Earned Value Management Instructor: Mike O’Dell Some slides in this presentation were originally developed by Mr. Tom Rethard, and most have been further enhanced and modified by Mr. Mike O’Dell for use in the CSE Senior Design class.

Earned Value - What is it? Simply, it is a project monitoring and measurement system that: establishes a clear relationship between planned accomplishments and actual accomplishments reinforces and rewards good planning practices

Earned Value - What is it? Basic concepts of Earned Value Management (EVM) Each task in a project earns value as planned work is completed For example (perhaps), if you were paid on this basis, you would earn $$ at key milestones based on the value of what you have completed (earned value) Earned value can be compared to actual cost and budgeted cost to determine variance and predict future performance

Earned Value - What is it? The budgeted cost (e.g., dollars, person-hours, person-days, etc.) in terms of your baseline plan/budget of the work performed up to a specified point in time Also known as Budgeted Cost of Work Performed (BCWP) Each task in the Work Breakdown Structure (WBS) is assigned a BCWP based on its individual cost. Project BCWP is total of BCWP for all tasks required to complete the project

Earned Value Components Planned Value (a.k.a. BCWS) How much work (person-hours) you planned to have accomplished at a given point in time (this is from the WBS in your plan) Actual Cost (a.k.a. ACWP) How much work (person-hours) you have actually spent at a given point in time Earned Value (a.k.a. BCWP) The value (person-hours) in terms of your base budget of what you have accomplished at a given point in time (or, % complete X Planned Value)

Earned Value: Example On Day X: Today 18 8 14 On Day X: PLANNED VALUE (Budgeted cost of the work scheduled, BCWS) = 18 + 10 + 16 + 6 = 50 EARNED VALUE (Budgeted cost of the work performed, BCWP) = 18 + 8 + 14 + 0 = 40 ACTUAL COST (of the work performed , ACWP) = 45 (from your project tracking - not evident in above chart)

Earned Value: Example Cost (Person-Hours) Time (Date) Actual Cost: what you have actually spent to this point in time. Today Budgeted (Planned) Spending Planned Value: what your plan called for sending on the tasks planned to be completed by this date. Cost (Person-Hours) Actual Spending Earned Value Earned Value: value (cost) of what you have accomplished to date, per the base plan. Time (Date)

Earned Value: Example Over Budget Cost (Person-Hours) Behind Schedule Today Over Budget Budgeted (Planned) Spending Behind Schedule Cost (Person-Hours) Actual Spending Earned Value Time (Date)

Variance Any schedule or cost deviation from a specific plan. Used within an organization to verify the budget and schedule for a project Frequently used as a key component of plan reviews and performance measurement

Variance Must compare scheduling and budget variance at the same time Schedule variance: deviations from work planned – not a measure of changes in cost Cost variance: deviations from the budget – not a measure of work scheduled vs. work completed Example: applying more $$/people to a task may maintain the schedule, but it adds to cost… schedule on track… over budget on expenses (cost)

Performance Indices Cost Performance Index Schedule Performance Index CPI = BCWP/ACWP Schedule Performance Index SPI = BCWP/BCWS Analysis CPI > 1.0  exceptional performance CPI < 1.0  poor performance Similar for SPI

Quiz The EV measurement of work you planned to have accomplished at a given point in time : BCWP ACSP BCWS ACWS True or False: At any point in time, the SPI tells you exactly how far ahead or behind schedule you are on your project. TRUE FALSE

Quiz If BCWP is 20 pm and ACWP is 15 pm, CPI: .75 1.33 1.0 If BCWP is 27 pm BCWS is 25 pm, you are probably: On schedule Ahead of schedule Behind schedule None of the above

Earned Value & Variance: Example 18 8 14 On Day X: PLANNED VALUE (BCWS) = 18 + 10 + 16 + 6 = 50 EARNED VALUE (BCWP) = 18 + 8 + 14 + 0 = 40 ACTUAL COST (ACWP) = 45 (from your project tracking) Therefore: Schedule Variance = BCWP – BCWS = 40 - 50 = -10 (behind schedule) Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan (a B-, at best) Cost Variance = BCWP - ACWP = 40 - 45 = -5 Cost Performance Index = 40/45 = .89, or you’re getting an 89¢ return on every $1.00 (or, person-hour) spent on this project

Primary Measurement Methods Measurable efforts Discrete increments of work with definable schedule and tangible results (i.e., real tasks with a deliverable) Level of effort Work that is not discernable in discrete, measurable tasks (e.g., project management, training)

Determining % Complete – When? Allocate based on time spent – but what if you spend more time than allocated? Allocate 50% at start of task, 50% at end But only for small, discrete tasks Allocate 100% at start of task Allocate 100% at end of task Best solution if you keep tasks very small Allocate value at Critical Milestones Good solution when using with contract work Others? Our approach

Another Example Project Plans to spend $100K in each of first 4 weeks (baseline budget, per documented plan) Actuals, at end of week 4 show: $325K spent BCWS = $400K ($100K x 4) ACWP = $325K What conclusions can you draw? Under budget? Is project on schedule?

Another Example Project Suppose BCWP is $300K How is this determined? What conclusions now? SV = BCWP – BCWS SV = $300k - $400K = -$100K Behind schedule, but what does the $100K in variance really mean? CV = BCWP – ACWP = $300K - $325K Over budget by $25K

Earned Value Management How can you use this information? Careful analysis of variance and trends Resetting schedule or budget, when appropriate Variance Analysis Questions What is the problem causing the variance? What is the impact on time, cost and performance? What is the impact on other efforts, if any? What corrective action is planned or under way? What are the expected results of the corrective action?

Earned Value Management Extraordinary variance or alarming trends may be cause for reset or cancellation of a project, but where do you draw the line? How much variance to allow depends on a number of factors: Life-cycle phase Length of life-cycle phase Length of project Type of estimate Accuracy of estimate

Variance Projection

Performance Index Trends

Ideal Performance Index

Closing Thoughts: Management Reserve The padding always added to a project for unexpected costs that are within project scope Not an allowance for changes to scope Not part of the cost estimate Added by upper management, not the project manager.

Closing Thoughts: Government Requirements U.S. government contract cost tracking often must include: BCWS BCWP ACWP Estimated cost at completion Budgeted cost at completion Cost and schedule variances with explanations Traceability

Summary Cost, in the form of Earned Value or BCWP, can be used to analyze progress of a project Using Earned Value data to make critical project decisions must be based on careful analysis of data, variances and trends