EVMS

1
Basics of Earned Value
Management
Part I
Eleanor Haupt
Earned Value Associates LLC
ehaupt@earnedvalue.biz
937-572-2586
EVMS
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What is EVM?
EVMis the primary project
management tool...
that integrates the
technical, schedule, and cost
parameters of the contract.
All work is planned, scheduled, and budgeted in time-
phased ''planned value'' increments. As work is
performed, it is measured and controlled against the
baseline.
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EVM Defined
• EVM is:
– performance measurement
• how am I doing against my baseline plan?
– performance management
• what do I need to do to bring the project in on cost
and schedule?
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Where can EVM be Applied?
• EVM suitable for projects that have:
– Clear definition of work scope
– Project schedule range from a few months to many years
– Small to very large cost
• EVM not suitable for:
– Projects without a clear work definition or deliverable
products
• Example: research projects
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EVM Guidelines
• EVM has a recognized set of guidelines
– A company’s business planning system should meet these
guidelines = Earned Value Management System
• Most are existing project management practices
• Relatively few practices unique to EVMS
– Guidelines do not specify a particular process or business
system, but only set an expectation
• Some countries have national standards
– U.S., Australia, Canada, U.K.
– Guidelines may be mandatory in some cases
• Can be tailored or scaled for smaller projects
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Primary Steps in Performance
Management
• Plan all project work
– Create an integrated performance management baseline
• Objectively assess work progress at the level of performance
– Compare to the plan and to actual costs
• Analyze significant deviations from the plan
• Forecast impacts to cost and schedule
• Take corrective actions as needed
• Summarize data for progressively higher levels of
management
• Maintain performance management baseline
– Update for contract changes (work scope)
– Maintain realistic baseline for remaining work
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Why use EVM?
Life without EVM
• Given:
– total budget of $100,000
– 12 month effort
– produce 20 units
• Status:
– spent to date: $64,000
– time elapsed: 6 months
– units produced: 8 complete, 2 partial
• How are you doing, and how do you know how you are
doing?
• How far along are you?
– 64% spent (cost)
– 50% spent (time)
EVM is Project Management with the Lights On
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Why use EVM?
Life with EVM
• Given:
– total budget of $100,000
– 12 month effort
– produce 20 units
• Status:
– spent to date: $64,000
– time elapsed: 6 months
– units produced: 8 complete, 2 partial
• Real Status:
– You should have completed 50% of the work
• You’ve completed 42% of the work
– A major vendor was late in delivering certain parts
• You’ve spent 64% of your budget
– You’ve isolated the main cost variance to aluminum prices
• You’re forecasting additional cost overruns for the remaining work
– You now know what the drivers are
– You can now take the appropriate actions
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Earned Value Gives Insight
“ Earned Value”
TIME
TIME NOW
Expenditures
Planned Expenditures
$
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Benefits of EVM
• Requires development of integrated baseline
– Results in better project definition and planning
• Early identification of trends and problems
• Accurate picture of project status
– Cost, schedule, and technical
– Segregation of schedule and cost variances
• Projection of final costs
• Project control by the team
– Enables project manager to make informed decisions based on facts
• Results in successful projects
– On time, on cost
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How does EVM differ from Project
Management?
Project
Management
EVM
WBS
Team organization
Work authorization
Integrated Schedule
Budget
Integrated Baseline
Earned Value measurement
Variance analysis
Trend projection
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Basic EVMS Terms
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EVMS measures progress
Progress = Movement Forward
to measure progress,
there must be a standard
against which the forward
movement may be compared
EVMS establishes a baseline
to measure progress
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Five Basic Elements
BCWS Budgeted Cost for Work Scheduled
“ Planned Value”
BCWP Budgeted Cost for Work Performed
“ Earned Value”
ACWP Actual Cost of Work Performed
“ Actual Cost”
BAC Budget at Completion
EAC Estimate at Completion


