Earning Value from Earned Value Management

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  • 1. EARNING VALUE FROM EARNED VALUE USING EV TO IMPROVE THE PROBABILITY OF PROJECT SUCCESS EVM WORLD 2009 PMI-CPM 25TH ANNUAL INTERNATIONAL CONFERENCE 1
  • 2. Learning Outcomes Cost and Schedule Indices (SPI, CPI, TCPI, and IEAC) do not represent the underlying statistical nature of projects. Modeling this statistical behavior requires addition activities build around Monte Carlo simulation and stochastic modeling. Creating value from the Earned Value requires both bottom-up and a top-down work processes. 2
  • 3. 3 Creating Value from EV is More Than Calculating SPI and CPI LAUNCH ABORT SYSTEM FOR ORION CAPSULE What are the technical requirements that fulfill the mission capabilities? How is the work partitioned for the producing the deliverables that fulfill these requirements? What are the Work Packages, Cost and Schedule elements and programmatic risk elements to assure on-time, on- budget performance? CONSTELLATION MISSION TO THE MOON What capabilities are needed to fulfill the mission? How are these capabilities connected to the technical and operational requirements? What are the programmatic trade space decisions between capabilities, requirements, cost and schedule? BRICK LAYING PROJECT What are the measures of scope, effort, and duration? What are the measures of physical percent complete? Can we forecast of final cost and completion date? What Does Done Look Like? How will we recognize done? What is the unit of measure of Done?
  • 4. Questions Every Program Manager Needs to Ask and Answer How much money will I need to complete this program on time and on specification? What is my confidence that well complete on or before the planned finish date? Do I have enough management reserve to protect this finish date? What is the inherent risk built into my cost and schedule baseline? How can I tell if the program is making progress to plan? 4
  • 5. GAINING COMPLIANCE WITH THE EARNED VALUE GUIDANCE THE BOTTOM UP APPROACH 5
  • 6. The Logical Starting Point Of The Earned Value Journey 6
  • 7. This progress is represented by physical, tangible, measurably quantifiable evidence. How much did we plan to get done on this date, measured in Dollars? How much did we actually get done on this date, measured in Dollars? In This Standard Paradigm Earned Value = Physical Percent Complete of the Planned Value 7
  • 8. What About the Planned Technical Performance? Were On Schedule, On Budget But We Had A Slight Technical Problem With Our Flying Machine 8
  • 9. 9 From the NDIA Earned Value Intent Guide (EVIG) Notice the inclusion of Technical along with Cost and Schedule Thats the next step is generating Value from Earned Value EV MUST include the Technical Performance Measures
  • 10. 10 Relate time-phased budgets to specific contract tasks and/or statements of work (SOW) Objectively measure work progress Properly relate cost, schedule, and technical accomplishment Allow for informed decision making and corrective action Is valid, timely, and able to be audited Allow for statistical estimation of future costs Supply managers at all levels with status information at the appropriate level, and Is derived from the same EVM system used by the contractor to manage the contract. The First Set of Promises That Need Actionable Steps
  • 11. The EV numbers are just numbers They can show trends They can be the basis of forecasts But they must be placed in a context of an underlying statistical model They must be connected with the relationship between time and money 11 Moving from reporting the past performance to forecasting the future is the first step in Earning Value from Earned Value Management
  • 12. Does Money Equal Time? This is How EV Measures Schedule Variance But What If It Is Not Linear? Time Is Not Money Unless They Are Linearly Related 12
  • 13. The REAL Problem Models Of Earned Value Are Inherently Probabilistic With Interdependent Couplings Between Network Elements 13
  • 14. Using Static, Deterministic, and Decoupled Measures of Performance (e.g. The Standard EV Model) is at best 14
  • 15. But Lets Visit A High Level View of the Earned Value Activities 15
  • 16. The 32 Criteria for a ANSI/EIA-748B Compliant Earned Value Management System 16
  • 17. MANAGEMENT PROCESSES EXTRACTED FROM 748B 17
  • 18. Questions Every Program Manager Needs to Ask and Answer Part 2 How much money will I need to complete this program on time? What is my confidence that well complete on or before the planned finish date? Do I have enough management reserve? What is the inherent risk built into my cost and schedule baseline? How can I tell if the program is making progress to plan?
  • 19. CAN WE MEASURE THE BENEFITS OF EARNED VALUE MANAGEMENT?
