0 Earned Value Management

1  What is it?  Where did it come from?  What’s so special about it?  How do you do it?  What is an EVMS?

2 Earned Value Management  A systematic approach to the integration and measurement of cost, schedule, and technical (scope) accomplishments on a project.  Provides the ability to examine detailed schedule information, critical program and technical milestones, and cost data. What is it ?

3 Earned Value Management 1960s – DoD adopted Cost/Schedule Control Systems Criteria (C/SCSC) as an objective measure of progress. 1970s – Continued use in DoD as a means to offset cost/schedule risk in cost-pus contracts. High-tech, newly-developed weaponry Arms race induced critical schedule needs 1990s – Policy moved Earned Value into all Federal agencies OMB Circular A-11 NASA Policy Directive DOE Order – OMB began enforcement in all civilian agencies. Where did it come from?

4 Earned Value Management Why do we care? Earned Value Management  Projects over budget and behind schedule*  53% of IT projects finish over budget and behind schedule  52% finish at 189% of their initial budget  18% are simply never completed  Consistent performance measures allow comparison across the portfolio  Statistically proven performance projections  Performance at a project’s 25% completion point will remain steady throughout the project’s lifecycle.  It’s now an OMB requirement. *Source: Standish Group’s Chaos Chronicles 2004

5  Fundamental difference with traditional management is the data used for analysis.  Budget vs Actuals  Earned Value Analysis What’s so special about it? Earned Value Management

6 Traditional Management Approach:

7  Establishes an Integrated Project Baseline  What is to be done? (scope)  When will activities be completed? (schedule)  What will it cost (and when) when to complete those activities? EVM Integrates cost, schedule, and scope. Earned Value Management

8  A concept that task activities earn value as work progresses  A data point that expresses the value of work accomplished Based on something called Earned Value.

9 Earned Value   The value earned is the budgeted cost of the activity completed to date. The concept that task activities “earn value” as work progresses.

10  What is the dollar value of what you have gotten done to date?  Does not address the money spent in getting there. Earned Value A data point that expresses the value of work accomplished

11  EVM depends on three data points  Planned Value (PV)  Earned Value (EV)  Actual Cost (AC) So how do we do this stuff? Earned Value Management

12   One WBS per program   Deliverable-oriented   Organizational responsibility identified in WBS   Work not in the WBS is out-of-scope   All lower-level elements roll up to the WBS total Integrated Project Baseline Absolutely dependent on the Work Breakdown Structure   Full (and accurate) definition is key   Defined deliverable(s)   Timeframe for delivery of product   Total cost (direct and indirect) to deliver product   Assigned organizational responsibility

13  How much did you expect to have done at point X ?  Expressed in dollars (PV)  How much do you expect to have done at completion ?  Budget at Completion (BAC) Planned Value Data source is the Integrated Project Baseline

14 Planned Value

15 Planned Value

16  The dollar amount actually spent to date.  Has no relationship to work accomplished. Actual Cost Data source is the Earned Value Management System

17 Actual Cost

18  The dollar value of actual accomplishments to date.  Does not address the money spent in getting there. Earned Value Data source is the Earned Value Management System

19  Percent Completion Estimates  Start/Finish of WBS Elements  Milestones Completed (0-100%)  Percent Completion Estimate with Milestone Gates Earned Value Several ways to “earn” it: 25% 75% 50% 50% 0% 100% 33% 67% 100% 33% 67% 100%

20 Earned Value

21   Compares the amount of work completed with what was scheduled and budgeted, to determine if cost (AC), schedule (PV), and work accomplished (EV) are progressing as planned.   By integrating these three measurements, it provides consistent, numerical indicators with which we can evaluate and compare projects. Integrated Performance Report

22 Integrated Performance Report

23 Integrated Performance Report These three data points allow us to:   Calculate variances in cost and schedule performance.   Calculate performance indices that allow direct comparison to other projects’ performance.   Analyze trends in project performance.   Formulate predictions as to how well the project will perform in the future.

24   Cost Variance   A comparison of the budgeted cost of work performed with actual cost.   A negative variance means the project is over budget. CV = EV – AC CV = 851,000 – 1,041,000 CV = - $190,000 Note that this is not “budget vs actuals.” Calculating Variances

25   Schedule Variance   A comparison of amount of work performed to what was scheduled to be performed.   A negative variance means the project is behind schedule. SV = EV – PV SV = 851,000 – 1,000,000 SV = - $149,000 Calculating Variances

26   Cost Performance Index   A ratio of the budgeted cost of work performed to the actual cost. An index less than 1.00 means the project is over budget. CPI = EV / AC CPI = 851,000 / 1,041,000 CPI = Calculating Performance Indices

27   Schedule Performance Index SPI=EV/PV   A ratio of the amount of work performed to what was scheduled to be performed. An index of less than 1.00 means the project is behind schedule. SPI = EV / PV SPI = 851,000 / 1,000,000 SPI = Calculating Performance Indices

28 Cost Variance (EV-AC) $851K - $1041K = -$190K CPI (EV/AC) = Cost Performance

29 Schedule Variance (EV-PV) $851K - $1,000K = - $149K SPI (EV/PV) = And look at this: $ - 149K = 1 Month Slippage Schedule Performance

