Earned Value Variance Reporting
Dos and Don’ts
Presenter:
Gary Heth, PMP
Agenda
Earned Value Basics
•Earned Value in a Nutshell
•Performance without Earned Value
Earned Value Framework
•Planning
•Executing
•Controlling
Earned Value Benefits
Earned Value Lessons Learned
Earned Value Limitations
Earned Value Do’s and Don’ts
2
Earned Value Basics
3
Earned Value Basics
Earned Value In a Nutshell
What is more important?
•Knowing where you are on schedule?
•Knowing where you are on budget?
•Knowing where you are on work accomplished?
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.
Did we get what we planned, for the amount of money we
planned to spend, and did we get it when we needed it?
4
Earned Value Basics
Project Analysis Without Earned Value?
Gantt Charts
Most used PM tool for representing phases and activities of a WBS
A clear way of showing schedule status to your sponsor and team
Great for small projects but can be hard to read for larger projects with many
dependencies
Only show part of Triple Constraint (focus on schedule management)
Married to waterfall development
Does not adequately represent project size or size of the work element
Magnitude of “behind schedule” condition can be misleading
•If two projects are the same # of days behind schedule
•Which of the two has the larger impact on resource utilization?
•Gantt does not represent the difference
•Gantt does not show resource management
•Does not indicate if the task is “front” or “back” loaded
% complete may be miss-represented
5
Earned Value Basics
Project Analysis Without Earned Value?
Gantt Charts
ID Task Name
1 1.0 Requirements Definition
2nd Quarter
Duration Predecessors
Apr
May
10 days
2
2.0 Architectural Design
10 days
1
3
3.0 Detailed Design
20 days
2
4
4.0 Coding and Unit Testing
45 days
3
5
4.1 Coding
25 days
6
4.2 Unit Testing
20 days
5
7
5.0 Integration Testing
15 days
6
8
6.0 System Testing
10 days
7
INFO 638
Jun
3rd Quarter
Jul
Aug
Sep
4th Quarter
Oct
Nov
Dec
1st Quarte
Jan
6
Earned Value Basics
Project Analysis Without Earned Value?
Budget Spend Plan
Medium to Large Projects – “S” Curve Project Spend Tracking
•Provides a budget baseline for tracking actual costs against periodic budget targets.
•Start by creating a time-phased budget by plotting your weekly, monthly, quarterly
budgeted costs or hours (time and dollars)
•Use MS Project baseline estimated project costs and plot graphically over time, they
usually result in an “S” curve
•Add MS Project actuals to plot dotted lines at each chosen interval to track variances.
•Provides a simple Top-Level view of project financial performance useful for status
reports and dashboards.
•If you don’t have labor rates you will need to use budgeted vs actual hours.
Challenges
•Works fine if your project is on schedule – Spend plan still needs additional status
information (for example Gantt)
•If behind schedule – PM may not be able to understand project status from this graph
•Actual budget could be in worse or better shape than shown
•If your budget spend shows overspending and your schedule shows milestone slippage
you know you are in trouble. You may not be able to tell how bad the trouble is.
7
Earned Value Basics
Project Analysis Without Earned Value?
Budget Spend Plan
Budget Ceiling
Spend Plan
Actuals
8
Earned Value Basics
Minimal Requirements
EVM Requires 3 values
•Planned Value (PV) - Baseline
•Actual Costs (AC) – Based on Time Entry or Cost Entry
•Earned Value (EV) – What you “earned”
Work is “Earned” or credited as it is completed.
Did we get what we planned, for the amount of money we
planned to spend, and did we get it when we needed it?
Answer:
•Where have we been?
•Where are we now?
•Where are we going?
9
Earned Value Basics
Minimal Requirements
Term
Interpretation
(PV)
Planned Value
How much work you planned to have accomplished by now?
Replaces
BCWS
(AC)
Actual Cost
Replaces
ACWP
(EV)
Earned Value
Replaces
BCWP
The budgeted costs of the work scheduled
• The project’s time-phased budget
• Can only change when baseline is changed
What is the actual cost incurred ($ / Hours)
The actual costs of the work completed during the month or reporting period
•
Actual costs by work code
•
Requires accurate charging of staff time to appropriate “control account”
What is the estimated value of the work actually accomplished?
