EVMS 1 CPM 300 Principles of Earned Value Implementation CPM 300B – Management Use of EV Data...

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CPM 300 Principles of Earned Value Implementation

CPM 300B – Management Use of EV Data

Eleanor HauptAeronautical Systems Center

[email protected]

+1-937-656-5482

Lloyd CarterMTC AustralAsia Pty Ltd

[email protected]

+61(0)3 5754 1010

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Training Objectives

• Basic concepts of measuring performance

– Examples

• EVM guidelines for project execution

• Basic concepts of reporting progress

• Basic concepts of analysis

– Examples

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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

• Assess progress on recurring basis• There are different methods of earning value • You earn value the same way as it was budgeted in baseline

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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

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• 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

Three Basic Methods of Earning Value

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• 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 resourcesideal to have a milestone each month

Percent Complete should be based on some quantitative assessmentmay be somewhat subjective

Be Discrete!

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• 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

Earning BCWP on Material

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Examples of BCWP Calculations

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WBS 1.1.2 (Workpackage)

MONTH: Jan Feb Mar Total

BCWS (Original Budget) 100 120 100 320

BCWP (Earned Value)

ACWP (Actual Cost) 50 120 180 350

Different EV Methodology Yields Different Results!

Assume that costs overran and work was completed behind schedule for all methods

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Jan Feb Mar

BCWS (Original Budget)100 120 100 320

BCWP (Earned Value) 0 100 220 320

Milestone 1 Planned: 100



SCHEDULE VARIANCE -100 -20 +120 0


COST VARIANCE -50 -20 +40 -30

Example: Milestone Technique

100

120

100

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Jan Feb Mar



SCHEDULE VARIANCE 0 0 0 0


COST VARIANCE +50 0 -80 -30

Example: Level of Effort Technique

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Jan Feb Mar

BCWS (Original Budget)160 160 320


Task – Baseline

Task - Actual

SCHEDULE VARIANCE 0 -160 +160 0


COST VARIANCE +110 -120 -20 -30

Example: 50/50 Technique

50% 50%

50%50%

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Jan Feb Mar



Task 1 (100)

Task 2 (120)

Task 3 (100)

SCHEDULE VARIANCE -40 -20 +60 0


COST VARIANCE +10 -20 -20 -30

Example: Percent Complete Technique

60% 40%

50% 50%

100%

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Which Technique Accurately Reflects Work Progress?

Milestone SV -100 -20 +120 0CV -50 -20 +40 -30

LOE SV 0 0 0 0CV +50 0 -80 -30

50/50 SV 0 -160 +160 0CV +110 -120 -20 -30

% Compl SV -40 -20 +60 0CV +10 -20 -20 -30

Jan Feb Mar Total

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EVM Guidelines for Project Execution

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Work Packages

Time Now

Work Package (open)

Work Package (open)

Work Package (closed)

Work Package (open)

Work Package (not open)

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• 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

Authorizing the Work

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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

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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

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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

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Contractor Reports

• 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 datacurrent and

cum data

(Example of data item from U.S. Department of Defense)

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Formats 1 and 2

• Contents– header:

• basic contract information (target, ceiling, name of contractor, etc.)

• range of final estimates

– body• performance data

• variances

• budget at completion, estimate at completion

BCWS BCWP ACWP SV CV BCWS BCWP ACWP SV CV BUDGET ESTIMATE VARIANCEELEMENTELEMENTELEMENTELEMENTELEMENTELEMENT

TOTALUBPMBMRTOTAL

CUMULATIVE AT COMPLETIONCURRENT

WBS or ORGANIZATION

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• 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!

Variance Explanations

A big hammer for a big variance!

Sample of Variance Analysis

Format 5 Narrative Report As of: JAN 93 Contract Name: MOH-2 Contract Number: F04695-86-C-0050 Contractor: MEGA HERZ ELEC & VEN Element Code: 3200 Element Name: COMMUNICATIONS

Financial Analyst: MR E. MONEY Contract Manager: MR B. TECH Project Officer: Tideman Office Symbol:

Cost Variance (Current CV: -43.4, Cum CV: -130.8)

Significant Reasons for Variance:

Current CV:

Additional manhours expended in preparation for Critical Design Review than planned, due to effort expended to resolve safety issue with APG-23 (Risk Item: 3200-10, Hypercritical Torsion of APG-23 Moment Arm) (-58K)

Application of new FPRA labor rates (+18K)

Cum CV:

Ongoing issue of software coding for APG-23 CSCI 019. Amount of software re-use was overestimated at beginning of effort and new code (approximately 65K SLOC) must be written (-162K).

