1. CPM 300 Principles of Earned Value Implementation CPM 300B – Management Use of EV Data
Eleanor Haupt
Aeronautical Systems Center
Lloyd Carter
MTC AustralAsia Pty Ltd
+61(0)

2. Training Objectives Basic concepts of measuring performance
Examples
EVM guidelines for project execution
Basic concepts of reporting progress
Basic concepts of analysis

3. Budgeted Cost for Work Performed
(BCWP)
the EARNED VALUE concept
We’re at the end of the second month, but only 1 section of track is complete.
Earned value of work completed = $1,000
Assess progress on recurring basis
There are different methods of earning value
You earn value the same way as it was budgeted in baseline

4. General Principles of Measuring Performance (BCWP)
Establish valid metrics as you establish the time phased baseline
Relate true work status
Objective and quantifiable
Should be a quantitative and discrete way to measure the work
May tie in with success criteria or technical measure
Example: successful completion of a specific test
Must be consistent in following established metric as work progresses
BCWP value drives both cost and schedule variances
If overstated or understated, it will distort variances
Can impact estimate at complete calculations

5. Three Basic Methods of Earning Value
Discrete
Physical, tangible end product
Common techniques: milestone, % complete, 0/100, 50/50, units complete
Apportioned
Discrete, but dependent on another discrete work package
Example: quality assurance (depends on assembly labor)
Planned as historical estimating factor (e.g., 7%)
Level of Effort
No tangible end product
Basis of measurement: time
When clock starts ticking, you automatically accumulate earned value
Results in no schedule variance (BCWP will always equal BCWS)
Example: management personnel

6. Be Discrete! Discrete EV Techniques: Method How Value is Earned
0/100 no EV at opening, 100% EV at close of WP
50/50 50% EV at opening, 50% EV at close of WP
Units Completed same budget value for identical units
Equivalent Units planned unit standards, allows partial credit
Weighted Milestone each milestone weighted based on planned resources
ideal to have a milestone each month
Percent Complete should be based on some quantitative assessment
may be somewhat subjective

7. Earning BCWP on Material
Material and Subcontracts
Earned Value: taken no earlier than receipt or progress payments to subcontractors
define
order
receipt or progress payments
payment
to inventory
usage
accurate cost accumulation and assignment to contract
should perform price and usage variances
should plan earned value to match expected payment period
BCWP and ACWP should occur in same period to avoid artificial cost variance
option: may report “estimated actuals” based on invoice

8. Examples of BCWP Calculations

9. Different EV Methodology Yields Different Results!
WBS (Workpackage)
MONTH: Jan Feb Mar Total
BCWS (Original Budget)
BCWP (Earned Value)
ACWP (Actual Cost)
Assume that costs overran and work was completed behind schedule for all methods

10. Example: Milestone Technique
Jan Feb Mar
BCWS (Original Budget)
BCWP (Earned Value)
Milestone 1 Planned: 100
Milestone 2 Planned: 120
Milestone 3 Planned: 100
SCHEDULE VARIANCE
ACWP (Actual Cost)
COST VARIANCE
100
120
100

11. Example: Level of Effort Technique
Jan Feb Mar
BCWS (Original Budget)
BCWP (Earned Value)
SCHEDULE VARIANCE
ACWP (Actual Cost)
COST VARIANCE

12. Example: 50/50 Technique Jan Feb Mar
BCWS (Original Budget)
BCWP (Earned Value)
Task – Baseline
Task - Actual
SCHEDULE VARIANCE
ACWP (Actual Cost)
COST VARIANCE
50%
50%
50%
50%

13. Example: Percent Complete Technique
Jan Feb Mar
BCWS (Original Budget)
BCWP (Earned Value)
Task 1 (100)
Task 2 (120)
Task 3 (100)
SCHEDULE VARIANCE
ACWP (Actual Cost)
COST VARIANCE
60%
40%
50%
50%
100%

14. Which Technique Accurately Reflects Work Progress?
Jan Feb Mar Total
Milestone SV CV
LOE SV CV
50/50 SV CV
% Compl SV CV

15. EVM Guidelines for Project Execution

16. Work Package (not open)
Work Packages
Work Package (closed)
Work Package (open)
Work Package (open)
Work Package (open)
Work Package (not open)
Time Now

17. Authorizing the Work
Can only work on work package if it has been opened
Charge costs to open work packages only
Contractor system sets procedure
Contractor maintains baseline log which tracks:
Distribution of budget
Additions of authorized work
Total equals value of contract at cost
Contract changes incorporated in disciplined manner
Cannot start work without authorization and budget
Baseline changes are controlled

18. more rules of the road... cannot move budget and work independently
cannot use management reserve budget to cover overruns
may replan open work packages as necessary
contractor sets internal policy
maintain valid performance information
cannot change budgets or costs for completed work
except to fix errors

