1. Presented by Tim Pyron Author: Que’s Special Edition Using Microsoft Project 2002 Que’s Special Edition Using Microsoft Project 2000 SAMS Teach Yourself Microsoft Project 2000 in 24 Hours Editor: Woody's Project Watch (www.woodyswatch.com) (www.woodyswatch.com) Phone: (210)822-0839 Email: tpyron@txdirect.net tpyron@txdirect.net Demystifying Earned Value Analysis Kansas City MPUG Chapter June 18, 2002

2. 2 Overview Understanding Earned Value AnalysisUnderstanding Earned Value Analysis Understanding the EV metricsUnderstanding the EV metrics Project’s Earned Value calculationsProject’s Earned Value calculations Graphing Earned Value metrics in ExcelGraphing Earned Value metrics in Excel ConclusionConclusion

3. 3 What is Earned Value Analysis EVA is the tool used by those who practice Earned Value ManagementEVA is the tool used by those who practice Earned Value Management EVA provides early warning signals of troubleEVA provides early warning signals of trouble EVA provides a basis for revising the plan (and maybe the goals) in order to get back on trackEVA provides a basis for revising the plan (and maybe the goals) in order to get back on track EVA provides a basis for estimating final costs and the project finish date.EVA provides a basis for estimating final costs and the project finish date.

4. 4 What’s wrong with using Variances? Each variance shows a different aspect of progress in its own units; and comparing dollars and time makes it difficult to assess your net positionEach variance shows a different aspect of progress in its own units; and comparing dollars and time makes it difficult to assess your net position EVA measures everything in dollarsEVA measures everything in dollars Variances don’t show if productivity is at the levels you plannedVariances don’t show if productivity is at the levels you planned EVA measures productivity up through the status dateEVA measures productivity up through the status date

5. 5 Figure 1 (Simple Cost Variance)

6. 6 History of Earned Value Analysis Started with defense contractsStarted with defense contracts Originally used to justify staged payments for projects in progressOriginally used to justify staged payments for projects in progress Now widespread in private sector alsoNow widespread in private sector also Is becoming a world-wide standardIs becoming a world-wide standard

7. 7 Example: Using variances Baseline duration is 1 Year (Jan – Dec) Baseline cost is $1,000,000 Baseline work is scheduled to be 50% complete as of June 30 Baseline cost through June 30 is $500,000 Actuals on June 30: 60% of work is completed Actual Cost is $550,000 Cost is $1,050,000 *Cost = Remaining Cost + Actual Cost $ 50,000 ?? What is the Cost Variance? Does that mean the project will go over budget? That there’s not enough in the budget to finish the project?

8. 8 Example: Using EVA Baseline duration is 1 Year (Jan – Dec) Baseline cost is $1,000,000 Baseline work is scheduled to be 50% complete as of June 30 Baseline cost through June 30 is $500,000 Actuals on June 30: 60% of work is completed Actual Cost is $550,000 Cost is $1,050,000 *Cost = Remaining Cost + Actual Cost $500,000 $600,000 How much was planned to be earned? How much of that value has been earned by June 30? $550,000 What did it actually cost ? $1,000,000 What is the planned value of this project?

9. 9 Planned Value (PV) PV is that part of the project/task’s value we plan to be completed up through the status date.PV is that part of the project/task’s value we plan to be completed up through the status date. PMBOK formerly called PV the Budgeted Cost of Work Scheduled or BCWS.PMBOK formerly called PV the Budgeted Cost of Work Scheduled or BCWS. Total Baseline Cost called BAC (Budgeted at Completion)Total Baseline Cost called BAC (Budgeted at Completion)

10. 10 Earned Value (EV) EV is the planned value of the completed portion of the project/taskEV is the planned value of the completed portion of the project/task EV = % Work Complete * Baseline Cost Note that % Work Complete uses currently scheduled work – not baseline work. Example: Baseline Work = 10h Actual Work = 5 h Scheduled Work = 15h % Work Complete = 33% BAC = $1,000 Earned Value = $333EV = % Work Complete * Baseline Cost Note that % Work Complete uses currently scheduled work – not baseline work. Example: Baseline Work = 10h Actual Work = 5 h Scheduled Work = 15h % Work Complete = 33% BAC = $1,000 Earned Value = $333 PMBOK formerly called EV the Budgeted Cost of Work Performed or BCWPPMBOK formerly called EV the Budgeted Cost of Work Performed or BCWP

11. 11 Actual Costs (AC) AC is the actual cost of work that was completed as of the status dateAC is the actual cost of work that was completed as of the status date PMBOK formerly called this the Actual Cost of Work Performed or ACWP.PMBOK formerly called this the Actual Cost of Work Performed or ACWP.

