1. Intermediate Cost Analysis and Management
Apply Earned Value Management Principles to Case Study Scenario: Completing the Great Pyramid
Intermediate Cost Analysis
and Management
© Dale R. Geiger 2011

2. If Only the Pharaoh Had the Corps of Engineers
Introduction
If Only the Pharaoh Had the Corps of Engineers
How do you think the Corps of Engineers might have impacted the process of building the pyramids? The design?
© Dale R. Geiger 2011

3. Terminal Learning Objective
Task: Apply Earned Value Management Principles to Case Study Scenario
Condition: You are training to become an ACE with access to ICAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors.
Standard: with at least 80% accuracy
Identify key variables from case study data
Calculate BAC, schedule and cost variances, and EAC
Introduction
Task: Apply Earned Value Management Principles to Case Study Scenario
Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors
Standard: with at least 80% accuracy
Identify key variables from case study data
Calculate BAC, schedule and cost variances, and EAC
© Dale R. Geiger 2011

4. Building the Great Pyramid Case A: The Air Force Approach
Read the paper “If the Pharaoh Had Only Used an Earned Value System in Building the Pyramids”
By LTC Neimann (USAF Ret) found at
Using the tools learned:
Build and verify the BAC presented in the paper
Determine schedule variance at Year 12
Determine the cost variance at Year 12
Calculate EAC at Year 12
Activity Step 1: Identify key variables from case study data
[Direct students to Read the paper “If the Pharaoh Had Only Used an Earned Value System in Building the Pyramids”
By LTC Neimann (USAF Ret) found at . Their tasks are to:
Build and verify the BAC presented in the paper
Determine schedule variance at Year 12
Determine the cost variance at Year 12
Calculate EAC at Year 12
Students will have blank templates for the following slides. After minutes have the students return and go over the slides with the solutions.]
© Dale R. Geiger 2011

5. Budget at Completion: BAC
Year
Design
Mfg
Comp
Test
Assemble
Intg
Total
Cum 2 1 4
1.5
2.5
3.5 6 7 8
10.5 10 13 12 .5
14.5 14 16
17.5 18 19 20
Activity Step 1: Identify key variables from case study data
This chart represents the plan for completion of the entire pyramid project. The various tasks are represented in the table as columns and the time frame for completing each is represented in the rows for the years. The time periods are represented in 2-year increments. The costs for the tasks are assumed to be incurred evenly throughout the time allotted to each task. (Example: Design is supposed to take 8 years and the $4 million is spread evenly over those 8 years.) Since the start and end dates given in the “program plan” chart in the paper are a little ambiguous, students’ charts may vary slightly.
BAC
(Note: your chart may look a little different as there is some ambiguity about start/end dates)
© Dale R. Geiger 2011

6. Schedule and Cost Variances: Design at Year 12
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Design 1
Cost per Unit Design 4
Cost for Design --
Activity Step 1: Identify key variables from case study data
1 unit of design is complete at a budgeted and actual cost of 4. This gives a schedule and cost variance of zero.
As of year 12, design is complete, on time and on budget.
© Dale R. Geiger 2011

7. Schedule and Cost Variances: Manufacture at Year 12
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Blocks
1000
667
Cost per Block
.006
.009
Cost for Manufacture 6
(2) 4
Activity Step 1: Identify key variables from case study data
Budgeted cost per block is 6/1000 = Actual blocks completed are 667, and actual cost per block is 6/667 = .009
BCWP = 667 * .006 = 4
Schedule variance is (2). The project is behind schedule. Cost variance is (2). The project is over cost. (This is “Terrible!!”)
© Dale R. Geiger 2011

8. Schedule and Cost Variances: Component Test at Year 12
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Component Test
100%
50%
Cost per Component Test 4 6
Cost for Component Test
(2) 2
(1) 3
Activity Step 1: Identify key variables from case study data
Component testing is only 50% complete, although this is due to a circumstance beyond our control (Sphinx project out-prioritized the Pyramid project.) We have already spent $3 on component testing. At this rate our overall cost to complete component testing will be $6.
BCWP = 50% * 4 = 2
ACWP = 50% * 6 = 3
BCWS = 100% * 4 = 4
Schedule variance is (2). The project is behind schedule.
Cost variance is (1). The project is over cost.
© Dale R. Geiger 2011

