MISUSE OF EARNED VALUE MANAGEMENT RESULTS IN ERRONEOUS CONCLUSIONS Charles F. Lappenbusch, Jr. MBA, CCP, EVP, PSP Presentation to Seattle Section, AACE® International March 9, 2017

BIOGRAPHY Charles F. Lappenbusch, Jr., MBA, CCP, EVP, PSP Over 30 years of financial and project management Director of Development for a new town Cost control processes, monitoring and integration with Critical Path Scheduling, Earned Value Management, and Risk Analysis. What you don’t know about me.

This is Earned Value!

INTRODUCTION PURPOSE: EVM within CONTEXT OF PROJECT CONTROLS COMPLETION DATE? COMPLETION COST? INFORMATION FROM THE NOISE

INTRODUCTION PURPOSE: EVM IS INTEGRATION SCOPE, RESOURCE (COST), SCHEDULE & RISK COMMON TERMS EXTENSION OF PI START THE CONVERSATION CRITIQUE

INTRODUCTION ASSUMPTIONS: SCOPE BUDGET at COMPLETION (BAC) CRITICAL PATH METHOD (CPM) WORK BREAKDOWN STRUCTURE (WBS)

INTRODUCTION FOCUS: EVM KEY PERFORMANCE INDICATORS (KPI) COST PERFORMANCE INDICATOR (CPI) SCHEDULE PERFORMANCE INDICATOR (SPI) TOTAL FLOAT (TF)

INTRODUCTION FOCUS: EVM a PROJECT CONTROL EVM to CALCULATE EAC EARNED VALUE (EV) vs EARNED PAYMENT (EP)  

INTRODUCTION TAKE A-WAY: WBS - INTEGRATOR EVM – PROJECT CONTROL EVM NOT FINANCIAL CONTROL EVM KPIs DEPEND UPON ALIGNMENT OF DD, PV, EV, AC, TF EV vs EP

EVM BENEFITS INTEGRATES: SCOPE RESOURCE(COST) SCHEDULE RISK

EVM BENEFITS COMPARE UNLIKE ACTIVITIES COMMON NUMBER LOOK AHEAD TOOL ADDS DEPTH & INSIGHT EAC IN LIEU OF DETAIL ESTIMATE KPI TRENDING ANALYSIS

EVM BENEFITS SUMMARY MEASURES PROGRESS OBJECTIVE MEASUREMENT COMPARES PROGRESS TO THE SCOPE, RESOURCE (COST), SCHEDULE & RISK PLANS

PLANNED VALUES (PV) Per DDs EVM FOUNDATION WBS BAC CPM PMB DATA DATES (DD) PLANNED VALUES (PV) Per DDs

EVM EAC EAC = AC + (BAC –EV)/CPI EAC = AC + [(BAC – EV) / (EV/AC)] EAC = AC + [(BAC – (%C*BAC)/ (%C*BAC)/AC)]

EVM EAC EAC = AC + (BAC –EV)/ (SPI*CPI) EAC = AC + {(BAC – EV) / [(EV/PV) * (EV/AC)]} EAC = AC + {[(BAC – (%C*BAC)/ {[(%C*BAC)/PV)]* [(%C*BAC)/AC)]}}

ALIGNMENT DATA DATE (DD) PLANNED VALUE (PV) EARNED VALUE (EV)   ACTUAL COST (AC) TOTAL FLOAT (TF)

WBS INTEGRATION KPI ROLLED UP OR DRILLED DOWN BASIS FOR TRACEABILITY OF KPIs THE USE OF ADDITIONAL FILTERS Organization Breakdown Structure (OBS) Resource/Cost Breakdown Structures (RBD/CBS)

DATA DATE (DD) RECURRING RECORDING DATE 1st DAY AFTER RECORDING PERIOD SEPARATES ACTUAL (HISTORY) FROM SCHEDULED DATA PV, EV, AC, TF MUST ALIGN WITH DD THE BASIS OF KPI TRENDING

PLANNED VALUE (PV) PV PER BAC, CPM, PMB PV IS FIXED TO DD PV IS IN SAME UNITS OF MEASUREMENT AS EV

EARNED VALUE (EV) EV IS NOT FIXED TO DD EV IS ACCOMPLISHMENT OF PV EV IS IN SAME UNITS OF MEASUREMENT AS PV

ACTUAL COST (AC) AC IS ACTUAL RESOURCE (COST) AC SAME DD AS EV INVOICE DELAY A DISTORTION OF AC AC ACCRUAL AC vs. EP

TOTAL FLOAT (TF) CRITICAL PATH (CP) SCHEDULE KPI MEASURES THE CP ACTIVITIES TF MUST BE ALIGNED WITH THE DD TF & SPI ARE NEEDED TO ANALYZE BOTH THE FLOAT AND CP ACTIVES

COST PERFORMANCE INDEX (CPI) EVM KPIs COST PERFORMANCE INDEX (CPI)   CPI =EV/AC CPI = <1 – OVER BUDGET CPI = 1 – ON BUDGET CPI = 1< - UNDER BUDGET

EVM KPIs SCHEDULE PERFORMANCE INDEX (CPI) SPI = EV/PV SPI = <1 - BEHIND SCHEDULE SPI = 1 – ON SCHEDULE SPI = 1< AHEAD OF SCHEDULE NOTE: WHEN EV = PV = SPI = 1 SCHEDULE VARIANCE = $0 REGARDLESS OF SCHEDULE

27 EVM KPIs CPI, SPI, TF = 27 KPI MATRIX EXAMPLES: OBSERVATIONS 5 – CPI=0.85, SPI=1.00, TF=+20 6 – CPI=0.85, SPI=0.85, TF=-20

EARNED PAYMENT (EP) EP DETERMINISTIC PER T& C OF THE CONTRACT PV FLOATS WITH EP DD FLOATS WITH EP EV PROBABILISTIC EAC AND KPIs PV FIXED PER PMB DD FIXED PER EV AC IS FIXED TO EV

EV vs EP Earned Payment (EP) Earned Value (EV) EVM ELEMENT EV & EP Functions EV is a measurement of a Project's progress EP is used to determine payment

EV vs EP EVM ELEMENT Earned Value (EV) Earned Payment (EP) Progress EV measures actual progress of a project EP measures progress of payment

EV vs EP EVM ELEMENT Earned Value (EV) Earned Payment (EP) Data Date (DD) EV is measured for all activities prior to the DD EP of several activities will most likely have different DD

PV is fixed to a specific time period EV vs EP EVM ELEMENT Earned Value (EV) Earned Payment (EP) Planned Value (PV) PV is fixed to a specific time period PV moves with the EP

EV vs EP EVM ELEMENT Earned Value (EV) Earned Payment (EP) Actual Cost (AC) The cost (not cash flow) to achieve the EV EP is cash flow and not necessarily AC.

EV vs EP EVM ELEMENT Earned Value (EV) Earned Payment (EP) SUMMARY EV measures project progress. EP measures project payment.

SUMMARY ONLY AS GOOD AS FOUNDATION SCOPE, RESOURCE (COST), SCHEDULE and RISK EVM NEEDS WBS TO INTEGRATE MUST ALIGN DD, PV, EV, AC, TF EP MEASURES PAYMENT EV MEASURES PROGRESS

This is Earned Value!

QUESTIONS & CRITIQUE