Earned Value Variance Reporting Dos and Don’ts

Earned Value Variance Reporting

Dos and Don’tsPresenter:

Gary Heth, PMP

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Agenda

Earned Value Basics

•Earned Value in a Nutshell

•Performance without Earned Value

Earned Value Framework

•Planning

•Executing

•Controlling

Earned Value Benefits

Earned Value Lessons Learned

Earned Value Limitations

Earned Value Do’s and Don’ts

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Earned Value Basics

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What is more important?

•Knowing where you are on schedule?

•Knowing where you are on budget?

•Knowing where you are on work accomplished?

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.

Did we get what we planned, for the amount of money we planned to spend, and did we get it when we needed it?

Earned Value BasicsEarned Value In a Nutshell

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Most used PM tool for representing phases and activities of a WBS

A clear way of showing schedule status to your sponsor and team

Great for small projects but can be hard to read for larger projects with many dependencies

Only show part of Triple Constraint (focus on schedule management)

Married to waterfall development

Does not adequately represent project size or size of the work element

Magnitude of “behind schedule” condition can be misleading

•If two projects are the same # of days behind schedule

•Which of the two has the larger impact on resource utilization?

•Gantt does not represent the difference

•Gantt does not show resource management

•Does not indicate if the task is “front” or “back” loaded% complete may be miss-represented

Earned Value BasicsProject Analysis Without Earned Value?

Gantt Charts

6INFO 638

ID Task Name Duration Predecessors

1 1.0 Requirements Definition 10 days

2 2.0 Architectural Design 10 days 1

3 3.0 Detailed Design 20 days 2

4 4.0 Coding and Unit Testing 45 days 3

5 4.1 Coding 25 days

6 4.2 Unit Testing 20 days 5

7 5.0 Integration Testing 15 days 6

8 6.0 System Testing 10 days 7

Apr May Jun Jul Aug Sep Oct Nov Dec Jan2nd Quarter 3rd Quarter 4th Quarter 1st Quarte


Gantt Charts

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Medium to Large Projects – “S” Curve Project Spend Tracking

•Provides a budget baseline for tracking actual costs against periodic budget targets.

•Start by creating a time-phased budget by plotting your weekly, monthly, quarterly budgeted costs or hours (time and dollars)

•Use MS Project baseline estimated project costs and plot graphically over time, they usually result in an “S” curve

•Add MS Project actuals to plot dotted lines at each chosen interval to track variances.

•Provides a simple Top-Level view of project financial performance useful for status reports and dashboards.

•If you don’t have labor rates you will need to use budgeted vs actual hours.

Challenges

•Works fine if your project is on schedule – Spend plan still needs additional status information (for example Gantt)

•If behind schedule – PM may not be able to understand project status from this graph

•Actual budget could be in worse or better shape than shown

•If your budget spend shows overspending and your schedule shows milestone slippage you know you are in trouble. You may not be able to tell how bad the trouble is.


Budget Spend Plan

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Budget Ceiling

Spend Plan

Actuals


Budget Spend Plan

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EVM Requires 3 values•Planned Value (PV) - Baseline

•Actual Costs (AC) – Based on Time Entry or Cost Entry

•Earned Value (EV) – What you “earned”

Work is “Earned” or credited as it is completed.

Did we get what we planned, for the amount of money we planned to spend, and did we get it when we needed it? Answer:

•Where have we been?

•Where are we now?

•Where are we going?

Earned Value Basics Minimal Requirements

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Term Interpretation(PV) Planned Value

ReplacesBCWS

How much work you planned to have accomplished by now?

The budgeted costs of the work scheduled

• The project’s time-phased budget

• Can only change when baseline is changed

(AC) Actual Cost

Replaces ACWP

What is the actual cost incurred ($ / Hours)

The actual costs of the work completed during the month or reporting period

• Actual costs by work code

• Requires accurate charging of staff time to appropriate “control account”

(EV)Earned Value

Replaces BCWP

What is the estimated value of the work actually accomplished?

