CEU
Making Project
Management
Work in the
Real World
The best way to manage projects is
by properly using proper Project
Cost Management
Proprietary Information Of Energy 2013
Earned Value Acronyms
ACRONYM
AC
TERM / FORMULA
MEANING
Actual Cost
What did it actually cost us to do the work/complete the work?
BAC
Budget at Completion
How much did we budget to do the work for the entire/total project?
CPI
Cost Performance Index The amount of money we are getting back for each $ 1.00 we spent on the project. A
measure of efficiency.
( Good = > $1.00; Bad = < $1.00)
EV/AC
CV
Cost Variance
EV-AC=
When we check the costs, are we under budget or over budget? [Positive = under
budget; negative = over budget]
( Good = +
Bad = -– )
EAC
Estimate at Completion
Today, what do we anticipate/expect/estimate it will have cost us to have completed the
total or entire project?
ETC
Estimate to Complete
BAC/CPI =
or AC+ETC= or
AC + (BAC-EV)= or
AC + [(BAC-EV)/CPI]=
From today, what do we think it will cost us to complete the total or entire project? [We
know how much we spent already up to today, so how much more will we need to spend
to complete all the rest of the work to complete the entire/total project?]
EV
Earned Value
What is the expected or estimated cost of the work we have actually completed?
PV
Planned Value
What is the expected or estimated cost of the work we planned to complete or get done?
SPI
Schedule Performance
Index
EV/PV=
When we check the schedule, we are only progressing at ____% of the rate we planned
to progress at. This is a measure of efficiency.
( Good = > 100%; Bad = < 100%)
SV
Schedule Variance
EV-PV=
When we check the schedule are we ahead of schedule or behind schedule. [Positive =
ahead of schedule; negative = behind schedule]
( Good = +
Bad = -– )
Variance at Completion
BAC – EAC =
At the end of the project, how much under or over budget do we expect to be?
VAC
Proprietary Information Of Energy 2013
4
Earned Value Analysis
Planned Value = Budgeted Cost of Work Scheduled PV = BCWS
Earned Value = Budgeted Cost of Work Performed EV = BCWP
Actual Cost
= Actual Cost of Work Performed
AC = ACWP
Proprietary Information Of Energy 2013
Spending Plans
Point in Time e.g. Today
BAC
Original Spending Plan
PV
Actual Spending Plan
VAC
AC
EAC
Future Spending Plan
ETC
Proprietary Information Of Energy 2013
Earned Value Formulas
Earned Value
EV
=
BAC
*
% Comp
Cost Variance
CV
=
EV
-
AC
Schedule
Variance
SV
=
EV
-
PV
Cost Perf
Index
CPI
=
EV
/
AC
Schedule
Perf Index
SPI
=
EV
/
PV
Est at
Completion
EAC
=
AC
/
% Comp
Est to
Complete
ETC
=
EAC
-
AC
Variance at
Completion
VAC
=
BAC
-
EAC
=
BAC-EV
/
BAC-AC
New with 4th
Edition
TCPI
Proprietary Information Of Energy 2013
Net Present Value (NPV)
• NPV is the present value of cash inflow
minus the initial capital investment.
Always take the greater NPV choice.
• Present Value = (Future Value) / (1 + r)n
– r = interest rate
– n = number of interest rate time periods
• NPV = sum of [ FV / (1+r)n ] - II
- II represents the Initial Investment
Proprietary Information Of Energy 2013
Types of Cost
Cost estimates can be comprised of multiple
types of cost
Cost Type
Description
Example
Fixed
Costs that stay the same throughout
the life of a project
Piece of equipment
Variable
Costs that vary on the project
Hourly labor
Fuel for equipment
Direct
Costs that are billed directly to the
project
Software licenses
Team’s salary
Indirect
Overhead costs that are shared and
allocated among several/all projects
Manager’s salary
Sunk
Costs that have been invested or
expended
Unrecoverable past
expenditures
Proprietary Information Of Energy 2013
13
Budget Estimating
Budget Estimates
Top-Down Estimating (Rough Estimate)
Rough Order of Magnitude (ROM) - 50 % to + 100 %
Completed during initiation (not very accurate)
Budget - 10 % to + 25 %
Completed during early planning (better accuracy)
Definitive
- 5 % to + 10 %
Completed during late planning
Bottom-Up Estimating
“Most Accurate”
Proprietary Information Of Energy 2013
EARNED VALUE
MANAGEMENT
15
Proprietary Information Of Energy 2013
Earned Value Analysis
What Is It ?
Why Do I Need It ?
How Do I Do It?
16
Proprietary Information Of Energy 2013
Today’s Situation
• Need for accurate and consistent status information
• Numerous complex (and interrelated) projects
– Projects with many WBS activities
– Virtual offices
– Diverse technology platforms
17
Proprietary Information Of Energy 2013
There’s Room For Improvement
70% of projects are:
•Over budget
•Behind schedule
52% of all projects finish at 189%
of their initial budget
And some, after huge investments of time and
money, are simply never complete
Source: The Standish Group
18
Proprietary Information Of Energy 2013
How to answer the question: “Have we
done what we said we’d do?”
