Measuring Employee
Performance the Earned
Value Way
Developed by Jim Greer
Boise State University
Fall 2003
Dr Tom Foster, Instructor
Overview
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Link to Quality and Corporate Growth Objectives
Key Definitions and Importance of Earned Value
Discussion of Concepts
How Does Earned Value Work?
A Real World Example, and then another….
Application of Earned Value
Training Development with an Exercise
Limitations
Summary
Readings
The Link….to Growth
and Quality
• Earned Value is a performance
measurement tool. The
knowledge from this measure
increases a firm’s ability to
boost performance. The bottom
line is that performance
improvements drive productivity.
Key Definitions
• Performance is a dimension of
quality that refers to the
efficiency in which a product
performs its intended purpose
• Productivity indicates the output
per man-hour of labor
Productivity drives our
Economy
“Worker productivity accelerated last year at
the fastest rate in more than a half century.
This high productivity means our workers
receive higher wages, our nations exports
get a competitive boost in world markets
and our economic recovery gains
momentum at a crucial time”
--President Bush, Labor Day 2003
Weekly Radio Address
Productivity Impact at
the Firm Level
• Productivity is producing more goods and
services with the same resource inputs
• Higher productivity lowers the cost of
production. Lower costs increase
competitiveness and build profits, and
allow cost savings to pass on to consumers
• To succeed, firms must continue to adopt
practices that increase productivity.
Earned Value is one such powerful tool.
Earned Value from a Nuts
and Bolts Perspective
EV compares and measures…
…the amount of work actually completed
and resources actually consumed at a
certain point in a project
…with the amount of work planned
(budgeted) to be completed and
resources planned to be consumed at
that same point in the project
More nuts and bolts….
• EV is a performance and productivity metric for
projects
• To refresh one’s knowledge, a project consists of a
scope of work directed towards a specific goal. All
projects are managed with a budget and schedule.
In fact, budget and schedule are the two key quality
measures in any project. The third is the actual
quality of the work performed.
• The schedule is a collection of work broken down
into short, specific, and interrelated tasks. The
budget represents the cost of the resources
allocated to the project.
Even more nuts and
bolts…..
• The bottom line is that EV is a
powerful tool for measuring the
Actual performance of a project
against its Planned performance.
…….It’s that simple, really! So let’s dive
into the concept……..
How does it work?
Earned Value Concepts
Earned Value consists of three key concepts >>
• Budgeted Cost of Work Scheduled (BCWS) is the cost of
the work scheduled or planned to be completed in a
certain time period per the plan
• Budgeted Cost of Work Performed (BCWP) is the budgeted
cost of the work done up to a defined point in the project
• Actual Cost of Work Performed (ACWP) is the actual cost
of work up to a defined point in the project
Earned Value Math
Variance Metrics
Schedule Variance:
Schedule Performance Index:
Cost Variance:
Cost Performance Index:
SV = BCWP - BCWS
SPI = BCWP / BCWS
CV = BCWP - ACWP
CPI = BCWP / ACWP
Criteria
SV, CV = 0 Project On Budget and Schedule
SV, CV < 0 Over Budget and Behind Schedule
SV, CB > 0 Under Budget and Ahead of Schedule
CPI, SPI = 1 Project On Budget and Schedule
CPI, SPI < 1 Over Budget and Behind Schedule
CPI, SPI > 1 Under Budget and Ahead of Schedule
Let’s work a real
example….
Project Statement:
•
A supplier is contracted to install ten new testers
at a semiconductor manufacturing plant. The
project must be completed within 6 weeks
duration. 600 manhours is the estimated labor
resource commitment, at a $10 per hour fully
loaded time and materials cost.
Goal Statement:
•
Use EV to measure project performance at week 3
•
Use traditional methods to measure performance
•
Compare the results using both approaches
Example Continued…
Determine Project Status at Week 3 using traditional
methods:
Given Information:
– At Week 3, 4 testers have been installed
– 400 manhours have been consumed
• 3/6 weeks = 50% complete
• 4/10 testers installed = 40% complete
• 400/600 manhours “cost” budgeted = 67% complete
• What is the project status at week 3? Is the project
ahead or behind schedule and is it under budget or over
budget? It is very difficult to tell
Example Continued…EV
is introduced
Determine BCWP, BCWS, and ACWP:
BCWP = (600 mh*$10/hr )* (4 testers / 10 testers) = $2400
BCWS = (600 mh*$10/hr)*(3 weeks / 6 weeks) = $3000
ACWP = 400mh*$10/hr =$4000
With this information, we can determine the metrics:
SV = BCWP – BCWS = $2400 – $3000 = - $600
CV = BCWP – ACWP = $2400 – $4000 = -$1600
SPI = BCWP / BCWS = 2400/3000 = .8
Criteria: .8<1
CPI = BCWP / ACWP = 2400/4000 = .6
Criteria: .6<1
Our project is behind schedule and over budget!
