Project Earned Value Management and principles

CSE Senior Design I
CSE Senior Design I
Earned Value Management
Partially adapted from Mike O’Dell. Some slides in this presentation were
originally developed by Mr. Tom Rethard.
Instructor: Manfred Huber
Instructor: Manfred Huber

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Earned Value - What is it?
Simply, it is a project monitoring and
measurement system that:
1. establishes a clear relationship between
planned
planned accomplishments and actual
actual
accomplishments
2.
2. reinforces
reinforces and rewards good planning
good planning practices

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Basic concepts of Earned Value
Management (EVM)
 Each task in a project earns value as planned
planned
work
work is completed
For example (perhaps), if you were paid on this basis,
you would earn
earn $$ at key milestones based on the
value of what you have completed (earned value)
 Earned value can be compared to actual cost
and budgeted cost to determine variance and
predict future performance

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 The budgeted cost
budgeted cost (e.g., dollars, person-hours,
person-days, etc.) in terms of your baseline
baseline
plan/budget
plan/budget of the work performed up to a specified
point in time
 Also known as Budgeted Cost of Work Performed
(BCWP
BCWP)
 Each task in the Work Breakdown Structure (WBS)
is assigned a BCWP based on its individual cost.
 Project BCWP is total of BCWP for all tasks required to
complete the project

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Earned Value Components
Earned Value Components
 Planned Value (a.k.a. BCWS
BCWS)
 How much work (person-hours) you planned to have
accomplished at a given point in time (this is from the
WBS in your plan)
 Actual Cost (a.k.a. ACWP
ACWP)
 How much work (person-hours) you have actually spent
at a given point in time
 Earned Value (a.k.a. BCWP
BCWP)
 The value (person-hours) in terms of your base budget of
what you have accomplished at a given point in time (or,
% complete X Planned Value)

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Earned Value: Example
On Day X:
 PLANNED VALUE
PLANNED VALUE (Budgeted cost of the work scheduled, BCWS) =
18 + 10 + 16 + 6 = 50
 EARNED VALUE
EARNED VALUE (Budgeted cost of the work performed, BCWP) =
18 + 8 + 14 + 0 = 40
 ACTUAL COST
ACTUAL COST (of the work performed , ACWP) =
55 (from your project tracking - not evident in above chart)
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Today

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Cost
(Person-Hours)
Time (Date)
Planned Value
Planned Value: what your
plan called for sending on
the tasks planned to be
completed by this date.
Today
Earned Value
Earned Value: value
(cost) of what you have
accomplished to date, per
the base plan.
Actual Cost
Actual Cost: what you
have actually spent to
this point in time.
Budgeted (Planned) Spending
Actual Spending
Actual Spending
Earned Value
Earned Value

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Cost
(Person-Hours)
Time (Date)
Today
Actual Spending
Actual Spending
Earned Value
Earned Value
Behind
Behind
Schedule
Schedule
Over
Over
Budget
Budget

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Variance
Variance
Any schedule or cost deviation
schedule or cost deviation from a
specific plan.
Used within an organization to verify the
budget and schedule for a project
Frequently used as a key component of
plan reviews and performance
plan reviews and performance
measurement
measurement

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Variance
Variance
Must compare scheduling and budget
variance at the same time
 Schedule variance
Schedule variance: deviations from work
planned – not a measure of changes in cost
 Cost variance
Cost variance: deviations from the
budget – not a measure of work scheduled vs.
work completed
Example: applying more $$/people to a task may
maintain the schedule, but it adds to cost… schedule
on track… over budget on expenses (cost)

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Performance Indices
Performance Indices
Cost Performance Index
 CPI
CPI = BCWP/ACWP
Schedule Performance Index
 SPI
SPI = BCWP/BCWS
Analysis
 CPI > 1.0  exceptional performance
 CPI < 1.0  poor performance
 Similar for SPI

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Earned Value & Variance: Example
Earned Value & Variance: Example
On Day X:
 PLANNED VALUE (BCWS) = 18 + 10 + 16 + 6 = 50
 EARNED VALUE (BCWP) = 18 + 8 + 14 + 0 = 40
 ACTUAL COST (ACWP) = 55 (from your project tracking)
Therefore:
 Schedule Variance
Schedule Variance = BCWP – BCWS = 40 - 50 = -10 (behind schedule)
 Schedule Performance Index
Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan (a B-, at best)
 Cost Variance
Cost Variance = BCWP - ACWP = 40 - 55 = -15
 Cost Performance Index
Cost Performance Index = 40/55 = .73, or you’re getting an 73¢ return on every $1.00
(or, person-hour) spent on this project
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Primary Measurement Methods
Primary Measurement Methods
Measurable
Measurable efforts
 Discrete increments of work
Discrete increments of work with definable
schedule and tangible results (i.e., real tasks with
a deliverable)
Level of effort
Level of effort
 Work that is not
not discernable in discrete
discrete,
measurable tasks (e.g., project management,
training)

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Determining % Complete – When?
Determining % Complete – When?
 Allocate based on time spent – but what if you
spend more time than allocated?
 Allocate 50% at start of task, 50% at end
 But only for small, discrete tasks
small, discrete tasks
 Allocate 100% at start of task
 Allocate 100% at end of task
 Best solution if you keep tasks very small
keep tasks very small
 Allocate value at Critical Milestones
 Good solution when using with contract work
 Others?
Our approach

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Another Example Project
 Plans to spend $100K in each of first 4 weeks
(baseline budget, per documented plan
per documented plan)
 Actuals, at end of week 4 show: $325K spent
 BCWS = $400K ($100K x 4)
 ACWP = $325K
 What conclusions can you draw?
 Under budget?
 Is project on schedule?

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Suppose BCWP is $300K
 How is this determined?
What conclusions now?
 SV = BCWP – BCWS
 SV = $300k - $400K = -$100K
Behind schedule
Behind schedule, but what does the $100K in variance
really mean?
 CV = BCWP – ACWP = $300K - $325K
Over budget
Over budget by $25K

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 How can you use this information?
 Careful analysis of variance and trends
 Resetting schedule or budget, when appropriate
 Variance Analysis Questions
 What is the problem causing the variance?
 What is the impact on time, cost and performance?
 What is the impact on other efforts, if any?
 What corrective action is planned or under way?
 What are the expected results of the corrective action?

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 Extraordinary variance or alarming trends may be
cause for reset or cancellation of
reset or cancellation of a project, but
where do you draw the line?
 How much variance to allow depends on a
number of factors:
 Life-cycle phase
 Length of life-cycle phase
 Length of project
 Type of estimate
 Accuracy of estimate

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Variance Projection
Variance Projection

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Performance Index Trends
Performance Index Trends

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Ideal Performance Index
Ideal Performance Index

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Closing Thoughts: Management
Closing Thoughts: Management
Reserve
Reserve
The padding always added to a project for
unexpected costs that are within project
scope
 Not an allowance for changes to scope
 Not part of the cost estimate
Added by upper management, not the project
manager.

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Closing Thoughts: Government
Closing Thoughts: Government
Requirements
Requirements
 U.S. government contract cost tracking often must
include:
 BCWS
 BCWP
 ACWP
 Estimated cost at completion
 Budgeted cost at completion
 Cost and schedule variances with explanations
 Traceability

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Summary
Summary
Cost, in the form of Earned Value or BCWP,
can be used to analyze progress
analyze progress of a project
Using Earned Value data to make critical
project decisions must be based on careful
careful
analysis
analysis of data, variances and trends

Project Earned Value Management and principles

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