Earning Value from Earned Value Management

EARNING VALUE FROM EARNED
VALUE
USING EV TO IMPROVE THE
PROBABILITY OF PROJECT SUCCESS
EVM WORLD 2009
PMI-CPM 25TH ANNUAL
INTERNATIONAL CONFERENCE
1

Learning Outcomes
 Cost and Schedule Indices (SPI, CPI, TCPI, and IEAC)
do not represent the underlying statistical nature of
projects.
 Modeling this statistical behavior requires addition
activities build around Monte Carlo simulation and
stochastic modeling.
 Creating value from the Earned Value requires both
bottom-up and a top-down work processes.
2

3
Creating Value from EV is More Than Calculating SPI and CPI
LAUNCH ABORT SYSTEM FOR ORION CAPSULE
 What are the technical requirements that fulfill the mission
capabilities?
 How is the work partitioned for the producing the deliverables
that fulfill these requirements?
 What are the Work Packages, Cost and Schedule elements
and programmatic risk elements to assure on-time, on-
budget performance?
CONSTELLATION MISSION TO THE MOON
 What capabilities are needed to fulfill the mission?
 How are these capabilities connected to the technical and
operational requirements?
 What are the programmatic trade space decisions between
capabilities, requirements, cost and schedule?
BRICK LAYING PROJECT
 What are the measures of scope, effort, and duration?
 What are the measures of physical percent complete?
 Can we forecast of final cost and completion date?
What Does Done Look Like?
How will we recognize done?
What is the unit of measure of Done?

Questions Every Program Manager Needs to Ask
and Answer
 How much money will I need to complete this
program on time and on specification?
 What is my confidence that we’ll complete on or
before the planned finish date?
 Do I have enough management reserve to protect
this finish date?
 What is the inherent risk built into my cost and
schedule baseline?
 How can I tell if the program is making progress to
plan?
4

GAINING COMPLIANCE WITH
THE EARNED VALUE GUIDANCE
THE BOTTOM UP APPROACH
5

The Logical Starting Point Of
The Earned Value Journey
6

This progress is
represented by physical,
tangible, measurably
quantifiable evidence.
 How much did we
plan to get done on
this date, measured in
Dollars?
 How much did we
actually get done on
this date, measured in
Dollars?
In This Standard Paradigm …
Earned Value = Physical Percent Complete of the Planned Value
7

What About the Planned Technical Performance?
We’re On Schedule, On Budget
But We Had A Slight Technical Problem With Our Flying Machine
8

9
From the NDIA Earned Value Intent Guide (EVIG)
Notice the inclusion of Technical along with
Cost and Schedule
That’s the next step is generating Value from Earned Value
EV MUST include the Technical Performance Measures

10
 Relate time-phased budgets to specific contract tasks and/or statements of
work (SOW)
 Objectively measure work progress
 Properly relate cost, schedule, and technical accomplishment
 Allow for informed decision making and corrective action
 Is valid, timely, and able to be audited
 Allow for statistical estimation of future costs
 Supply managers at all levels with status information at the appropriate
level, and
 Is derived from the same EVM system used by the contractor to manage
the contract.
The First Set of Promises That Need Actionable Steps

 The EV numbers are just
numbers
 They can show trends
 They can be the basis of
forecasts
 But they must be placed in a
context of an underlying
statistical model
 They must be connected with
the relationship between time
and money
11
Moving from reporting the past
performance to forecasting the
future is the first step in Earning
Value from Earned Value
Management

Does Money
Equal Time?
This is How EV
Measures
Schedule
Variance
But What If It Is
Not Linear?
Time Is Not Money
Unless They Are
Linearly Related
12

The REAL Problem
Models Of Earned Value Are Inherently Probabilistic With Interdependent
Couplings Between Network Elements
13

Using Static, Deterministic, and
Decoupled Measures of Performance
(e.g. The Standard EV Model)
is at best…
14

But Let’s Visit A High Level View of the Earned Value Activities
15

The 32 Criteria for a ANSI/EIA-748B Compliant
Earned Value Management System
16

MANAGEMENT PROCESSES
EXTRACTED FROM 748B
17

Questions Every Program Manager Needs to Ask
and Answer – Part 2
 How much money will I need to complete this
program on time?
 What is my confidence that we’ll complete on or
before the planned finish date?
 Do I have enough management reserve?
 What is the inherent risk built into my cost and
schedule baseline?
 How can I tell if the program is making progress to
plan?

