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Earned Value Analysis - Basic Concepts

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In this presentation, Ricardo explains the concept of earned value and its elements, with graphic examples and exercises.

In this presentation, Ricardo explains the concept of earned value and its elements, with graphic examples and exercises.

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  • 1. Earned Value Analysis Basic Concepts Ricardo Viana Vargas, MSc, IPMA-B, PMP ricardo.vargas@macrosolutions.com.br © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 2. Ricardo Viana Vargas, MSc, IPMA-B, PMP Ricardo Viana Vargas is a project, portfolio and risk management specialist. During the past 15 years, he has been responsible for over 80 major projects in various countries in the areas of petroleum, energy, infrastructure, telecommunications, information technology and finances, comprising an investment portfolio of over 18 billion dollars. He was the first Latin American volunteer to be elected Chairman of the Board for the Project Management Institute (PMI), the largest project management organization in the world with close to 500,000 members and certified professionals in 175 countries. Ricardo Vargas has written ten books on project management, published in Portuguese and English, which have sold over 200,000 copies throughout the world. In 2005 he received the PMI Distinguished Award for his contribution to the development of project management and the PMI Professional Development Product of the Year award for the PMDome® workshop, considered the best project management training solution in the world. He is a project management professor for various MBA courses, and actively participates on editorial boards for specialized journals in Brazil and the United States. Vargas is a recognized reviewer of the PMBOK Guide, the most important reference in the world for project management, and also chaired the official translation of PMBOK into Portuguese. He is a chemical engineer and holds a master’s degree in Industrial Engineering from UFMG (Federal University of Minas Gerais). Ricardo Vargas also holds a Master Certificate in Project Management from George Washington University and is certified both as a Project Management Professional (PMP) by PMI and as IPMA-B by the International Project Management Association. He attended the Program on Negotiation for Executives at Harvard Law School. Over an eleven year timeframe, which began in 1995, Ricardo, in conjunction with two partners, established one of the most solid Brazilian businesses in the area of technology, project management and outsourcing, which had a staff of 4,000 collaborators and an annual income of 50 million dollars in 2006, when Ricardo Vargas sold his share of the company to dedicate himself on a fulltime basis to the internationalization of his project management activities. He is a member of the Association for Advancement of Cost Engineering (AACE), the American Management Association (AMA), the International Project Management Association (IPMA), the Institute for Global Ethics and the Professional Risk Management International Association (PRMIA). 2 © BY MACROSOLUTIONS SA. TODOS OS DIREITOS RESERVADOS
  • 3. EVMS Definition The earned value concept focuses on a relationship between the actual costs being expended against the physical work done on the project. The focus is on the true cost performance: what we got for what we spent. © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 4. Elementos do EVA BCWS (Budget Cost of Work Scheduled) – It is a value that indicates the amount of the budget that should have be expended, taking into consideration the cost baseline of the activity or resource. BCWS is calculated using the baseline costs divided into phases and acumulated until the status date or present date. It comes from the project’s budget. © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 5. EVA Elements BCWP (Budget Cost of Work Performed) – It is a value that indicates the amount of the budget that should have been expended taking into consideration the work that has already been performed up to the moment, as well as the cost baseline of the activity or resource. The activity’s BCWP is calculated taking into consideration its executed percentage multiplied by its total budget. BCWP is also known as “acumulated value or added value”. © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 6. EVA Elements ACWP (Actual Cost of Work Performed) – It shows the incurred costs of the performed work until the status date or present date. © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 7. EVA Graphically Final Budget Cost ACWP BCWS P P W BCWP CW AC B Status Time Date © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 8. Traditional Approach Example 60 Forecast 45 Apparent save Cost 15 BCWS-ACWP = 45-30=15 Expended 30 15 1 2 3 4 Time (in months) © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 9. Earned