evm in project cost control.pdf

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OLD Education Centre 2/28/2

Earned Value Management System

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© 2016 3FOLD Education Centre . All rights reserved . [email protected] . www.pmexamstudy.com . www.3foldtraining.com . PMP® Exam Review

Professional Development Webinar Series


Feb 27, 2016




Agenda

Introduction to 3FOLD Education Centre

Definition

Context

Project Cost Management

EVM Metrics

Cost Control Formula


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Introduction

PMI Registered Education Provider & AACEI Approved

Education Provider.

We are also approved by KHDA.

Trained more than 6000 students.

Branches in UAE and Qatar.

Our flagship preparation courses are PMP and CCP.

Contact us: [email protected]




Definition

Introduction to Earned Value Management


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Definition

Earned Value Management. A methodology that combines

scope, schedule, and resource measurements to assess

project performance and progress.

Earned Value (EV). The measure of work performed

expressed in terms of the budget authorized for that work.

Earned Value is also known as Budgeted Cost of Work

Performed (BCWP).

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth

Edition, Project Management Institute, Inc., 2013.




Context

Earned Value Management in Project Management


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Project Cost Management

As per the PMBOK® Guide 5th Edition, “Project Cost

Management includes the processes involved in planning,

estimating, budgeting, financing, funding, managing, and

controlling costs so that the project can be completed within

the approved budget.”

• Plan Cost Management

• Estimate Costs

• Determine Budget

• Control Cost

Project Management Institute, A Guide to the Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Page 193.




What is a Process ?

A systematic series of activities directed towards causing an

end result such that one or more inputs will be acted upon to

create one or more outputs.



Project Management Institute, A Guide to the Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-10, Page 215.


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Process Interaction





Project Cost Management Processes

Plan Cost Management—The process that establishes the policies,

procedures, and documentation for planning, managing, expending,

and controlling project costs.

Estimate Costs—The process of developing an approximation of the

monetary resources needed to complete project activities.

Determine Budget—The process of aggregating the estimated costs

of individual activities or work packages to establish an authorized

cost baseline.

Control Costs—The process of monitoring the status of the project

to update the project costs and managing changes to the cost

baseline.




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1. Plan Cost Management

The process that establishes the policies, procedures, and

documentation for planning, managing, expending, and

controlling project costs.



Project Management Institute, A Guide to t he Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-2, Page 195.




Cost Management Plan - Content

Units of measure

Level of precision

Level of accuracy

Organizational procedures link

Control thresholds

Reporting formats

Rules of progress measurement – this is where Earned valuemanagement (EVM) rules of performance measurement areset.


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2. Estimate Costs

Estimate Costs is the process of developing an approximation

of the monetary resources needed to complete project

activities.







Contingency Reserve

Cost estimates may include contingency reserves (sometimes

called contingency allowances) to account for cost

uncertainty.

Contingency reserves are the budget within the cost baseline

that is allocated for identified risks, which are accepted and

for which contingent or mitigating responses are developed.

Contingency reserves are often viewed as the part of the

budget intended to address the “known-unknowns” that can

affect a project.


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Management Reserve

Estimates may also be produced for the amount of

management reserve to be funded for the project.

Management reserves are an amount of the project budget

withheld for management control purposes and are reserved

for unforeseen work that is within scope of the project.

Management reserves are intended to address the “unknown

unknowns” that can affect a project.

The management reserve is not included in the cost baselinebut is part of the overall project budget and funding

requirements.




3. Determine Budget

Determine Budget is the process of aggregating the estimated

costs of individual activities or work packages to establish an

authorized cost baseline.





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Cost Baseline

The cost baseline is the approved version of the time-phased

project budget, excluding any management reserves, which

can only be changed through formal change control

procedures and is used as a basis for comparison to actual

results.

It is developed as a summation of the approved budgets for

the different schedule activities.