•
•
•
•
% complete estimating
% of Budget spent
% of work done
% of time elapsed
– subjective, incomplete
– draws false conclusions
19
Proprietary Information Of Energy 2013
Enter Earned Value Analysis
“Earned Value Analysis” is:
• an industry standard way to:
• measure a project’s progress,
• forecast its completion date and final cost, and
• provide schedule and budget variances along the way.
By integrating three measurements, it provides consistent, numerical indicators
with which you can evaluate and compare projects.
20
Proprietary Information Of Energy 2013
What’s more Important?
• Knowing where you are
on schedule?
• Knowing where you are
on budget?
• Knowing where you are
on work accomplished?
21
Proprietary Information Of Energy 2013
EVA Integrates All Three
• It compares the PLANNED amount of work with
what has actually been COMPLETED, to determine
if COST , SCHEDULE, and WORK ACCOMPLISHED
are progressing as planned.
• Work is “Earned” or credited as it is completed.
22
Proprietary Information Of Energy 2013
Earned Value needed because...
• Different measures of progress for
different types of tasks
• Need to “roll up” progress of many tasks
into an overall project status
• Need for a uniform unit of measure
(dollars or work-hours).
23
Proprietary Information Of Energy 2013
Earned Value needed because...
• Provides an “Early Warning” signal for prompt
corrective action.
– Bad news does not age well.
– Still time to recover
– Timely request for additional funds
24
Proprietary Information Of Energy 2013
And One More Reason
Why You Need EVA
?
Proprietary Information Of Energy 2013
25
Because It’s the law !
These Set the Stage:
GPRA; 1993
FASA, Title V; 1994
Clinger-Cohen Act; 1996
And Then Along Came OMB! (Circular A-11, Part 7)
"Agencies must use a performance based acquisition management system,
based on ANSI/EIA Standard 748, to measure achievement of the cost,
schedule, and performance goals."
26
Proprietary Information Of Energy 2013
How’s this project doing?
120000
100000
80000
Projected
60000
Actual
40000
20000
0
Jan-03
Feb-03
Mar-03
Apr-03
May-03
Jun-03
Jul-03
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
Proprietary Information Of Energy 2013
27
Let’s Take A Look Under The Hood
Proprietary Information Of Energy 2013
28
But First! - We gotta get organized
EVA works best when work is ‘compartmentalized’.
Compartmentalization is best achieved with a well-planned Work
Breakdown Structure.
So, how do I create a WBS for a really complex project?
Proprietary Information Of Energy 2013
29
Proper WBS Design
One WBS per program
• Deliverable-oriented
• Work not in the WBS is out-of-scope
• Each descending level represents more detail
Full (and accurate) definition is key
• Defined deliverable(s)
• Timeframe for delivery of product
• Total cost (direct and indirect) to deliver product
Let’s Look at an example:
Proprietary Information Of Energy 2013
30
WBS & Decomposition…
A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fifth Edition, Figure 5-13
31
Proprietary Information Of Energy 2013
WBS Units are “Work Packages”
Lowest level WBS elements
Have an accompanying narrative
Have three measurable components
• Scope of work to be accomplished
• Total (direct and indirect) cost
• Timeframe for completion
Proprietary Information Of Energy 2013
32
Some New(er) Terms
BCWS - Budgeted Cost of Work Scheduled
ACWP - Actual Cost of Work Performed
BCWP - Budgeted Cost of Work Performed
Proprietary Information Of Energy 2013
33
Earned Value Definitions
BCWS: “Budgeted Cost of Work Scheduled”
Planned cost of the total amount of work scheduled to be performed by the
milestone date.
Proprietary Information Of Energy 2013
34
BCWS - Budgeted Cost of Work Scheduled
120000
100000
80000
60000
BCWS
40000
20000
Dec-03
Nov-03
Oct-03
Sep-03
Aug-03
Jul-03
Jun-03
May-03
Apr-03
Mar-03
Feb-03
Jan-03
0
Proprietary Information Of Energy 2013
35
Earned Value Definitions (cont.)
ACWP: “Actual Cost of Work Performed”
Cost incurred to accomplish the work that has been done to date.
Proprietary Information Of Energy 2013
36
ACWP - Actual Cost of Work Performed
120000
100000
80000
56000
60000
BCWP
ACWP
49000
40000
20000
Dec-03
Nov-03
Oct-03
Sep-03
Aug-03
Jul-03
Jun-03
May-03
Apr-03
Mar-03
Feb-03
Jan-03
0
Proprietary Information Of Energy 2013
37
Earned Value Definitions (cont.)
•BCWP: Budgeted Cost of Work Performed
The planned (not actual) cost to complete the work that
has been done.