The project’s physical progress

• Progress reported in baseline or planned dollars

• Represents sum of % completion for each task or deliverable

Planned value and Actual Cost will be compared to Earned value in terms of differences / ratiosWill result in variances and performances indexes

Earned Value Basics Minimal Requirements

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Earned Value Framework

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Condensed ANSI/EIA748 32 Step Standard

Planning

•Step 1: Define the Scope (Planning)

•Step 2: Determine Who Will Perform the Work

•Step 3: Plan and Schedule Work

•Step 4: Establish Resources and Budgets

•Step 5: Determine Performance Metrics and Thresholds

•Step 6: Create Performance Measurement baseline and Mgmt Control

Executing

•Step 7: Record Direct Costs

Controlling

•Step 8: Monitor EV Performance Against Baseline (Control Step)

•Step 9: Forecast Final Required Costs (Variance Reporting Step)

•Step 10: Manage Scope Through Change Control

Earned Value FrameworkSteps to Success

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Planning




•Step 4: Estimate Work and Procurement



Executing


Controlling




Earned Value Framework Steps to Success

Planning Steps

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Earned Value Framework Steps to Success: Planning Step 1: Define the Scope

Scope Definition

• Single most important factor to a sound EVM process and implementation

Work Breakdown Structure

•Roadmap for analyzing the project progress and performance

•Each element of the WBS is broken down into pieces – each piece defines responsibility to a person for that element

•100% of scope – What is not in the WBS is not in scope

•Work is broken down into measurable work packages

•Focus on “authorized” work

•Must be firm –Critical for Earned Value Projects

Break the Work Packages into activities of the project. These should be included within your WBS and will produce the project schedule activities.

Organization Breakdown Structure (matrix organizations)

•Relates WBS elements at the work package level to the organizational unit responsible for completing the work

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Earned Value Framework Steps to Success: Planning

Step 2: Determine Who Will Perform the Work

Who will perform the work?

• Determine Skill Level Experience is faster but more costly

Task identification takes place during this stepMake or Buy Decision (Internal or Sub Contracting)

•Will all or some of your project be outsourced?

•Internal projects (Make Decision) has some cost flexibility

•Scope definition critical for external (Buy Decision) Contracts are unforgiving – Cost to change can be excessiveCritical to get scope right because cost to change can be excessive

Responsibility Assignment Matrix (RAM)•Tied to the WBS with the OBS

•Responsibly Chart for activities

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Step 3: Plan and Schedule Work

Scheduling is vital to Earned Value

•Formal scheduling system (i.e. MS Project) is required

•EV is nothing more than: Scheduling system, authorized scope, timeframes, and budgets

•Reflects PM’s baseline “Planned value (PV)” for everyone to follow

Critical Path (Task Sequencing)

•Which tasks are sequential? Parallel

•Network Diagramming tools

•Must be aggressively managed when negative earned value schedule variances are discovered.

•Will help determine which task variances receive the most attention

High risk tasks must also be identified for same reason

Begin Scheduling

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Step 4: Establish Resources and Budgets

Establish resource requirements (budgets) for all defined tasks

Start-up sequence may be different for your organization

•Scope, Schedule, and Budget vs. Scope, Budget, Schedule

•Best practices – should be iterative but SCOPE DEFINITION MUST COME FIRST

Enter resources for each task

Determine the costs for the activities

•Labor rates per task hour

•Fixed cost per activity or work package (need to be spread across each lower level activity)

Risk Analysis and Risk Management Plan

Resource Leveling Exercise

Management will then approve the budget

Contingency – Never include contingency in an individual task… why?Will most likely cause a variance Contingencies and other reserves should be isolated and owned by the PM

Must plan/schedule all defined tasks along with the authorized budget necessary to complete each task. This is required to have a viable project baseline.

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Step 5: Determine Performance Metrics and Thresholds

How is planned value completion measured?EV Systems rely on the effective collection of the Performance and the Costs.There are basically 2 types of methods of collecting the Performance:Discrete – something tangible to measure against

•0/100 – no EV credit until 100% of work is completed.

