Putting Earned Value Into Action: Pete Arnold & Neal Morgan Lewis & Fowler, LLC

Putting Earned Value Into Action
Pete Arnold & Neal Morgan

Lewis & Fowler, LLC
Copyright 2007 , All Rights Reserved
Outline
What is Earned Value Management
Why use Earned Value Management
Prerequisites
The Formulas
Collecting Data
Analyzing Data
Taking Corrective Action
History of Earned Value - Timeline
http://www.acq.osd.mil/pm/historical/Timeline/EV%20Timeline.htm
timeline from www.acq.osd.mil website
What is Earned Value Management?
ANSI / EIA 748

spells out the
criteria for
using an
Earned Value
Management
System
Objective
Combines scope, cost and schedule
Measures project performance against
the original plan
Helps forecast project cost and
schedule variances using statistical
projections
Why Should We Use Earned Value

Management?
It Measures Progress, not Activity

Activity is routinely measured on projects
Two dimensional (Planned Value, Actual
Cost)
As long as we are spending what we
planned, we look good
An Activity Example
Plan is to build 5 widgets this month
Each widget is expected to take 100 hours to build
At the end of the month I am expecting to utilize 500
hours building widgets
At the end of the month, I spent 500 hours working on
widgets
Well, Ive spent 500 hrs ,
Does that mean Ive
accomplished 500 hrs
of Work?
Incorporating Progress
Here the 3
widgets
represents
the Earned
Value
Plan is 500 hours to make 5 widgets in a month

I Spent 500 hours, but only made 3 widgets
Each widget cost me 167 hours, instead of the planned
100
Im two widgets short for the month
Yikes! Im over budget ,
and behind schedule!
It is a Leading, not Lagging,

Indicator
Past performance, in Earned Value
terms, has been measured as a
successful predictor of future
performance
DoD Research on Hundreds of Projects#
Predictability at 15% Cost Expended
Stability in Cost Index (CPI) at 20% Cost Expended
Typically doesnt vary more than .10
Rarely gets better, often gets worse
Fleming, Q., & Koppelman, J. (2005) Earned Value Project Management.
It is Useful in Decision Making

Objective
Early identification of trends,
problems and risks
Basis for course corrections
10
It may be Required in Some

Instances
ANSI / EIA
748 spells
out the
Earned Value
Management
System
criteria
Department of Defense Projects

NASA Projects
Department of Energy Projects
US Office of Management &
Budget projects
11
What are the Prerequisites?

Full scope defined (WBS)
A Performance
Management
Baselinesm will
provide the basis
for Earned Value
Management
Sequentially scheduled project

Time phased budget baseline
Method & tool to collect and record
actual costs
Method to determine % complete
Change control process
12
What are the Formulas?
13
Definition of Basic Earned Value

Management Measures
Measure
Other Acronym
Budget at
Completion (BAC)
Well utilize
the shorter
acronyms in
this
presentation
(PV, AC, EV)
What is the total budgeted cost of

the planned work?
Planned Value (PV)
Budgeted Cost of Work

Scheduled (BCWS)
How much work should be

complete at this point in time?
Actual Cost (AC)
Actual Cost of Work

Performed (ACWP)
How much did the work cost (that

was completed)?
Physical %
Complete
Earned Value (EV)
Estimate at
Completion (EAC)
Questions
What percentage of the work is

complete?
Budgeted Cost of Work
Performed (BCWP)
What is the value of the work Ive

completed at this point in time?
What do we estimate as the total
job cost at this point in time?
14
Calculating Earned Value

Needed
Budget at Completion (BAC)
% Complete
Earned Value (EV) or (BCWP) = % Complete x

Budget at Completion (BAC)
If my budget is $50,000
And Im 50% complete
Ive earned $25,000 in value
15
Indices & Variances

Cost Performance Index (CPI) = EV / AC
Generally
speaking, the
higher the value
of a variance or
index number,
the better off
you are
>1.0 is under budget

<1.0 is over budget
Schedule Performance Index (SPI) = EV / PV

>1.0 is ahead of schedule
<1.0 is behind schedule
Cost Variance (CV) = EV AC

> 0 is under budget
< 0 is over budget
Schedule Variance (SV) = EV PV

> 0 is ahead of schedule
< 0 is behind schedule
16
Estimate At Completion
ETC =
Estimate to
Completion
iEAC =
Independent
Estimate at
Completion
EAC is an update to the BAC

