An introduction to Earned Value Management Simplex project management Education|Training|Mentoring|Coaching|Consulting

Introduction A short presentation to describe WHAT Earned Value is and HOW to calculate it

...some important definitions! Price –The price for work to be undertaken by a contractor Value –The amount of work carried out by the contractor in accordance with the contract Cost –The amount of money it cost the contractor to do the work Contract Value –The agreed price for carrying out the work between client and contractor Budget –The amount of money the client has set aside for the work Cash-flow –The difference between payments received and expenses incurred

The justification for Earned Value The issue with this graph One sided view only – i.e. COST Where are we in relation to schedule ? Have we spent the money on the right work?

The justification for Earned Value (Cont’d) Integrated cost & schedule info Predictions about future performance Better management of budgets Better decision making ability

Earned Value - History Basic form of EV traced back to 1800s, used on the factory floor 1967 – EVM introduced by US federal government agencies as part of Cost / Schedule Control Systems Criteria (C/SCSC) C/SCSC discarded by the end of 1996 PMI PMBoK simplified EVM terminology and formulas

Earned Value – PMI definition A technique to measure performance of a project as it moves from project initiation to project closure. It also provides a means to forecast future performance based on past performance. (PMI PMBoK)

Earned Value – APM definition “ Earned value management is a project control process based on a structured approach to planning, cost collection and performance measurement”

Benefits of Earned value Providing data to enable objective measurement of project status Providing a basis for estimating final cost Predicting when the project will be complete Supporting the effective management of resources Providing a means of managing and controlling change (APM EVM Guideline)

Earned Value Structure Control Accounts Work Breakdown Structure Organisation Breakdown Structure Scope of work Work Packages Planning Packages Source: Earned Value Management APM Guideline

Budget elements Contract Price Contract Budget BaselineMargin Performance Measurement BaselineManagement Reserve Distributed BudgetUndistributed Budget Control Account Budgets Work Packages Planning Packages Source: Earned Value Management APM Guideline

Getting the WBS right ! The further you go down the more administration required in terms of data gathering !

Its about improving visibility Client (Agreed Costs) Contractor (Contractor costs that cannot be recovered from the client) Contract

Earned Value application to construction Project type (large or complex) Imposed by the Client! Traditional way of delivering projects Availability of skilled resources Ability of organisations to embrace this technique Attitude Culture

Earned Value Standards & Guidance

Earned Value Guidance Earned Value Management PMI (Project Management Institute) DAU (Defense Acquisition University) APM (Association for Project Management)

Earned Value terminology AbbreviationDescriptionNew terminologyAbbreviation BCWSBudgeted Cost for Work ScheduledPlanned ValuePV BCWPBudgeted Cost of Work PerformedEarned ValueEV ACWPActual Cost of Work PerformedActual CostAC

Measuring actual performance

Measurement of work Milestones Roof completion Groundwork completion Deliverables Nr of drawings Nr of reports Split % 50/50 20/80 0/100 Etc % Complete Ways of measuring work

Earned Value – Worked Example

Worked Example – Base data

Worked Example - Work Breakdown Structure

Worked Example – Schedule & Cost

Worked Example – Performance in week 3

Worked Example – Earned Value Graph

Earned Value Report

Earned Value Metrics

CPI (Cost Performance Index) & SPI (Schedule Performance Index)

CPI / SPI Index

Cost Variance

Schedule Variance

EAC (Estimate At Completion)

VAC (Variance At Completion)

TCPI (To Complete Performance Index)

The EV graph & metrics

Earned Value Management - Summary

Earned Value Management “it is a concept that integrates project scope, schedule and cost in terms of monetary value thus allowing performance to be measured and understood”

The essential ingredients Earned Value Schedule Scope (WBS) Costs

How it fits all together! Project Scope Schedule Cost Profile Performance Measurement Changes to introduced here Reflected in Schedule Reflected in Costs Taken into account when measuring performance

The overall aim In theory, ACWP and BCWP should be as near enough to the BCWS as possible

Challenges with using Earned Value 1.Client is not familiar with the method 2.The project team is not familiar with the method 3.Too many different organisations delivering the project 4.Lack of common understanding of what needs to be done 5.‘Too many chiefs!’ 6.Seen as cumbersome and an administration burden 7.Requires training 8.Takes too long before the benefits can be seen 9.Used as a weapon by senior management!

...some words of advice! Understand the contract Know your obligations Take time to develop and create a structure Keep it simple Try to obtain data from the source Don’t aim for 100% accuracy that’s NOT the objective

Useful Websites Web AddressOrganisation Acquisition University of Cost Engineers for Project Management Management Institute Association for the Advancement of Cost Engineering