Integrating Earned Value into the Management of Software Development Projects Dan Brandon, Christian Brothers University

Presented at Information Resources Management Association (IRMA) Annual International Meeting, June 1999, Hersey, PA, USA; Reprinted in “Managing Information Technology Resources in Organizations in the Next Millennium (ISBN: )

Project Management & IT Management “IT managers careers will rise and fall based on their ability to deliver high quality projects on time.” –J. I. Cash, Harvard Business School Only 27% of software development projects succeed; another 33% are over budget (average cost overrun is 189%) and/or late and/or scaled back –Standish Group

Project Management Areas Project Feasibility/Justification Project Organization Project Planning & Scheduling Project Staffing Project Tracking

Typical Project Scheduling (i.e. MS Project) Indicate project start date (and any individual task start dates that cannot float) Indicate tasks (WBS) and their resource requirements (how much of whose time) Indicate Task Interdependencies Indicate Milestones Indicate resource availability; do resource “leveling” Produce “baseline” schedule

Typical Top Level Software WBS Requirements Definition Overall Design Detail Project Plan External Design Detail Design Implementation Integration Internal Documentation Training Installation

Example Second Level WBS [Figure 1 in Paper] Requirements Definition External Requirements Standards Requirements Performance Requirements Interface Requirements Overall Design External Design Internal Design

Project Cost Plan Using a spreadsheet program or using a project scheduling program, Develop a cost plan which indicates: – the cost for each task – when the cost is planned to be incurred Software development is mostly labor cost Figure 2 (shows top level cost Plan) Figure 3 is a graphical representation

JanFebMarApr Requirements Definition105 Overall Design55 Project Plan55 External Documentation5 Partial View of Plan Monthly Cost Cumulative

Project Tracking “Well done is better than well said.” –Benjamin Franklin ( )

Cost & Schedule Tracking Traditional –Gantt Chart –Cost versus Budget Earned Value (Cost/Schedule Control Systems Criteria [C/SCSC] )

Typical Approach Present reports to management: –Cost versus Budget (Planned Cost) Figure 4 –Gantt Chart of Progress Figure 5 The example here is for project work thru July

Blue = Plan, Yellow = Actual

From the information shown: –Are we in good shape on this project (i.e. ahead of, or behind schedule) ? –When can we expect to finish this project ? –What will be our cost at completion ? Earned Value can answer these questions !

Earned Value “Never mistake motion for action.” –Ernest Hemingway ( )

“One of the most underused cost management tools available for project managers is the earned value performance measurement concept” Q. Fleming & M. Koppelman - Primavera Systems, Inc.

History of Earned Value Been around in several forms since 1950’s DoD required many contracts (those where the government was at risk for cost overruns) to use Earned Value (originally PERT/COST) Earned value was a key concept in the 1967 DoD (Dept. of Defense) policy to which contractors had to comply called Cost/Schedule Control System Criteria (C/SCSC) Revised in recent years by DoD to avoid “over implementation”

Now working very well in DoD (particularly Air Force, Army,...) Large body of statistical data available Has its own Internet site in DoD However use in private industry is still low: –No exposure to concepts –Don’t understand concepts –Don’t know how to effectively implement

Earned Value A quantifiable way to express real cost and schedule variances Work Plan - shows the budgeted cost associated with the project in time by task (work packet), rolled up to a particular level (the “reporting level”) of the WBS Concepts: –Budgeted cost of work scheduled –Actual cost of work performed –Budgeted cost of work performed (EV)

Budgeted Cost of Work Scheduled A point on the planned cost (or budget) baseline representing the value of work planned (scheduled) as of a given point in time.

Actual Cost of Work Performed The total accrued resources spent on the project thusfar

Budgeted Cost of Work Performed Same as “Earned Value” A point on the planned cost (budget) baseline representing the budgeted value for work completed as of a point in time. Determined by looking at each task initiated, the planned cost for that task, and the amount of that task completed (% complete) -- Figure 5 in paper

External Documentation [Figure 5] TaskPlan% CValue Overall Control Tables Sorts, Selects, Forms Reports Totals

EV Variances Cost Variance = ACWP - BCWP (EV) –Note difference from simple budget variance: ( ACWP - BCWS) –Figure 6 in paper Schedule Variance = BCWS - BCWP –Can be expressed in time or dollars –To convert to time use spending rate at the measured point in time

We can clearly see from the graph that we are over cost not under cost: –ACWP - BCWP is positive –Even though budget variance (ACWP - BCWS) is negative (under budget) !!! We can also se that we are behind schedule; we should have been at this point several weeks ago ! Formulas here have sign reversed from PMI PMBOK versions

Extrapolations [Figure 8] Schedule: –Schedule Efficiency Factor: EarnedValue/BCWS = 0.7 –Schedule variance In either dollars (24) or calendar time (1.2) ! –Estimated Time to Complete (16): PlanTime/ScheduleEfficiencyFactor

Cost: –Cost Efficiency Factor: EarnedValue/ACWP = 0.9 –Estimated Cost at Completion (EAC): PlanCost/CostEfficiencyFactor = 211

Effective Use of Earned Value in IT Proper Task Level Specification Meaningful Percent Complete Reporting “Non-Intrusive” Tracking Systems Accurate and Timely Cost Data Integration with SEI’s CMM TQM vs Individual Performance Evaluation

Task Level General rule for application software development - smaller of –one manweek’s effort –individual component (screen, report, memu,...) Important to match to accounting and/or timekeeping frequency !!

Percent Complete Reporting Keep it simple ! Common method (weighted milestone): –Not startedzero –Working on it50% –Finished100% Trade off in ease of reporting versus accuracy of reporting

IT % Complete Have not begun work0% Working on packet50% Finished packet75% Packet Verified100% Figure 9 in paper suggest verification methods for typical IT packet types

Integration with SEI’s CMM Software Engineering Institute’s Capability Maturity Model (for software) Level 2 (Repeatable) mainly concerns project management; key process areas: –Software Project Planning –Software Project Tracking and Oversight “The project’s software effort and cost are tracked, and corrective actions are taken as necessary.”

Tracking Systems Non intrusive Gather only necessary information: –time (manhours) –per cent complete by component By product of normal time & attendance system (i.e. timecards): –person id (rbs) –task id (wbs) –% complete –manhours

Timely and Accurate Cost Data Note that EV schedule variances do not need actual costs Getting necessary and timely cost data from G/L, even at top level of WBS may not be possible Need to “feedward” cost data based upon regular (i.e. weekly) time card and other input: –Base Earned Value on hours instead of dollars –Or base cost on hours times a category “rate” for each type of employee (ie Programmer II); using actual rates is also possible but probably is both a maintenance problem and confidentially problem).

TQM as Basis Employee acceptance problem –“Extra paperwork” –“Effect on my performance evaluation” –“Cannot report accurately” - see % complete reporting methods Justify on TQM Basis (adopt as part of overall TQM program) –Improve Task Estimation Process –Accuracy of estimating time/cost to complete

“If you can’t measure it, you can’t manage it” Peter Drucker (TQM Guru) Project Management Institute -