EAC is the new estimate of what the project
will cost when complete
EAC = AC + ETC
iEAC = AC + [(BAC EV) / CPI]
Other Performance Factors
Worst Case: CPI x SPI
SPI
(.8xCPI)x(.2XSPI)
17
Summary of Major Formulas
EV = % Comp x BAC
CPI = EV / AC
SPI = EV / PV
CV = EV - AC
SV = EV - PV
EAC = AC + ETC
iEAC = AC + [(BAC EV) / CPI]
18
How to Determine % Complete

Fixed Formula
Applies a % complete to the start and finish
of an activity.
0/100 or 50/50 or 25/75
Apportioned Milestones
Assigns a % complete for a portion of a
task with observable results
Subjective % Complete
Team members determines % complete
based on experience, etc.
Pros and Cons of Each % Complete

Method
Method
Pros
Cons
Fixed Formula
Good for short term

tasks
Very clean
Observable criteria
Not as effective on
longer tasks
Could see lag in
crediting value
Apportioned
Milestones
Works well for long

term tasks
Observable criteria
More complex
Requires detailed
tracking of tasks
Not worth the effort
for shorter tasks
Subjective %
Complete
Very easy
Very quick
Subjective measure
Unreliable
Lacks accuracy
20
Building A Deck: Collecting Data, Analyzing Data

& Taking Corrective Action
21
New Deck project
Having a BBQ in 7 days

Need a new deck built for the BBQ
Hired a contractor for $25/Hr
There are 6 days to complete the
project
22
Contractors Plan
Day 1
Contractor will
work 8 hours a
day and plans to
finish in 5 days.
No additional
resources
needed.
All materials
provided.
Concrete patio removed 4 hrs

Post holes dug 4 hrs
Day 2
Posts cemented in ground 4 hrs
Joists measured and cut 4 hrs
Day 3
Joists hung 4 hrs
Floor boards measured and cut 4 hrs
Day 4
Floor boards secured 4 hrs
Deck floor sanded 4 hrs
Day 5
1st coat of stain applied 4 hrs
2nd coat of stain applied 4 hrs
Day 6
No work planned (Float)
23
The Project in Earned Value Terms

Budget at Completion (BAC) = 40 hours at
$25/hr or $1000
Planned Value (PV) = 8 hrs x $25 or $200 per
day
Work is all discrete tasks
Taking progress well use 0/100%
Incomplete tasks worth 0%
Completed tasks worth 100%
24
Contractors Plan For Day 1

Plan for Day 1
Concrete patio removed 4 hrs
Post holes dug 4 hrs
Planned Value for Day 1 = $200 (8 x

$25/hr)
25
Contractors Results After Day 1

Actual results from Day 1
Planned Value = $200
Actual Cost = $200
Concrete patio removed 7 hours

Started post holes 1 hour
Day 1 is done 20% complete!

8 hours of work planned
8 hours of work complete
Im on schedule
26
Earned Value After Day 1
Instead of
being 20%
complete, Im
only 10%
complete
(% Complete = EV /
BAC)
Contractors Plan For Day 2

Plan for Day 2
Finish digging post holes spillover
Posts cemented into ground 4 hrs
Joists measured and cut 4 hrs
Planned Value for Day 2 = $200 (8 x

$25/hr)
28
Contractors Results After Day 2

Actual results from Day 2
Planned Value = $400
Actual Cost = $475
Finish digging post holes 4 hours (addl)

Posts cemented into ground 6 hours
Joists measured and cut 1 hour
Day 2 is done worked extra hours

8 hours of work planned
11 hours of work complete
Im ahead schedule
29
Earned Value After 2 Days
I should be
40%
complete,
but Im only
30%
complete
(% Complete =
EV / BAC)
After 2 Days, What is My EAC?

