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Lecture 4.3b: Earned Value as the Cost and Schedule Metric (SEF Ch 14)

Dr. John MacCarthyUMBC CMSC 615Fall, 2006

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Agenda Work Packages and Calculating

Earned Value Earned Value Concepts Cost and Schedule Reporting

Management Using Earned Value Conclusions

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Work Packages & Calculating Earned Value

Recall in developing Work Packages (WPs), one identifies:

Products Events

Recall in developing a BOE for the WPs one determined the cost to:

Develop, review, approve, baseline and update the product

Perform activities to reach Event (which can include LOE activities tied to achieving the event)

The Total Cost of the Work Package (products + events) is its “Earned Value”

Generally for each major product/ event, one identifies objective sub-products/events and assigns a portion of the product or event’s cost to each sub-product/event:

Document Example: Annotated Outline: 5% Rough Draft: 15% Draft:

25% Final Draft: 25% Final to Customer: 10% Customer Acceptance: 20%

Event Example: Event Scheduled/Notices Sent: 5% Agreed Event E&E Criteria 10% Event

60% Exit Criteria Met: 25%

One generally reports monthly progress Example: If one has completed the Draft of

a document the project would claim 45% of the Product’s Earn Value (5+15+25)

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Schedule/Cost Reporting Generally Earned Value (EV) is

reported Monthly It is constructed in Rollup manner Each Work Package Manager reports

EV for each work package This is used to construct WBS

Element EV reports This is used to construct the Total

Project EV Report The Project EV Report includes:

Project Cost Variances Project Schedule Variances

The EV is used to support Program Risk Management Resource Reallocation Program Rebaselining

EV Reports can also be generated for each WBS Element and/or Work Package. As such,

Upper-level managers are able to pinpoint the sources of the variances

Mid/lower-level managers are able provide upper management risk management, resource reallocation & rebaselining recommendations

Generally if a WP has a (Cost or Schedule) Variance > 10-20%, they are required to provide explanation and “get well” plan

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Earned Value Concepts Cost for Work (aka “Earned Value”): The

sum over all Work Packages of the cost allocated to completion of each Product and/or Event in each Work Package

Budgeted Cost for Work Scheduled (BCWS): “Planned Earned Value” Baseline plan for completing Work Package

products and/or events Sum over all WPs of all costs associated with

all completed products and/or events Budgeted Cost for Work Performed (BCWP):

“Actual Earned Value” Baseline plan for completing Work Package

products and/or events Sum over all WPs of all costs associated with

all completed products and/or events Actual Cost for Work Performed (ACWP):

“Actuals” Actual $ spent to date & only counts

products/events completed

Budgeted At Completion (BAC): Original budgeted cost for

completion of the activity Estimate At Completion (EAC):

Current estimate of the expected final cost for completion of the activity

Schedule Variance: Amount by which one is ahead (+)

or behind (-) schedule Vs = BCWS - PCWP

Cost Variance: Amount by which one is under (+)

or over (-) cost budget Vc = BCWS - ACWP

Variance At Completion (VAC): Amount by which you expect to be

under (+) or over (-) budget VAC = BAC - EAC

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Project Earned Value Report

Some Questions: What WPs are causing

the variance? What is the reason for

each WP variance? For each WP, is there

real “Problem”? Some Options:

Cost Overrun Schedule Slip Resource Reallocation

(stop or reduce some tasks)

Increase Risk Hybrid

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Conclusions Earned Value provides a way to monitor the progress of

program work and to recognize and manage programmatic risks Earned Value is tightly coupled to:

The WBS (WP products and events) The Budgeted & Actual Cost The Planned and Actual Schedule Risk Management

Earned Value Reports may be used as a management tool by all levels of management

Earned Value Reports permit management to rapidly: Pinpoint actual and potential problems/risks Identify risk mitigation options Predict (cost/schedule) impact of selecting different risk mitigation

options