Module1: Introduction to Earned Value

Earned Value Management Tutorial Module 1: Introduction to Earned Value Management

Module1: Introduction to Earned Value
Welcome to Module 1. The objective of this module is to introduce you to Earned Value and lay the blueprint for the succeeding modules. This module will include the following topics: Earned Value Management defined The differences between Traditional Management and Earned Value Management How Earned Value Management fits into a Program and Project environment The framework necessary for proper Earned Value implementation Module 1 - Introduction

What is Earned Value Management?
Earned Value Management (EVM) is a systematic approach to the integration and measurement of cost, schedule, and technical (scope) accomplishments on a project or task. It provides both the government and contractors the ability to examine detailed schedule information, critical program and technical milestones, and cost data. Earned Value Management is intended to provide data from a contractor’s management system to the government in standard data elements that… Relate time-phased budgets to contract tasks Integrate cost, schedule, and technical performance Indicate work progress objectively Are valid, timely and auditable Are from the internal system the contractor uses to manage Are at a practical level of summarization Module 1 - Introduction

Where have we been? Where are we now? Where are we going?
Why use Earned Value Management? By using Earned Value and implementing an Earned Value Management System (EVMS), the following questions can be answered objectively: Where have we been? Where are we now? Where are we going? Why use Earned Value? For one, it is mandated by some key DOE directives and guidance that Earned Value will be implemented. The following pages will discuss these. Module 1 - Introduction

DOE guidance for Earned Value
A memorandum from the Deputy Secretary of Energy, dated September 19, 2001…. “I intend to continue the direction contained in DOE Order The responsibilities contained in the Order require that you know what is going on with your projects and that you assist your program managers and project managers in resolving issues and problems. The quarterly performance reviews, monthly status updates utilizing the Earned Value Management System as a metric, and periodic independent reviews are all sources for project information that allow us the opportunity to intercede before projects get off track.” Now let’s look at the DOE Order 413.3 Module 1 - Introduction

DOE guidance for Earned Value
Current Department of Energy policy, DOE Order 413.3, Program and Project Management for the Acquisition of Capital Assets, states the requirements for contractor’s project management system “ The industry standard for project control systems described in American National Standards Institute (ANSI) EIA-748, Earned Value Management Systems, must be implemented on all projects with a total project cost (TPC) greater than $20M for control of project performance during the project execution phase.” Finally, below let’s look at some Best Practice guidance currently in the DOE. The Office of Field Management has issued a series of 33 Good Practice Guides. Though they are not official guidance, each guide describes the good practices used throughout DOE and industry for specific topic including Earned Value Management, and provides examples of performance objectives, criteria, and measures. Module 1 - Introduction

Earned Value Management History
With the understanding of what Earned Value is and why it used, let’s take a brief look at the history of Earned Value. 1960s - Earned value-based performance management began in the 60s, based initially on Department of Defense (DOD) Cost/Schedule Control Systems Criteria (C/SCSC). Earned Value was used as an objective measure for progress, i.e., physical accomplishment 1970s-80s – The DOD continued the use of Earned Value in response to bearing cost and schedule risk in cost-plus contracting. Contractors pushing high tech, newly developed weaponry Military having critical schedule needs (“Arms Race”) 1990s – Policy moved Earned Value into all Federal agencies OMB Circular: A-11, NASA Policy Directive , DOD R, and DOE Order to name a few Module 1 - Introduction

Traditional Management vs. Earned Value Management
To better understand Earned Value Management, let’s take a look at how earned value management compares with traditional management. There is an important and fundamental difference between the data available for analysis in a traditional management environment as compared to an environment using earned value. Following pages will discuss and contrast the different between the two management approaches. Module 1 - Introduction

Traditional Management
In Traditional management, there are two data sources, the budget (or planned) expenditures and the actual expenditures. The comparison of budget versus actual expenditures merely indicates what was planned to be spent versus what was actually spent at any given time. But how much has been produced? As you can see, with this approach there in no way to determine the physical amount of work performed. It does not indicate anything about what has actually been produced for the amount of money spent nor whether it is being produced at the rate, or according to the schedule, originally planned. In other words, it does not relate the true cost performance of the project. F 10 20 30 40 50 60 70 Budget 5 15 25 35 45 55 Actuals J M A S O N D Time Now As the graph shows, this comparison only represents the relationship of what was budgeted (planned) versus what was actually spent. The graph show the unit on the vertical axis and the budgets and actual amounts on the horizontal axis. The horizontal axis uses months as the units. There are two lines. A blue line that represents actual cost and a red line that represents the amount budgets. The graph starts with January and status is through June. The actual cost line is above the budget line for every month. Module 1 - Introduction 9

Earned Value Management
In Earned Value Management, unlike in traditional management, there are three data sources: the budget (or planned) value of work scheduled the actual value of work completed the “earned value” of the physical work completed Earned Value takes these three data sources and is able to compare the budgeted value of work scheduled and compare it to the “earned value of physical work completed” and the actual value of work completed. Let’s take a closer look at how earned value appears in a graph. Module 1 - Introduction

Notice the three lines on the graph below. These lines correspond to the three components of earned value: budget (in red), actual expenditures (in blue), and the earned value of the production (in black). Note how the budget line is below both the actual expenditures and the earned value lines. What does this indicate? First, it is obvious that the project is expending more (blue line) than it was budgeted to spend, to date (red line). Given the progression of each line, it is also apparent that this trend has occurred since the beginning of the project. But what else can be interpreted from the graph? Let’s take a closer look on the next page. The graph show the unit on the vertical axis and the budgets, actual amounts, and earned value on the horizontal axis. The horizontal axis uses months as the units. There are three lines. A blue line that represents actual cost, blue line that represents the amount budgets, and a black line that represents the earned value. The graph starts with January and status is through June. The actual cost line is above the budget line and earned value line for every month. Additionally the earned value line is above the budget line for every month. There is also a dashed blue line extending from the actual cost line. This dashed line represents the forecasted cost. Module 1 - Introduction 11

In addition to tracking budget and actual expenditures, the graph indicates what has been completed or “earned”. By comparing the budget line (in red) to the earned value line (in black), it is immediately apparent that the project is producing more than it was budgeted to produce to date. Additionally, by comparing the actual expenditures (in blue) to the earned value line (in black), it is immediately apparent that the project is spending more then it was budget to date. So while the project is expending more (blue line) than budgeted (red line), it is also producing more (black line) than budgeted. So what conclusions can be drawn from this graph? Let’s find out on the next page. 25 50 75 100 125 150 Budget 5 10 15 20 30 35 40 45 55 60 Actuals Earned 8 Forecast 70 80 90 110 120 J F M A S O N D Time Now The graph show the unit on the vertical axis and the budgets, actual amounts, and earned value on the horizontal axis. The horizontal axis uses months as the units. There are three lines. A blue line that represents actual cost, blue line that represents the amount budgets, and a black line that represents the earned value. The graph starts with January and status is through June. The actual cost line is above the budget line and earned value line for every month. Additionally the earned value line is above the budget line for every month. There is also a dashed blue line extending from the actual cost line. This dashed line represents the forecasted cost. Module 1 - Introduction 12

There are two conclusions the earned value data will immediately let you make; they deal with schedule and cost variances. Schedule Variance - the project is experiencing a schedule variance of 15. This is derived from comparing the Earned (45) to the Budget (30). Another way of stating this is that the project is ahead of schedule in comparison to what was supposed to be done in the frame time measured. 25 50 75 100 125 150 Budget 5 10 15 20 30 35 40 45 55 60 Actuals Earned 8 Forecast 70 80 90 110 120 J F M A S O N D Time Now The graph show the unit on the vertical axis and the budgets, actual amounts, and earned value on the horizontal axis. The horizontal axis uses months as the units. There are three lines. A blue line that represents actual cost, blue line that represents the amount budgets, and a black line that represents the earned value. The graph starts with January and status is through June. The actual cost line is above the budget line and earned value line for every month. Additionally the earned value line is above the budget line for every month. There is also a dashed blue line extending from the actual cost line. This dashed line represents the forecasted cost. Module 1 - Introduction 13

Cost Variance - the project is experiencing a cost variance of -15. This is derived from comparing the Earned (45) to the Actual expenditures (60). Another way of stating is that the project is experiencing an overrun of This cost variance is very important because history tells us that overruns in cost do not correct themselves and need management intervention. Along with the schedule and cost results discussed, earned value management enables you to forecast the final results of the project (blue dashed line). 25 50 75 100 125 150 Budget 5 10 15 20 30 35 40 45 55 60 Actuals Earned 8 Forecast 70 80 90 110 120 J F M A S O N D Time Now The graph show the unit on the vertical axis and the budgets, actual amounts, and earned value on the horizontal axis. The horizontal axis uses months as the units. There are three lines. A blue line that represents actual cost, blue line that represents the amount budgets, and a black line that represents the earned value. The graph starts with January and status is through June. The actual cost line is above the budget line and earned value line for every month. Additionally the earned value line is above the budget line for every month. There is also a dashed blue line extending from the actual cost line. This dashed line represents the forecasted cost. Module 1 - Introduction 14

Summarizing Traditional Management vs. Earned Value Management
In summarizing, Traditional management provides you with… How much money and time a particular job is likely to require prior to starting and once stated, how much money was spent at any given time. While Earned Value Management provides you with… Plus Once started, what work has been accomplished to date for the funds expended (what you got for what you spent) Once started, what the total job will cost at completion, and how long it will take to complete Module 1 - Introduction

Earned Value in a Management Environment
Understanding how Earned Value fits into the program and project management environment is also essential. On the following page we will discuss and define items such as project vs. program, project management, program management and the relationship between them. Module 1 - Introduction

What is Program/Project Management?
Program/Project Management is the application of knowledge, skills, tools, and techniques to meet or exceed stakeholder needs and expectations. Program/Project Management requires the ability to get the job done: On Time! Within Budget! According to Specifications! With a High Level of Customer Satisfaction These requirements are know as the “Triple Constraint” A triangle with the word scope on the top edge, the word time on the bottom left edge, the word cost/resources on the bottom right edge and the word quality is in the middle of the triangle. So how do projects and programs differ? Take a look on the next page. Module 1 - Introduction 17

What is a Project vs. Program
The Characteristics of a Project are: Temporary endeavor undertaken to create a unique product or service Having a definite beginning and a definite end The Characteristics of a Program are: A group of projects Managed in a corresponding way To obtain benefits not available from managing them individually Module 1 - Introduction

Earned Value Management vs Program/Project Management
Earned Value is a Program/Project management technique used to objectively evaluate cost and schedule efficiency, thereby facilitating better management of customer needs and expectations. Earned Value Management is a subset of Program/Project Management. As this hierarchy indicates, Earned Value Management is a component of Project Management, which in turn is a component of Program Management. While many components comprise Program and Project Management, this tutorial focuses on the Earned Value Management component. Program Management Project Management Budgeting Cost Proposals/Negotiations Cost Collection Change Control Earned Value Management Forecasting Funding Resource Management Reporting Risk Management Scheduling Module 1 - Introduction

Framework for an Earned Value Management System (EVMS)
So far, we have discussed what Earned Value is, why to use it, and how it fits into a program and project management environment. Next, we need to discuss the framework needed to implement earned value. The EVMS framework can be divided into three phases: Inputs - what is needed to implement Earned Value Earned Value Methods – formulas, metrics and performance measurements used Outputs – reporting requirements (structure, time-phases, details) On the following pages these three phases for developing an Earned Value Management System (EVMS) will be discussed in more detail. Module 1 - Introduction

Inputs needed for Earned Value Management System (EVMS)
As you recall, the first phase of Earned Value is inputs. The inputs required for an EVMS include: Work Breakdown Structure (WBS) Organizational Breakdown Structure (OBS) Project Schedule Time-phased Baseline Budget Cost/Resource Control Plan Change Control Plan If any of these items are not completed or are not completed appropriately, the use of Earned Value will be compromised and your outputs will not properly represent the program/project current and future status. Earned Value Management System Project Schedule Resource Planning Define/Assign Schedule/Budget Establish Baseline Accounting WBS/OBS Actuals Plan Funding $$$ Performance Measurement Early Warning & Detection Informed Management Decisions Corrective Actions Recovering Planning These Items are covered in Modules 2 through 4 and Module 8 A graphic showing the input needed for earned value. These input are showed going into a box called Earned Value Management System. Then there is an arrow showing the outputs from the EVMS box. The graphic is emphasizing the inputs with shading. Module 1 - Introduction 21

Earned Value Method needed for Earned Value Management System (EVMS)
The second phase of Earned Value is the earned value method. The Earned Value method required for an EVMS include: Planned Value (PV), Earned Value (EV) Actual Cost (AC) Metrics and Performance Measurements Forecasting Integrated Baseline Review Once again, if any of these items are not completed or are not completed appropriately, the use of Earned Value will be compromised and your outputs will not properly represent the program/project current and future status. Earned Value Management System Project Schedule Resource Planning Define/Assign Schedule/Budget Establish Baseline Accounting WBS/OBS Actuals Plan Funding $$$ Performance Measurement Early Warning & Detection Informed Management Decisions Corrective Actions Recovering Planning These Items are covered in Modules 5 through 7 A graphic showing the input needed for earned value. These input are showed going into a box called Earned Value Management System. Then there is an arrow showing the outputs from the EVMS box. The graphic is emphasizing the EVMS box with shading. Module 1 - Introduction 22

Outputs needed for Earned Value Management System (EVMS)
The last phase of Earned Value is the outputs. The outputs required for an EVMS include: Reporting requirements Proper Analysis of Reports Correct Action taken Even if the first two phases are completed appropriately, improper analysis of the outputs could cause inappropriate or inadequate actions to be taken against the program/project and could either create problems that otherwise would not exist or fail to fix the real problem that does exist. Earned Value Management System Project Schedule Resource Planning Define/Assign Schedule/Budget Establish Baseline Accounting WBS/OBS Actuals Plan Funding $$$ Performance Measurement Early Warning & Detection Informed Management Decisions Corrective Actions Recovering Planning These Items are covered in Modules 9,10 & 12 A graphic showing the input needed for earned value. These input are showed going into a box called Earned Value Management System. Then there is an arrow showing the outputs from the EVMS box. The graphic is emphasizing the outputs from the EVMS box with shading. Module 1 - Introduction 23

--- Bill Hewlett, Hewlett Packard
Review of Module 1 “You cannot manage what you cannot measure…and what gets measured gets done.” --- Bill Hewlett, Hewlett Packard Reviewing the major items of this module: Earned Value Management (EVM) is a systematic approach to the integration and measurement of cost, schedule, and technical (scope) accomplishments on a project or task DOE Order is the approved policy In comparing Earned Value Management to Traditional Management, Traditional Management does not allow for analysis of the physical amount of work performed. Earned Value Management allows for both schedule and cost analysis against physical amount of work performed Earned Value Management is a subset of Program/Project Management EVMS can be divided into three phases (Inputs, Earned Value method, outputs) and all three most be completed appropriately for proper management of the program/project Module 1 - Introduction

Summary of Module 1 At this point, we have examined the basics of earned value. As explored previously, the following modules address in depth the components that comprise earned value to help you incorporate earned value into your projects. If you have a firm grasp of the concepts covered in this module, you are ready to progress to the next modules. Otherwise, review this module again to ensure you have a solid understanding of the basics of the Earned Value Management System. This concludes Module 1. Module 1 - Introduction

Earned Value Management Tutorial Module 2: Work Breakdown Structure
Prepared by:

Module 2: Work Breakdown Structure
Welcome to Module 2. The objective of this module is to introduce you to Work Breakdown Structure (WBS) and other supporting documents. This module will include defining and illustrating the following topics: Work Breakdown Structure WBS dictionary Organizational Breakdown Structure (OBS) Responsibility Assignment Matrix (RAM) Module 2 – Work Breakdown Structure

What is a Work Breakdown Structure?
Planning a project using earned value management is no different than the initial planning necessary to implement any given project. There are basic items that you need to know and understand as a project manager: What makes up my entire project (Scope)? What is the agreed upon work scope and what is additional work? What are my start and completion dates (Schedule)? How much is the project going to cost (Cost)? Over the years, it was determined that project managers needed a tool to help capture and control their project scope. This led to the development of a Work Breakdown Structure (WBS). On the following pages we will define and discuss a WBS. Module 2 – Work Breakdown Structure

The Work Breakdown Structure (WBS) is a tool that defines a project and groups the project’s discrete work elements in a way that helps organize and define the total work scope of the project. A WBS element may be a product, data, a service, or any combination. WBS also provides the necessary framework for detailed cost estimating and control along with providing guidance for schedule development and control. Additionally the WBS is a dynamic tool and can be revised and updated as needed by the project manager. Each descending level of the WBS represents an increased level of detailed definition of the project work. As you can see in this WBS for developing the BEST Management Book, the work is broken down into all the discrete elements of work, the total sum of which represents all the work and products necessary to produce the book. A WBS with the top box being the company BEST Management books. From that box, going downward, the next box is the book, Project Management an Introduction. From that box, going downward are three separate boxes with writing, editing and publishing the book. From the writing the book box comes three separate books called chapter 1, chapter 2, and chapter 3. From the editing book comes three boxes, editing chapter 1, editing chapter 2 and editing chapter 3. From the Chapter books comes the subchapters. Module 2 – Work Breakdown Structure 29

After reviewing the WBS on the previous page, an important point needs to be reviewed. Although a WBS can be depicted so as to look like an organizational chart, it IS NOT an organizational chart. Remember the WBS defines a project and groups the project elements for managing a project. An organizational chart describes the project team that will accomplish the project. The graphic is the same WBS structure from the previous page but there is the “no” symbol over it. Module 2 – Work Breakdown Structure 30

Why is a Work Breakdown Structure needed?
Not all projects have a WBS, and it is true that some of these projects have been successful. So why is a WBS needed? We have already looked at a few reasons, but in review, the WBS: Provides a framework for organizing and managing the approved project scope Helps ensure you have defined all the work that makes up the project Provides a framework for planning and controlling cost and schedule information It’s better to be deliberate about planning than rely on luck! Additionally, when you work for a company or organization that has many projects being performed simultaneously, each of the projects is competing for the limited resources available. The WBS enables you to review project details and distinguish one project’s needs from others within the company or organization. Why is distinguishing one project from another important? It enables you to identify resource requirements and allocate resources more effectively. Now let’s look at preparing a WBS. Module 2 – Work Breakdown Structure

What must be delivered to achieve project success?
Preparing a WBS In preparing a WBS there are a number of steps that need to be taken to make sure the WBS developed will help manage your project. Below and on the following pages we will discuss these steps. Identify final project products necessary for achieving project success. The WBS should assist the project manager in developing a clear vision of the end product. You need to answer the following question: What must be delivered to achieve project success? You may need to review the project scope documents for guidance. Identify the major deliverables necessary for project success. These are items that by themselves do not satisfy the project need but combined make up a successful project Examples: a design completion, generator delivery, or acceptance test completion In the DOE, these could be Critical Decisions (see DOE Order ) Module 2 – Work Breakdown Structure

Understand your controlling and reporting requirements
Preparing a WBS Incorporate additional levels of detail until management requirements for managing and controlling the project are met. Remember that each project is different, thus each WBS will be different WBS’s from previous projects can be used as templates, but remember that the management philosophy and the level of details may be different from project to project Understand your controlling and reporting requirements Projects have different requirements; make sure you take these into consideration when developing low level details Review and refine the WBS until the stakeholders agree with the level of project planning and reporting. Remember that no matter how detailed a WBS is, there are planning and reporting restrictions a WBS creates. On the following pages, we will look at examples of these restrictions. Module 2 – Work Breakdown Structure

Not Planned to this level
Preparing a WBS Let’s use the BEST Management Books’ WBS we looked at earlier. Assume that the WBS was only planned down to the chapters level (see graph below, left), but after the first month of work, the stakeholder wants reporting at the subchapter level (see graph below, right). Without restructuring the WBS and changing the other supporting systems, like cost tracking and reporting, it is impossible for the project manager to meet the stakeholder’s request. Current Project WBS Project WBS Needed Chapter 1 Writing Text Book 1.1.1 Chapter 2 Project Selection Organization Planning Chapter 1 Budget & Cost Scheduling Controls Writing Text Book 1.1.1 Chapter 2 The graphic is split into two sections. The left side is titled Current Project WBS and the right side is titled Project WBS Needed. Both sides of the graphic are basically the same. The writing the text book WBS level is on top and going downward, the next level is showing boxes for chapter 1 and chapter 2. When you get to the next level the right side, titled Project WBS Needed, shows the boxes for each subchapter, while on the Current Project WBS side there is no box at that level but there is text stating, not planned to this level. Not Planned to this level Module 2 – Work Breakdown Structure 34

Do you still see a problem with the project WBS? Let’s take a look.
Preparing a WBS Now let’s reverse the situation. Assume WBS was planned down to the subchapter level (see graph below, left), but after the first month of work, the stakeholder wants reporting at the chapter level (see graph below, right). Is there any restructuring needed to the WBS? The answer is “No”. Since you planned the work at a level below what is now the stakeholder’s requirement, you can “roll-up” and meet the stakeholder’s request. Do you still see a problem with the project WBS? Let’s take a look. . Current Project WBS Project WBS Needed Project Selection Organization Planning Chapter 1 Budget & Cost Scheduling Controls Writing Text Book 1.1.1 Chapter 2 The graphic is split into two sections. The left side is titled Current Project WBS and the right side is titled Project WBS Needed. Both sides of the graphic are basically the same. The writing the text book WBS level is on top and going downward, the next level is showing boxes for chapter 1 and chapter 2. When you get to the next level the right side, titled Project WBS Needed, shows the boxes for each subchapter. There is an arrow on the Current Project WBS side that is pointing upward to represent that the WBS will be rolled up for reporting. Chapter 1 Writing Text Book 1.1.1 Chapter 2 Module 2 – Work Breakdown Structure 35