Value Example Forecast = BCWS 60 VA=SV=25-45=-20 45 Expended = ACWP Cost Earned Value = BCWP -20 30 VC=CV=25-30=-5 -5 25 IPA=SPI=25/45=0,555=55,5% 15 IPC=CPI=25/30=0,833=83,3% 1 2 3 4 Time (in months) © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 10. Schedule Variance SV (Scheduled Variation) – It is the monetary difference between the earned value (BCWP) and the schedule baseline (BCWS). If SV is positive, the project is ahead in terms of cost; when negative, the project is late in terms of cost. SV BCWP BCWS © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 11. Cost Variance CV (Cost Variation) – it is the difference between the estimated cost to reach the present level of conclusion (BCWP) and the actual incurred cost (ACWP), up to the status date or present date. If CV is positive, the cost is less than the its forecast (or baseline); if it is negative, the activity has gone beyond its budget. CV BCWP ACWP © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 12. Time Variance TV (Time Variance) – It is the time difference between what was expected and what has been executed by the project. It can be graphically shown by plotting the BCWS and BCWP curves, and finding the date that BCWS adds the same value as BCWP. The difference between the status date and the calculated date represents the project’s delay or advance. © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 13. Plotting SV, CV e TV in a EVA Chart Final Budget S Cost CW ne B li ACWP se Ba CV BCWS SV P P W BCWP CW AC B TV Status Time date © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 14. Exercise ACWP BCWS BCWP Cost Time Situation 1 Situation 2 Situation 3 © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 15. SPI - Schedule Performance Index SPI (Schedule Performance Index) – It is the ratio between the earned value (BCWP) and the planned value as in the baseline (BCWS). SPI shows the conversion ratio of the planned value into earned value. If SPI is less than 1, it indicates that the project is being performed in a conversion rate less than it was expected. BCWP SPI BCWS © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 16. CPI – Cost Performance Index CPI (Cost Performance Index) – It is the ratio between the earned value (BCWP) and the actual cost (ACWP). CPI shows the conversion of the actual incurred costs and their equivalent earned value in a given time frame. If CPI is less than 1, it indicates that the project is expending more than it was foreseen. BCWP CPI ACWP © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 17. Monitoring the Performance Indexes Over Time + Good > 1 Index As planned 1 =1 Bad < 1 - 1 2 3 4 Time (in months) © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 18. Forecasting EAC - Estimated at Completion ETC - Estimated to Complete PAC – Plan at Completion TAC – Time at Completion DAC – Delay at Completion © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 19. EAC (Estimated at Completion) EAC (Estimated at Completion) – Monetary value that represents the project’s final cost when the project finishes. It includes the incurred costs so far (ACWP) plus the estimated remaining costs (ETC). EAC ACWP ETC © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 20. ETC (Estimated to Complete) EAC (Estimated at Completion) – Monetary value that represents the project’s final cost when the project comes to an end. It includes the incurred costs so far (ACWP) plus the estimated remaining costs (ETC). EAC ACWP ETC © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 21. ETC (Estimated to Complete) ETC Less sensible EAC BAC BCWP ETC Traditional BAC BCWP ETC CPI ETC More sensible BAC BCWP ETC CPIxSPI © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 22. PAC e TAC PAC (Plan at completion) – It’s the project’s estimated completion date (baseline project finish) TAC (Time at Completion) – It’s the project’s estimated completion date. It is calculated as the ration between the foreseen date PAC and SPI. PAC TAC SPI © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 23. DAC Delay at Completion DAC (Delay at Completion) – It is the difference in time units between the project’s planned completion date and its foreseen completion date. It is determined by the difference between the initial planned date PAC and the present forecast TAC. DAC is to be regarded as “delay at completion” and not as a time variance. DAC PAC TAC © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 24. EVA com Todos os Elementos Project’s forecast cost EAC Use of CPI to forecast the project’s final cost VAC Final budget BAC WS Cost Use of SPI to predict BAC BC line the project’s ACWP se Ba completion date CV BCWS SV P P W BCWP W AC BC DAC TV Planned Foreseen Status Time completion completion date date PAC TAC © BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS
  • 25. Visit www.ricardo-vargas.com to access other presentations, podcasts, videos and technical content about project , risk and portfolio management. © BY MACROSOLUTIONS SA