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Using Earned Value Management Concepts to Improve Commercial Project Performance

R. Scott Brunton, PMP, PMI-RMP/SP, EVP Principal Solutions Consultant

Lewis Fowler, LLC – www.lewisfowler.com

Welcome to the PMI Houston Conference & Expo and Annual Job Fair 2015

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EV Within PMI®

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Project Cost Management Knowledge Area Controlling and Monitoring Process Group

Reference: PMI PMBOK and PMI

EV Within PM Methodology

• As an analytical technique for assessing progress of technical maturity through cost and schedule Performance Measurement

3 Reference: PMI PMBOK

Capabilities of EV Management

• Objective, measurable metrics • Informs the organization decision

making process • Supports project controls to enable

successful project execution through Performance Measurement

• Relevant to internally driven business efficiency requirements for commercial programs

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Why EV Was Developed

• Late 1800s – Optimize performance of factories

• 1950s and 1960s – Navy developed into PERT/Cost techniques – Cost/Schedule Control Systems Criteria (C/SCSC)

• 1998 – 32 guidelines in ANSI/EIA-748 by NDIA

• Performance Measurement as a means to make better business decisions

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What’s In A Name

• Historically driven and mandated within the defense industry

• Perception of being operationally burdensome

• “Uncomfortable” – Involves “a priori” planning and periodic reporting – Requires root cause analysis and mitigation – Drives accountability and active management

6 Reference: Earning Value from Earned Value Glen Alleman, Aug 2013

What EV Isn’t or Won’t Do

• Performance Measurement – Will not ensure project success by itself – Is not a one size fits all strategy – Does not make up for a bad plan, incomplete

requirements, or poor project management – Is not just a government reporting requirement

• Performance Measurement is not a solution as much as it is an efficiency enabling methodology 7

Here’s The Value

• Success enabler – Element of PM fundamentals – Disciplined project controls and performance

monitoring

• Performance Measurement enhances program management capability through insight

• Increase the probability of program success • Equally applicable in commercial business

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Cost of EVM Process

9 Reference: The Costs and Benefits of the EVM Process D. Christensen, Fall 1998

Author (Year) Source of Estimate Cost Range Kouts (1978)

Survey of Industry 0.5% to 5%

MITRE Corp. (1982)

Survey of Industry 0.1% to 0.2%

DOD IG (1984)

Survey of DoD Experts 5.0%

Decision Planning Corp. (c1992)

Industry Cost Estimating Model 0.6% to 1.0%

Humphreys and Assoc. (c1992)

Consultant Experience 0.5% to 4.0%

Lampkin (1992)

Average of Five Studies Above 0.4% to 1.63%

Program Customer Satisfaction

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Best

Worst

Minimal Capability

Composite World Class

Qualified Performer

Program Management Capability

Reference: DCMC Conference, March 2000

When to Consider EV

• High value programs • Long duration programs • Progress payment programs • Contract types: Firm Fixed, Cost Plus, T&M • In support of broader corporate mission to

drive efficiency and effectiveness in program execution and utility of organizational resources

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Performance Measurement

• In support of objective technical maturity • Objectively validated and measured time-

phased cost and schedule performance • Alerts program to potential execution problems

– Absolute or trend measures

• Enables problem diagnosis by variance analysis that leads to active program risk management

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Why Measure Performance?

• To further increase the probability of program success through: – Risk and opportunity management – Program governance and controls

• Answer the questions – Is the program performing according to plan? – Are there performance trends emerging? – How does this program relate to corporate success?

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Concepts

• Validate the technical scope • Establish ‘The Plan’

– What scope, by when, for how much

• Measure performance and assess variance • Analyze to reveal root cause • Implement corrective actions • Inform the organization

– Project and Portfolio levels

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Portfolio Dashboard

Performance Measurement/Analysis

Scope

Schedule

Cost / Resources

Concept as a System

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Earned Value Management

System

• Performance Analysis • Root Cause Determination • Corrective Action Planning

Cost and Schedule Performance Data Collection

Program Funding

Performance Measures • Cost Measures: CV = EV – AC ; CPI = EV / AC • Schedule Measures: SV = EV – PV ; SPI = EV / PV • Estimate-at-Complete (EAC): Various • Estimate-to-Complete (ETC): ETC = EAC - AC

16 Reference: PMI PMBOK, Table 7-1

Establish the Plan • Plan what you know in objective terms

– Entire plan, Rolling Wave

• “Don’t create variances during planning”

17 Reference: 8-31-2013 © Scott Adams, Inc

Measure Performance

• Collect cost and schedule data based on predefined, objective, measureable criteria

• Scope management through governance

18 Reference: Jorge Cham © 2014

Assess Variance

• Mechanical process of determining performance as compared to ‘The Plan’

• Provides visibility in objective terms • Focus on primary drivers of plan variance

– Absolute and relative measures

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Root Cause

• Meaningful level of detail • Ask ‘Why’ more than once • Recommend and

implement solutions • Capture in risk action register • Informs the program of risks and opportunities

20 Reference: MindTools http://www.mindtools.com/pages/article/newTMC_5W.htm

Implement Corrective Action

• Supports the program controls function • Assess cost and schedule impacts • Baseline program governance • Log, track, and report • Archive

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Broader Context

• Risk and opportunity management • Dashboard reporting • Project portfolio management

– Projects | Programs | Portfolios

• Supportive of enterprise strategic objectives and “Value Chain” of the organization

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Deploy Incrementally

• Reconcile objective sources of performance information for cost and/or schedule

• Measure performance period-over-period • Allow the variance analysis to inform next

steps in evolving measurement maturity – Rigorous management of baseline plan – Reveal need for scope management

through governance

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• ANSI/EIA 748: Compliant versus Certified • Begin with cost or schedule performance

Tailored Solution

24 Reference: Earning Value from Earned Value Glen Alleman, Aug 2013

Overhead Burdens

• Training and education – Stakeholders, PMO Team,

Project Managers

• Supporting IT infrastructure – Cost and schedule information collection – Excel spreadsheets to enterprise solutions

• Reporting and analysis time • In comparison to value of improved

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Frame the Conversation

• Speak in terms of Performance Measures

• Recognize the value of performance insight

• Recognize performance data as a corporate asset • Value of improved probability of program

success outweighs organizational cost factors • Improved internal/external customer satisfaction • Align to corporate objectives

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Prepare for Implementation

• Shared vision of what success looks like

• Stakeholder alignment and visible support

• Project identity and organizational brand • Motivated, capable, and visionary team • Integrated governance, change management • Build open cross functional relationships

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Company Return On Sales

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+15%

Minimal Capability

Composite World Class

Qualified Performer

Program Management Capability

Reference: DCMC Conference, March 2000

+10%

+5%

-15%

-10%

-5%

0%

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Using Earned Value Management Concepts to Improve Commercial Project Performance

R. Scott Brunton, PMP, PMI-RMP/SP, EVP Principal Solutions Consultant

Lewis Fowler 383 Inverness Parkway, Suite 475 Englewood, CO 80112 www.lewisfowler.com Phone: 719.339.0748 E-mail: sbrunton@lewisfowler.com LinkedIn: www.linkedin.com/in/sbrunton

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