Preparing a WBS Actually, there is not a problem with the WBS structure, but a problem with the idea of time and cost. The project manager spent time and resources to define the WBS down to a level that he determined was appropriate. The only benefit could be that the project manager wishes to manage the project at the lower level and will roll-up reporting for the stakeholder. In review, always get stakeholders to agree with the level of project planning and reporting. Current Project WBS Project WBS Needed Project Selection Organization Planning Chapter 1 Budget & Cost Scheduling Controls Writing Text Book 1.1.1 Chapter 2 Same graphic from previous page. Chapter 1 Writing Text Book 1.1.1 Chapter 2 Module 2 – Work Breakdown Structure 36

Other items to consider when developing a WBS are:
Preparing a WBS In developing a WBS, one must realize that there are multiple ways to develop a WBS for any given project. Some ways might be better than others, but the two most important item to remember are that the WBS must contain all approved scope and the Project Manager must develop the WBS to reflect the way he/she intends to manage the project. Other items to consider when developing a WBS are: Reporting requirements Size of project Resource executing the work (contractors vs. in-house) Complexity of the project On the following two pages are examples of alternative WBS structures for the BEST Management Books project. Same graphic from previous page. Module 2 – Work Breakdown Structure 37

Preparing a WBS This WBS structure is designed to control scope by chapters, unlike the original WBS which was developed to control scope by writing and editing. Same graphic from previous page. Module 2 – Work Breakdown Structure 38

Preparing a WBS This WBS structure is taking into consideration that the writing and editing will be executed by a contractor. It still requires the contractor to control scope by writing and editing by chapter. Same graphic from previous page. Module 2 – Work Breakdown Structure 39

Building a WBS Armed with the basics of the WBS, it is time to examine them in more detail and to begin to understand how to build one. To do this, let’s look at building a WBS for the construction of a single family home. First, take a moment to familiarize yourself with some background information about the construction company, which appears on the next page. Picture of people building a house. Module 2 – Work Breakdown Structure 40

NOTE: For ease of explanation, our example will assume the following:
WBS: Structure The ACME Housing Corporation, which you own, has been contracted to build its first house. You want to be able to manage your projects effectively and efficiently, so you charge your project managers to develop an appropriate WBS. You decide to manage the project by the individual tasks necessary to complete the house. You hope that this is the first of many houses that ACME will build, so you start the WBS with ACME in the highest position, or Level 1. Accordingly, Level 1 is given a WBS code of 1. You assign the WBS code of 1 to the highest level because all future projects (houses) will be summarized at Level 1. NOTE: For ease of explanation, our example will assume the following: Design is complete All permits issued All Material ordered Inspection happens Picture of a house with the name ACME House WBS to the right. There is a box with the ACME Housing Corporation in it with the WBS code number 1. This is relating to the Level 1 of the WBS. Level 1  Module 2 – Work Breakdown Structure 41

WBS: Structure With Level 1 established, you can begin to complete the WBS. But what should the next level be? The logical next level for ACME is the project level. Level 2 is the level for each individual project, or house, that ACME undertakes. As the chart shows below, Level 2 is identified at the project level: House. Appropriately, the code for Level 2 corresponds to Level 1. In this case, the code is 1.1. Level 1  This graphic builds on the graphic from the previous page. There is a box with the ACME Housing Corporation in it with the WBS code number 1. This is relating to the Level 1 of the WBS. There is a box below that one with the title of house and the WBS code number This is relating to the Level 2 of the WBS. Level 2  Module 2 – Work Breakdown Structure 42

WBS: Structure Now the WBS for the housing project is complete, right? Actually, no, the WBS is not complete. At this point you determine that you want to divide the work into the major elements needed to build a house. You choose to divide Level 3 into six elements: concrete, framing, plumbing, electrical, interior and roofing. You realize that these are both major deliverables and milestones for managing the project. They also enable you to get to your goal of managing the project by task. Notice the WBS codes at level 3. Each is unique to the project and starts with the WBS code from the level above (11.11.1.1). Now lets look and see if another level is needed. Level 1  This graphic builds on the graphic from the previous page. Beneath the house box are six boxes with Concrete 1.1.1, Framing 1.1.2, Plumbing 1.1.3, Electrical 1.1.4, Interior and Roofing These boxes represent Level 3 of our WBS. Level 2  Level 3  Module 2 – Work Breakdown Structure 43

WBS: Structure The ACME WBS is taking shape, but it does not quite define the project at a level that shows needed tasks for completion. To do this, one more level needs to be included. Level 4 of the WBS will enable us to manage the project as desired. All of our contractors fit into specific elements at level 4, and so do all specific departments. As with the previous Levels, note the WBS codes that have been assigned to the tasks and their relationship to the previous Level.  Level 1  Level 2 This graphic builds on the graphic from the previous page. Beneath the Level 3 boxes are Level 4 boxes which represent the task for this project. The Level 4 task are: Under Concrete, Pour Foundation , Install Patio , Pour Stairway Under Framing, Frame Exterior Walls , Frame Interior Walls , Install Roofing Trusses Under Plumbing, Install Water Lines , Install Gas Lines , Install B/K Fixtures Under Electrical Install Wiring , Install Outlets/Switches , Install Fixtures Under Interior, Install Drywall , Install Carpets , Painting Under Roofing, Install Felt , Install Shingles , Install Vents Level 3  Level 4  Module 2 – Work Breakdown Structure 44

WBS: Structure What do you think? Is the WBS complete? Does it enable the manager to manage at the task level? After a review to make sure that only approved scope is included, our WBS is complete. It does include the necessary components to manage the project by task. Same graphic from the previous page showing the WBS Module 2 – Work Breakdown Structure 45

Work Breakdown Structure (WBS) Tree
1 ACME Housing Corporation 1.1 New Home Construction 1.1.1 Concrete Pour Foundation Install Patio Pour Stairway 1.1.2 Framing Frame Exterior Walls Frame Interior Walls Install Roofing Trusses 1.1.3 Plumbing Install Water Lines Install Gas Lines Install B/K Fixtures 1.1.4 Electrical Install Wiring Install Outlets/Switches Install Fixtures 1.1.5 Interior Install Drywall Install Carpets Install Painting 1.1.6 Roofing Install Felt Install Shingles Install Vents The graphical structure of the WBS is an easy way to identify the project components and relationships of those components; however, the WBS can be displayed in another format as well: the Tree format. Both formats are acceptable. The graphical format is at times easier to understand, but can take up considerable space in a report. The tree is not as easy to understand but is more easily incorporated into a report format. Note the WBS codes and the structure of the Levels in the Tree format mirror the graphical format. The content has not changed; only the way the content is presented has changed. Module 2 – Work Breakdown Structure

WBS and Earned Value Now that you understand the WBS and how to assemble one, let’s examine how it relates to earned value. In Module 1, we discussed that in implementing earned value, a project manager must have control of the project’s “triple constraint” (scope, schedule and cost). Unlike traditional management, which tracks two components (budget and expenditures), earned value considers three and provides a more robust understanding of a project’s overall progress and health. The WBS is the most important item in defining and controlling the project scope. How does it control the scope? If the WBS is not developed correctly and does not capture all the project scope and only the project scope, then the “earned value” system built using the WBS will be inaccurate. The project manager will lose control of the project before it even begins. Now that you have your WBS, let’s take a look on the next page at the other item needed to properly organize your project. Module 2 – Work Breakdown Structure

WBS Dictionary Once the WBS is complete, the WBS dictionary needs to be the next item developed. The WBS dictionary is a narrative documentation of the effort needed to accomplish all work defined in the WBS. The WBS dictionary is developed for the lowest level element in the WBS only. To better understand how a WBS and a WBS dictionary work, let’s compare it to a book and the book’s table of contents: The WBS is the table of contents for the project. It captures the contents in an organized fashion (chapters, subchapter). The WBS dictionary is the book itself. It tells the story. In our case the story is what work will be accomplished and what outputs will be produced in each of the WBS elements. The total of these descriptions is how a house will be built and what is needed to build the house. The WBS dictionary will often lead to the development of the statements of work (SOW) for the project. SOWs will be discussed in later modules. Module 2 – Work Breakdown Structure

Organization Breakdown Structure (OBS)
Now that our WBS is developed, the appropriate resources and responsibilities need to assigned. The first step in doing this is developing the Organizational Breakdown Structure (OBS) for the project. The OBS indicates the organizational relationships and is used as the framework for assigning work responsibilities. Below is an example of the OBS for the ACME house building project. The OBS is structured by Responsible Department and then by Performing Department at the lowest level. This Performing Department level is were the responsibility and resource needed to accomplish the project will be assigned. CONCRETE PERF DEPT 6010 M. Manning MASONRY PERF DEPT 6020 T. Greams TEST PERF DEPT 6030 K. Neumann CIVIL RESP DEPT R. Kelly CARPENTRY PERF DEPT 5010 R. Sites ROOFING PERF DEPT 5020 Y. Taylor DRYWALL PERF DEPT 5030 D. Smith STRUCTURAL P. Tate PERF DEPT 4010 S. Johnson HOOKUP/TIE-IN PERF DEPT 4020 P. Ottis ELECTICAL J. Sims WATER/SEWER PERF DEPT 3010 K. Wells GAS PERF DEPT 3020 R. Oriely PLUMBING R. Lee PROJECT OFFICE B. Smithers WIRING This is a picture of the organization chart for ACME Housing Corporation. The top of the Organizational chart starts with the project office. The next level down is the Civil, Structural, Electrical, and Plumbing departments. Beneath the Civil is the Concrete, Masonry and Testing departments. Beneath the Structural is the Carpentry, Roofing and Drywall departments. Beneath the Electrical is the Wiring and Hookup/Tie-in departments. Beneath the Plumbing is the Water/Sewer and Gas departments. With the relationships and responsibilities defined, the second and final step is to merge the WBS and OBS. Take a look on the next page. Module 2 – Work Breakdown Structure 49

Responsibility Responsibility Assignment Matrix Assignment Matrix
Responsibility Assignment Matrix (RAM) Merging the WBS and OBS, the project manager creates a Responsibility Assignment Matrix (RAM). The RAM displays the lowest level of both the WBS and the OBS. The integration identifies specific responsibility for specific project tasks. It is at this point that the project manager develops control accounts or work package. Control accounts and work packages will be discussed in Module 4. Lets look at what the RAM may look like on the ACME house construction project on the next page. This graphic is showing that the intersection of the WBS and OBS is the Responsibility Assignment Matrix. It shows the WBS from the previous pages and the OBS from the previous page. The OBS is sideways and to the left and below the WBS. This are arrows coming out of the bottom of both the WBS and OBS. Where the arrows from the WBS and OBS cross, there is the words Responsibility Assignment Matrix. Responsibility Responsibility Assignment Matrix Assignment Matrix Module 2 – Work Breakdown Structure 50

Responsibility Assignment Matrix (RAM)
Below is part of the RAM for the ACME housing project. The lowest level of the WBS appears across the top The lowest level of the OBS appears on the vertical axis An “X” appears at the intersection of the WBS task and OBS personnel. The “X” defines the specific performing department (from the OBS) assigned to complete a task (from the WBS). This graphic represents a RAM. The lowest level of the WBS appears across the top. The lowest level of the OBS appears on the vertical axis. The vertical axis also lists the responsible manager. There is an x underneath WBS element and across from the OBS responsible for a given task. Module 2 – Work Breakdown Structure 51

To better understand the RAM, consider the ACME housing project. The OBS specifies Mr. Sites and the carpentry department as responsible for framing the exterior walls. Therefore, in the RAM, an X appears at the cross-section between the task, framing the exterior walls, and the responsible party, Mr. Sites. Additionally, Mr. Sites is also responsible for framing the interior walls and installing the roofing trusses. Same graphic from the previous page showing the RAM. Module 2 – Work Breakdown Structure 52

Alternatively, hours and dollars may be used in the RAM rather than an “X”. Using our ACME House example, the “X” was replaced with the hours needed to complete the task. Now we see that Mr. Sites has 300 hours to frame the exterior walls, 250 hours to frame the interior walls and 175 hours to install the roofing trusses. This graphic is the same as the RAM on the previous page except that the x’s have been replaced with hours need for a given task Module 2 – Work Breakdown Structure 53

Take some time to review the major items of this module:
Review of Module 2 Take some time to review the major items of this module: The Work Breakdown Structure (WBS) is a tool that defines a project and groups the projects elements in a way that helps organize and define the total work scope of the project In preparing a WBS there are a number of steps that need to be taken including: identifying the final project product identifying the major deliverables incorporating the appropriate levels of detail obtaining stakeholder agreement WBS Dictionary is a narrative description of the lowest level for each WBS element Organizational Breakdown Structure (OBS) indicates the organizational relationships and is used as the framework for assigning work responsibilities Responsibility Assignment Matrix (RAM) merges the WBS and OBS to identify the specific responsibility for specific project tasks Module 2 – Work Breakdown Structure

Summary of Module 2 At this point we have examined the WBS, OBS and RAM. These items are the start for laying the groundwork for developing an earned value management system (EVMS). In the next module you will examine these item in more detail by looking at the development of control accounts, work packages and the cost estimate. If you have a firm grasp of the concepts covered in this module, feel free to progress to the next module. Otherwise, review this module to ensure you have a solid understanding of the basics for developing a WBS, OBS and RAM This concludes Module 2. Module 2 – Work Breakdown Structure

Earned Value Management Tutorial Module 3: Project Scheduling
Prepared by:

Module 3: Project Scheduling
Welcome to Module 3. The objective of this module is to introduce you to Project Scheduling. The Topics that will be addressed in this Module include: Define Planning vs. Scheduling Define and Illustrate Basic Scheduling Concepts Define Logic Relationships and Critical Path Define and Illustrate Different Schedule Formats Module 3 – Project Scheduling

Review of Previous Modules
Let’s quickly review what has been covered in the previous modules. In Module 1 we introduced you to earned value and the requirements for properly implementing an earned value management system (EVMS). In Module 2 we discussed the first steps in the planning process development of the work breakdown structure (WBS) organizational breakdown structure (OBS) the integration of WBS and OBS in creating the responsibility assignment matrix (RAM) The next step in this process is to develop the project schedule. So the first question we need to ask is what is scheduling? Module 3 – Project Scheduling

There are multiple ways of defining scheduling. Scheduling is:
What is Scheduling? There are multiple ways of defining scheduling. Scheduling is: …Forming a network of activities and event relationships that portrays the sequential relations between the tasks in a project… …Planned completion of a project based on the logical arrangement of activities, resources… …Placing the project and its activities in a workable sequenced timetable… …A detailed outline of activities/tasks with respect to time… While scheduling is all of these things, the main thing to remember is that scheduling is the development of planned dates for performing project activities and meeting milestones. By looking at the aforementioned definitions of scheduling, do you see a difference between planning and scheduling? Let’s take a look on the next page. Module 3 – Project Scheduling 59

Planning vs. Scheduling
“I keep six honest serving men (they taught me all I knew); their names are What and Why and When and How and Where and Who.” --- Rudyard Kipling Planning involves making decisions with the objective of influencing the future. Another way to consider planning is as the “thinking” phase. Defining activities, their logical sequence, and their relationship to each other are all planning functions. In planning you answer the following questions: What will be performed? This question is answered by determining the final project product necessary for achieving project success. This is done in the initiation phase before the development of your WBS. How will it be performed? This question is answered by determining the processes, procedures, and methodologies used to complete the project. Module 3 – Project Scheduling 60

Where will it be performed? This answer varies for each type of project. For example, if it’s a construction project, the “where” will be the physical location of the building or road etc. If the project is a software development project, the answer could be the physical location of the project team or the final location of the project software. Who will perform the work? This question is answered by determining if the work will be contracted or will use in-house resources. Then, the question will be examined in even more detail: if a contractor, what type of contractor, and if company resource, what department and who in each department? In what sequence? This question involves determining the order in which activities will be performed to complete the project. Module 3 – Project Scheduling 61

With five main questions answered, only one last question remains: when. This question involves scheduling. Scheduling determines the timing of operations in the project. The schedule will determine the specific start and completion dates for the project and all project activities. Another way to look at scheduling is to consider it the “action” or “doing it” phase. In scheduling you answer the question: When will the work be performed? Scheduling includes the project start and completion dates, project deliverables and milestones dates, and the start and completion dates for all activities needed to successfully complete the project. Equipped with an understanding of the difference between planning and scheduling, let’s look on the next page at the scheduling requirement needed in an earned value management system (EVMS). Module 3 – Project Scheduling 62

Include logical ties for all activities
Project Scheduling To satisfy the earned value management system (EVMS) criteria, the schedule must: Include logical ties for all activities Include all key milestones and deliverables Reflect the agreed to project baseline Integrate with the cost baseline We will discuss the last two bullet points in Module 5. On the following pages, we will discuss the process for developing a project schedule, including how to ensure it is logical and how to ensure that it includes all key milestones and deliverables. Module 3 – Project Scheduling 63

1. Develop the list of project activities
Project Scheduling Project scheduling in the earned value management system involves a clear, five step process. This process aids managers in determining the project schedule and, eventually, the project schedule baseline. The process steps are: 1. Develop the list of project activities 2. Sequence the list of project activities 3. Determine the relationships between activities 4. Establish the duration for each activities 5. Determine the project duration (start and completion dates) For the purpose of explaining the process in detail, we will use the smaller BEST Management Books project from Module 2 instead of the ACME House Building project. At the end of the process will will look at the outcome of using this process on the ACME House Building project. Module 3 – Project Scheduling 64

Scheduling - Step 1. Develop a List of Project Activities
Developing a list of project activities is as simple as it sounds: list all activities that are needed to complete the project. Do not order or rank them yet, as this step comes later. This list needs to be as complete as possible. You can add and subtract activities throughout the process, but the more complete the list is now, the easier the process will be. Using the BEST Management Book example from Module 2, we will use the lowest level of BEST’s WBS as our activity list. The list for this example is relatively short; however, the list for your projects will most likely reflect more detailed activities for each task. A WBS with the top box being the company BEST Management books. From that box, going downward, the next box is the book, Project Management an Introduction. From that box, going downward are three separate boxes with writing, editing and publishing the book. From the writing the book box comes three separate books called chapter 1, chapter 2, and chapter 3. From the editing book comes three boxes, editing chapter 1, editing chapter 2 and editing chapter 3. From the Chapter books comes the subchapters. Let’s take a look at our activity list on the following page. Module 3 – Project Scheduling 65

Scheduling – Step 1. Develop a List of Project Activities
Here is the initial list of activities for the BEST Project Management book. There are two things to remember at this stage of the process. 1. The activity list is not a complete list; additions and subtractions will be made from it. 2. As you develop your list, you may see the need to update the WBS. Remember the WBS is a dynamic tool, revisions may be needed and should be expected as the scheduling of activities progresses. For this example, we will assume that this is a complete list of activities, and no revision to the WBS is needed. A chart with two columns, WBS and Activity List. The Activity List column are those activities needed to complete the project. The WBS column is the WBS element for each activity. Module 3 – Project Scheduling 66

Scheduling – Step 2. Sequence the List of Project Activities
With the activity list complete, we need to “sequence” or develop “logic” between activities. To complete this process we need the WBS activities list and a pencil. A pencil? Why a pencil? This process requires the project manager, subject matter experts (SME), and other project team members who are familiar with the nature of the specific activities to meet, discuss and develop the sequencing of the project activities. This process is known as “a pencil to paper” process. Continuing to use our BEST Management book example, we will take a look at this sequencing process on the next page. Module 3 – Project Scheduling 67

Scheduling – Step 2. Sequence the List of Project Activities
1. Start with the WBS… …2. Develop the Activity List…. Writing Project Selection section for Chapter 1 Editing Chapter 1 Publishing Project Management Book Editing Chapter 3 Editing Chapter 2 This is a graphic that show the WBS structure mentioned on previous pages. This WBS feeds the development of the Activity List and then both feed the development of the sequencing of the activities needed to execute the project. 3. …Use the WBS and Activity List to develop the project activity sequence or logic… Module 3 – Project Scheduling 68

Scheduling - Step 3. Determine the Relationship Between Project Activities
Once the sequence has been established, you need to determine the direct relationship between each activity. But how does sequencing differ from identifying the relationships of tasks and activities? Sequencing is the order of how things will happen. First, second, third, etc. . . Identifying direct relationships provides greater understanding to the project tasks and schedule. By identifying the relationships between activities in scheduling, you identify the sequence plus dependencies of tasks. There are 4 types of scheduling dependencies: FS – Finish to Start SS – Start to Start FF – Finish to Finish SF – Start to Finish Module 3 – Project Scheduling

Precedence Diagramming Method (PDM) Arrow Diagramming Method (ADM).
Scheduling - Step 3. Determine the Relationship Between Project Activities Let’s take a closer look at the first three scheduling dependencies. We will not discuss the last dependence, as it is never used. There are two methods for developing project sequence and relationships: Precedence Diagramming Method (PDM) Arrow Diagramming Method (ADM). We will use PDM in this module but will not explore these scheduling methods in detail. FS – Finish to Start SS – Start to Start FF – Finish to Finish SF – Start to Finish Module 3 – Project Scheduling

Finish-To-Start Types of Scheduling Dependencies
The first type of relationship is called Finish to Start (FS). This means that activity “A” must finish before activity “B” can start. Let’s look at this relationship using the BEST Management Books example: You must “Finish” writing the Project Organization section of Chapter 1 before you can “Start” writing the Project Planning section for Chapter 1. Finish-To-Start Writing the Project Planning section for Chapter 1 Writing Project Organization section for Chapter 1 FS The graph shows two boxes, The first box, on the left, has the text “Writing Project Organization section for Chapter 1 written in it.. This box has an arrow going to another box. The arrow stands for the Finish to Start relationship. The second box has the text “Writing the Project Planning section in Chapter 1” written in it. Module 3 – Project Scheduling 71

