# Presentation: 497774

## Department of the InteriorCPIC ForumBetter Control of Cost and Schedule Variancethrough Earned Value Management

- January 10, 2008
- Office of Acquisition and
- Property Management

## Project Manager’s Challenges

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**Project Manager’s Challenges**

- Need for _accurate_ and _consistent_ planning and “real time” status information
- Need for accurate measuring and forecasting tools

- High dollar, potentially risky projects
- Complex projects with many activities to track
- Expectations of many stakeholders (visitors/users to OMB/Congress)
- Performance metrics and milestones to meet
- Competition for limited resources

## Much Opportunity for Improvement

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**Much Opportunity for Improvement**

- 70% of projects are over budget and/or behind schedule
- 52% of all projects finish at 189% of their initial budget
- Many don’t meet original design specs and stakeholder expectations after huge investments of time and money
*Source: Standish Group*
- In some DOI construction programs:
- 25% of projects are not completed five years after the initial appropriation
- 30% of completed projects have a cost variance of _>_10%
- Almost 50% of all major projects (_>_ $10 million) had a significant cost and schedule variance (>10%)

## Threats to Cost Performance 

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**Threats to Cost Performance **

- _Potential Causes of Poor Cost Performance:_
- Inaccurate estimating data
- Vaguely defined user needs and requirements
- Insufficient oversight of A-E firm during design phase
- Poorly defined scope that allows for scope creep
- Contract provisions are not rigorously enforced to limit cost increases
- Construction management is inadequate/ineffective
- Complications during construction that could not be foreseen
- Inordinate amount of change orders
- Unfavorable market fluctuations in the cost of labor/material
- Inadequate contingency for weather disruptions

## Threat to Schedule Performance

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**Threat to Schedule Performance**

- _Potential Causes of Poor Schedule Performance_
- Extensive design changes
- Poorly developed schedule
- Insufficient use of tools to track/manage schedule (e.g., EVM)
- Contractors not held to contract performance requirements
- Differing site conditions / other “unforeseen” conditions
- Inordinate number of change orders
- Poor performing subcontractors or venders
- Competition for resources
- Scope creep
- Inclement weather

## Answering the Critical Questions

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**Answering the Critical Questions**

- “_Have we done what we said we’d do_?”
- % of budget spent
- % of work done
- % of time elapsed
- And if we don’t do what we said we’d do --
- Will the mission be adversely affected?
- Will a critical health and safety risk remain?
- Will ongoing completion funding be available?
- Will the project be able to complete successfully?

## Earned Value Management (EVM) Can Help

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**Earned Value Management (EVM) Can Help**

- EVM is a project management tool that integrates the project scope of work with schedule and cost elements.

## Earned Value Management (EVM) Strengths

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**Earned Value Management (EVM) Strengths**

- Provides customers and contractors the ability to:
- Examine detailed schedule information; critical program data, technical milestones; and costs
- Measure a projects progress
- Forecast its completion date and final cost
- Identify schedule and budget variances
- Take preemptive action to keep the project on track

## Requirements to Use EVM

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**Requirements to Use EVM**

- EVM is an industry standard
- _Mandates Set the Stage_:
- Government Performance Results Act ; 1993
- Federal Acquisition Streamlining Act, Title V; 1994
- Clinger-Cohen Act; 1996

- _OMB Requires It (Circular A-11, Part 7)_
*"Agencies must use a performance based acquisition management system, based on ANSI/EIA (EVMS) Standard 748, to measure achievement of the cost, schedule, and performance goals."*

## Three Measurements for EVM

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**Three Measurements** **for EVM**

- EVM provides consistent, numerical indicators with which you can evaluate and compare projects

- EVM 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

## EVM Terms

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**EVM Terms**

- BCWS - Budgeted Cost of Work Scheduled
*	**Planned cost of the total amount of work scheduled **	**to be performed by the milestone date*
- ACWP - Actual Cost of Work Performed
*	**Cost incurred to accomplish the work that has been **	**done to date*
- BCWP - Budgeted Cost of Work Performed
*	**  **The planned (not actual) cost to complete the work **	**that has been done*

## Foundation of EVM

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**Foundation of EVM**

- EVM work is ‘compartmentalized’ (manageable segments)
- Compartmentalization achieved with a Work Breakdown Structure (WBS) – basic building block for all authorized work
- _Well-planned WBS is the most important planning element_

## Work Breakdown Structure Design

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**Work Breakdown Structure Design**

- _The WBS provides a framework from which_**:**
- A project’s work content to be easily identified, tracked, and summed
- Planning can be performed
- Costs can be accumulated
- Budgets can be established and managed
- Performance can be tracked
- Objectives can be linked to resources in a logical manner
- Schedules and status-reporting procedures can be established
- Responsibility for each element can be established

## Work Breakdown Structure Design

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**Work Breakdown Structure Design**

- Identifies final project products (outcomes) and major deliverables necessary to meet the final products
- Incorporates levels of work detail appropriate for management insight and integrated control
- WBS reviewed and refined until project stakeholders agree that:

- Project planning can be successfully completed
- Managing, monitoring and control will successfully produce desired outcomes

## Sample Work Breakdown Structure

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**Sample Work Breakdown Structure**

## WBS Units are “Work Packages”

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**WBS Units are “Work Packages”**

- Lowest level WBS elements
- Have three measurable components
-   Scope of work to be accomplished
-   Total (direct and indirect) cost
-   Timeframe for completion
- Duration of a work package is a relatively short span of time

## Making Projections/Estimate to Complete

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**Making ****Projections/Estimate to Complete**

## Metrics Derived from an EVM

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**Metrics Derived from an EVM**

- _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.

## Other Derived Metrics

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**Other Derived Metrics**

- _SPI: Schedule Performance Index_
- 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

## Establishing an EVMS

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**Establishing an EVMS**

- ANSI/EIA 748 Standard Criteria provides a list of guidelines
- - Organization
- - Planning, Scheduling, and Budgeting
- - Accounting Considerations
- - Analysis and Management Reports
- - Revisions and Data Maintenance (change management)
- ANSI/EIA 748 _doesn’t_ identify ‘approved systems’

## Setting Up an EVMS

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**Setting Up an EVMS**

- Develop Sound Statement of Work (SOW)
- Determine Reporting Requirements
- Develop WBS to Appropriate Level
- Develop Project Schedule Structured in accord with WBS
- Develop Resource Requirements/Budget Based on approved scope (WBS)
- Develop Schedule and Cost Baseline a.k.a Performance Measurement Baseline (PMB)
- Integrated Baseline Review (IBR) Definition

## Earned Value Challenges

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**Earned Value Challenges**

- Time required for data measurement, input, and manipulation can be considerable
- At the start of the project, the risk and uncertainty are highest
- Identify risks and plan accordingly (mitigation strategy)
- A project schedule must meet three criteria to be complete: buy-in, be achievable and realistic, and formal
- Integrated Project Management Team is actively involved

## Summary

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**Summary**

- Earned Value Management is a tool for performance measurement (cost and schedule) and forecasting
- Informal measures of progress are inaccurate
- Degree of planning increases with greater complexity and cost

## Earned Value Resources

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**Earned Value Resources**

- Project Management Institute -- http://www.pmi.org/
- Department of Defense, Under Secretary for Acquisition, Technology and Logistics -- http://www.acq.osd.mil/pm/
- National Defense Industrial Association (NDIA) --http://www.ndia.org/
- Earned Value Management CoEye (Community of Interest)
-  -- http://www.fedevm.org/
- ANSI/EIA 748 is available from Global Engineering Documents at 800-854-7179