# Presentation: 721252

## Earned Value Management

**Earned Value Management**

## What is it?

- Where did it come from?
- What’s so special about it?
- How do you do it?
- What is an EVMS?

## What is it ?

- A systematic approach to the integration and measurement of cost, schedule, and technical (scope) accomplishments on a project.
- Provides the ability to examine detailed schedule information, critical program and technical milestones, and cost data.

**What is it ?**

## Where did it come from?

- 1960s – DoD adopted Cost/Schedule Control Systems Criteria (C/SCSC) as an objective measure of progress.
- 1970s – Continued use in DoD as a means to offset cost/schedule risk in cost-pus contracts.
- High-tech, newly-developed weaponry
- Arms race induced critical schedule needs
- 1990s – Policy moved Earned Value into all Federal agencies
- OMB Circular A-11
- NASA Policy Directive 9501.3
- DOE Order 413.3
- 2003 – OMB began enforcement in all civilian agencies.

**Where did it come from?**

## Why do we care?

**Why do we care?**

- Projects over budget and behind schedule*
- 53% of IT projects finish over budget and behind schedule
- 52% finish at 189% of their initial budget
- 18% are simply never completed
- Consistent performance measures allow comparison across the portfolio
- Statistically proven performance projections
- Performance at a project’s 25% completion point will remain steady throughout the project’s lifecycle.
- It’s now an OMB requirement.

***Source: Standish Group’s Chaos Chronicles 2004**

## What’s so special about it?

- Budget vs Actuals
- Earned Value Analysis

**What’s so special about it?**

## Traditional Management Approach:

**Traditional Management Approach:**

## EVM Integrates cost, schedule, and scope.

- What is to be done? (scope)
- When will activities be completed? (schedule)
- What will it cost (and when) when to complete those activities?

**EVM Integrates cost, schedule, and scope.**

## Based on something called Earned Value.

- A _concept_ that task activities earn value as work progresses
-  A _data point_ that expresses the value of work accomplished

**Based on something called *****Earned Value*****.**

## The value earned is the budgeted cost of the activity completed to date.

***The value earned is the ***_***budgeted cost***_*** of the activity ***_***completed***_*** to date.***

**The concept that task activities “earn value” as work progresses.**

## A data point that expresses the value of work accomplished

**Does not address the money spent in getting there.**

**A data point that expresses the value of work accomplished**

## So how do we do this stuff?

- Planned Value (PV)
- Earned Value (EV)
- Actual Cost (AC)

**So how do we do this stuff?**

## Absolutely dependent on the Work Breakdown Structure

**Deliverable-oriented**
**Organizational responsibility identified in WBS**
**Work not in the WBS is out-of-scope**
**All lower-level elements roll up to the WBS total**

**Absolutely dependent on the Work Breakdown Structure**

**Full (and accurate) definition is key**
**Defined deliverable(s)**
**Timeframe for delivery of product**
**Total cost (direct and indirect) to deliver product**
**Assigned organizational responsibility**

## Data source is the Integrated Project Baseline

**Expressed in dollars (PV)**
**How much do you expect to have done at completion ?**
**Budget at Completion (BAC)**

**Data source is the Integrated Project Baseline**

## Slide 15

## Slide 16

## The dollar amount actually spent to date.

**Has no relationship to work accomplished.**

**Data source is the Earned Value Management System**

## Slide 18

## Data source is the Earned Value Management System

**Does not address the money spent in getting there.**

**Data source is the Earned Value Management System**

## Several ways to “earn” it:

**Start/Finish of WBS Elements**
**Milestones Completed (0-100%)**
**Percent Completion Estimate with Milestone Gates**

**Several ways to “earn” it:**

- 25%         75%                           50%          50%                                  0%         100%

-                                  33%                                   67%                                        100%

## Slide 21

## Compares the amount of work completed with what was scheduled and budgeted, to determine if cost (AC), schedule (PV), and work accomplished (EV) are progressing as planned. 

**By integrating these three measurements, it provides consistent, numerical indicators with which we can evaluate and compare projects.**

## Slide 23

## These three data points allow us to:

**These three data points allow us to:**

**Calculate variances in cost and schedule performance.**
**Calculate performance indices that allow direct comparison to other projects’ performance.**
**Analyze trends in project performance.**
**Formulate predictions as to how well the project will perform in the future.**

## Cost Variance

**A comparison of the budgeted cost of work performed with actual cost.**
**A negative variance means the project is over budget.**
**	****	****	****CV = EV – AC**
**	****	****	****CV = 851,000 – 1,041,000**
**	****	****	****CV =  -  $190,000**
**Note that this is not “budget vs actuals.”**

## Schedule Variance

**A comparison of amount of work performed to what was scheduled to be performed.**
**A negative variance means the project is behind schedule.**
**	****	****	****SV = EV – PV**
**	****	****	****SV = 851,000 – 1,000,000**
**	****	****	****SV = - $149,000**

## Cost Performance Index

**A ratio of the budgeted cost of work performed to the actual cost.**
**An index less than 1.00 means the project is over budget.**
**CPI = EV / AC**
**CPI = 851,000 / 1,041,000**
**CPI = 0.817**

## Schedule Performance Index	SPI=EV/PV

**A ratio of the amount of work performed to what was scheduled to be performed.**
**An index of less than 1.00 means the project is behind schedule.**
**SPI = EV / PV**
**SPI = 851,000 / 1,000,000**
**SPI = 0.851**

