1. Professional Development Learning Event – 27 March 2007 1 Using Earned Value Analysis

2. Professional Development Learning Event – 27 March 2007 2 Why Do I Need It ? What Is It ? How Do I Do It? Earned Value

3. Professional Development Learning Event – 27 March 2007 3 Todays Situation Need for accurate and consistent status information Numerous complex (and interrelated) projects l Projects with many WBS activities l Virtual offices l Diverse technology platforms

4. Professional Development Learning Event – 27 March 2007 4 Theres Room For Improvement 70% of projects are: Over budget Behind schedule 52% of all projects finish at 189% of their initial budget And some, after huge investments of time and money, are simply never complete Source:The Standish Group

5. Professional Development Learning Event – 27 March 2007 5 Earned Value Analysis (EVA) Earned Value Analysis is: an industry standard way to: measure a projects progress where direct measures cannot be used Predict future performance, and provide schedule and budget variances along the way By integrating three measurements, it provides consistent, numerical indicators with which you can evaluate and compare projects.

6. Professional Development Learning Event – 27 March 2007 6 EVA – the three elements It compares the PLANNED amount of work with what has actually been COMPLETED, to determine if Cost, Schedule, and Work accomplished are progressing as planned. Work is Earned or credited as it is completed.

7. Professional Development Learning Event – 27 March 2007 7 Earned Value is needed because... Provides an Early Warning signal for prompt corrective action. l Bad news does not age well. l Still time to recover l Timely request for additional funds

8. Professional Development Learning Event – 27 March 2007 8 Earned Value Management EVolution n 1959 US DoD began looking at Milestone Charts and Rate of Expenditure Curves. n 1963-64 Earned Value concept begins with the Minuteman & Titan III rocket programmes. n 1966 USAF - Cost/Schedule Planning & Control Specification (C/SPCS). n 1967 US DoD - Cost/Schedule Control Systems Criteria (CSCS 2 ). n 1972 US DoD - Issued the Joint Implementation Guide (JIG). (revisions were to follow 1976, 1980, 1987 and 1996). n 1972 NASA n 1975 US Dept of Environment (DoE) n 1982 US National Security Agency n 1989 Australian DoD n 1990 Canadian DoD n 1992 National Oceanic & Atmospheric Administration (NOAA) n 1994 Federal Bureau of Investigation (FBI), Inland Revenue Service (IRS) n 1996 JIG replaced by Earned Value Management Implementation Guide (EVMIG) (revised 1997) n Present World wide implementations…….USA, Europe, Canada, Australia, Japan

9. Professional Development Learning Event – 27 March 2007 9 Traditional Plan vs. Actual view Is there a performance problem? Is it a good or bad position?

10. Professional Development Learning Event – 27 March 2007 10 Terminology BCWS - Budgeted Cost of Work Scheduled ACWP - Actual Cost of Work Performed BCWP - Budgeted Cost of Work Performed

11. Professional Development Learning Event – 27 March 2007 11 Earned Value Definitions BCWS: Budgeted Cost of Work Scheduled The planned earned value to be performed by the milestone date.

12. Professional Development Learning Event – 27 March 2007 12 Earned Value Definitions (cont.) ACWP: Actual Cost of Work Performed Actual Cost to date.

13. Professional Development Learning Event – 27 March 2007 13 Earned Value Definitions (cont.) BCWP: Budgeted Cost of Work Performed l The actual earned value i.e. the value of the work performed based on its planned value

14. Professional Development Learning Event – 27 March 2007 14 Establish the activities (milestones) Calculate a budget for each activity (milestone). What is the cost of completing the activity? Ideally one activity (milestone) per reporting period In a table, record the cumulative budget for each milestone and draw the graph How to construct the baseline (BCWS) (planned earned value)

15. Professional Development Learning Event – 27 March 2007 15 How to construct the baseline (BCWS)

16. Professional Development Learning Event – 27 March 2007 16 How to score the Earned Value (BCWP) (actual earned value) When an activity (milestone) is achieved, the Earned Value (EV) is scored equal to its planned value It has nothing to do with how much you get paid The EV is scored in the period in which it was completed

17. Professional Development Learning Event – 27 March 2007 17 How to score the EV (BCWP)

18. Professional Development Learning Event – 27 March 2007 18 How to record Actual Cost (ACWP) Actual cost of doing the work This may be recorded for each activity (milestone). This is the ideal situation, but you may only have information relating to actual cost for the entire project. This is also acceptable You may be accumulating an actual cost in a period prior to the activity is delivered.

