1. Earned Value Management Reading the Roadmap to Project Success (or, Are We There Yet?) Steve Margolis, PMP Perpetual Technologies, Inc. April 13, 2010

2. 4/13/102 Overview EVM Background EVM Background EVM Basics and Standards EVM Basics and Standards Variables & Metrics Variables & Metrics Integrating Cost, Schedule, Scope Integrating Cost, Schedule, Scope Summary Summary EVM Links EVM Links Q&A Q&A

3. 4/13/103

4. 4 EVM Background 1960s – PERT/Cost 1967 – 1996:- Earned value-based on Department of Defense (DoD) Cost/Schedule Control Systems Criteria (C/SCSC) 1996 – DoD adopts 32 Industry Earned Value criteria 1998 – ANSI/EIA 748 Issued 4/13/10

5. 5 EVM Basics Industry definition: Use of an integrated management system that coordinates work scope, schedule, and cost objectives and employs earned value methods for program planning and control Industry definition: Use of an integrated management system that coordinates work scope, schedule, and cost objectives and employs earned value methods for program planning and control EVM is not an accounting method or financial management practice EVM is not an accounting method or financial management practice 4/13/10

6. 6 EVM Basics – Triple Constraint COSTSCOPE SCHEDULE EVM is a tool for the Project Manager Earned Value may point to cost or schedule issues, but does not substitute for good project management. Don’t “Manage the Earned Value” – –Critical Path Analysis – –Technical, scope control 4/13/10

7. 4/13/10 7 EVM Standards Industry standard ANSI/EIA-748 Industry standard ANSI/EIA-748 –32 EVM system guidelines address nine management processes –DoD contracts –DoD contracts > $20M require EVM – –DoD contracts > $50M require certified EVM System (EVMS) – –Not used on FFP, LoE, or T&M Contracts

8. 8 EVM Variables - PMB Performance Management Baseline (PMB); time- phased budget plan. Performance Management Baseline (PMB); time- phased budget plan. Earned Value measures progress vs. the PMB. Earned Value measures progress vs. the PMB. MR for “unknown unknowns” MR for “unknown unknowns” –Should not mask poor cost performance Planning Packages for “rolling wave” WBS development Planning Packages for “rolling wave” WBS development EVM is managed at the CA level: Roll-up for Reporting EVM is managed at the CA level: Roll-up for Reporting Management Reserve Work Packages Planning Packages OVERRUN AUW Control Accounts NCC Undistributed Budget OTB CBB TAB Profit / Fees PMB Summary Level Planning Packages Contract Price DAU “Gold Card” 4/13/10

9. CONTROL ACCOUNT CONTROL ACCOUNT CONTROL ACCOUNT CONTROL ACCOUNT Work Packages COMPANYCOMPANY TESTTEST ENGENG MFGMFG DESIGNDESIGN MECHANICAL DESIGN Electrical DESIGN DRAFTING/ CHECKING ORGANIZATIONAL STRUCTURE CONTRACT WORK BREAKDOWN STRUCTURE LEVEL 1 FIRE CONTROL RADAR TRAINING RECEIVER SYSTEM ANTENNA RECEIVERPHASE SHIFTER RECEIVER CASE POWER SUPPLYAPPLICATION S/W LEVEL 2 LEVEL 3 LEVEL 4 Responsibility Assignment Matrix (RAM) 9 4/13/10

10. 10 EV Independent Variables BCWS – Budgeted Cost of Work Scheduled, or Planned Value (PV) BCWS – Budgeted Cost of Work Scheduled, or Planned Value (PV) BCWP – Budgeted Cost of Work Performed, or Earned Value (EV) BCWP – Budgeted Cost of Work Performed, or Earned Value (EV) ACWP – Actual Cost of Work Performed, or Actual Cost (AC) ACWP – Actual Cost of Work Performed, or Actual Cost (AC) BAC – Budget at Completion BAC – Budget at Completion EAC – Estimate at Completion EAC – Estimate at Completion –Also Latest Revised Estimate (LRE) 4/13/10

