A gentle introduction to earned value management systems (neutral)

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A gentle introduction to earned value management systems (neutral)

  1. 1. 1/31 A GENTLE INTRODUCTION TO EARNED VALUE MANAGEMENT SYSTEMS “Good metrics let us see if we are doing the right Glen B. Alleman things and doing them well."
  2. 2. What Do Project Managers Need to Know to Be Successful?  Is the project on schedule?  Is the project on budget?  How much will this project cost on the end date?  What is the end date for this project?  Simple project analysis tools can answer these questions using time and cost tracking  How much is it costing us to earn each unit of value – $1.00 spent returns $X.00 of value? – How much of the budget “should have been” spent at this point in the project? – How much “value” has the work on the project “earned” so far? 2/31
  3. 3. What Is Earned Value Analysis?  It is a way to measure the amount of work actually performed on a project.  It is a way to forecast a project’s cost and completion date using historical and statistical projections.  It is a way to tell how well a project is “performing” compared to its original plan.  Given this information it is a way to forecast how well the project will perform in the future. 3/31
  4. 4. Some Introductory Definitions 4/31 In (olde) and (current )notation  Budgeted Cost of Work Scheduled (BCWS)(PC) “The Planned Cost” – This is the total budgeted cost. It answers the question “how much do we plan to spend?” A second question that is answered is “How much work should be been completed by this date?”  Budgeted Cost of Work Performed (BCWP)(PV) “Earned Value” – This is the cost originally budgeted to accomplish the work that has been completed. It answers the question “how much work has been actually completed?”  Actual Cost of Work Performed (ACWP)(AC) “The Investment Cost” – The actual cost to accomplish all the work that was performed by a specific date. It answers the question “how much did we actually spend to deliver the Earned Value?”
  5. 5. Basic Formulas Of Earned Value Management Simple EVMS Terms BCWS The planned of the work to be performed BCWP The “earned value” of the performed work ACWP The actual costs – in dollars – to complete the planned work BAC The budget to complete the project Cost and Schedule Variance SV Schedule Variance BCWP – BCWS CV Cost Variance BCWP – ACWP SPI Schedule Performance Index BCWP / BCWS CPI Cost Performance Index BCWP / ACWP EAC Estimate at Complete ACWP + (BAC – BCWP) TCPI To Complete Performance Index (BAC – BCWP) / (EAC – ACWP) ISAC Independent Schedule at Complete Schedule / SPI VAC Variance at Complete BAC – EAC 5 Print this page and keep in your notebook. No one, not even the pros can remember these acronyms without a cheat sheet
  6. 6. 6/31 A Simple Edible Example It’s the holidays, it’s cookie baking time! Let’s use Earned Value to manage our Christmas Cookie project.
  7. 7. EVMS Of Our Holiday Cookie Baking 7/31 Process  Our Christmas Cookie  Analysis after one (1) “Plan” hour of baking we’ve  40 cookies per batch made …  5 batches per hour (200  150 edible cookies cookies per hour)  some were burnt,  Schedule: 5 hours to  some hit the floor, make 1,000 cookies (a  the kids ate some of the big neighborhood) dough,  fed some to the dog.  Budgeted cost = $0.05 per cookie  Actual cost of ingredients  Total Budget = $50.00 after one hour (ACWP) for the 1,000 cookies = $9.00
  8. 8. After One Hour of Making Cookies Simple EVMS BCWS $10.00 Planned cost BCWP 150 cookies X $0.05 per Cookie $7.50 Product cost ACWP $9.00 Materials cost Cost and Schedule Variance SV BCWP – BCWS ($7.50 - $10.00) –$2.50 We’re behind schedule CV BCWP – ACWP ($7.50 - $9.00) –$1.50 We’re over budget SPI BCWP / BCWS 0.75 25% behind schedule CPI BCWP / ACWP 0.833 17% over budget 8/31
  9. 9. What’s Going To Happen At The End Of The Project? Forecasting our production IEAC BAC / CPI ($50.00 / 0.833) $60.00 Our plan was $50.00, darn VAC BAC – IEAC ($50.00 – $60.00) $10.00 We’ll be $10 over budget ISAC 5 hours / SPI (5 / 0.75) 6.67 And we’re gonna be late 9/31
  10. 10. Can We Catch Up In Time? 10 Forecasting the future To Complete Performance Index  (Budget – BCWP) / (EAC – ACWP) TCPI  (50.00 – 7.50) / (500.00 – 9.00) 1.036  42.50 / 41.00
  11. 11. A Simple EVMS Chart (The linear form is never this way in practice, it is an S-Curve) $50.00 $40.00 BCWS SV in $ CV $30.00 $20.00 SV in hours ACWP $10.00 BCWP Hour 1 Hour 2 Hour 3 Hour 4 Hour 5 11/31
  12. 12. PUTTING THESE “SIMPLE” CONCEPTS INTO PRACTICE EVMS can be deployed in many ways. For us the straight forward way is to “micro–schedule” the work activities. 12/31
  13. 13. A 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–schedules 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. 13/31
  14. 14. Some Fundamental Concepts of EVMS  Never relate what was planned to be spent (BCWS) to the actual amount spent (ACWP).  This tells us nothing of value  It can warp our thinking into attempting to under–spend our allowed amount to report favorable numbers.  Only report what was actually spent (ACWP) against what “value” was delivered for that planned investment (BCWP)  Cost Performance (CV) reports what has been accomplished (BCWP) versus what was invested to accomplish that work (ACWP). 14/31
  15. 15. 15/31 A FRAMEWORK FOR DEPLOYING EVMS Let’s do it the simple way with some common sense†