19. Professional Development Learning Event – 27 March 2007 19 How to record Actual Cost (ACWP)

20. Professional Development Learning Event – 27 March 2007 20 Earned Value (BCWP) Actual Costs (ACWP) Planned Costs (BCWS) Budget At Completion (BAC) Time £ Today Graphical representation of project progress

21. Professional Development Learning Event – 27 March 2007 21 Exercise Describe the status of each project using EV terminology 10 minutes

22. Professional Development Learning Event – 27 March 2007 22 6 examples Today £ Time BCWS BCWP ACWP 1. As at today, the value of the work that has been completed is greater than plan, therefore we are ahead of schedule. The actual cost of work is less than plan and also less than the BCWP. Therefore we have been doing the work very much cheaper than plan. Today £ Time BCWS ACWP BCWP 2. As at today, the value of the work is less than planned, therefore we are behind schedule. The actual cost of work is greater than plan and also greater than the BCWP. Therefore we have been doing the work considerably more costly than planned.

23. Professional Development Learning Event – 27 March 2007 23 6 examples Today £ Time BCWS BCWP ACWP 3. 4. Today £ Time BCWS ACWP BCWP As at today, the value of the work is greater than planned value, therefore we are ahead of schedule. The actual cost of work is greater than plan but less than the BCWP. Therefore despite having spent more money than plan, on the work we have completed, we are doing it cheaper than the plan. As at today, the value of the work is greater than planned value, therefore we are ahead of schedule. The actual cost of work is greater than plan and also greater than the the BCWP. Therefore as well as spending more money than planned, we are overspent on the work that we have completed.

24. Professional Development Learning Event – 27 March 2007 24 6 examples Today £ Time BCWS BCWP ACWP 5. 6. Today £ Time BCWS ACWP BCWP As at today, the value of the work is less than planned value, therefore we are behind schedule. The actual cost of work is less than plan and also less than the BCWP. Therefore as well as being under the planned expenditure, we are also doing the work cheaper than the plan As at today, the value of the work is less than planned value, therefore we are behind schedule. The actual cost of work is less than plan but is greater than the BCWP. Therefore despite having spent less than the plan, on the work that we have done we are overspending

25. Professional Development Learning Event – 27 March 2007 25 Some Derived Metrics SV: Schedule Variance (BCWP - BCWS) l A comparison of the amount of work performed to what was planned to be performed. l A negative variance means the project is behind schedule CV: Cost Variance (BCWP - ACWP) l A comparison of the budgeted cost of work performed with actual cost. l A negative variance means the project is over budget.

26. Professional Development Learning Event – 27 March 2007 26 SPI: Schedule Performance Index SPI = BCWP / BCWS SPI < 1 means project is behind schedule CPI: Cost Performance Index CPI = BCWP/ACWP CPI < 1 means project is over budget Some More Derived Metrics

27. Professional Development Learning Event – 27 March 2007 27 Cost indices and variances Cost Performance Index (CPI)= BCWP ACWP Cost Variance (CV)= BCWP - ACWP Cost Variance % (CV%)= CV x 100 BCWP Schedule indices and variances Schedule Variance (SV)= BCWP - BCWS Schedule Performance Index (SPI)= BCWP BCWS Schedule Variance % (SV%)= SV x 100 BCWS

28. Professional Development Learning Event – 27 March 2007 28 Schedule Variance (£) Earned Value (BCWP) Actual Costs (ACWP) Planned Costs (BCWS) Budget At Completion (BAC) Cost Variance (£) Time £ Schedule slippage (time) Today Graphical representation of project progress

29. Professional Development Learning Event – 27 March 2007 29 Making Projections Once a project is 10% complete, the overrun at completion will not be less than the current overrun. Once a project is 20% complete, the CPI does not vary from its current value by more than 10%. The CPI and SPI are statistically accurate indicators of final cost results. Source: Defense Acquisition University

30. Professional Development Learning Event – 27 March 2007 30 Formula 1= BAC CPI Considered to give a minimum EAC Formula 2= BAC CPI x SPI Provides an EAC that accounts for a schedule change Formula 3= ACWP + BAC – BCWP CPI x SPI Provides an EAC that accounts for a schedule change, but also takes into account the value of the work done { } Estimate At Completion (EAC)

31. Professional Development Learning Event – 27 March 2007 31 Schedule Variance (£) Earned Value (BCWP) Actual Costs (ACWP) Planned Costs (BCWS) Budget At Completion (BAC) Variance at Completion Forecast schedule slippage Cost Variance (£) Time Estimate At Completion (EAC) Today £ Schedule slippage (time) Graphical representation of project progress

32. Professional Development Learning Event – 27 March 2007 32 Basic Analysis

33. Professional Development Learning Event – 27 March 2007 33 Exercise 1. Read the worked example 2.Do the Earned Value exercise 1 hour

34. Professional Development Learning Event – 27 March 2007 34 Activities do not always last for a reporting period (week, month etc) Some activities do not deliver anything, e.g. management support, but it still a cost to the project Now the real world!

