1. CEU Making Project Management Work in the Real World

2. Proprietary Information Of Energy 2013 The best way to manage projects is by properly using proper Project Cost Management

3. Proprietary Information Of Energy 2013 Key Terms Life-Cycle Costing Life-Cycle Costing looks at TCO form purchase or creation, through operation, and finally to disposal. i.e. Project cost + O & M Costs - Salvage Value Value Engineering It is practice of trying to get more out of the project in every possible way. It tries to increase the bottom line, decrease costs, improve quality, shorten the schedule and generally squeeze more benefit and value out of each aspect of the project. Earn Value management It is used to measure project performance against scope, schedule and cost baselines.

4. Proprietary Information Of Energy 2013 4 Earned Value Acronyms

5. Proprietary Information Of Energy 2013 Earned Value Analysis Planned Value = Budgeted Cost of Work Scheduled PV = BCWS Earned Value = Budgeted Cost of Work Performed EV = BCWP Actual Cost = Actual Cost of Work PerformedAC = ACWP

6. Proprietary Information Of Energy 2013 Spending Plans Point in Time e.g. Today BAC EAC PV AC Original Spending Plan Actual Spending Plan Future Spending Plan ETC VAC

7. Proprietary Information Of Energy 2013 Earned Value Formulas Earned ValueEV=BAC*% Comp Cost VarianceCV=EV-AC Schedule Variance SV=EV-PV Cost Perf Index CPI=EV/AC Schedule Perf Index SPI=EV/PV Est at Completion EAC=AC/% Comp Est to Complete ETC=EAC-AC Variance at Completion VAC=BAC-EAC New with 4 th Edition TCPI = BAC-EV / BAC-AC

8. Proprietary Information Of Energy 2013 Question Set Use the this EVM table for the next set of questions. The project is an eight- week project and four weeks of data have been collected: WeekPVACEV 11,000 23,0002,0002,500 35,000 6,000 47,0009,0007,000 513,000 617,000 719,000 820,000

9. Proprietary Information Of Energy 2013 Question Set a.What is the CPI for week 4? b.What is the SPI for week 3? c.What is the BAC for the project during week 4? d.What is the CV for week 4? e.What is the SV in week 2? f.What is the EAC at week 4? g.During week 5, some of the work reported complete in week 2 was found unacceptable. It will require $500 to bring it into compliance. The rework is scheduled for week 6. No other work is reported to be complete during week 5. What is the EV for week 5?

10. Proprietary Information Of Energy 2013 Net Present Value (NPV) NPV is the present value of cash inflow minus the initial capital investment. Always take the greater NPV choice. Present Value = (Future Value) / (1 + r) n – r = interest rate – n = number of interest rate time periods NPV = sum of [ FV / (1+r)n ] - II - II represents the Initial Investment

11. Proprietary Information Of Energy 2013 Question What is the Expected Present Value if we expect to have $50,000 3 years from now if the annual interest rate is 10%? A.$35,675. B.$24,825. C.$57,250. D.$37,565. 13

12. Proprietary Information Of Energy 2013 PERT Formulas PERT(P + 4M + O) / 6 Standard Deviation(P – O) / 6 Task Variance[(P – O) / 6] 2 Project Standard DeviationSQRT (Sum of Task Var)

13. Proprietary Information Of Energy 2013 Types of Cost Cost estimates can be comprised of multiple types of cost Cost TypeDescriptionExample FixedCosts that stay the same throughout the life of a project Piece of equipment VariableCosts that vary on the projectHourly labor Fuel for equipment DirectCosts that are billed directly to the project Software licenses Team’s salary IndirectOverhead costs that are shared and allocated among several/all projects Manager’s salary SunkCosts that have been invested or expended Unrecoverable past expenditures 13

