The Mystery of Earned Value - An Oil & Gas Owner's Perspective - Bill Harroun
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The Mystery of Earned Value - An Oil & Gas Owner’s Perspective 15 June 2011 William Harroun – Head of Programme Controls, BG Group
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This is one of many excellent presentations given over the last three years of the eVa in the UK series. They can also be found in the archive at: http://evaintheuk.org/archive along with back-copy video footage in http://evaintheuk/pmchannel EVA19, the long established Earned Value conference, has this year described its theme as looking at a project management ‘ABC’ – Agile, Benefits and Complex. The four day event, which returns to the Armourers Hall, runs from the 19th to 22nd of May with the flagship conference being held on 20th and 21st May and workshops before and after. The conference will look at how this ‘ABC’ can be made to work within a portfolio and how agile fits into major and minor projects. It will investigate how to manage the relationship between portfolio benefits and project budgets, and whether complex projects even exist. Conference organiser and APM chairman, Steve Wake says: “Currently there is little evidence that this ‘ABC’ is being effectively deployed and managed. This conference aims to address that concern through EVA’s trademark blend of learning and professional development. Case studies and unusual presentations, delivered by top-notch speakers and experienced practitioners, will again engage and entertain the audience. We’ve used string quartets to illustrate points in the past and this year we will be using a Blues band for the first time.” Speakers across the two days include many familiar faces from the APM events programme including; Adrian Pyne of the APM ProgM SIG ‘Changing the project wasteland with a portfolio culture that works,’ APM Honorary Fellow Tim Banfield Director at the Major Projects Authority and Stephen Jones, Sellafield and Planning Monitoring and Control Specific Interest Group (PMC SIG) and Carolyn Limbert of the APM PMC SIG to talk about agile, benefits and complex. Peter Taylor, the Lazy Project Manager will be presenting on “The project manager who smiled” and the ever popular Stephen Carver will present the leadership lessons that can be learnt from Alfred the Great. In addition, there will be speakers from AIRBUS, TfL, Bloodhound, Heathrow T2 and London Tideway Tunnels. The conference will be supplemented by a number of workshops being held at the Chartered Institute of Arbitrators, Bloomsbury Square on Monday 19th and Thursday 22nd May 2014. 'eVa in the UK' http://evaintheuk.org is building a reputation, brand and a learning legacy for the Project Management Profession. The event series is now in its nineteenth year. It is almost as if it all kicked-off when Steve Wake was in short trousers and knights roamed the land on their chargers! #eva19 is an excellent example of Listening, Learning and Leading #apmLLL in action, and great opportunity for professional development. I would encourage anyone who is interested in 'Building a better Project Manager,' to take a look at the web site, and book your place and get involved.
Transcript of The Mystery of Earned Value - An Oil & Gas Owner's Perspective - Bill Harroun
The Mystery of Earned Value -An Oil & Gas Owner’s Perspective 15 June 2011
William Harroun – Head of Programme Controls, BG Group
What we are going to cover
• Cost and progress reporting before --- Earned Value
• Why progress and cost curves do not tell the whole picture
• The results of high-quality Earned Value management
• Telling the future with Earned Value
• Earned Value and Contractors
• Why Earned Value Fails, the pitfalls
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Life before Earned Value
• VOWD – Value of Work Done
– Estimated percent complete times EAC
– Estimated percent complete times the budget
– Estimated cost (value) of work competed
• VOWD provided to Finance
– VOWD minus “booked” costs = accrual value
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Why progress curves don’t tell us the whole picture
• Compares planned with actual progress, percent complete
• A couple of percent early in a project, should we be concerned?