The project’s physical progress
•
Progress reported in baseline or planned dollars
•
Represents sum of % completion for each task or deliverable
Planned value and Actual Cost will be compared to Earned value in
terms of differences / ratios
Will result in variances and performances indexes
10
Earned Value Framework
11
Earned Value Framework
Steps to Success
Condensed ANSI/EIA748 32 Step Standard
Planning
•Step 1: Define the Scope (Planning)
•Step 2: Determine Who Will Perform the Work
•Step 3: Plan and Schedule Work
•Step 4: Establish Resources and Budgets
•Step 5: Determine Performance Metrics and Thresholds
•Step 6: Create Performance Measurement baseline and Mgmt Control
Executing
•Step 7: Record Direct Costs
Controlling
•Step 8: Monitor EV Performance Against Baseline (Control Step)
•Step 9: Forecast Final Required Costs (Variance Reporting Step)
•Step 10: Manage Scope Through Change Control
12
Earned Value Framework
Steps to Success
Planning Steps
Planning
•Step 1: Define the Scope (Planning)
•Step 2: Determine Who Will Perform the Work
•Step 3: Plan and Schedule Work
•Step 4: Estimate Work and Procurement
•Step 5: Determine Performance Metrics and Thresholds
•Step 6: Create Performance Measurement baseline and Mgmt Control
Executing
•Step 7: Record Direct Costs
Controlling
•Step 8: Monitor EV Performance Against Baseline (Control Step)
•Step 9: Forecast Final Required Costs (Variance Reporting Step)
•Step 10: Manage Scope Through Change Control
13
Earned Value Framework
Steps to Success: Planning
Step 1: Define the Scope
Scope Definition
• Single most important factor to a sound EVM process and implementation
Work Breakdown Structure
•Roadmap for analyzing the project progress and performance
•Each element of the WBS is broken down into pieces – each piece defines responsibility to a
person for that element
•100% of scope – What is not in the WBS is not in scope
•Work is broken down into measurable work packages
•Focus on “authorized” work
•Must be firm –Critical for Earned Value Projects
Break the Work Packages into activities of the project. These should be included
within your WBS and will produce the project schedule activities.
Organization Breakdown Structure (matrix organizations)
•Relates WBS elements at the work package level to the organizational unit responsible for
completing the work
14
Earned Value Framework
Steps to Success: Planning
Step 2: Determine Who Will Perform the Work
Who will perform the work?
• Determine Skill Level
Experience is faster but more costly
Task identification takes place during this step
Make or Buy Decision (Internal or Sub Contracting)
•Will all or some of your project be outsourced?
•Internal projects (Make Decision) has some cost flexibility
•Scope definition critical for external (Buy Decision)
Contracts are unforgiving – Cost to change can be excessive
Critical to get scope right because cost to change can be excessive
Responsibility Assignment Matrix (RAM)
•Tied to the WBS with the OBS
•Responsibly Chart for activities
15
Earned Value Framework
Steps to Success: Planning
Step 3: Plan and Schedule Work
Scheduling is vital to Earned Value
•Formal scheduling system (i.e. MS Project) is required
•EV is nothing more than: Scheduling system, authorized scope, timeframes, and
budgets
•Reflects PM’s baseline “Planned value (PV)” for everyone to follow
Critical Path (Task Sequencing)
•Which tasks are sequential? Parallel
•Network Diagramming tools
•Must be aggressively managed when negative earned value schedule variances
are discovered.
•Will help determine which task variances receive the most attention
High risk tasks must also be identified for same reason
Begin Scheduling
16
Earned Value Framework
Steps to Success: Planning
Step 4: Establish Resources and Budgets
Establish resource requirements (budgets) for all defined tasks
Start-up sequence may be different for your organization
•Scope, Schedule, and Budget vs. Scope, Budget, Schedule
•Best practices – should be iterative but SCOPE DEFINITION MUST COME FIRST
Enter resources for each task
Determine the costs for the activities
•Labor rates per task hour
•Fixed cost per activity or work package (need to be spread across each lower level activity)
Risk Analysis and Risk Management Plan
Resource Leveling Exercise
Management will then approve the budget
Contingency – Never include contingency in an individual task… why?
Will most likely cause a variance
Contingencies and other reserves should be isolated and owned by the PM
Must plan/schedule all defined tasks along with the authorized budget necessary to
complete each task. This is required to have a viable project baseline.
17
Earned Value Framework
Steps to Success: Planning
Step 5: Determine Performance Metrics and Thresholds
How is planned value completion measured?
EV Systems rely on the effective collection of the Performance and the
Costs.
There are basically 2 types of methods of collecting the Performance:
Discrete – something tangible to measure against
•0/100 – no EV credit until 100% of work is completed.
•50/50 and 25/75 – some EV credit at 25% or 50%, remaining EV at close of Work Package
•Weighted Milestone – Each completed milestong completion “earns” a percentage of EV. Must
be individually valued. May also consider monthly milestones
•Physical % Complete – ie. 5% start, 50% unit test, 75% code review, 100% signoff
•% Complete based on hours necessary to complete the task (common) least desirable
• Units completed – For physical counts of product or outputs
• Incremental milestones - % complete based on individual milestone completion
Non-discrete – where the measuring of performance is not associated with anything tangible
Level of effort should only be used when schedule performance is of no importance. A level of effort
package can never give an indication of the work that has actually been performed (PV) will always equal
the schedule work (PV)
18
Earned Value Framework
Steps to Success: Planning
Step 6: Create Performance Measurement baseline and Mgmt Control
Earned Value requires a baseline project schedule (time-Phased budget baseline)
Indirect costs “could” be included in some commercial type contracts
Schedule Management focuses on the schedule performance of the project.
