Putting Earned Value Into Action

1. Putting Earned Value Into Action Pete Arnold & Neal Morgan Lewis & Fowler, LLC

2. Outline • What is Earned Value Management • Why use Earned Value Management • Prerequisites • The Formulas • Collecting Data • Analyzing Data • Taking Corrective Action

3. History of Earned Value - Timeline http://www.acq.osd.mil/pm/historical/Timeline/EV%20Timeline.htm timeline from www.acq.osd.mil website 3

4. What is Earned Value Management? • Objective • Combines scope, cost and schedule • Measures project performance against the original plan • Helps forecast project cost and schedule variances using statistical projections ANSI / EIA 748 spells out the criteria for using an Earned Value Management System 4

5. Why Should We Use Earned Value Management?

6. It Measures Progress, not Activity • Activity is routinely measured on projects • Two dimensional (Planned Value, Actual Cost) • As long as we are spending what we planned, we look good 6

7. An Activity Example • Plan is to build 5 widgets this month • Each widget is expected to take 100 hours to build • At the end of the month I am expecting to utilize 500 hours building widgets • At the end of the month, I spent 500 hours working on widgets Well, I’ve spent 500 hrs , Does that mean I’ve accomplished 500 hrs of Work? 7

8. Incorporating Progress • Plan is 500 hours to make 5 widgets in a month • I Spent 500 hours, but only made 3 widgets • Each widget cost me 167 hours, instead of the planned 100 • I’m two widgets short for the month Here the 3 widgets represents the Earned Value Yikes! I’m over budget , and behind schedule! 8

9. It is a Leading, not Lagging, Indicator 9 • Past performance, in Earned Value terms, has been measured as a successful predictor of future performance • DoD Research on Hundreds of Projects# • Predictability at 15% Cost Expended • Stability in Cost Index (CPI) at 20% Cost Expended • Typically doesn’t vary more than .10 • Rarely gets better, often gets worse #Fleming, Q., & Koppelman, J. (2005) Earned Value Project Management.

10. It is Useful in Decision Making 10 • Objective • Early identification of trends, problems and risks • Basis for course corrections

11. It may be Required in Some Instances ANSI / EIA 748 spells out the Earned Value Management System criteria 11 Department of Defense Projects NASA Projects Department of Energy Projects US Office of Management & Budget projects

12. What are the Prerequisites? • Full scope defined (WBS) • Sequentially scheduled project • Time phased budget baseline • Method & tool to collect and record actual costs • Method to determine % complete • Change control process A Performance Management Baselinesm will provide the basis for Earned Value Management

13. What are the Formulas?

14. Definition of Basic Earned Value Management Measures We’ll utilize the shorter acronyms in this presentation (PV, AC, EV) 14

15. Calculating Earned Value Needed Budget at Completion (BAC) % Complete Earned Value (EV) or (BCWP) = % Complete x Budget at Completion (BAC) If my budget is $50,000 And I’m 50% complete I’ve earned $25,000 in value 15

16. Indices & Variances Cost Performance Index (CPI) = EV / AC >1.0 is under budget <1.0 is over budget Schedule Performance Index (SPI) = EV / PV >1.0 is ahead of schedule <1.0 is behind schedule Cost Variance (CV) = EV – AC > 0 is under budget < 0 is over budget Schedule Variance (SV) = EV – PV > 0 is ahead of schedule < 0 is behind schedule Generally speaking, the higher the value of a variance or index number, the better off you are 16

17. Estimate At Completion EAC is an update to the BAC EAC is the new estimate of what the project will cost when complete EAC = AC + ETC iEAC = AC + [(BAC – EV) / CPI] Other Performance Factors “Worst Case”: CPI x SPI SPI (.8xCPI)x(.2XSPI) ETC = Estimate to Completion iEAC = Independent Estimate at Completion 17

18. Summary of Major Formulas EV = % Comp x BAC CPI = EV / AC SPI = EV / PV CV = EV - AC SV = EV - PV EAC = AC + ETC iEAC = AC + [(BAC – EV) / CPI] 18

19. How to Determine % Complete • Fixed Formula • Applies a % complete to the start and finish of an activity. • 0/100 or 50/50 or 25/75 • Apportioned Milestones • Assigns a % complete for a portion of a task with observable results • Subjective % Complete • Team members determines % complete based on experience, etc.