11. 11 Some Earned Value Techniques 50-50 (Short-Term, 2-3 Periods) 50-50 (Short-Term, 2-3 Periods) 0-100 (Within One Period) 0-100 (Within One Period) Incremental Milestone (Long-Term) Incremental Milestone (Long-Term) Equivalent Unit (e.g.: Road Building) Equivalent Unit (e.g.: Road Building) Percent Complete Percent Complete Supervisor’s Estimate (Subjective) Supervisor’s Estimate (Subjective) 4/13/10

12. 12 Earned Value Metrics CV = BCWP – ACWP CV = BCWP – ACWP –Cost Variance SV = BCWP – BCWS SV = BCWP – BCWS –Schedule Variance (Accomplishment) in $ VAC = BAC – EAC VAC = BAC – EAC –Variance at Completion –Forecast Overrun or Underrun 4/13/10

13. 13 Table Exercise 4/13/10

14. 14 Table Exercise 4/13/10

15. 15 Earned Value Metrics Cost Efficiency Cost Efficiency –Cost Performance Index (CPI) = BCWP/ACWP –CV% = (CV/BCWP)*100 Schedule Efficiency Schedule Efficiency –Schedule Performance Index (SPI) = BCWP/BCWS –SV% = (SV/BCWS)*100 To Complete Performance Index (TCPI) To Complete Performance Index (TCPI) –Work Remaining / Cost Remaining –(BAC – BCWP) / (EAC – ACWP) 4/13/10

16. 16 Earned Value Metrics – EAC Forecast Final Cost (EAC) by Projecting Future Performance based on Past Performance Forecast Final Cost (EAC) by Projecting Future Performance based on Past Performance Estimate At Completion (EAC) Estimate At Completion (EAC) –Actuals to Date + [Remaining Work / Efficiency Factor)] –ACWP + [(BAC – BCWP) / CPI] 4/13/10

17. 17 EVM Graphical View Graphical view of baseline (PMB) showing end date and total Budget at Completion (BAC). Using the past performance, CPI, as a prediction of future performance, the ACWP can be projected to forecast an Estimate at Completion (EAC). BCWS is the PMB up to the Status Date CV compares the actual cost to the budgeted cost of actual Work Performed. SV compares the Budgeted Cost of actual Work Performed with Work Scheduled up to the Status Date (Time Now). Management Reserve (MR) Cost Variance Schedule Variance ACWP BCWP BCWS $ EAC Time Now Completion Date PMB TAB BAC time 4/13/10

18. 18 Evaluating Schedule Variance SV does not tell the whole story Good News May Not Be Good 10 Day’s work Scheduled by status date 10 Day’s work Scheduled by status date 10 Days’ work completed: Zero Schedule Variance 10 Days’ work completed: Zero Schedule Variance Critical Path shows Project will be 2 days late! Critical Path shows Project will be 2 days late! 10 Days 3 Days2 Days 3 Days 2 Days3 Days2 Days Time Now Days Completed Task Critical Path Start 4/13/10

19. 19 Evaluating Schedule Variance SV does not tell the whole story Bad News May Not Be Bad 15 Day’s work Scheduled by status date 15 Day’s work Scheduled by status date Only 12 Days’ work completed: Negative SV Only 12 Days’ work completed: Negative SV Critical Path shows Project is on schedule Critical Path shows Project is on schedule –Slipped Task has Float 10 Days 5 Days 4 Days 2 Days 3 Days 2 Days Time Now Completed Task Critical Path Start 4/13/10

20. 20 Integrated Baseline Review Jointly Assess Planning Jointly Assess Planning –Cost, Schedule, Technical Ensure Complete Coverage of SOW Ensure Complete Coverage of SOW –Exclude Work not in Scope Logical Scheduling – Critical Path Logical Scheduling – Critical Path Adequate Resourcing Adequate Resourcing Identify Risk Identify Risk 4/13/10