Start-To-Start Types of Scheduling Dependencies
The second type of relationship is Start to Start (SS). This means that activity “B” can start as soon as activity “A” starts. Let’s look at this relationship using the BEST Management Books example: You can “Start” writing the Project Selection section for Chapter 1 as soon as you “Start” the BEST Management Books Project. . Start-To-Start Start BEST Management Books Project The graph shows two boxes, The first box, on the left, has the text “Start BEST Management Books Project” written in it. This box has an arrow going to another box. The arrow stands for the Start to Start relationship. The second box has the text “Writing the Project Selection section of Chapter 1” written in it. Writing Project Selection section for Chapter 1 SS Module 3 – Project Scheduling 72

Finish BEST Management Books Project
Types of Scheduling Dependencies The third type of relationship is Finish to Finish (FF). This means that activity “B” cannot finish until activity “A” finishes. Let’s look at this relationship using the BEST Management Books example: You cannot “Finish” the project, Finish BEST Management Book Project, until you “Finish” Editing Chapter 3. Finish-To-Finish FF Editing Chapter 3 The graph shows two boxes, The first box, on the left, has the text “Editing Chapter3” written in it. This box has an arrow going to another box. The arrow stands for the Finish to Finish relationship. The second box has the text “Finish BEST Management Books Project” written in it. Finish BEST Management Books Project Module 3 – Project Scheduling 73

Step 3. Determine the Relationship Between Project Activities
Using the relationships we have just described, the BEST Management Books project activities and the logical relationships among them is diagrammed below. This is formally known as a Network Diagram. With the relationships defined, we now need to establish the duration for each activity. Let’s take a look on the next page. FS FF Start BEST Management Book Project Writing Project Selection Section for Chapter 1 Writing Project Organization Section for Chapter 1 Writing Budget and Cost Section for Chapter 2 Writing Project Planning Section for Chapter 1 Writing Project Scheduling Section for Chapter 2 Editing Chapter 1 Writing Project Controls Section for Chapter 2 Editing Chapter 2 Writing Auditing Section for Chapter 3 Writing Administrative Closeout Section for Chapter 3 Editing Chapter 3 Publishing Project Management Book Finish BEST Management Book Project SS This graphic shows the logic or relationship between each activity in the project. Module 3 – Project Scheduling 74

Project Scheduling - Step 4. Establish the Duration for Each Activity
Now that you have the project network diagram, it is time to determine the duration for each project activity. Once again, just like the sequencing process: you need to enlist the help of the people or group of people familiar with the nature of the project. Establishing the duration of each project activity involves determining the work periods needed to complete each identified activity. Work periods can be hours days weeks months, etc.. Regardless of the exact work period chosen, the period must be consistent for all activities in the schedule. The project manager and team member(s) must decide which work period is right for the project. Module 3 – Project Scheduling

Methods for Determining Activity Duration
Two major duration estimating tools can help project managers estimate the activity duration: the PERT and CPM. Three time estimates can be applied to any activity: Optimistic (O) Pessimistic (P) Most Likely (M) Let’s consider an example on the next page to understand better. PERT uses the distribution’s mean to determine individual activity duration. Specifically, the PERT formula is (P + 4M + O) / 6 Critical Path Method (CPM) requires only a one time estimate per activity. This method uses only a Most Likely time estimate. Module 3 – Project Scheduling

Methods for Determining Activity Duration: an Example
For the activity “Editing Chapter 1,” the following estimates are determined: (O) Optimistic estimate = 6 days (P) Pessimistic estimate = 18 days (M) Most Likely = 9 days Using PERT, the following estimate is derived: ( ) / 6 = 10 days. Using CPM, the estimate is 9 days. Legend Time Estimates Optimistic (O) Pessimistic (P) Most Likely (M) CPM = Most Likely time estimate PERT = the distribution’s mean: (P + 4M + O) / 6 Module 3 – Project Scheduling

Project Scheduling - Step 4. Establish the Duration for Each Activity
Now let’s look at the duration estimate for the activities in the BEST Management Books project. For the purposes of this tutorial, it does not matter which duration estimating method was used. Here is a list of the activities in the BEST Management Books Project. The durations for each activity have been determined. From looking at the chart, what is the work period chosen by the project manager? The work period is weeks (wks). Remember the selected work period must be consistent for all activities. This graph has three columns. The three columns are WBS Activity Description and Duration. The Activity description contains all the activities in the project with the WBS column stating each activities WBS element. The third column is the duration for each activity. Module 3 – Project Scheduling 78

Scheduling – Quick Review
At this point, you have covered a good bit of information. Take some time now to review what you have learned before you continue with the module. So far in this module, we have covered four of the five steps related to project scheduling: 1. Developing the list of project activities 2. Sequencing the list of project activities 3. Determining the relationship between each activity 4. Establishing the duration for each activity The final step in this process is to determine the project duration (start and completion dates) and the start and finish dates for each individual activity. Take a closer look at this step on the following page. Module 3 – Project Scheduling

Project Scheduling – Step 5. Determine Project Duration
Usually the project duration and activity start and completion dates are mapped in a typical scheduling software application. The activities are placed in the software tool, and the relationships are identified. The software calculates the dates. To better understand how the software calculates the dates, we will take a look at the process known as Forward and Backward Pass. Together, these processes give the total project duration, including the start and finish dates for each activity. Additionally, the process will determine the critical path, which tells you the activities that cannot slip without increasing the total duration of the project or moving the project completion date, and float, which tells you how much certain activities can slip without impacting the total project duration. We will look at critical path and float later in the module. The Forward Pass determines the early start (ES) and the early finish (EF) of each activity. The Backward Pass determines the late start (LS) and late finish (LF) of each activity. Module 3 – Project Scheduling

To start this process, let’s look at the Forward Pass. The Forward Pass calculates the earliest date that each activity can start and finish according to the logical sequence of work and the duration of each activity. The Forward Pass yields the project duration. To start this process, a Project Network Diagram and a chart will help estimate the appropriate dates. FS Start BEST Management Book Project Writing Project Selection Section for Chapter 1 Writing Project Organization Section for Chapter 1 Writing Budget and Cost Section for Chapter 2 SS Project Network Diagram Chart The graphic shows a blank chart with the columns WBS, Activity, Duration, ES, EF, LS , LF. Additionally there is a graphic showing the first four activities of the project and there relationship to each other. The activities are Start BEST Management Book Project which is start to start with the activity Writing Project Selection section for Chapter 1, which is Finish to Start with the two other activities shown, Writing Project Organization section for Chapter 1 and Writing Budget and Cost section for Chapter 2. Module 3 – Project Scheduling 81

To begin the Forward Pass process, determine a project start date. Looking at the BEST project, we will use January 1 as the project start date. The first activity that appears in the Network Diagram is “Start BEST Management Books project.” Accordingly, the information appears in the corresponding chart. The early start (ES) is 1/1 since this is the First activity and the start date for the project is 1/1. The early finish (EF) for this activity is also 1/1 since it is a milestone and a milestone has no duration. FS Start BEST Management Book Project Writing Project Selection Section for Chapter 1 Writing Project Organization Section for Chapter 1 Writing Budget and Cost Section for Chapter 2 SS The graphic shows the same chart from the previous page, but with the first activity added. The activity is Start Development of Project Management Book, with a WBS element of 1.1 an ES of January 1 and a EF of January 1. Additionally there is a graphic showing the first four activities of the project and there relationship to each other. The activities are Start BEST Management Book Project which is start to start with the activity Writing Project Selection section for Chapter 1, which is Finish to Start with the two other activities shown, Writing Project Organization section for Chapter 1 and Writing Budget and Cost section for Chapter 2. Module 3 – Project Scheduling 82

Using the Network Diagram, the next activity is “Writing Project Selection section of Chapter 1.” This activity is start to start (SS) with the previous activity, thus its early start date is 1/1 (see chart). The early finish is determine by the duration of the activity itself. This activity has a duration of 8 weeks, which translates to a early finish date of 2/25. FS Start BEST Management Book Project Writing Project Selection Section for Chapter 1 Writing Project Organization Section for Chapter 1 Writing Budget and Cost Section for Chapter 2 SS The graphic shows the same chart from the previous page, but with the first two activities added. The second activity is Writing the Project Selection section for Chapter 1 with WBS element of , an ES of January 1 and EF of February 25.Additionally there is a graphic showing the first four activities of the project and there relationship to each other. The activities are Start BEST Management Book Project which is start to start with the activity Writing Project Selection section for Chapter 1, which is Finish to Start with the two other activities shown, Writing Project Organization section for Chapter 1 and Writing Budget and Cost section for Chapter 2. Module 3 – Project Scheduling 83

The next activity is “Writing the Project Organizational section of Chapter 1.” It is finish to start (FS) with the previous activity. With the FS relationship in mind, what is the early start date for this activity? Because you must finish writing the Project Selection section before you start writing the Project Organizational section, the early start date for the current activity is 2/26. The early finish is once again calculated by using the duration of the activity, giving you a early completion of 5/6. Let’s look at one more. FS Start BEST Management Book Project Writing Project Selection Section for Chapter 1 Writing Project Organization Section for Chapter 1 Writing Budget and Cost Section for Chapter 2 SS The graphic shows the same chart from the previous page, but with the first three activities added. The third activity is Writing the Project Organization section for Chapter 1 with WBS element of , an ES of February 26 and EF of May 6. Additionally there is a graphic showing the first four activities of the project and there relationship to each other. The activities are Start BEST Management Book Project which is start to start with the activity Writing Project Selection section for Chapter 1, which is Finish to Start with the two other activities shown, Writing Project Organization section for Chapter 1 and Writing Budget and Cost section for Chapter 2. Module 3 – Project Scheduling 84

The next activity is “Writing the Project Budget and Cost section of Chapter 2.” It is finish to start (FS). Can you determine the activity that must finish, before this activity can start? It is finish to start (FS) with Writing the Project Selection section: because you must finish writing the project selection section before you start writing the project budget and cost section (same as Writing Project Selection section), the early start date is also 2/26. The early finish is once again calculated by using the duration of the activity, giving you an early completion of 4/29. This process is used to determine each activity’s ES and EF. On the page next is the completed Forward Pass. FS Start BEST Management Book Project Writing Project Selection Section for Chapter 1 Writing Project Organization Section for Chapter 1 Writing Budget and Cost Section for Chapter 2 SS The graphic shows the same chart from the previous page, but with the first four activities added. The forth activity is Writing the Project Budget and Cost section for Chapter 2 with WBS element of , an ES of February 26 and EF of April 26. Additionally there is a graphic showing the first four activities of the project and there relationship to each other. The activities are Start BEST Management Book Project which is start to start with the activity Writing Project Selection section for Chapter 1, which is Finish to Start with the two other activities shown, Writing Project Organization section for Chapter 1 and Writing Budget and Cost section for Chapter 2. Module 3 – Project Scheduling 85

By looking at the chart below, can you determine the project duration, start and completion dates? Project Duration: 41 weeks or 205 days. Project Start: January 1 Project Completion: October 14 The graphic shows the same chart from the previous page, but with the all the activities added. The ES date for the first activity, Start Development of Project Management Book, is January 1 and the EF date for the final activity, Finish Development of the Project Management Book, is October 14. Module 3 – Project Scheduling 86

Start at the end and go backwards
Project Scheduling – Step 5. Determine Project Duration With the Forward Pass complete, let’s look at the Backward Pass. The Backward Pass calculates the latest date that each activity can start and finish in order to meet the project end date. Again, using the BEST Management Books example, let’s now address the Backward Pass. The chart below contains the Forward Pass information. Unlike the Forward Pass, which started with the first activity, the Backward Pass will start at the bottom of the chart with the last activity and work backwards. Same graphic as previous page, complete list of activities with ES and EF dates, but with a circle around the last row of the last two columns. This two columns are LS and LF. The is text pointing to the circle stating, Start at the end and go backwards. Start at the end and go backwards Module 3 – Project Scheduling 87

The process works the same as the Forward Pass but in the opposite direction. Once again using the Network Diagram, the last activity is “Finish the Development of the Project Management Book” (see below). The late finish (LF) and the late start (LS) will be the same as the early start (ES) and early finish (EF) since it is the final activity. The next activity is “Publishing Project Management Book,” and it is finish to finish (FF) with the “Finish Development” activity. Thus, the LF and LS are also the same as the ES and EF. The graphic shows the same chart from the previous page, but with LS and LF dates for the last two activities. The activities are Finish Development of the Project Management Book, with an LS date of October 14 and an LF date of October 14 and Publishing Project Management Book, with an LS date of September 17 and LF date of October 14. Additionally there is a graphic showing the last five activities of the project and there relationship to each other. The activities are Finish BEST Management Book Project which is finish to finish with the activity Publishing Project Management Book and Editing Chapter 1, Editing Chapter 2 and Editing Chapter 3 all finish to start with Publishing Project Management Book. Module 3 – Project Scheduling 88

Looking at the Network Diagram on the previous page, you see that there are three activities that have a relationship with Publishing Project Management Book: Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Also note that the relationships are all finish to start (FS). With this in mind, what is the LF and LS for each activity? The graphic shows the same chart from the previous page, but with LS and LF dates for the last five activities. The activities are Finish Development of the Project Management Book, with an LS date of October 14 and an LF date of October 14, Publishing Project Management Book, with an LS date of September 17 and LF date of October 14, Editing Chapter 1 with an LS date of July 23 and LF date of September 16, Editing Chapter 2 with an LS date of July 23 and LF date of September 16 and Editing Chapter 3 with an LS of August 20 and LF of September 16. Module 3 – Project Scheduling 89

Because “Publishing Project Management Book” has an LS of 9/17 and all three activities are finish to start (FS), the late finish (LF) for each must be 9/16. How do you determine the late start (LS) for each activity? Subtract the duration for each activity from LF, as shown in the chart. The graphic shows the same chart from the previous page, but with LS and LF dates for the last five activities. The activities are Finish Development of the Project Management Book, with an LS date of October 14 and an LF date of October 14, Publishing Project Management Book, with an LS date of September 17 and LF date of October 14, Editing Chapter 1 with an LS date of July 23 and LF date of September 16, Editing Chapter 2 with an LS date of July 23 and LF date of September 16 and Editing Chapter 3 with an LS of August 20 and LF of September 16. Module 3 – Project Scheduling 90

Here is the completed list of all the activities, including the early starts (ES), early finishes (FS), late starts (LS) and late finishes (LF). What can you determine about the project from this data? Take a look on the next page. The graphic shows the same chart from the previous page, but with all LS and LF dates for all activities. Module 3 – Project Scheduling 91

From the Forward Pass information, we know the Project duration, Project Start, and Completion date. Now it is time to use the information from the Backward Pass to determine the project’s critical path. The graphic shows the same chart from the previous page, but with all LS and LF dates for all activities. Module 3 – Project Scheduling 92

The Critical Path tells you the activities that cannot slip a day without increasing the total duration of the project or moving the project completion date. The critical path is the longest path of logically related activities through the network which cannot slip without impacting the total project duration. Let’s look at calculating the critical path on the following page. The graphic shows the same chart from the previous page, but with all LS and LF dates for all activities. Module 3 – Project Scheduling 93

Late Finish date (LF) - Early Finish date (EF)
Project Scheduling – Step 5. Determine Project Duration The Critical Path is calculated as follows: Late Finish date (LF) - Early Finish date (EF) If the difference is Zero, then the activity is on the critical path. If the result is a number greater the zero, then the activity is not on the critical path and has float. Module 3 – Project Scheduling

To better understand critical path, look at the chart. Note a column was added to calculate float and determine the critical path. From reviewing the chart, what activities are on the critical path? All the activities with zero float are on the Critical Path!!!! But what exactly does this mean? Take a look on the next page. The graphic shows the same chart from the previous page (columns include WBS, Activity, Duration, ES, EF, LS, LF) which includes all activities. An column is added to the right called Float. This column shows the float for each activity. It shows the following activities with zero float: Start Development of Project Management Book, Writing Project Selection section for Chapter 1, Writing Project Budget and Cost section for Chapter 2, Writing Project Scheduling section for Chapter 2, Writing Project Controls section for Chapter 2, Editing Chapter 2, Publishing Project Management Book and Finish Development of the Project Management Book. Module 3 – Project Scheduling 95

The Critical Path tells management the activities that are critical or essential in completing the project on time. It is also important for management to look at activities with minor float because any delays in those activities could cause them to be on the critical path. Lets look at the table above in a PERT chart format. The graphic shows the same chart from the previous page (columns include WBS, Activity, Duration, ES, EF, LS, LF) which includes all activities. An column is added to the right called Float. This column shows the float for each activity. It shows the following activities with zero float: Start Development of Project Management Book, Writing Project Selection section for Chapter 1, Writing Project Budget and Cost section for Chapter 2, Writing Project Scheduling section for Chapter 2, Writing Project Controls section for Chapter 2, Editing Chapter 2, Publishing Project Management Book and Finish Development of the Project Management Book. Module 3 – Project Scheduling 96

Below is the PERT chart layout of the project. The boxes in red indicate those activities on the critical path. The blue boxes are for all other activities. Notice the information in the boxes, it shows the activity name, duration, early start and finish, and late start and finish. See the legend below for details. Writing Project Writing Project Duration Organization section Organization section Early Start for Chapter 1 for Chapter 1 Early Finish 10 wks 10 wks 2/26/2002 2/26/2002 5/6/2002 5/6/2002 3/12/2002 Late Start 3/12/2002 5/20/2002 5/20/2002 Late Finish The graphic shows the same chart from the previous page (columns include WBS, Activity, Duration, ES, EF, LS, LF) which includes all activities. An column is added to the right called Float. This column shows the float for each activity. It shows the following activities with zero float: Start Development of Project Management Book, Writing Project Selection section for Chapter 1, Writing Project Budget and Cost section for Chapter 2, Writing Project Scheduling section for Chapter 2, Writing Project Controls section for Chapter 2, Editing Chapter 2, Publishing Project Management Book and Finish Development of the Project Management Book. Module 3 – Project Scheduling 97

Now that we have covered the entire process with the BEST Management project in detail, lets apply it to the ACME House Building project from Module 2. It reveals the following information: Project Duration: 55 days Project Start: 1/15 Project Complete: 4/1 The graphic includes a picture of a house and a chart. The chart is has the columns WBS, Activity, duration, ES, EF, LS, LF and Float. The first activity is Start House Construction and it has an ES, EF, LS, and LF of January 1. The final activity is House Complete and it has an ES, EF, LS and LF of March 19. Module 3 – Project Scheduling 98

Project Scheduling – Schedule Baseline
As mentioned early in the module, the earned value management system schedule must: Include logical ties for all activities Include all key milestones and deliverables Reflect the agreed to project baseline Integrate with the cost baseline At this point, we have examined the first two bullets; the next step in our process is to reflect the schedule baseline. Take a moment now to familiarize yourself with this step on the next page. Module 3 – Project Scheduling

Schedule Baselining Baseline is the original approved plan that consists of both schedule and cost. The baseline is used as the foundation for measuring project performance. In an Earned Value Management System (EVMS), the schedule and cost baseline are essential. The Schedule Baseline is the standard that all schedule performance will be measured against. It should be approved by the project manager and other appropriate individuals. Once the project manager approved the project start, logic, relationships and project duration, the schedule is then “baselined” to measure schedule performance. The final step, integrating with the cost baseline, will be discussed in detail in the next module. For now, take a look at the types of scheduling formats on the next page. Module 3 – Project Scheduling

Gantt or Bar Chart Milestone or Event Charts
Schedule Formats In reporting and displaying your schedule, there are multiple formats that have and can be used. We focus on three major formats: Gantt or Bar Chart Milestone or Event Charts Logic or Network Diagram The graphic shows the picture of a Gantt chart, Milestone chart and Network Diagram. Module 3 – Project Scheduling 101

Schedule Formats – Gantt or Bar Chart
Gantt or Bar chart shows the activity start and end dates as well as the expected durations. It does not usually show dependencies between tasks. It is a weak planning tool but is good for tracking and reporting progress to the project team. Below is a copy of the Gantt chart for the ACME House Building project. The graph shows the activities in a Gantt chart format. The columns are Activity description, duration, Start and Finish. Each activity has a bar to the right of the activity description that represents the duration of the activity. Module 3 – Project Scheduling 102

Schedule Formats – Milestone or Event Charts
Milestone or Event Charts are a summary-level schedule which identifies the major milestones on a project. It is easy to understand and good for reporting to senior management, but it provides no progress information. Below is a copy the Milestone chart for the ACME House Building project. The graph shows the project milestones in a Milestone chart format. The columns are Activity description, duration, Start and Finish. Only those activities that are milestones are included. Each activity has a triangle to the right of the activity description that represents the milestone. Module 3 – Project Scheduling 103

Schedule Formats – Logic or Network Diagram
The Logic or Network Diagram displays the logic relationships of the project activities. It stresses the logic/interdependencies between activities and is excellent for reviewing project logic. It is not a good reporting format, because the time frame is not clear and can at times be confusing. Below is a partial copy of the Gantt chart for the ACME House Building project. The graphic shows the Network Diagram format. It shows the activity Start House Construction in a box and that box has an arrow going to a box with the activity Pour Foundation in it. The Pour Foundation box has arrows going to two other boxes with the activities Install Patio and Frame Exterior Walls in them. Module 3 – Project Scheduling 104

Review of Module 3 At this point, you have covered all of the content in Module 4. Take some time now to review the major items: Planning involves making decisions with the objective of influencing the future. Planning is the “thinking” phase. Scheduling is the development of planned dates for performing project activities and meeting milestones. Scheduling is the “doing” phase. A clear five step process delineates how to develop a project schedule: Develop a list of project activities Sequence the list of project activities Determine the relationship between each activities Establish the duration for each activities Determine project duration (start and completion dates) Module 3 – Project Scheduling

Review of Module 3 The Critical Path tells you the activities that can not slip a day without increasing the total duration of the project or moving the project completion date. It is the longest path of logically related activities through the network which cannot slip without impacting the total project duration, termed zero float. The Schedule Baseline is what all schedule performance will be measured against. It should be approved by the project manager and other appropriate individuals. Module 3 – Project Scheduling

