sequence. Overall Work Scope EVMS compares planned and actual schedules. • Costs are identified for activities, both in terms of budgeted costs and actual costs. Data Needed for EVM EVMS Transforms Your Basic Project Data into Powerful Measures of Performance Variance Analysis By Work Breakdown Structure Description SV CV VAC SV CV ACV SPI CPI TCPI 1.0 Upgrade Application ↓ ↔ ↑ -$875 -$28 -$1,360 0.67 0.98 0.84 1.1 Data Conversion ↔ ↔ ↔ -$1 1.00 0.99 1.00 1.2 Web Hosting Environment ↓ ↔ ↑ -$875 -$24 -$1,356 0.64 0.98 0.78 1.3 Network Switch ↔ ↔ ↔ 1.00 1.00 1.00 1.4 COTS Upgrade ↔ ↔ ↔ 1.00 1.00 1.00 1.5 Integration Services ↔ ↔ ↔ -$1 1.00 0.95 1.00 1.6 Testing ↔ ↔ ↔ -$2 1.00 0.98 1.00 Values in K Dollars EVM reports provide a clearer idea of what is happening within the WBS for each project by tracking: Schedule Variance (SV), Cost Variance (CV), estimated Variance at Completion (VAC), At Completion Variance (ACV), Schedule Performance Index (SPI), Cost Performance Index (CPI), To Complete Performance Index (TCPI), and other measures. GET SMART WITH EVMS 32
  33. 33. P2C2 Group, Inc. Steps for Implementing EVM at the Project Level Organize the project team and the scope of work, using a work breakdown structure. Each task should have a single WBS number with a single organizational unit responsible for it. Schedule the tasks in a logical manner so that lower level schedule elements support other elements and the top level milestones. Use of robust project management software, such as MS Project or Primavera, is recommended. Allocate the total budget resources to time-phased segments. Where useful for management, the data may be broken down by Federal and contractor costs. Establish objective means for measuring work accomplishment. Budget should be earned in the same way that it was planned. Control the project by analyzing cost and performance variances, assessing final costs, developing corrective actions, and controlling changes to the integrated baseline. Measurement of work accomplishment for EVM depends on the nature of your project. Here are some examples: Instructor hours of training delivered Student hours of training received Number of students who achieve certification (or pass tests) based on training Number of mail servers replaced Number of mail server accounts upgraded Development of software module Completion of beta testing of software module with 100 trial users Acceptance of system documentation for software module Acceptance testing of software module Certification and Accreditation of Software module 1,000 hours of hotline support provided 99% of hotline questions answered in 24 hours or less 1,000 client desktops upgraded to XYZ GET SMART WITH EVMS 33
  34. 34. P2C2 Group, Inc. EVMS Terminology AWCP: Actual Cost of Work Performed. Shows actual costs incurred for work already performed by a resource on a task, up to the project status date or today's date. Shows actual costs incurred for work already performed by a resource on a task, up to the project status date or today's date. BAC: Budget at Completion. An estimate of the total project cost. BCWP: Budgeted Cost of Work Performed. Shows how much money the work actually performed should have cost, according to the project baseline. BWCS: Budgeted Cost of Work Scheduled. Indicates how much of the budget should have been spent in view of the baseline schedule and cost. BCWS is calculated as the cumulative timephased baseline costs up to the status date or today's date. Control Accounts. A management control point at which budgets (resource plans) and actual costs are accumulated and compared to earned value for management control purposes. A control account is a natural management point for planning and control since it represents the work assigned to one responsible organizational element on one program work breakdown structure element. In control accounts, defined segments (packages of work that must be accomplished) have clearly defined budgets that can be compared to actual cost data from the financial system. In addition, the segments (work packages) must be defined in such a way that it is possible to measure or clearly estimate the extent to which they have been completed. Using control accounts requires the integration of data from budgets, cost accounting, project plans, and actual project performance. CV: Cost Variance. The difference between the budgeted cost of work performed [BCWP] on a task and the actual cost of work performed [ACWP]. If the CV is positive, the cost is currently under the budgeted amount; if the CV is negative, the task is currently over budget. CV%: Cost Variance (Ratio). The CV expressed as a percentage. ACV: At Completion Variance. SV: Schedule Variance. The difference between the budgeted cost of work performed [BCWP] and the budgeted cost of work scheduled [BCWS]. This is calculated as follows: SV = Budgeted Cost of Work Performed - Budgeted Cost of Work Scheduled. If the SV is positive, the project is ahead of schedule in cost terms; if the SV is negative, the project is behind schedule in cost terms. SV%: Schedule Variance (Ratio). The SV expressed as a percentage. VAC: Variance at Completion. The earned value field that shows the difference between the budget at completion [BAC] and the estimate at completion [EAC]. CPI: Cost Performance Index. Ratio of budgeted costs of work performed to actual costs of work performed [BCWP/ACWP]. The cumulative CPI [sum of the BCWP for all tasks divided by the sum of the ACWP for all tasks] can be used to predict whether a project will go over budget and by how much. Planning Package. A logical aggregation of work, usually future efforts that can be identified and budgeted, but which is not yet planned in detail at the work package or task level. GET SMART WITH EVMS 34
