OPER 576 Project Management

Earned Value Management & Reporting

Greg Magnan, Ph.D.

May 27, 2004

Project Life Cycle Stages

Definition Planning Execution/Impl./Control Closeout

Leve

l of E

ffort

Selection Charter Goals Specs Tasks Responsi

bilities

Estimates Schedules Sequencing Budgets Resources Risks Staffing

Status Reports Changes Quality Forecasts

Training Transfer

Documents Release

Resources Lessons

Learned

Is This Any Good?

What is EVM?• EVM is an integrated management control system

for assessing, understanding and quantifying what a contractor or field activity is achieving with program dollars

• Integrates technical, cost, schedule, with risk management

• Allows objective assessment and quantification of current project performance

• Helps predict future performance based on trends• EVM provides project management with

objective, accurate and timely data for effective decision making

Source: http://evm.nasa.gov/brochure.pdf

EV History• “Instead of relating cost plans to cost actuals,

which had been the custom, PERT/Cost (DoD, 1967) related the value of physical work performed against the cost actuals to determine the utility and benefits from the funds spent. What was physically accomplished for what was spent was a simple but fundamentally important new concept in program management.”

• “The industry standard was called the Earned Value Management System (EVMS) and the number of criteria was reduced from 35 to 32. This major development was endorsed by the DoD in December 1996.”

Source: Fleming & Koppelman, 1998

Industrial Engineering Roots

PlannedStandards

ActualCosts

EarnedStandards

Physical FactoryOutput

Physical Work --Planned Output

Actual Costs

Industrial Engineering Roots

PlannedStandards

ActualCosts

EarnedStandards

PM Language

PlannedValue

ActualCosts

WorkAccomplished

Scheduled Work

Planned Budget

PMVariances

PlannedValue

ActualCosts

WorkAccomplished

Scheduled Work

Planned Budget

Convert to PM Situation

PlannedValue

ActualCosts

WorkAccomplished

[BCWS]Budgeted Cost ofWork Scheduled

[ACWS]Actual Cost of

Work Scheduled

[BCWP]Budgeted Cost ofWork Performed

Conversion Continued…

[BCWS]Budgeted Cost ofWork Scheduled

[ACWS]Actual Cost of

Work Scheduled

[BCWP]Budgeted Cost ofWork Performed

[BCWS]Budgeted Cost ofWork Scheduled

[ACWS]Actual Cost of

Work Scheduled

[BCWP]Budgeted Cost ofWork Performed

UsualPM

View

[BCWS]Budgeted Cost ofWork Scheduled

[ACWS]Actual Cost of

Work Scheduled

[BCWP]Budgeted Cost ofWork Performed

UsualPM

View

CV = BCWP - ACWS

SV = BCWP - BCWS

Earned Value Elements

Setting up Earned Value

1. Establish the Work Breakdown Structure (WBS) to divide the project into manageable portions.

2. Identify the activities to be scheduled that represent the entire project.

3. Allocate the costs to be expended on each activity.

4. Schedule the activities over time.5. Tabulate, plot and analyze the data to confirm

that the plan is acceptable.

Steps in Using EV

6. Update the schedule by reporting activity progress

7. Enter the actual costs on the activities

8. Execute the Earned Value calculations, print and plot the reports and charts

9. Analyze the data and write the performance narrative.

EV at a “Cost Account”Level

Earned Value Terminology

Data Element

TermAcrony

mScheduled Work

Budgeted Cost for Work Scheduled

BCWS

Earned ValueBudgeted Cost for Work

PerformedBCWP

Actuals Actual Cost of Work Performed ACWP

Authorized Work Budget At Completion BAC

Forecasted Cost Estimate At Completion EAC

Work Variance Schedule Variance SV

Cost Variance Cost Variance CVCompletion

VarianceVariance At Completion VAC

Earned Value Benefits• When properly employed, it can give the project

manager an early warning signal that the project is heading for a cost overrun unless immediate steps are taken to change the spending plan

• “Today, it is likely that more than 99 percent of the projects in the world do not employ the earned-value cost management concept. Instead, to monitor costs status, they merely compare their spend plan to their actual costs, and that is unfortunate.”

• “Earned Value is a uniform unit of measure, a consistent methodology and a basis for cost performance analysis.”

