Transcript A Common Sense Approach to Earned Value

A Common Sense Approach to
Earned Value
5/1/2013
Presented By
Michael Marcell (K2) &
Tim Hart (CDP)
Agenda
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What is Earned Value Management (EVM)
Why EVMS?
How Do I Implement EVMS?
Why Make This Investment?
What is Earned Value Management
(EVM)?
• IT IS NOT ROCKET SCIENCE!!
• PMI DEFINITION – “Earned Value (EV) is the value
of work performed expressed in terms of the
approved budget assigned to that work for an
activity or WBS Component”
• Simply stated, Earned Value Management is a
methodology for measuring project performance
• Earned Value Management (EVM) is a very
effective management technique for every
organization – not just for the mega-projects!
What is EVM? (Cont.)
• At this point of time in your project – What had you planned to do?
– What have you done (earned)?
– How much did you actually spend?
– What is it going to take to finish?
What is EVM? (Cont.)
• There are plenty of charts, calculations,
graphs, examples that we could show that
would very quickly put everyone to sleep – we
would like to bring this to a level that makes
sense to each of you.
What is EVM? (Cont.)
• There is value in EVM on an individual project
– the true organizational benefit is achieved
when you look across all projects – large AND
small, to see where the profit margins are
being realized
What is EVM? (Cont.)
• From an article by Quentin Fleming and Joel
Koppelman "Earned Value Project
Management...an introduction" - bad news does
not improve with time, it only gets worse. At
issue: Bad news known at the 20 percent point in
a project’s lifecycle gives management some
opportunity to take corrective actions and alter
the final results. Conversely, bad news that is
ignored or not addressed until perhaps the 80
percent completion point severely limits
management’s opportunities to make the
necessary changes to recover performance.
WHY USE EVM?
• Simply the best method for measuring progress
during and after a project
• In the Bid & Proposal area, while it is one thing to
say that you have certain management
capabilities, but when you show actual reports
the evaluation committee awards points for proof
of what you say. Historical reference (Risk
Management, actual customer experience,
strategic management, lessons learned) including
price-to-win strategy.
WHY USE EVM? (Cont.)
• Once awarded, EVM provides background for
planning phases, early detection of potential
overruns, scope creep, risk items, bid busts,
etc.
• During performance, project metrics for
change management, risk management and
performance management, and forecasting –
including cash flow.
WHY USE EVM? (Cont.)
• At close-out, when the job ends, have we
– (a) completed all items?
– (b) maximized all fees, bonus payments, etc.?
– (c) received final payment?
• During post-project lessons learned, what will
help us for future projects? Did we achieve
our cost and profit objectives? What could
have been done differently?
WHY USE EVM? (Cont.)
HOW DO I IMPLEMENT EVM?
• WHAT EVM IS NOT – Implementing EVM for
your organization is NOT simply buying a
software tool that supports EVM and installing
it – there are specific processes that need to
be in place that make sense to your
organization (staff and managers). A well
planned implementation of tools and
processes will provide the desired results.
HOW DO I IMPLEMENT EVM? (Cont.)
What IS EVMS?
• Processes/Methodology interrelating scope, schedule
& cost to support management decisions
• There are a variety of software tools to simplify the
processes
• Processes can be developed using known industry
best practices (PMI, ANSI, NDIA):
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Organizational
Planning & Budgeting
Accounting
Analysis
Revision and Data Maintenance
HOW DO I IMPLEMENT EVM? (Cont.)
• What is the current organizational structure?
Resources – how many people, systems
(project management, accounting, HR, etc.),
hardware, experience – core competencies –
will we need to go outside for help?
• Where do you want to be? What is the impact
of an upcoming project on your existing
capabilities?
HOW DO I IMPLEMENT EVM? (Cont.)
• Gap Analysis –
– How do we get from where we are…
– To where we want to be
– How long do we want to take getting there?
Very important to move at a pace that the organization
can support and sustain.
• Evaluation of the gap analysis, and lay out a plan
that accomplish the objectives in a way that will
fit within any organizational constraints.
HOW DO I IMPLEMENT EVM? (Cont.)
Why Make This Investment?
• QUESTION - I have been told that EVM is very
expensive to implement – why should I make
that kind of investment in these hard times?
– Sequestration
– Big business competing for smaller contracts
– Much more aggressive bidding (low price)
– Reduced Margins
Why Make This Investment? (Cont.)
• More necessary in hard times that in boom
times – bigger impact on resources, schedule,
costs, profit
• Cost vs Value of EVM – what is the cost of
overrunning the program/project?
• Initial implementation – software, training,
institution of processes
Why Make This Investment? (Cont.)
• Initial Implementation investment is variable;
ongoing operational costs are nominal
• Organizational cost vs direct project/program
cost – EVM is an organizational asset
• EVM is completely process-driven
– a number of software products to track progress –
some tools are better than others
– costs are proportional – software is much cheaper
than people
Why Make This Investment? (Cont.)
• Question - a lot of guidance I have seen tells
me that EVM can only be effective in Cost-Plus
contracts –
– What about Firm-Fixed-Price?
– What about T & M?
Why Make This Investment? (Cont.)
Cost-Plus Contracts
What are Cost Plus contracts?
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Pay for actual costs
Fee is established at contract award
Scope is less well defined (e.g., engineering, R & D, etc.)
Change Order to renegotiate fee
Why Make This Investment? (Cont.)
Cost Plus (Cont.)
– Contract Requires EVM – I have to do it
– Owner Requires EVM
• because the owner bears the risk
• needs to know ongoing cost in detail
• need to know how much more the contract is going to
cost to complete
• need to know risks and delays at all times (translates to
cost)
• manage project/program scope
• any changes renegotiate fee
Why Make This Investment? (Cont.)
Why Make This Investment? (Cont.)
What are FFP contracts?
• Contract cost is set
• Fee is adjustable –burden for profit is on contractor
• Scope is very well defined (e.g., construction,
deployment, etc.)
• Change Order to renegotiate total value of contract
Why Make This Investment? (Cont.)
Firm Fixed Price (Cont.)
- Contractor assumes more requirements than the
owner
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Risk
Costs
Cost to Complete
Delays
– Contractor must manage scope - Owner validates
that the scope is clear (eliminates change orders)
Why Make This Investment? (Cont.)
Why Make This Investment? (Cont.)
• Other contract vehicles? Time & Materials (T
& M), Ceiling contracts
• Contractor’s perspective - still need to manage cost,
resources, scope in order to return a profit
• Owner’s Perspective - still need to affirm that scope
was completed as expected AT the cost that was
expected WITHIN the timeframe that was expected
• Challenges – scope is vague (e.g., staff augmentation,
advanced technology, process improvement)
Why Make This Investment? (Cont.)
Time & Materials Contracts
• Contractor assumes the same requirements as the
owner
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Risk
Costs
Cost to Complete
Delays
• Owner must manage scope - Owner validates that the
scope is clear (eliminates change orders)
Why Make This Investment? (Cont.)
Wrap-up
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What is Earned Value Management (EVM)
Why EVMS?
How Do I Implement EVMS?
Why Make This Investment?
Questions?
Contact Information
Michael Marcell
• K2 Construction Consultants, Inc.
• [email protected]
• 301-656-2228
Tim Hart
• CDP, Inc.
• [email protected]
• 443-472-4084