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Total Performance Budget
hmm...5 miles of
track, 5 months to do
it all....$5000
budget....This
is going to be tough!
It’s my pleasure
to award you
this contract for
a new railroad
track
What is the total job
supposed to cost?
What is the value of the
contract at cost?
= Performance Budget
What is the total job
supposed to cost?
What is the value of the
contract at cost?
= Performance Budget
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1. DEFINE THE WORK AND ORGANIZE TEAMS
Planning is a 3 Step Process
Planning is a 3 Step Process
100
40
60
15
25
30
30
2. SCHEDULE THE WORK
3. ALLOCATE BUDGETS
$
CONTRACT BUDGET BASE
TIME
P
M

B
A
S
E
L
I
N
E
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The Integrated Baseline
• Preliminary planning during proposal phase
• Finalized as soon as possible after award
– PM approves the baseline
• Integrated baseline
– Work scope
– Integrated master schedule
– Time phased budget
• Tenets for managing the baseline
– Control
– Maintain realism
– Reviews
Budgeted Cost for Work Scheduled (BCWS)
I’ve broken my work plan into 5 sections of track.
I plan to lay 1 section of track each month.
I estimated the cost of each section at $1,000.
I’m establishing the BCWS for each section at $1,000.
BCWS = performance budget
Month 1
BCWS = $1,000
Month 2
BCWS = $1,000
Month 3
BCWS = $1,000
Month 4
BCWS = $1,000
Month 5
BCWS = $1,000
each dollar of BCWS represents a specific dollar of work scope
each dollar of BCWS represents a specific dollar of work scope
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Budgeted Cost for Work Scheduled
(BCWS)
Month 1 Month 2 Month 3 Month 4 Month 5
BCWS
1,000
$
1,000
$
1,000
$
1,000
$
1,000
$
cumulative
BCWS 1,000 $ 2,000 $ 3,000 $ 4,000
4
$ 5,000 $
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Budget at Completion (BAC)
time
BAC
s
u
m

o
f

a
l
l

B
C
W
S


=

$
$
$
$
$
$
$
$5,000
$5,000
The baseline is
composed
of many lower level
elements. These
sum up to the total
value of the contract.
$
• when all work has been phased, cumulative BCWS = BAC
e.g., $5,000 = $5,000
• when all work has been phased, cumulative BCWS = BAC
e.g., $5,000 = $5,000
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Budgeted Cost for Work Performed
(BCWP)
the EARNED VALUE concept
We’re at the end of the second month, but
only 1 section of track is complete.
Earned value of work completed = $1,000
•Assess progress on recurring basis
•There are different methods of
earning value (described in 300B)
•You earn value the same way as it
was budgeted in baseline
•Assess progress on recurring basis
•There are different methods of
earning value (described in 300B)
•You earn value the same way as it
was budgeted in baseline
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Measuring Performance
BCWP
• General Principles
– Establish valid metrics as you establish the time phased baseline
• Metrics should be objective and quantifiable
• Relate true work status
– Should be a quantitative and discrete way to measure the work
– May tie in with success criteria or technical measure
• e.g., successful completion of a specific test
• Must be consistent in following established metric as work
progresses
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Budgeted Cost for Work Performed
(BCWP)
Month 1 Month 2 Month 3 Month 4 Month 5
cumulative data
BCWS
Planned
Va
BCWP Earned Val
lue 1,000 $ 2,000 $ 3,000 $ 4,000 $ 5,000 $
ue 1,000 $
time now
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Schedule Variance
BC WS
BC WP
of the work I scheduled to have done,
how much did I budget for it to cost?
of the work I actually performed,
how much did I budget for it to cost?
SCHEDULE VARIANCE is the difference between work scheduled
and work performed (expressed in terms of budget dollars)
formula: SV $ = BCWP - BCWS
example: SV = BCWP - BCWS = $1,000 - $2,000
SV= -$1,000 (negative = behind schedule)
SCHEDULE VARIANCE is the difference between work scheduled
and work performed (expressed in terms of budget dollars)
formula: SV $ = BCWP - BCWS
example: SV = BCWP - BCWS = $1,000 - $2,000
SV= -$1,000 (negative = behind schedule)
B
U
D
G
E
T

