Understand Earned Value in Under an Hour!

Wayne Brantley, MS Ed, PMP, ACP, CSM, CSPO, ITIL, CRP, CPLP

Associate VP of Professional Education

Villanova University – www.VillanovaU.com

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Overview

• Establish the link between the requirements and the

performance measurement baseline

• Understand what the Earned Value calculations are

measuring

• Explain Earned Value as an easy to use tool for project

performance measurement

Earned Value and The DaVinci Code

Earned Value and The DaVinci Code

Why Do We Need Earned Value?

• 1994 The Chaos Report

• Approximately 70% of projects are:

o Over budget

o Behind schedule

• 52% of all projects finish at 189% of their initial budget

*Standish Group: Chaos Report

How do your projects perform today?

• Do you have projects that are over budget?

• Do you have projects that are late?

• Do you have projects that have scope creep?

How do your projects perform?

Why don’t we want to measure?

› No one wants to know they have an ugly baby!

Variance Analysis is the Great Lie

• Planned – Actuals

• You planned to do $100k of work in one month

• You spent $110k

• Variance = -$10k

• Now tell me how much of the work is completed?

What is Earned Value Management?

› “Earned Value Analysis” is:

• An industry standard way to:

oMeasure a project’s progress

oForecast it’s completion date and final cost

oProvide schedule and budget variances along the way

What is Earned Value Management?

› EV compares:

The PLANNED amount of work (PV)

that has actually been COMPLETED (EV)

and how much the work ACTUALLY COST (AC)

What EV Tells You

• Where you are on schedule

• Where you are on budget

• Where you are on work accomplished

Why you should know Earned Value

1. So you can say you are an EVM expert

2. Because there are some questions on the PMP exam

3. Because you need to control project delays and overruns

4. Government legislation requires it

5. RFP requires it

Earned Value Management Thresholds in the Government

Federal Agency

EVM Threshold

EVMS Threshold

DoD, NASA $20-$50 million EVMS required

DoD, NASA Greater than $50 million EVMS implementation & process must be verified

GSA Greater than $20 million EVMS required; implementation & process must be verified

DoE Greater than $20 million EVMS required

EPA Greater than $5 million EVMS required

FAA Greater than $10 million EVMS required

Six Essential Elements to Implementing an Earned Value Management System

Good requirements

A detailed WBS

Good estimates for durations

Good estimates for budgets

A good schedule

A performance measurement baseline

How is learning Earned Value like eating an elephant?

One bite at a time

What You Need to Know to do Earned Value • Scope, Requirements, and the WBS

• Understand the link between requirements and the WBS

• Scheduling • Understand the development of a schedule and time estimates

• Budgeting • Understand how cost estimates are developed

• Earned Value • Identify how earned value calculations are accomplished

• Reporting • Know how earned value (EV) can be used to measure project progress

Understand the link between requirements and the WBS

Understanding the link between requirements and the WBS

• Where do we start in order to gather requirements?

• Request for Proposal

• Statement of Work

• Contract

• Project Charter

• Any others?

The Project Charter

› What should be in a Project Charter? 1. Sponsor authorization and signs-off 2. Project Manager assigned • Other considerations?

o Requirements o Business need o Project purpose o Milestones o Stakeholder influences o Functional organizations o Assumptions and constraints o Summary budget

Obtaining Good Requirements

› Why are good requirements essential?

SCOPE

Obtaining Good Requirements

› How do you obtain good requirements?

• Take time to do it

• Ask the right people the right questions

• Draw a picture

• Build a model

• Build a little

• Check and re-check (CYA)

Obtaining Good Requirements

› How do you obtain good requirements?

• Take time to do it

• Ask the right people the right questions

• Draw a picture

• Build a model

• Build a little

• Check and re-check (Cover Your Activities)

Dilbert’s view on requirements gathering

Understanding the link between requirements and the WBS

› What is a WBS?

• “A deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project objectives and create the required deliverables.”