## Cost Variance (EV-AC) 

**Cost Variance (EV-AC) **
**$851K - $1041K = -$190K**
**CPI (EV/AC) =  0.8175**

## Schedule Performance

**Schedule Variance (EV-PV)**
**$851K - $1,000K = ****-**** $149K**
**SPI (EV/PV) = 0.851**

**And look at this:**
**$ - 149K = 1 Month Slippage**

**Schedule Performance**

## Estimate to Complete (ETC)

**Estimate to Complete (ETC)**
**How much will we have to spend (after today) to complete?**
**Total budget less what we’ve **_***earned***_** to date. (With some assumptions).**
**Performance to date has been anomalous**
**Cost Performance to date will continue**
**Both Cost and Schedule Performance to date will continue**

## Estimate to Complete (ETC)

**Estimate to Complete (ETC)**
**Performance to date has been anomalous:**
**ETC =  BAC – EV  =  $1,149,000**
**Cost Performance to date will continue:**
**ETC =                      =  $1,405,504              **
**Both Cost and Schedule Performance to date will continue:**
**ETC =                      = $1,651,574**

- BAC - EV
- CPI

## Estimate at Completion (EAC)

**How much will we have spent when we’re actually done?**
**Again, based on the same assumptions as ETC.**
**EAC =  AC + (BAC-EV)      =  $2,190,000**
**EAC = AC +                         =  $2,446,505**
**EAC = AC +                          =  $2,691,856**

## To-Complete Performance Index (TCPI)

**To-Complete Performance Index (TCPI)**
**How well do we have to perform to get back on track?**
**Again, based on the same assumptions as ETC.**
**TCPI****C**** =                 = 1.22 **
**TCPI****S**** =                  = 1.17 **
**TCPI****CS**** =                        = 1.437**

## And if everything goes perfectly:

**And if everything goes perfectly:**

## What are they ?

**What are they ?**
**Where do we get one ?**

## What they are NOT:

**It is NOT a Tool or Set of Tools**
**You Can’t Buy One**
**(And neither can your contractor)**

**What they are **_**NOT**_**:**

## So what IS it then ?

**integrate scope, schedule, and cost objectives,**
**establish a baseline plan for accomplishment of project or program objectives, and**
**employ earned value techniques for performance **_**management**_**.**

**So what **_**IS**_** it then ?**
**ANSI/EIA-748 defines it:**

## ANSI/EIA-748 prescribes 32 criteria in five categories:

**Planning, scheduling, and Budgeting**
**Accounting Considerations**
**Analysis and Management Reports**
**Revisions and Data Maintenance**

**ANSI/EIA-748 prescribes 32 criteria in five categories:**

## Organization (of the project)

- Define the entire project.
- Establish an integrated project baseline based on a WBS.
- Establish management control responsibilities within the WBS.
- Assign responsibilities for all WBS elements.

## Planning, Scheduling, and Budgeting

- Employ a formal planning, scheduling, and budgeting system.
- Measure performance against the integrated performance baseline.
- Cost
- Schedule
- Scope

## Accounting Considerations

- Provide accurate and timely cost reports (at the WBS element level).
- Record project costs as consumed or incurred.
- Provide accounting systems that can measure:
- Planned Value
- Earned Value
- Actual Cost

## Analysis & Management Reports

- Provide regular reporting, at least monthly.
- Cost
- Schedule
- Scope
- Analyze actual performance against the authorized baseline, including, at a minimum:
- Schedule Variance
- Cost Variance
- Revise forecasts of final results based on actual performance.
- Estimate to Compete
- Estimate at Completion
- Implement managerial actions in response to EV information.

## Revisions and Data Maintenance

- Provide timely approval/rejection of all change requests
- Incorporate _approved_ changes in a timely fashion.
- Reconcile budget changes to _authorized_ scope changes
- Control retroactive changes

## “EVMS scalability is viewed as a spectrum employing the principles of EVMS as fundamental to all programs and the EVMS guidelines as applicable to large, complex, and/or high risk programs; allowing any program regardless of size and complexity to realize the benefits of earned value management.”

**ANSI/EIA-748**

## Risk

**Uncertainty**

**Granularity**

**Frequency**

**Significance**

**Risk**

**    ****Rigor**

**Source: The PMI****©**** Earned Value Practice Standard**

## The Scalability Debate

**“****Tailored” EVM**
**“****EVM Lite”**
**Whatever the name, OMB doesn’t like it.**

## Approaches to EVM

**Approaches to EVM**
- All 32 ANSI Standard criteria apply, period! *(OMB’s full compliance)*
- Criteria are scalable and can be adapted, based on a project’s size, complexity, risk, etc.  *(Tailored EVM) *
- Selected criteria are applied and additional ones can be added, based on a project’s size, complexity, risk, etc.  (*EVM Lite)*

## Management practices and discipline vs. a tool set

- Work Breakdown Structure (WBS)
- Integrated scope/schedule/budget baseline
- Accounting system that accommodates the WBS
- Change control plan

## Wrong ?

**Inadequate requirements definition**
**No (or Incomplete) Work Breakdown Structure**
**Accounting systems that can’t address the WBS**
**Lack of management attention to project progress**
**Failure to respond to warning signs**
**Failure to reconcile baseline to funding shortfalls**
**(Rebaseline)**

## Slide 51

## Your Turn !

**Your Turn !**