• It looks at the relationships between the Earned Value (EV) and the Planned Value (PV).
This will be your Planned Value (PV) for the life of the project
Remember, MS Project can handle multiple baselines but you should always
measure against the last baseline required by the stakeholders.
This information will be plotted into a traditional “S” Curve diagram.
Results should be added to the Performance Management Plan
See Next Slide for an example
19
Earned Value Framework
Steps to Success: Planning
Traditional Cost Analysis – Budget Spend Plan
Is this Good or Bad?
Management
Reserve
Budget Ceiling
Dollars
Spend (PV)
(Planned Costs)
Cost to Date “Actuals”
Time
20
Analysis
Traditional Cost Analysis – Budget Spend Plan
Is this Good or Bad?
Actual costs are below planned
costs (good news?)
Management
Reserve
Budget Ceiling
Unless you look at the planned
costs of the completed work, you
don’t know if this is good or bad
That is exactly what is missing
and what Earned Value will tell you
Spend Plan (Planned Costs)
Dollars
Cost to Date “Actuals”
Time
21
Earned Value Framework
Steps to Success
Executing Steps
Planning
•Step 1: Define the Scope (Planning)
•Step 2: Determine Who Will Perform the Work
•Step 3: Plan and Schedule Work
•Step 4: Estimate Work and Procurement
•Step 5: Determine Performance Metrics and Thresholds
•Step 6: Create Performance Measurement baseline and Mgmt Control
Executing
•Step 7: Record Direct Costs
Controlling
•Step 8: Monitor EV Performance Against Baseline (Control Step)
•Step 9: Forecast Final Required Costs (Variance Reporting Step)
•Step 10: Manage Scope Through Change Control
22
Earned Value Framework
Steps to Success: Executing
Step 7: Record Direct Costs
Purpose is to show how much money they have spent on a project
Update the schedule with the period progress
PM’s are required to enter actual hours on a consistent basis
Costs from invoices are also entered
After actuals are entered cost and schedule variances can be calculated
This is where discrete measures come into play
Earned value must then be relatable to the actual costs in order to
determine the cost efficiency factor, called the Cost Performance Index
(CPI).
The CPI is likely the single most important metric for any project
employing earned value.
•To-Complete Performance Index (TCPI)
23
Earned Value Framework
Steps to Success
Controlling Steps
Planning
•Step 1: Define the Scope (Planning)
•Step 2: Determine Who Will Perform the Work
•Step 3: Plan and Schedule Work
•Step 4: Estimate Work and Procurement
•Step 5: Determine Performance Metrics and Thresholds
•Step 6: Create Performance Measurement baseline and Mgmt Control
Executing
•Step 7: Record Direct Costs
Controlling
•Step 8: Monitor EV Performance Against Baseline (Control Step)
•Step 9: Forecast Final Required Costs (Variance Reporting Step)
•Step 10: Manage Scope Through Change Control
24
Earned Value Framework
Steps to Success: Controlling
Step 8: Monitor EV Performance Against Baseline (Control Step)
Next Calculate all Earned Value components
Determine cost and variances from baseline
Determine three Required Values (PV budget, AC (Actuals) EV for the work
accomplished to date
•Tip: EV is based on a % of your budget – “We have actually completed “$” worth of work
Calculate Variances, indices and factors from baseline
• Variances (SV, CV, SPI)
• Performance Indexes (CPI, SPI) -- ratio expressions of the Schedule and Cost Variances
PMs should focus on exceptions using thresholds determined during planning
•Management by Exception (Lessons Learned)
•Cannot simply review parent tasks or phases
What if there is a negative task and a positive tasks.
Both will need attention
•How critical is the task? Is it on the critical path or is it a high risk task?
Start at the higher levels of the plan and work your way down
Cost overruns are typically non-recoverable.
25
Earned Value Terminology
Steps to Success: Controlling
Basic EV - Summary
Term
Interpretation
(PV)
Planned Value
This is your baselined budget as approved by your stakeholders
(AC)
Actual Cost
These are your actual hours and costs as entered by the project team.
PM must (at a minimum) audit these to verify
Discrete Entries: Verify if work completed is “DONE”
(EV)
Earned Value
What is the estimated value of the work actually accomplished?
(BAC)
Budget at
Completion
The project’s physical progress
•
Progress reported in baseline or planned dollars
•
Represents sum of % completion for each task or deliverable
The sum of all of the budgets allocated to a program.
How much did we Budget for the Total Job.
Planned value and Actual Cost will be compared to Earned value in terms of
differences / ratios
Will result in variances and performances indexes
26
Earned Value Terminology
Steps to Success: Controlling
Variance Calculations
Term
Interpretation
(SV)
Schedule
Variance
Represents the difference between the amount of work actually
completed and the amount of work scheduled to complete.
