Transcript Monitoring Progress

Earned Value System
• Pioneered by U.S. Department of Defence to track
schedule and cost in large projects in 1960s.
• Widely used by private sector around the world.
– NCR, Levi Strauss, Disney etc.
• System depends on a well-developed plan and
schedule.
• System is based on an accounting system called
“earned value”.
OPSM 639, C. Akkan
Earned Value System
• Consider the following example:
– R&D project planned to last 10 months and cost
$200,000 per month.
– After 5 months, top management assesses the status of
the project
• Actual cost for the 5 month period: $1.3 million
– Would it be accurate to conclude that the project has
$300,000 cost overrun?
OPSM 639, C. Akkan
Earned Value System
• Earned value system is an integrated cost/schedule
system. System overview:
– Develop a project plan and schedule as discussed
earlier in this course.
– Develop a time-phased budget. The cumulative values
of these budgets will the baseline and called budgeted
cost of the work scheduled (BCWS).
– Collect actual costs for the work performed at the work
package level. These costs will be called actual cost of
work performed (ACWP).
OPSM 639, C. Akkan
Earned Value System
– Collect the budgeted values of work actually
performed. These will be called budgeted cost of work
performed (BCWP).
– Compute schedule variance as
• SV = BCWP - BCWS
– Compute cost variance as
• CV = BCWP - ACWP
– Prepare hierarchical status reports for each level of
management.
OPSM 639, C. Akkan
Earned Value System
WBS
Element BCWS
A
B
C
BCWP
Cost Variance
Schedule Variance
ACWP BCWP - ACWP BCWP - BCWS
100
56
28
100
50
20
110
48
30
184
170
188
-10
2
-10
BAC: Budgeted cost at completion
CPI (Cost Performance Index) = BCWP/ACWP
=170/188 = 0.904
SPI (Schedule Performance Index) = BCWP/BCWS
=170/184 = 0.924
OPSM 639, C. Akkan
0
6
58
Earned Value System
Cumulative cost
BAC
$370
BCWS
$184
ACWP
BCWP (earned value)
Time
today
OPSM 639, C. Akkan
Scheduled end
Earned Value System
• The main reason for creating a baseline is to
monitor and report progress. Hence it is absolutely
necessary that costs are time-phased in the
baseline exactly as managers expect them to be
“earned”.
• Three common rules
– 0/100 percent rule: 100% of the budget is earned when
the workpackage is complete.
OPSM 639, C. Akkan
Earned Value System
– 50/50 percent rule: 50% of the value earned when the
workpackage is started and 50% is earned when the
workpackage is completed.
– Percent complete rule: Establish frequent checkpoints
over the duration of the work package and assign
completion percentages in terms of dollars.
• This is the method used most frequently.
• During monitoring the measure percent complete, it is common
practice to limit amount earned by 80% until the work package
is 100% complete.
OPSM 639, C. Akkan
Earned Value System
• After the current status of the project is
determined, one would want to revise the project’s
total cost. This is referred to as EAC (Estimated
cost at completion).
– EAC: is equal to actual cost to-date plus revised
estimated cost of the remaining work).
• EAC = ETC + ACWP
– ETC: Estimated cost to complete
– Typically ETC is determined by making use of the CPI.
OPSM 639, C. Akkan
Earned Value System
ETC = (BAC - BCWP)/CPI
= (370 - 170) / 0.904 = 221.24
EAC = ETC + ACWP = 221.24 + 188 = 409.24
• VAC (Variance at Completion) = EAC - BAC
VAC = 409.24 - 370 = 39.24
• TCPI (To Complete Performance Index) =
(BAC - BCWP) / (EAC - ACWP)
– Performance index of the remaining work for a given
EAC.
OPSM 639, C. Akkan
Earned Value System
– Let’s say we want EAC = 370, then
TCPI = (370 - 170) / (370 - 188) = 1.099
OPSM 639, C. Akkan
Earned Value System - Example
• Some simplifying examples
– Each cost account has only one work package and each
cost account is represented by a single activity.
– Project network early start times will serve as the basis
for assigning the baseline values.
– Except when the 0/100 rule or 50/50 rule is used,
baseline values will be assigned linearly, unless stated
differently.
– From the moment work on an activity begins, some
actual costs will be incurred each period until the
activity is completed.
OPSM 639, C. Akkan
Earned Value System - Example
Project
$137
Deliverable Deliverable Y Deliverable Z
X $26
$70
$41
Department A
$22
Department A
$22
Department A
$22
Department A
$22
OPSM 639, C. Akkan
CA-1 $6
CA-6 $16
CA-3 $30
CA-2
$20
CA-4
$24
CA-5
$16
CA-7 $10
CA-8 $15
Earned Value System - Example
3
8
A2, 3
5
3
0
3
A3, 3
3
3
3
A1, 3
0
10
6
6
7
7
5
A5, 3
5
OPSM 639, C. Akkan
10
A6, 3
A4, 3
3
3
6
7
12
A8, 3
6
10
7
10
A7, 3
7
10
10
10
12
Earned Value System - Example
Project baseline budget
Schedule Information
EV
rule
1
2
2
3
1
3
1
1
Act /
W.P.
1
2
3
4
5
6
7
8
Dur
3
5
3
4
2
4
3
2
Baseline Budget Needs
Total
BCWS
0
3
0
6
3
10
2
20
3
6
0
30
3
7
0
24
3
7
2
16
6
10
0
16
7
10
0
10
10
12
0
15
Total BCWS by period
Cumulative BCWS by period
ES
LF
Slack
1
2
3
6
4
10
15
6
0
0
0
0
6
6
31
37
EV Rules:
1) 100 percent of budget when completed
2) 50/50 percent when started and finished
3) observed percent complete
OPSM 639, C. Akkan
5
6
7
8
9
10
11
12
0
122
15
15
137
10
6
16
22
59
15
6
21
80
6
4
4
4
4
10
10
90
14
104
4
108
14
122
Earned Value System - Example
Status report at the end of period 4
Status end
of period 4
complete
in-process
in-process
%66
complete
in-process
not started
EV Act / Dur. Total Actual & earned value
2
3
4
rule W.P.
BCWS 1
1
1
3
6
1
3
4
6
2
2
5
20
4
10
2
3
3
30
6
5
15
3
4
4
24
12
5
16
1
5
2
16
2
0
3
6
4
16
ACWP
BCWP
8
6
4
10
6
15
12
16
2
0
5
6
Revised cost estimate to complete
7
8
9
10 11 12 13
8
4
5
6
11
3
18
10
10
35
12
30
16
18
5
not started
1
7
3
10
not started
1
8
2
15
14 EAC
5
5
5
10
ACWP totals
Cumul. ACWP total
BCWP totals
Cumul. BCWP total
OPSM 639, C. Akkan
1
1
0
0
3
4
0
0
4
8
6
6
24
32
41
47
15
20 11 21 25
5
5 15
5
0 15
52 63 84 109 114 119 134 139 139 154
CV = 47-32=15
SV = 47-37=10
20
10
15
154