21. 21 Integrating Cost, Schedule, Scope DAU 12-Step Analysis Model DAU 12-Step Analysis Model Highlights: Highlights: – Sort for CV and SV $ and %, ID WBS elements w/ most unfavorable variances – Correlate w/ Technical Drivers / Key Performance Parameters (KPPs) – Correlate w/ Critical Path – Correlate CV & SV drivers w/ each other 4/13/10

22. 22 Integrating Cost, Schedule, Scope Generate an EAC Based on Key Drivers Generate an EAC Based on Key Drivers Select Performance Factor (PF) for Key WBS Elements Select Performance Factor (PF) for Key WBS Elements –CPI for Cost Drivers –SPI for Schedule Drivers –CPI*SPI for both –Technical Risk Factor 4/13/10

23. 23 Validate Independent EAC Low Range EAC: CPI(cum) Low Range EAC: CPI(cum) High Range EAC: CPI(cum)*SPI(cum) High Range EAC: CPI(cum)*SPI(cum) Likely EAC from Analysis Likely EAC from Analysis Independent TCPI within 5% of CPI(cum)? Independent TCPI within 5% of CPI(cum)? –Future performance is not likely to increase more than 5% over past performance – based on OSD history 4/13/10

24. CPI and To-Complete 4/13/10 24

25. 25 Summary EVM is one tool available to the PM EVM is one tool available to the PM –Use with Critical Path analysis –Integrates Cost & Schedule performance –Correlate with key technical drivers “Report Card” on the baseline “Report Card” on the baseline Increased focus by Federal agencies Increased focus by Federal agencies –More interest by commercial sector 4/13/10

26. 26 EVM Links AT&L EVM site: http://www.acq.osd.mil/pm/ AT&L EVM site: http://www.acq.osd.mil/pm/ DAU EVM community: https://acc.dau.mil/evm DAU EVM community: https://acc.dau.mil/evm DAU EVM Training: DAU EVM Training: –https://acc.dau.mil/CommunityBrowser.aspx?id=17810 DAU “Gold Card” DAU “Gold Card” –https://acc.dau.mil/GetAttachment.aspx?id=19577&pname =file&lang=en-US&aid=1036 NDIA EVM Intent Guide (32 Criteria) NDIA EVM Intent Guide (32 Criteria) –http://www.ndia.org/Content/ContentGroups/Divisions1/Pr ocurement/PDFs10/NDIA_PMSC_EVMS_IntentGuide_Jan20 05.pdf 4/13/10

