1. Earned Value Management

2. Earned Value Management
What is it?
Where did it come from?
What’s so special about it?
How do you do it?

3. Earned Value Management
What is it ?
A systematic approach to the integration and measurement of
cost,
schedule, and
technical (scope) accomplishments on a project.
Provides the ability to examine detailed
schedule information, critical program and technical milestones, and
cost data.

4. Earned Value Management
Where did it come from?
1960s – DoD adopted Cost/Schedule Control Systems Criteria (C/SCSC) as an objective measure of progress.
1970s – Continued use in DoD as a means to offset cost/schedule risk in cost-pus contracts.
High-tech, newly-developed weaponry
Arms race induced critical schedule needs
1990s – Policy moved Earned Value into all Federal agencies
OMB Circular A-11
NASA Policy Directive
DOE Order 413.3
2003 – OMB began enforcement in all civilian agencies.

5. Earned Value Management Earned Value Management
Why do we care?
Projects over budget and behind schedule*
53% of IT projects finish over budget and behind schedule
52% finish at 189% of their initial budget
18% are simply never completed
Statistically proven performance projections
Performance at a project’s 25% completion point will remain steady throughout the project’s lifecycle.
Consistent performance measures allow comparison across the portfolio
*Source: Standish Group’s Chaos Chronicles 2004

6. Earned Value Management
What’s so special about it?
Fundamental difference with traditional management is the data used for analysis.
Budget vs Actuals
Earned Value Analysis

7. Earned Value Management
Traditional Management Approach:

8. Earned Value Management
EVM Integrates cost, schedule, and scope.
Establishes an Integrated Project Baseline
What is to be done? (scope)
When will activities be completed? (schedule)
What will it cost (and when) when to complete those activities?

9. Earned Value Management
Based on something called Earned Value.
A concept that task activities earn value as work progresses
A data point that expresses the value of work accomplished

10. Earned Value
The concept that task activities “earn value” as work progresses.
The value earned is the budgeted cost of the activity completed to date.

11. Earned Value
A data point that expresses the value of work accomplished
What is the dollar value of what you have gotten done to date?
Does not address the money spent in getting there.

12. Earned Value Management
So how do we do this stuff?
EVM depends on three data points
Planned Value (PV)
Earned Value (EV)
Actual Cost (AC)

13. Integrated Project Baseline
Absolutely dependent on the Work Breakdown Structure
One WBS per program
Deliverable-oriented
Organizational responsibility identified in WBS
Work not in the WBS is out-of-scope
All lower-level elements roll up to the WBS total

14. Integrated Project Baseline
Absolutely dependent on the Work Breakdown Structure
Full (and accurate) definition is key
Defined deliverable(s)
Timeframe for delivery of product
Total cost (direct and indirect) to deliver product
Assigned organizational responsibility

15. Planned Value Data source is the Integrated Project Baseline
How much did you expect to have done at point X ?
Expressed in dollars (PV)
How much do you expect to have done at completion ?
Budget at Completion (BAC)

16. Planned Value

17. Planned Value

18. Actual Cost Data source is the Earned Value Management System
The dollar amount actually spent to date.
Has no relationship to work accomplished.

19. Actual Cost

20. Earned Value Data source is the Earned Value Management System
The dollar value of actual accomplishments to date.
Does not address the money spent in getting there.

21. Earned Value Several ways to “earn” it: Percent Completion Estimates
Start/Finish of WBS Elements
Milestones Completed (0-100%)
Percent Completion Estimate with Milestone Gates
25% % % % % %
33% % %

22. Earned Value

23. Integrated Performance Report
Compares the amount of work completed with what was scheduled and budgeted, to determine if cost (AC), schedule (PV), and work accomplished (EV) are progressing as planned.
By integrating these three measurements, it provides consistent, numerical indicators with which we can evaluate and compare projects.

24. Integrated Performance Report

25. Integrated Performance Report
These three data points allow us to:
Calculate variances in cost and schedule performance.
Calculate performance indices that allow direct comparison to other projects’ performance.
Analyze trends in project performance.
Formulate predictions as to how well the project will perform in the future.

26. Calculating Variances
Cost Variance
A comparison of the budgeted cost of work performed with actual cost.
A negative variance means the project is over budget.
CV = EV – AC
CV = 851,000 – 1,041,000
CV = - $190,000
Note that this is not “budget vs actuals.”

27. Calculating Variances
Schedule Variance
A comparison of amount of work performed to what was scheduled to be performed.
A negative variance means the project is behind schedule.
SV = EV – PV
SV = 851,000 – 1,000,000
SV = - $149,000

28. Calculating Performance Indices
Cost Performance Index CPI = EV/AC
A ratio of the budgeted cost of work performed to the actual cost.
CPI = EV / AC
CPI = 851,000 / 1,041,000
CPI = 0.817
An index less than 1.00 means the project is over budget.

29. Cost Performance Cost Variance (EV-AC) $851K - $1041K = -$190K
CPI (EV/AC) =

30. Calculating Performance Indices
Schedule Performance Index SPI = EV/PV
A ratio of the amount of work performed to what was scheduled to be performed.
SPI = EV / PV
SPI = 851,000 / 1,000,000
SPI = 0.851
An index of less than 1.00 means the project is behind schedule.