This variance tells us if the schedule is ahead or behind what was
planned for during this period of time.
(CV)
Cost
Variance
This is the Difference between the estimated and the actual cost
to complete the same work.
The cost variance tells us if the costs are higher than budgeted or
lower than budgeted.
(VAC)
Variance at
Completion
Represents how much over/under budget will we expect to be at
the end of the project
It calculates the difference between the budget at completion and
the estimate at completion.
27
Earned Value Terminology
Steps to Success: Controlling
Variance Calculations
=1
(SV)
Schedule Variance
On schedule
(EV – PV)
(CV)
Cost Variance
(EV - AC)
(VAC)
Variance at Completion
On budget
<1
>1
Poor Performance
If SV is less than 1.0 than your
project is behind schedule.
Less work completed than
planned
Good Performance
If SV is greater than 1.0 than
your project is ahead of schedule
More work has been accomplished
than scheduled
Poor Performance
If CV is less than 1.0 than your
project is over budget.
You have cost overruns
Typically not recoverable
Will continue to deteriorate
unless corrective action is taken to
mitigate
Good Performance
If CV is greater than 1.0 than
your project is under budget
You have cost under runs
A negative number means we
are doing poorer with costs than
we anticipated
A positive number means we are
doing better with costs than we
anticipated
(BAC – EAC)
REQUIRES PM ATTENTION
Why would attention be needed for a positive number?
•What if the schedule was over estimated?
•Are we using our resources efficiently?
28
Earned Value Terminology
Steps to Success: Controlling
Performance Indices
Term
Interpretation
(SPI) Schedule
Performance Index
•Calculates a ratio of the value of what was
accomplished (EV) versus what was budgeted to
accomplish it (PV), up to the status date.
•We are (only) progressing at __% of the rate
originally planned
(CPI)
Cost Performance Index
•Calculates a ratio of the value of what was
accomplished (EV) versus what was actually spent
to accomplish it (AC), up to the status date.
•Indicates if the cumulative actual costs during the
assessed period are higher or lower than budgeted
for the work completed.
•Single most important EV calculation
•We are getting ___$ out of every $1 spent
29
Earned Value Terminology
Steps to Success: Controlling
Performance Indices
(SPI) Schedule
Performance Index
=1
<1
>1
On
schedule
Poor Performance
If SPI is less than 1.0 than
less work was completed on
your schedule than what was
planned
Good Performance
If SPI is greater than 1.0
than your work
accomplished was more
than planned
Work done out of sequence
can lead a team to believe
the project is ahead of
schedule when it is not
Poor Performance
If CPI is less than 1.0 than
you are over budget.
•Spending is more than
planned for the work
accomplished
Good Performance
If CPI is greater than 1.0
than you are under
budget.
• Spending is Less
than planned for the
work accomplished
(EV / PV)
(CPI) Cost Performance
Index
On
budget
(EV / AC)
If your project is more than 20% complete,
the CPI stabilizes.
In other words, if you are overrunning at
20%, you will be overrunning at completion.
Furthermore, the % overrun at completion
will be greater than the % overrun to date!
Source: research on 700 DOD contracts
REQUIRES PM ATTENTION
Why would attention be needed for a positive
number?
•What if the schedule was over estimated?
•Are we using our resources efficiently?
30
Calculation Example
You have a project to build a new fence.
Fence is four sided (all sides are equal)
Each side is to take one day to build
Each side is budgeted for US $1,000
The sides are planned to be completed sequentially (one after the other)
Today is end of day three
Using the project status chart below, calculate EV, etc. When completed, check
your answers on the answer sheet on the following page.