Application of new FPRA labor rates (+32K), beginning in November

Impacts on Immediate Task:

o Cost variance due to safety issue of Moment Arm is not recoverable, but issue has been resolved and no further variances are expected.

o Increased software coding is expected to result in a variance at complete of -1,032K, based on detailed EAC completed in December.

Impact to Program:

o Increased software coding requirements may also result in a five week slip to First Flight and may impact WBS 3600 PCC final integration, assembly and checkout.

Corrective Action Taken or Planned:

o IPT is reviewing all aspects of software functionality and has identified 3 potential candidates for scope vs. cost tradeoffs. Preliminary analysis indicates that the reduction in functionality will still be within specifications; and a technical analysis is being completed and will be briefed during the next technical interchange meeting.

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Basic Concepts of Analysisor

figuring out where the problems are

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Looking Forward

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?

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?

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?

We analyze the past performance………to help us control the future

PAST PRESENT FUTURE

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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?

what are the drivers?what can we do about them?

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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

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Where are the significant problems?

WBS DESCRIPTION Proj Ofcr %Comp %Spent CPI CV CV CV % VAC VAC

1 3600 PCC Zepka 28.99 34.09 0.850 -296.2 -17.62 -187.2

2 3200 COMMUNICATIONS Tideman 34.63 41.03 0.844 -130.8 -18.49 -87.0

3 G&A GEN & ADMIN 33.67 36.11 0.932 -45.2 -7.26 -36.8

4 2200 SYS ENGINEERING Price 85.04 94.35 0.901 -26.4 -10.95 0.0

5 3800 I & A Troop 35.40 37.08 0.955 -24.2 -4.75 -24.8

6 2100 PROJ MANAGEMENT Brown 45.70 48.51 0.942 -17.4 -6.16 -3.2

7 2300 FUNC INTEGRA Price 71.62 75.23 0.952 -17.4 -5.03 -30.8

8 5200 MANAGEMENT DATA Simmons 84.18 98.10 0.858 -13.2 -16.54 -16.0

9 3100 SENSORS Smith 20.87 21.49 0.971 -10.6 -2.94 -21.6

10 4000 SPARES Blair 17.87 18.90 0.945 -7.8 -5.78 -6.2

11 6200 SYSTEM TEST Hall 60.82 61.66 0.986 -5.6 -1.38 -2.0

12 5100 ENG DATA Novak 38.51 52.80 0.729 -4.6 -37.10 0.0

13 MR MGT RESERVE 0.00 0.00 0.0 439.2

14 UB UNDIST BUDGET 0.0 0.0

15 COM COST OF MONEY 0.0 0.0

16 3700 DATA DISPLAY Troop 41.13 41.13 1.000 0.0 0.00 0.0

17 OV OVERHEAD 0.0 0.0

18 6100 TEST FACILITIES Smart 100.00 98.02 1.020 2.0 1.98 0.0

19 3500 COMP PROGRAMS Pino 46.46 44.66 1.040 3.4 3.87 -1.4

20 6300 PCC TEST Bond 23.13 22.64 1.021 4.2 2.10 0.0

21 3400 ADPE Zepka 41.89 39.79 1.053 12.6 5.02 4.6

22 3300 AUX EQUIP Tideman 27.57 24.33 1.133 78.2 11.73 8.4

sorted by CV $

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Graphing Techniques

Dolla

rs In

Millio

ns

Estimates at Completion MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI

Element: 3600 Name: PCC

BACLRECUM CPI

1992APR MAY JUN JUL AUG SEP OCT NOV DEC

1993JAN

5.0

6.0

7.0

8.0

5.1 5.4 5.1

5.1 5.4 5.7

5.1 5.4 5.9

5.1 5.4 6.0

5.1 5.5 6.3

5.1 5.5 5.8

5.1 5.5 6.5

5.5 5.7 7.6

5.5 5.7 6.8

5.8 6.0 6.8

MEGA HERZ ELEC & VEN Cost/Schedule VarianceF04695-86-C-0050 MOH-2 RDPR FPI POP: 01 MAR 1992 - 15 SEP 1993