Proprietary Information Of Energy 2013
38
BCWP - Budgeted Cost of Work Performed
120000
100000
80000
BCWP
55000
60000
BCWS
49000
40000
20000
Dec-03
Nov-03
Oct-03
Sep-03
Aug-03
Jul-03
Jun-03
May-03
Apr-03
Mar-03
Feb-03
Jan-03
0
Proprietary Information Of Energy 2013
39
The Whole Story
120000
100000
80000
BCWS
56000
60000
BCWP
55000
49000
40000
ACWP
20000
Dec-03
Nov-03
Oct-03
Sep-03
Aug-03
Jul-03
Jun-03
May-03
Apr-03
Mar-03
Feb-03
Jan-03
0
Proprietary Information Of Energy 2013
40
Some Derived Metrics
FYI
•SV: Schedule Variance (BCWP-BCWS)
–A comparison of amount of work performed during a
given period of time to what was scheduled to be
performed.
–A negative variance means the project is behind schedule
•CV: Cost Variance (BCWP-ACWP)
–A comparison of the budgeted cost of work performed
with actual cost.
–A negative variance means the project is over budget.
Proprietary Information Of Energy 2013
41
Schedule Variance & Cost Variance
FYI
Schedule Variance = BCWP-BCWS
SV =
Cost Variance
$49,000
- 55,000
- $6,000
= BCWP-ACWP
CV =
$49,000
- 56,000
- $7,000
Proprietary Information Of Energy 2013
42
Some More Derived Metrics
•SPI: Schedule Performance Index
FYI
SPI=BCWP/BCWS
SPI<1 means project is behind schedule
•CPI: Cost Performance Index
CPI= BCWP/ACWP
CPI<1 means project is over budget
•CSI: Cost Schedule Index (CSI=CPI x SPI)
The further CSI is from 1.0, the less likely project recovery
becomes.
Proprietary Information Of Energy 2013
43
Performance Metrics
SPI: BCWP/BCWS
49,000/55,000 = 0.891
CPI: BCWP/ACWP
49,000/56000 = 0.875
CSI*: SPI x CPI
.891 x .875 = 0.780
Cost Schedule Index (combined)
Proprietary Information Of Energy 2013
44
Making Projections
Once a project is 10% complete, the
overrun at completion will not be less
than the current overrun.
Once a project is 20% complete,
the CPI does not vary from its current
value by more
than 10%.
The CPI and SPI are statistically accurate indicators of final cost results.
Source: Defense Acquisition University
Proprietary Information Of Energy 2013
45
Making Projections
120000
103865
102000
90882
100000
80000
BCWS
60000
BCWP
Today
ACWP
40000
20000
Dec-03
Nov-03
Oct-03
Sep-03
Aug-03
Jul-03
Jun-03
May-03
Apr-03
Mar-03
Feb-03
Jan-03
0
Proprietary Information Of Energy 2013
46
Estimate to Complete
140000
120000
116,571
100000
102000
BCWS
80000
BCWP
60000
ACWP
Today
40000
20000
Ja
n04
M
ar
-0
4
Ja
n03
M
ar
-0
3
M
ay
-0
3
Ju
l-0
3
Se
p03
No
v03
0
Proprietary Information Of Energy 2013
47
A New Criteria
Activities “earn value” as they are completed.
The value earned is the WBS budgeted cost of the activity completed to date.
Proprietary Information Of Energy 2013
48
Value of Earned Value
• Schedule Status Reporting
• Cost Status Reporting
• Forecasting
49
Proprietary Information Of Energy 2013
A-11, Part 7 Requires an EVMS
FYI
“ . . . based on ANSI/EIA Standard 748”
And what does that mean?
ANSI/EIA 748 provides a list of guidelines
•Organization
•Planning, Scheduling, and Budgeting
•Accounting Considerations
•Analysis and Management Reports
•Revisions and Data Maintenance
But, ANSI/EIA 748 doesn’t identify ‘approved
systems’
Proprietary Information Of Energy 2013
50
A-11, Part 7 Requires an EVMS
FYI
So where do I get one?
Buy a prepackaged one. (Lot of ‘em around)
Make your own.
•Microsoft Project
•Microsoft Excel
Or it could be as simple as this:
Proprietary Information Of Energy 2013
51
Requirements of Earned Value
•
•
•
•
Proper WBS Design
Baseline Budget Control Accounts
Baseline Schedule
Work measurement by Control Account
– work-hours, dollars, units, etc.
• Good Project Management Practices
Proprietary Information Of Energy 2013
52
Shortcomings of Earned Value
• Quantifying/measuring work progress can
be difficult.
• Time required for data measurement,
input, and manipulation can be
considerable.
Proprietary Information Of Energy 2013
53
Summary
• EVA & EVMS will help reduce guesswork in:
– Measuring performance
– forecasting
• Need to get beyond misleading measures of
progress.
• Reasons to use EVA and EVMS:
– Good project management practice
– OMB requirement
• Incorporate into contracts
Proprietary Information Of Energy 2013
54
Summary
In order to manage a real-world project, a
complete understanding and accounting of all
time, costs and work must be part of your
regular routine.
Proprietary Information Of Energy 2013
55
Proprietary Information Of Energy 2013