Summary of Module 3 At this point we have examined the basics for developing a project schedule and schedule baseline. The Schedule Baseline is one of the two most important items in an earned value management system (EVMS). In the next module you will examine the other important item in an earned value management system (EVMS): the cost baseline. If you have a firm grasp of the concepts covered in this module, feel free to progress to the next module. Otherwise, review this module to ensure you have a solid understanding of the basics for developing a project schedule. This concludes Module 3. Module 3 – Project Scheduling

Earned Value Management Tutorial Module 4: Budgeting
Prepared by:

The Topics that will be addressed in this Module include:
Module 4: Budgeting Welcome to Module 4. The objective of this module is to introduce you to Budgeting Concepts and Definitions. The Topics that will be addressed in this Module include: Cost/Schedule Baselines WBS Levels: Control Accounts, Work Packages, Planning Packages Elements of an Earned Value Contract Baseline Proposed Cost and the Contract Budget Baseline Control Account Manager Roles and Responsibilities Review Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Define what will be performed (Statement of Work)
The Budgeting Process In the previous module, we defined Planning as making decisions with the following objectives: Define what will be performed (Statement of Work) Determine how the work will be structured and tracked (Work Breakdown Structure) Assign Responsibility for elements of work (Organizational Breakdown Structure) Schedule the authorized work in a manner which describes the sequence of work and identifies significant task interdependencies required to meet the requirements of the program Now let’s discuss Budgeting. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

But what is a baseline, and how do you establish one?
The Budgeting Process The budgeting process establishes a means for developing and tracking the cost goals for all contractually authorized work. One of the key criteria for establishing an earned value management system is that all major components of a project must be integrated and baselined. Major components of the earned value management system include scope, schedule and cost. The cost and schedule performance are measured against a baseline to help track the progress of the project. But what is a baseline, and how do you establish one? Let’s review the steps required to establish a cost and schedule baseline on the next page. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Acme Project Work Breakdown Structure
Establish the Schedule Baseline Recall the Work Breakdown Structure from Module 2, which defines a project’s tasks, processes, responsible parties, etc. Establishing the WBS is the first step in defining the project and in establishing the baseline. Acme Project Work Breakdown Structure Project Mgmt Prelim Design 1.1.1 Title I Design 1.1.2 Final Design 1.1.3 Design 1.1 Procurement 1.2 Construction 1.3 1.4 ACME Project X 1.0 The graphic shows an WBS with ACME project as the title. There are 3 levels to the WBS. The ACME Project is level one. Level 2 is the Design, Procurement, Construction and Project Management. Level 3 shows a breakdown of Design. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 112

Establish the Schedule Baseline
Project Mgmt Prelim Design 1.1.1 Title I Design 1.1.2 Final Design 1.1.3 Design 1.1 Procurement 1.2 Construction 1.3 1.4 ACME Project X 1.0 Based on the Project Scope and available resources, the work activities in the WBS are scheduled to establish the Schedule Baseline. This important step was covered in Module 3. Schedule Baseline The graphic shows the WBS from the previous page with an arrow from the Design WBS elements to a Schedule. Prepared by: Booz Allen Hamilton Module 4 – Budgeting 113

Establish the Cost Baseline
Project Mgmt Prelim Design 1.1.1 Title I Design 1.1.2 Final Design 1.1.3 Design 1.1 Procurement 1.2 Construction 1.3 1.4 ACME Project X 1.0 Based on the Project Scope and available resources, the project budget is allocated across the scheduled activities and across time. The time phased allocation of resources, establishes the Cost Baseline. Notice in the chart the time phased hours associated with each task. Cost Baseline The graphic shows the WBS from the previous page with an arrow from the Design WBS elements to a chart with a time-phased budget. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 114

Integrated Cost/Schedule Baseline
Integrated Scope, Schedule and Cost Project Mgmt Prelim Design 1.1.1 Title I Design 1.1.2 Final Design 1.1.3 Design 1.1 Procurement 1.2 Construction 1.3 1.4 ACME Project X 1.0 The allocation of resources across the schedule for each element of the project’s scope is what creates the project’s integrated baseline. The scope, cost, and schedule must be fully integrated to be able to perform EVM. As the chart shows below , each task has an associated schedule and time phased cost. Integrated Cost/Schedule Baseline The graphic shows the WBS from the previous page with an arrow from the Design WBS elements to a to a schedule that has the schedule activities and the time-phased budget on it. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 115

Work Breakdown Structure Reporting Levels
Now let’s discuss how the budgeting process and the cost/schedule integration is accomplished in an earned value environment. The Work Breakdown Structure is the framework used to facilitate the requirement for integrating these major components. The Work Breakdown Structure is further broken down by Control Accounts, Work Packages, and Planning Packages. Let’s discuss these three key elements in more detail, starting with Control Accounts, on the next page. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

A Control Account is a major management control point for:
Control Accounts A Control Account is an assigned WBS Level used to monitor the cost and schedule performance of a significant element of the work. Control Accounts are also referred to as Cost Accounts. These terms are interchangeable, however, we will use the term Control Accounts. A Control Account is a major management control point for: Cost Summarization Variance Analysis and Reporting Responsibility Assignment Scope Description Corrective Action Planning A Control Account Manager (CAM) is responsible for executing the Statement of Work associated with their assigned Control Account(s). The illustration on the following page depicts the ACME House Project WBS down to the Control Account Level. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Control Accounts For the ACME House project, it was determined that the performance measurements for the project will be taken at Level 3 (see graphic below). The project manager and the stakeholders must determine the level at which the performance measurement will be required. Level 1 Level 2 Control Account Level A WBS for the ACME Home Building project, with an arrow pointing to the level 3 of the WBS explaining that this level is were the Control Account are developed. Level 3 Module 4 – Budgeting Prepared by: Booz Allen Hamilton 118

Now let’s take a look at Planning Packages on the next page.
Work Packages The detail that builds up to the Control Account Level is contained in Work Packages and Planning Packages. Take a moment now to review Work Packages. Work Packages (WP) contain a discrete segment of work below the Control Account level that is defined by a description or brief work statement starting and ending dates completion milestone work-in-process measure time-phased budget expressed in direct labor (hours and/or dollars), material, other direct costs and subcontract dollars It is important that the duration of a Work Package be a relatively short span of time (normally, but not limited to, six months or less). Now let’s take a look at Planning Packages on the next page. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Planning Packages Planning Packages reflect a future segment of work within a Control Account that is not yet broken down into detailed work packages. A planning package has a firm budget, estimated start and complete dates, and Statement of Work. As work becomes more clearly defined, Planning Packages are converted into Work Packages, with the following constraints. These constraints ensure the initial budget is used appropriately: All planning packages are converted into work packages as requirements are defined, and at a minimum, are scheduled to start at least one month beyond the current reporting period Conversion of planning packages to work packages is reviewed by the Team Leader and documented on a Revision Request (RR) Any conversion involving a change to the schedule or budget of the control account must be accompanied by an RR Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Work Package / Planning Package Level
Work Packages/Planning Packages Now that you are familiar with work packages and planning packages, take some time to examine how they appear in the WBS. For the ACME House project, the Work Packages and Planning Packages will be at Level 4 of the WBS. This is the level at which detailed budgets will be developed, statused, and then summarized at the Control Account level for reporting. Level 1 Level 2 Control Account Level Level 3 A WBS for the ACME Home Building project, with an arrow pointing to the level 3 of the WBS explaining that this level is were the Control Account are developed. Additionally there is an arrow also pointing to the Level 4 of the WBS explaining that this level is were the Work Package and Planning Package are developed. Level 4 Work Package / Planning Package Level Prepared by: Booz Allen Hamilton Module 4 – Budgeting 121

Review At this point, you should have a comfortable understanding of the following: The budgeting process establishes a means for documenting and tracking the cost goals for all contractually authorized work. The baseline is what cost and schedule performance is measured against. A Control Account is an assigned WBS Level used to monitor the cost and schedule performance of a significant element of the work. Detail below the Control Account Level is contained in Work Packages and Planning Packages. If you are unsure about any of these concepts, please go back and review, otherwise let’s move on to discuss the key elements used to develop, baseline, and manage an earned value project or contract. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

The contract baseline is comprised of eight key elements:
Elements of a Contract Baseline The contract baseline is comprised of eight key elements: Total Contract Price Total Contract Cost Profit / Fee Contract Budget Base (CBB) Performance Measurement Baseline (PMB) Management Reserve (MR) Distributed Budgets Undistributed Budgets (UB) The relationship between these eight elements is depicted below. Each element is defined on the following pages and is illustrated using the ACME House Building Project. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. Prepared by: Booz Allen Hamilton Module 4 – Budgeting 123

Total Contract Price Total Contract Price is the total negotiated contract cost plus profit/fee. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The Total Contract Price is highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 124

Total Contract Cost Total Contract Cost is the total negotiated contract cost without profit/fee. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The Total Contract Cost is highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 125

Profit/Fee Profit/Fee is the estimated profit or fee realized by executing the contract or project. Profit/Fee is not part of the Contract Budget Base (CBB), as defined on the next page. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The Profit is highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 126

Contract Budget Base The Contract Budget Base (CBB) represents the total budget for all authorized contractual work, minus Profit/Fee. The CBB can only be modified when duly authorized changes to the contract are received. CBB is always calculated as follows: Current negotiated contract cost + Estimated cost of additional authorized unpriced work (yet to be negotiated) = CBB The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The Contract Budget Base is highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 127

PMB = Sum of Control Accounts
Performance Measurement Baseline (PMB) The Performance Measurement Baseline (PMB) is the time-phased budget plan against which contract performance is measured. It includes all allocated or Distributed Budgets plus the Undistributed Budget. PMB does not include Management Reserve. PMB = Sum of Control Accounts PMB = Distributed Budgets + Undistributed Budgets PMB = Contract Base Budget – Management Reserve The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The Performance Measurement Baseline is highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 128

Management Reserve Once the CBB is established, the Program Manager establishes a Management Reserve (MR) prior to distributing budgets to the performing organizations. The purpose of MR is to have a budget for the Program Manager to allocate for unforeseen problems. MR is not part of the Performance Measurement Baseline because it is held at the program level only. Transactions into and out of MR are approved by the Program Manager. The documentation supporting all MR transactions is maintained and reported by Program Control. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The Management Reserve is highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 129

Distributed Budgets = Budgets assigned to Control Accounts
Distributed Budgets reflect the contractually authorized efforts allocated to the WBS elements. Distributed Budgets include budgets assigned to control accounts during baseline establishment as well as work packages and planning packages. Distributed Budgets = Budgets assigned to Control Accounts The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The Distributed Budget is highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 130

Undistributed Budget Undistributed budget (UB) applies to contractually authorized efforts not yet allocated to WBS elements. The UB consists of a budget for authorized changes for which there has not been adequate time to plan the change at the control account level. Undistributed budget is an element of the Performance Measurement Baseline, but it is not time-phased. Every effort should be taken to distribute budgets in a timely manner and to minimize undistributed budgets. Undistributed budgets are controlled by the Program Manager, and all changes must be documented using an Undistributed Budget Log. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The Undistributed budget is highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 131

Proposed Costs and the Contract Budget Base Relationship
To better understand the key elements of the Contract Budget Base, lets walk through the Proposal Development, Negotiations, and Contract Award Phases. To begin, first ensure you understand the relationship between the proposed cost and the established Contract Budget Base. Program Funding, the negotiated and/or authorized amount, is based on the estimates developed during the proposal preparation phase. These estimates can be modified during the contract negotiation phase. The Program Funding amount is used to establish the Contract Budget Baseline (CBB). A proposed cost estimate and a Contract Budget Base are developed in the same manner. The resources required to complete each defined element of work are developed in terms of hours. These hours are converted to Labor Dollars by applying Direct Labor Rates and Indirect Burdens (Direct and Indirect Costs are discussed on the following page). Costs of purchased materials and subcontracts (and applicable acquisition overhead rates) as well as Other Direct Costs (ODC) are also generated and included in the proposed amount. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Direct and Indirect Cost Accounting
As mentioned on the previous page, costs include direct and indirect charges. Direct Costs – Costs applicable to, and identified specifically with, the program contract Statement of Work. Examples of Direct Costs: Labor, Travel, Material, Subcontractor Charges Indirect Costs – Charges that cannot be consistently or economically identified against a specific contract. These are typically calculated by applying rates and factors to the cost base. Example of Indirect Costs: Fringe Benefits, Overhead, Material Handling, General & Administrative, Cost of Money. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Sample Indirect Rate Application
Here is an example of indirect rates applied to prime dollars or direct costs. Overhead costs are applied to prime dollars to derive the Total Cost. The application of indirect rates and factors is based on a company’s accounting policies and procedures. Direct Costs Indirect Cost The graphic shows a chart listing the cost for Design Engineering. Prepared by: Booz Allen Hamilton Module 4 – Budgeting 134

So far in the ACME House Building project, we have:
ACME House Cost Proposal Development By now you should be familiar with the difference in types of costs, but how exactly do you go about determining costs in a project? Take some time to see how to develop a proposed cost using the ACME House Building project. So far in the ACME House Building project, we have: Defined what will be performed (Statement of Work) Determined how will it be tracked (Work Breakdown Structure) Now we have to: Determine the Proposed Total Cost and Price Assign Labor, Material, ODC, and Subcontractor Resources to the Work Elements. Apply Burdens and Fee to derive the Total Cost and Price. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

This insures that we develop cost for only approved project scope.
ACME House Cost Proposal Development To start, we need our ACME House Work Breakdown Structure as shown here. This insures that we develop cost for only approved project scope. The graphic shows the ACME Home Building project WBS. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 136

ACME House Cost Proposal Development
Next, we must develop the Proposal Price. Below is an example of how we developed the Price for the WBS to Install Patio. We assigned resources to this task, and based on the Labor Hours, Material, and ODC Dollars, burdened by all the indirect rates, a Total Price of $11,574 has been estimated to complete this task. This process is used to price each WBS element. On the next page is the completed price for the ACME House. The graphic shows the WBS element for Installing the Patio and the cost breakdown for executing the work. The total cost is $11,574. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 137

Total Proposed Price = $231,894
ACME House Cost Proposal Development The proposed resources for the entire project have been priced as described on the previous page. The following chart reflects the Total Price for each WBS of the ACME Housing Building project. Total Proposed Price = $231,894 The graphic shows the ACME Home Building project WBS and the associated cost for each WBS element. The Total Proposed Price is $231,894. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 138

ACME House Cost Proposal Negotiations
Now let’s review the proposed price and complete the negotiations. The proposed price is $231,894; however, the buyer of the ACME house can only afford to pay $220,000. The ACME house builder has agreed to build the ACME house for $219,999, but some revisions had to be made to the plans to utilize less expensive materials. The following summary reflects the negotiated cost and price to build the ACME House. The graphic shows the negotiated cost and price for the project. The cost is #183,852 and the price is $219,999. On the next page, let’s look at the Total Price by WBS. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 139

Total Negotiated Price = $219,999
ACME House Cost Proposal Negotiations The following summary reflects the negotiated price by WBS to build the ACME House. Total Negotiated Price = $219,999 The graphic shows the ACME Home Building project WBS and the associated cost for each WBS element. The Total Negotiated Price is $219,999. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 140

The Budgeting Process Now that we have a negotiated contract, we can establish the Contract Budget Base. The Awarded Amount to the Builder is $219,999. This includes Profit/Fee. The Negotiated Total Cost, without Profit/Fee, for the ACME House equals $183,852. This will be the basis for developing the Contract Budget Baseline (CBB). Again, remember that this amount is exclusive of Fee. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The Total Contract Cost and Contract Budget Base are highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 141

The Budgeting Process After the Contract Budget Base has been established, the Management Reserve is established by the Program Manager. In the case of the ACME House, the Program Manager has decided to establish a Management Reserve amount equal to 10% of the Contract Budget Base. This equates to $18,385. The Performance Measurement Baseline, which equals the CBB – MR, will be established at $165,467. All of the PMB will be distributed, therefore Distributed Budgets will equal $165,467, and Undistributed Budget will remain zero. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The CBB, PMB, MR, Distributed budget and Undistributed budget are highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 142

The Budgeting Process Now that the Management Reserve has been established by the Program Manager, target budgets are developed and distributed to the Control Account Managers. Establishing the target budgets will often be accomplished through a joint effort by the Program Manager, Team Leaders, and the Control Account Managers. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. The The Distributed budget and Control Account are highlighted. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 143

The Budgeting Process In developing target budgets, applicable proposal information is relied upon heavily. The proposal information is modified to reflect negotiated changes and to accommodate establishment of MR. For example, remember the ACME House Proposal? Control Account Concrete, had a proposed Total Price of $59,094, however, based on final contract negotiations, the negotiated price was $47,200. The negotiated cost, without Profit Fee was $39,424. The following table summarizes the proposed vs. negotiated price for the Concrete effort. Remember, in establishing target budgets, Profit/Fee is not included. The graphic shows the Proposed and Negotiated dollars and price for the control account, concrete. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 144

The Budgeting Process The Program Manager has decided to establish a Management Reserve (MR) amount equal to 10% of the negotiated dollars. Once again, remember in establishing target budgets Profit/Fee and Management Reserve are not included. The target budget released to the Control Account Manager for Concrete is $35,482 ($39,424 – $3,942 = $35,482). The graphic shows the the Target budget price for the control account, concrete. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 145

The Budgeting Process When detailed planning reveals the target budget established for the control account is unrealistic (too high or low), the CAM, Team Leader and Program Manager participate jointly to determine appropriate adjustments. In some cases, this may require the use of MR. In the case of the Concrete Control Account, the Control Account Manager has accepted the budget of $35,482. Once the budgets have been allocated to the Control Accounts, the Control Account budgets are further subdivided into work packages and planning packages. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

The Budgeting Process Here’s the distributed budget for the entire ACME WBS. Remember, this does not include Profit/Fee, or Management Reserve. Distributed Budget = $165,467 Control Accounts The graphic shows the ACME Home Building project WBS and the associated cost for each WBS element. The Distributed Budget is $165,467. Work Packages Prepared by: Booz Allen Hamilton Module 4 – Budgeting 147

The Budgeting Process Time phased budgets are prepared for each work package and planning package. Each work package and planning package contains a budget divided into time increments (typically monthly) by elements of cost, such as direct labor, material, subcontract, and other direct cost (ODC). During the phasing process, Management ensures that requirements will be met, work sequences are logical, and resources are available to execute the plan. The development of detail planning for the control account and ultimate approval of the budget, schedule, and associated Work Authorization Document (WAD) is accomplished through an iterative process. A Work Authorization Document (WAD) authorizes and documents the work scope, schedule and budget to organizations supporting the project. No work is to proceed without a proper WAD. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

The Budget Process The Control Account Manager (CAM) uses work packages and planning packages to divide the control account into specific manageable and measurable units of work for the purpose of developing plans and determining progress. Each work package and planning package is sequenced in a manner that provides logical support for the program schedule. The CAM assigns each work and/or planning package a budget value in hours and/or dollars. The sum of the work packages and planning package budgets are equal to the total budget assigned to the CAM on the work authorization form. The total budget for the control account is time-phased in hours and dollars. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Baseline Documentation
Summaries of schedules and budgets at the work package level are integrated using a Control Account Plan (CAP). A CAP is a low level detail plan prepared by the CAM showing time phased planning of tasks and their associated budget for a Control Account. The CAP also provides brief work package and milestone descriptions that enable the CAM to clarify and differentiate the unique content of each work package. The CAM and Program Control develop the cost and schedule database by using the control account planning documentation and other data. A series of checks and balances are performed to ensure the data is consistent. Upon completion of the baseline development, reports displaying the planning data as it appears in the system are reviewed and verified for accuracy. The baselining process is complete when all Work Authorization Document (WADs) have been issued and accepted, and all CAPS have been developed and equal the WAD budget amounts. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Schedule and Cost Baseline
Below is the time-phased budget for the ACME House Building Project. This profile represents the cost and schedule baseline in Total Dollars. The graphic shows the schedule for the project. The schedule have the budget for each activity listed. The total cost is $165,467, the monthly spend is January, $63,027, February, $65,823, and March, $36,617. Total $165,467 $38,269 $73,412 $49,130 $4,656 Prepared by: Booz Allen Hamilton Module 4 – Budgeting 151

Review of Module 4: Budgeting
Many new terms and concepts were presented in this module. Let’s summarize what was covered. The budgeting process establishes a means for developing and tracking the cost goals for all contractually authorized work. One of the key criteria for establishing an earned value management system is that the scope, schedule and cost must be integrated and baselined. The baseline is what cost and schedule performance is measured against The Work Breakdown Structure is the framework used to facilitate the requirement of integrating scope, schedule, and cost. The graphic shows the ACME Home Building project WBS and the associated cost for each WBS element. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 152

Work Package / Planning Package Level
Review of Module 4: Budgeting A Control Account is an assigned WBS Level used to monitor the cost and schedule performance of a significant element of the work. Work Packages (WP) contain a discrete segment of work below the Control Account level and provide detailed planning for accomplishing the work within a Control Account. Level 1 Planning Packages include efforts that will eventually be identified as separate work packages within the control account. They represent far term efforts that cannot be defined in detail at the start of the control account. Level 2 Control Account Level Level 3 A WBS for the ACME Home Building project, with an arrow pointing to the level 3 of the WBS explaining that this level is were the Control Account are developed. Additionally there is an arrow also pointing to the Level 4 of the WBS explaining that this level is were the Work Package and Planning Package are developed. Level 4 Work Package / Planning Package Level Module 4 – Budgeting Prepared by: Booz Allen Hamilton 153

The major elements of an earned value contract consist of:
Review of Module 4: Budgeting The major elements of an earned value contract consist of: Contract Budget Base (CBB): The total budget, exclusive of fee, for all authorized work Performance Measurement Baseline (PMB): The time- phased sum of all the allocated budgets Management Reserve: The amount of the contract budget withheld by Management Undistributed Budget: Contractually authorized funds not yet allocated to WBS elements. The graphic shows a breakdown of the cost system. On top is Total Contract Price. Underneath is the Total Contract Cost and Profit. Under them is the Contract Budget Base (CBB). Under CBB is Performance Measurement Baseline (PMB) and Management Reserve. Under PMB is Distributed Budget and Undistributed budget. Under Distributed Budget is Control Accounts and Under Control Accounts are Work Packages and Planning Packages. Module 4 – Budgeting Prepared by: Booz Allen Hamilton 154

