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Earned Value Management

System (EVMS) – American


National Standards Institute
(ANSI) 748
Index
1. What is EVMS
2. ANSI Standard 748
3. Why use EVMS
4. Earned Value Fundamentals
5. Traditional Evaluation Process
6. Earned Value Process
7. Earned Value Terminology and Calculations
8. Excercises
1. What is EVMS
• EVMS is not a software product or tool, but
rather a collection of management practices
used to:
• Plan all work scope
• Breakdown work scope into finite pieces
• Assigned to a responsible person or
organization
• Integrate the work scope, cost, and schedule
• Performance Measurement Baseline
• Routinely access project's progress and actual
costs
1. What is EVMS
• EVMS is not a software product or tool,
but rather a collection of management
practices used to:
• Measure and analyze performance
• Identify variances
• Control changes
• Forecast the project outcome
1. What is EVMS
• EVMS integrates the technical work scope
of a project with its estimated cost and
schedule into manageable and discrete
work packages
• A well thought out plan and control
structure supports good decision-making
• Earned Value Management is implemented
within an EVMS
2. ANSI Standard 748
• Industry-wide standard for EVMS
• United States federal government requires
use of standard on government contracts
• Contractors must have EVMS certified and
periodically audited
2. ANSI Standard 748
• Organized into five categories containing
32 Criteria
I. Organization - 5 criteria
II. Planning, Scheduling, and Budgeting - 10
criteria
III. Accounting Considerations - 6 criteria
IV. Analysis and Management Reports - 6
criteria
V. Revisions and Data Maintenance - 5 criteria
2. ANSI Standard 748
I. ORGANIZATION:
• Items developed and included in a Project Management
Plan
– Work Breakdown Structure (WBS)
– Organizational Breakdown Structure (OBS)
– Responsibility Assignment Matrix (RAM)
– Resources and Responsibilities
– Major Deliverables
– Project Budget (estimate)
– Project Schedule
– Method to control scope, schedule, and budget
2. ANSI Standard 748
WBS:
• Product-oriented grouping of project elements
• Encompasses project’s total scope
• Hierarchal structure
• Logically organized to how work will be
accomplished
• Usually includes one of the following elements:
• Phase
• Facility
• System
• Area
2. ANSI Standard 748
WBS
2. ANSI Standard 748
WBS:
• Integrates and controls the total project
• Framework on which project is built
• Road map for executing the project
• Hierarchical and logical subdivision of
work
• Focuses stakeholders and project teams
• Project objectives
• Deliverables
• Milestones
2. ANSI Standard 748
WBS:
• Clarifies ownership of work
• Integrates project scope, schedule, and
cost
• Basis for subdividing work
• Control Accounts
• Work Packages
• Planning Packages
2. ANSI Standard 748
WBS DICTIONARY:
• Written description of project's scope by
WBS element
• Describes technical scope
• Prevents scope creep from occurring
2. ANSI Standard 748
OBS:
• Similar to WBS
• Hierarchal structure
• Defines Project Team
• Both internal and external
• Assigns work scope to a responsible
organization
• Evaluate each organization's performance
2. ANSI Standard 748
RAM:
• Integrates WBS and OBS into a matrix
• RAM Chart
• Indicates work scope each organization is
responsible to complete
• Point of intersection – Control Account
2. ANSI Standard 748
RAM
2. ANSI Standard 748