Task
Day
1
Side 1
S---F
Side 2
Side 3
Side 4
Day 2
DAY 3
Day 4
Status
Complete, Spent $1,000
S---PF
---F
Complete, Spent $1,200
PS—S-PF
Half Done, spent $600
PS----PF
Not Started
31
Calculation Example
Description
Calculation
Answer
Interpretation
PV
Planned Value
1,000 + 1,000, + 1,000
3,000
We should have done $3K worth of work
EV
Earned Value
Complete, Complete, half done or
1,000 + 1,000 + 500
2,500
We have actually completed $2,500 worth of work
AC
Actual Cost
1,000 + 1,200 + 600
2,800
We have actually spent $2,800
BAC
Budget at Completion
1,000 + 1,000 +1,000 + 1,000
4,000
Our project budget is $4,000
CV
Cost Variance
EV – AC
2,500 – 3,000
-300
We are over budget by $300
CPI
Cost Performance Index
EV / PV
2,500 / 2,800
.893
We are only getting 89 cents out of every dollar we
put into the project
SV
Schedule Variance
EV – PV
2,500 – 3,000
-500
We are behind Schedule
SPI
Sched. Performance Index
EV / PV
2,500 / 3,00
.833
We are only progressing at 83% of the rate planned
EAC
Est. at Completion
BAC / CPI
4,000 / 2,800
4,479
We currently estimate that the total project will cost
$4,479
ETC
Estimate to Complete
EAC - AC
4.479 – 2,800
1,679
We need to spend $1,679 to finish the project
VAC
Variance at Completion
BAC - EAC
4,000 – 4,479
-479
We currently expect to be $479 over budget when
the project is complete
32
Compare Actual Performance with the Baseline
Plan
$60K
Earned Value on Bottom:
Wk 2: Management Attention
Corrective Action
$50K
$40K
Legend:
Planned Value
Earned Value
Actual Costs
$30K
$20K
$10K
Wk 1: Negative Cost Variance (EV-AC)
Wk 1: Negative Schedule Variance (EV-PV)
1w
2w
3w
4w
5w
6w
7w
8w
9w
10w
33
Compare Actual Performance with the Baseline
Plan
$60K
$50K
$40K
Earned Value now on top:
Wk 5: Positive Cost Variance (EV-AC)
Wk 5: Positive Schedule Variance (EV-PV)
Legend:
Planned Value
Earned Value
Actual Costs
$30K
$20K
$10K
EARLY MANAGEMENT ATTENTION……
1w
2w
3w
4w
5w
6w
7w
8w
9w
10w
34
EVM – Early Attention to Issues Avoids
this Problem
$60K
$50K
BIG VARIANCE AT COMPLETION
$40K
$30K
Legend:
Planned Value
Earned Value
Actual Costs
$20K
$10K
1w
2w
3w
4w
5w
6w
7w
8w
9w
10w
35
Tracking the CPI & SPI
Cost and Schedule Performance Trends
Early Management Attention can result in improvement
Periodic Index Value
1.2
1.0
Performance As
Planned
0.8
CPI
0.6
SPI
0.4
0.2
0.0
10/06
11/06 12/06
02/07 03/07
Jan-07 Feb-07
Mar-07 01/07
Apr-07 May-07
Jun-07
Period Ending
36
Earned Value Framework
Steps to Success: Controlling
Step 8: Monitor EV Performance Against Baseline (Control Step)
Variance analysis should address:
•Separate discussion of CV, SV (current and cum) and VAC
•Clear description of reason for variance
•Quantity variances (e.g., price vs. usage)
•Be specific, not general
•Corrective action
•Technical, schedule, and cost impacts
•Impact to estimate at completion
What is a significant variance?
•% variance (e.g., >10%)
•$ variance (e.g., >$50,000)
•Critical path element
•Risk/complexity
•impact to other elements
Performance
Metric
Green
Yellow
Red
CPI/SPI
0.95 – 1.25
CV/SV
<10%
.85 - .89
Or
1.15 – 1.25
<10% and
Corrective
action in
motion
<0.85
Or
> 1.25
> 10% or
Correction
action in not
in place
•Top 10, Top 20, etc.
•Owner
37
Earned Value Framework
Steps to Success: Controlling
Step 8: Monitor EV Performance Against Baseline (Control Step)
Potential Causes of Unfavorable
(-) Cost Performance
Potential Causes of Unfavorable
(-) Schedule Performance
Work more complex than estimated
Manpower shortage
Design review comments extensive
Revised Execution Plan
Rework
Supporting organization behind schedule
Unclear Requirements
Late Vendor deliver
Scope Creep (Gold Plating)
Delayed customer feedback / decision
Increased Market costs for labor or
material
Rework
Overhead Rate Increases
Design Review comments extensive
Work more complete than anticipated
Unclear Requirements
Potential Causes of Favorable
(+) Cost Performance
Scope Creep
The opposite of unfavorable cost
performance
38
Earned Value Framework
Steps to Success: Controlling
Step 8: Monitor EV Performance Against Baseline (Control Step)
Corrective Action- How to bring the task back in line
•Crashing
Goal: Gain the greatest amount of schedule compression with the least amount of cost
Looks at cost and schedule tradeoffs
Add Resources to the tasks in the critical path (internal or external)
Reduce project scope
Review changing the sequence of tasks
Often causes costs to increase
Which is the most important of the triple constraints to your stakeholders? (Cost, Schedule, Quality)
•Fast Tracking
Starting two tasks at the same time that were previously scheduled to start sequentially
Can increase risk and might cause the project team to rework tasks
Develop a process to “Reuse” code – This actually can reduce defect risk
•Example: We are six months into a million dollar project.
CPI = 1.2 (we are getting 1.2 dollars for every dollar spent
SPI = .89 (we are progressing only at 89% of what was planned)
What can be done?