14. Proprietary Information Of Energy 2013 Budget Estimating Top-Down Estimating (Rough Estimate) Bottom-Up Estimating Rough Order of Magnitude (ROM) - 50 % to + 100 % Completed during initiation (not very accurate) Budget - 10 % to + 25 % Completed during early planning (better accuracy) Definitive - 5 % to + 10 % Completed during late planning Budget Estimates “Most Accurate”

15. Proprietary Information Of Energy 2013 EARNED VALUE MANAGEMENT 15

16. Proprietary Information Of Energy 2013 16 What Is It ? Why Do I Need It ? How Do I Do It? Earned Value Analysis

17. Proprietary Information Of Energy 2013 17 Today’s Situation Need for accurate and consistent status information Numerous complex (and interrelated) projects – Projects with many WBS activities – Virtual offices – Diverse technology platforms

18. Proprietary Information Of Energy 2013 18 There’s 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

19. Proprietary Information Of Energy 2013 19 How to answer the question: “ Have we done what we said we’d do?” % complete estimating % of Budget spent % of work done % of time elapsed – subjective, incomplete – draws false conclusions

20. Proprietary Information Of Energy 2013 20 Enter Earned Value Analysis “Earned Value Analysis” is: an industry standard way to: measure a project’s progress, forecast its completion date and final cost, 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.

21. Proprietary Information Of Energy 2013 21 What’s more Important? Knowing where you are on schedule? Knowing where you are on budget? Knowing where you are on work accomplished?

22. Proprietary Information Of Energy 2013 22 EVA Integrates All Three 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.

23. Proprietary Information Of Energy 2013 23 Earned Value needed because... Different measures of progress for different types of tasks Need to “roll up” progress of many tasks into an overall project status Need for a uniform unit of measure (dollars or work-hours).

24. Proprietary Information Of Energy 2013 24 Earned Value needed because... Provides an “Early Warning” signal for prompt corrective action. – Bad news does not age well. – Still time to recover – Timely request for additional funds

25. Proprietary Information Of Energy 2013 25 And One More Reason Why You Need EVA ?

26. Proprietary Information Of Energy 2013 26 Because It’s the law ! These Set the Stage: GPRA; 1993 FASA, Title V; 1994 Clinger-Cohen Act; 1996 And Then Along Came OMB! (Circular A-11, Part 7) "Agencies must use a performance based acquisition management system, based on ANSI/EIA Standard 748, to measure achievement of the cost, schedule, and performance goals."

27. Proprietary Information Of Energy 2013 27 How’s this project doing?

28. Proprietary Information Of Energy 2013 28 Let’s Take A Look Under The Hood

29. Proprietary Information Of Energy 2013 29 But First! - We gotta get organized EVA works best when work is ‘compartmentalized’. Compartmentalization is best achieved with a well-planned Work Breakdown Structure. So, how do I create a WBS for a really complex project?

30. Proprietary Information Of Energy 2013 30 Proper WBS Design One WBS per program Deliverable-oriented Work not in the WBS is out-of-scope Each descending level represents more detail Full (and accurate) definition is key Defined deliverable(s) Timeframe for delivery of product Total cost (direct and indirect) to deliver product Let’s Look at an example:

31. Proprietary Information Of Energy 2013 31 WBS & Decomposition… A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fifth Edition, Figure 5-13

32. Proprietary Information Of Energy 2013 32 WBS Units are “Work Packages” Lowest level WBS elements Have an accompanying narrative Have three measurable components Scope of work to be accomplished Total (direct and indirect) cost Timeframe for completion

33. Proprietary Information Of Energy 2013 33 Some New(er) Terms BCWS - Budgeted Cost of Work Scheduled ACWP - Actual Cost of Work Performed BCWP - Budgeted Cost of Work Performed

34. Proprietary Information Of Energy 2013 34 Earned Value Definitions BCWS: “Budgeted Cost of Work Scheduled” Planned cost of the total amount of work scheduled to be performed by the milestone date.

