Transcript Core Planning Process Activity Definition

EARNED VALUE
MANAGEMENT SYSTEM
A
Project Performance Tool
By
Roy T. Uemura, PMP, P.E., MBA
Project Management Consultant
Project Professionals, LLC
How Is Your Project Doing?
 Ahead
of schedule?
 Within
your approved Budget?
How Is Your Project Doing?
 What
 Will
is your cost estimate at completion?
you be ahead or behind the
scheduled completion date?
Agenda
1.
2.
3.
4.
5.
6.
7.
Explanation of Earned Value Management
(EVM)
The traditional “Two Dimensional System” of
Evaluation
EVM “Three Dimensional System” of
Evaluation
Critical Variables in EVM
EVM Formulas
Applying EVM on projects
Example
Earned Value Management
 Method
for integrating scope, schedule, and
resources, for measuring project
performance.
 Compares what was planned with what was
actually spent with what was actually
“earned”
Earned Value Management
Developed in the 1960’s
 Popular method for reporting and controlling
project in the Department of Defense
 A common language to report progress and
cost against a project
 Helps answer the questions:





Are we on schedule?
How much did the work we do cost?
Are there variances?
Based on these trends, how much will it cost by the
end of the project?
Early Warning System
“… based on the Project Performance
Plan
and Project’s Actual Performance against
the Plan,
1. the project will likely take this much
time to finish, and
2. spend this much money.”
Traditional System
(Two Dimensional)
 Cost:
compares what was planned to be
expended versus what was actually expended
 Time: Compares the date you are on a
project versus when the project is to be
completed
 Production: Compares how much work was
planned to be completed versus how much
was actually completed.
Earned Value
(Three Dimensional)
1. Actual work that was “earned”
versus
2. Work that was accomplished
versus
3. Work that was scheduled to be
accomplished
Critical Variables to
EV Performance Indices
1.
2.
3.
Quality of the project baseline plan
Actual performance against baseline plan
Management’s determination to control
(change) the final results
Project Baseline
Basis of performance measurement
 Represents technical, cost and schedule
objectives of the project
 Cashflows



Outside Material
Outside Services
Scope of Work
The scope of work of entire project must be
defined
 The Work Breakdown Structure (WBS)
identifies and groups major deliverables
 Integrate scope with budget and schedule.

Performance Measurement Methods

Fixed formula by task:
0/100 %, 25/75%, 50/50 %

Weighted Milestones
Percent complete based on specific work
(milestone) accomplished.

Percent Complete
Increment completed / total activity or task

Equivalent Completed Units
Cost Account Plan
WP#
1
WORK DESCRIPTION
Design
EV METHOD
JAN
Weighted
PV
Milestones
AC
EV
2
Site Prep
Fixed Formula PV
0/100%
AC
EV
3
Install Foundations
Equivilent
PV
Units
AC
EV
4
Construct Building
% Compl
PV
AC
EV
FEB MAR APR
BAC
Project Description
 Installed
approximately 14.5 miles of
transmission line of which about 4,000 feet
was installed underground.
 Installed 93 steel poles: 52 poles were direct
buried and 41 were mounted on pier
foundations.
Kuilima
Waialua
Visual Progress Report

Foundation: Dug

Pole Erection:

Lines Strung:
Trench:
 Conduit Installed:
 Cable Installed:
 Trench Covered:

Concrete Poured
Kuilima
Waialua
Controlling Change

Essential: Change Management Control System
in the Project Plan prevents incorrect,
inappropriate, or unauthorized changes to the
project.