Project Budget Components



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S-curve

Since the cost estimates that make up the cost baseline are directly tied to

the schedule activities, this enables a time-phased view of the cost

baseline, which is typically displayed in the form of an S-curve





4. Cost Control

Earned Value Management


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4. Control Costs

Control Costs is the process of monitoring the status of the

project to update the project costs and managing changes to

the cost baseline.







Cost Control Tools and Techniques – on focus

1. Earned Value Metrics

2. Progress Measurement

3. Performance Measurement

4. Forecasting

5. To-complete performance index (TCPI)

6. Variance At Completion


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1. EVM Metrics

Planned Value, Actual Cost, Earned Value




EVM Metrics

EVM develops and monitors three key dimensions for each

work package and control account:

• Planned value

• Actual cost

• Earned Value


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Planned Value

Planned value (PV) is the authorized budget assigned to scheduled

work.

It is the authorized budget planned for the work to be accomplished

for an activity or work breakdown structure component, not

including management reserve.

This budget is allocated by phase over the life of the project, but at

a given moment, planned value defines the physical work that

should have been accomplished.

The total of the PV is sometimes referred to as the performancemeasurement baseline (PMB). The total planned value for the

project is also known as budget at completion (BAC).






Actual Cost

Actual cost (AC) is the realized cost incurred for the work

performed on an activity during a specific time period.

It is the total cost incurred in accomplishing the work that the

EV measured.

The AC needs to correspond in definition to what was

budgeted in the PV and measured in the EV (e.g., direct hoursonly, direct costs only, or all costs including indirect costs).

The AC will have no upper limit; whatever is spent to achieve

the EV will be measured.




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Earned Value

Earned value (EV) is a measure of work performed expressed interms of the budget authorized for that work. It is the budgetassociated with the authorized work that has been completed.

The EV being measured needs to be related to the PMB, and the EVmeasured cannot be greater than the authorized PV budget for acomponent.

The EV is often used to calculate the percent complete of a project.

Progress measurement criteria should be established for each WBScomponent to measure work in progress.

Project managers monitor EV, both incrementally to determinecurrent status and cumulatively to determine the long-termperformance trends.






Earned Value

Earned Value = % completed x Budget

Progress measurement technique measures the percent

complete which will assist in calculating the earned value. The

budget is the budgeted cost of the measured component

which could be a work package, control account, or the

project.


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2. Progress Measurement

Units completion, Start/Finish, Incremental

Milestone, Supervisor Opinion, Cost Ratio and

Equivalent Units/Weighted Average




Units Completion

Formula

x 100


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Start/Finish (Fixed Formula)

30% 100%

Start Finish

This method is applicable to tasks that lack

readily definable intermediate milestones or

those for which the effort/time required is

very difficult to estimate.




Incremental Milestone

30%

Start Finish

60% 80% 100%

This method is applicable

to any control account that includes subtasks

that must be handled in sequence.


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Supervisor Opinion

In this method, the supervisor

simply makes a judgment of

percent complete.




Cost Ratio

This method is applicable to tasks that involve a long period of

time or that are continuous during the life of a project, and

which are estimated and budgeted on bulk allocations of

dollars and work hours rather than on the basis of production.

x 100


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Weighted or Equivalent Units

This method is applicable when the task being controlled

involves a long period of time and is composed of two or

more overlapping subtasks, each with a different unit of work

measurement.




