a simple approach to understanding earned value management
TRANSCRIPT
EARNED VALUE MANAGEMENT
A Simple Approach to understanding EVM
By Ravikumar Kalose N MCA, MS (BITS - Pilani), PGDBA, PMP®, SCT™
As a PROJECT MANAGER, did you
◦ Prepare “Regular Project Status Reports” ?
◦ Understood the “Performance Variance” ?
◦ Attempt to highlight the “Current Project Performance” ?
◦ Derive and communicate “Project Forecast” ?
If your answers to any of above is “NO”, Please continue to read on……..
Being Professional…
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Earned Value Management (EVM)
EVM is one of the widely used scientific approach to measure, analyze, integrate project data to accurately report on current project performance and forecast the required performance for completion.
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Subjective Vs Objective
Relies on assumptions, interpretations based on high level work status
Lack of any measured data and facts
Project Health (Red/Amber/Green) is debatable and subjective
Relies on measured values derived from triple constraints – Scope, Time and Cost
Project Status reported based on defined matrix
Unambiguous, No Assumptions
Easily understandable by Stakeholders
Green OR Red
?
What IF…??
?
Can defend the current Project Status
Assertive
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Earned Value – Balancing Factors
Scope
Cost----
-------- ----
Timeline
Project’s performance based on information On Scope, Cost and Time at a given point in time.
This is compared against Scope Baseline, Cost Baseline and Schedule Baseline.
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So, What is Earned Value (EV)?
Objective method to measure project progress.
Helps to determine if a project is on track.
Indicator of current project performance.
Provides early warnings and trends on any cost and/or schedule over runs.
Helps to derive the Project Forecasts on Cost and Timelines.
Earned Value (EV)
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Earned Value is an
Indicates how much of “Value” you have “Earned” on the project at any given point
of time.
Helps determine variance against Planned Value (PV).
Characteristics of EV
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EVM - Key measurement components
Planned Value (PV) – Is the “Authorized Budget” to be expended for an activity, work package, Milestone or to the project at a given point.
Budget At Completion (BAC) – “Total Planned Value (PV)” at the end of the project
Earned Value (EV) – The “Value of Work Performed” expressed in terms of the Authorized Budget
Actual Cost (AC) – “Cost Incurred or Expended for the Work” performed at a given point to complete an Work Package or accomplish a Milestone.
Earned Value Management - Components
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Earned Value – Key Components PV = Planned % complete X BAC EV = Actual % complete X BAC AC = Cumulative money spent till date
Performance ReviewsVariances Analysis Schedule Variance (SV) = EV – PV (SV > 0, Good) Cost Variance (CV) = EV – AC (CV > 0, Good) Variance At Complete (VAC) = BAC – EAC (VAC > 0, Good)
Performance Indicators Schedule Performance Index (SPI) = EV / PV (SPI > 1, Good) Cost Performance Index (CPI) = EV / AC (CPI > 1 Good)
EVM - Variances and Performance
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A Forecast
Helps to determine Revised likely Budgets using performance measurements.
Helps to determine “Estimate At Complete (EAC)” . This indicates the revised
BAC and may requirea approval from sponsor if variance between BAC and EAC is quite marginal
“Estimate To Complete (ETC) ”. This indicates the amount required to to complete the rest of the project.
“To-Complete-Performance-Index”. This is an indicator of how much speed(performance) is required to be applied in order to catch up with the plan in the remaining period of the project
Earned Value Management
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EAC – Three methods
◦ EAC = AC + BAC – EV (when initial assumptions were flawed)◦ EAC = BAC / cumulative CPI (assuming similar CPI would continue)◦ EAC = AC + ((BAC – EV) / cumulative CPI X cumulative SPI ) (trying to factor both schedule and cost performances)
ETC = EAC-AC
To-Complete-Performance-Index
◦ TCPI = work remaining / funds remaining◦ TCPI = (BAC - EV) / (BAC - AC) Based on BAC◦ TCPI = (BAC - EV) / (EAC - AC) Based on EAC
EVM - Forecast - Formulae
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Earned Value - Illustration
Time (in Weeks)
Deliv
erab
les
1 2 3 4 5 6 7
A
B
C
D
E
100%
75%
50%,
$500
$2000
$800
$5000
$600
20%
0%
PV= $4900
$600
$2500
$600
$2000
EV= $3400
AC= $5700
$0
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BAC= $8900
Let us consider the following example to understand the concepts better
An ERP implementation project for ABC company is estimated tocost $500,000 with an estimated duration of 40 weeks. At theend of 10 weeks the project is 20% complete with $150,000being already spent on the project.
Exercise: 1. Identify what is BAC and AC2. Calculate PV, EV, CV, SV, CPI, SPI, EAC, ETC, TCPI, VAC
Please Watch our next video for explanation of this Exercise.
EVM - Example
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