II. Planning, Scheduling, and Budgeting


• Project Schedule and Estimate integrated
to create a Performance Measurement
Baseline
• Schedule and estimate utilize a common WBS
2. ANSI Standard 748
Project Estimate:
• Defines project’s cost, hours, and
quantities
• Based on technical scope associated with each
WBS element
• Costs escalated to account for inflation
• Includes contingency
• Partially predicted or quantified (known unknowns)
• Risks that are impossible to predict or quantify
(unknown unknowns)
2. ANSI Standard 748
Project Schedule:
• Built using Critical Path Method (CPM)
• Defines tasks
• Based on technical scope associated with each WBS
• Duration
• Relationship among tasks
• Task start and finish dates are calculated
• Resources assigned
• Based on items defined in estimate
2. ANSI Standard 748
Control Account:
• Management control point
• Integration of scope, budget, schedule, and actual cost
• Performance is measured
• May include one or more Work Packages
• Associated with a single organization
• Control Account Manager (CAM) is assigned to each
control account
• Authority and responsibility to manage control account's
scope, budget, and schedule
2. ANSI Standard 748
Performance Measurement Baseline:
• Approved plan for the scope of the project
• Project execution is compared against
• Deviations are measured
• Integrates budgeted costs and schedule
activities at Control Account
• Time phased
• Does not include Management Reserve
2. ANSI Standard 748
Integration of Cost and Schedule at Control Account
2. ANSI Standard 748
• Work Package
• Deliverable or project work component at lowest level
of each branch of WBS
• Includes schedule activities and milestones
• Planning Package
• Future work scope
• Not assigned to a responsible organization
• Detailed planning has not taken place
• Converted to one or more work packages when work
nears
2. ANSI Standard 748
Cost Elements:
• Costs broken down to elements of cost – subdivision
of control accounts and work packages
• Labor
• Materials
• Equipment
• Subcontracts
• Etc.
• Hours and quantities can also be broken down into
separate elements
2. ANSI Standard 748
III. Accounting Considerations
• Actual Costs are accumulated
• During execution of project
• Financial system collects cost at Control Account/Work
Package/Cost Element level
• Delays in accounting system
• Example: contractor invoices show up a month after
the work was accomplished
• Costs need to be Accrued
• Unaccounted cost of work performed is estimated
and added to actual costs
2. ANSI Standard 748
IV. Analysis and Management Reports:
• Measuring and reporting performance
follows a systematic approach
• Progress is measured
• Performance is calculated using earned value
• Performance data is analyzed to determine
problem areas
• Performance reports are generated
• Corrective actions are taken
2. ANSI Standard 748
IV. Analysis and Management Reports:
• Performance measurement, analysis, and reporting
occur at a standard frequency
• Based on organizations financial periods
• At least monthly
• Performance reports distributed to project team
• Either detailed information or summarized
information, depending on audience
• WBS and OBS are main methods for grouping and
summarizing data
2. ANSI Standard 748
IV. Analysis and Management Reports:
• Progress measured to determine how
much work is accomplished (or earned)
• Variances are calculated using earned
value
• Schedule Variance
• Cost Variance
2. ANSI Standard 748
IV. Analysis and Management Reports:
• Variances evaluated using Variance Thresholds

• Variances that exceed thresholds are significant issues and are


analyzed to determine:
– Cause of variance
– Impact to specific work and the project
– Corrective Actions to be or already taken to reverse or mitigate
the variance
2. ANSI Standard 748
IV. Analysis and Management Reports:
• Variances and project trends are used to
forecast the project’s final outcome
• Cost
• Schedule
• Forecast at the control element level
2. ANSI Standard 748
V. Revisions and Data Maintenance
• Performance Measurement Baseline will be
modified as project progresses
• Approved changes
• Reflected in budget and schedule
• Baseline Budget + Approved Changes = Approved Budget
• Baseline Schedule + Approved Changes = Approved Schedule
• Well documented and signed by customer
• Change log tracks approved changes
2. ANSI Standard 748
V. Revisions and Data Maintenance
• Historical data
• Data earlier than current reporting period
• Should not be changed
• Typically, corrections should be made in current
period
• Earned value management tool should have security
• Reduce or eliminate data tampering
• Provide an audit trail of changes
• Performance Measurement Baseline
• Historical data
3. Why Use EVMS
• One might say we should use EVMS
because it's a world-wide industry
standard
• Why is EVMS becoming an industry
standard?
3. Why Use EVMS
Early Warning System:
• Performance and productivity issues can
be identified very early in a project's life
• Significant cost and schedule variances are
detectable when the planned work has
reached as little as 10% on any portion of
the project
3. Why Use EVMS
Course Corrections:
• Determine the cause of performance issues to
develop a corrective action plan
• Course Corrections are much easier when issues are
identified early
• Problem is still relatively small
• Plenty of time left in project for recovery plan to
work

It’s too late when you're next to the iceberg


3. Why Use EVMS
Management by Exception:
• Project managed at a control account or
work package level
• Management can easily identify accounts with
performance problems
• Management can focus efforts on correcting
those areas
• Alternatively, management can recognize areas
with good performance
3. Why Use EVMS
Communication Tool:
• EVMS helps everyone to understand the important
questions:
• What is the work scope?
• When is the work planned to be accomplished?
• What resources are planned to be used to accomplish
the work?
• What is the estimated cost of the planned work?
• What is the progress of the work; how much work has
been accomplished?
3. Why Use EVMS
Communication Tool:
• EVMS helps everyone to understand the important
questions:
• How much does the accomplished work vary from the
planned schedule and cost?
• What are the reasons for the significant variations?
• What will be done to correct or mitigate the significant
variations?
• What changes have we made to the plan?
• When is the project forecast to be completed and
what will be the final cost?
3. Why Use EVMS
Communication Tool:
• Communication is stifled when problems are
hidden
• It usually backfires when there is an
expectation that problems will fix themselves