Understanding the link between requirements and the WBS • Why is a WBS so important?

• How low do you go?

• Project (1.0)

oDeliverables (1.1, 1.2, 1.3, …..) • Tasks (1.1.1, 1.1.2, 1.1.3, …….)

• Activities (1.1.1.1, 1.1.1.2,…….)

• Why an 80 - hour rule?

Thou shalt not have work packages over 80 hours

Scheduling - Understand the Development of a Schedule

Dilbert Looks at Scheduling

42

Scheduling

• What do we have at this point?

• Requirements

• WBS

• Who would you go to determine what must be done and in what order?

• What tools are available for scheduling?

The Most Powerful Scheduling Tool

Scheduling

• What do we have at this point? • Requirements • WBS

• Who would you go to determine what must be done and in what order?

• What tools are available for scheduling?

• What do scheduling and a game of chess have in common?

46

Scheduling 101

› Critical scheduling questions

• What comes first?

• What comes second?

• Any restrictions?

• Any constraints?

The Gantt Chart View

Task

1.1.1 Days 1 - 6

2.1 Days 1 - 2

1.2 Days 3 - 4

3.1 Days 3 - 4

2.2.2 Days 5 - 9

1.1.2 Days 7 - 9

2.2.1 Days 10 - 15

3.2 Days 16 - End

Days 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Budgeting - Understand how cost estimates are developed

Budgeting

› What do you have at this point?

• Requirements

• WBS

• Schedule

› Where do your cost estimates come from?

› Where should they come from?

› What are the differences?

The Gantt Chart View - Cost at $10,000/day per task Task

1.1.1 Days 1 - 6

2.1 Days 1 - 2

1.2 Days 3 - 4

3.1 Days 3 - 4

2.2.2 Days 5 - 9

1.1.2 Days 7 - 9

2.2.1 Days 10 - 15

3.2 Days 16 - End

Days 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Building the cumulative cost curve $10,000/day each task

- The Cumulative Cost Curve – - S Curve -

- Performance Measurement Baseline -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

BAC = $290k

PV = $200k

Earned Value

Identify how earned value calculations are accomplished

Spending Rates

• Budget at completion is $290k

• Why at day 9 (half of 18 days) are we at $200k and not $145k (half of $290k)?

• Why is the cost curve not linear?

• How does this correlate to EV? Spending Rates?

Tying in the Cumulative Cost Curve and EV • Planned Value (PV) = Planned costs for the planned work

to be done at a particular time (BCWS)

• Earned Value (EV) = The percentage of the planned work that was accomplished (BCWP)

• Actual Costs (AC) = Amount spent on the work that was accomplished (ACWP)

• Budget At Completion (BAC) = Total of all planned costs

Tying in the Cumulative Cost Curve and EV

• BAC = $290k is the total costs of all work to be done

• PV (BCWS) = $200k is amount spent through Day 9

• EV (BCWP) = The % assessed of the work completed

• AC (ACWP) = The actual costs spent on the work done

Why People Hate Earned Value

• The Math

• Who has had Calculus 3 or Differential Equations?

Earned Value Formulas › Variance Analysis = subtraction formulas

• Cost Variance (CV) = Earned Value (EV) – Actual Costs (AC) (EV-AC)

• Schedule Variance (SV) = Earned Value – Planned Value (PV) (EV-PV)

› Performance Indices = division formulas

• Cost Performance Index (CPI) = Earned Value / Actual Costs (EV/AC)

• Schedule Performance Index (SPI) = Earned Value / Planned Value (EV/PV)