9. Year 12 Results We are now behind schedule and over cost: terrible!!
ACWP is 130% of BCWP so EAC can be projected at 130% of BAC: (1.30)20M = 26M
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost for Design 4 --
Cost for Manufacture 6
(2)
Cost for Component Test 2
(1) 3
Cost at end of Year 12 14
(4) 10
(3) 13
Activity Step 1: Identify key variables from case study data
This table summarizes the total results. The overall schedule variance is (4) and the overall cost variance is (3). How should the Air Force explain this in the AAR to Pharaoh? [There is no need to explain Design since that portion of the project is on budget and on schedule. Manufacture has a cost overrun of (2) but this is offset by being behind schedule 2. The schedule variance is reported as favorable in the AAR reconciliation, since cost is lower due to having accomplished less work. Component test has a (1) cost variance but this is more than offset by being behind schedule 2. Again, the schedule variance is reported as favorable because costs are less than planned due to having accomplished less work.]
The new EAC is:
ACWP 13/ BCWP 10 = 130%
EAC = 130% * BAC 20M = 26M
© Dale R. Geiger 2011

10. Building the Great Pyramid Case B: Corps of Engineers
The Pharaoh was quite displeased with the Air Force Pyramid Building Project’s AAR results
LTC Neimann was re-assigned to flying carpets and moved to a lovely tent in the Sinai where he soon retired
The Pharaoh turned to the Corps of Engineers
He asked for project proposals to complete the Great Pyramid within four years
The Corps of Engineers tasked six teams to make proposals to complete an enhanced, Army-ized pyramid
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
The Pharaoh was quite displeased with the Air Force Pyramid Building Project’s AAR results
LTC Neimann was re-assigned to flying carpets and moved to a lovely tent in the Sinai where he soon retired
The Pharaoh turned to the Corps of Engineers.
He asked for project proposals to complete the Great Pyramid within four years
The Corps of Engineers tasked six teams to make proposals to complete an enhanced, Army-ized pyramid.
[Divide the class into six teams to represent the Corps of Engineers in this project.]
© Dale R. Geiger 2011

11. The U.S. Army Corps of Engineers www.usace.army.mil/services
Is the Nation’s number one federal provider of outdoor recreation
Owns and operates more than 600 dams
Operates and maintains 12,000 miles of commercial inland navigation channels
Dredges more than 200 million cubic yards of construction and maintenance dredge material annually
Maintains 926 coastal, Great Lakes and inland harbors
Restores, creates, enhances or preserves tens of thousands of acres of wetlands annually under the Corps’ Regulatory Program
Provides a total water supply storage capacity of million acre-feet in major Corps lakes
Owns and operates 24 percent of the U.S. hydropower capacity or 3 percent of the total U.S. electric capacity
Manages an Army military construction program between 2006 and 2013 totaling approximately $44.6 billion between—the largest construction effort since World War II
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
This slide highlights the capabilities of the Corps of Engineers. Teams should keep these unique capabilities in mind when planning their pyramid completion proposals.
The Corps of Engineers:
Is the Nation’s number one federal provider of outdoor recreation
Owns and operates more than 600 dams
Operates and maintains 12,000 miles of commercial inland navigation channels
Dredges more than 200 million cubic yards of construction and maintenance dredge material annually
Maintains 926 coastal, Great Lakes and inland harbors
Restores, creates, enhances or preserves tens of thousands of acres of wetlands annually under the Corps’ Regulatory Program
Provides a total water supply storage capacity of million acre-feet in major Corps lakes
Owns and operates 24 percent of the U.S. hydropower capacity or 3 percent of the total U.S. electric capacity
Manages an Army military construction program between 2006 and 2013 totaling approximately $44.6 billion between—the largest construction effort since World War II
© Dale R. Geiger 2011

12. Team Design Options: Pick Two from Left and Three from Right
Take advantage of Corps’ Core Competencies
Army-ize the project in the interests of National Defense
Add a dam and lake to provide recreational venue for tourists and pilgrims
Divert the Nile River to ease transportation to site
Build levees around pyramid to eliminate any flooding threat
Build barracks facilities for workers and guests
Up to one more of your choice
Camouflage the pyramid
Add armor
Build system of mutually supporting archer nests
Build roads for rapid reaction chariot forces
Up to two others of your choice
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
Your pyramid completion proposal must include two of the design options from the column on the left that take advantage of the Corps’ core competencies:
Add a dam and lake to provide recreational venue for tourists and pilgrims
Divert the Nile River to ease transportation to site
Build levees around pyramid to eliminate any flooding threat
Build barracks facilities for workers and guests
Up to one more of your choice. You may use your imagination. At least one of the options you choose must come from the above list, but you may be creative and come up with one option not included here.
Your proposal must include three of the design options from the column on the right to Army-ize the project in the interests of National Defense
Camouflage the pyramid
Add armor
Build system of mutually supporting archer nests
Build roads for rapid reaction chariot forces
Up to two others of your choice. Again, you must choose at least one option from the list above, but you may use your imagination for two other design options not listed here.
© Dale R. Geiger 2011