  • 20. How Can We Get A Return On Our Investment In Earned Value? 20
  • 21. Some Straight Forward Benefits Better Visibility into Program Performance Reduce Cycle Time to Deliver a Product Foster Accountability Reduce Risk From the DACS Gold Practices Track Earned Value Focus Area
  • 22. The Missing Piece Is How To Obtain These Benefits How do we create better visibility into the programs performance? How do we reduce cycle time to deliver the product? How do we foster accountability? How do we reduce risk? Deploying Earned Value Alone Will Not Get Us There How Do We Get From Where We Are To Our Destination? 22
  • 23. Claimed Benefit The Reason The Method to Achieve Better Visibility into Program Performance The combination of advance planning, baseline maintenance, and earned value analysis yields earlier and better visibility into program performance than is provided by non-integrated methods of planning and control. This requires a credible baseline. But this baseline must be more than just a list of work, it must represent the Programmatic Architecture of the system, matching the technical architecture. This programmatic architecture formulates the flow of work that produces products with increasing maturity. Step Action Details Define the Integrated Master Plan (IMP) The IMP is the Strategy for the successful completion of the program. It is formed from Program Events, the Significant Accomplishments (SA), and their Accomplishment Criteria (AC). Sequence the SAs The sequence of SAs for each single PE by the IPTs is a diagram sufficiently detailed to show how the increasing maturity of the deliverables can be achieved. Assign Budget Estimates (BOE) Collect the initial basis of estimate from the duration and sequence of these SAs 23
  • 24. Claimed Benefit The Reason The Method to Achieve Reduces Cycle Time to Deliver a Product Earned Value Management is premised on careful detailed planning task decomposition, scheduling, and budgeting. This planning often addresses or prevents problems from surfacing later in the effort that result in rework. As rework is prevented cycle time may be reduced. Again the carefully detailed plan must adequately represent a credible schedule, cost allocation, and resource assignments. How can we know this is the case? Step Action Details Reduce cycle time by forecasting delay Using TCPI and IEAC the macro level forecast (scalar) can be generated. What is needed is to locate the specific tasks that are the source of this delay. This is a network analysis process. Identify alternative paths through the IMS With the network process flow indentified, alternative paths can be assessed. These path have associated cost and down stream schedule impacts that need further analysis. Probabilistic cost and schedule The result is a probabilistic cost and schedule analysis coupled with a Monte Carlo simulation tool to construct the probabilistic critical path? 24
  • 25. Claimed Benefit The Reason The Method to Achieve Fosters Accountability When the engineer understands how the pieces fit the overall project effort, they tend to focus on delivery of a quality product. Over time they are better able to estimate the work required to complete a task, thereby improving the overall accuracy of the budget / estimating process for future efforts. Defining the logical sequence of product or service flow is the starting point. This systems engineering approach starts with a description of the increasing maturity of the product or service, and only then assigning the Earned Value elements Step Action Details Work Package budgets owned by producers of value Once the Value Stream as been defined this is the logical flow of the Significant Accomplishment the ownership for producing this value is identified in the Work Package owners. Dependencies between WPs is a Systems Engineering process The Value Stream of the collection of Work Package must remove an impediments to maximizing this value. This is the role of the planning and controls staff in conjunction with the subject matter experts accountable for delivering the technical solution. As a collective they are accountable for the resulting value stream. 25
  • 26. Claimed Benefit The Reason The Method to Achieve Reduces Risk Because earned value measures enable realistic estimates of completion to be derived early in the project, it is possible to make adjustments and take corrective action to mitigate the risk of cost overruns and schedule slippage. Probabilistic risk analysis requires a credible baseline and an understanding of the underlying probabilistic process driving cost, schedule, and technical performance If the probabilistic process is stationary, a Monte Carlo simulation can be used to analyze the behaviors of the system only as a stationary model. Step Action Details Probabilistic modes expose risk Only probabilistic models enable realistic estimates. No point estimate in the absence of a variance is credible. Risk adjusted work in IMS All risk mitigation and retirement activities need to be in the IMS, along with funding profiles and probabilistic assessment of their effectiveness. EV alone will not address the issues. An active Risk Management process is needed. 26
  • 27. STEPS NEEDED TO EARN THE VALUE FROM EARNED VALUE THE TOP DOWN APPROACH 27
  • 28. 28 The Cost of These Benefits Is Already Built Into a Credible PMB The BCWS spreads define visibility into costs The sequence of Significant Accomplishments (SA) defines visibility into deliverables Risk mitigations, buy downs, and retirements are embedded in the PMB Small incremental measures of value are defined by Work Packages Visibility provided through measures of physical percent complete Reduced cycle is actually just maintaining the planned completion dates, on budget, that meet the planned technical performance measurements
  • 29. Five Core Processes of Successful Program Planning and Controls 29 Program Success Process Areas Questions To Be Answered Identify Needed System Capabilities What capabilities are needed to fulfill the ConOps and System Requirements? Establish the Requirements Baseline What technical and operational requirements are needed to fulfill these capabilities? Establish the Performance Measurement Baselin...

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