Let’s try one more
example…
Project Statement:
• One employee is tasked with developing six new
procedures for a sales group. The project must be
completed within 4 weeks duration. 200 manhours
is the estimated labor resource commitment.
Goal Statement:
• Use EV to measure employee performance week 2
• Use traditional methods to measure performance
• Compare the results using both approaches
Second Example
Continued…
Determine Project Status at Week 2 using traditional
methods:
Given Information:
– At Week 2, 5 procedures have been written
– 100 manhours have been consumed
– Assume a $1/hour rate. This will wash from equation.
• 2/4 weeks = 50% complete
• 5/6 procedures have been written = 83% complete
• 100/200 manhours “cost” budgeted = 50% complete
• What is the project status at week 2? Is the project
ahead or behind schedule and is it under budget or over
budget? It is still very difficult to tell
Example using EV…
Determine BCWP, BCWS, and ACWP:
BCWP = (200 mh)* (5 procedures / 6 procedures) = 167 mh
BCWS = (200 mh)*(2 weeks / 4 weeks) = 100 mh
ACWP = 100 mh
With this information, we can determine the metrics:
SV = BCWP – BCWS = 167 mh – 100 mh = 67 mh
CV = BCWP – ACWP = 167 mh – 100 mh = 67 mh
SPI = BCWP / BCWS = 167/100 = 1.67
Criteria: 1.67>1
CPI = BCWP / ACWP = 167/100 = 1.67
Criteria: 1.67>1
Our project is ahead of schedule and under budget!
How is EV applied???
• Powerful performance and productivity metric for a
project team using project schedule and budget
• Measures performance of an employee
• Provide an integrated approach versus traditional
methods for task and project evaluation
• Useful for any type of project from small in-house
office jobs to complex contracted projects. For
projects with multiple tasks or activities, EV can be
calculated for each task
It’s time for an
exercise…
Project Statement:
• One employee is tasked with developing three
databases. The project must be completed within
10 weeks duration. 500 manhours is the estimated
labor resource commitment.
Goal Statement:
• Use EV to measure employee performance week 7
• Use traditional methods to measure performance
• Compare the results using both approaches
Walk through Exercise
Process…
1)
Establish “givens”
2)
Determine project status using traditional method
3)
Determine BCWP, BCWS, and ACWP
4)
Calculate SV, CV, SPI, CPI
5)
Apply Criteria
6)
Summarize project performance based on EV
Exercise Solution
• Givens: At week 7, 350 manhours consumed and 2
databases completed
• 7/10 weeks = 70%
• 350 mh / 500 mh = 70%
• 2/3 databases complete = 67%
– Can you tell from this traditional method the
project status???
– Apply EV……..
Rest of Solution…..
BCWP = 500 mh * (2/3 databases) = 333 mh
BCWS = 500 mh * (7/10 weeks) = 350 mh
ACWP = 350 mh
SV = BCWP – BCWS = 333-350 mh = -17 mh
CV = BCWP – ACWP = 333 – 350 mh = -17 mh
SPI = 333/350 = .95
CPI = 333/350 = .95
Bottom Line
Project is slightly behind schedule and over budget
EV Limitations
• The EV math assumes linearity. Linearity
doesn’t exist in the real world but is a good
approximation when tasks in a project are
broken into simple elements.
• EV standing alone is a powerful measure,
but only a measure. The knowledge
derived from EV must be understood and
used to actually drive performance and
productivity improvements.
Summary
• Earned Value provides an integrated, holistic
approach to measuring performance of employees
and projects
• Use of the approach creates a framework for
evaluating project status based on project quality
objectives
• Adoption of EV and application of the results will
improve performance and drive up productivity
Readings
President Bush Weekly Radio Address, Aug 2003
www.whitehouse.gov/news/releases/2003
US Labor Sec Chao, Remarks to Joint American Enterprise
Institute – US Dept of Labor Conference on Productivity in
21st Century, ASI, Oct 23, 2002
Dept of Labor Statistics Homepage,
www.bls.gov
“Retailers Can Increase Productivity and Improve the Bottom
Line with Labor Analytics”, John Andersen,
www.executivetechnology.com
More Readings
Managing Quality – An Integrative Approach, 2nd Ed, 2004,
Thomas Foster
S
EconDash -www.econdash.net/definitions/laborprod.asp
“Earned Value – Why be right when it’s so much fun to Guess?”,
Ozzie Lomax, PMP, PMI KC Chapter May 2000
“Project can help you better understand Earned Value”, May 2003
www.zdnet.com.au/builder/manage/project/story
Use of Earned Value Management to Mitigate Software Development
Risk, Paul E Young, 21 April 1997, George Mason Univ