• Replace a more expensive member from the project team? (This would improve cost not schedule and add risk)
• Bring in an additional programmer to work on the next two tasks. (Most effective choice)
39
Earned Value Framework
Steps to Success: Controlling
Step 9: Forecast Final Required Costs
This step is in place to forecast the final required costs based on actual
performance
Keep management apprised so corrective action can take place
Actual performance results are sunk costs. These are unrecoverable
Any improvements in performance must come from future work.
EAC indicates where the cost is heading
Earned value provides the capability to quickly and independently
forecast total funds required to complete the project (ETC)
ETC is a forecast for completing the total project.
Considers the performance to date plus future estimates
Variance Reporting
40
Earned Value Framework
Steps to Success: Controlling
Step 9: Forecast Final Required Costs
(EAC)
Estimate at Completion
A.
BAC / CPI
B.AC + ETC
C.AC + BAC - EV
D.AC + (BAC – EV) / CPI
Gives us an idea of final costs of a project. It takes into account the original
budget (BAC). The earned value and the cost performance index of the already
complete work.
As of now, how much do we expect the total project to cost? $____. Formulas:
A. Used if no variances from the BAC have occurred or you will continue at the
same rate of spending
B. Used when the original estimate assumptions were fundamentally flawed or no
longer relevant due to a change in conditions
• Requires PM to perform bottom up evaluation of Estimate to Complete
• Example: Complete change in in environmental regulations creates a need
for a different design than was scoped. Need rebaseline.
C. Used when current variances are seen as atypical and the expectation is that
similar variances will not occur in the future. Actual to date plus remaining
budget modified by performance.
D. Used when current variances are seen as typical of future variances
Most respected, since cumulative variances are indicative of future variances
(ETC)
Estimate to Complete
From this point on, how much MORE do we expect it to cost to finish the project?
EAC - AC
An estimated cost to complete the remaining work on the project .
41
Project Earned Value Analysis
Sample Dashboard
1.50
140
1.50
Behind Schedule and Under
spent
140
130
130
1.20
1.20
1.10
CPI
Ahead of Schedule and Under
spent
0.90
SPI = 0.71
CPI =Target
0.86
SPI = 0.48
CPI = 0.81
1.10
Target
0.90
0.80
0.80
07/15/05
08/25/05
0.70
0.60
0.50
06/28/05
0.50
0.70
0.60
Ahead of Schedule and Over
spent
Behind Schedule and Over
spent
0.30
0.70
SPI = 0.61
CPI = 0.74
0.90
1.10
1.30
1.40
0.50
1.60
SPI
42
Project Earned Value Analysis
MS Project 2003
Variance Report Example
43
Let software tools do the number crunching
44
Earned Value Framework
Steps to Success: Controlling
Step 9: Forecast Final Required Costs
MS Project (2003) Earned Value tools (downloads)
• Help>Performing Earned Value Analysis
• You will be taken to MS Project Download Template Page
Manage costs during the project life cycle (Article)
• Use these strategies to ensure that your project stays within your budget.
Goal: Monitor costs (Article)
• Examine your current, actual, remaining, and baseline cost totals in Project
2003.
Goal: Adjust costs to keep the project on budget (Article)
• After you identify a budget problem, learn to take corrective action with
Project 2003.
Project earned value analysis (Template)
• Track time-phase expenses for projects by using this template.
Cost analysis with Pareto chart (Template)
• Use this statistical method to identify the most critical cost problem areas to
improve.
Project resource plan (Template)
• Use this template to communicate project resource planning information to
all key project stakeholders.
45
Project Earned Value Analysis
MS Project 2003
Project earned value analysis (Template)
Track time-phase expenses for projects by using this template.
Metric
Budget at
Completion
Actual Cost
Earned Value
Planned Value
Cost Variance
Cost Performance
Index
Schedule Variance
Schedule
Performance Index
Estimate to
Completion
Estimate at
Completion
Variance at
Completion
Status
Thresholds
Abbre
v.
XYZ Project
Jan
Description
Formula/Value
BAC Baseline cost for 100% of project.
N/A
AC Total costs actually incurred so far.
N/A
Amount of budget earned so far based on
physical work accomplished, without
EV reference to actual costs.
N/A
The budget for the physical work scheduled
to be completed by the end of the time
PV period.
N/A
Measure of cost overrun. The difference
between the budget for the work actually
Earned Value–Actual Cost
CV done so far and the actual costs so far.
EV–AC
Cost efficiency ratio. A CPI of 1.00 means
Earned Value/
that the costs so far are exactly the same
Actual Cost
CPI as the budget for work actually done so far.
EV/AC
Measure of schedule slippage. The
difference between the budget for the work
Earned Value–Planned
actually done so far and the budgeted cost
Value
SV of work scheduled.
EV–PV
The schedule efficiency ratio. An SPI of 1.0
Earned Value/Planned
means that the project is exactly on
Value
SPI schedule.
EV/PV
Estimate at Completion–
Actual Cost
ETC The expected additional cost to complete.