  35. 35. P2C2 Group, Inc. SPI: Schedule Performance Index. The ratio of the budgeted cost of work performed [BCWP] to the budgeted cost of work scheduled (BCWS), which is often used to estimate the project completion date. This is calculated as follows: SPI = BCWP/BCWS. EAC: Estimate at Completion. The expected total cost of a task or project, based on performance as of the status date. EAC is calculated as follows: EAC = ACWP + (BAC- BCWP)/CPI. EAC is also called forecast at completion. IEAC: Independent Estimate at Completion. TCPI: To Complete Performance Index. The ratio of the work remaining to be done to funds remaining to be spent, as of the status date: [BAC - BCWP]/[BAC - ACWP]. A TCPI value greater than 1 indicates good projected performance for remaining work; less than 1 indicates poor projected performance. Work Package. A task or set of tasks performed within a control account For More Information about EVMS: MS Project: www.microsoft.com/project wInsight: http://www.cs-solutions.com Federal Earned Value Website: http://www.acq.osd.mil/pm/ ANSI-EIA 32 Criteria: http://www.acq.osd.mil/pm/faqs/criteria.htm GET SMART WITH EVMS 35
  36. 36. Contract Price Earned Value Management ‘Gold Card’ NCC TAB Profit / Fees Defense Acquisition University CBB AUW OTB OVERRUN EAC TOCICO 2005 Conference PMB Management TAB Reserve Management Reserve BAC Undistributed Control Summary Level PMB Budget Accounts Planning Packages Schedule Variance Work Packages Planning Packages Cost TERMINOLOGY $ Variance NCC Negotiated Contract Cost Contract price less profit / fee(s) ACWP AUW Authorized Unpriced Work Work contractually approved, but not yet negotiated / definitized CBB Contract Budget Base Sum of NCC and AUW OTB Over Target Baseline Sum of CBB and recognized overrun BCWS TAB Total Allocated Budget Sum of all budgets for work on contract = NCC, CBB, or OTB BCWP BAC Budget At Completion Total budget for total contract thru any given level PMB Performance Measurement Baseline Contract time-phased budget plan MR Management Reserve Budget withheld by Ktr PM for unknowns / risk management time Time Completion UB Undistributed Budget Broadly defined activities not yet distributed to CAs Now Date CA Control Account Lowest CWBS element assigned to a single focal point to plan & control scope / schedule / budget WP Work Package Near-term, detail-planned activities within a CA PP VARIANCES Favorable is Positive, Unfavorable is Negative BCWS Planning Package Budgeted Cost for Work Scheduled Far-term CA activities not yet defined into WPs Value of work planned to be accomplished = PLANNED VALUE Cost Variance CV = BCWP – ACWP CV % = (CV / BCWP) *100 BCWP Budgeted Cost for Work Performed Value of work accomplished = EARNED VALUE Schedule Variance SV = BCWP – BCWS SV % = (SV / BCWS) * 100 ACWP Actual Cost of Work Performed Cost of work accomplished = ACTUAL COST EAC Estimate At Completion Estimate of total cost for total contract thru any given level; Variance at Completion VAC = BAC – EAC may be generated by Ktr, PMO, DCMA, etc. = EACKtr / PMO / DCMA LRE Latest Revised Estimate Ktr’s EAC or EACKtr PERFORMANCE INDICES Favorable is > 1.0, Unfavorable is < 1.0 SLPP Summary Level Planning Package Far-term activities not yet defined into CAs Cost Efficiency CPI = BCWP / ACWP TCPI To Complete Performance Index Efficiency needed from ‘time now’ to achieve an EAC Schedule Efficiency SPI = BCWP / BCWS EVM POLICY: DoDI 5000.2, Table E3.T2 . EVMS in accordance with ANSI/EIA-748 is required for cost or incentive OVERALL STATUS contracts, subcontracts, intra-government work agreements, & other agreements valued > $20M (Then-Yr $). EVMS contracts > $50M (TY $) require that the EVM system be formally validated by the cognizant contracting officer. Additional % Schedule = (BCWSCUM / BAC) * 100 Guidance in Defense Acquisition Guidebook and the Earned Value Management Implementation Guide (EVMIG 2005). % Complete = (BCWPCUM / BAC) * 100 EVMS is discouraged on Firm-Fixed Price, Level of Effort, & Time & Material efforts regardless of dollar value. % Spent = (ACWPCUM / BAC) * 100 EVM CONTRACTING REQUIREMENTS: ESTIMATE AT COMPLETION # DFAR Clauses - 252.242-7001 for solicitations and 252.242-7002 for contracts EAC = Actuals to Date + [(Remaining Work) / (Efficiency Factor)] Contract Performance Report – DI-MGMT-81466A * 5 Formats (WBS, Organization, Baseline, Staffing & Explanation) EACCPI = ACWPCUM + [(BAC – BCWPCUM) / CPICUM ] = BAC / CPICUM Integrated Master Schedule – DI-MGMT-81650 * Integrated Baseline Review (IBR) - Mandatory for all EVMS contracts > $20M EACComposite = ACWPCUM + [(BAC – BCWPCUM) / (CPICUM * SPICUM)] * See the EVMIG 2005 for CPR and IMS tailoring guidance. TO COMPLETE PERFORMANCE INDEX (TCPI) # TCPIEAC = Work Remaining / Cost Remaining = (BAC – BCWPCUM) / (EAC – ACWPCUM) EVM Home Page = https://acc.dau.mil/evm DAU POC: (703) 805-5259 (DSN 655) # eMail Address: EVM@dau.mil To Determine Either TCPI or EAC; You May Replace BAC with TAB Revised May 2005 8 GET SMART WITH EVMS © 2004 TOCICO. All rights reserved. 36