•50/50 and 25/75 – some EV credit at 25% or 50%, remaining EV at close of Work Package

•Weighted Milestone – Each completed milestong completion “earns” a percentage of EV. Must be individually valued. May also consider monthly milestones

•Physical % Complete – ie. 5% start, 50% unit test, 75% code review, 100% signoff

•% Complete based on hours necessary to complete the task (common) least desirable

• Units completed – For physical counts of product or outputs• Incremental milestones - % complete based on individual milestone completion

Non-discrete – where the measuring of performance is not associated with anything tangible Level of effort should only be used when schedule performance is of no importance. A level of effort

package can never give an indication of the work that has actually been performed (PV) will always equal the schedule work (PV)

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Step 6: Create Performance Measurement baseline and Mgmt Control Earned Value requires a baseline project schedule (time-Phased budget baseline)

Indirect costs “could” be included in some commercial type contracts

Schedule Management focuses on the schedule performance of the project.

• It looks at the relationships between the Earned Value (EV) and the Planned Value (PV).

This will be your Planned Value (PV) for the life of the project

Remember, MS Project can handle multiple baselines but you should always measure against the last baseline required by the stakeholders.

This information will be plotted into a traditional “S” Curve diagram.

Results should be added to the Performance Management Plan

See Next Slide for an example

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Budget Ceiling

Spend (PV) (Planned Costs)

Cost to Date “Actuals”

Time

Dollars

Management Reserve

Traditional Cost Analysis – Budget Spend Plan


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Analysis

Actual costs are below planned costs (good news?)

Unless you look at the planned costs of the completed work, you don’t know if this is good or bad

That is exactly what is missing and what Earned Value will tell you

Budget Ceiling

Spend Plan (Planned Costs)

Cost to Date “Actuals”

Time

Dollars

Management Reserve

Traditional Cost Analysis – Budget Spend Plan

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Planning







Executing


Controlling




Earned Value Framework Steps to Success Executing Steps

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Earned Value Framework Steps to Success: Executing Step 7: Record Direct Costs

Purpose is to show how much money they have spent on a project

Update the schedule with the period progress

PM’s are required to enter actual hours on a consistent basis

Costs from invoices are also entered

After actuals are entered cost and schedule variances can be calculated

This is where discrete measures come into play

Earned value must then be relatable to the actual costs in order to determine the cost efficiency factor, called the Cost Performance Index (CPI).

The CPI is likely the single most important metric for any project employing earned value.

•To-Complete Performance Index (TCPI)

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Planning







Executing


Controlling




Earned Value Framework Steps to Success Controlling Steps

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Earned Value Framework Steps to Success: Controlling

Step 8: Monitor EV Performance Against Baseline (Control Step)Next Calculate all Earned Value components

Determine cost and variances from baseline

Determine three Required Values (PV budget, AC (Actuals) EV for the work accomplished to date

•Tip: EV is based on a % of your budget – “We have actually completed “$” worth of work

Calculate Variances, indices and factors from baseline

• Variances (SV, CV, SPI)

• Performance Indexes (CPI, SPI) -- ratio expressions of the Schedule and Cost Variances

PMs should focus on exceptions using thresholds determined during planning

•Management by Exception (Lessons Learned)

•Cannot simply review parent tasks or phasesWhat if there is a negative task and a positive tasks.Both will need attention

•How critical is the task? Is it on the critical path or is it a high risk task?

Start at the higher levels of the plan and work your way down

Cost overruns are typically non-recoverable.

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Earned Value Terminology Steps to Success: Controlling

Basic EV - SummaryTerm Interpretation(PV) Planned Value

This is your baselined budget as approved by your stakeholders

(AC) Actual Cost

These are your actual hours and costs as entered by the project team.PM must (at a minimum) audit these to verifyDiscrete Entries: Verify if work completed is “DONE”

(EV)Earned Value

What is the estimated value of the work actually accomplished?

The project’s physical progress

• Progress reported in baseline or planned dollars

• Represents sum of % completion for each task or deliverable

(BAC) Budget at Completion

The sum of all of the budgets allocated to a program.

How much did we Budget for the Total Job.

Planned value and Actual Cost will be compared to Earned value in terms of differences / ratiosWill result in variances and performances indexes

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Term Interpretation

(SV) Schedule Variance

Represents the difference between the amount of work actually completed and the amount of work scheduled to complete. This variance tells us if the schedule is ahead or behind what was planned for during this period of time.