13. Task 1: Build Your BAC
Build your work breakdown structure given your choices from the previous page
Assume each task takes two years
Don’t ignore need for more blocks and the assembly task
You should have seven tasks (blocks, assembly, two corps’ core competency, and three Army-ize)
Estimate cost for each task for years 1, 2, 3, 4 (in year 3000 BC shekels)
Present your design, work schedule and graph of BCWS to the class
Make sure you don’t exceed the $13M the Air Force had estimated for added cost to completion
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
Build your work breakdown structure given your choices from the previous page. There is a template on the next slide for you to use.
Assume each task takes two years
Don’t ignore need for more blocks and the assembly task. Those tasks still need to be completed.
You should have seven tasks (blocks, assembly, two corps’ core competency, and three Army-ize)
Estimate cost for each task for years 1, 2, 3, 4 (in year 3000 BC shekels)
Present your design, work schedule and graph of BCWS to the class
Make sure you don’t exceed the $13M the Air Force had estimated for added cost to completion
© Dale R. Geiger 2011

14. Budgeted Cost of Work Scheduled: Fill in the Blanks
Block
Assembly
Corps 1
Corps 2
Army 1
Army 2
Army 3
Total
Cum
Year 1
Year 2
Year 3
Year 4
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
[Blank template for students to use in preparing their BAC and BCWS]
© Dale R. Geiger 2011

15. Graph of Pyramid Completion Project
$000
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
[This blank graph can be used as a template for the students to plot their BCWS.]
© Dale R. Geiger 2011

16. Team Proposal Presentations
© Dale R. Geiger 2011

17. Task 2: AAR for the Pharaoh
Generate actual cost and schedule per following page’s instructions
Present to class
Cost and schedule variances for each year until completion (4+ slides)
BAC and EAC for the first year (1 slide)
Graph of BCWS, BCWP, ACWP (1 slide)
A reconciliation of your variance results at completion (1 slide)
Suggestions for continuous improvement (1 slide)
A view of what your finished pyramid looks like (1 slide)
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
Generate actual cost and schedule per following page’s instructions
Present to class
Cost and schedule variances for each year until completion (4+ slides)
BAC and EAC for the first year (1 slide)
Graph of BCWS, BCWP, ACWP (1 slide)
A reconciliation of your variance results at completion (1 slide)
Suggestions for continuous improvement (1 slide)
A view of what your finished pyramid looks like (1 slide)
© Dale R. Geiger 2011

18. Task 2: Developing Actual Cost and Schedule
Use the randbetween formula in Excel to generate a random number between 1 and 10 for each task: =RANDBETWEEN(1,10)
Follow the instructions on the next page to find what happened to the actual cost and schedule for that task
Determine the actual results of the project year by year
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
Use the randbetween formula in Excel to generate a random number between 1 and 10 for each task: =RANDBETWEEN(1,10)
Follow the instructions on the next page to find what happened to the actual cost and schedule for that task
Determine the actual results of the project year by year
© Dale R. Geiger 2011