CAN WE MEASURE THE BENEFITS
OF EARNED VALUE
MANAGEMENT?

How Can We
Get A Return
On Our
Investment In
Earned Value?
20

Some Straight Forward Benefits†
 Better Visibility into Program Performance
 Reduce Cycle Time to Deliver a Product
 Foster Accountability
 Reduce Risk
† From the DACS Gold Practices “Track Earned Value” Focus Area

The Missing Piece Is “How” To Obtain
These Benefits
 How do we create better visibility into the program’s performance?
 How do we reduce cycle time to deliver the product?
 How do we foster accountability?
 How do we reduce risk?
Deploying Earned Value Alone Will Not Get Us There
How Do We Get From Where We Are To Our Destination?
22

Claimed Benefit The Reason The Method to Achieve
Better Visibility
into Program
Performance
The combination of advance
planning, baseline maintenance,
and earned value analysis yields
earlier and better visibility into
program performance than is
provided by non-integrated
methods of planning and
control.
 This requires a credible baseline.
But this baseline must be more
than just a list of work, it must
represent the “Programmatic
Architecture” of the system,
matching the technical
architecture.
 This programmatic architecture
formulates the flow of work that
produces products with
increasing maturity.
Step Action Details
Define the
Integrated Master
Plan (IMP)
The IMP is the Strategy for the successful completion of the program.
It is formed from Program Events, the Significant Accomplishments
(SA), and their Accomplishment Criteria (AC).
Sequence the SAs The sequence of SAs for each single PE by the IPT’s is a diagram
sufficiently detailed to show how the increasing maturity of the
deliverables can be achieved.
Assign Budget
Estimates (BOE)
Collect the initial “basis of estimate” from the duration and sequence
of these SAs
23

Reduces Cycle
Time to Deliver
a Product
Earned Value Management is
premised on careful detailed
planning – task decomposition,
scheduling, and budgeting.
This planning often addresses or
prevents problems from surfacing
later in the effort that result in
rework.
As rework is prevented cycle time
may be reduced.
 Again the carefully detailed plan
must adequately represent a
credible schedule, cost
allocation, and resource
assignments.
 How can we know this is the
case?
Step Action Details
Reduce cycle
time by
forecasting
delay
Using TCPI and IEAC the macro level forecast (scalar) can be generated.
What is needed is to locate the specific tasks that are the source of this
delay. This is a network analysis process.
Identify
alternative paths
through the IMS
With the network process flow indentified, alternative paths can be
assessed. These path have associated cost and down stream schedule
impacts that need further analysis.
Probabilistic cost
and schedule
The result is a probabilistic cost and schedule analysis coupled with a
Monte Carlo simulation tool to construct the “probabilistic critical path?
24

Fosters
Accountability
When the engineer understands
how the pieces fit the overall
project effort, they tend to focus
on delivery of a quality product.
Over time they are better able to
estimate the work required to
complete a task, thereby
improving the overall accuracy of
the budget / estimating process
for future efforts.
 Defining the logical sequence of
product or service flow is the
starting point.
 This “systems engineering”
approach starts with a
description of the “increasing
maturity” of the product or
service, and only then assigning
the Earned Value elements
Step Action Details
Work Package
budgets owned
by producers of
value
Once the Value Stream as been defined – this is the logical flow of the
Significant Accomplishment – the ownership for producing this value is
identified in the Work Package owners.
Dependencies
between WPs is a
Systems
Engineering
process
The Value Stream of the collection of Work Package must remove an
impediments to maximizing this value. This is the role of the planning
and controls staff in conjunction with the subject matter experts
accountable for delivering the technical solution. As a collective they
are accountable for the resulting value stream.
25