(CV) Cost Variance

This is the Difference between the estimated and the actual cost to complete the same work.The cost variance tells us if the costs are higher than budgeted or lower than budgeted.

(VAC)Variance at Completion

Represents how much over/under budget will we expect to be at the end of the projectIt calculates the difference between the budget at completion and the estimate at completion.


Variance Calculations

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= 1 <1 >1

(SV) Schedule Variance

(EV – PV)

On schedule Poor PerformanceIf SV is less than 1.0 than your project is behind schedule. Less work completed than planned

Good PerformanceIf SV is greater than 1.0 than your project is ahead of scheduleMore work has been accomplished than scheduled

(CV) Cost Variance

(EV - AC)

On budget Poor PerformanceIf CV is less than 1.0 than your project is over budget.You have cost overruns Typically not recoverableWill continue to deteriorate unless corrective action is taken to mitigate

Good PerformanceIf CV is greater than 1.0 than your project is under budgetYou have cost under runs

(VAC)

Variance at Completion

(BAC – EAC)

A negative number means we are doing poorer with costs than we anticipated

A positive number means we are doing better with costs than we anticipated

REQUIRES PM ATTENTION

Why would attention be needed for a positive number?•What if the schedule was over estimated? •Are we using our resources efficiently?


Variance Calculations

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Term Interpretation

(SPI) Schedule Performance Index

•Calculates a ratio of the value of what was accomplished (EV) versus what was budgeted to accomplish it (PV), up to the status date.

•We are (only) progressing at __% of the rate originally planned

(CPI)Cost Performance Index

•Calculates a ratio of the value of what was accomplished (EV) versus what was actually spent to accomplish it (AC), up to the status date.•Indicates if the cumulative actual costs during the assessed period are higher or lower than budgeted for the work completed.•Single most important EV calculation

•We are getting ___$ out of every $1 spent


Performance Indices

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= 1 <1 >1(SPI) Schedule Performance Index

(EV / PV)

On schedule

Poor PerformanceIf SPI is less than 1.0 than less work was completed on your schedule than what was planned

Good PerformanceIf SPI is greater than 1.0 than your work accomplished was more than planned Work done out of sequence can lead a team to believe the project is ahead of schedule when it is not

(CPI) Cost Performance Index

(EV / AC)

On budget

Poor PerformanceIf CPI is less than 1.0 than you are over budget.

•Spending is more than planned for the work accomplished

Good PerformanceIf CPI is greater than 1.0 than you are under budget.

• Spending is Less than planned for the work accomplished

If your project is more than 20% complete, the CPI stabilizes.In other words, if you are overrunning at 20%, you will be overrunning at completion.Furthermore, the % overrun at completion will be greater than the % overrun to date!Source: research on 700 DOD contracts

REQUIRES PM ATTENTION

Why would attention be needed for a positive number?

•What if the schedule was over estimated? •Are we using our resources efficiently?


Performance Indices

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Calculation Example

You have a project to build a new fence.

Fence is four sided (all sides are equal)

Each side is to take one day to build

Each side is budgeted for US $1,000

The sides are planned to be completed sequentially (one after the other)

Today is end of day three

Using the project status chart below, calculate EV, etc. When completed, check your answers on the answer sheet on the following page.

Task Day 1

Day 2 DAY 3 Day 4 Status

Side 1 S---F Complete, Spent $1,000

Side 2 S---PF ---F Complete, Spent $1,200

Side 3 PS—S--PF Half Done, spent $600

Side 4 PS----PF Not Started

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Calculation Example

Description Calculation Answer Interpretation

PV Planned Value 1,000 + 1,000, + 1,000 3,000 We should have done $3K worth of work

EV Earned Value Complete, Complete, half done or 1,000 + 1,000 + 500

2,500 We have actually completed $2,500 worth of work

AC Actual Cost 1,000 + 1,200 + 600 2,800 We have actually spent $2,800

BAC Budget at Completion 1,000 + 1,000 +1,000 + 1,000 4,000 Our project budget is $4,000

CV Cost Variance EV – AC

2,500 – 3,000 -300 We are over budget by $300

CPI Cost Performance IndexEV / PV

2,500 / 2,800 .893 We are only getting 89 cents out of every dollar we put into the project

