© 2011 All Rights Reserved APM Heathrow Branch Meeting 11 th September 2012 Practical Use of Earned Value for Real- time Forecast and Control Nick Brown

© 2011 All Rights Reserved

APM Heathrow Branch Meeting 11th September 2012

Practical Use of Earned Value for Real-time Forecast and Control

Nick Brown

ARES Corporation


2

What is Earned Value Management?

• A Collection of management practices that are used to establish and maintain a performance measurement baseline from which to measure and analyze performance, identify variances to the baseline, and forecast the project outcome

• Effectively integrates the work scope of a project or program with the schedule and cost elements for optimum program planning and control to support project management decisions-making

• Uses 3 data points to determine productivity and efficiency factors

Planned Value (How much as planned to get done?)

Earned Value (How much was accomplished?)

Actual Costs (How much did it cost?)


BCWP:

• The value of the work that has been performed

• Often referred to as: EV, BCWP, Earned Budget

• EV = BAC * Percent Complete

Note: no reference to Actual Costs spent

• “% Complete” and the “Budget of work” are the inputs to determine Earned Value

• “% Complete” is synonymous with “Progress”– Typical question is “How much progress have we made?”

Let’s Talk about Earned Value

3


Earned Value – the hard part

• The difficult task is OBJECTIVELY assessing the realistic “% Complete”

- How much work has been completed compared to how much work is remaining to complete?

• Important: “Assessing” “Accurate”

• Consistency is important (we’ll talk about that shortly)

• Consistent EV practice reduces subjectivity on progress

4


Objectively Assessing % Complete

• Understand the work scope• Engineering Tasks/Deliverables (drawings, specs, plans,

etc.)• Construction tasks• Indirect Cost tasks• Procurement deliverables• Firm Fixed Price contract pay items • Research and Development tasks• Information Technology Tasks

• Requires some experience factor to establish• Subject Matter Expert• Company documented Standards (Engineering Standard)


6

• Several methods for objectively assessing progress

• Discrete Effort• 0% - 100% -Either 0% or 100%, no in between values• 50/50 rule -50% when start, 100% when completed• Quantity based -Quantity installed / Quantity EAC• Milestones -Weighted Progress Milestones• Mgmt Assessment -SME’s educated guess (a little

subjectivity)

• Apportioned Effort -% based on progress of other tasks

• Level of Effort (LOE) -Planned = earned

• Being consistent and having documented rules of earning is important

Some Standard Rules of Earning


Choosing the Right Rules

• Short duration activities (<1d to 5d)• 0-100 ; 50-50 Rule• Activity is typically done before the next progress update

• Mid duration activities (5d – 30d)• Based on Quantity• Weighted Milestones

• Long Duration Activities (>30d)• Based on Quantity• Weighted Milestones• Apportioned Effort• LOE (try to focus <20% of budget)


Rules of Earning Paired to Task

• Engineering Tasks • Can be both short and long duration activities• 0-100 ; 50-50 Rule• Weighted Milestones



• Construction Tasks • Typically short duration activities• 0-100 ; 50-50 Rule• Weighted Milestones • Quantity Installed

• Indirect Costs• Apportioned Effort

• Progress is based on the progress of other tasks (e.g. Construction Management activities, Utilities, Project Management

• LOE• Good for fixed duration activities that have little chance

of schedule delays



• Procurements• Weighted Milestones

• Long Lead Procurements (typically identified in PO)

• 0-100 (payment when delivered)

• Indirect Costs• Apportioned Effort

• Progress is based on the progress of other tasks (e.g. Construction Management activities, Utilities, Project Management

• LOE• Good for fixed duration activities that have little chance of schedule

delays



• Research and Development Projects• Nature of work has typically not been performed before

• SME develops accomplishment and WBS• Weighted Milestones (SME must develop as part of the

work plan)• Management’s Assessment of % complete

• Information Technology Projects • Weighted Milestones

• SME develops accomplishment and WBS• Weighted Milestones based on deliverable (documents,

testing, signoffs, etc)


Cost Processor’s Rules of Earning


The 4 Key Elements of EVM

• Four data points

• Budget at Complete (BAC)

• Total Budget of the Work task

• Planned Value (PV, BCWS, Scheduled Budget)

• When budget (£, Hrs, Qty) is linked to schedule, value of the work to be performed, over time, can be measured. Usually measured by reporting period or To-Date

• Earned Value (EV, BCWP, Earned Budget)

• After % complete is determined, multiply by BAC to derive EV which generates the work accomplished

• Actual Costs (AC, ACWP)

• Actual costs incurred (including Accruals)


Efficiency and Productivity

• Using BCWS, BCWP, ACWP, the following performance values can be derived (£, Hrs, Qty)• SV - Schedule Variance is the value of work accomplishment

versus the value of work planned (BCWP – BCWS).• CV - Cost Variance is the value of work accomplishment versus

the actual cost to perform the same work (BCWP – ACWP).• SPI - Schedule Performance Index is the schedule efficiency. It

represents the ratio of work value performed vs. the work value planned. (BCWP/BCWS).