• Does not provide actual cost information
• Prepared by Planning/Scheduling
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Why cost curves don’t tell us the whole picture
• Compares planned cost with actual costs (spend variance)
• Does not provide physical progress information
• If the schedule is accelerated or delayed, cost forecasts may not be accurate
• Done by Cost Engineers
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Progress Curve
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46.8% - 42.1% = 4.7% behind Plan
Cost Curve
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$93.5m - $96.3m = $2.8m over
spend, or 3.0% over plan
Earned Value Curve
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Schedule Variance (SV) = -$9.4m
SPI = 0.90 Cost Variance (CV) = -$12.2m
CPI = 0.87
The results of high-quality Earned Value management
• Predictability of outcomes, final cost and completion date
• Current project performance, Productivity and Efficiency (SPI, CPI)
• What areas of the project are driving my current performance (WBS)
• Who is driving my current performance (CAM)
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Telling the future with Earned Value
• There are two easy forecasting method using current Earned valuedata
– Take the current variance values and adding to the end of the plan curve
• Not overly realistic, as this method assumes all future performance will be equal to the remaining plan – Tomorrow is the Miracle Day!
– Take the current SPI (time) and CPI (cost) and calculate the an EAC and schedule delay based on current performance trends
• Reasonably accurate if the project is between 20% and 85% complete with no mitigating actions are taken
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Earned Value CurveForecast based on current variance
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Back on baseline plan tomorrow
Original budget $200m Calculated EAC = $212.2m
Weeks delay = 4
Earned Value CurveForecast based on current variance trends
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Realistic outcome, if no action taken
4 weeks behind now9 weeks delay at completion
Calculated EAC $226mOriginal Budget $200m
A little more on forecasting
• The above forecasting techniques are not as accurate for projects with considerable acceleration and/or substantial budget underruns
• Earned Value data can be viewed, analysed, and forecasted at alllevels of the WBS, OBS, Contracts, or funds type
– Caveat – integrated cost and schedule data, and earned value must be available
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Earned Value and the Contract Types
• Fixed price or lump sum contracts, well defined scope– Cost variance will always be 0, with a CPI = 1.0, as the contractor
does not report actual costs
– EV is “pegged” to accomplishment/completion of milestones, sometime referred to as “pay points”
• EV is determined by the predetermined (negotiated) value applied to each pay point milestone
• Cost reimbursable contracts, scope is not well defined (higher cost risk to Owner)– EV based on pre-determined methods are calculated from the contract
Performance Measurement Baseline (time phased budget), for work accomplished, with actual costs applied
– Both SV (SPI) and CV (CPI) are calculated
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Earned Value and Contractors
• Most large Engineering, Construction, and Project Management contractors have the knowledge and capability to effectively use and report earned value information
• Contractor’s data must be reported and aligned with Owner’s WBS– Reports must be structured to provide detailed EV information one WBS
level below the required Owner’s reporting level (i.e. if the required to report at level 3, reports would have the details at level 4 and summarised to level 3)
– Contractor’s may develop a CWBS (Contractor’s Work Breakdown Structure), such a structure must “map” to Owner’s WBS
– Contractor reporting “cut-off” dates and reporting dates should (where possible) support Owner’s month-end, reporting cut-off dates
• Owner’s may be required to estimate EV progress and accrual cuts for the time period between the contractor’s and Owner’s cut-off dates
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What does it take to make Earned Value work well?
• Managers that want EVMS, and manage their project using Earned Value– Recognises EV as a management tool not just a reporting requirement
• Cost Engineering, Planner/Scheduling, and Finance working together
• A well defined Scope baseline, aligned with a well structured WBS
• A disciplined Change Control process
• A suite of software tools and systems that sustainable for calculating timely and accurate data
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How does CPM Scheduling and Earned Value work together?
• Earned Value data does tell you if the project is doing the right value of work, and if the project is performing within planned budget
• Earned Value can be used to forecast both end costs (EAC) and potential delays in projects (due to low productivity)
• CPM Scheduling provides a view of - if the “right” or “critical” work is being performed
• Forecasting a project’s completion date by analysing CPM and EV data together provides superior forecast – the whole picture
• PREDICTABILITY
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Why does the Implementation of EVMS Fail?The Pitfalls
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THANK YOU!!!
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