SV Schedule Variance EV – PV

2,500 – 3,000 -500 We are behind Schedule

SPI Sched. Performance IndexEV / PV

2,500 / 3,00 .833 We are only progressing at 83% of the rate planned

EAC Est. at Completion BAC / CPI

4,000 / 2,800 4,479 We currently estimate that the total project will cost $4,479

ETC Estimate to CompleteEAC - AC

4.479 – 2,800 1,679 We need to spend $1,679 to finish the project

VAC Variance at Completion BAC - EAC

4,000 – 4,479 -479 We currently expect to be $479 over budget when the project is complete

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1w 2w 3w 4w 5w 6w 7w 8w 9w 10w

$10K

$20K

$30K

$40K

$50K

$60K

Compare Actual Performance with the Baseline Plan

Legend:Planned ValueEarned ValueActual Costs

Earned Value on Bottom:Wk 2: Management AttentionCorrective Action

Wk 1: Negative Cost Variance (EV-AC)Wk 1: Negative Schedule Variance (EV-PV)

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1w 2w 3w 4w 5w 6w 7w 8w 9w 10w

$10K

$20K

$30K

$40K

$50K

$60K

Compare Actual Performance with the Baseline Plan


Earned Value now on top: Wk 5: Positive Cost Variance (EV-AC)Wk 5: Positive Schedule Variance (EV-PV)

EARLY MANAGEMENT ATTENTION……

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1w 2w 3w 4w 5w 6w 7w 8w 9w 10w

$10K

$20K

$30K

$40K

$50K

$60K

EVM – Early Attention to Issues Avoids this Problem


BIG VARIANCE AT COMPLETION

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Tracking the CPI & SPI

Cost and Schedule Performance Trends

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07

Period Ending

Perio

dic

Inde

x Va

lue

Performance AsPlanned

CPI

SPI

Early Management Attention can result in improvement

10/06 11/06 12/06 01/07 02/07 03/07

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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, not general

•Corrective action

•Technical, schedule, and cost impacts

•Impact to estimate at completion

What is a significant variance?

•% variance (e.g., >10%)

•$ variance (e.g., >$50,000)

•Critical path element

•Risk/complexity

•impact to other elements

•Top 10, Top 20, etc.

•Owner


Step 8: Monitor EV Performance Against Baseline (Control Step)

Performance Metric

Green

Yellow

Red

CPI/SPI 0.95 – 1.25 .85 - .89 Or

1.15 – 1.25

<0.85 Or

> 1.25 CV/SV <10% <10% and

Corrective action in motion

> 10% or Correction

action in not in place

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Potential Causes of Unfavorable (-) Cost Performance Work more complex than estimated

Design review comments extensive

Rework

Unclear Requirements

Scope Creep (Gold Plating)

Increased Market costs for labor or material

Overhead Rate Increases

Potential Causes of Favorable (+) Cost Performance The opposite of unfavorable cost performance

Potential Causes of Unfavorable (-) Schedule PerformanceManpower shortage

Revised Execution Plan

Supporting organization behind schedule

Late Vendor deliver

Delayed customer feedback / decision

Rework

Work more complete than anticipated

Design Review comments extensive

Unclear Requirements

Scope Creep


Step 8: Monitor EV Performance Against Baseline (Control Step)

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Step 8: Monitor EV Performance Against Baseline (Control Step)Corrective Action- How to bring the task back in line

•CrashingGoal: Gain the greatest amount of schedule compression with the least amount of costLooks at cost and schedule tradeoffsAdd Resources to the tasks in the critical path (internal or external)Reduce project scopeReview changing the sequence of tasks Often causes costs to increase Which is the most important of the triple constraints to your stakeholders? (Cost, Schedule, Quality)

•Fast TrackingStarting two tasks at the same time that were previously scheduled to start sequentiallyCan increase risk and might cause the project team to rework tasksDevelop a process to “Reuse” code – This actually can reduce defect risk

•Example: We are six months into a million dollar project.CPI = 1.2 (we are getting 1.2 dollars for every dollar spentSPI = .89 (we are progressing only at 89% of what was planned)What can be done?

