Earned Value in the Industrial Construction Setting AACEI GNO Section Meeting Tuesday July 24, 2012

Earned Value in the Industrial Construction Setting Traditional Approach to a Topic What is it? Why do we need it? How do we implement it?

Earned Value in the Industrial Construction Setting What is it? It is a Performance Management Method that has many labels and forms. Generally speaking it is the integration of scope, schedule, and cost performance achieved through comparing the baselines against the actual progress made of a project. Developed in 1967, by the U.S. DOD, originally called the Cost/Schedule Control Systems Criteria (C/SCSC), adopted government-wide by 1989, and then generally adopted by U.S. industry by 1992.

Earned Value in the Industrial Construction Setting What does it do? It measures a project’s progress. It forecasts a completion date and final cost of the project in real time. It identifies schedule and budget variances during the course of the project. It produces very reliable numerical indicators that can be leveraged throughout the project life cycle enabling a project team to make decisions that positively impact the project.

Earned Value in the Industrial Construction Setting Why do we need it? Favorite Reference Study 2006 PM Solutions Research Report Nearly 4000 projects were surveyed 47% of the projects were either troubled, troubled & recovered, or trouble & failed. Troubled being not falling within budget or schedule baselines and/or meeting scope requirements.

Earned Value in the Industrial Construction Setting Why do we need it? Favorite Reference Study cont. Most significant symptoms to troubled projects: Critical issues in meeting milestones or completing deliverables High risk to the project’s likelihood in delivering anticipated benefits The project was forecasted to be unacceptably behind schedule at completion The project was unacceptably behind planned schedule There were critical and/or significantly growing technical issues with the project

Earned Value in the Industrial Construction Setting Why do we need it? Favorite Reference Study cont. Interestingly enough, poor communication and/or poor project management processes produced the top 5 causes of troubled projects: Expectations were too high, unrealistic, not managed, or poorly communicated Requirements were unclear, contradictory, ambiguous, or imprecise or there was a lack of agreement and priority There was a lack of resources, resource conflicts, turnover of key resources, or poor resource planning Planning was based on insufficient data, missing items, insufficient details, or poor estimates Risks were unidentified or assumed and not managed

Earned Value in the Industrial Construction Setting How Do We Implement It? And be Successful with it! Should be embedded in the Corporate Project Controls Execution Plan Standard part of the PCM toolset. Have standard EVA/EVM tools. Should have the trust and backing of the Project Management team Project Executive, Project Manager, Site Manager, Superintendents Project Controls team must be confident in themselves and their indicators. Trust the numbers!!!! They will not lie.

Earned Value in the Industrial Construction Setting How Do We Implement It? And be Successful with it! Simplest terms of EVM Planned Value (PV) Earned Value (EV) Actual Cost (AC) Creates Monitor-able Variances Schedule Variance (SV) = EV – PV Cost Variance (CV) = EV – AC Also Produces Reliable Indexes SPI = EV/PV CPI = EV/AC CSI = CPI x SPI

Earned Value in the Industrial Construction Setting How Do We Implement It? And be Successful with it! The CPI and SPI are statistically accurate indicators of final cost results. CPI is your cost performance index which is the EV (earned value) divided by AC (actual cost). SPI is your schedule performance index which is the EV (earned value) divided by the PV (planned value). CSI is the Cost Schedule Index (CSI=CPI x SPI). The further CSI is from 1.0, the less likely project recovery becomes.

Earned Value in the Industrial Construction Setting How Do We Implement It? And be Successful with it! The CPI and SPI are statistically accurate indicators of final cost results. Cont. Defense Acquisition University (a training establishment of the DOD) proved two predictive truths from their vast project data. Once a project is 10% complete, the overrun at completion will not be less than the current overrun. Once a project is 20% complete, the CPI does not vary from its current value by more than 10%.

Earned Value in the Industrial Construction Setting How Do We Implement It? And be Successful with it! The CPI and SPI are statistically accurate indicators of final cost results. Cont.

Earned Value in the Industrial Construction Setting How Do We Implement It? And be Successful with it! Personal Observations The project starts with a scope of work. If we can successfully transfer scope data from the baseline estimate to the smallest manageable items into our EVM, then we will have our best opportunity for successful. We MUST manage our scope! Original scope, scope growth, extra work. We MUST protect our baseline data.

Earned Value in the Industrial Construction Setting How Do We Implement It? And be Successful with it! Personal Observations Cont. Project Controls needs to produce real-time reporting down to the Superintendents so that they can make proper adjustments week to week. We have so much information at our fingertips. How can we get that information to the field decision-makers so that they can proactively lead the work to completion?

Earned Value in the Industrial Construction Setting Does the Good overweigh the Bad? The Bad EVM is typically over the heads of project stakeholders Variations of EVM spawn debates galore Are we tracking against a bad plan? Quality is not incorporated into EVM

Earned Value in the Industrial Construction Setting Does the Good overweigh the Bad? The Good It can act as a Leading Indicator Remember -- Imperfect leading metrics are always more valuable than perfect trailing metrics. It is visual And remember, the numbers do not lie. Coupled with true leading indicators is the best chance for success. Process Compliance Requirements Volatility Risk Exposure.