Review of Module 4: Budgeting
At this point we have examined the basics of planning, scheduling, and budgeting to establish the integrated baseline. These items lay the groundwork for maintaining an Earned Value Management System (EVMS). The next module takes us into the details of Earned Value. If you have a firm grasp of the concepts covered in these first four modules, feel free to progress to the next module. Otherwise, review the modules to ensure you have a solid understanding of the basics. This concludes Module 4. Module 4 – Budgeting Prepared by: Booz Allen Hamilton

Earned Value Management Tutorial Module 5: EVMS Concepts and Methods
Prepared by:

Module 5: EVMS Concepts and Methods
Welcome to Module 5. The objective of this module is to introduce you to Basic Earned Value concepts and methods. The Topics that will be addressed in this Module include: Earned Valve Management System (EVMS) Criteria The definitions and illustrations of the basic EVMS terminology The definition and illustrations of the EV methods Module 5 – EVMS Concepts and Methods

In the previous four modules, we discussed the framework needed to perform Earned Value and develop an Earned Value Management System (EVMS). In Module 1 we introduced you to earned value and the requirements for properly implementing an earned value management system (EVMS) In Module 2 we discussed the development of the work breakdown structure (WBS), organizational breakdown structure (OBS) and the integration of WBS and OBS in creating the responsibility assignment matrix (RAM) In Module 3 we discussed the development of the project schedule and the schedule baseline In Module 4 we discussed the development of the project budget and the cost baseline Now lets discuss the basic Earned Value concepts and methods. Module 5 – EVMS Concepts and Methods

On the next page, we will look at the
EVMS Criteria Before we start discussing the Earned Value concepts and methods, let’s look at an overview of the criteria needed for EVMS. There are numerous EVMS guidelines that have been developed in both the government and commercial industry. On the next page, we will look at the Industry Standard Earned Value Management System guideline published in DoD R. These guideline comes from the ANSI/EIA standard Department of Defense R The graphic show a piece of paper with the text, Department of Defense R Module 5 – EVMS Concepts and Methods 159

Let’s review these criteria on the next page.
EVMS Criteria The Industry Standard Earned Value Management System guide provides a uniform set of 32 criteria for developing an EVMS. It is compliant with the ANSI/EIA Standard discussed in Module 1. Department of Defense R The criteria represents the requirements against which the validity of a contractor’s Earned Value Management System will be judged. The criteria provides contractors the flexibility to develop and implement effective management systems tailored to meet their respective needs, while still ensuring that fundamental Earned Value Management concepts are provided for. Let’s review these criteria on the next page. The graphic show a piece of paper with the text, Department of Defense R Module 5 – EVMS Concepts and Methods 160

Industry Standard Earned Value Management System
EVMS Criteria The criteria are divided into five categories: Organization Planning and Budgeting Accounting Analysis and Management Reporting Revisions and Data Maintenance On the followings pages we provide a summary level review of the criteria. As mentioned earlier there are 32 criteria but for the purpose of a summary review, the criteria were combined. For a complete list of the criteria and the guideline go to the frequently asked questions (FAQ) section or reference section of this web site. Department of Defense R Industry Standard Earned Value Management System The graphic show a piece of paper with the text, Industry Standard Earned Value Management System Module 5 – EVMS Concepts and Methods 161

EVMS Criteria - Organization The first category is Organization. Within Organization the criteria require the following: Define the Work Breakdown Structure (WBS) Define the Organizational Breakdown Structure (OBS) Establish the work authorization and cost accumulation processes Establish Cost and Schedule Integration Process Identify Indirect/Overhead Cost Structure Create the Responsibility Assignment Matrix (RAM) Industry Standard Earned Value Management System Organization Planning & Budgeting Accounting Analysis & Management Reporting Revisions & Data Maintenance The graph shows a box with the title, Industry Standard Earned Value Management System. There are 5 bulleted text with he titles of Organization, Planning and Budgeting, Accounting, Analysis and Management Reporting, and Revisions and Data Maintenance. Module 5 – EVMS Concepts and Methods 162

EVMS Criteria – Planning and Budgeting The second category is Planning and Budgeting. Within Planning and Budgeting the criteria require the following: Create the Integrated Master Schedule Identify Milestones, Key Events, Technical Performance Measures Establish and Maintain a Time-Phased Budget Baseline Identify Management Reserves and Undistributed Budget Ensure that the Contract Budget Base (CBB) is reconciled with the Total Allocated Budget (TAB) Industry Standard Earned Value Management System Organization Planning & Budgeting Accounting Analysis & Management Reporting Revisions & Data Maintenance The graph shows a box with the title, Industry Standard Earned Value Management System. There are 5 bulleted text with he titles of Organization, Planning and Budgeting, Accounting, Analysis and Management Reporting, and Revisions and Data Maintenance. Module 5 – EVMS Concepts and Methods 163

EVMS Criteria - Accounting The third category is Accounting. Within Accounting the criteria require the following: Provide summary and detail visibility of costs Establish process for reporting Material, Other Direct Costs, and Subcontractor Costs Provide full accounting of all material purchased for the project Industry Standard Earned Value Management System Organization Planning & Budgeting Accounting Analysis & Management Reporting Revisions & Data Maintenance Record direct and indirect costs in accordance with company disclosure statement The graph shows a box with the title, Industry Standard Earned Value Management System. There are 5 bulleted text with he titles of Organization, Planning and Budgeting, Accounting, Analysis and Management Reporting, and Revisions and Data Maintenance. Module 5 – EVMS Concepts and Methods 164

EVMS Criteria – Analysis and Management Reports The fourth category is Analysis and Management Reports. Within Analysis and Management Reports the criteria require the following: Provide variance reporting of Budget (BCWS), Earned Value (BCWP), and Actual (ACWP) Provide explanation of indirect costs Implement recovery plans, management actions, recommendations Develop revised estimates (EACs, LREs) based on performance to date and estimates of future performance Industry Standard Earned Value Management System Organization Planning & Budgeting Accounting Analysis & Management Reporting Revisions & Data Maintenance At least monthly, provide information at the Control Account Level necessary for analysis and reporting using actual cost data that is reconcilable with the approved accounting system The graph shows a box with the title, Industry Standard Earned Value Management System. There are 5 bulleted text with he titles of Organization, Planning and Budgeting, Accounting, Analysis and Management Reporting, and Revisions and Data Maintenance. Module 5 – EVMS Concepts and Methods 165

EVMS Criteria – Revisions and Data Maintenance The final category is Revisions and Data Maintenance. Within Revisions and Data Maintenance the criteria require the following: Establish Change Management System Provide Reconciliation and Revision Reports Control and Document changes Industry Standard Earned Value Management System Organization Planning & Budgeting Accounting Analysis & Management Reporting Revisions & Data Maintenance The graph shows a box with the title, Industry Standard Earned Value Management System. There are 5 bulleted text with he titles of Organization, Planning and Budgeting, Accounting, Analysis and Management Reporting, and Revisions and Data Maintenance. Module 5 – EVMS Concepts and Methods 166

EVMS Criteria – Revisions and Data Maintenance In modules 1 through 4, we discussed the criteria in the first 3 categories: Organization, Planning and Budgeting, and Accounting. In this and succeeding modules we will cover the criteria in the final two categories: Analysis and Management Reporting, and Revisions and Data Maintenance. Let’s get started! Industry Standard Earned Value Management System Organization Planning & Budgeting Accounting Analysis & Management Reporting Revisions & Data Maintenance The graph shows a box with the title, Industry Standard Earned Value Management System. There are 5 bulleted text with he titles of Organization, Planning and Budgeting, Accounting, Analysis and Management Reporting, and Revisions and Data Maintenance. Module 5 – EVMS Concepts and Methods 167

Cost and Schedule baseline Actual Charges (expenditures)
EVMS Basic Concepts At this point, you should understand that Earned Value helps determine if your project is on schedule and within budget. It does this by assessing the project on the basis of cost and schedule as compared to what has been accomplished. In determining the status of projects, three key components are examined Cost and Schedule baseline Actual Charges (expenditures) Reported accomplishments or “Earned Value” Understanding how the three components work in earned value is explained on the following pages. Module 5 – EVMS Concepts and Methods 168

Planned Value = Physical Work + Approved Budget
Planned Value (PV) Cost and Schedule baseline refers to the physical work scheduled and the approved budget to accomplish the scheduled work. Together, they result in an important value: Planned Value (PV). PV tells you what you plan to do. Simply stated, Planned Value = Physical Work + Approved Budget PV can be looked at in two ways: cumulative and current. Cumulative PV is the sum of the approved budget for activities scheduled to be performed to date. Current PV is the approved budget for activities scheduled to be performed during a given period. This period could represent days, weeks, months,etc. Module 5 – EVMS Concepts and Methods 169

Planned Value (PV) consists of a 5 step process…
PV, also known as Budget Cost of Work Scheduled (BCWS), can be defined as: Define Scope: What you are tasked to do (Scope Statement) Assign Scope: Breakdown scope into manageable parts (WBS) Schedule Scope: Time-phased, logic driven with critical path (Project Schedule) Budget Scope: develop cost (budget) for all approved scope (Performance Measurement Baseline) Baseline: Snap-shot in time, frozen. What performance measurement will be based on. Now let’s look at an example of Planned Value on the next page. Module 5 – EVMS Concepts and Methods 170

Planned Value (PV) example
We are working on a Client/Server project, and part of the scope is for Software Design. The time frame is 5 months and the budget for this scope is $15,000, resulting in a budget of $3,000 per month. The graph shows a table with the months of January, February, March, April, and May across the top and Planned Value as the topic with the value 3000 in each month. Time Now Module 5 – EVMS Concepts and Methods 171

Planned Value (PV) example
Based on these figures, we can calculate the cumulative PV and the current PV. The Cumulative PV is the total for the elapsed months: January – March. The cumulative PV is $9,000. The Current PV is the budget for the current month, March, and equals $3,000. This example uses dollars as units of measure, but note that you can use any unit of measurement: hours, days, dollars, etc. The graph shows a table with the months of January, February, March, April, and May across the top and Planned Value as the topic with the value 3000 in each month. Time Now Module 5 – EVMS Concepts and Methods 172

BAC is the sum of all budgets allocated to a project scope.
Budget at Completion (BAC) So far we have discussed the cumulative budget and current budget, but what about the budget at the end of the project? Earned Value also uses this figure, termed Budget at Completion (BAC). BAC is the sum of all budgets allocated to a project scope. Keep some important points in mind regarding BAC: BAC = PMB BAC can be examined by work packages and control accounts The Project BAC must always equal the Project Total PV. If they are not equal, your earned value calculations and analysis will be inaccurate. Let’s examine BAC using our previous example. Take a look on the next page. Module 5 – EVMS Concepts and Methods 173

Budget at Completion (BAC)
Take a moment to review the Software Design project. Knowing that BAC is the sum of all budgets allocated to a project, what is the BAC for this project if Software Design is the complete scope of the project? Yes, BAC = $15,000. And, in keeping with the previous points about BAC, the project BAC equals the Project Total PV. The Earned Value calculations are correct. The graph shows a table with the months of January, February, March, April, and May across the top and Planned Value as the topic with the value 3000 in each month. Module 5 – EVMS Concepts and Methods 174

EVMS Basic Concepts As you recall from earlier in the module, three key components are required to determine the status of projects. So far, we have examined the first: Cost and Schedule Baseline. Now let’s turn our attention on the following pages to the second, Actual Charges. Cost and Schedule baseline Actual Charges (expenditures) Reported accomplishments or “Earned Value” Module 5 – EVMS Concepts and Methods 175

AC is also called Actual Cost of Work Performed (ACWP).
Actual Cost (AC) Actual Cost (AC), also called actual expenditures, is the cost incurred for executing work on a project. This figure tells you what you have spent and, as with Planned Value, can be looked at in terms of cumulative and current. Cumulative AC is the sum of the actual cost for activities performed to date. Current AC is the actual costs of activities performed during a given period. This period could represent days, weeks, months,etc. AC is also called Actual Cost of Work Performed (ACWP). Module 5 – EVMS Concepts and Methods 176

Actual Cost (AC) example
Illustrating again from the Client/Server project example, can you determine the cumulative AC and current AC? Remember, Cumulative AC is the sum of the actual cost for activities performed to date, and Current AC is the actual costs of activities performed during a given period. The graph shows a table with the months of January, February, March, April, and May across the top and Planned Value as one topic with the value 3000 in each month and Actual Cost as the other topic with the value of 1100 in January, 900 in February, and 1200 in March. Time Now The Cumulative AC is the total for the elapsed months: January – March. The cumulative AC is $3,200. The Current AC is the actual cost for the current month, March, and equals $1,200. Module 5 – EVMS Concepts and Methods 177

EVMS Basic Concepts So far, we have examined Cost and Schedule Baseline and Actual Changes. Now let’s turn our attention on the following pages to the last of the three components, Actual Charges. Cost and Schedule baseline Actual Charges (expenditures) Reported accomplishments or “Earned Value” Module 5 – EVMS Concepts and Methods 178

EV is the quantification of the “worth” of the work done to date.
Earned Value (EV) To report the accomplishments of the project, you must apply Earned Value (EV) to the figures and calculations in the project. EV is the quantification of the “worth” of the work done to date. In other words, EV tells you, in physical terms, what the project has accomplished. As with PV and AC, EV can be presented in a Cumulative and Current fashion. Cumulative EV is the sum of the budget for the activities accomplished to date. Current EV is the sum of the budget for the activities accomplished in a given period. Earned Value is also called Budgeted Cost of Work Performed (BCWP). Module 5 – EVMS Concepts and Methods 179

Earned Value (EV) example
Through the Software Design example we have answered several questions, namely, the cumulative PV and AC, the current PV and AC, and the BAC. Let’s now determine the cumulative and current EV. The graph shows a table with the months of January, February, March, April, and May across the top and Planned Value as one topic with the value 3000 in each month and Actual Cost as the other topic with the value of 1100 in January, 900 in February, and 1200 in March and Earned Value as a topic with the value of 800 in January, 1300 in February, and 1000 in March. Time Now The Cumulative EV is the sum of the budget for the activities accomplished to date: January – March. The cumulative EV is therefore $3,100. The Current EV is the sum of the budget for the activities accomplished in the current month, March, and equals $1,000. Module 5 – EVMS Concepts and Methods 180

Earned Value (EV) example
Armed with a thorough picture of this project’s progress, let’s summarize the findings we have. Cum PV = $9,000 Current PV = $3,000 BAC = $15,000 Cum AC = $3,200 Current AC = $1,200 Cum EV = $3,100 Current EV = $1,000 The graph shows a table with the months of January, February, March, April, and May across the top and Planned Value as one topic with the value 3000 in each month and Actual Cost as the other topic with the value of 1100 in January, 900 in February, and 1200 in March and Earned Value as a topic with the value of 800 in January, 1300 in February, and 1000 in March. Time Now Module 5 – EVMS Concepts and Methods 181

Review At this point, you should have a solid understanding of the three key earned value components. Let’s review them now. Planned Value (PV) is determined by the cost and schedule baseline (discussed in Module 2 through 4) Actual Cost (AC) is determined by the actual cost incurred on the project Earned Value (EV) tells you, in physical terms, what the project accomplished. Cost and Schedule baseline Actual Charges (expenditures) Reported accomplishments or “Earned Value” Module 5 – EVMS Concepts and Methods 182

Earned Value (EV) Methods
As you know, EV is determined by what has been physically accomplished. But how do you determine the “physical” accomplishment? Physical accomplishment is determined by measuring the progress of a given activity. There are numerous EV methods to measure progress. On the following pages, we will focus on the following techniques: Earned Value Methods Fixed Formula Milestone Weights Milestone Weights with % Complete Units Complete Percent Complete Level of Effort Module 5 – EVMS Concepts and Methods 183

Earned Value (EV) Methods - Fixed Formula
The Fixed Formula method for determining progress applies to work packages and control accounts that span a short period of time (within an accounting period, < 3 months). This method applies a percent complete to the start and finish of an activity. Generally, the percentages used in the formula are 0/100, 50/50, or 25/75. 0/100 - Nothing is earned when activity starts but 100% of budget is earned when completed 50/ % is earned when activity starts and the balance is earned on completion 25/ % is earned when activity starts and the balance is earned on completion Earned Value Methods Fixed Formula Milestone Weights Milestone Weights with % Complete Units Complete Percent Complete Level of Effort Module 5 – EVMS Concepts and Methods 184

Earned Value (EV) Methods – Fixed Formula
The Fixed Formula method has several advantages and disadvantages: Advantages: Works well for short term work packages, and requires minimal effort to status. Disadvantages: No significant disadvantages for short term, low value work packages. Not very effective for longer term work packages. Module 5 – EVMS Concepts and Methods 185

Earned Value (EV) Methods – Milestone Weighting
The next method of calculating EV that we will discuss is Milestone Weights. The Milestone Weighting method assigns budget value to each milestone. Not until full completion of each milestone is the budget earned. Milestone Weighting is used as a method for work packages with long term durations and ideally should have milestones each month or accounting period. Let’s take a look at an example on the next page. Earned Value Methods Fixed Formula Milestone Weights Milestone Weights with % Complete Units Complete Percent Complete Level of Effort Module 5 – EVMS Concepts and Methods 186

Below is an example of the Milestone Weighting method. For the purposes of this and future examples, we will assume that the Building Design is the Control Account Level and the activities are at the Work Package level. Below are the activities and milestones in the Control Account for completing a building design. The dates for each milestone are given, along with the value for each milestone upon completion. Let’s use this example and see how Milestone Weighting is applied. The graphic shows a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Module 5 – EVMS Concepts and Methods 187

For this example, assume that all activities begin and complete as scheduled. With this in mind, can you determined the earned value as of January 31th? As you can see by the schedule the project has started (1/7). The “Start Inspection milestone” has been completed, but no value appears for that milestone. The “Site Inspection Complete” milestone has also been completed, and its value is 100. There are no more milestones completed through January, so our Current EV is 100. Because it is the first month for the control account, the Cumulative EV is also Now lets look at what has been earned through February. Time Now The graphic shows a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Module 5 – EVMS Concepts and Methods 188

As you can see by looking at the schedule below, there are no milestones scheduled for February (remember we assumed all activities will start and complete as scheduled), but we have started the Phase 1 Design. What are the Current EV and Cumulative EV as of February 28th? The Current EV is 0. Remember we can only take “earned” if milestone is complete. Since there were no milestones scheduled for or accomplished in February, we have earned no value under the milestone weighting approach. The Cumulative EV is 100, which includes the 100 from January and the 0 from February. Lets take a look at one more month. The graphic shows a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Time Now Module 5 – EVMS Concepts and Methods 189

Two milestones are scheduled for March. What is are Current EV and Cumulative EV as of March 31th? The Current EV is 350. Completion of Phase 1 Design (150) and Phase 2 Design (200). The Cumulative EV is 450, which includes the Site Inspection Complete from January (100), February (0), plus the current March EV (350). Time Now The graphic shows a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Module 5 – EVMS Concepts and Methods 190

The advantages and disadvantages of Milestone Weighting are: Advantages: Requires objective measurable milestones, which most customers or Project Managers prefer. Disadvantages: Does not allow partial credit for in-process work, and requires detailed milestone planning. Module 5 – EVMS Concepts and Methods 191

Earned Value (EV) Methods – Milestone Weighting with Percent Complete
We will now look at the third method for determing EV: Milestone Weights with Percent Complete.The Milestone Weighting with Percent Complete method assigns budget value to each milestone, and it is earned based on the percent of work Completed against each individual milestone. Like Milestone Weighting, Milestone Weighting with Percent Complete is used as a method for work packages with long term durations and ideally should have milestones each month or accounting period. Take a look on the following pages at how using Milestone Weighting with Percent Complete affects the Building Design example demonstrated previously using simple Milestone Weighting. Earned Value Methods Fixed Formula Milestone Weights Milestone Weights with % Complete Units Complete Percent Complete Level of Effort Module 5 – EVMS Concepts and Methods 192

There is no difference using either Milestone Weighting method for determining the “earned” value for January because the milestone was 100% completed during the month. The graphic shows two items, First,a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Second is a chart with the a current and cumulative comparison of the two methods. The totals for each method are 100 for both cumulative and current. Time Now Module 5 – EVMS Concepts and Methods 193

Through February the Milestone Weighting method had a current EV of 0 and a cumulative of Remember, because there are no milestones completed in February, the project cannot earn anything. Using the Milestone Weighting with Percent Complete method, however, you are able to “earn” a portion of the value of the milestone equal to the amount of the work completed for the activity(s) that make up the milestone. The graphic shows a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Time Now Module 5 – EVMS Concepts and Methods 194

Using the Building Design schedule, you can see that the Phase 1 Design is nearly complete by the end of February. For example, lets say that at the end of February the Phase 1 Design was determined to be 70% complete. Now let’s take this information and determine the EV for February using the Milestone Weighting with Percent Complete method and compare. The graphic shows a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Time Now Module 5 – EVMS Concepts and Methods 195

Because it has been determined that you are 70% complete with Phase 1 Design, you can take credit for earning 105 of the 150 for completing Phase 1 Design in February. See the chart below to compare the two methods as of February 28th. The graphic shows two items, First,a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Second is a chart with the a current and cumulative comparison of the two methods. The totals for each method are as follows: Current EV is 0 for Milestones Weighting, 105 for Milestone Weighting with Percent complete, 100 for cumulative Milestone Weighting, and 205 for Milestone Weighting with Percent complete. Time Now Module 5 – EVMS Concepts and Methods 196