• Replace a more expensive member from the project team? (This would improve cost not schedule and add risk)• Bring in an additional programmer to work on the next two tasks. (Most effective choice)

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Step 9: Forecast Final Required Costs

This step is in place to forecast the final required costs based on actual performance

Keep management apprised so corrective action can take place

Actual performance results are sunk costs. These are unrecoverable

Any improvements in performance must come from future work.

EAC indicates where the cost is heading

Earned value provides the capability to quickly and independently forecast total funds required to complete the project (ETC)

ETC is a forecast for completing the total project.

Considers the performance to date plus future estimates

Variance Reporting

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(EAC) Estimate at Completion

A. BAC / CPI

B.AC + ETC

C.AC + BAC - EV

D.AC + (BAC – EV) / CPI

Gives us an idea of final costs of a project. It takes into account the original budget (BAC). The earned value and the cost performance index of the already complete work.

As of now, how much do we expect the total project to cost? $____. Formulas:

A. Used if no variances from the BAC have occurred or you will continue at the same rate of spendingB. Used when the original estimate assumptions were fundamentally flawed or no longer relevant due to a change in conditions

• Requires PM to perform bottom up evaluation of Estimate to Complete• Example: Complete change in in environmental regulations creates a need for a different design than was scoped. Need rebaseline.

C. Used when current variances are seen as atypical and the expectation is that similar variances will not occur in the future. Actual to date plus remaining budget modified by performance. D. Used when current variances are seen as typical of future variances Most respected, since cumulative variances are indicative of future variances

(ETC) Estimate to Complete

EAC - AC

From this point on, how much MORE do we expect it to cost to finish the project?

An estimated cost to complete the remaining work on the project .



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1.50

140

130

1.20

1.10

0.90

0.80

0.70

0.60

0.50

Behind Schedule and Under Behind Schedule and Under spentspent

Behind Schedule and Over Behind Schedule and Over spentspent

Ahead of Schedule and Over Ahead of Schedule and Over spentspent

0.30 0.50 0.70 0.90 1.10 1.30 1.40 1.60

SPI

CP

I

07/15/05

SPI = 0.48CPI = 0.81

1.50

140

130

1.20

1.10

0.90

0.80

0.70

0.60

0.50

TargetTarget

06/28/05

=====

==========

SPI = 0.71CPI = 0.86

08/25/05

SPI = 0.61CPI = 0.74

Ahead of Schedule and Under Ahead of Schedule and Under spentspent

Project Earned Value AnalysisSample Dashboard

Target

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Project Earned Value AnalysisMS Project 2003

Variance Report Example

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Let software tools do the number crunching

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MS Project (2003) Earned Value tools (downloads)• Help>Performing Earned Value Analysis• You will be taken to MS Project Download Template Page

Manage costs during the project life cycle (Article)• Use these strategies to ensure that your project stays within your budget.

Goal: Monitor costs (Article)• Examine your current, actual, remaining, and baseline cost totals in Project 2003.

Goal: Adjust costs to keep the project on budget (Article)• After you identify a budget problem, learn to take corrective action with Project 2003.

Project earned value analysis (Template)• Track time-phase expenses for projects by using this template.

Cost analysis with Pareto chart (Template)• Use this statistical method to identify the most critical cost problem areas to improve.

Project resource plan (Template)• Use this template to communicate project resource planning information to all key project stakeholders.

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Project earned value analysis (Template)Track time-phase expenses for projects by using this template.

MetricAbbre

v. Description Formula/ValueBudget at Completion BAC Baseline cost for 100% of project. N/AActual Cost AC Total costs actually incurred so far. N/A

Earned Value EV

Amount of budget earned so far based on physical work accomplished, without reference to actual costs. N/A

Planned Value PV

The budget for the physical work scheduled to be completed by the end of the time period. N/A

Cost Variance CV

Measure of cost overrun. The difference between the budget for the work actually done so far and the actual costs so far.

Earned Value–Actual CostEV–AC

Cost Performance Index CPI

Cost efficiency ratio. A CPI of 1.00 means that the costs so far are exactly the same as the budget for work actually done so far.

Earned Value/Actual Cost

EV/AC

Schedule Variance SV

Measure of schedule slippage. The difference between the budget for the work actually done so far and the budgeted cost of work scheduled.