"Good news should travel fast, bad news should travel faster."
4. Earned Value Fundamentals
• Traditional methods for evaluating a project's
health can yield some misleading results
• Earned Value process is a proven method
• Understanding Earned Value fundamentals,
terminology, and calculations is an important
first step to implementing Earned Value
Management techniques on a project
4. Earned Value Fundamentals
• Many comprehensive resources available
• Earned Value websites
• Professional organizations
• ARES Corporation offers a range of training
• Project Management Professional (PMP) Certification
Preparation
• Earned Value Professional™ (EVP) Certification Preparation
• Following topics provide brief review of Earned
Value Fundamentals
5. Traditional Evaluation Process
• Compares a projects planned-to-date costs to its
actual-to-date costs
• Planned Costs - Actual Costs = Underrun or Overrun
• Positive value indicates an underrun
• Suggests a healthy project
• Expectation the project will be completed underbudget
• Negative value indicates an overrun
• Suggests performance issues
• Expectation the project will be completed overbudget
5. Traditional Evaluation Process
• Example indicates a performance underrun: $500K - $400K = $100K
6. Earned Value Process
• New component not found in traditional evaluation
process – Earned Value
• Measure of work actually performed
• % Complete x Budget at Completion = Earned Value
• Comparing Earned Value to other components derives
variances
• Earned Value - Actual = Cost Variance
• Earned Value - Planned Value = Schedule Variance
• Positive variances indicate healthy performance
• Negative variances indicate performance issues
6. Earned Value Process
• Example indicates negative cost and schedule variances EV = 30% x $1000K = $300K
CV = $300K - $400K = -$100K
SV = $300K - $500K = -$200K
6. Earned Value Process
• Traditional evaluation process does not indicate
reasons for Actuals being less than Planned costs
• Example: work started later than planned - behind
schedule
• When actual costs are greater than value of work
accomplished
• Constitutes a true cost overrun
• Therefore, Earned Value process is better at
determining a project's performance
6. Earned Value Process
• Cost and schedule variances used to calculate and determine a project's
forecast
• Expected
finish
date
• Estimated
cost at
completion
7. Earned Value Terminology and Calculations
• Components necessary for determining and analyzing
earned value performance:
– Planned Value - cost of work that was planned to be
accomplished
• Plan
• Budget
• BCWS - Budgeted Cost of Work Scheduled
– Actual Value - actual amount it cost to perform the work
• Actuals
• Incurred
• ACWP - Actual Cost of Work Performed
– Earned Value - calculated cost of work that was accomplished
• BCWP - Budgeted Cost of Work Performed
7. Earned Value Terminology and Calculations
• Budget at Completion (BAC)
• Total planned cost for the project
• Progress
• Percentage of physical work completed
• Also referred to as Percent Complete
• Earned Value Method
• Methods used for progressing control accounts/work packages
• Selected to produce the best objective results
• Progress Weighting
• Applied to schedule Activities to more accurately calculate a control
account's progress
7. Earned Value Terminology and Calculations
• Earned Value
• Cost of work accomplished
• Earned Value = BAC x Percent Complete
• Variances
• Cost Variance = Earned Value – Actuals
• Schedule Variance = Earned Value - Planned
Value
7. Earned Value Terminology and Calculations
• Indices
• Variances in terms of a ratio
• Cost Performance Index = Earned Value / Actuals
• CPI of 0.80 indicates for every dollar spent to accomplish work, 80¢ of
work was completed
• Schedule Performance Index = Earned Value / Planned Value
• SPI of 1.2 indicates for every dollar of work scheduled to be
accomplished, $1.20 of work was completed
• Values above 1.0 indicate good performance
• Values below 1.0 indicate poor performance
7. Earned Value Terminology and Calculations
• Estimate to Complete (ETC)
• Also called Forecast
• Remaining cost to complete project
• ETC = EAC - Actuals
• Estimate at Completion (EAC)
• Total forecasted cost of project
• EAC = Actuals + ETC
7. Earned Value Terminology and Calculations
• Independent EAC (iEAC)
• Calculation for determining the EAC
• iEAC = BAC / CPIcuml
• To-Complete Performance Index (TCPI)
• Value of work that has to be completed for
every dollar spent to complete the project
within budget
• TCPI = (BAC - EVcuml) / (EAC - Actualscuml)
Earned Value Methodology
• Standard approach to determining progress
• PRISMG2 can match any of these methods and more

EV Methodology Description
0% - 100% 0% at start; 100% at completion; for short duration tasks
50/50 Rule 50% at start; 100% at completion; for short duration tasks
Milestones Pre-established % complete for each milestone
Weighted Milestones Pre-established milestone weighting; milestone % complete assessed
Physical % Complete Quantity based calculation; Actual To Date Quantity / EAC Quantity
Management Assessment Subjective assessment of status
Level of Effort Progress is set equal to the plan; no schedule variance
8. Exercises
1. List the five categories of ANSI Standard 748
2. Describe two reasons for using EVMS
3. List two products used when organizing a project
4. List two items that are necessary to create a Performance
Measurement Baseline
5. Indicate the name of the budget that includes both the Baseline
Budget and Approved Scope Changes
6. List the three main components of Earned Value
7. Show the formula for calculating Earned Value
8. List the two types of Variances and show how they are calculated
9. What is the full title for the abbreviations EAC and ETC
10. Show mathematically how EAC and ETC relate to each other