Allowed

CreditSubtask Total U/M Total Qty To-Date Qty Earned Tons

0.02run foundation bolts each 120 120 12.00

0.03shim % 100 100 18.00

0.06shakeout % 100 100 36.00

0.04columns each 80 70 21.00

0.12beams each 987 230 16.78

0.12cross braces each 780 0 0.00

0.17girts and sag roads bay 40 0 0.00

0.08plumb and align % 100 0 0.00

0.31connection each 3000 90 5.580.05punch list % 100 0 0.00

1Steel Totals Ton 600 109.36

Earned Quantity = (allowed credit)*(summary quantity)*

Earned Tons Columns

=

.04 x 600 x7

8

21 Tons

Percent Complete

=109.36

600

18.23%

Equivalent Units


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Earned Value Calculation

Wall 1

W a l l 2

Wall 3

W a l l 4

Schedule Plan

Schedule: To complete the work in 4

weeks – work is equally distributed

Budgeted Cost

USD 10,000 per side

Status at the end of week 3

Wall 1 – 100% - $ 12000

Wall 2 – 100% - $ 13000

Wall 3 – 50% - $ 7000

Wall 4 – 0% - $ 0

Calculate BAC, PV, AC and EV




Solution

Work

Package

Planned

Value

Actual Cost Progress Earned

Value

Wall 1 10000 12000 100 % 10000

Wall 2 10000 13000 100 % 10000

Wall 3 10000 7000 50 % 5000

Wall 4 10000 0 0 % 0

Total 40000 32000 25000


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3. Performance Measurement

Cost Variance, Cost Performance Index, Schedule

Variance, Schedule Performance Index




Performance Measurement

Cost Performance

Cost Variance Cost Performance Index

Earned Value – Actual Cost

Positive = Under planned cost

Neutral = On planned cost

Negative = Over planned cost

Greater than 1.0 = Under planned cost

Exactly 1.0 = On planned cost

Less than 1.0 = Over planned cost

Schedule Performance

Schedule Variance Schedule Performance Index

Earned Value – Planned Value

Positive = Ahead of Schedule

Neutral = On schedule

Negative = Behind Schedule

Greater than 1.0 = Ahead of schedule

Exactly 1.0 = On schedule

Less than 1.0 = Behind schedule


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Cost Performance

Cost Variance Cost Performance Index

25000 – 32000 = (7000) 25000 / 32000 = 0.781

Schedule Performance

Schedule Variance Schedule Performance Index

25000 –

30000 = (5000) 25000 / 30000 = 0.833




4. Forecasting

Estimate At Completion & Estimate To Complete


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BAC = $ 40,000 PV = $ 30,000 AC = $32,000 EV = $ 25,000 CPI = 0.781 SPI = 0.833




Estimate At Completion


EAC EAC

AC + (BAC – EV)

CPI is expected to be the same for the remainder of

the project

Future work will be accomplished at the planned rate

EAC EAC

AC +( −)

( )AC + Bottom up ETC

CPI and SPI inf luence the remaining work Initia l plan is no longer va lid


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EAC EAC

.= 51216 32000 + (40000 – 25000) = 47000

CPI is expected to be the same for the remainder of the

project

Future work will be accomplished at the planned rate

EAC EAC

32000 + ( −)(. .)

= 55055 32000 + Bottom up ETC

CPI and SPI influence the remaining work Initial plan is no longer valid




Estimate To Complete


ETC ETC

EAC – AC Re-EstimateAssumes work is proceeding on plan. Re-estimate the remaining work from the bottom up.


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ETC ETC

51216 – 32000 = 19216CPI is expected to be the same for the remainder of the project. Re-Estimate

Assume s work is proceeding on plan. Re-estimate the rema ining work from the bottom up.




5. TCPI

To Complete Performance Index


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TCPI TCPI

(BAC – EV)/(BAC – AC) (BAC – EV)/(EAC – AC)

The efficiency that must be maintained in order to

complete on plan.


complete the current EAC.





TCPI TCPI

(BAC – EV)/(BAC – AC)

(40000-25000) / (40000-32000)

1.875

(BAC – EV)/(EAC – AC)

(40000-25000) / (51216-32000)

0.781


complete on plan.


complete the current EAC.


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6. Variance At Completion

VAC




Variance At Completion


VAC

BAC – EAC

The estimated difference in cost at the completion of the project.


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CPI = 0.781 SP I = 0.833 EAC = $ 51216 ETC = $ 19216


VAC

BAC – EAC

40000 – 51216 = (11216)

The estimated difference in cost at the completion of the project.

BAC = $ 40,000 BCWS = $ 30,000 ACWP = $32,000 BCWP = $ 25,000




End of the Seminar

Thank you

evm in project cost control.pdf

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