How to create the EV formulas on test day

› EV

› PV

› AC

How to create the EV formulas on test day

› SV =

› SPI =

› CV =

› CPI =

› EV

› PV

› AC

How to create the EV formulas on test day

› SV =

› SPI =

› CV =

› CPI =

› EV

› PV

› AC

EV

EV

EV

EV

How to create the EV formulas on test day

› SV =

› SPI =

› CV =

› CPI =

› EV

› PV

› AC

EV

EV

EV

EV

-

/

-

/

How to create the EV formulas on test day

› SV =

› SPI =

› CV =

› CPI =

› EV

› PV

› AC

EV

EV

EV

EV

-

/

-

/

AC

AC

How to create the EV formulas on test day

› SV =

› SPI =

› CV =

› CPI =

› EV

› PV

› AC

EV

EV

EV

EV

-

/

-

/

PV

PV

AC

AC

How to create the EV formulas on test day

› SV =

› SPI =

› CV =

› CPI =

› EV

› PV

› AC

EV

EV

EV

EV

-

/

-

/

PV

PV

AC

AC

EAC =

How to create the EV formulas on test day

› SV =

› SPI =

› CV =

› CPI =

› EV

› PV

› AC

EV

EV

EV

EV

-

/

-

/

PV

PV

AC

AC

EAC = BAC/CPI

How to create the EV formulas on test day

› SV =

› SPI =

› CV =

› CPI =

› EV

› PV

› AC

EV

EV

EV

EV

-

/

-

/

PV

PV

AC

AC

EAC = BAC/CPI = AC + (BAC-EV) = AC +[BAC-EV)/ (CPIXSPI)]

How to create the EV formulas on test day

› SV =

› SPI =

› CV =

› CPI =

› EV

› PV

› AC

EV

EV

EV

EV

-

/

-

/

PV

PV

AC

AC

EAC = BAC/CPI

How to create the EV formulas on test day

› Notice all formulas are dependent on EV

› Typical variance analysis is planned – actual dollars spent or in earned value language PV – AC

› We are determining the percent of the work that was completed (= EV) based on what we planned to do (= PV)

› EV shows you what you did versus what you said you would do

Reporting – Know how earned value (EV) can be used to measure project progress

Dilbert Looks at EV Meetings

74

Dilbert Looks at EV Meetings

75

Earned Value

Earned Value Calculations

› Time to do the Math!

› We know the following: • BAC = $290k • Day 9 PV – what is it?

oPlanned Value (PV) to spend is $200k

› If at day 9 we have accomplished 80% of the scheduled work we can calculate the EV. What is it? • Earned Value (EV) is $160k = 80% of PV ($200k)

› Accounting tells us we have spent $175,000 – what does this tell us? • The Actual Cost (AC) is $175k

Earned Value Calculations

› PV, EV, AC

› CV

› CPI

› SV

› SPI

› EAC

Earned Value Calculations - Costs

› PV = $200k

› EV = $160k

› AC = $175k

› CV = EV - AC • 160k-175k = -$15k (Over Budget)

› Rule of thumb = negative is BAD!

› CPI = EV / AC • 160k/175k = $.91 or 91%

How are we doing? › It depends –

• What was an acceptable variance?

• +/- 15%

Earned Value Calculations - Schedule › PV = $200k › EV = $160k › AC = $175k

› SV = EV - PV

• 160k - 200k = -$40k (Behind Schedule)

› SPI = EV / PV • 160k / 200k = $ .80 or 80%

› How are we doing? +/-15% › How about as compared to CPI?

Earned Value Calculations - EAC

› The CPI? .91

› BAC? $290k

› Now you can calculate the EAC = BAC/CPI

$290k/.91 = $318k

Forecasting -

› Where are you trending?

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

BAC = $290k

EAC = $318k

Forecasting calculations

› EAC = BAC / CPI = $290k /.91 = $318k

› ETC = EAC – EV = $318k - $160k = $158K

› VAC = BAC – EAC = $290k - $318k = -$28k

› TCPI = (BAC – EV) / (BAC – AC) =

› $290k - $160k / $290k - $175k

› $130k / $115k = 1.13

Did you see what happened?

G.I.G.O.

Summary

› Establish the link between the requirements and the performance measurement baseline

› Understand what the Earned Value calculations are measuring

› Explain Earned Value as an easy to use tool for project performance measurement