19. Project Control
So, your project has been baselined and work has started
Is everything going according to plan?
Next step in the process:
figure out your status
figure out the problems
figure out what you need to do to fix them
figure out what the impact might be $
time
BCWP
BCWS

20. Status Reporting Report on periodic basic
weekly
monthly
Tailor the data to match how you’re managing
Provide performance reports to:
Senior management
Customer
Based on contract terms
Use data in reports and variance analysis to manage and control project

21. Contractor Reports Cost Performance Report (CPR)
(Example of data item from U.S. Department of Defense)
Cost Performance Report (CPR)
Format 1: cost and schedule progress by WBS
(specified reporting level usually at level 3)
Format 2: cost and schedule progress by organization
Format 3: changes to performance measurement baseline
Format 4: manpower forecast
Format 5: variance analysis
current and cum data

22. Formats 1 and 2 Contents header: body
basic contract information (target, ceiling, name of contractor, etc.)
range of final estimates
body
performance data
variances
budget at completion, estimate at completion
WBS or ORGANIZATION

23. Variance Explanations
Format 5 variance analysis should address:
separate discussion of CV, SV (current and cum) and VAC
clear description of reason for variance
quantity variances (e.g., price vs. usage)
be specific
discuss needed corrective action
technical, schedule, and cost impacts
impact to estimate at completion
should be written by CAM!
A big hammer for
a big variance!

24. Sample of Variance Analysis

25. Basic Concepts of Analysisor
figuring out where the problems are

26. Looking Forward PAST PRESENT FUTURE
Are we on schedule?
Are we on cost?
What are the significant variances?
Why do we have variances?
Who is responsible?
What is the trend to date?
What risks have been reduced or
added?
What is the “to go” plan?
How is it resourced?
When will we finish?
What will it cost at the end?
How can we control the trend?
How do we adjust for risk?
To address management with earned value more specifically, it is important to analyze our past performance in order to help us control the future.
All too often, earned value data is seen as historical, a nice picture of where we’ve been. It is challenging work to analyze these past trends and use them to project into the future. However, every program manager should be able to answer when the project will finish, what it will cost, and understand the impacts of future risks. Using earned value data allows us to project these trends and then to take the appropriate action to control the project.
Acquiring earned value data can take a substantial amount of time and resources, and we must make effective use of it in managing our projects. Earned value is the only management tool that relates cost and schedule progress to technical progress. Earned value should not be seen as a progress report, but the integrating principle of project management.
We analyze the past performance………to help us control the future

27. Basic Analysis Techniques
Find significant variances
eliminate almost complete, just starting, etc.
Graph and analyze trends
Look at comparative data
e.g. cumulative performance vs. projected performance
Examine written analysis by contractor
does it answer why?
adequacy of corrective action plans
Analysis of schedule trends, critical path
Analysis of EAC realism
what are the drivers?
what can we do about them?

28. Types of Variances
Values can be expressed as either current period or cumulative
current tends to be more volatile
use cum data to show trends
Easy rule of thumb:
negative value = BAD positive value = GOOD
index < 1.0 = BAD index > 1.0 = GOOD
Absolute
expressed in terms of dollars or hours (e.g., -$1,000)
may not be able to tell significance from this amount
Percent
relates absolute variance to a base (e.g., -35%)
shows significance
Index
compares one value to another in a simple ratio
if you are on plan, index = 1.00

29. Where are the significant problems?
sorted by CV $

30. graphs show overall trend...
Graphing Techniques
Overall cost and schedule trend
EAC realism
graphs show overall trend...
are you getting better,
or worse?

31. Analysis of Variances CURRENT OR CUM TO DATE
Schedule Variance SV ($) = BCWP - BCWS
SV (%) = BCWP - BCWS x %
BCWS
Cost Variance CV ($) = BCWP - ACWP
CV (%) = BCWP - ACWP x %
BCWP

32. Performance Indices 1.2 “GOOD” 1.1 1.0 CPI .9 SPI “BAD” .8
COST PERF INDEX (CPI) = BCWP
ACWP
SCHED PERF INDEX (SPI) = BCWP
BCWS
1.2
“GOOD”
1.1
TIME
1.0
CPI .9
SPI
“BAD” .8

33. Past and Present Cost Efficiency
IS THE CONTRACTOR'S EAC REASONABLE?
Compare the CPI to the TCPI-LRE
TCPI-EAC = Efficiency necessary to complete at the contractor’s estimate
WORK $ $ $4000
= BAC-BCWP = REMAINING = $ $ = $ =
EAC-ACWP ESTIMATE
REMAINING
Cumulative performance to date (CPI) =
Contractor has been performing at 42% efficiency, but expects to
complete remaining work at 100% efficiency!
reasonable?
The TCPI(LRE/EAC) depicts the efficiency necessary for the contractor to complete at his estimated EAC. Since we had assumed the contractor had resolved all problems it is no surprise that he only has to work at 100% to achieve his EAC. Of course, he was only working at 42%.