  16. 16. First the Bad News 16
  17. 17. ANSI/EIA–748A–2002 And Success Criteria Of Earned Value Management  The EIA 748 specification calls out 32 performance criteria required for compliance.  These criteria are too complex for our “agile” environment.  There are 10 key criteria that can be deployed here. 17/31
  18. 18. ANSI/EIA–748A–2002 And Success Criteria Of Earned Value Management 18
  19. 19. 10 Criteria For Successful EVMS 1. Define authorized work elements 2. Identify project organizational structure 5. Provide integrated planning, scheduling, budgeting, work authorization, and cost accumulation processes 6. Schedule the authorized work in a sequential manner that identifies the significant task dependencies 7. Identify physical products and organizations 8. Establish and maintain time–phased budget baseline 16. Record direct costs consistently in a formal manner 23. Periodically generate project metrics 25. Develop revised cost estimates–at–completion based on performance to date 28. Incorporate authorized changes in a timely manner 19/31
  20. 20. 10 Criteria For Successful EVMS 20
  21. 21. Define Authorized Work Elements  Create a Work Breakdown Structure (WBS) for all activities at the micro–schedule level  The scope of the entire project must be defined in order to measure performance.  This is a problem for agile methods, since scope evolves as the project evolves  Schedule major iterations on 2 to 3 week boundaries  Generate “macro” estimates of future work and “micro” estimates of the current iteration's work  Defined project objectives, deliverables, and key milestones are based primarily on experience 21/31
  22. 22. Identify Project Organizational Structure  Identify the structure of the functional organizations performing the work  Define all organizational elements responsible for delivering value  Identify who is doing what and what value they are delivering  Assign all tasks to specific named resources  Identify the major milestones and those responsible for meeting the commitments represented by these milestones 22/31
  23. 23. Provide Integrated Planning, Scheduling, Budgeting, Work Authorization, And Cost Accumulation Processes  Provide integration of the firm’s:  Planning,  Scheduling,  Budgeting,  Work Authorization  Cost accumulation  Project management processes should be integrated with the WBS and the functional organization. 23/31
  24. 24. Schedule The Authorized Work In A Sequential Manner That Identifies The Significant Task Dependencies  Describe the work sequence  Identify significant dependencies required to meet the requirements  Identify which tasks are impeading the process of other tasks  Create a “master schedule” for larger projects to connect the subordinate projects 24/31
  25. 25. Identify Physical Products And The Organizations That Produce Them  All project must be able to identify and measure physical performance  Define metrics which convert to “planned values” into “earned values”  Project must specify:  Physical Products  Deliverables  Outputs  Metrics  Milestones  Technical performance indicators 25/31
  26. 26. Establish And Maintain A Time–phased Performance Measurement Baseline  Establish initial budgets on internal management estimates and external negotiated targets  Budget for long–term efforts must be held at higher levels of the organization  Time–phased budget is required to measure performance  Staff  Other Direct Costs (ODC) 26/31
  27. 27. Record Direct Cost Consistency In A Formal System  “Applied Direct Costs” is the preferred method of accounting for the accrual of “value”  Isolate Level of Effort costs in a separate WBS element 27/31
  28. 28. Periodically Generate Project Metrics  The amount of planned versus budget earned for the work accomplished  The amount of budget earned versus the actual direct costs for the same work  This is the “cost variance”  This differentiates EVMS from other “actual versus budget” cost analysis  Weekly measures are now the “norm”  Comparisons need to be detailed enough to provide intervention opportunities 28/31
  29. 29. Develop Revised Cost Estimates–at–completion (EAC) Based On Performance To Date  Compare this information with the performance measure baseline to identify variances at completion 29/31
  30. 30. Incorporate Authorized Changes In A Timely Manner  All changes must be addressed as they effect budget and schedule  Base changes on the estimated amount and assignment to functional organizations needs to be recorded as well  All approved changes must be incorporated into the project baseline 30/31
  31. 31. Ten Benefits of EVMS  It is a single management control system to provide reliable and consistent data on project performance.  It integrates work, schedule, and cost using a work breakdown structure.  The associated database of completed projects is useful for comparative analysis.  The cumulative cost performance index (CPI) provides an early warning signal.  The schedule performance index provides an early warning signal.  The CPI is a predictor for the final cost of the project.  It uses an index–based method to forecast the final cost of the project.  The “to-complete” performance index allows evaluation of the forecasted final cost.  The periodic (e.g., weekly or monthly) CPI is a benchmark.  The management by exception principle can reduce information overload. 31/31

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