35. Proprietary Information Of Energy 2013 35 BCWS - Budgeted Cost of Work Scheduled

36. Proprietary Information Of Energy 2013 36 Earned Value Definitions (cont.) ACWP: “Actual Cost of Work Performed” Cost incurred to accomplish the work that has been done to date.

37. Proprietary Information Of Energy 2013 37 ACWP - Actual Cost of Work Performed

38. Proprietary Information Of Energy 2013 38 Earned Value Definitions (cont.) BCWP: Budgeted Cost of Work Performed The planned (not actual) cost to complete the work that has been done.

39. Proprietary Information Of Energy 2013 39 BCWP - Budgeted Cost of Work Performed

40. Proprietary Information Of Energy 2013 40 The Whole Story

41. Proprietary Information Of Energy 2013 41 Some Derived Metrics SV: Schedule Variance (BCWP-BCWS) – A comparison of amount of work performed during a given period of time to what was scheduled to be performed. – A negative variance means the project is behind schedule CV: Cost Variance (BCWP-ACWP) – A comparison of the budgeted cost of work performed with actual cost. – A negative variance means the project is over budget. FYI

42. Proprietary Information Of Energy 2013 42 Schedule Variance & Cost Variance Schedule Variance = BCWP-BCWS $49,000 - 55,000 SV = - $6,000 Cost Variance = BCWP-ACWP $49,000 - 56,000 CV = - $7,000 FYI

43. Proprietary Information Of Energy 2013 43 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 CSI: Cost Schedule Index ( CSI=CPI x SPI) The further CSI is from 1.0, the less likely project recovery becomes. Some More Derived Metrics FYI

44. Proprietary Information Of Energy 2013 44 Performance Metrics SPI: BCWP/BCWS 49,000/55,000 = 0.891 CPI: BCWP/ACWP 49,000/56000 = 0.875 CSI*: SPI x CPI.891 x.875 = 0.780 Cost Schedule Index (combined)

45. Proprietary Information Of Energy 2013 45 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

46. Proprietary Information Of Energy 2013 46 Making Projections Today

47. Proprietary Information Of Energy 2013 47 Estimate to Complete Today

48. Proprietary Information Of Energy 2013 48 A New Criteria Activities “earn value” as they are completed. The value earned is the WBS budgeted cost of the activity completed to date.

49. Proprietary Information Of Energy 2013 49 Value of Earned Value Schedule Status Reporting Cost Status Reporting Forecasting

50. Proprietary Information Of Energy 2013 50 A-11, Part 7 Requires an EVMS “... based on ANSI/EIA Standard 748” And what does that mean?  ANSI/EIA 748 provides a list of guidelines Organization Planning, Scheduling, and Budgeting Accounting Considerations Analysis and Management Reports Revisions and Data Maintenance  But, ANSI/EIA 748 doesn’t identify ‘approved systems’ FYI

51. Proprietary Information Of Energy 2013 51 A-11, Part 7 Requires an EVMS So where do I get one?  Buy a prepackaged one. (Lot of ‘em around)  Make your own. Microsoft Project Microsoft Excel Or it could be as simple as this: FYI

52. Proprietary Information Of Energy 2013 52 Requirements of Earned Value Proper WBS Design Baseline Budget Control Accounts Baseline Schedule Work measurement by Control Account – work-hours, dollars, units, etc. Good Project Management Practices

53. Proprietary Information Of Energy 2013 53 Shortcomings of Earned Value Quantifying/measuring work progress can be difficult. Time required for data measurement, input, and manipulation can be considerable.

54. Proprietary Information Of Energy 2013 54 Summary EVA & EVMS will help reduce guesswork in: – Measuring performance – forecasting Need to get beyond misleading measures of progress. Reasons to use EVA and EVMS: – Good project management practice – OMB requirement Incorporate into contracts

55. Proprietary Information Of Energy 2013 55 Summary In order to manage a real-world project, a complete understanding and accounting of all time, costs and work must be part of your regular routine.

56. Proprietary Information Of Energy 2013