34. Schedule Status compare % scheduled = BCWS x 100% BAC
% completed = BCWP x 100%
compare
example: I should have completed 60% of the work (% scheduled),
but I only completed 42%

35. Budget Status budget status compare: % spent vs. % complete
% spent = ACWP x 100%
BAC
compare:
% spent vs. % complete
example: % spent vs. 50% complete

36. Mutual Goal: Effective Variance Analysis
Make it meaningful
avoid routine explanations
Make it timely
Make it streamlined
significant variances
Make it right
work with contractor to get the information we need
Get the information to the managers
Use the information to control the project
make this a
mutual goal
between contractor
and
customer 9

37. What will be the final cost?
Estimate at Completion (EAC)
defined as actual cost to date + estimate to complete
contractor develops comprehensive EAC at least annually
reported by WBS in cost performance report
should examine on monthly basis
consider the following in EAC generation
performance to date
impact of approved corrective action plans
known/anticipated downstream problems
best estimate of the cost to complete remaining work
EAC = ACWP + ETC

38. Need to Estimate Costs for Remaining Work
Budgeted Cost for Work Remaining (BCWR)
Budgeted, baseline value for remaining work
Update estimate of costs for BCWR
Can be detailed estimate
Can calculate with performance factors (CPI or SPI)
Assumes performance will continue at same level of efficiency
Basic formula: BCWR / performance factor
Example:
CPI = .9
BCWR = 1,000
Estimate to complete = 1,000 / .9 = 1,111

39. Common EAC Formulas Common EAC Formulas: EAC = BAC CPI
= ACWPcum + Budgeted Cost of Work Remaining
CPI3
= ACWPcum + Budgeted Cost of Work Remaining
.5(CPI) +.5(SPI)
= ACWPcum + Budgeted Cost of Work Remaining
CPI * SPI

40. Other methods of EAC calculation
“Grass Roots” or formal EAC
detailed build-up from the lowest level detail
hours, rates, bill of material, etc.
Average of statistical formulae
Statistical regression
Complete schedule risk analysis for remaining work, estimate work remaining

41. Past vs. Projected Efficiency
Efficiency needed
to achieve EAC
1.0
CPIcum = .42

42. Earned Value Enables Realistic Forecasts
CONTRACT BUDGET BASE
$24M
COST
VARIANCE AT
COMPLETE
FORECASTED ACTUALS
BUDGET
20M
SCHEDULE VARIANCE
Cost Var
FORECAST SCHEDULE
SLIP
16M
12M
PMB
FORECASTED EARNED VALUE 8M 4M 2 4 6 8 10 12 14 16 18 20 22
TIME PERIODS
TIME
NOW
PROGRAM IS BEHIND SCHEDULE AND OVERRUNNING COST

43. The “Box of Uncertainty” (courtesy Swedish Defense Material Administration)
POTENTIAL
COST
OVERRUN
20M
POTENTIAL
SCHEDULE
SLIP
16M
12M
PMB 8M 4M 2 4 6 8 10 12 14 16 18 20 22
TIME PERIODS
TIME
NOW
BOX OF UNCERTAINTY SHOWS POTENTIAL RANGE OF COST OVERRUN AND SCHEDULE SLIP

44. Managing with Earned Value Data

45. Program Manager Responsibilities
Assign integrated responsibility to teams
Demand accountability
Ask tough questions
project office
contractor
Look ahead – manage the risks
Integrated analysis and reviews
EVMS
Integrated Master Schedule
Risk Plan
Manage to the baseline
Control statement of work growth
Lead assessment of baseline realism
Integrated Baseline Review (IBR)
Call for realistic estimates
The Program Manager is the key person in making EVM work. Some of the major responsibilities are to assign responsibility to IPT subordinates, and then hold people accountable and ask tough questions. This would be true both on the government and contractor teams.
Another key responsibility is to use EVM data to identify trends and potential problems and manage program risks.
The PM is also responsible for ensuring that the EVM data ties together with the integrated master schedule, the risk plan and other management indicators. Earned value should be seen as the connecting thread between the contractor’s technical, schedule, and cost performance. The program team should fully integrate EVM analysis into program reviews.
The PM should see the EVM baseline as the plan to manage the project. Successful baseline management includes controlling growth of the SOW and assessing the baseline realism. The IBR is the initial review of the baseline, and the baseline should be reviewed continually through the life of the project.

46. Quotes from Project Managers
“Are we looking good, or are we in trouble? And, how do we know?”
CAPT Joe Dyer, US Navy
F/A-18E/F Program Manager
“It forces you to plan, and then to manage to the plan.”
Lt Col Paul Vancheri, US Air Force
JSTARS Production Program Manager

47. Additional References http://www.cpm-pmi.org http://www.acq.osd.mil/pm

48. Summary
Be careful to establish correct value for reported BCWP (earned value)
Set up and maintain system discipline
Maintain a realistic baseline
Analyze earned value data
Calculate a realistic estimate at completion
Manage with earned value data