30 Predicting Future Performance   Estimate to Complete (ETC)   How much will we have to spend (after today) to complete?   Total budget less what we’ve earned to date. (With some assumptions).   Performance to date has been anomalous   Cost Performance to date will continue   Both Cost and Schedule Performance to date will continue

31 Predicting Future Performance   Estimate to Complete (ETC)   Performance to date has been anomalous: ETC = BAC – EV = $1,149,000   Cost Performance to date will continue: ETC = = $1,405,504   Both Cost and Schedule Performance to date will continue: ETC = = $1,651,574 BAC - EV CPI CPI * SPI

32   Estimate at Completion (EAC)   How much will we have spent when we’re actually done?   Again, based on the same assumptions as ETC. EAC = AC + (BAC-EV) = $2,190,000 EAC = AC + = $2,446,505 EAC = AC + = $2,691,856 Predicting Future Performance BAC - EV CPI CPI * SPI

33 Predicting Future Performance   To-Complete Performance Index (TCPI)   How well do we have to perform to get back on track?   Again, based on the same assumptions as ETC. TCPI C = = 1.22 TCPI S = = 1.17 TCPI CS = = CPI 1SPI 1 CPI * SPI

34 Earned Value Management And if everything goes perfectly:

35 Earned Value Management Systems What are they ? Where do we get one ?

36  It is NOT Project Management Software  It is NOT a Tool or Set of Tools  You Can’t Buy One  (And neither can your contractor) Earned Value Management Systems What they are NOT:

37 An EVMS is a set of business practices that, when applied to a project or program:  integrate scope, schedule, and cost objectives,  establish a baseline plan for accomplishment of project or program objectives, and  employ earned value techniques for performance management. Earned Value Management Systems So what IS it then ? ANSI/EIA-748 defines it:

38  Organization  Planning, scheduling, and Budgeting  Accounting Considerations  Analysis and Management Reports  Revisions and Data Maintenance Earned Value Management Systems ANSI/EIA-748 prescribes 32 criteria in five categories:

39   Organization (of the project)   Define the entire project.   Establish an integrated project baseline based on a WBS.   Establish management control responsibilities within the WBS.   Assign responsibilities for all WBS elements. ANSI/EIA-748 Compliance

40   Planning, Scheduling, and Budgeting   Employ a formal planning, scheduling, and budgeting system.   Measure performance against the integrated performance baseline. Cost Schedule Scope ANSI/EIA-748 Compliance

41   Accounting Considerations   Provide accurate and timely cost reports (at the WBS element level).   Record project costs as consumed or incurred.   Provide accounting systems that can measure: Planned Value Earned Value Actual Cost ANSI/EIA-748 Compliance

42   Analysis & Management Reports   Provide regular reporting, at least monthly. Cost Schedule Scope   Analyze actual performance against the authorized baseline, including, at a minimum: Schedule Variance Cost Variance   Revise forecasts of final results based on actual performance. Estimate to Compete Estimate at Completion   Implement managerial actions in response to EV information. ANSI/EIA-748 Compliance

43   Revisions and Data Maintenance   Provide timely approval/rejection of all change requests   Incorporate approved changes in a timely fashion.   Reconcile budget changes to authorized scope changes   Control retroactive changes ANSI/EIA-748 Compliance

44 “EVMS scalability is viewed as a spectrum employing the principles of EVMS as fundamental to all programs and the EVMS guidelines as applicable to large, complex, and/or high risk programs; allowing any program regardless of size and complexity to realize the benefits of earned value management.” ANSI/EIA-748 ANSI/EIA-748 Compliance

45 Uncertainty Granularity Frequency Significance Risk Rigor Rigor Source: The PMI © Earned Value Practice Standard EVM Rigor

46  The Scalability Debate   “ Tailored” EVM   “EVM Lite” Whatever the name, OMB doesn’t like it. ANSI/EIA-748 Compliance

47 ANSI/EIA-748 Compliance   Approaches to EVM   All 32 ANSI Standard criteria apply, period! (OMB’s full compliance)   Criteria are scalable and can be adapted, based on a project’s size, complexity, risk, etc. (Tailored EVM)   Selected criteria are applied and additional ones can be added, based on a project’s size, complexity, risk, etc. ( EVM Lite)

48 EVMS Project Schedule Baseline Budget Accounting System WBS Actuals Performance Measurement Early Warning & Performance Trends Informed Management Decisions Corrective Actions Recovering Planning Planned Accomplishments EVM In a Nutshell   Management practices and discipline vs. a tool set   Work Breakdown Structure (WBS)   Integrated scope/schedule/budget baseline   Accounting system that accommodates the WBS   Change control plan

49 What Could Possibly Go   Inadequate requirements definition   No (or Incomplete) Work Breakdown Structure   Accounting systems that can’t address the WBS   Lack of management attention to project progress   Failure to respond to warning signs   Failure to reconcile baseline to funding shortfalls (Rebaseline)

50 The Case for Rebaselining

51 So What ? Your Turn !