B
A
S
E
D
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Schedule Variance
Month 1 Month 2 Month 3 Month 4 Month 5
cumulative data
BCWS
Planned
Value 1,000 $ 2,000 $ 3,000 $ 4,000 $ 5,000 $
BCWP Earned Value 0 1,000 $
SV (cum)
Schedule
Variance -$1,000 -$1,000
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Actual Cost of Work Performed
(ACWP)
Labor came to $1,300,
and materials cost
$1,100. We’ve spent
$2,400 to date.
Value of ACWP comes from
actual accounting records
Value of ACWP comes from
actual accounting records
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Cost Variance
BC WP
AC WP
of the work I actually performed,
how much did I budget for it to cost?
of the work I actually performed,
how much did it actually cost?
COST VARIANCE is the difference between budgeted cost
and actual cost
formula: CV $ = BCWP - ACWP
example: CV = BCWP - ACWP = $1,000 - $2,400
CV= -$1,400 (negative = cost overrun)
COST VARIANCE is the difference between budgeted cost
and actual cost
formula: CV $ = BCWP - ACWP
example: CV = BCWP - ACWP = $1,000 - $2,400
CV= -$1,400 (negative = cost overrun)
P
E
R
F
O
R
M
A
N
C
E

B
A
S
E
D
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Cost Variance
Month 1 Month 2 Month 3 Month 4 Month 5
cumul ati ve data
BCWS
Planned
Value 1,000 $ 2,000 $ 3,000 $ 4,000 $ 5,000 $
BCWP
Earned
Value 0 1,000 $
SV (cum)
Schedule
Variance -$1,000 -$1,000
ACWP Actual Costs 800 $ 2,400 $
CV (cum)
Cost
Variance -$800 -$1,400
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BCWP Allows Isolation of
Schedule and Cost Variances
$
5 months
BCWP
TIME
5,000
CV
TIME NOW
SV
schedule variance = BCWP - BCWS = negative number
cost variance = BCWP - ACWP = negative number
behind schedule,
over cost
behind schedule,
over cost
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Estimate at Completion
(EAC)
J ust a few little glitches….
We should be able to do
the complete job….ack…
let’s see, for about $7,500
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Variance at Completion (VAC)
B AC what the total job was budgeted for
E AC what the total job is projected to cost
VARIANCE AT COMPLETION is the difference between what the total
job is supposed to cost and what the total job is now expected to cost.
FORMULA: VAC = BAC - EAC
Example: VAC = $5,000 - $7,500
VAC = - $2,500 (negative = overrun)
VARIANCE AT COMPLETION is the difference between what the total
job is supposed to cost and what the total job is now expected to cost.
FORMULA: VAC = BAC - EAC
Example: VAC = $5,000 - $7,500
VAC = - $2,500 (negative = overrun)
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Variance at Completion (VAC)
$
5 months
BAC
TIME
5,000
EAC
VAC
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EVM Variances
Positive Negative
SV
Ahead of Schedule Behind Schedule
CV
Under running costs Over running costs
VAC
Projected underrun Projected overrun
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Planning
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The Organizing Process
• Process
– Step 1: define the authorized work using a work breakdown
structure (WBS)
• break the work down into manageable pieces
• provides a framework for
– program and technical planning
– cost estimating and resource allocation
– performance measurements and status reporting
– Step 2: define the organizational structure
• Organizational Breakdown Structure (OBS)
– Step 3: assign a single element of work to a single manager
• control account manager (CAM)
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Assigning Work
control
account
WBS
O
R
G
A
N
I
Z
A
T
I
O
N
Assignment of a
single work element
to a single team allows
you to roll up the costs
up either direction
control
account
control
account
control
account
control
account
control
account
control
account
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The Control Account
• Fundamental building block for EVM
• Established at lowest WBS level
• Properties
– Assigned to Control Account Manager
