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This webinar was presented by Stephen Jones, Chair of the APM Planning, Monitoring and Control SIG and Simon Taylor, Vice-Chair of the same SIG on Thursday 11th December 2014. Earned value management is a project control process based on a structured approach to planning, cost collection and performance measurement. Earned value helps us manage a project by: providing data to enable objective measurement of project status; providing a basis for estimating final cost; predicting when the project will be complete; supporting the effective management of resources; providing a means of managing and controlling change. Earned value provides information which enables effective decision making by knowing: what has been achieved of the plan; what it has cost to achieve the planned work; if the work achieved is costing more or less than was planned; if the project is ahead of or behind the planned schedule. Good planning leads to good project execution and good management information.
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Earned Value
Back to Basics
Stephen Jones
SPER Programme Lead
Chairman of APM PMC SIG
Simon Taylor
Head of Planning
Introductions
What is Earned Value?
Earned Value Management
– Establishing and managing goals throughout
the life of a project
– Provides indication of Project efficiency
Three pieces of Information
– Earned Value
– Actual Cost
– Planned Value
Earned Value
Budget Cost of Work Performed (BCWP)
The value of the work actually done at a
given point in time
How do you decided on the Value of
work done?
It’s the portion of the budget which
should have been spent to achieve the
work done.
Actual Cost
The Actual Cost of Work
Performed(ACWP) is the cost of the
work done.
It is the amount reported as actually
expended in completing the work
accomplished within a given time period
Planned Value
Budgeted Cost of Work Scheduled
(BCWS)
It is the value of the work that should
have been done at a given point in time.
It indicates the budget at a given point.
Example
A builder estimates to build a wall will require
100 bricks at £1 each. The builder can lay 10
bricks per hour. The builder charges £10 per
hour
Example
After 4 hours the builder has laid 50
bricks
Earned Value = £100, Actual = £90
Schedule Performance Index
SPI measures progress against the plan.
Greater than 1.0 is good (ahead of plan)
Less than 1.0 is bad (behind plan)
Equals 1.0 when we are on plan
SPI = BCWP / BCWS
Schedule Variance = BCWP – BCWS
Example
In our example
Earned Value (BCWP) = £100
Planned value (BCWS) = £80
SPI = BCWP / BCWS
SPI = 1.25
The builder is ahead of schedule
SV = 100 – 80 = +20
Cost Performance Index
CPI is a ratio of the value of work to
actual cost incurred.
Greater than 1.0 is good (under budget)
Less than 1.0 is bad (over budget)
Equals 1.0 when we are on budget
CPI = BCWP / ACWP
Cost Variance = BCWP – ACWP
Example
In our example, after 4 hours the cost will be £40 for labour plus £50 for brick = £90
Earned Value (BCWP) = £100
Actual cost (ACWP) = £90
CPI = BCWP / ACWP
CPI = 1.11
The cost is under budget
CV = 100 – 90 = +10
EAC
Estimate at Completion
A forecast of the cost required to
complete the project based on current
progress
EAC = Budget at Completion / CPI
EAC = £200 / 1.11
EAC = £180 (should finish under budget)
Estimated Duration
A forecast of the time required to
complete the project based on current
progress
Estimated Duration = Planned Duration /
SPI
In our example = 10 hours / 1.25
Estimated Duration = 8 hours
Should finish ahead of schedule
Summary
BAC = budget at Completion
Earned Value EV = %complete x BAC
Cost Variance CV = BCWP – ACWP
Schedule Variance SV = BCWP – BCWS
Cost Performance Index CPI = BCWP/ ACWP
Schedule Performance Index SPI = BCWP/ BCWS
EAC = Total Budget / CPI
Est. time at completion = Planned duration / SPI
Benefits of Earned Value Analysis
Measures work done against expenditure
Control is achieved by calculating variances
Positive: good, negative: Bad
Indices give a summary of project health
>1.0: good, < 1.0: bad
Generates forecast to completion based on current trends
SPI and CPI can be used as a measure of efficiency
Good News or Bad News
Good News or Bad News
Ahead of Schedule / Under Budget
Scheduled Variance
Cost
Variance
Incorrect
Good News or Bad News
Pole Results
Ahead of Schedule / Ahead of Budget
Ahead of Schedule / Over Budget
Behind Schedule / Ahead of Budget
Behind Schedule / Over Budget
On Schedule / On Budget
Good News or Bad News
Behind Schedule / Over Budget
Scheduled Variance
Cost
Variance
Bulls-eye Chart
EVM in projects
Where is the industry?
24
PWC 2014
Where is the industry?
25
PWC 2014
What is Earned Value Management?
Earned Value Management (EVM) is a project
management system that combines schedule
performance and cost performance to answer the
question,
“What did we get for the money we spent?”