The advantages and disadvantages of Milestone Weighting with Percent Complete are: Advantages: Requires objective measurable milestones, which most customers prefer, and allows for partial credit against milestones. Disadvantages: Requires a Control Account Manager (CAM) assessment of the % complete for each milestone and requires documentation of assessment methodology. Module 5 – EVMS Concepts and Methods 197

Earned Value (EV) Methods – Unit Complete
Now let’s look at the Unit Complete method of computing EV.The Unit Complete method uses a physical count to determine what is earned. To use Unit Complete you must have units that are identical or similar and they must have the same budget value. To examine the Unit Complete method, let’s take a look at a different example on the next page. Earned Value Methods Fixed Formula Milestone Weights Milestone Weights with % Complete Units Complete Percent Complete Level of Effort Module 5 – EVMS Concepts and Methods 198

For this example, you must install a total of 40 mainframe computers over five months. The number of units and the schedule to install them is listed below. After the 1st month, you have installed 12 mainframes, which means you are 30% complete with the total job. The earned value analysis shows that the PV is 10 units($10,000), EV is 12 units($12,000) and the AC is 12 units ($12,000). Module 5 – EVMS Concepts and Methods 199

The advantages and disadvantages of Unit Complete are: Advantages: An objective and easy way of determining the earned value for an activity. Disadvantages: Limited to production type atmosphere of similar items that are fixed unit prices. Does not take into consideration labor fluctuations so may misrepresent actual EV. Module 5 – EVMS Concepts and Methods 200

Earned Value (EV) Methods – Subjective Percent Complete
The fifth method of EV calculation that we will review is Subjective Percent Complete. The Subjective Percent Complete method applies a percent complete to a budget value to determine what is earned. The percent complete value is determined by the Control Account Manager or other designated individuals. The percent complete is applied to the Budget at Completion (BAC) for a given activity to determine the current and cumulative EV. Take a look on the next page at how Subjective Percent Complete is used. Earned Value Methods Fixed Formula Milestone Weights Milestone Weights with % Complete Units Complete Percent Complete Level of Effort Module 5 – EVMS Concepts and Methods 201

To use the Subjective Percent Complete method, the value is placed on the work activity, not the milestone (as in the Milestone Weighting method). Using the Building Design Project from earlier, this becomes more clear. The graphic shows a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Module 5 – EVMS Concepts and Methods 202

Looking at the Site Inspection activity in the schedule below, the start date is January 7th with a scheduled completion date of January 30th. Let’s status the activity as of January 15th. To determine the percent complete for January 15th, the control account manager (CAM) must use an educated guess to determine the percent complete of the activity. The CAM must maintain the logic for assessing each activity’s percent complete. In this example, the CAM decides that the activity is 45% complete as of January 15th. Given this, the EV for Site Inspection as of January 15th is 45. The graphic shows a schedule for design a building. The activities are Start, Site Inspection, Site inspection complete, Phase 1 Design, Phase 1 Complete, Phase 2 Design, Phase 2 Complete, Final Design, and Final Phase Complete. Module 5 – EVMS Concepts and Methods 203

The advantages and disadvantages of Subjective Percent Complete are: Advantages: This is one of the more subjective methods. Earned Value is based on the CAM’s assessment of the work package progress. Detailed planning at the milestone level is not required. Disadvantages: Customer Satisfaction maybe low due to the subjectiveness involved and the lack of detailed planning, however, CAMs are required to provide the customer with their assessment methodology. Note: Milestones do not apply to this method. Labor and non-labor must be identified in separate work packages if this method is applied. This method is highly subjective, and documentation in support of percent complete derivations is required. Module 5 – EVMS Concepts and Methods 204

Earned Value (EV) Methods – Level of Effort
The last EV method to define is Level of Effort. The Level of Effort (LOE) method is based on the passage of time. A monthly budget value is earned with the passage of time and is always equal to the monthly planned amount. When using LOE, the PV is always equal to the EV (see chart below). This method is usually used for accounts that are more time related than task oriented. Example of an LOE account is Program and Project Management support. Earned Value Methods Fixed Formula Milestone Weights Milestone Weights with % Complete Units Complete Percent Complete Level of Effort The graphic shows 1000 in each month for both Planned Value and Earned Value. Time Now Module 5 – EVMS Concepts and Methods 205

Earned Value (EV) Methods – Level of Effort
The advantages and disadvantages of Level of Effort are: Advantages: This EVM does not require statusing, and is appropriate for sustaining tasks like Program Management. Disadvantages: Level of Effort work packages are often challenged by the customer. This EV method should be kept to a minimal number of work packages. LOE work packages require accurate assessment (planning) of monthly performance. Module 5 – EVMS Concepts and Methods 206

Review At this point, you should have a firm grasp of the EV methods of calculation. Now that we are finished reviewing the EV methods, let’s take a look at our ACME House Building project using the concepts discussed in this module. Earned Value Methods Fixed Formula Milestone Weights Milestone Weights with % Complete Units Complete Percent Complete Level of Effort Module 5 – EVMS Concepts and Methods 207

Project Status: Example
Let’s recall, from previous modules, the project baseline (schedule and cost) for the House Building project. The project start date is 1/15, with an expected completion date of 4/1. It is now 1/31. The project started on schedule and needs to be statused as of 1/31. Look at the schedule and identify the activities that need to be reviewed for status. Status as of 1/31 The graphic shows the schedule for the ACME House Building project with status line at 1/14. There are four activities affected by the status date, Pour Foundation, Frame Exterior Walls,,Pour Stairway and Install Patio Module 5 – EVMS Concepts and Methods 208

According to the baseline, the following activities need to be reviewed for status as of 1/31: Pour Foundation Install Patio Frame Exterior Walls Pour Stairway Status as of 1/31 The graphic shows the schedule for the ACME House Building project with status line at 1/14. There are four activities affected by the status date, Pour Foundation, Frame Exterior Walls,,Pour Stairway and Install Patio Module 5 – EVMS Concepts and Methods 209

Before we go any further a few assumptions need to explained. The activities will be done as sequenced, thus no other activities, besides the four mentioned, will be affected by the 1/31 statusing effort. Activity cost is spent uniformly across each activity With these assumptions at hand, let’s focus on statusing the project. Status as of 1/31 The graphic shows the schedule for the ACME House Building project with status line at 1/14. There are four activities affected by the status date, Pour Foundation, Frame Exterior Walls,,Pour Stairway and Install Patio Module 5 – EVMS Concepts and Methods 210

Now we need to determine our Earned Value (EV) for each activity. As we discussed on the previous pages, there are numerous EV methods used for measuring progress each method more applicable to certain types of activities than other methods. For example we will use the following EV methods for, the four activities we are statusing. Now that we understand what activities need statusing and what method of EV will be used for each activity, it is time to status the project activities. Chart showing the four activities affected by the 1/14 statusing and the Earned Value method for each. Module 5 – EVMS Concepts and Methods 211

To obtain our project activity status, we will need to meet with the Project Manager or those responsible for the work. In our case, we will need to meet with the different CAMs or Project Superintendents responsible for each Control Account. Below are the results of that meeting. The graphic shows the activities as there status information. Pour Foundation was started on 1/1 and finished on 1/8, Install Patio was started on 1/9 and finished on 1/11, Pour Stairway was started on 1/12 and is scheduled to complete on 1/15; It is 25% complete, and Frame Exterior Walls was started on 1/9 and is scheduled to complete 1/25; it is 40% complete. Module 5 – EVMS Concepts and Methods 212

Now let’s review the status of each activity. The first activity is Pour Foundation. This activity was scheduled to start on 1/15 and finish on 1/22 (see schedule below). It’s actually started on 1/15 and finished on 1/22 (see status report below). Thus this activity was on schedule and is 100% complete. What is its Planned Value (PV), Earned Value (EV), and Actual Cost (AC)? The graphic shows the schedule and chart previously explained. Module 5 – EVMS Concepts and Methods 213

The Planned Value is determine by what was “planned” or scheduled to be complete. Using the schedule below, the activity was planned to start on 1/15 and finish on 1/22 thus as of 1/31 the PV for Pour Foundation is $15,394, the entire value of the activity. The Earned Value (EV) is what was actually done as of 1/31. The activity is 100% complete and its EV is $15,394 (100% of PV). Remember you cannot earn more then was planned. The Actual Cost (AC) is what was actually spent and can be obtained from the accounting system. The AC is $15,850. The graphic shows the schedule and chart previously explained. Module 5 – EVMS Concepts and Methods 214

The next activity, Install Patio, is handled the same way as the previous activity. It was completed on schedule and is 100% complete as of 1/31. Its PV, EV and AC are as follows: Planned Value (PV) = $8,166 Earned Value (EV) = $8,166 Actual Cost (AC) = $7,200 The graphic shows the schedule and chart previously explained. Module 5 – EVMS Concepts and Methods 215

The next two activities are a little different because they are not 100% complete, and they use two different methods of determining EV. Let’s take a look at the activity, Frame Exterior Walls first. Check out this activity on the next page. The graphic shows the schedule and chart previously explained. Module 5 – EVMS Concepts and Methods 216

The activity, Frame Exterior Walls, was schedule to start on 1/23 and finish on 2/8. It started on 1/23 and is forecasted to complete on 2/8 (see status report), thus the activity is on schedule. As of 1/31 the Project Superintendent said the activity was 40% complete. Remember the EV method used for this activity is Subjective % Complete. What is our PV, EV and AC? The graphic shows the schedule and chart previously explained. Module 5 – EVMS Concepts and Methods 217

The Planned Value is $8,748. Let’s review how the planned value was determined. The activity is schedule from 1/23 to 2/8, which is 17 calendar days or 13 working days. We will use calendar days in our example calculation. Remembering the assumption that all costs are spent uniformly across each activity, we need to determine what the PV is as of 1/31. Let’s take a look at the calculations on the next page. The graphic shows the schedule and chart previously explained. Module 5 – EVMS Concepts and Methods 218

The cost of the activity, $16,521, will be divided by the total duration of the activity, 17 days, to give us a value of $972 per day. Next we take the planned start date (1/23) and the status date (1/31) to determine the amount of days planned (9). Now let’s determine the Planned Value (PV). The PV is determined by taking the amount of days (9) times the value per day ($972). Our PV is $8,748. Remember that there is a difference between cumulative and current. For this example they are the same. Now let’s take a look on the next page at determining EV. The graphic shows the schedule and chart previously explained. Module 5 – EVMS Concepts and Methods 219

The Earned Value for this activity is determined by taking the activity's total value, $16,521, and multiplying it by the % complete. In this case, the % complete is 40%. The EV for this activity, as of 1/31, is $6,608. The Actual Cost (AC) as derived from the accounting system is $6,250. In summary: PV = $8,748 EV = $6,608 AC = $6,250 Now let’s take a look at our last activity. The graphic shows the schedule and chart previously explained. Module 5 – EVMS Concepts and Methods 220

The last activity is Pour Stairway. This activity was scheduled to start on 1/31 and finish on 2/1. It started on schedule on 1/31 and is forecasted to complete on 2/1 (see status report), thus the activity is on schedule. Its EV method is Fixed Formula 25/75, so its % complete is 25%. Using the same processes discussed on the previous pages, what is the PV, EV and AC for this activity? PV = $5,961 ($11,922/2 calendar days) EV = $2,981 ($11,922 x .25) AC = $3,100 (from accounting system) Now let’s review our project status. The graphic shows the schedule and chart previously explained. Module 5 – EVMS Concepts and Methods 221

The chart below lists the project status results as of 1/31. But what does this information tell us? Note: SV = Schedule Variance, CV = Cost Variance, SPI = Schedule Performance Index, CPI = Cost Performance Index Can you answer these questions? Is the Project on Schedule?, If not, what activity(s) is behind? Is the project overrunning? If so, what activity(s) is overrunning? Is the project going to miss the project completion milestone? Is the project going to need more budget? These questions and others will be answered in the next module, Module 6 – Metrics, Performance Measures and Forecasting where the value of EVM will become apparent. The graphic shows a chart with the status information as follows: For Installing Foundation PV $15,394, EV $15,394, AC $15,850, SV 0, CV – 456, SPI 1.00, and CPI For Installing Patio PV $8,166, EV $8,166, AC $7,200, SV 0, CV 966, SPI 1.00, and CPI For Framing Exterior Walls PV $5,832, EV $6,608, AC $6,250, SV 776, CV 358, SPI 1.13, and CPI For Installing Stairway PV $8,941, EV $2,980, AC $3,100, SV –5961, CV –120, SPI 0.33, and CPI For Project Total PV $38,333, EV $33,148, AC $32,400, SV –5185, CV 748, SPI 0.86, and CPI 1.02 Module 5 – EVMS Concepts and Methods 222

EAC = Actual Cost (AC) + Estimate to Complete (ETC)
Estimate at Completion (EAC) One final item that needs to be covered briefly is Estimate at Completion (EAC). The Estimate at Completion (EAC) is the actual cost to date plus an objective estimate of costs for remaining authorized work. The objective in preparing an EAC is to provide an accurate projection of cost at the completion of the project. There are multiple ways and varying degrees of detail to calculate EAC, and they will be covered in a future module. The most common is: EAC = Actual Cost (AC) + Estimate to Complete (ETC) The Estimate to Complete (ETC) is the cost of completing the authorized remaining work. Module 5 – EVMS Concepts and Methods 223

Take some time to review the major items of this module
Review of Module 5 Take some time to review the major items of this module There is an Industry Standard Earned Value Management System guideline published in DoD R. It contains 332 criteria in 5 categories. There are three key components to earned value: Planned Value, Earned Value and Actual Cost. PV (BCWS) is the physical work scheduled or “what you plan to do”. EV (BCWP) is the quantification of the “worth” of the work done to date or “what you physically accomplished”. AC (ACWP) is the cost incurred for executing work on a project or “what you have spent”. There are numerous EV methods used for measuring progress. Fixed Formula Milestone Weights Milestone Weights with % Complete Units Complete Percent Complete Level of Effort Module 5 – EVMS Concepts and Methods 224

Summary of Module 5 In previous modules, we examined the basics of planning, scheduling, budgeting, and establishing a baseline. In this module we examined the basic EVMS concepts and methods. The next module takes us into analyzing the Metrics of Earned Value, along with addressing Performance Measures and Forecasting. If you have a firm grasp of the concepts covered in these first five modules, feel free to progress to the next module. Otherwise, review the modules to ensure you have a solid understanding of the basics. This concludes Module 5. Module 5 – EVMS Concepts and Methods 225

Earned Value Management Tutorial Module 6: Metrics, Performance Measurements and Forecasting
Prepared by:

Module 6: Metrics, Performance Measurements and Forecasting
Welcome to Module 6. The objective of this module is to introduce you to the Metrics and Performance Measurement tools used, along with Forecasting, in Earned Value Management. The Topics that will be addressed in this Module include: Define Cost and Schedule Variances Define Cost and Schedule Performance Indices Define Estimate to Complete (ETC) Define Estimate at Completion (EAC) and Latest Revised Estimate (LRE) Module 6 – Metrics, Performance Measures and Forecasting

Let’s quickly review what has been covered in the previous modules. There are three key components to earned value: Planned Value, Earned Value and Actual Cost. PV is the physical work scheduled or “what you plan to do”. EV is the quantification of the “worth” of the work done to date or “what you physically accomplished”. AC is the cost incurred for executing work on a project or “what you have spent”. There are numerous EV methods used for measuring progress. The next step is to stand back and monitor the progress against the Performance Measurement Baseline (PMB). Module 6 – Metrics, Performance Measures and Forecasting

What is Performance Measurement?
Performance measurement is a common phrase used in the world of project management, but what does it mean? Performance measurement can have different meanings for different people, but in a generic sense performance measurement is how one determines success or failure on a project. How then can performance measurement have different meanings for different people? To answer this question, consider the ACME House Building project. You have two major stakeholders on this project, the Buyer and the Builder. Do you think they both measure success on the project identically or do you believe their definition of project success may be different? Let’s take a look on the next page. Module 6 – Metrics, Performance Measures and Forecasting 229

It seems logical to say that they both want a home that provides security, meets building code, and keeps them warm in the winter and cool in the summer. Now let’s look at possible differences in the way they define successful performance on the project. Can you see how different parties or individuals can have conflicting views of what defines project success? Buyer Home has 4 bedrooms, 3 bathrooms Backyard is landscaped for children to play Two car garage Walls don’t have paint streaks Carpeting is correct color Builder Completed on time Within contract price Sells within first two months Less than 10% Post-sell maintenance Module 6 – Metrics, Performance Measures and Forecasting 230

The Stakeholders (Buyer and Builder in the ACME House Building Project) should understand how each party defines project success and what each party measures to determine that success. In the case of Earned Value Management, performance measurements focus on cost and schedule management. The Cost Management focuses on the cost performance of the project. It looks at the relationships between the Earned Value (EV) and the Actual Cost (AC). The Schedule Management focuses on the schedule performance of the project. It looks at the relationships between the Earned Value (EV) and the Planned Value (PV). Now let’s look at these relationships in more detail on the following pages. Module 6 – Metrics, Performance Measures and Forecasting 231

Earned Value: Metrics and Performance Measurements
Earned value performance measurements look at the project cost and schedule performance by analyzing the cost and schedule variance along with cost and schedule efficiency. The formulas used are as follows: Variance Analyses Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC) Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV) Performance Indices Cost Performance Index = Earned Value (EV)/Actual Cost (AC) Schedule Performance Index = Earned Value (EV)/Planned Value (PV) Let's take a look at the Variance Analyses on the next page. Module 6 – Metrics, Performance Measures and Forecasting 232

Cost Variance (CV) = EV – AC
Variances The Cost Variance (CV) is the difference between the earned value of work performed and the actual cost. CV tells you the earned value of work performed for each dollar’s worth of work scheduled. Cost Variance (CV) = EV – AC If the result is POSITIVE, project is experiencing an “Underrun” If the result is NEGATIVE, project is experiencing an “Overrun” Module 6 – Metrics, Performance Measures and Forecasting 233

Time Variances: Cost Variance example
Using the ACME Home Building project information from Module 5, let's calculate the Cost Variance (CV) for the project. CV = EV – AC CV = $33,149 - $ 32,400 CV = $749 What does this tell you? Look at the explanation on the next page. Cost Variance Time PV = $38,269 EV = $33,149 AC = $32,400 1/31 The graphics show a chart with the PV, EV and AC information as of January 31th, The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC. There is a line graph showing the PV, EV and AC. The graphic starts at 0 on both axis. There is lines for PV, EV and AC. The AC line is below the EV line and the EV line is below the PV line. Module 6 – Metrics, Performance Measures and Forecasting 234

Time Variances: Cost Variance example
A Cost Variance of $749 tells you that the project is “Underrun” or under budget. Please note that the cost variance, along with all other performance analyses tools, can be computed (or assessed) in terms of cumulative and current. Since we are in the first status period in our example, the cumulative and current are the same. Cost Variance Time PV = $38,269 EV = $33,149 AC = $32,400 1/31 Using the graph to right, you can see that on 1/31 the EV line (green) is above the AC line (red). This means that it cost less to accomplish the work then was budgeted, thus a positive cost variance. Let's look at another Cost Variance calculation on the next page. The graphic shows a line graph showing the PV, EV and AC. The graphic starts at 0 on both axis. There is lines for PV, EV and AC. The AC line is below the EV line and the EV line is below the PV line. Module 6 – Metrics, Performance Measures and Forecasting 235

Cost Variance (CV)% = CV/EV
Variances: Cost Variance example Another calculation for reviewing Cost Variance (CV) Percentage is CV%. Using our example, what is the CV%? CV = EV – AC CV% = CV/EV CV = $33,149 - $32,400 CV% = $749/$33,149 CV = $ CV% = .023 or 2.3% To date the project has a Cost Variance of $749 or 2.3% Cost Variance (CV)% = CV/EV Tells you what percentage cost varies from what has been earned to date. Module 6 – Metrics, Performance Measures and Forecasting 236

Schedule Variance (SV) = EV – PV
The Schedule Variance (SV) is the difference between the earned value of work performed and the work scheduled. SV tells you the value of work performed less value of work scheduled. Schedule Variance (SV) = EV – PV If the result is POSITIVE, project is on schedule or exceeding the schedule If the result is NEGATIVE, project is behind schedule Module 6 – Metrics, Performance Measures and Forecasting 237

Cost Time Variances: Schedule Variance example
Using the ACME Home Building project information from Module 5, let's calculate the Schedule Variance (SV) for the project. SV = EV – PV SV = $33,149 - $38,269 SV = -$5,120 What does this tell you? Look at the explanation on the next page. Schedule Variance Time Cost PV = $38,269 EV = $33,149 AC = $32,400 1/31 The graphics show a chart with the PV, EV and AC information as of January 31th, The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC. There is a line graph showing the PV, EV and AC. The graphic starts at 0 on both axis. There is lines for PV, EV and AC. The AC line is below the EV line and the EV line is below the PV line. Module 6 – Metrics, Performance Measures and Forecasting 238

Cost Time Variances: Schedule Variance example
A Schedule Variance of -$5,120 tells you that the project is “Behind” schedule. Schedule Variance Time Cost PV = $38,269 EV = $33,149 AC = $32,400 1/31 Using the graph to right, you can see that on 1/31 the EV line (green) is below the PV line (blue). This means that what was earned to date is less then what was planned to be accomplished. Now consider on the following page what schedule variance does and does not address. The graphic shows a line graph showing the PV, EV and AC. The graphic starts at 0 on both axis. There is lines for PV, EV and AC. The AC line is below the EV line and the EV line is below the PV line. Module 6 – Metrics, Performance Measures and Forecasting 239

Variances: Schedule Variance
Schedule Variance status does: indicate the dollar value difference between work that is ahead or behind the plan reflect a given measurement method Schedule Variance status does not: address impact of work sequence address importance of work reflect critical path assessment indicate amount of time it will slip identify source (labor & material) of difference indicate the time ahead/behind (or regain) schedule indicate the cost needed to regain schedule Let's look at another Schedule Variance calculation on the next page. Module 6 – Metrics, Performance Measures and Forecasting 240