31. Schedule Performance Schedule Variance (EV-PV)
$851K - $1,000K = - $149K
SPI (EV/PV) = 0.851
And look at this:
$ - 149K = 1 Month Slippage

32. Predicting Future Performance
Estimate to Complete (ETC)
How much will we have to spend (after today) to complete?
Total budget less what we’ve earned to date. (With some assumptions).
Performance to date has been anomalous
Cost Performance to date will continue
Both Cost and Schedule Performance to date will continue

33. Predicting Future Performance
Estimate to Complete (ETC)
Performance to date has been anomalous:
ETC = BAC – EV = $1,149,000

34. Predicting Future Performance
Estimate to Complete (ETC)
Performance to date has been anomalous:
ETC = BAC – EV = $1,149,000
Cost Performance to date will continue:
ETC = = $1,405,504
BAC - EV
CPI

35. Predicting Future Performance
Estimate to Complete (ETC)
Performance to date has been anomalous:
ETC = BAC – EV = $1,149,000
Cost Performance to date will continue:
ETC = = $1,405,504
Both Cost and Schedule Performance to date will continue:
ETC = = $1,651,574
BAC - EV
CPI
BAC - EV
CPI * SPI

36. Predicting Future Performance
Estimate at Completion (EAC)
How much will we have spent when we’re actually done?
Again, based on the same assumptions as ETC.
EAC = AC + (BAC-EV) = $2,190,000
EAC = AC = $2,446,505
EAC = AC = $2,691,856
BAC - EV
CPI
BAC - EV
CPI * SPI

37. Predicting Future Performance
To-Complete Performance Index (TCPI)
How well do we have to perform to get back on track?
Again, based on the same assumptions as ETC.
TCPIC = = 1.22
TCPIS = = 1.17
TCPICS = = 1.437 1
CPI 1
SPI 1
CPI * SPI

38. Earned Value Management
And if everything goes perfectly:

39. Earned Value Management Systems
ANSI/EIA-748 defines it:
An EVMS is a set of business practices that, when applied to a project or program:
integrate scope, schedule, and cost objectives,
establish a baseline plan for accomplishment of project or program objectives, and
employ earned value techniques for performance management.

40. Earned Value Management Systems
ANSI/EIA-748 prescribes 32 criteria in five categories:
Organization
Planning, Scheduling, and Budgeting
Accounting Considerations
Analysis and Management Reports
Revisions and Data Maintenance

41. ANSI/EIA-748 Compliance Organization (of the project)
Define the entire project.
Establish an integrated project baseline based on a WBS.
Establish management control responsibilities within the WBS.
Assign responsibilities for all WBS elements.

42. ANSI/EIA-748 Compliance Planning, Scheduling, and Budgeting
Employ a formal planning, scheduling, and budgeting system.
Measure performance against the integrated performance baseline.
Cost
Schedule
Scope

43. ANSI/EIA-748 Compliance Accounting Considerations
Provide accurate and timely cost reports (at the WBS element level).
Record project costs as consumed or incurred.
Provide accounting systems that can measure:
Planned Value
Earned Value
Actual Cost

44. ANSI/EIA-748 Compliance Analysis & Management Reports
Provide regular reporting, at least monthly.
Cost
Schedule
Scope
Analyze actual performance against the authorized baseline, including, at a minimum:
Schedule Variance
Cost Variance
Revise forecasts of final results based on actual performance.
Estimate to Compete
Estimate at Completion
Implement managerial actions in response to EV information.

45. ANSI/EIA-748 Compliance Revisions and Data Maintenance
Provide timely approval/rejection of all change requests
Incorporate approved changes in a timely fashion.
Reconcile budget changes to authorized scope changes
Control retroactive changes

46. ANSI/EIA-748 Compliance
“EVMS scalability is viewed as a spectrum employing the principles of EVMS as fundamental to all programs and the EVMS guidelines as applicable to large, complex, and/or high risk programs; allowing any program regardless of size and complexity to realize the benefits of earned value management.”
ANSI/EIA-748

47. Informed Management Decisions
EVM In a Nutshell
Management practices and discipline vs. a tool set
Work Breakdown Structure (WBS)
Integrated scope/schedule/budget baseline
Accounting system that accommodates the WBS
Change control plan
EVMS
Project
Schedule
Baseline Budget
Accounting
System
WBS
Actuals
Performance
Measurement
Early Warning
&
Performance Trends
Informed Management Decisions
Corrective Actions
Recovering Planning
Planned
Accomplishments

48. Wrong ? What Could Possibly Go
Inadequate requirements definition
No (or Incomplete) Work Breakdown Structure
Accounting systems that can’t address the WBS
Lack of management attention to project progress
Failure to respond to warning signs
Failure to reconcile baseline to funding shortfalls
(Rebaseline)

49. So What ?
Your Turn !

50. Source: The PMI© Earned Value Practice Standard
EVM Rigor
Frequency
Rigor
Significance
Granularity
Risk
Uncertainty
Source: The PMI© Earned Value Practice Standard