EAC–AC
Budget at Completion/Cost
Expected total cost based on the current
Performance Index
EAC cost efficiency ratio.
BAC/CPI
Budget at Completion–
Estimated cost overrun at the end of
Estimate at Completion
VAC project.
BAC–EAC
(Cost Performance
Index+Schedule
Performance Index)/2
Average of CPI & SPI.
(CPI+SPI)/2
GREEN = On track
>1.0
YELLOW = Slightly behind schedule or
budget
>0.85
RED = Needs immediate attention
>0.65
BLACK = Killed or Restore
<0.65
Budget at Completion
(BAC)
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
$1,230
$1,230
$1,230
$1,230
$1,400
$1,400
$1,400
$1,400
$1,400
$1,400
Earned Value (EV)
$100
$200
$300
$450
$750
$800
$1,125
$1,200
$1,400
$1,400
Actual Cost (AC)
$100
$205
$315
$600
$800
$1,000
$1,200
$1,350
$1,475
$1,525
Planned Value (PV)
$100
$220
$325
$550
$725
$925
$1,175
$1,275
$1,450
$1,500
Cost Variance (CV)
$0
($5)
($15)
($150)
($50)
($200)
($75)
($150)
($75)
($125)
Schedule Variance (SV)
$0
($20)
($25)
($100)
$25
($125)
($50)
($75)
($50)
($100)
Cost Performance Index
(CPI)
1.00
0.98
0.95
0.75
0.94
0.80
0.94
0.89
0.95
0.92
Schedule Performance
Index (SPI)
1.00
0.91
0.92
0.82
1.03
0.86
0.96
0.94
0.97
0.93
Estimate to Completion
(ETC)
$1,130
$1,056
$977
$1,040
$693
$750
$293
$225
$0
$0
Estimate at Completion
(EAC)
$1,230
$1,261
$1,292
$1,640
$1,493
$1,750
$1,493
$1,575
$1,475
$1,525
Variance at Completion
(VAC)
$0
($31)
($62)
($410)
($93)
($350)
($93)
($175)
($75)
($125)
YELLOW
YELLOW
YELLOW
YELLOW
YELLOW
YELLOW
Status based on Average
Performance Index
GREEN
RED
YELLOW
RED
Comments
New
baseline
set
46
Project Earned Value Analysis
MS Project 2003
Trend Analysis
Earned Value Analysis
$1,800
Performance Index
1.10
$1,600
1.00
$1,400
$1,200
0.80
$600
Efficiency
$800
$ (000)
$1,000
0.90
0.70
$400
$200
0.60
$0
Jan Feb Mar Apr May Jun
Jul
Aug Sep Oct
Period
0.50
Jan
Feb Mar
Apr May Jun
Jul
Aug Sep
Oct
Period
Budget at Completion (BAC)
Actual Cost (AC)
Earned Value (EV)
Planned Value (PV)
Cost Performance Index (CPI)
Schedule Performance Index (SPI)
47
Project Earned Value Analysis
MS Project 2003
Trend Analysis
Variance Analysis
Estimate at Completion
$1,800
$50
$1,600
($100)
$1,500
($150)
($200)
$ (000)
($50)
$1,400
$(000)
$1,700
$0
$1,300
($250)
($300)
$1,200
($350)
$1,100
($400)
$1,000
Jan
($450)
Jan Feb Mar
Apr May Jun
Jul
Aug Sep
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Oct
Period
Period
Cost Variance (CV)
Schedule Variance (SV)
Budget at Completion (BAC)
Estimate at Completion (EAC)
48
Earned Value Framework
Steps to Success: Controlling
Step 10: Manage Scope Through Change Control
Integrated Change Control
Without a CC process performance baselines become invalid
Changes and new work due to issue management should be added to the
schedule.
All change requests must be addressed quickly
•Accept or reject by Change Control Board, Steering Committee or Sponsor
PMs should have authority to say no to changes
All changes should be documented
No Gold Plating!
• Single most important factor to a sound EVM process and implementation
49
Earned Value Benefits
50
Earned Value Benefits
 Provides managers with information at a practical level of
summarization
 Alerts PMs to potential schedule and cost risks early
 Provides a documented project performance trail
 Communicates project status
 Tracks and monitors discrete project metrics
 Relates time-phased budgets to specific contract tasks
 Provides comparisons between planned and actual work
 Provides accurate and reliable readings of cost and schedule
performance
 Actual performance at the 15% complete point can be used to
predict final performance.
 The schedule performance index (SPI) is useful in assessing how
much work has been accomplished.
 The CPI index provides a statistical basis for a “best case” final
estimate.
 The CPI and SPI indices may be combined to statistically forecast
the “most likely” final estimate.