Schedule Variance (SV)% = SV/PV
Variances: Schedule Variance example Another calculation for reviewing Schedule Variance (SV) is SV%. Using our example, what is the SV%? SV = EV – PV SV% = SV/PV SV = $33,149 - $38,269 SV% = -$5,120/$38,269 SV = -$5, SV% = or -13.4% To date the project has a Schedule Variance of -$5,120 or -13.4% Schedule Variance (SV)% = SV/PV Tells you what percentage schedule varies from what has been planned to date. Module 6 – Metrics, Performance Measures and Forecasting 241

Cost Variance (CV) = EV – AC Schedule Variance (SV) = EV – PV
Variances: Review You should have a solid understanding of the cost and schedule variance calculations and what they mean. Let's review them now. Using these variance calculations, our project information is as follows. Now let's look at the performance indices on the following pages. Cost Variance (CV) = EV – AC If the result is POSITIVE “Underrun” If the result is NEGATIVE “Overrun” Schedule Variance (SV) = EV – PV If the result is POSITIVE  “On Schedule” If the result is NEGATIVE  “Behind Schedule” The graphics show a chart with the PV, EV and AC information as of January 31th, The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC. The chart also shows the schedule variance and cost variance for the project. The Cost Variance is $748 and the Schedule Variance is - $5,121. Module 6 – Metrics, Performance Measures and Forecasting 242

Cost Performance Index (CPI) = EV/AC
Performance Indices The Cost Performance Index (CPI) is a measure of Cost Efficiency. The CPI measures the value of work performed against the actual cost. Cost Performance Index (CPI) = EV/AC If the result is less than 1.0, cost is GREATER than budgeted If the result is greater than 1.0, cost is LESS than budgeted Example 1: PV = $950 EV = $1000 AC = $ 900 CPI = $ = 1.11 $900 Example 2: PV = $1100 EV = $1000 AC = $1200 CPI = $ = .83 $1200 Module 6 – Metrics, Performance Measures and Forecasting 243

Cost Time Performance Indices: Cost Performance Index example
Using the ACME Home Building project information, let's calculate the Cost Performance Index (CPI) for the project. CPI = EV/AC CPI= $33,149/$32,400 CPI = 1.02 What does this tell you? Look at the explanation on the next page. Time Cost PV = $38,269 EV = $33,149 AC = $32,400 1/31 The graphics show a chart with the PV, EV and AC information as of January 31th, The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC. There is a line graph showing the PV, EV and AC. The graphic starts at 0 on both axis. There is lines for PV, EV and AC. The AC line is below the EV line and the EV line is below the PV line. Module 6 – Metrics, Performance Measures and Forecasting 244

You are getting $1.02 worth of work for every $1.00 spent.
Performance Indices: Cost Performance Index example A Cost Performance Index (CPI) of 1.02 tells you that your actual costs are less then what was budgeted. You are getting $1.02 worth of work for every $1.00 spent. Now let's look at some causes of favorable and unfavorable cost performance. The graphic shows a graph with the CPI of 1.02 noted with a point description. Module 6 – Metrics, Performance Measures and Forecasting 245

Performance Indices: Cost Performance Index example
Potential Causes of Unfavorable (-) Cost Performance Work more complex than anticipated Design review comments extensive Rework Unclear Requirements Scope Creep Unfavorable Market Fluctuations in the Cost Labor or Material Overhead Rate Increases Potential Causes of Favorable (+) Cost Performance Efficiencies being realized Work less complex than anticipated Fewer revisions and rework Favorable Market Fluctuations in the Cost of Labor or Material Overhead Rate Decreases Module 6 – Metrics, Performance Measures and Forecasting 246

Schedule Performance Index (SPI) = EV/PV
Performance Indices The Schedule Performance Index (SPI) is a measure of Schedule Efficiency. The SPI measures the value of work performed against the work scheduled. Schedule Performance Index (SPI) = EV/PV If result is less than 1.0, project is “BEHIND” schedule If the result greater than 1.0, project is “AHEAD of schedule Example 1: PV = $950 EV = $1000 AC = $ 900 SPI = $ = 1.05 $950 Example 2: PV = $1100 EV = $1000 AC = $1200 SPI = $ = .91 $1100 Module 6 – Metrics, Performance Measures and Forecasting 247

Cost Time Performance Indices: Schedule Performance Index example
Using the ACME Home Building project information, let's calculate the Schedule Performance Index (SPI) for the project. SPI = EV/PV SPI = $33,149/$38,269 SPI = .87 What does this tell you? Look at the explanation on the next page. Time Cost PV = $38,269 EV = $33,149 AC = $32,400 1/31 The graphics show a chart with the PV, EV and AC information as of January 31th, The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC. There is a line graph showing the PV, EV and AC. The graphic starts at 0 on both axis. There is lines for PV, EV and AC. The AC line is below the EV line and the EV line is below the PV line. Module 6 – Metrics, Performance Measures and Forecasting 248

Performance Indices: Schedule Performance Index example
A Schedule Performance Index (SPI) of .87 tells you that you are behind schedule. It can be defined in two ways: You are 13% behind schedule Or You are working at an 87% efficiency Now let's look at some causes of favorable and unfavorable schedule performance on the following page. The graphic shows a graph with the CPI of 1.02 noted with a point description and the SPI of .87 noted with a point description. Module 6 – Metrics, Performance Measures and Forecasting 249

Performance Indices: Schedule Performance Index example
Potential Causes of Unfavorable (-) Schedule Performance Manpower shortage Revised Execution Plan Supporting organizations behind schedule Late Vendor delivery Delayed customer feedback/direction Rework Work more complex than anticipated Design review comments extensive Unclear requirements Scope creep Potential Causes of Favorable (+) Schedule Performance Efficiencies being realized Work less complex than anticipated Fewer revisions and rework Favorable Market Fluctuations in the Cost of Labor or Material Subcontractor ahead of schedule Module 6 – Metrics, Performance Measures and Forecasting 250

Review of Variance and Performance Indices
Below is a summary of the ACME Home Building project. What conclusions can be inferred as to the cost and schedule performance of this project? Let’s take a look on the next page. The graphics show a chart with the PV, EV, AC, SV, CV, SPI, and CPI information as of January 31th, The Project totals are $38,269 for PV, $33,148 for EV, $32,400 for AC, -$5,121 for SV, $748 for CV, .87 for SPI, and for CPI. Module 6 – Metrics, Performance Measures and Forecasting 251

The ACME Home Building Project is 13% behind schedule (SPI = .87) but is ahead on cost by 2% (CPI = 1.02). In review of the activities, Installation of the Stairway and Framing the Exterior Walls are the activity causing the project to be behind (SPI = .50 and .76) schedule. On the cost side, the Installation of the Patio is costing less then budgeted (CV =$966) and is the main reason for the project underrunning its budget. What is the standard reporting variance threshold for a project? Find out on the next page. The graphics show a chart with the PV, EV, AC, SV, CV, SPI, and CPI information as of January 31th, The Project totals are $38,269 for PV, $33,148 for EV, $32,400 for AC, -$5,121 for SV, $748 for CV, .87 for SPI, and for CPI. Module 6 – Metrics, Performance Measures and Forecasting 252

Variance Report for ACME Housing Project
Reporting Variances The size and complexity of the project determines the reporting needed. Different industries and government agencies will set variance thresholds at different levels, but most set the variance level between + or - 7% to 10%. This means that a SPI or CPI of .90 to 1.1 will require an official variance analysis to explain what is happening on the project. Note that you need to explain positive variances as well as negative variances. Department of Defense R Variance Report for ACME Housing Project Module 6 – Metrics, Performance Measures and Forecasting 253

So far we have only looked at how to analyze what has happened on a project (CV,SV, CPI, SPI). Take some time to review the formulas below. Cost Variance (CV) = EV – AC If the result is POSITIVE “Underrun” If the result is NEGATIVE “Overrun” Schedule Variance (SV) = EV – PV If the result is POSITIVE  “On Schedule” If the result is NEGATIVE  “Behind Schedule” Cost Variance (CV)% = CV/EV Tells you what percentage cost varies from what has been earned to date. Schedule Variance (SV)% = SV/PV Tells you what percentage schedule varies from what has been planned to date. Cost Performance Index (CPI) = EV/AC If result is less than 1.0, cost is GREATER than budgeted If the result greater than 1.0, cost is LESS than budgeted Schedule Performance Index (SPI) = EV/PV If result is less than 1.0, project is “BEHIND” schedule If the result greater than 1.0, project is “AHEAD of schedule Module 6 – Metrics, Performance Measures and Forecasting 254

Estimate at Completion
Now it is time to learn how to analyze the future or what is expected to happen on a project given the progress measurements reported to date. Anticipating future progress requires determining when the project will be completed and how much it will cost to complete it. To complete our analysis, we will look at the Estimate at Completion (EAC) and the Budget at Completion (BAC). The Estimate at Completion (EAC), which was defined in Module 5, is the actual cost to date plus an objective estimate of costs for remaining authorized work. The objective in preparing an EAC is to provide an accurate projection of cost at the completion of the project. The Budget at Completion (BAC) is the sum of all budgets allocated to a project scope. The Project BAC must always equal the Project Total PV. If they are not equal, your earned value calculations and analysis will be inaccurate. The chart on the following page lists the parameters of the BAC and EAC along with the other EVM items we have covered. Module 6 – Metrics, Performance Measures and Forecasting 255

Estimate At Completion = Latest Revised Estimate
Another term you may hear is Latest Revised Estimate (LRE). The LRE is equal to the EAC. Estimate At Completion = Latest Revised Estimate For the remainder of the Modules, we will refer to Estimate at Completion as “EAC”. The graphic shows a list of the EV items with the questions they answer Module 6 – Metrics, Performance Measures and Forecasting 256

Estimate at Completion
The EAC is the best estimate of the total cost at the completion of the project. The EAC is a periodic evaluation of the project status, usually on a monthly basis or when a significant change happens to the project. EACs are developed with varying degrees of detail and supporting documents. A comprehensive EAC is usually prepared annually or if there are any major changes in the project. The EAC should be reviewed on a monthly basis by the Control Account Manager (CAM) or those responsible. The EAC is developed for projects as well as Control Accounts and Work Packages. There are multiple ways to develop an EAC. The technique selected is based upon the dollar value of the project, the risk, accounting system available and the accuracy of the estimates. Let's take a look on the following pages at the most frequently used EAC formulas. Module 6 – Metrics, Performance Measures and Forecasting 257

EAC = Actual Cost (AC) + Estimate to Complete (ETC)
Calculating Estimate at Completion The first EAC calculation we will look at is Estimate to Complete: EAC = Actual Cost (AC) + Estimate to Complete (ETC) The Estimate to Complete (ETC) is the estimated cost of completing the authorized remaining work. A detailed ETC will include a description of the work remaining and any revisions to the estimated resources or cost for completing the project. This formula assumes that all remaining work is independent of the burn-rate incurred to date. Now let's look use the EAC formula for our ACME Home Building project. Take a look on the next page. Module 6 – Metrics, Performance Measures and Forecasting 258

Calculating Estimate at Completion
Earlier in this module, we determined the actual cost (AC) for January to be $32,400. Now we need to determine the Estimate to Complete (ETC) for all activities. For the two activities that are 100% complete, their actual cost replaces their ETC (see chart below). For the two activities current being worked, we will assume that they will be completed as budgeted even though they have current cost variances (see ETC adjustments below). It will also be assumed that all other activities will have no adjustments to their ETC. By reviewing the chart to the left you can see that our new Estimate at Completion (EAC) is $164,957. Now lets look at the same example with some additional changes to the ETC. The graphic shows a chart with the actuals for January and the ETC for the months of February, March, and April. The January actuals equal $32,400 and the ETC for February, March and April are $132,557. Module 6 – Metrics, Performance Measures and Forecasting 259

As the project manager you are reviewing your ETC and you get a call from the carpeting contractor. He tells you that the original budget for installing the carpet ($2,250) is no longer correct because the price of the carpet increased. The project manager asks for a new estimate and the carpeting contractor tells him that it will now cost $3,100. Additionally, your superintendent tells you that the current ETCs for Framing the Exterior Walls and Pour Stairway are good, thus the current cost underrun ($358) for Framing and the cost overrun ($120) for Stairway will be realized at the completion of each activity. With this information, lets take a look at the EAC. Module 6 – Metrics, Performance Measures and Forecasting 260

EAC = Actual Cost (AC) + New Estimate to Complete
Calculating Estimate at Completion EAC = Actual Cost (AC) + New Estimate to Complete The new ETC total is $133,169 ($84,850 + $43,663 + $4,656) The new EAC total is $165,569 ($32,400 (AC) + $133,169 (ETC)). When using this formula to calculate EAC, you can also include expert opinion, project and industry trends and other forms of objective analysis. The graphic shows a chart with the actuals for January and the ETC for the months of February, March, and April. The January actuals equal $32,400 and the ETC for February, March and April are $132,169. Module 6 – Metrics, Performance Measures and Forecasting 261

Now that we have the EAC, what does it tell us? As mentioned earlier, EAC is the best estimate of the total cost at the completion of the project. It is also used to determine the Variance at Completion (VAC) for the project. The VAC is calculated as follows: VAC = BAC – EAC If the result is POSITIVE, project is projecting an “Underrun” If the result is NEGATIVE, project is projecting an “Overrun” Now let's determine the VAC for our project as shown on the next page. Module 6 – Metrics, Performance Measures and Forecasting 262

The VAC for our project is determined as follows: BAC – EAC = VAC $ 165,467 – $165, = - $102 In other words, the project is now forecasted to overrun by $102 using this form of EAC. Remember, this is only one method of forecasting the performance of the project. Several other methods can be used. Let’s consider those on the following pages. As you examine the remaining Estimate at Completion (EAC) formulas, keep in mind that they are subjective analyses. These calculations use performance-to-date data to help calculate the EAC. Sometimes these forms of EAC Calculations are called Independent Estimate at Completion (IEAC). Module 6 – Metrics, Performance Measures and Forecasting 263

The second EAC formula is as follows: EAC = AC/EV x BAC This calculation uses the Actual cost, Earned value and Budget at Completion for the project. This formula is the easiest to use, but it assumes that the “burn-rate” will be the same for the remainder of the project. Let's use our ACME Home Building project to calculate the EAC using this formula. Take a look on the next page. Module 6 – Metrics, Performance Measures and Forecasting 264

EAC = AC/EV x BAC EAC = $32,400/$33,149 x $165,467 EAC = .98 x $165,467 EAC = $162,158 VAC = BAC – EAC VAC = $165,467 - $162,158 VAC = 3,309 Using this EAC calculation, our project is projected to underrun by $3,309. Now let's look at the next EAC formula on the next page. The graphic shows a chart with the PV, EV, AC and BAC for the project. The PV is equal to $37,297, the EV is equal to $33,148, the AC is equal to $32,400 and the BAC is equal to $165,467. Module 6 – Metrics, Performance Measures and Forecasting 265

The third EAC formula is as follows: EAC = BAC/CPI This calculation uses the Budget at Completion (BAC) and the Cost Performance (CPI) Index to calculate EAC. This formula is also easy to use and assumes that the “burn-rate” remains constant for the remainder of the project. This formula is derived from the previous formula and thus should result in the same EAC figure. Note that with this formula you need additional information than the previous formula. Let's use our ACME Home Building project and calculate the EAC using this formula. Take a look on the next page. Module 6 – Metrics, Performance Measures and Forecasting 266

EAC = BAC/CPI EAC = $165,467/1.02 EAC = $162,222 VAC = BAC – EAC VAC = $165,467 - $162,222 VAC = 3,245 Using this EAC calculation, our project is projected to underrun by $3,245. Why is this answer different then the previous calculation when it was mentioned that the two formulas are derived from each other? Rounding to the second decimal is the reason for the $64 difference. The graphic shows two charts the first chart shows actuals for January and the ETC for the months of February, March, and April. The January actuals equal $32,400 and the ETC for February, March and April are $132,557. The second graphic shows a chart with the PV, EV, AC, SV, CV, SPI, and CPI information as of January 31th, The Project totals are $38,269 for PV, $33,148 for EV, $32,400 for AC, -$5,121 for SV, $748 for CV, .87 for SPI, and 1.02 for CPI. Module 6 – Metrics, Performance Measures and Forecasting 267

The fourth EAC formula is as follows: This calculation uses the Actual cost, Earned value, the value of work completed and in process and the cost of work not yet begun. This formula assumes that the work not yet begun will be completed as planned. Let's use our ACME Home Building project and calculate the EAC using this formula. Take a look on the next page. EAC = AC/EV x [Work Completed and in Progress] [Cost of work not yet begun] Module 6 – Metrics, Performance Measures and Forecasting 268

EAC = AC/EV x [Work Completed and in Progress] [Cost of work not yet begun] You need the chart to the left to determine the first part of the formula (actual cost and earned value). AC/EV = $32,400/$33,149 AC/EV = .98 To obtain the remaining two parts, you will also need to use the chart, but some calculations will be needed. Let's take a look on the next page at the final two part of this formula. The graphic shows a chart with the PV, EV, AC and BAC for the project. The PV is equal to $37,297, the EV is equal to $33,148, the AC is equal to $32,400 and the BAC is equal to $165,467. Module 6 – Metrics, Performance Measures and Forecasting 269

EAC = AC/EV x [Work Completed and in Progress] [Cost of work not yet begun] The project has 4 activities that are completed and in progress (Foundation, Patio, Frame exterior walls and stairway). The value of these activities is obtained by using the BAC column. The total for Work Completed and in Progress is $52,003. The final part is the cost of work not yet begun. The value for this section is the sum of the activities not yet begun. The total Cost of work not yet begun is $113,464. Now let's calculate our EAC. Check it out on the next page. The graphic shows a chart with the PV, EV, AC and BAC for the project. The PV is equal to $37,297, the EV is equal to $33,148, the AC is equal to $32,400 and the BAC is equal to $165,467. Module 6 – Metrics, Performance Measures and Forecasting 270

EAC = (.98 x $52,003) + $113,464 EAC = $164,427 Now let's calculate the Variance at Completion (VAC). VAC = BAC – EAC VAC = $165,467 - $164,427 VAC = 1,040 Using this EAC calculation, our project is projected to underrun by $1,040. Now let's look on the next page at our final EAC formula. EAC = AC/EV x [Work Completed and in Progress] [Cost of work not yet begun] Module 6 – Metrics, Performance Measures and Forecasting 271

EAC = AC + [1/CPI (BAC-EV)]
Calculating Estimate at Completion The final EAC formula is as follows: EAC = AC + [1/CPI (BAC-EV)] This calculation uses the Actual Cost (AC) Budget at Completion (BAC), Earned Value (EV) and the Cost Performance (CPI) Index to calculate EAC. This formula is a very subjective way of calculating EAC. Let's use our ACME Home Building project and calculate the EAC using this formula. Check it out on the next page. Module 6 – Metrics, Performance Measures and Forecasting 272

EAC = AC + [1/CPI (BAC-EV)] EAC = $32,400 + [1/1.02 ($165,467 – $33,149)] EAC = $32,400 + [.98 ($132,319) EAC = $32,400 + $129,726 EAC = $162,073 VAC = BAC – EAC VAC = $165,467 - $162,073 VAC = 3,394 Using this EAC calculation, our project is projected to underrun by $3,394. The graphic shows two charts the first chart shows actuals for January and the ETC for the months of February, March, and April. The January actuals equal $32,400 and the ETC for February, March and April are $132,557. The second graphic shows a chart with the PV, EV, AC, SV, CV, SPI, and CPI information as of January 31th, The Project totals are $38,269 for PV, $33,148 for EV, $32,400 for AC, -$5,121 for SV, $748 for CV, .87 for SPI, and 1.02 for CPI. Module 6 – Metrics, Performance Measures and Forecasting 273

The outcomes of the various methods for computing EAC are shown in the table below: In reviewing the EAC formulas, be aware that the formula you use impacts your project’s EAC. Though all the EAC calculations are correct, choosing the appropriate formula for your project is important. The EAC formula you choose should be determined by the specifics of the project. If you need to review these techniques, please pay close attention to the assumptions of each. The chart shows a summary of all the EAC formulas used. Module 6 – Metrics, Performance Measures and Forecasting 274

Review Module 6 At this point, you have covered all of the content in Module 6. Take some time now to review the major items: Performance measurement defines how success or failure is determined on a project. In the case of Earned Value Management, performance measurements focus on cost and schedule management. Earned value performance measurements look at the project cost and schedule performance by analyzing the cost and schedule variance along with cost and schedule efficiency. Cost Variance (CV) is the difference between the earned value of work performed and the actual cost. CV tells you the earned value of work performed for each dollars worth of work scheduled. Schedule Variance (SV) is the difference between the earned value of work performed and the work scheduled. SV tells you the value of work performed less value of work scheduled. Cost Performance Index (CPI) is a measure of Cost Efficiency. The CPI measures the value of work performed against the actual cost. Schedule Performance Index (SPI) is a measure of Schedule Efficiency. The SPI measures the value of work performed against the work scheduled. Module 6 – Metrics, Performance Measures and Forecasting 275

Review Module 6 cont. The Estimate at Completion (EAC) is the actual cost to date plus an objective estimate of costs for remaining authorized work. The objective in preparing an EAC is to provide an accurate projection of cost at the completion of the project. There are multiple methods for determining EAC. Each project needs to be evaluated to determine which EAC formula best fits the project’s size and complexity. Module 6 – Metrics, Performance Measures and Forecasting 276

Summary of Module 6 At this point we have examined the basic metrics and performance measures used in EVMS. In the next module you will examine the concepts of Integrated Baseline Review (IBR), Rebaselining, and Change Control. If you have a firm grasp of the concepts covered in this module, feel free to progress to the next module. Otherwise, review this module to ensure you have a solid understanding of the basics metrics and performance measures used in EVMS. This concludes Module 6. Module 6 – Metrics, Performance Measures and Forecasting 277

Earned Value Management Tutorial Module 7: Integrated Baseline Review and Change Control
Prepared by:

