1 Earned Value Management a tool for project Portfolio management Jim Strong DLMP PMO Director

Page 2 Earned Value Management: Defined per PMI PMBOK: A management methodology for integrating scope, schedule and resources, and for objectively measuring project performance and progress. Cost Performance is measured by determining the budgeted cost of work performed (i.e. earned value) and comparing it to the actual cost of the work performed (i.e. actual cost). Schedule Progress is measured by comparing the earned value to the planned value.

Page 3 Why Use Earned Value Management? “…to help better manage projects and portfolios of projects within the organization” Adds another capability to the “tool box” for the organization and the Project / Program / Portfolio Manager Allows Sponsor / Program / Portfolio Managers to “normalize” project / program data to enable an aggregate or portfolio view of the total effort

Page 4 Why Use Earned Value Management? Facilitates the analysis of project / program performance Facilitates the monitoring and communication of the project/program/portfolio performance Provides a means to forecast future performance based on past performance Facilitates “lessons learned” through a review of the project performance trend

Page 5 Why Use Earned Value Management? Compliments the use of: PERT analysis (estimating) Dependency or Constraint analysis Critical Chain analysis Issue and Risk analysis Resource analysis Critical Path analysis

Page 6 Earned Value Management: Measures (key terms): Planned Value (PV) = Budgeted Cost of Work Scheduled (BCWS) Actual Cost (AC) = Actual Cost of Work Performed (ACWP) Earned Value (EV) = Budgeted Cost of Work Performed (BCWP) BAC = Budget at Complete; Total budget, Expense and Capital planned for the project / program ETC = Estimate to Complete: team’s updated estimate to complete the work remaining EAC = Estimate at Complete; Total of Actuals and estimated cost of work remaining to complete the scope of work for the project / program Calculated EAC = Total of Actuals and estimated cost of work remaining to complete the scope of work for the project / program; factored by Cost performance to date

Page 7 Earned Value Measurement: Cost Variance CV = EV – AC Schedule Variance SV = EV – PV Performance Indices Cost Performance Index CPI = EV / AC Schedule Performance Index SPI = EV / PV To Complete Performance Index (work remaining / remaining budget) TCPI = (BAC – EV) / (EAC – AC) Measurement Guidelines: Green – favorable variance to negative 9% variance Red - >20% negative variance Positive numbers are favorable = or > than 1.0 is favorable Yellow – negative 10% to negative 19% variance

Page 8 Establishing the project / portfolio Earned Value Baseline PV Value of each of the Tasks from project Plan…. form the Planned Value Time $ Each task in a project plan has a value… formed by labor or material cost…. allocated over time BAC BAC = cum PV at end of project

Page 9 Monitoring the Project performance – capturing cost of work performed – Actual Cost (AC) Cumulative Costs to complete the Tasks from project Plan…. form the Actual cost Hours … Or material / vendor costs…. Are expended to complete each task $ $ Cap $ $ $ PV Time $ BAC EV Time Now Unfavorable Cost Variance AC EAC = AC + Estimate to Complete (ETC)

Page 10 SPI / CPI (cum) “worm” Chart (example) 1.0 SPI CPI Favorable Time 1.0 is optimal Cost and schedule performance; tracked over time to indicate trend SPI must close to 1.0 to complete the project; CPI can be at any level at completion TCPI can be used to predict future performance based on past performance Measurement Guidelines: Green – favorable variance to negative 9% variance Red - >20% negative variance Yellow – negative 10% to negative 19% variance

Page 11 Three EV “snake” charts to ponder (1 of 3) PV EV AC “Green”, SV < 10% SV = -150 SPI = 0.95 “Green”, CV favorable CV = +200 CPI = 1.1 Possible Scenarios: Unfavorable Schedule Variance: Resources not applied at the start of the project in a timely fashion Effort continues behind schedule; not making up project delays What tasks are creating the unfavorable schedule variance? Are there specific technical or other issues / risks driving the variance? Opportunity - Can we apply more resources to pull in the schedule? Favorable Cost Variance: Tasks not taking as much time as estimated or planned Tasks completed by lower cost resource Opportunity - Can we apply more resources to pull in the schedule? Time $

Page 12 Three EV “snake” charts to ponder (2 of 3) “Green”, SV favorable SV = +200 SPI = 1.1 “Green”, CV favorable CV = +300 CPI = 1.2 EV AC PV Possible Scenarios: Favorable Schedule Variance: Tasks not taking as much time as planned Slack time / schedule buffer built into project plan Not as many issues encountered Anticipated risks well and applied mitigation into plan or effort to date Planned effort “padded”?; what is the basis of estimate – higher rate of probability applied to project (100% probability versus most likely 50/50?) Favorable Cost Variance: Tasks not taking as much effort as estimated or planned Tasks completed by lower cost resource Check for any material / labor costs not realized Is the favorable CV long term? What is the EAC? Does TCPI support the EAC? Should we re-baseline the project and put funding back into the Management Reserve for the Program / Practice? $ Time