51
Earned Value Key Lessons Learned
52
Earned Value Key Lessons Learned
Lesson
Attributed To
1 Schedule Compression incurs
Corrective Action
•Work cannot be scheduled and resourced in an
optimal fashion
•Schedule compression almost always results in
inefficiencies due to resource loading and reword
additional project cost
2 Education and buy-in are
Lack of Senior
Level Commitment
• Executives
• Project Managers
• Staff
3 WBS Quality / Reliability
WBS Quality not
maintained
• All parties buy in to the WBS
• WBS is simple - composed of measurable, deliverable
pieces
• Risk-adjusted SPI/CPI
4 Sustenance
Perceived
Complexity
Keep Process Simple and Tool Supported – See #2
5 No variance reports /
No policy in place
or no standard
•Weekly high level metrics, Monthly Dashboard
reporting with full EV
•Graphs and text – Period/period compare
6 Manage by Exception – Too
Micro Management
Manage by exception. Focus on significant variances to
the plan. Apply timely corrective actions.
7 Tracking conducted
PM Discipline
Track – Track – Track
No Pain NO Gain
8 Time for data measurement,
Growing Pains
Plan ahead – Provide amble PM time to create and
research results
crucial
Through time not just to start
Plan the work carefully and
accurately
dashboards
much management will scare
your PMs
inconsistently.
input, and manipulation can be
considerable.
53
Earned Value Limitations
54
Earned Value Limitations
Traditional EV is not intended for non-discrete (continuous) effort.
•When a plan contains a significant portion of LOE intermixed with discrete
effort, EVM results will be contaminated
The use of EVM presumes that stakeholders care about measuring progress
objectively.
Quantifying/measuring work progress can be difficult.
Time required for data measurement, input, and manipulation can be
considerable.
EVM requires thorough and accurate planning of cost and schedule to be
effective.
Future performance is being forecast based on past performance (so if your
data is bad, so is your forecast)
Earned Value does not measure quality
EVM is designed to ensure that the future predicted by EVM
does not materialize – as it encourages corrective action
55
Earned Value Do’s and Don'ts
56
Earned Value Do’s and Don'ts
Do’s
Take the necessary building steps seriously
•Integrate the scope of work, schedules, and costs using a WBS.
Train your stakeholders. It is critical they can understand the variance
reports
Document all performance metrics and thresholds in the Project Plan
(Performance Plan)
Determine how you will measure your tasks (discrete options)
Assess variances early – No later than 15 % in
..Highest Potential for Cost / Schedule Recovery..
Make sure the bad news is heard
Take corrective action
•Staff changes?
•Mid-term evaluation of work
•Crashing
•Fast Tracking
57
Earned Value Do’s and Don'ts
Do’s
Request and monitor that staff enters actual hours each week
Provide PMs with a reliable labor and overhead rates for each resource.
•Without the rate CPI does not mean much
Have policies in place for rebaselining
•Keep your original baseline in tact and always measure against it
•If for no other reason, it keeps historical estimates in place
Re-plan as necessary
•Budget increase?
•Scope change?
•Schedule change?
Create a weekly or Monthly Variance Report
Use standard templates for reporting
•Helps with the learning curve
•Helps to compare or aggregate data across projects
Institute Standard Reporting Cycles
58
Earned Value Do’s and Don'ts
Do’s
Perform scheduling and WBS creating at the same time.
•There is a documented order defined in the PMBOK
•Most Common Error
Don’t set up your project with “level of effort” planning.
•Creating one task (i.e. design) and allocating a certain number of people to it over a
fixed amount of time.
•Earned value will not be possible. The only measurement possible will be cash flow
Leave planning until your financials and WBS are integrated through Cost
Control
•Cost account structures and the level of detail to be tracked must support the earned
value management system.
•Each cost account should have a unique identifier to enable an accurate calculation of
the actual cost of work performed (ACWP).
Manage at only the contract / engagement level
•Rarely are projects managed at the WBS Deliverable Level – EV Loses
Control
59
Earned Value Do’s and Don'ts
Don'ts
Focus solely on schedules. This is the typical PM Mindset by Business Culture. PMs:
• Are focused on Schedules --NOT Costs
• Manage at the contract level vs the WBS Deliverable Level
Leave real Billing Rates out of the WBS
•Competition Sensitive Data
•Artificial Blended Rates
•Fixed Price, So Why Bother
•The $1.00 per hour fix
Let your tasks or milestones get too large in duration, cost and scope
•Could impact PM’s ability to identify variances at a level that can be
corrected
Include multiple individuals on the same task whenever possible
•Helps identify root cause of variances easier
Forget Success factors
•A full WBS is required (all scope)
•Beware of GIGO: Garbage-in, garbage-out
No Gold Plating!
If you know there is a significant variance don’t wait until you create the
monthly report to begin corrective action planning
Assume adding a resource or adding paid overtime will “fix” the schedule
variance – most likely will create a CPI issue. Cover this with stakeholders early.
60
Why do we need early warning
Course corrections are easier
when you have time to make
small adjustments
It’s too late when you’re this
close to the iceberg!
61