Earned Value–Planned Value

EV–PV

Schedule Performance Index SPI

The schedule efficiency ratio. An SPI of 1.0 means that the project is exactly on schedule.

Earned Value/Planned ValueEV/PV

Estimate to Completion ETC The expected additional cost to complete.

Estimate at Completion–Actual CostEAC–AC

Estimate at Completion EAC

Expected total cost based on the current cost efficiency ratio.

Budget at Completion/Cost Performance Index

BAC/CPI

Variance at Completion VAC Estimated cost overrun at the end of project.

Budget at Completion–Estimate at Completion

BAC–EAC

Status Average of CPI & SPI.

(Cost Performance Index+Schedule

Performance Index)/2(CPI+SPI)/2

Thresholds GREEN = On track >1.0

YELLOW = Slightly behind schedule or budget >0.85

RED = Needs immediate attention >0.65 BLACK = Killed or Restore <0.65

XYZ Project

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Budget at Completion (BAC) $1,230 $1,230 $1,230 $1,230 $1,400 $1,400 $1,400 $1,400 $1,400 $1,400

Earned Value (EV) $100 $200 $300 $450 $750 $800 $1,125 $1,200 $1,400 $1,400

Actual Cost (AC) $100 $205 $315 $600 $800 $1,000 $1,200 $1,350 $1,475 $1,525

Planned Value (PV) $100 $220 $325 $550 $725 $925 $1,175 $1,275 $1,450 $1,500

Cost Variance (CV) $0 ($5) ($15) ($150) ($50) ($200) ($75) ($150) ($75) ($125)

Schedule Variance (SV) $0 ($20) ($25) ($100) $25 ($125) ($50) ($75) ($50) ($100)

Cost Performance Index (CPI) 1.00 0.98 0.95 0.75 0.94 0.80 0.94 0.89 0.95 0.92

Schedule Performance Index (SPI) 1.00 0.91 0.92 0.82 1.03 0.86 0.96 0.94 0.97 0.93

Estimate to Completion (ETC) $1,130 $1,056 $977 $1,040 $693 $750 $293 $225 $0 $0

Estimate at Completion (EAC) $1,230 $1,261 $1,292 $1,640 $1,493 $1,750 $1,493 $1,575 $1,475 $1,525

Variance at Completion (VAC) $0 ($31) ($62) ($410) ($93) ($350) ($93) ($175) ($75) ($125)

Status based on Average Performance Index

GREEN YELLOW YELLOW RED YELLOW RED YELLOW YELLOW YELLOW YELLOW

Comments

New baseline set

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Trend Analysis

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Trend Analysis

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Step 10: Manage Scope Through Change Control

Integrated Change Control

Without a CC process performance baselines become invalid

Changes and new work due to issue management should be added to the schedule.

All change requests must be addressed quickly

•Accept or reject by Change Control Board, Steering Committee or Sponsor

PMs should have authority to say no to changes

All changes should be documented

No Gold Plating!

• Single most important factor to a sound EVM process and implementation

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Provides managers with information at a practical level of summarization Alerts PMs to potential schedule and cost risks early Provides a documented project performance trail Communicates project status Tracks and monitors discrete project metrics Relates time-phased budgets to specific contract tasks Provides comparisons between planned and actual workProvides accurate and reliable readings of cost and schedule performanceActual performance at the 15% complete point can be used to predict final performance.

The schedule performance index (SPI) is useful in assessing how much work has been accomplished.

The CPI index provides a statistical basis for a “best case” final estimate.

The CPI and SPI indices may be combined to statistically forecast the “most likely” final estimate.


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Earned Value Key Lessons Learned

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Lesson Attributed To Corrective Action

1 Schedule Compression incurs additional project cost

•Work cannot be scheduled and resourced in an optimal fashion•Schedule compression almost always results in inefficiencies due to resource loading and reword

2 Education and buy-in are crucialThrough time not just to start

Lack of Senior Level Commitment

• Executives• Project Managers• Staff

3 WBS Quality / Reliability Plan the work carefully and accurately

WBS Quality not maintained

• All parties buy in to the WBS• WBS is simple - composed of measurable, deliverable pieces• Risk-adjusted SPI/CPI

4 Sustenance Perceived Complexity

Keep Process Simple and Tool Supported – See #2

5 No variance reports / dashboards

No policy in place or no standard

•Weekly high level metrics, Monthly Dashboard reporting with full EV•Graphs and text – Period/period compare

6 Manage by Exception – Too much management will scare your PMs

Micro Management Manage by exception. Focus on significant variances to the plan. Apply timely corrective actions.