20. Pros and Cons of Each % Complete Method

21. Building A Deck: Collecting Data, Analyzing Data & Taking Corrective Action

22. “New Deck” project Having a BBQ in 7 days Need a new deck built for the BBQ Hired a contractor for $25/Hr There are 6 days to complete the project 22

23. Contractor’s Plan Day 1 Concrete patio removed – 4 hrs Post holes dug – 4 hrs Day 2 Posts cemented in ground – 4 hrs Joists measured and cut – 4 hrs Day 3 Joists hung – 4 hrs Floor boards measured and cut – 4 hrs Day 4 Floor boards secured – 4 hrs Deck floor sanded – 4 hrs Day 5 1st coat of stain applied – 4 hrs 2nd coat of stain applied – 4 hrs Day 6 No work planned (“Float”) Contractor will work 8 hours a day and plans to finish in 5 days. No additional resources needed. All materials provided. 23

24. The Project in Earned Value Terms Budget at Completion (BAC) = 40 hours at $25/hr or $1000 Planned Value (PV) = 8 hrs x $25 or $200 per day Work is all discrete tasks Taking progress – we’ll use 0/100% Incomplete tasks worth 0% Completed tasks worth 100% 24

25. Contractor’s Plan For Day 1 Plan for Day 1 Concrete patio removed – 4 hrs Post holes dug – 4 hrs Planned Value for Day 1 = $200 (8 x $25/hr) 25

26. Contractor’s Results After Day 1 Actual results from Day 1 Concrete patio removed – 7 hours Started post holes – 1 hour Day 1 is done – 20% complete! 8 hours of work planned 8 hours of work complete I’m on schedule… Planned Value = $200 Actual Cost = $200 26

27. Earned Value After Day 1 Instead of being 20% complete, I’m only 10% complete (% Complete = EV / BAC)

28. Contractor’s Plan For Day 2 Plan for Day 2 Finish digging post holes – spillover Posts cemented into ground – 4 hrs Joists measured and cut – 4 hrs Planned Value for Day 2 = $200 (8 x $25/hr) 28

29. Contractor’s Results After Day 2 Actual results from Day 2 Finish digging post holes – 4 hours (add’l) Posts cemented into ground – 6 hours Joists measured and cut – 1 hour Day 2 is done – worked extra hours 8 hours of work planned 11 hours of work complete I’m ahead schedule… Planned Value = $400 Actual Cost = $475 29

30. Earned Value After 2 Days I should be 40% complete, but I’m only 30% complete (% Complete = EV / BAC)

31. After 2 Days, What is My EAC? • Traditional Method (AC + ETC) • $475 + $600 = $1075 • iEAC (AC + [(BAC – EV) / CPI] • $475 + [($1000 - $300) / .63] = $1586 • At the current rate of performance, this will cost me $586 more than planned BAC – EV represents the Planned Value of the remaining work

32. Earned Value Chart for Deck Build We’re projecting to be well over budget and somewhat behind schedule after 5 days CV SV

33. CPI & SPI Trending for Deck Project Project performance is improving over the two days, but well below 1.00

34. What Do We Know About Our Project?

35. How to Address Schedule & Cost Issues

36. How We Fixed Our Deck Project

37. Finished Deck, Successful BBQ!

38. In Summary Earned Value Management helps PMs identify problems early and take corrective action A Performance Management Baselinesm is needed to do Earned Value Management Full scope Sequentially scheduled with time phased budget Collection of actual costs Determine % complete Earned Value Management won’t SOLVE project issues – you have do that based on the information YOU can start using Earned Value Management today 38

39. Lewis & Fowler, LLC Pete Arnold parnold@lewisandfowler.com 303-478-4253 Neal Morgan nmorgan@lewisandfowler.com 303-618-9980