The Topics that will be addressed in this Module include:
Module 7: Integrated Baseline Review and Change Control Welcome to Module 7. The objective of this module is to introduce you to the concepts of the Integrated Baseline Review Process and requirements for Change Control. The Topics that will be addressed in this Module include: Definition of an Integrated Baseline Review (IBR) Integrated Baseline Review Objectives and Responsibilities Change Control Process Module 7 – Integrated Baseline Review and Change Control

To review some critical terminology and define the framework within which IBRs are conducted, let’s look back at the previous six modules. In Module 1 we introduced you to the basic concepts of an Earned Value Management System (EVMS) In Module 2 we discussed the Work Breakdown Structure (WBS), Organizational Breakdown Structure (OBS), and the integration of WBS and OBS to create the Responsibility Assignment Matrix (RAM) In Module 3 we discussed the development of the project schedule and the schedule baseline Module 7 – Integrated Baseline Review and Change Control

In Module 6 we discussed Earned Value Metrics and Performance Measures
Review of Previous Modules In Module 4 we discussed the Contract Budget Base (CBB), Performance Measurement Baseline (PMB), Control Account , Work Package, and Planning Package setup In Module 5 we discussed EVMS Criteria, EVMS Terminology, and Earned Value Methods In Module 6 we discussed Earned Value Metrics and Performance Measures Module 7 – Integrated Baseline Review and Change Control

The purpose of an IBR is to
Integrated Baseline Review (IBR) Definition Now let’s discuss the Integrated Baseline Review (IBR), followed by the Change Control Process. An Integrated Baseline Review (IBR) is a formal review led by the Government Program Manager and Technical Support Staff. An IBR is conducted jointly with the Government and their Contractor counterparts. The purpose of an IBR is to verify the technical content of the Performance Measurement Baseline (PMB) assess the accuracy of the related resources (budgets) and schedules identify potential risks Module 7 – Integrated Baseline Review and Change Control 282

Performance Measurement Baseline Review
Because the IBR uses the technical content of the Performance Measurement Baseline (PMB), it’s important that you have a solid understanding of the PMB. Remember the discussion on PMB from Module 4? Let’s quickly review. The Performance Measurement Baseline (PMB) is the time-phased budget plan against which contract performance is measured. Now that we’ve reviewed the PMB and defined the purpose of an IBR, let’s discuss when an IBR is conducted. Module 7 – Integrated Baseline Review and Change Control 283

Now let’s review the specific IBR objectives, on the next page.
Integrated Baseline Review (IBR) Timing The initial Integrated Baseline Review is typically conducted within six months after contract award. Integrated Baseline Reviews will also be performed when work on a production option of a development contract begins or, at the discretion of the program manager, when a major modification to an existing contract significantly changes the existing PMB. When a major event occurs within the life of a program such as a Critical Design Review (CDR), and a significant shift in the content and/or time-phasing of the PMB occurs, the Program Manager may conduct a review of the associated resources and schedules affected by the changes. The IBR is intended to be a continuous part of the Program Management Process by both the Government and the Contractor. Now let’s review the specific IBR objectives, on the next page. Module 7 – Integrated Baseline Review and Change Control 284

The Objectives of the Integrated Baseline Review are to:
Integrated Baseline Review (IBR) Objectives The Objectives of the Integrated Baseline Review are to: Ensure that the technical content of Control Account, Work Packages, and Planning Packages is consistent with the Contract Work Breakdown Structure (CWBS) and the Contract Statement of Work (SOW) Ensure that a logical sequence of effort planned is consistent with the contract schedule Assess the validity of allocated budgets in terms of work content, resources, and time-phasing Understand the earned value methods for measuring accomplishment and to verify that objective and meaningful performance data is provided in terms of technical accomplishment Module 7 – Integrated Baseline Review and Change Control 285

Integrated Baseline Review Objectives (Continued)
Integrated Baseline Review (IBR) Objectives Integrated Baseline Review Objectives (Continued) Verify that effective variance analysis processes are applied to identify, correct, and report problems including cost and schedule impacts Verify that proper accounting cross-checks are established so cost account data is accurately reflected in reports to the government Verify that cost, schedule, and technical systems are integrated Establish a forum through which the government program manager and the program technical staff gain a sense of ownership of the cost/schedule management process Now that we’ve reviewed the IBR objectives, let’s review some of the key documents required at an IBR. Check these out on the next page. Module 7 – Integrated Baseline Review and Change Control 286

All of these documents were discussed in previous modules.
Integrated Baseline Review (IBR) Checklist The following documents are typically provided by the Contractor to the Government for review during the Integrated Baseline Review: Statement of Work (SOW) Contract Work Breakdown Structure (CWBS) CWBS Dictionary Work Authorization Documents (WADs) Control Account Plans (CAPs) Integrated Master Schedule Variance Thresholds for Reporting Management Reserve Logs Undistributed Budget Logs Responsibility Assignment Matrix (RAM) Earned Value Methods  Earned Value Measurement Criteria Organizational Breakdown Structure (OBS) All of these documents were discussed in previous modules. Module 7 – Integrated Baseline Review and Change Control 287

Integrated Baseline Review (IBR) Responsibilities
Now that we’ve discussed the key objectives for conducting an IBR and reviewed the IBR Checklist, let’s review the responsibilities. As the primary beneficiary of the IBR process, the Government Program Manager is responsible for the timeliness and successful execution of the review. The Program Office Technical Team assesses the PMB and identifies risk areas. The Control Account Managers are responsible for the integrity and compliance of their Control Accounts/Work Packages. Module 7 – Integrated Baseline Review and Change Control 288

Key Integrated Baseline Review (IBR) Concepts
Check your understanding by reviewing these key Integrated Baseline Review (IBR) Concepts: The IBR is an assessment of the contractor’s Performance Measurement Baseline (PMB) and is conducted jointly by the Government and the Contractor. The IBR is conducted within six months of the award of a new contract or as required due to a major change to an existing contract. The responsibility for conducting the IBR lies with the Program Manager and the Program Office Technical Staff. Module 7 – Integrated Baseline Review and Change Control 289

Integrated Baseline Review (IBR) Summary
In summary, the IBR facilitates an understanding of the overall technical, cost, and schedule processes. The Government and Contractor technical counterparts can jointly conduct recurring reviews of PMB planning, status, and Estimates at Completion (EAC) to ensure that baseline integrity is maintained throughout the life of the contract. Now that we’ve discussed the Integrated Baseline Review Process, let’s discuss what happens when there are changes made to the PMB and the Change Control Process used to track baseline changes. Take some time to review this on the following pages. Module 7 – Integrated Baseline Review and Change Control 290

Now let’s discuss the specific objectives of a Change Control Process.
Change Control Overview As we’ve discussed, the Performance Measurement Baseline (PMB) is the time-phased budget plan against which contract performance is measured. Meaningful performance measurement data require a documented PMB, which reflects the most current conditions of the program. Once the Performance Measurement Baseline (PMB) is frozen or established, cost and schedule changes are processed through formal change control procedures. Authorized changes must be incorporated into the PMB in a timely manner and reflected in both budgets and schedules. The Change Control Process is used to establish, analyze, communicate, and record approved changes to the program baseline. Now let’s discuss the specific objectives of a Change Control Process. Module 7 – Integrated Baseline Review and Change Control 291

The objectives of a Change Control Process are to:
Change Control Objectives The objectives of a Change Control Process are to: Document, track, and communicate changes to the Performance Measurement Baseline Reconcile current budgets to prior budgets in terms of changes to the authorized work in the detail needed by management for effective control Control retroactive changes to records pertaining to work performed that would change previously reported amounts for actual costs, earned value, or budgets. Adjustments should be made only for correction of errors, routine accounting adjustments, effects of customer or management directed changes, or to improve the baseline integrity and accuracy of performance measurement data Prevent revisions to the program budget except for authorized changes Module 7 – Integrated Baseline Review and Change Control 292

Baseline changes may occur as a result of
Change Control: Baseline Changes What types of baseline changes are subject to the change control process? Are all changes subject to it? Let’s discuss types of baseline changes that would be subject to the change control process. Baseline changes may occur as a result of contractual changes/modifications application of undistributed budget the use of management reserve re-planning formal reprogramming We will examine each of these in more detail on the following pages, but first, take a look on the next page at the types of documentation that must be completed for these changes. Module 7 – Integrated Baseline Review and Change Control 293

Change Control: Baseline Changes
Baseline changes must be documented and reflected in the Cost Performance Reports (CPRs) and Change Control Logs, and must be coordinated with the procuring agency. Revised Work Authorization Documents (WADs), Revised Control Account Plans (CAPs), and Revision Request Forms are all required as part of the Change Control Process. Revised Statement of Work (SOW) and Contract Work Breakdown Structure (CWBS) documentation may also be required for contractual modifications. Module 7 – Integrated Baseline Review and Change Control 294

Authorized Unpriced Work
Change Control: Baseline Changes Baseline changes may occur as a result of contractual changes/modifications application of undistributed budget the use of management reserve re-planning formal reprogramming Contractual changes/modifications are initially incorporated into the Contract Budget Base (CBB), typically as part of Undistributed Budget (UB), immediately after the change is received. These modifications can be either definitized or authorized unpriced work. Definitized Work Definitized work is incorporated into the PMB within 60 days of definitization. Authorized Unpriced Work Authorized Unpriced Work, including cost of money, is entered in UB using the proposal dollars at total cost. It may be maintained in UB until definitized or distributed to the responsible organizations. Module 7 – Integrated Baseline Review and Change Control 295

Change Control: Undistributed Budget
Baseline changes may occur as a result of contractual changes/modifications application of undistributed budget the use of management reserve re-planning formal reprogramming Undistributed Budget is budget applicable to contract effort that has not yet been identified to specific WBS elements at or below the lowest level of reporting to the customer. Distribution of Undistributed Budget (UB) is authorized by the Program Manager. UB may be established at the time of initial contract award and/or when contract modifications are received. The distribution of UB must be identified in the Contract Budget Base (CBB) and Undistributed Budget (UB) Log for each authorized contract change/modification. This is a requirement as part of a Change Control Process. Module 7 – Integrated Baseline Review and Change Control 296

Change Control: Management Reserve
Baseline changes may occur as a result of contractual changes/modifications application of undistributed budget the use of management reserve re-planning formal reprogramming Management Reserve (MR) is an amount of the total contract target cost withheld for management control purposes rather than designated to accomplish specific tasks. Baseline changes caused by a distribution of Management Reserve (MR) are also subject to Change Control. Distribution of Management Reserve (MR) is at the discretion of the Program Manager and is based on a justified request for budget to perform an unidentified scope of work that is within the contract SOW. Distribution of Management Reserve must be identified in the Contract Budget Base (CBB) and Management Reserve (MR) Log. This is a requirement as part of a Change Control Process. Module 7 – Integrated Baseline Review and Change Control 297

Change Control: Re-Planning
Baseline changes may occur as a result of contractual changes/modifications application of undistributed budget the use of management reserve re-planning formal reprogramming Baseline changes caused by a re- planning of Work Packages are also subject to Change Control. Re-planning of Work Packages within Control Accounts is sometimes necessary to compensate for internal conditions which affect the planning and scheduling of remaining work. Except for correction of errors and accounting adjustments, no retroactive changes will be made to budgets for completed work. Re-planning should be accomplished within the constraints of the previously established Control Account schedule and budget. Module 7 – Integrated Baseline Review and Change Control 298

Change Control: Re-Planning
Baseline changes may occur as a result of contractual changes/modifications application of undistributed budget the use of management reserve re-planning formal reprogramming When more extensive re-planning of future work is necessary and the total Control Account budget must be changed, Management Reserve may be used to increase or decrease the control account budgets. If re-planning requires that work and associated budget be transferred between control accounts, this transfer must also be controlled and documented. Major internal re-planning/re-baselining may be required when the result of cost, schedule or technical issues have caused the original plan to become unrealistic. The contract target cost remains unchanged. The ground rules for re-baselining the remaining effort are submitted to the procuring agency prior to implementation, and all baseline changes must be documented and tracked. Module 7 – Integrated Baseline Review and Change Control 299

budget that exceeds the CBB may be necessary.
Change Control: Over Target Baseline (OTB) Baseline changes may occur as a result of contractual changes/modifications application of undistributed budget the use of management reserve re-planning formal reprogramming Over Target Baseline (OTB)/Formal Reprogramming may arise when contract performance deviates from the plan to such an extent that the original plan no longer serves as a reasonable measurement device. In this case, formal reprogramming to a budget that exceeds the CBB may be necessary. The remaining work and budget should be thoroughly analyzed prior to reprogramming. An overrun contract and overrun projections are not the most important factors in the decision. Changing a baseline merely to compensate for current variances is inappropriate. The procuring agency must be consulted prior to reprogramming. The change to the budget and schedule are recorded as though the contractual scope had been changed. Changes to the baseline budget are fully documented and traceable per the change control process. Module 7 – Integrated Baseline Review and Change Control 300

Change Control is required to:
Review Module 7 At this point, you have covered all of the content in Module 7. Take some time now to review the major items: The IBR facilitates an understanding of the overall technical, cost, and schedule processes. The Government and Contractor technical counterparts can jointly conduct recurring reviews of PMB planning, status, and Estimates at Completion (EAC) to ensure that baseline integrity is maintained throughout the life of the contract. Change Control is required to: Maintain the integrity of the Performance Measurement Baseline Incorporate authorized changes in a timely manner, recording the effects of such changes in budgets and schedules Reconcile current budgets to prior budgets in terms of changes to the authorized work and internal re-planning in the detail needed by management for effective control Prevent revisions to the program budget except for authorized changes Document changes to the Performance Measurement Baseline Module 7 – Integrated Baseline Review and Change Control 301

Summary of Module 7 At this point we have examined the basic metrics and performance measures used in EVMS. In the next module you will examine EVMS Reporting. If you have a firm grasp of the concepts covered in this module, feel free to progress to the next module. Otherwise, review this module to ensure you have a solid understanding of the basics metrics and performance measures used in EVMS. This concludes Module 7. Module 7 – Integrated Baseline Review and Change Control 302

Earned Value Management Tutorial Module 8: Reporting
Prepared by:

Module 8: Government Required Reports
Welcome to Module 8. The objective of this module is to introduce you to Government required reports. The Topics that will be addressed in this Module include: Define Cost Performance Report (CPR) Define Cost/Schedule Status Report (C/SSR) Module 8 – Reporting

In the previous seven modules, we discussed the framework needed to perform Earned Value and develop an Earned Value Management System (EVMS). In Module 1 we introduced you to earned value and the requirements for properly implementing an earned value management system (EVMS) In Module 2 we discussed the development of the work breakdown structure (WBS), organizational breakdown structure (OBS) and the integration of WBS and OBS in creating the responsibility assignment matrix (RAM) In Module 3 we discussed the development of the project schedule and the schedule baseline In Module 4 we discussed the development of the project budget and the cost baseline Module 8 – Reporting

In Module 5 we discussed EVMS criteria and the three key components to earned value: Planned Value (PV) , Earned Value (EV) and Actual Cost (AC). In Module 6 we discussed Earned value metrics and performance measurements (CV, SV, SPI, CPI,etc.) In Module 7 we discussed the Integrated Baseline Review (IBR), rebaselining of a project and proper baseline control or change control Now let’s look at the Government reporting requirements for earned value. Module 8 – Reporting

Government Reporting Requirements
There are several reports which may be used for Earned Value Management Reporting and Analysis. The most commonly used reports are: Cost Performance Report (CPR) Cost/Schedule Status Report (C/SSR) Let’s take a look at each type of report on the next page. Module 8 – Reporting 307

Cost Performance Report (CPR)
The Cost Performance Report (CPR) is the most comprehensive of the EVMS reports. It is normally a monthly report and has five different formats. Format 1 Work Breakdown Structure (WBS) Format 2 Organizational Categories (OBS) Format 3 Baseline Format 4 Staffing (Manpower) Format 5 Variance Analysis Report Generally, all five formats are applied to a contract requiring EVMS. However, the customer may not require all the reports and may delete one or more. Most customers will require at least the CPR Format 1 (WBS) and Format 5 (Variance Analysis Report). Module 8 – Reporting 308

Cost Performance Report (CPR)
All Performance Measurement data reported in the CPR are derived from the formal Earned Value Management System (EVMS). All reported changes to the project baseline, management reserve (MR) and contingency should be traceable through the formal Earned Value Management System (EVMS) and CPR reports. On the following pages, we will look at examples of the five CPR reports using the ACME House Building Project. Module 8 – Reporting 309

ACME Home Building Project
Cost Performance Report (CPR) - Example First let’s quickly review the projects current status that will be used in the example reports. ACME Home Building Project Project Start date: January 15th Status Date: January 31th EAC calculations used for the example will be based on the assumptions discussed on Page 35 and 36 of Module 6. See the charts to the right for an overview. Now let’s take a look at the Cost Performance Reports (CPR) on the next page. Module 8 – Reporting 310

Cost Performance Report (CPR) Format 1 - WBS
The Cost Performance Report (CPR) Format 1 includes current period, cumulative, and at complete values for each WBS element. It also contains header data showing quantity, targets, ceilings, and Management Estimate At Completion (MEAC) calculations. This report also contains data about budget, price, Management Reserve (MR), Undistributed Budget (UB), and MEAC cases. A copy of the CPR Format 1 for the ACME Home Building project is on the following page. Please review the entire report but pay close attention to the lower section (highlighted red) of the report. This is the Performance data section that contains the current and cumulative cost and schedule information for the project. Module 8 – Reporting 311

Cost Performance Report (CPR) Format 1 - WBS
Module 8 – Reporting 312

Cost Performance Report (CPR) Format 2 – Organizational Categories
The Cost Performance Report (CPR) Format 2 includes current period, cumulative, and at complete values for each Organization (Performing or Responsible), It also contains header data showing quantity, targets, ceilings, and MEAC cases. This report also contains data about budget, price, Management Reserve (MR), Undistributed Budget (UB), and MEAC cases. The reporting details in CPR Format 2 are the same as on the CPR Format 1 accept that it is structured by organization. A copy of the CPR Format 2 for the ACME Home Building project is on following page. Please review the entire report but pay close attention to the lower section (highlighted red) of the report. This is the Performance data section that contains the current and cumulative cost and schedule information for the project. Module 8 – Reporting 313

Cost Performance Report (CPR) Format 2 – Organizational Categories

Cost Performance Report (CPR) Format 3 – Baseline
Cost Performance Report (CPR) Format 3 displays a forecast of monthly changes to the Baseline, Management Reserve, and Undistributed Budget for the entire project, and contains header data showing schedule dates for the contract and the project. Module 8 – Reporting 315

Cost Performance Report (CPR) Format 4 – Staffing
The Cost Performance Report (CPR) Format 4 displays a forecast of hours and person-months by Organization (Performing/Responsible), and contains header data showing schedule dates for the contract and the project. This report also contains program variance thresholds for month, cumulative, and at-complete percents and values. Module 8 – Reporting 316

Cost Performance Report (CPR) Format 5 – Variance Analyses Report
The Cost Performance Report (CPR) Format 5 provides narrative explanation of cost, schedule, and other problems related to total contract, undistributed budget (UB), management reserve (MR), PMB, and manpower. The variance reporting thresholds are pre-determined prior to the start of the program. Explanations and problem analysis reporting is only required for those variances that breech the pre-set threshold(s). The report will indicate those variances needing explanation. A copy of the Variance Analyses Report is on the following page. The variance report uses the ACME Home Building project information. Module 8 – Reporting 317

Cost Performance Report (CPR) Format 5 – Variance Analyses Report
Header information includes quantified cost and schedule variances and indicates out of tolerance items. Explanations may be required for monthly, cumulative, and at complete variances. Problem Analysis: This section is used to explain the variance drivers, abnormal conditions and factors creating variances, and other issues, problems, and concerns. Task/Project Impact: This section is used to explain the impact to the Control Account and overall Project. Corrective Action Plan: This section provides the recovery and risk mitigation plan. Module 8 – Reporting 318

Cost/Schedule Summary Report (C/SSR)
The final standard EVMS report we will review is the Cost/Schedule Summary Report (C/SSR). The C/SSR (Cost/Schedule Summary Report) is used primarily for reporting cost and schedule summary data to the government or contractors on specific procurements. This report includes cumulative and at complete summaries for each WBS element, and contains header data showing contractor and contract information, and MEAC calculations. This report also contains data about contract price, budget, Management Reserve (MR), Undistributed Budget (UB), and MEAC cases. It is very similar to the CPR Format 1 except that the C/SSR has only cumulative information. A copy of the C/SSR for the ACME Home Building project in on the following page. Module 8 – Reporting 319

Cost/Schedule Summary Report (C/SSR)

There are two major formats for EVMS reports
Review Module 8 At this point, you have covered all of the content in Module 8. Take some time now to review the major items: There are two major formats for EVMS reports Cost Performance Reports (CPR) Cost/Schedule Summary Report (C/SSR) The Cost Performance Report (CPR) has five formats: Format 1 Work Breakdown Structure (WBS) Format 2 Organizational Categories (OBS) Format 3 Baseline Format 4 Staffing (Manpower) Format 5 Variance Analysis Report CPR Format 1 and 5 are the most widely used The Cost/Schedule Summary Report (C/SSR) is similar to CPR Format 1 Module 8 – Reporting 321

At this point we have examined the basic reporting formats of EVMS.
Summary of Module 8 At this point we have examined the basic reporting formats of EVMS. If you have a firm grasp of the concepts covered in this module, along with all provide modules, you have completed the EVMS tutorial. Otherwise, review this or any other module to ensure you have a solid understanding of the Earned Value Management. Congratulations, you have completed Module 8 and the EVMS tutorial. Module 8 – Reporting 322

Module1: Introduction to Earned Value

Similar presentations

Presentation on theme: "Module1: Introduction to Earned Value"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Module1: Introduction to Earned Value

Similar presentations

Presentation on theme: "Module1: Introduction to Earned Value"— Presentation transcript:

Similar presentations

About project

Feedback