7 Tracking conducted inconsistently.

PM Discipline Track – Track – Track No Pain NO Gain

8 Time for data measurement, input, and manipulation can be considerable.

Growing Pains Plan ahead – Provide amble PM time to create and research results

Earned Value Key Lessons Learned

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Traditional EV is not intended for non-discrete (continuous) effort.

•When a plan contains a significant portion of LOE intermixed with discrete effort, EVM results will be contaminated

The use of EVM presumes that stakeholders care about measuring progress objectively.

Quantifying/measuring work progress can be difficult.

Time required for data measurement, input, and manipulation can be considerable.

EVM requires thorough and accurate planning of cost and schedule to be effective.

Future performance is being forecast based on past performance (so if your data is bad, so is your forecast)

Earned Value does not measure quality

EVM is designed to ensure that the future predicted by EVM does not materialize – as it encourages corrective action


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Earned Value Do’s and Don'ts

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Take the necessary building steps seriously

•Integrate the scope of work, schedules, and costs using a WBS.

Train your stakeholders. It is critical they can understand the variance reports

Document all performance metrics and thresholds in the Project Plan (Performance Plan)

Determine how you will measure your tasks (discrete options)

Assess variances early – No later than 15 % in

..Highest Potential for Cost / Schedule Recovery..

Make sure the bad news is heard

Take corrective action

•Staff changes?

•Mid-term evaluation of work

•Crashing

•Fast Tracking

Earned Value Do’s and Don'tsDo’s

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Request and monitor that staff enters actual hours each week

Provide PMs with a reliable labor and overhead rates for each resource.

•Without the rate CPI does not mean much

Have policies in place for rebaselining

•Keep your original baseline in tact and always measure against it

•If for no other reason, it keeps historical estimates in place

Re-plan as necessary

•Budget increase?

•Scope change?

•Schedule change?

Create a weekly or Monthly Variance Report

Use standard templates for reporting

•Helps with the learning curve

•Helps to compare or aggregate data across projects

Institute Standard Reporting Cycles


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Perform scheduling and WBS creating at the same time.

•There is a documented order defined in the PMBOK

•Most Common Error

Don’t set up your project with “level of effort” planning.

•Creating one task (i.e. design) and allocating a certain number of people to it over a fixed amount of time.

•Earned value will not be possible. The only measurement possible will be cash flow

Leave planning until your financials and WBS are integrated through Cost Control

•Cost account structures and the level of detail to be tracked must support the earned value management system.

•Each cost account should have a unique identifier to enable an accurate calculation of the actual cost of work performed (ACWP).

Manage at only the contract / engagement level

•Rarely are projects managed at the WBS Deliverable Level – EV Loses Control


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Focus solely on schedules. This is the typical PM Mindset by Business Culture. PMs: • Are focused on Schedules --NOT Costs• Manage at the contract level vs the WBS Deliverable Level

Leave real Billing Rates out of the WBS•Competition Sensitive Data•Artificial Blended Rates•Fixed Price, So Why Bother•The $1.00 per hour fix

Let your tasks or milestones get too large in duration, cost and scope•Could impact PM’s ability to identify variances at a level that can be corrected

Include multiple individuals on the same task whenever possible•Helps identify root cause of variances easier

Forget Success factors•A full WBS is required (all scope)•Beware of GIGO: Garbage-in, garbage-out

No Gold Plating!If you know there is a significant variance don’t wait until you create the monthly report to begin corrective action planningAssume adding a resource or adding paid overtime will “fix” the schedule variance – most likely will create a CPI issue. Cover this with stakeholders early.

Earned Value Do’s and Don'tsDon'ts

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Why do we need early warning

Course corrections are easier when you have time to make small adjustments

It’s too late when you’re this close to the iceberg!

Earned Value Variance Reporting Dos and Don’ts

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