19. Task 2: Reality Hits 1
Freak rain storms wash out a year’s progress: add year at same cost 2
Assyrians attack but are easily defeated: however, add 20% to task cost 3
Engineering error: task takes a third year at same average cost per year 4
Outsourcing accelerates progress, raises 1st year cost 50% but completes task 5
Slaves rebel: add 50% to task cost 6
Conquests add slaves to workforce: cut task cost 30% & finish one year early 7
Dust storms disrupt work: add 20% to task cost 8
Hidden Air Force funds discovered: reduce task cost 50% 9
LSS improves process: eliminate 2nd year and its cost 10
Finance Corps ACES assigned to project: reduce cost of all tasks 10%
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
The random numbers generated in Excel correspond to these events, which you will apply to your proposed project. For example One of your design options is diverting the Nile, and you budgeted two years and 3 million shekels for that task. You generated the random number 4 to this design option. The cost for year 1 will be 150% * 1.5 million shekels = 2.25 million shekels, and the job will be complete after the first year.
[Notes regarding the “realities”:
1 - Freak rain storms wash out a year’s progress: add year at same cost. A two-year task that was budgeted for a total of 3 million shekels becomes a three year task for a total of 4.5 million.
2 - Assyrians attack but are easily defeated: however, add 20% to task cost. Does not effect schedule, but adds 20% to total task cost.
3 - Engineering error: task takes a third year at same average cost per year. Add one year to task and add cost equal to the average of the planned two years’ cost
4 - Outsourcing accelerates progress, raises 1st year cost 50% but completes task. Increase cost of first year but no second year needed.
5 - Slaves rebel: add 50% to task cost. Add 50% to entire cost of task.
6 - Conquests add slaves to workforce: cut task cost 30% & finish one year early. Decrease cost of first year AND no second year needed.
7 - Dust storms disrupt work: add 20% to task cost
8 - Hidden Air Force funds discovered: reduce task cost 50%
9 - LSS improves process: eliminate 2nd year and its cost. No change to cost of first year, no second year needed.
10 - Finance Corps ACES assigned to project: reduce cost of all tasks 10%. This is the one random number that applies to all tasks in your project. If you generate a 10 for any one task you apply a 10% reduction to ALL tasks on top of the effects of the number generated for those tasks.
© Dale R. Geiger 2011

20. Team AAR Presentations
© Dale R. Geiger 2011

21. Teacher’s Notes: Example
Selected tasks 1 2 3 4
total
cum
block
500
1000
assemble
2000
divert nile
4000
dam and lake
3000
7000
camo
10000
armor
12000
roads
13000
total bcws
4500
5500
Budget for tasks
BAC
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
This is an example of an proposal using the following core competency options: divert the Nile, build a dam and lake. The “army-ize” options are camouflage, armor, and roads. The budgeted costs are discretionary, but the total (BAC) must not exceed 13 million shekels.
BCWS
© Dale R. Geiger 2011

22. Teacher’s Notes: Actual Costs
random # impact 1 2 3 4
Total
cum
1st +50% no 2nd
block
675
20% more cost
assemble
540
1080
1755 10
10% less all tasks
divert nile
900
1800
3555
add yr at same cost
dam and lake
1350
4050
7605
camo
2160
3240
10845 8
50% less cost
armor
450
11745
roads
225
12195
total
1215
3465
4635
2880
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
This chart shows the impact of the random numbers on the completion of the work and the cost. Note that the “10% less all tasks” on the divert Nile task applies to all tasks. The 10% reduction was applied after the effect of the random number for each task.
© Dale R. Geiger 2011

23. Teacher’s Notes: Example 1st Year Results
bcws
schedulevariance
bcwp
cost variance
acwp
units completed
166.5
333
block
cost per unit 3 2
cost at point in time
500
1000
325
675
0.5
assbly
1080
(40)
540
year 1 total
1500
285
1215
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
This shows the 1st year results. The Block task was outsourced for 50% more in the first year and no need for second year. Instead of completing blocks we completed all 333 blocks. The cost was 750 thousand shekels, but then we applied the 10% off all tasks (random #10) bringing the total to This is a 500 favorable schedule variance and 325 favorable cost variance.
Assembly is charged a 20% increase in cost from random #2 (1000*120% = 1200), but then the 10% decrease is applied to all tasks ( =1080). There is no schedule variance (the project is on time) but there is an unfavorable cost variance of 40.
The ratio of ACWP to BCWP is 81% and the new EAC is 13000*81% = 10530
acwp/bcwp
81%
bac
13000
eac
10530
© Dale R. Geiger 2011