– “Mini Project”
work
schedule
budget
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What is in a Control Account?
BUDGET
Labor 1,000 hrs
Labor $ 75,000
Material $ 25,000
SCHEDULE
TIER 1
TIER 2
SOW
1.3.4.1
Build ejection seat
CONTROL ACCOUNT PLAN
CAM name: ______ WBS: _______ Total Budget: _________
Work
Work
Work
$ $
$ $
$
$
$
$ $
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Work Package
• Development of Control Account Plans
– MAY break down the control account budget into
smaller work packages
• Work Packages
– subset of control account
– reasonably short in duration
– single element of cost (e.g., labor)
– single technique for earning value
– consistent with detail schedules
– has same characteristics as control account
• scope of work
• milestone completion criteria
• single performing organization
• start and end dates
– A group of activities on the schedule
CONTROL ACCOUNT PLAN
Work Pkg #1
Work Pkg #2
Work Pkg #3
$ $
$ $
$
$
$
$ $
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A Fun Example…
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Contract Award
• You are the program manager, I. M. Taz
• You just won a contract to eliminate varmints within the state of Arizona
– birds (tweetie and road runner types)
– small animals
• You have an organization of highly trained specialists
– L. M. Fudd
– Sil Vester the cat
– Wile E. Coyote
– Daffie Duck (your deputy and the CAM for management)
• You have allocated the following budgets from your $50,000 contract
award
– wascally rabbits ($5,000)
– squirrels ($5,000)
– tweetie birds ($20,000)
– road runners ($10,000)
– program management ($10,000)
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Organize the work
• Build a simple work breakdown structure
Varmint Control
1.2.1
tweetie
1.2
Birds
1.3
Program Mgt
1.1
Small
Animals
1.2.2
road runner
1.1.1
wascally
wabbits
1.1.1
wascally
wabbits
1.1.2
squirrels
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Organize the workers
• Build a simple organization breakdown structure
I.M. Taz
Program Manager
Sil Vester
tweetie birds
Wile E. Coyote
road runners
Daffie Duck
Program Mgt
L. M. Fudd,
small animals
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Build a RAM and allocate work
Sil
Vester
L. M.
Fudd
Wile E.
Coyote
Daffie
Duck
1.1.1
wascally
wabbits
1.1.2
squirrels
1.2.1
tweetie birds
1.2.2
road runner
1.3
program
management
RAM is a listing of the control
accounts, the responsible
manager (control account
managers), and assigned budget
RAM is a listing of the control
accounts, the responsible
manager (control account
managers), and assigned budget
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Build a RAM and allocate work
Sil
Vester
L. M.
Fudd
Wile E.
Coyote
Daffie
Duck
1.1.1
wascally
wabbits
$5,000
1.1.2
squirrels $5,000
1.2.1
tweetie birds $20,000
1.2.2
road runner $10,000
1.3
program
management
$10,000
control
account
EV Techniques 0/100, 50/50, Units Complete,
% Complete, Milestones
CONTROL ACCT. TITLE: Roadrunner CONTROL ACCOUNT MANAGER: Wile E. Coyote
BUDGET: $10,000
TIER I MILESTONE AWARD END
WP#WORK DESCRIPTION EV METHOD MONTH 1 MONTH 2 MONTH 3 MONTH 4 MONTH 5 MONTH 6 TOTAL BAC
BCWS 1,500 1,500
1 Anvil 0/100
BCWP
BCWS 500 500 1,000
2 Paint Fake Tunnel 50/50
BCWP
BCWS 600 600 600 600 600 3,000
3 Build Road units complete
BCWP
BCWS 1,000 1,000 1,000 3,000
4
Build Anvil Support
Mechanism milestone
BCWP
BCWS 500 500 500 1,500
5
Install Anvil Support
Mechanism % complete
BCWP
TOTAL CONTROL ACCOUNT PLAN BCWS 600 1,600 2,100 2,600 2,600 500 10,000
BCWP
Schedul e Vari ance month
cumulative
Actual Costs
Cost Vari ance month
cumulative
v
v v
v v v v v
v v
v v v
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Summary
• Should now understand
– Basic EVM terms
– Basic concepts of an integrated baseline
• Work, phased over time, with time phased budget
– Basics of planning
– Control account concepts and example
Please stay tuned for Part 2!!

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