Earned Value Management: What Is It? Who Needs

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Franklin Training Group

WHAT IS IT?

WHO NEEDS IT?

Capturing Opportunities for Performance Excellence Earned Value Management 1 Chet Franklin ASQ 711 July 2008 What is EVM? Franklin Training Group

• EVM; Earned Value Management • For the management of projects • It is called: – A concept – A discipline – An approach – A program • A set of tools

Capturing Opportunities for Performance Excellence Earned Value Management 2 Chet Franklin ASQ 711 July 2008 Who needs it? Franklin Training Group

• No one NEEDS it • Who can use it? – Program Managers – Project Managers – Project Teams – Budget Analysts – Planners

Capturing Opportunities for Performance Excellence Earned Value Management 3 Chet Franklin ASQ 711 July 2008 Project Managers Need Franklin Training Group

• Plan – What is to be done? – When is it to be done? – What will it cost? • Tracking – What has been done? – When was it done? – What did it cost?

Capturing Opportunities for Performance Excellence Earned Value Management 4 Chet Franklin ASQ 711 July 2008 What will EVM do? Franklin Training Group

• Provide Project Status – Financial performance – Schedule performance • Provide information – Identify risks – Predict future performance • Financial – Cost-to-Complete • Schedule – Variance from plan

Capturing Opportunities for Performance Excellence Earned Value Management 5 Chet Franklin ASQ 711 July 2008 Is EVM New? Franklin Training Group

• NO! • The basic concepts? – They’ve been around for a 100 years, or so – PVA (Planned Value of Work Accomplished) – BCWP (Budgeted Cost of Work Performed) – C/SCSC (Cost/Schedule Control System Criteria) – C/SPCS (Cost/Schedule Planning Control Spec) – PERT (Program Evaluation & Review Technique) – etc., etc.

Capturing Opportunities for Performance Excellence Earned Value Management 6 Chet Franklin ASQ 711 July 2008 More History Franklin Training Group

• 1962: “Earned Value”, introduced to modern industry • 1967: The DOD adopted (C/SCSC) – Cost/Schedule Control Systems Criteria • Incorporated the earned value concept • 1968: C/SPCS – (Cost/Schedule Planning Control Spec) • 1998: ANSI/EIA Guide to Earned Value Management

Capturing Opportunities for Performance Excellence Earned Value Management 7 Chet Franklin ASQ 711 July 2008 Project Management Road Franklin Training Group • The Project Management Road? – Strewn with boulders and pot holes • Many of the above have been tried • Many have failed – Why? – Changing management philosophies • Management ideas du jour – Lack of knowledge (Training) – Focus on money only (Bottom Line) – Focus on schedule only

Capturing Opportunities for Performance Excellence Earned Value Management 8 Chet Franklin ASQ 711 July 2008 What is Earned Value? Franklin Training Group

• A set of project measurement tools – What you got for the money you spent – Money you’ve spent so far vs. what you planned to spend – Where you are on the schedule vs. where you planned to be – What your final project cost is likely to be vs. what you planned

Capturing Opportunities for Performance Excellence Earned Value Management 9 Chet Franklin ASQ 711 July 2008 EVM Metrics Franklin Training Group

• ACWP: Actual Cost of Work Performed – Actual Cost (AC) • BCWP: Budgeted Cost of Work Performed • Earned Value (EV) = BCWS X % Comp • BCWS: Budgeted Cost of Work Scheduled – Planned Value (PV) • BAC: Budget At Completion – Actually Planned (PV) for the whole project

Capturing Opportunities for Performance Excellence Earned Value Management 10 Chet Franklin ASQ 711 July 2008 EVM Metrics Franklin Training Group

• EAC: Estimate At Completion • CPI: Cost Performance Index • SPI: Schedule Performance Index • CSI: Cost Schedule Index – Overall Efficiency Rating

Capturing Opportunities for Performance Excellence Earned Value Management 11 Chet Franklin ASQ 711 July 2008 BAC: Budget At Completion Franklin Training Group