• CPI - Cost Performance Index is the cost efficiency. It represents the ratio of the value of work performed, to the actual cost to perform the work (BCWP/ACWP).


EV Basics

• Some Basics about SV and CV• Negative values indicate behind schedule / behind costs• Positive values indicate the opposite• Usually set to thresholds for variance analysis reporting• Does not replace a critical path analysis of key schedule dates• By itself does not indicate project is going to miss their dates• Based on the Early Dates of a schedule, doesn’t evaluate float

• Some Basics about SPI and CPI– Stated as a ration where 1.0 is even (on schedule/on cost)– Less than 1.0 indicates trending behind schedule– Above 1.0 indicates trending ahead of schedule


16

• Estimate at Completion (EAC)

• Total anticipated cost of the project

• Estimate to Complete (ETC)

• Total anticipated cost of the remaining work of the project

• Simple equations are:

• EAC = Actuals + ETC

• EAC – Actuals = ETC

• Many more equations are available

• Variance at Completion (VAC) EAC-BAC=VAC

Forecasting


17

• EAC calculations aid in determining the EAC

• Some methods work better at different phases of the job

• Different methods provide for worst case, best case, and most likely EACs

• There is no one correct answer until all true costs of the job have been incurred. Use the best information available to predict the EAC

Determining the EAC


18

• Calculations can give an indication but many factors contribute to making a final decision on the EAC

• Procurements costs not hitting at the time expected• Temporary shifting of resources• Performance trends• Changes to the scope• Changes in key resources

• EAC determination must consider all these factors

Determining the EAC


• EAC Calculation Methods

• Independent EAC (i-EAC)• BAC / CPIcum • Which also equals Actuals / % Complete• £1,000 / 0.63 = £1587

• Basic• Actualscum + (BAC - EVcum)• £900 + (£1000 - £600) = £1300

• Composite• Actualscum + ((BAC - EVcum) / (CPIcum + SPIcum))• £900 + ((£1000 - £500) / (0.63 + 0.71)) = £1273

• 3 Month Ave• Actualscum + ((BAC - EVcum) / CPI3 ))• £900 + ((£1000 - £500) / 0.63)) = £1693

Determining the EAC (cont)


20

We need to be able to answer the follow question…..

• How well do we have to perform to get back on track?

• T-CPI• (BAC - EVcum) / (EAC – Actualscum)• (£1000 - £500) / (£1200 - £800) = 1.25• £1.25 of work has to be completed for every dollar

spent

• Different derivatives of this calculation can be used to include focus on schedule performance, cost performance and the specific phase of the project

One Last Bit of Data


Benefits of using Earned Value

• Proven to reduce the risk of unforeseen cost increases

• Focuses on true work completed

• Early Warning System

• Course corrections are easier to make when you have time to make small adjustments

• If react too late, there may be costly risks and schedule delays incurred

• Management by Exception

• Focus on the areas that have performance issues and need management attention


Benefits Continued

• Provides reliable data and predictive data

• Only caution is the 1st 15% and last 15% of a project

• The cumulative cost performance index (CPI) provides an early warning signal.

• The schedule performance index provides an early warning signal.

• The CPI is a predictor of the final cost of the project.

• EVM uses an index-based method to forecast the final cost of the project, “less guessing”

• The "to-complete" performance index allows evaluation of the forecasted final cost.

• The periodic (e.g., weekly or monthly) CPI is a benchmark.


With “Earned Value” Performance

23

PlannedActual

In £

1,00

0’s

Budget at Completion (BAC)

1 2 3 4 5 6 7 8 9 10Months

Tar

get

Com

plet

ion

Dat

e

200

400

600

800

1000

1200

11

1300

BCWS = £500K : Data DateBCWP = £300KACWP = £400K

200

400

600

800

1000

1200

1300

Cur

rent

Com

plet

ion

Dat

e

Probable Schedule Delay = 4 weeks

Probable CostOverrun= £300K

Estimate at Completion (EAC)

Cost Variance -£100K

Schedule Variance(Time)- 4 wks

Schedule Variance (£) -£200K

Earned

Typical EV Performance Graph


24

Typical EV Performance Report

Thank you [email protected]


PRISMG2 Modules

Materials

Documents

© 2011 All Rights Reserved APM Heathrow Branch Meeting 11 th September 2012 Practical Use of Earned Value for Real- time Forecast and Control Nick Brown