UU Master Class Earned Value 17 July 2013

Earned Value Contents What is Earned Value / Earned Value Analysis Why and where is it used A brief history The basics Simple example Why it doesn’t work (sometimes)

Earned Value What Is Earned Value An approach for determining and measuring progress of work, predicting project results by comparing planned to actual performance. A tool that if used properly can give early warning of problems in a project, programme or portfolio. Value is determined at start and “earned” as work progresses. If work progresses to plan then earned value and actual cost are the same. EVA a technique that evaluates project performance and predicts outcomes EVM a methodology for controlling a project EVMS the process procedures tools and templates used by an organisation

Earned Value Why and Where is it used Why It gives a transparent set of metrics for performance It allows comparison between different types of work It is scalable to a programmer or portfolio of work An approach for determining and measuring progress of work, predicting project results by comparing planned to actual A tool that if used properly can give early warning of problems in a project, programme or portfolio of work It helps PMs and others ask the right questions at the right times Where Common in industry –oil & gas, defense, nuclear, transport and becoming more popular Mandated by US government

Earned Value A brief history Developed in USA on Government programmes in the 1960’s In 1980’s and 1990’s being used by managers (not just specialists) 1991 US Navy A-12 Avenger programme cancelled because of problems identified by EV

Earned Value - The Basics ElementEVA name EVA acronym DescriptionSource Baseline Budgeted Cost of the Work Scheduled Budget at Completion of Project BCWS BAC ¥ The time phased cost associated with the planned work. Set at the start of the project and controlled through change control The cumulative total BCWS Costed porgramme set at start of work, rolled up from planned costs of individual plan elements Estimated project lifetime budget at start of project

Earned Value – The Basics ElementEVA name EVA acronym DescriptionSource Actual cost Actual Cost of the Work Performed ACWPThe cost of the work that has been completed Corporate systems and accruals

Earned Value – The Basics ElementEVA nameEVA acronymDescription Progress (Earned Value) Budgeted Cost of the Work Performed BCWPThe planned cost of the work that has been completed, taken from the BCWS

Earned Value – The Basics ElementEVA name EVA acronym DescriptionSource Forecast Estimate to Completion Estimate at Completion ETC EAC * ¥ The latest view on what the time phased cost of the work required to complete the project The sum of the ETC and the Actual Cost Project Manager’s own update of plan for future work

Earned Value – The Basics ElementEVA name EVA acronym DescriptionSource Baseline Budgeted Cost of the Work Scheduled Budget at Completion of Project BCWS BAC ¥ The time phased cost associated with the planned work. Set at the start of the project and controlled through change control The cumulative total BCWS Costed Prrogramme set at start of work, rolled up from planned costs of individual plan elements Estimated project lifetime budget at start of project and adjusted at each gate Progress (Earned Value) Budgeted Cost of the Work Performed BCWPThe planned cost of the work that has been completed, taken from the BCWS % complete x BAC Actual cost Actual Cost of the Work Performed ACWPThe cost of the work that has been completed Corporate systems and accruals Forecast Estimate to Completion Estimate at Completion ETC EAC * ¥ The latest view on what the time phased cost of the work required to complete the project The sum of the ETC and the Actual Cost Project Manager’s own update of plan for future work

Earned Value – The Basics

Earned Value - The Basics IndexAcronymDescriptionCalculationPositive Variance means Schedule VarianceSVProgress – BaselineBCWP – BCWSAhead of Schedule Cost VarianceCVProgress – Actual CostBCWP – ACWPUnder budget IndexAcronymDescriptionCalculationIndex greater than 1 means Schedule Performance Index SPI Progress Baseline BCWP BCWS Ahead of Schedule Cost Performance Index CPI Progress Actual Cost BCWP ACWP Under budget

The Basic Calculations: Variances 13 SCHEDULE VARIANCE Difference between baseline plan and actual progress COST VARIANCE Difference between actual cost and planned cost of work performed to date Are you doing what you said you would do when you said that you would do it? Have you paid what you planned to pay for the work on the plan that has been done

Earned Value – The Basics Variances and indices are a historical view of performance The same three sources of data (BCWP, ACWP and BCWS) can be used to provide a prediction for the future Estimate at Completion (EAC) - Simple approach EAC= Cost to date + remaining work = ACWP + (BAC – BCWP) but this doesn’t take into account performance to date - Analytical approach, aka. Independent EAC (IEAC) IEAC= Performance to date applied to remaining work = ACWP + (BAC – BCWP) / CPI but past performance is no guarantee of future performance

Earned Value – The Basics Cost Estimates and Schedules Robust and appropriately detailed for the whole project Easy for some jobs, harder for others However any plan can only be based on the best available information at the time of its creation all plans change Honest and accurate updates each month % complete of each task for performance to date Forecast to complete, for future performance

Simple Example - How are the following projects performing ? 16

Simple Example - How are the following projects performing ? 17 +CV -SV Ahead on Cost but behind on Schedule +SV +CV Ahead on Cost and ahead on Schedule +SV -CV Behind on Cost and ahead on Schedule -CV -SV Behind on Cost and behind on Schedule

Requirements Estimate Schedule or plan Estimate and schedule integrated to give baseline requires a consistent work breakdown structure and profiling of costs Progress accurately and honestly measured and reported Units complete Incremental milestones Start Finish Level of effort Individual Judgement Combination Apportioned Relationship Change control Contingency and Risk Many organisations run EVA from the Primavera planning software

Issues in use EV is a way to control projects including time and material projects / portfolios including front end design –FED FEED it is not a cure all Annual -v- Life Cycle reporting Not all Project Managers work to or like it Measuring and reporting progress needs discipline (is it really 90% done) Some people do not tell the truth ( we will catch up next month!!) Schedule (time) measured in £s (counter intuitive) How to measure progress on free issue resource Dealing with contingency Dealing with risk Primavera / Programme – logic linked, missing logic, activities coasted, link to estimate WBS, resource loaded, float Alignment of estimate with cost loading schedule Schedule(s) from contractors Change control

Example F+G are to produce a Bill of Quantities Team – all to be charged at £500 / person / day Estimated that document will take four weeks to complete based on the following resources Week 1 – two people Week 2 – four people Week 3 – four people Week 4 – two people Total cost £30k The BoQ will have 10 sections Progress will be measured by completion of each section - so £3k per section

Example Position after two weeks – as the Manager what would you report

Reasons it fails no documented requirements; incomplete requirements; WBS not used or not accepted; WBS incomplete; plan not integrated (WBS-Schedule-Budget); schedule and/or budget incorrect; change management not used or ineffective; cost collection system inadequate; incorrect progress; and management influence and/or control. Taken from AACE article

Questions Q