To summarise....the basics:
How will you do the job? – Plan
How much will it cost? – Cost Loaded
How much have you achieved? - % Complete
26
Why use EVM?
It enables project teams to ask the questions
“have I spent too much money achieving too
little?”
“is the project behind or ahead of schedule?”
Allows efficient and effective use of time and
deployment of resource
Requires discipline and rigour to operate
successfully (i.e. Robust baseline & proactive
change control)
27
Managing Multiple Contracts
28
Week 1 Week 2 Week 4 Week 5
This is a proven way to measure performance
Contract 2
Contract 3
Contract 4
Contract 5
Contract 1
SPI: 0.95 – CPI: 0.98
Week 3
SPI: 0.99 – CPI: 1.01
SPI: 0.89 – CPI: 0.76
SPI: 0.98 – CPI: 1.10
SPI: 0.98 – CPI: 1.15
If can you only
make 1 phone
call today who
should it be
too?
Managing Multiple Contracts
29
Week 1 Week 2 Week 4 Week 5
An integrated WBS & CBS will really help
here!
Contract 2
Contract 3
Contract 4
Contract 5
Contract 1
SPI: 0.95 – CPI: 0.98
Week 3
SPI: 0.99 – CPI: 1.01
SPI: 0.89 – CPI: 0.76
SPI: 0.98 – CPI: 1.10
SPI: 0.98 – CPI: 1.15
Trending EV Graphs
30
EVM Metric shows
underachievement
and overspend.
In a programme with
complex plans and
multiple contracts
EVM quickly shows
areas that need
further analysis.
£-
£10
£20
£30
£40
£50
£60
£70
£80
Week 1 Week 2 Week 3 Week 4 Week 5
Work P ac kag e 1
P lanned V alue E arned V alue Actual C os t
0.69
0.61
S P I:
C P I:
P otential Overs pend
P otential D elay
Trend
Week 6 Week 7
Project will need to over
perform in order to
recover
EVM and progress
% complete examples for
– Software (closing logs or validated
functionality)
– Design, 25% across task, 75% on FDR
– Units, RWI’s etc.
– No persistent 99% crawl
EVM in Contracts
NEC WI T&C’s as measuring in working
schedule is preferred
– Agree structure
– Agree % complete for work type
– Agree data format and align with systems
– Separate EVM baseline outside of
accepted schedule
EVM & Risk
Risk monies not held in baseline plan as
there is not 100% chance of occurrence
and subsequent earn
EV baseline budget = Project authority –
Risk & Contingency
Risk events are time phased activities
EVM & Risk
EVM & Risk
As risk occurs the baseline is updated
with the allocated funds maintaining
historic performance measures and
validity of baseline going forward
As project proceeds EFC stays the same
but baseline budget increases
Using Banana Curves for EVM
EV baseline is based on early CPM logic
Initial early plan know as P0
Not much hope of positive SPI
Too much red hides real issues
Generating a mid curve for EVM
37
£20
£20
£20
Early Finish
£20
£20
Generating a mid curve for EVM
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£-
£20
£40
£60
£80
£100
£120
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Early Finish
Early Finish
Generating a mid curve for EVM
39
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Late Finish
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Early & Late Finish
Early Finish
Late Finish
Generating a mid curve for EVM
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Terminal Float
Generating a mid curve for EVM
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£-
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Mid Curve (Baseline Cost Forecast)
Early Finish
Late Finish
Baseline
Terminal Float
Using Banana Curves for EVM
Done outside planning tool
Requires some skill
Is totally worth doing
Key Points
Used to measure performance only at contract / project level by
the project team (not summarised)
Baseline midpoint generated from the approved working
schedule
Costs associated with non productivity based tasks will not be
included in baseline (PM costs, Materials, Risk, Contingency
etc.)
Budgets and progress will be quantified using an agreed
method of measuring progress (agreed units of measurement
shall be identified and standardised wherever possible)
EV based progress analysis and reporting should be part of any
regular progress meetings
Application for payment can be based on earned value
achieved 43
Common Issues around using EV
Senior management reaction to low SPI & CPI
Non effort based costs skewing EV figures
Schedule quality and baseline control
No standardised way of EV implementation
across supply chain
Varied levels of cost information from others
Non standardised, scientific progress
quantification to inform physical % complete
Summarisation of EV at programme and
portfolio level clouded real performance issues 44
Earned Value Management
Certification
Foundation Level
Practitioner Level
http://www.apmg-international.com/earned-value.aspx
CARBs – Energising your project
Full Day event, 21st January. £60+ vat
Complex
Agile
Risk
Benefits
Lunch included
http://www.apm.org.uk/event/carbs-energising-your-projects
Join the PMC SIG
Register at your email address at
http://www.apm.org.uk/
It’s Free!!!
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delivered for an APM webinar
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