Perc

ent o

f Dolla

rs

COST VARIANCESCHEDULE VARIANCE

1992MAY JUN JUL AUG SEP OCTNOVDEC

1993JAN

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

Cost Drivers, Cause

Dollars In MillionsBCWSBCWPACWP

CVSV

0.3 0.2 0.2 0.0 -0.1

0.6 0.5 0.5 -0.0 -0.1

1.0 0.9 0.9 -0.0 -0.1

1.4 1.4 1.5 -0.1 -0.0

2.2 2.2 2.2 0.0 -0.0

2.5 2.7 3.0 -0.3 0.2

4.2 3.8 4.2 -0.5 -0.4

5.6 5.3 5.6 -0.3 -0.3

7.3 6.9 7.3 -0.5 -0.4

At CompletionKTR PO

20.8 20.8

20.8 20.8 20.8 23.0 0.0 -2.2

PMB: 20.4 % COMP: 32.9MR: 0.4 KTR MR LRE: 0.0 PO MR LRE: 0.0CURRENT FUNDING: 10.0

PO EPC: 24.0PROJ FUNDING: 23.0

AS OF: JAN 93OPR: MR B. TECH

PROGRAM: Mohawk Vehicle

0%

-11%-7%-6%

Overall cost and schedule trend

EAC realism

graphs show overall trend...are you getting better,

or worse?

graphs show overall trend...are you getting better,

or worse?

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CURRENT OR CUM TO DATE

Schedule Variance SV ($) = BCWP - BCWS

SV (%) = BCWP - BCWS x 100%

BCWS

Cost Variance CV ($) = BCWP - ACWP

CV (%) = BCWP - ACWP x 100%

BCWP

Analysis of Variances

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1.0

.9

1.1

“GO

OD

”“B

AD

”

1.2

.8

COST PERF INDEX (CPI) = BCWP ACWP

SCHED PERF INDEX (SPI) = BCWP BCWS

COST PERF INDEX (CPI) = BCWP ACWP

SCHED PERF INDEX (SPI) = BCWP BCWS

CPI

SPI

TIME

Performance Indices

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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 $5000 - $1000 $4000= BAC-BCWP = REMAINING = $6400 - $2400 = $4000 = 1.00 EAC-ACWP ESTIMATE REMAINING

Cumulative performance to date (CPI) = .42

Contractor has been performing at 42% efficiency, but expects to complete remaining work at 100% efficiency!

reasonable?

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% scheduled = BCWS x 100% BAC

% completed = BCWP x 100% BAC

Schedule Status

compare

example: I should have completed 60% of the work (% scheduled), but I only completed 42%

example: I should have completed 60% of the work (% scheduled), but I only completed 42%

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budget status

% spent = ACWP x 100% BAC

budget status

% spent = ACWP x 100% BAC

compare: % spent vs. % complete

example: 60% spent vs. 50% complete

compare: % spent vs. % complete

example: 60% spent vs. 50% complete

Budget Status

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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 contractorand

customer

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• 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

What will be the final cost?

EAC = ACWP + ETC

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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

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• Common EAC Formulas:

EAC = BACCPI

= 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

Common EAC Formulas

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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

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Past vs. Projected Efficiency

CPIcum = .42

1.0

Efficiency neededto achieve EAC

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Cost Var

Earned Value Enables Realistic Forecasts

12M

16M

20M

$24MCONTRACT BUDGET BASE

2 4 6 8 10 12 14 16 18

4M

8M

TIME PERIODS20

BUDGET

TIME NOW

PM

B

PROGRAM IS BEHIND SCHEDULE AND OVERRUNNING COST

FORECAST SCHEDULESLIP

COSTVARIANCEATCOMPLETE

FORECASTED EARNED VALUE

FORECASTED ACTUALS

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SCHEDULE VARIANCE

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The “Box of Uncertainty”(courtesy Swedish Defense Material Administration)

12M

16M

20M

$24M

2 4 6 8 10 12 14 16 18

4M

8M

TIME PERIODS20

TIME NOW

PM

B

BOX OF UNCERTAINTY SHOWS POTENTIAL RANGE OF COST OVERRUN AND SCHEDULE SLIP

BOX OF UNCERTAINTY SHOWS POTENTIAL RANGE OF COST OVERRUN AND SCHEDULE SLIP

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POTENTIALSCHEDULE

SLIP

POTENTIALSCHEDULE

SLIP

POTENTIALCOST

OVERRUN

POTENTIALCOST

OVERRUN

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Managing with Earned Value Data

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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

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Quotes from Project Managers

“Are we looking good, or are we in trouble? And, how do we know?”

CAPT Joe Dyer, US NavyF/A-18E/F Program Manager

“It forces you to plan, and then to manage to the plan.”

Lt Col Paul Vancheri, US Air ForceJSTARS Production Program Manager

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Additional References

http://www.cpm-pmi.orghttp://www.acq.osd.mil/pm

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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

EVMS 1 CPM 300 Principles of Earned Value Implementation CPM 300B – Management Use of EV Data...

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