Page 13 Three EV “snake” charts to ponder (3 of 3) Possible Scenarios: Unfavorable Schedule Variance: Effort continues behind schedule; team not making up project delays What tasks constitute the majority of the variance? Do issues continue to linger or are they being resolved? Is / are there technical issues / risks driving the negative variance trend? Unfavorable Cost Variance: Tasks taking more effort than estimated What tasks constitute the majority of the variance? How much effort remains? Do we have the right skill level of resources versus plan? Are we managing the scope, do we have scope creep? (Change Request log?) What is the EAC? Should we cancel the project? “Yellow”, SV >9% SV = -100 SPI = 0.9 “RED”, CV > 20% CV = -200 CPI = 0.79 EV AC PV $

Page 14 Considerations for Implementing Time recording system, or equivalent manual process, absolutely required to capture actual labor costs Quality estimates for the project tasks Allow adequate time for creation of requirements and task estimates Creation of project performance measurement plan – Usually in the form of MS Project (project schedule) Forms the basis for the “Planned Value” (PV) Large material costs need not be included in the EV as they can represent major “step functions” in the EV plans; possibly masking the labor effort of the project

Page 15 Recommendations Gain Leadership support Train the PMs and core Project teams Start small, consider pilot Keep it simple: keep EV milestones and associated cost accounting activity points to a minimum (i.e. 600 line MS project plan lines may consolidate to 20 EV milestones or less)

Page 16 EVM Home Page = Address: DAU POC: (703) (DSN 655) Revised December 2006 TERMINOLOGY BAC Budget At CompletionTotal budget for total contract thru any given level PMB Performance Measurement Baselinetime-phased budget plan CA Control AccountLowest CWBS element assigned to a single focal point to plan & control scope / schedule / budget WP Work PackageNear-term, detail-planned activities within a CA PP Planning PackageFar-term CA activities not yet defined into WPs PV PLANNED VALUE Value of work planned to be accomplished EV EARNED VALUE Value of work accomplished AC ACTUAL COST Cost of work accomplished EAC Estimate At CompletionEstimate of total cost SLPP Summary Level Planning PackageFar-term activities not yet defined into CAs TCPI To Complete Performance IndexEfficiency needed from ‘time now’ to achieve an EAC (DAU = Defense Acquisition University, US DoD training & policy support for their acquisition workforce) (tool downloaded from Modified for DLMP PMO use 02/06/2007 Work PackagesPlanning Packages Control Accounts PMB TRIPWIRE METRICS Favorable is > 1.0, Unfavorable is 0.91, 0.90>concern>0.80, escalate<0.79 Cost Efficiency CPI = EV / AC Schedule Efficiency SPI = EV / PV VARIANCES Favorable is Positive, Unfavorable is Negative, Green if 20% Cost Variance CV= EV – ACCV % = (CV / EV) * 100 Schedule Variance SV= EV – PVSV % = (SV / PV) * 100 Variance at CompletionVAC= BAC – EAC OVERALL STATUS % Schedule = (PV CUM / BAC) * 100 % Complete= (EV CUM / BAC) * 100 % Spent= (AC CUM / BAC) * 100 BASELINE EXECUTION INDEX (BEI) (Schedule Metric) BEI = # of Baseline Tasks Actually Completed / # of Baseline Tasks Scheduled for Completion CPLI = (Critical Path Baseline Duration + Float Duration) / Critical Path Baseline Duration CRITICAL PATH LENGTH INDEX (CPLI) (Schedule Metric) TO COMPLETE PERFORMANCE INDEX (TCPI) TCPI EAC = Work Remaining / Cost Remaining = (BAC – EV CUM ) / (EAC – AC CUM ) ESTIMATE AT COMPLETION # EAC= Actuals to Date+ [(Remaining Work) / (Efficiency Factor)] EAC CPI = AC CUM + [(BAC – EV CUM ) / CPI CUM ] = BAC / CPI CUM EAC Composite = AC CUM + [(BAC – EV CUM ) / (CPI CUM * SPI CUM )] Earned Value Management ‘Gold Card’ Cost Variance Schedule Variance AC EV PV $ EAC Time Now Completion Date PMB BAC time BCWS = PV BCWP = EV ACWP = AC