Benefits of EVMS• Clear definition of work prior to beginning that

work– Helps the line manager credibly request appropriate

resources– Provides the basis for a realistic plan against which to

measure performance• Objective measurement of work accomplishment

– Helps the line manager develop plans that are rooted in reality

– If the task can be done within scope, schedule, budget; confidence in a successful outcome is increased

– If the task cannot be done within scope, schedule, budget; that problem can be defined and resolved at a time when the resolution will be reasonably inexpensive

Benefits of EVMS• Reduces propensity of customer/boss to add work

without adding budget– Ties budget directly to work

– Requires all work transfers to include associated budget

– Requires all budget transfers to include associated work

• Fosters management decisions within a framework of reality, rather than latent unease

• Provides true cost condition– Side-steps false cost variances

– Encourages realistic projections of final cost

– Enhances accuracy of funding forecasts

Status• What metrics are

important in managing projects?

• Who should know? Who needs to know?

• How often should they be updated?

• What form should the update take?

• What options are available?

Budgeting• The goals of any project include bringing the

project in on time and under or on budget. Accomplishing these sometimes conflicting goals requires: – a realistic initial project financial budget – a feasible project time frame – a budgetary plan linked to project activities – an understanding of the relationship between

completion time and project activities and their respective costs

– a methodology to track the variance between activity cost and budget

From Max Wideman’s Glossary• Budgeting & Cost Management

– The process of estimating the proper cost that should reasonably be expected to be incurred against a clear baseline, understanding how and why actual costs occur, and ensuring that the necessary response is taken promptly to ensure actual costs come under budget. Typical information needed for cost management includes:

• Budgets (including estimating), generally based on work breakdown structure or [cost] code of accounts

• Obtaining and recording commitments/accruals • Measurement of work accomplished and value

earned/valuation of work, including treatment of changes (change control) and claims

Creating an Initial Project Budget• Project budgets are typically constructed in

one of three ways: – Top-down budget building

• Predicable, accurate overall/at top• “Imposed” on managers

– Bottom-up budget building • Costing done closer to activities; participatory• Managers may overestimate; squeaky wheel

– Budget request process • Combination of top-down and bottom-up

• Statement of costs given scope of work

SUMMARY!!!

• Project Initiation (post-selection)– Kickoff; Charter; Deliverables

• Work Breakdown Structure– ID activities (brainstorm); time & cost estimates;

precedence relationships; RAM– Used throughout the project

• Network– ES/LS/EF/LF/Slack: Critical path– Milestones

• Resources– Conflicts; Resource Managers

EarlyStart

Duration

EarlyFinish

LateStart

SlackLate

Finish

Task Name

EarlyStart

Duration

EarlyFinish

LateStart

SlackLate

Finish

Task Name

EarlyStart

Duration

EarlyFinish

LateStart

SlackLate

Finish

Task Name

EarlyStart

Duration

EarlyFinish

LateStart

SlackLate

Finish

Task Name

EarlyStart

Duration

EarlyFinish

LateStart

SlackLate

Finish

Task Name

EarlyStart

Duration

EarlyFinish

LateStart

SlackLate

Finish

Task Name

EarlyStart

Duration

EarlyFinish

LateStart

SlackLate

Finish

Task Name

SUMMARY!!!

• Risk Management– Expected Loss (Le) = Pe x Pi x Lt

• Project Closure– Lessons learned archive / dissemination

• Teams & Communication– High-performance; vision; passion

• Reducing project duration / Crashing– More products faster…but, bang for buck

• Status– Gantt Charts, Stoplights, Earned Value

PROJECT MANAGEMENT

Project ManagementIntegration

Project PlanDevelopment

Project Plan Execution Integrated Change

Control

Project ScopeManagement

Initiation Scope Planning Scope Definition Scope Verification Scope Change Control

Project TimeManagement

Activity Definition Activity Sequencing Activity Duration

Estimating Schedule Dev’t Schedule Control

Project Cost Management

Resource Planning Cost Estimating Cost Budgeting Cost Control

Project QualityManagement

Quality Planning Quality Assurance Quality Control

Project HumanResource Management

OrganizationalPlanning

Staff Acquisition Team Development

Project CommunicationsManagement

CommunicationsPlanning

InformationDistribution

Perf. Reporting Admin. Closure

Project Risk Management

Risk Mgt. Planning Risk Identification Qual. Risk Analysis Risk Response

Planning Risk Monitoring and

Control

Project ProcurementManagement

Procurement Plg. Solicitation Plg. Solicitation Source Selection Contract

Administration Contract Closeout

Overview of Project Management Knowledge Areas & Project Management Processes (Source: PMI)