27. 27 Q&A 4/13/10

28. EVM Home Page = https://acc.dau.mil/evm eMail Address: EVM.dau@dau.milll DAU POC: (703) 805-5259 (DSN 655) Revised December 2006 TERMINOLOGY NCC Negotiated Contract CostContract price less profit / fee(s) AUW Authorized Unpriced WorkWork contractually approved, but not yet negotiated / definitized CBB Contract Budget BaseSum of NCC and AUW OTB Over Target BaselineSum of CBB and recognized overrun TAB Total Allocated BudgetSum of all budgets for work on contract = NCC, CBB, or OTB BAC Budget At CompletionTotal budget for total contract thru any given level PMB Performance Measurement BaselineContract time-phased budget plan MR Management ReserveBudget withheld by Ktr PM for unknowns / risk management UB Undistributed BudgetBroadly defined activities not yet distributed to CAs CA Control AccountLowest CWBS element assigned to a single focal point to plan & control scope / schedule / budget WP Work PackageNear-term, detail-planned activities within a CA PP Planning PackageFar-term CA activities not yet defined into WPs BCWS Budgeted Cost for Work ScheduledValue of work planned to be accomplished= PLANNED VALUE BCWP Budgeted Cost for Work PerformedValue of work accomplished = EARNED VALUE ACWP Actual Cost of Work PerformedCost of work accomplished = ACTUAL COST EAC Estimate At CompletionEstimate of total cost for total contract thru any given level; may be generated by Ktr, PMO, DCMA, etc. = EAC Ktr / PMO / DCMA LRE Latest Revised EstimateKtr’s EAC or EAC Ktr SLPP Summary Level Planning PackageFar-term activities not yet defined into CAs TCPI To Complete Performance IndexEfficiency needed from ‘time now’ to achieve an EAC EVM POLICY: DoDI 5000.2, Table E3.T2. EVMS in accordance with ANSI/EIA-748 is required for cost or incentive contracts, subcontracts, intra-government work agreements, & other agreements valued > $20M (Then-Yr $). EVMS contracts > $50M (TY $) require that the EVM system be formally validated by the cognizant contracting officer. Additional Guidance in Defense Acquisition Guidebook and the Earned Value Management Implementation Guide (EVMIG). EVMS is discouraged on Firm-Fixed Price, Level of Effort, & Time & Material efforts regardless of cost. EVM CONTRACTING REQUIREMENTS: Non-DoD FAR Clauses – Solicitation – 52.234-2 (Pre-Award IBR) or 52.234-3 (Post Award IBR) Solicitation & Contract – 52.234-4 DoD( ≥ $20M) DFAR Clauses - 252.242-7001 for solicitations and 252.242-7002 for solicitations & contracts Contract Performance Report – DI-MGMT-81466A * 5 Formats (WBS, Organization, Baseline, Staffing & Explanation) Integrated Master Schedule – DI-MGMT-81650 * (Mandatory for DoD EVMS contracts) Integrated Baseline Review (IBR) - Mandatory for all EVMS contracts * See the EVMIG for CPR and IMS tailoring guidance. Management Reserve Work PackagesPlanning Packages OVERRUN AUW Control Accounts NCC Undistributed Budget OTB CBB TAB Profit / Fees PMB Summary Level Planning Packages Contract Price DoD TRIPWIRE METRICS Favorable is > 1.0, Unfavorable is < 1.0 Cost Efficiency CPI = BCWP / ACWP Schedule Efficiency SPI = BCWP / BCWS VARIANCES Favorable is Positive, Unfavorable is Negative Cost Variance CV= BCWP – ACWPCV % = (CV / BCWP) * 100 Schedule Variance SV= BCWP – BCWSSV % = (SV / BCWS) * 100 Variance at CompletionVAC= BAC – EAC OVERALL STATUS % Schedule = (BCWS CUM / BAC) * 100 % Complete= (BCWP CUM / BAC) * 100 % Spent= (ACWP CUM / BAC) * 100 BASELINE EXECUTION INDEX (BEI) (Schedule Metric) BEI = # of Baseline Tasks Actually Completed / # of Baseline Tasks Scheduled for Completion CPLI = (Critical Path Baseline Duration + Float Duration) / Critical Path Baseline Duration CRITICAL PATH LENGTH INDEX (CPLI) (Schedule Metric) TO COMPLETE PERFORMANCE INDEX (TCPI) # § TCPI EAC = Work Remaining / Cost Remaining = (BAC – BCWP CUM ) / (EAC – ACWP CUM ) ESTIMATE AT COMPLETION # EAC= Actuals to Date+ [(Remaining Work) / (Efficiency Factor)] EAC CPI = ACWP CUM + [(BAC – BCWP CUM ) / CPI CUM ] = BAC / CPI CUM EAC Composite = ACWP CUM + [(BAC – BCWP CUM ) / (CPI CUM * SPI CUM )] # To Determine a Contract Level TCPI or EAC; You May Replace BAC with TAB § To Determine the TCPI BAC,LRE Replace EAC with either BAC or LRE Earned Value Management ‘Gold Card’ Management Reserve Cost Variance Schedule Variance ACWP BCWP BCWS $ EAC Time Now Completion Date PMB TAB BAC time