Reduces Risk Because earned value measures
enable realistic estimates of
completion to be derived early in
the project, it is possible to make
adjustments and take corrective
action to mitigate the risk of cost
overruns and schedule slippage.
 Probabilistic risk analysis
requires a credible baseline and
an understanding of the
underlying probabilistic process
driving cost, schedule, and
technical performance
 If the probabilistic process is
stationary, a Monte Carlo
simulation can be used to
analyze the behaviors of the
system only as a stationary
model.
Step Action Details
Probabilistic
modes expose
risk
Only probabilistic models “enable realistic estimates.” No point
estimate in the absence of a variance is credible.
Risk adjusted
work in IMS
All risk mitigation and retirement activities need to be in the IMS, along
with funding profiles and probabilistic assessment of their
effectiveness. EV alone will not address the issues. An active Risk
Management process is needed.
26

STEPS NEEDED TO EARN THE
VALUE FROM EARNED VALUE
THE TOP DOWN APPROACH
27

28
The Cost of These
Benefits Is Already Built
Into a Credible PMB
 The BCWS spreads define visibility
into costs
 The sequence of Significant
Accomplishments (SA) defines
visibility into deliverables
 Risk mitigations, buy downs, and
retirements are embedded in the PMB
 Small incremental measures of value
are defined by Work Packages
 Visibility provided through measures
of physical percent complete
 Reduced cycle is actually just
maintaining the planned completion
dates, on budget, that meet the
planned technical performance
measurements

Five Core Processes of Successful Program
Planning and Controls
29
Program Success Process Areas Questions To Be Answered
Identify Needed System Capabilities
What capabilities are needed to fulfill the
ConOps and System Requirements?
Establish the Requirements Baseline
What technical and operational
requirements are needed to fulfill these
capabilities?
Establish the Performance Measurement
Baseline
What is the schedule that delivers product
or services that meet the requirements?
Execute the Performance Measurement
Baseline
What are the periodic measures of
physical percent complete?
Perform Continuous Risk Management
What are the impediments to success and
what are the mitigations ?

 Partition system capabilities into classes of service within operational scenarios
 Connect capabilities to system requirements using sysML
 Define Measures of Effectiveness (MOE) and Measures of Performance (MOP)
 Define in the delivery schedule the achievement of each Technical Performance Measure
Define
Operational
Concepts
 Define scenarios for each system capability
 Connect these scenarios to a Value Stream Map of the increasing maturity of the program
 Assess value flow through the map for each needed capability
 Identify capabilities mismatches and make corrections to improve overall value flow
Define
Capabilities
Needed To
Implement
Concepts
 Assign costs to a system element using a value model process model
 Assure risk, probabilistic cost and benefit performance attributes are defined
 Use cost, schedule and technical performance probabilistic models to forecast
potential risks to program performance
Assess Needs,
Costs and Risks
Simultaneously
 Make tradeoffs that connect cost, schedule, and technical performance in a single “trade
space” model
 Measures of Effectiveness and Measures of Performance are the raw materials for
these tradeoffs
Define
Explicit,
Balanced, and
Feasible
Alternatives
Define the set of capabilities to be employed to achieve desired objectives or a particular end
state for a specific scenario. Take the ConOps and define the details of who, where, and how
it is to be accomplished, employed and executed.
Identify Needed
System
Capabilities
What capabilities are needed to fulfill the ConOps and System Requirements?
1.0
1.1
1.2
1.3
1.4
30