Inform appropriate stakeholders of authorized
changes to the Baseline (scope/quality, schedule,
cost)
EVM Input Data Required
PLANNING PHASE
 Planned Value (PV)
 Budget At Completion (BAC)
 % Complete - Planned
EXECUTING & CONTROLLING
PHASES
 Actual Cost (AC)
 % Complete - Actual
Calculations from Input Data
 Earned
Value - EV
 Cost Variance - CV
 Schedule Variance - SV
Calculations for Analysis
Cost Performance Index - CPI
 Schedule Performance Index - SPI
 Budget at Completion - BAC
 Estimate to Completion - ETC
 Estimate at Completion - EAC
 To Complete Performance Index - TCPI

Primary Data Elements
PV (Planned Value)
The value of the amount of work that was
planned to be accomplished on a task (or a
project) as of a certain date in the baseline
plan.
BAC (Budget at Completion)
Total cost of a task (or project) according to
the baseline plan.
Primary Data Elements (cont’d)
AC (Actual Cost)
The actual amount of money spent
on a task (or project) as of a certain date.
Performance Analysis
EV (Earned Value).
The value of the amount of work actually
completed on a task (or project) as of a
certain date, according to the baseline
plan.
EV = % Actual Complete x BAC
Performance Analysis (cont’d)
CV (Cost Variance)
The difference between the value of work
that was actually completed (EV) on a task
(or project) and the cost that was actually
spend (AC) on the task (or project) as of a
certain date.
CV = EV - AC
(+$ = spending less than planned)
Performance Analysis (cont’d)
SV (Schedule Variance)
The difference between the value of work
that was actually completed (EV) on a task
(or project) and the work that should have
been done (PV) as of a certain date.
SV = EV - PV
(+$ = Ahead of Schedule)
Performance Analysis (cont’d)
CPI (Cost Performance Index)
The ratio of the value of work actually
completed (EV) on a task (or project) and
amount actually spent (AC) on a task (or
project) as of a certain date.
CPI = EV/AC
(>1 = Spending less than planned)
Performance Analysis (cont’d)
SPI (Schedule Performance Index)
The ratio between the value of work that was
actually completed (EV) on a task (or project)
and the work that should have been done
(PV) as of a certain date.
SPI = EV/PV
(>1 = Ahead of Schedule)
Performance Analysis (cont’d)
ETC (Estimate To Completion)
The forecasted cost of the remaining task
(or project) is calculated by CPI or
CPI x SPI
ETC = Remaining Work / CPI
= (BAC - EV/ CPI
or
ETC = Remaining Work/ (CPI x SPI)
= (BAC - EV/(CPI x SPI)
Performance Analysis (cont’d)
EAC (Estimate at Completion)
The value expressed in either dollars or hours
to represent the projected final cost of work
when completed. The EAC equals the actual
costs (AC) incurred plus the estimated costs
to complete the remaining work (ETC).
EAC = AC + ETC
Performance Analysis (cont’d)
Ranges of Estimate at Completion
High-End Projection (Cumulative CPI x SPI)
EAC = AC + (BAC - EV) / (CPI x SPI)
In-Between Projection (80% CPI x 20% SPI)
EAC = AC + (BAC - EV) / (0.8 CPI x 0.2 SPI)
Low-End Projection (Cumulative CPI)
EAC = AC + (BAC - EV) / CPI
To Complete Performance Index
TCPI: Project performance which must be
achieved on all remaining work in order to
meet the financial goal by management
TCPI = Work Remaining / Funds Remaining
= (Total Budget - Earned value)
(BAC - Actual Costs)
= (BAC - EV)
(BAC - AC)
PMP Exam
Estimate At Completion (EAC)
EAC = BAC
CPI
Estimate to Complete (ETC)
ETC = EAC - AC
Rita Mulcahy, PMP Exam Prep 5th Edition (2005)
Example
Time: 4th month of 10 month schedule
 Budget at Completion: BAC = $10,000
 Planned Value: PV = $4,000
 Actual Cost: AC = $3,800
 Actual % Complete: 36%
 Earned Value:

