1. 1 Lecture 4.3b: Earned Value as the Cost and Schedule Metric (SEF Ch 14) Dr. John MacCarthy UMBC CMSC 615 Fall, 2006

2. 2 Agenda Work Packages and Calculating Earned Value Earned Value Concepts Cost and Schedule Reporting Management Using Earned Value Conclusions

3. 3 Work Packages & Calculating Earned Value Recall in developing Work Packages (WPs), one identifies: Products Events Recall in developing a BOE for the WPs one determined the cost to: Develop, review, approve, baseline and update the product Perform activities to reach Event (which can include LOE activities tied to achieving the event) The Total Cost of the Work Package (products + events) is its “Earned Value” Generally for each major product/ event, one identifies objective sub-products/events and assigns a portion of the product or event’s cost to each sub-product/event: Document Example: Annotated Outline: 5% Rough Draft: 15% Draft:25% Final Draft:25% Final to Customer:10% Customer Acceptance:20% Event Example: Event Scheduled/Notices Sent:5% Agreed Event E&E Criteria10% Event60% Exit Criteria Met:25% One generally reports monthly progress Example: If one has completed the Draft of a document the project would claim 45% of the Product’s Earn Value (5+15+25)

4. 4 Schedule/Cost Reporting Generally Earned Value (EV) is reported Monthly It is constructed in Rollup manner Each Work Package Manager reports EV for each work package This is used to construct WBS Element EV reports This is used to construct the Total Project EV Report The Project EV Report includes: Project Cost Variances Project Schedule Variances The EV is used to support Program Risk Management Resource Reallocation Program Rebaselining EV Reports can also be generated for each WBS Element and/or Work Package. As such, Upper-level managers are able to pinpoint the sources of the variances Mid/lower-level managers are able provide upper management risk management, resource reallocation & rebaselining recommendations Generally if a WP has a (Cost or Schedule) Variance > 10-20%, they are required to provide explanation and “get well” plan

5. 5 Earned Value Concepts Cost for Work (aka “Earned Value”): The sum over all Work Packages of the cost allocated to completion of each Product and/or Event in each Work Package Budgeted Cost for Work Scheduled (BCWS): “Planned Earned Value” Baseline plan for completing Work Package products and/or events Sum over all WPs of all costs associated with all completed products and/or events Budgeted Cost for Work Performed (BCWP): “Actual Earned Value” Baseline plan for completing Work Package products and/or events Sum over all WPs of all costs associated with all completed products and/or events Actual Cost for Work Performed (ACWP): “Actuals” Actual $ spent to date & only counts products/events completed Budgeted At Completion (BAC): Original budgeted cost for completion of the activity Estimate At Completion (EAC): Current estimate of the expected final cost for completion of the activity Schedule Variance: Amount by which one is ahead (+) or behind (-) schedule Vs = BCWS - PCWP Cost Variance: Amount by which one is under (+) or over (-) cost budget Vc = BCWS - ACWP Variance At Completion (VAC): Amount by which you expect to be under (+) or over (-) budget VAC = BAC - EAC

6. 6 Project Earned Value Report Some Questions: What WPs are causing the variance? What is the reason for each WP variance? For each WP, is there real “Problem”? Some Options: Cost Overrun Schedule Slip Resource Reallocation (stop or reduce some tasks) Increase Risk Hybrid

7. 7 Conclusions Earned Value provides a way to monitor the progress of program work and to recognize and manage programmatic risks Earned Value is tightly coupled to: The WBS (WP products and events) The Budgeted & Actual Cost The Planned and Actual Schedule Risk Management Earned Value Reports may be used as a management tool by all levels of management Earned Value Reports permit management to rapidly: Pinpoint actual and potential problems/risks Identify risk mitigation options Predict (cost/schedule) impact of selecting different risk mitigation options