 Produce an overall statement of the problem in an operational context.
 Develop the overall operational and technical objectives of the target system.
 Defined the boundaries and interfaces of the target system.
Perform Fact
Finding
 Gather required system capabilities, functional, nonfunctional and environmental
requirements, and design constraints.
 Build a Top Down Capabilities and Functional decomposition of the requirements in a flow
down tree using a Requirements Management System.
Gather
and Classify
Requirements
 Answer the question “why do I need this?” in terms of operational benefits.
 Build a cost benefit / model using probabilistic assessment of all variables and
dependencies.
 For technical requirements, perform a risk assessment to cost and schedule.
Evaluate
and Rationalize
Requirements
 Determine criticality for the functions for the system mission.
 Determine trade off relationships for all requirements to be used when option decisions
are made.
 For technical items prioritize on cost and dependency.
Prioritize
Requirements
 Address completeness of requirements by removing all “TBD” items.
 Validate the requirements agree and are traceable to system capabilities, goals, and
mission.
 Resolve any requirements inconsistencies and conflicts.
Integrate
and Validate
Requirements
Define the technical and operational requirements that must be in place for the system
capabilities to be fulfilled. Define these requirements in terms isolated from any
implementation.
Establish the
Requirements
Baseline
What Technical and Operational Requirements are Needed to Fulfill the Capabilities?
2.0
2.1
2.2
2.3
2.4
2.5
31

Decompose the Project Scope into a product based Work Breakdown Structure (WBS), then
further into Work Packages describing the production of all deliverables traceable to the
requirements
Decompose
Scope into Work
Packages
Assign Responsibility to Work Packages (the groupings of deliverables) for the named
owner accountable for the management of resource allocation and cost baseline and
technical delivery
Assign
Responsibility
for Deliverables
Arrange the Work Packages in a well formed network with defined deliverables,
milestones, internal and external dependencies, appropriate schedule and cost
margin.
Arrange
Work Packages
in Logical Order
Develop a Time–Phased Budgeted Cost for Work Scheduled (BCWS) from labor and
material costs in each Work Package and the Project as a whole. Assure proper resource
allocations can be met and budget profiles match expectations of the project sponsor
Develop
BCWS for Work
Packages
Assign object Measure of Performance (MOP) and Measures of Effectiveness (MOE) for each
Work Package and summarize these for the Project as a whole
Assign WP
Measures of
Performance
Build a time–phased network of schedule activities describing the work to be performed, the
budgeted cost for this work, the organizational elements that produce the deliverables, and
the performance measures showing this work is proceeding according to plan.
Establish
the Performance
Measurement
Baseline
A Baselined Schedule that Creates the Services or Products to Meet The Requirements
3.0
3.1
3.2
3.3
3.4
3.5
Establish a Performance Measurement Baseline (PMB) used to forecast Work Package
and Project ongoing and completion cost and schedule metrics
Set
Performance
Measurement
Baseline
3.6
32

Deliverables Based Planning Handbook for A&D, Copyright © 2008, 2009, Lewis & Fowler
 Using the Work Package sequencing, release work to be performed as planned
 With the RACI based RAM, the Accountable delivery manager guides the development of
the products or services for each Work Package
Perform
the Authorized
Work
 Using Physical Percent Complete or Apportioned Milestones capture measures of
progress to plan for each Work Package
 Report this Physical Percent Complete in a centralized database for each Work Package
and the project as a whole
Accumulate
and Report Work
Package
Performance
 Compare the Physical Percent Complete against the Planned Percent Complete for each
period of performance
 Construct cost and schedule performance indices from this information and the Physical
Percent complete measures
Analyze
Work Package
Performance
 With the Cost and Schedule performance indices, construct a forecast of future
performance of cost, schedule, and technical performance compliance efforts
 Take management actions for any Work Packages not performing as planned
Take
Corrective
Management
Action
 Record past performance based on Work Package completion criteria
 Record past future forecast performance estimates in a historical database
 Forecast next future performance against the Performance Measurements Baseline
 Report this next future performance estimate to the project stakeholders
Maintain
the Performance
Baseline
Execute work packages, while assuring all performance assessment are 0%/100%
complete before proceeding. No rework, no forward transfer of activities or features.
Assure every requirement is traceable to work and all work is traceable to requirements.
Execute the
Performance
Measurement
Baseline Weekly, Bi–monthly, or Monthly Measures of Physical Percent Complete
4.0
4.1
4.2
4.3
4.4
4.5
33