EV = 0.36 x $10,000 = $3,600
Earned Value Analysis
Status Date
BAC
$10,000
$5,000
PV = $4,000
AC = $3,800
EV = $3,600
1
2
3
4
5
Time
6
7
8
9
10
Performance Analysis
Traditional Analysis
Cost Variance:= Planned Expenditure - Actual
Cost
CV = PV - AC
CV = $4,000 - $3,800 = $200 (under spent by $200)
Earned Value Analysis
CV = EV - AC
CV = $3,600 - $3,800 = -$200 (spending more than
planned for work performed)
SV = EV - PV
SV = $3,600 - $4,000 = -$400 (less work was done
than planned)
Performance Analysis
Cost Performance Index (CPI)
CPI = EV / AC
CPI = $3,600/$3,800 = 0.95 (<1, for every $1
spent, only $0.95 in physical work was done)
Schedule Performance Index (SPI)
SPI = EV / PV
SPI = $3,600 / $4,000 = 0.9 (<1, for every $1 of
physical work planned, only $0.9 was done)
Performance Analysis
Estimate To Complete (ETC)
ETC = (BAC - EV) / CPI
ETC = (BAC - EV) / (CPI x SPI)
Performance Analysis
Estimate At Completion (EAC)
EAC = AC + [(BAC - EV)/(CPI x SPI)]
= 3,800 + [(10,000 – 3,600) / (0.95 x
0.90)]
= $11,285 (high end)
EAC = AC + [(BAC - EV) / CPI]
= 3,800 + (10,000 – 3,600) / 0.95
= $10,537 (low end)
Performance Analysis
To Complete Performance Index (TCPI)
TCPI = (BAC - EV) / (BAC - AC)
TCPI = ($10,000 - $3,600) / ($10,000 - $3,800)
TCPI = $6,400 / $6,200
TCPI = 1.03
Analyzing Data for Trends
$10
$5
$0
($5)
Schedule Variance
($10)
($15)
($20
Cost Variance
Earned Value Analysis
EAC $9.5 M
CPI
EAC ($7.5 M)
SPI
Baseline Budget
CPI & SPI = 1
1.0
Time
Performance Report
Actual Cost
(AC)
Baseline
(BAC)
A ctual
% Wt.
% Co mpl
% Compl
by Wt
Earned Value
(EV)
P lanned
P lanned %
% Co mpl
Co mpl by Wt
Total - Manage
$96,533
$185,243
1.8% 66.7%
1.2%
$126,051 66.7%
1.2%
Total - Engineer
$422,574
$38,438
0.4% 100%
0.4%
$38,438 100%
0.4%
Total - Construct
$3,575,578
$9,969,624
97.8% 43.0%
42.1%
$4,294,051 68.5%
67.0%
Grand Total
$4,094,685
$10,193,305 100.0%
43.7%
$4,458,540
68.6%
(EV) - (PV) =
(EV) - (AC) =
(EV) / (PV) =
(EV) / (AC) =
AC+[(Tot Budget-EV)/(CPI*SPI)] =
(Tot Budget - EV)/Funds Remain =
-$72,955
$363,855
0.98
1.09
$9,447,623
0.94
Planned Value
(PV)
$4,531,495
EARNED VALUE ANALYSIS:
Schedule Variance (SV)
Cost Variance (CV)
Schedule Perform Index (SPI)
Cost Performance Index (CPI)
Estimate at Completion (EAC)
To Complete Perf Index (TCPI)
=
=
=
=
=
=
(1.7 % behind schedule)
(spending 8.1% less than w ork performed)
(Progressing only 98% of the rate originally planned)
(Getting 9% more w ork done than the planned cost )
Float and Management Reserves
The project manager should control contingency
reserve and schedule float
The work at hand expands to fill the time
available
 Expenditures will rise to meet the budget.
 The remaining “management reserves” should
be added to EAC until such time when the
reserve is no longer needed.

Earned Value Management System
Performance Management
Accurate Baseline Estimate
 Measure Performance against the Plan
 Analyze variances to Plan
 Assess impacts to Overall Plan
 Identify corrective actions
 Implement the corrective actions

Questions?