24. Teacher’s Notes: 2nd Year Results
schedule
cost
bcws
variance
bcwp
acwp
units completed
166.5
block
cost per unit 3
cost at point in time
500
(500)
0.5
assbly
1000
1080
(40)
540
nile
2000
1800
100
900
0.67
0.44
lake
3000
3941
(667)
1333
(467)
road
450
275
225
year 2 total
4500
(1167)
3333
(132)
3465
after 2 years
5500
4833
153
4680
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
Block: no additional work was performed (since it was completed last period) and no additional cost incurred. The schedule variance is (500) unfavorable, but that just cancels out the 500 favorable from the previous year. The schedule has caught up to us. We were ahead of schedule, but now we are on schedule. The favorable cost variance from the previous period will carry over in the total.
Assembly: We have completed the remaining ½ of the assembly work. We are on schedule but over budget by 20%, offset by the 10% ACE cost reduction.
Nile: This is a new task this period. We have completed half of the work (on schedule) but we show a 10% savings due to the ACE cost reduction.
Lake: We add a year to this task. We expected to be 67% complete but are only 44% complete. The cost incurred so far is 1800, the amount we expected to spend to complete 67% of the project, less the 10% ACE cost reduction. We are (667) unfavorable for the schedule variance and (467) unfavorable for the cost variance.
Road: We are on schedule for this (50% complete) and under budget because of the 50% cost reduction (random #8) and the 10% ACE cost reduction.
© Dale R. Geiger 2011

25. Teacher’s Notes: 3rd Year Results
schedule
cost
bcws
variance
bcwp
acwp
units completed
0.5
nile
cost per unit
2000
1800
cost at point in time
1000
100
900
0.33
0.22
lake
3000
4050
(333)
667
(233)
0.67
camo
3240
(160)
2160
0.50
armor
550
450
road
500
275
225
year 3 total
5500
5167
532
4635
after 3 years
11000
(1000)
10000
685
9315
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
The Nile task is completed on time and under budget due to the 10% ACE cost reduction.
The Lake task is still behind schedule and over cost, although the cost overrun is mitigated by the 10% ACE cost reduction. We only completed 22% this year instead of 33%. Add to the 44% completed in the first year, that leaves 34% to be completed in the third year.
The camo task is 67% completed (on schedule) and is over budget by 20% due to random #2. But, the 10% ACE cost reduction offsets that. Schedule variance is zero, cost variance is (160).
The armor task is on time with a 50% cost reduction due to random #8. The cost is reduced further by the 10% ACE cost reduction, giving a cost variance of 550.
The road task is on time and under budget due to random #8 and the 10# ACE cost reduction.
© Dale R. Geiger 2011

26. Teacher’s Notes: 4th Year Results
schedule
cost
bcws
variance
bcwp
acwp
units completed
0.00
0.33
lake
cost per unit
000
0/ 3000
4050
cost at point in time
0/ 1000
(1350)/ (350)
1350
camo
3000
3240
1000
(80)
1080
0.50
armor
2000
900
550
450
year 4 total
2000/ 3000
(880)/ 120
2880
after 4 years
13000
805
12195
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
By the end of the project, all schedule variances have offset each other. The BCWS is equal to the BCWP. All work is complete and we are now back “on schedule”. (Better late than never, it seems.)
The unfavorable schedule variance in the dam is now reversed. There is still an unfavorable cost variance of (350) due to the extra year needed to complete the project. This is mitigated by the 10% ACE cost reduction.
The camo project is now completed, on time but over budget.
The armor project is now completed. It came in under budget due to random #8 and the 10% ACE cost reduction.
Overall we are 805 favorable.
© Dale R. Geiger 2011

27. Graphing the Pyramid Project
ACWP
BCWP
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
Using Dale’s numbers
BCWS
© Dale R. Geiger 2011

28. Graphing the Pyramid Project
ACWP
BCWP
Using Melanie’s numbers
BCWS
© Dale R. Geiger 2011

29. Teacher’s Notes: Reconciliation
Budgeted at Completion
13000
Actual Cost at Completion
12195
Cost Variance
805
Reconciliation:
Army audit agency discovered hidden Air Force funds
1500
Added ACES to project
1300
Block outsourcing continuous improvement
250
Engineering error on dam task
(1500)
Disruption from Assyrian attacks
(800)
Miscellaneous rounding effects 55
Total Explained
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
[Shows the reconciliation for the example.]
© Dale R. Geiger 2011

30. Teacher’s Notes: Continuous Improvement Suggestions
Get more ACES and involve them more
Check Engineering designs before they create major cost overruns
Double check Engineering designs
Look for more outsourcing opportunities
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
[Suggestions for improvement based on example.]
© Dale R. Geiger 2011

31. Camouflaged Pyramid on Lake: Excellent Camouflage, Isn’t It?!
Activity Step 2 Calculate BAC, schedule and cost variances, and EAC
© Dale R. Geiger 2011