34
5 Practice Areas of Successful Program Controls
How
Where
When
Who
Why
What
Identify Business
Needs
Establish a
Performance
Measurement
Baseline
Execute the
Performance
Measurement
Baseline
Capabilities
Based Plan
Operational
Needs
Earned Value
Performance
0% /100%
Technical
Performance
Measures
System Value
Stream
Technical
Requirements
Identify
Requirements
Baseline
1
2
3
4
Technical
Performance
Measures
PMB
Continuous Risk Management Process
Changes to
business strategy
Changes to
requirements
Changes to
project plan
1
2
3
4
5
6
7
8
9
10
10OrganizingPrinciplesofDeliverablesBasedPlanningsm

The 10 Organizing Principles That
Drive The 5 Practice Areas
35
Capabilities Drive
Requirements
Requirements are
Fulfilled by Work
Packages
Work Packages
Define Deliverables
Measure Physical
Percent Complete of
Each WP
Perform Only
Authorized Work
Earned Value
Defines Progress
Adjust EV for Technical
Performance
Measure
Use Past
Performance to
Forecast Future
Performance
1
2
3
5
6
7
8
9
10
PMB Describes
Work Sequence
4
9
Assess the capabilities being provided through the deliverables
Fulfill the requirements through effort held in the Work Packages
Produce deliverables
from Work Packages
Planned BCWS
Physical % Complete
WP’s contain
deliverables that fulfill
requirements
Capabilities
topology
defines
requirements
flow down
WP flow must describe
the increasing maturity of
the product or service
Producing the deliverables in the
planned sequence maintains the
value stream to the customer

Business Management Is the Purpose of 748B
½ of the Criteria are NOT About Dollars
The Units of Measure in Earned Value
36

Connecting Principles With Earned
Value Processes
37
ANSI/EIA-748B Areas
10 Principles Driving Program
Controls Success
Organization
Planning and
Budgeting
Accounting Analysis Revisions
Capabilities Drive Requirements WBS
Requirements Identify Deliverables WBS
Work Packages Describe
Production of Deliverables
WBS
CWBS
IPTs
BCWS
Master Schedule Sequences
Deliverables through WPs
IMS IMS
Progress Must Be Measured As
Physical Percent Complete
Perf Measure
0/100 or AP
TPM
Work Authorization Assures Proper
Sequencing of Work Packages
OBS WAD
Late Starts
Late Finishes
CCB
Earned Value Identifies Current
Deliverables Performance
Physical %
Complete
BCWP Monte Carlo
Technical Performance Measures
Adjust Earned Value
TPM Measure TPM Monte Carlo
Performance Feedback Adjusts
Work Package Sequencing
Upper Lower
Bounds
CAM Review CCB
Future Performance Using TCPI,
IEAC & Adjusted Work Sequence
IEAC New BL

What Did We Learned?
 CPI/SPI are necessary but not sufficient for success
program management.
 All EV variables have probabilistic foundations.
 The sunk cost of successful Earned Value is already
absorbed in a credible PMB and the process used
to build it
39

40
The Light at the End of the Tunnel
 Start with the Top Down approach and define the
needed capabilities to drive the requirements.
 Use these capabilities and requirements to
establish the “business value,” and related Value
Stream Map of the Master Plan.
 Partition the allocated work into Work Packages
that deliver the business value in a credible
sequence meaningful to the customer.
 Use the Bottom Up approach to construct the
details.
 Consider all variables as random variables.
 Use the 32 Criteria as guidance for “business
processes,” not just EV.
 Remember EV’s Unit of Measure of Dollars not
Time. Time ≠ Money on any real program.

Earning Value from Earned Value Management

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