Traditional Method (AC + ETC)
BAC EV
represents the
Planned Value
of the
remaining
work
$475 + $600 = $1075
iEAC (AC + [(BAC EV) / CPI]

$475 + [($1000 - $300) / .63] = $1586
At the current rate of performance, this

will cost me $586 more than planned
31
Earned Value Chart for Deck Build
Were
projecting to be
well over
budget and
somewhat
behind
schedule after 5
days
CV
SV
32
CPI & SPI Trending for Deck Project
Project
performance is
improving over
the two days,
but well below
1.00
33
What Do We Know About Our

Project?
34
How to Address Schedule & Cost

Issues
Schedule
Cost
Fast track the schedule

concurrent tasks, eliminate float
Use overtime if unpaid
Crash the schedule: more people,

more hours, unpaid OT
Find cheaper resources (will it take

them longer?)
Use up contingency (time

contingency)
Use up contingency (cost

contingency)
Change the scope
Change the scope
Change the quality (e.g. reduce

testing)
Change the quality (e.g. less

documentation)
Request new dates from

stakeholders
Use less costly facilities, equipment
Obtain better resources (can they

do the work faster)
Can better resources get the job

done for less total money?
Employ technical innovations which

could speed up the process
Employ technical innovations that

are more cost effective
Make sure you are not gold plating Make sure you are not gold plating
instead of just meeting
instead of just meeting
35
requirements
requirements
How We Fixed Our Deck Project

Schedule
Cost
Hired a 2nd, cheaper worked to

crash the schedule
Cheaper resource brought total

cost down
Worked on 6th day (using up

contingency)
Extra day of work increased

cost
Eliminated 2nd coat of stain

reducing overall scope
Helped bring down cost as well
Used sprayer for 1st coat of

Reduce overall cost because it
stain instead of brush (technical took less time to stain
innovation)
Still over on cost, we borrowed
money from the BBQ project
to pay for the overrun
36
Finished Deck, Successful BBQ!
37
In Summary
Earned Value Management helps PMs identify
problems early and take corrective action
A Performance Management Baselinesm is
needed to do Earned Value Management
Full scope
Sequentially scheduled with time phased budget
Collection of actual costs
Determine % complete
Earned Value Management wont SOLVE

project issues you have do that based on the
information
YOU can start using Earned Value
Management today
38
Lewis & Fowler, LLC

Pete Arnold
parnold@lewisandfowler.com
303-478-4253
Neal Morgan
nmorgan@lewisandfowler.com
303-618-9980
39

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Putting Earned Value Into Action

Pete Arnold & Neal Morgan

Copyright 2007 , All Rights Reserved

Copyright 2007 , All Rights Reserved

History of Earned Value - Timeline

timeline from www.acq.osd.mil website

What is Earned Value Management?

ANSI / EIA 748

Copyright 2007 , All Rights Reserved

Why Should We Use Earned Value

Copyright 2007 , All Rights Reserved

It Measures Progress, not Activity

Copyright 2007 , All Rights Reserved

Copyright 2007 , All Rights Reserved

Copyright 2007 , All Rights Reserved

Plan is 500 hours to make 5 widgets in a month

It is a Leading, not Lagging,

Copyright 2007 , All Rights Reserved

Fleming, Q., & Koppelman, J. (2005) Earned Value Project Management.

It is Useful in Decision Making

Copyright 2007 , All Rights Reserved

It may be Required in Some

Copyright 2007 , All Rights Reserved

Department of Defense Projects

What are the Prerequisites?

Sequentially scheduled project

Copyright 2007 , All Rights Reserved

What are the Formulas?

Copyright 2007 , All Rights Reserved

Definition of Basic Earned Value

What is the total budgeted cost of

Planned Value (PV)

Budgeted Cost of Work

How much work should be

Actual Cost (AC)

Actual Cost of Work

How much did the work cost (that

Copyright 2007 , All Rights Reserved

What percentage of the work is

What is the value of the work Ive

Calculating Earned Value

Earned Value (EV) or (BCWP) = % Complete x

Copyright 2007 , All Rights Reserved

Indices & Variances

>1.0 is under budget

Schedule Performance Index (SPI) = EV / PV

Cost Variance (CV) = EV AC

Schedule Variance (SV) = EV PV

Copyright 2007 , All Rights Reserved

Copyright 2007 , All Rights Reserved

EAC is an update to the BAC

Summary of Major Formulas

Copyright 2007 , All Rights Reserved

How to Determine % Complete

Copyright 2007 , All Rights Reserved

Pros and Cons of Each % Complete

Copyright 2007 , All Rights Reserved

Good for short term

Works well for long

Building A Deck: Collecting Data, Analyzing Data

Copyright 2007 , All Rights Reserved

New Deck project

Copyright 2007 , All Rights Reserved