• Planned total cost of the project • Begins with a Work Breakdown Structure (WBS) – A detail listing of tasks – Progress milestones – Resources to accomplish the task • Labor (burdened rate) • Purchases (Committed or paid) • Services (e.g. Outside contracting)

Capturing Opportunities for Performance Excellence Earned Value Management 12 Chet Franklin ASQ 711 July 2008 BCWS: Budgeted Cost of Franklin Training Group Work Scheduled

• Planned cost at any point in time on the schedule. AKA Planned Value – BCWS = PV (Planned Value) – Labor + Purchases + Services – Calculated at: • Scheduled, or non-scheduled project reviews • Completion of one or more tasks • Mid-Task • Completion of a milestone

Capturing Opportunities for Performance Excellence Earned Value Management 13 Chet Franklin ASQ 711 July 2008 Budgeted Cost of BCWP: Franklin Training Group Work Performed • What was planned to be spent to accomplish the work performed • AKA: Earned Value • For example: 1. Tasks 1, 2 and 3 are reported as 100% complete • What was the planned cost for them? • Labor – Purchases - Services 2. Task 4 is reported as 50% complete • What was planned for 50% completion? Capturing Opportunities for Performance Excellence Earned Value Management 14 Chet Franklin ASQ 711 July 2008 Actual Cost of ACWP: Franklin Training Group Work Performed

• AKA; Actual Cost (AC) • Total amount spent (committed?) on the project at the time of the report – Labor (Hours charged to the project) • Direct labor • Management allocation – Purchases • Materials and supplies • Services

Capturing Opportunities for Performance Excellence Earned Value Management 15 Chet Franklin ASQ 711 July 2008 CPI: Cost Performance

Franklin Training Group Index

• Am I getting what I’m paying for?

• CPI = BCWP / ACWP

– A statement of performance efficiency

Capturing Opportunities for Performance Excellence Earned Value Management 16 Chet Franklin ASQ 711 July 2008 SPI: Schedule Franklin Training Group Performance Index

• Am I performing according to schedule?

• SPI = BCWP / BCWS

• PROJECTS THAT ARE BEHIND SCHEDULE

WILL USUALLY OVER-RUN THE BUDGET

Capturing Opportunities for Performance Excellence Earned Value Management 17 Chet Franklin ASQ 711 July 2008 Estimate At EAC: Franklin Training Group Completion EAC Calculations 1. Statistical Methods – BAC / CPI (Best Case) – BAC / SPI * CPI (Worst Case) – AC + BAC – EV – AC + ETC (Estimate to Complete) – AC / % Complete • Assumes constant Burn Rate 2. Other Methods • Project Manager’s Estimate • Re-Plan

Capturing Opportunities for Performance Excellence Earned Value Management 18 Chet Franklin ASQ 711 July 2008 CSI: Cost Schedule Index Franklin Training Group

• The Overall Efficiency Rating of the project • Recovery difficulty increases as the CSI goes below 1.0

CSI = CPI x SPI

Capturing Opportunities for Performance Excellence Earned Value Management 19 Chet Franklin ASQ 711 July 2008 Summary of EVM Terms Franklin Training Group

• ACWP Actual Cost of Work Performed • BAC Budget At Completion • BCWP Budgeted Cost of Work Performed – “Earned Value (EV)” • BCWS Budgeted Cost of Work Scheduled – “Planned Value (PV)” • CPI Cost Performance Index • CSI Cost Schedule Index – Overall Efficiency Rating • EAC Estimate At Completion • SPI Schedule Performance Index Capturing Opportunities for Performance Excellence Earned Value Management 20 Chet Franklin ASQ 711 July 2008 Information Sources Franklin Training Group

• ANSI/EIA-748-1998; Earned Value Management Systems • “Earned Value Project Management”; – Fleming, Quentin W., Joel M. Koppelman; Project Management Institute • “How to Capture Opportunities for Performance Excellence (COPE) with Earned Value Management”; – Franklin, Chester; Franklin Training Group • Various Websites

Capturing Opportunities for Performance Excellence Earned Value Management 21 Chet Franklin ASQ 711 July 2008