35. Professional Development Learning Event – 27 March 2007 35 Activities do not always last for a reporting period – What can be done? Use an Earned Value Method of 50/50 When constructing the BCWS (the plan), you put 50% of the activity (as a BCWS value) in the period the activity is planned to start and the remaining 50% in the period when the activity is planned to finish. The BCWP (Earned Value) is earnt in the same proportions, i.e. 50% when the activity starts and 50% when the activity finishes

36. Professional Development Learning Event – 27 March 2007 36 EV Methods – Internal resource

37. Professional Development Learning Event – 27 March 2007 37 EV Methods – Material/vendor

38. Professional Development Learning Event – 27 March 2007 38 Some activities do not deliver anything - What can be done? Use an Earned Value Method called Level of Effort When constructing the BCWS (the plan), spread the activity value evenly throughout the duration The BCWP (Earned Value) is earnt in the same proportion to the plan regardless of whether any time has been spent on the activity or not BCWP = BCWS therefore SPI = 1.0 and SV = 0 It shows that we are always on schedule for this type of activity

39. Professional Development Learning Event – 27 March 2007 39 EVMS / EVM / EV / EVA Earned Value Management System: The executive Cost and Schedule system employed Can be a single system or many that are working together Earned Value Management: Active management of a programme using EV processes & EVA Earned Value Methods: Metric selected to provide best possible reflection of Schedule performance Typically: 0-100, 20-80, 50-50, 40-60, Estimates, Milestones, Apportioned, & Level of Effort Earned Value: Budgeted Cost of Work Performed…BCWP Executed tasks within a baseline having been completed in line with exit criteria Earned Value Analysis: Variance Analysis of - Current month, Cumulative to Date, and VAC EAC Analysis in terms of TCPI(EAC) / Independent EACs if warranted

40. Professional Development Learning Event – 27 March 2007 40 Key EVMS Components Authorisation Planning & Budgeting Baseline Change Control Analysis Reporting

41. Professional Development Learning Event – 27 March 2007 41 Control Account Authorisation CAA: Total Allocated Budget (TAB) flow-down to reporting WBS Details initial Baseline distribution of Budget Provides a narrative (and/or) points to additional documentation detailing deliverables Indicates open duration of Control Account Details specific schedule adherence Signed off by both Programme Manager and Control Account Manager Usually a one-time event…future budget transactions being dealt with by PCRs Authorisation

42. Professional Development Learning Event – 27 March 2007 42 Planning and Budgeting Total Planning or Rolling Wave Planning Vertical & Horizontal Integration with Milestones, especially if a Critical Path is required Resource allocation and management Management Reserve (in-scope arisings) Undistributed Budget (WBS earmarked budget) Earned Value Method (EVM) selection TAB = (DB + UB + MR) Where (DB+UB+MR) >TAB = Over Target Baseline !

43. Professional Development Learning Event – 27 March 2007 43 Baseline Control Baseline Change Control is performed using Programme Change Requests (PCRs) Baseline distribution = Contract Budget Base (CBB Log) Change Control (Rubber Baseline mitigation) performed by the usage of PCRs PCRs authorise both BAC/EAC and pure EAC changes An understanding of MR v EAC is required ! PCRs are signed-off by Programme Managers

44. Professional Development Learning Event – 27 March 2007 44 Analysis Performance = Current Month, CTD, and Variance at Completion History = SV, SPI, CV, CPI Current Management Reserve level & predicted Burn-Down Programme flexibility = MR versus VAC delta Staffing…..Equivalent Heads versus Forecast Milestones….future forecasted dates versus requirements (Exec, MWP, Programmatic) Variance Analysis Reports (VARs) and Corrective Actions Future = TCPI(EAC) and Trending History

45. Professional Development Learning Event – 27 March 2007 45 Variance Analysis Report (VAR) Thresholds: Fixed at Baseline Current month SV & CV Cumulative SV & CV VAC CAM reports: Cause of variance Impact to Cost & Schedule Corrective Actions VARs: Discussed at MPRs Agreed and signed by PM/PL Corrective Actions: Reviewed at subsequent MPRs

46. Professional Development Learning Event – 27 March 2007 46 Reporting

47. Professional Development Learning Event – 27 March 2007 47 Shortcomings of Earned Value Quantifying / measuring work progress can be difficult. Time required for data input, data gathering and calculation It is not the only way to manage a project

48. Professional Development Learning Event – 27 March 2007 48 Summary Use indicators to manage your project and not to be a goal in itself. They will drive a behaviour. EV data is historical. Use it to predict and influence the future Look at Indices and Variances together and observe trends Concentrate on the parts of the project that trip the variances Not all projects are the same, i.e. do not expect the same sort of variances and indices on a technically challenging/risky project compared with more straight forward projects For EVA to be effective, it requires a credible baselined plan.

49. Professional Development Learning Event – 27 March 2007 49 Thank you and any questions?