12. 12 Prerequisites for using EVA Work and cost must be distributed over time (Microsoft Project’s timephased data)Work and cost must be distributed over time (Microsoft Project’s timephased data) The must capture the baselineThe must capture the baseline You must define a Status Date for assessing performance (Project, Project Information)You must define a Status Date for assessing performance (Project, Project Information) You must track actual start and finish dates, work, and costs; and you must reschedule work not completed on time and work that is completed ahead of schedule.You must track actual start and finish dates, work, and costs; and you must reschedule work not completed on time and work that is completed ahead of schedule.

13. 13 The Sample Task Task 1 Duration = 4 daysDuration = 4 days Abe is assigned 100% to the taskAbe is assigned 100% to the task Abe's standard rate is $1/hr.Abe's standard rate is $1/hr. Figure 1 illustrates the task and Abe's assignment before any actual work is recorded.Figure 1 illustrates the task and Abe's assignment before any actual work is recorded.

14. 14 Figure 2 (Before actuals)

15. 15 Figure 3 (Task is 50% Complete)

16. 16 Planned Value and Earned Value Are equal if everything goes as plannedAre equal if everything goes as planned Both use Baseline Cost for different amounts of work (planned vs actual)Both use Baseline Cost for different amounts of work (planned vs actual) Any difference is due to the amount of work completed by the status dateAny difference is due to the amount of work completed by the status date Differences can arise when (for example):Differences can arise when (for example): Estimated work changes after the baseline was capturedEstimated work changes after the baseline was captured Overtime is used but not scheduled (or vice versa)Overtime is used but not scheduled (or vice versa) Resources are diverted to higher priority tasks or projects.Resources are diverted to higher priority tasks or projects.

17. 17 SV: Earned Value Schedule Variance Equals Earned Value minus Planned ValueEquals Earned Value minus Planned Value SV = Earned Value – Planned Value SV = BCWP – BCWS Task1: $16 – $24 = - $8SV = Earned Value – Planned Value SV = BCWP – BCWS Task1: $16 – $24 = - $8 Positive SV means more work completed than planned. If continued, project may finish earlyPositive SV means more work completed than planned. If continued, project may finish early Might be possible to transfer some resources to other tasks or projects Might be possible to transfer some resources to other tasks or projects Negative SV means work is not being completed on time. Project might finish lateNegative SV means work is not being completed on time. Project might finish late PM should determine the cause to avoid missing the finish goal. PM should determine the cause to avoid missing the finish goal.

18. 18 Figure 4 (SV, SV%, SPI)

19. 19 SV%: Schedule Variance Percent Expresses SV as a % of Planned ValueExpresses SV as a % of Planned Value SV% = SV / PV = (BCWP – BCWS) / BCWS Task1: ( $16 – $24 )/ $24 = – 33% That means 33% of planned work was not finishedSV% = SV / PV = (BCWP – BCWS) / BCWS Task1: ( $16 – $24 )/ $24 = – 33% That means 33% of planned work was not finished SV% is useful when comparing SV between projects of vastly different sizesSV% is useful when comparing SV between projects of vastly different sizes

20. 20 SPI: Schedule Performance Index Most important version of SVMost important version of SV Is ratio of Earned Value to Planned Value SPI = EV / PV = BCWP / BCWS Task1: $16 / $24 = 0.67Is ratio of Earned Value to Planned Value SPI = EV / PV = BCWP / BCWS Task1: $16 / $24 = 0.67 SPI < 1.0 is unfavorableSPI < 1.0 is unfavorable SPI = 0.67 means we earned only $0.67 of every $1 we planned to earn this period SPI = 0.67 means we earned only $0.67 of every $1 we planned to earn this period SPI > 1.0 is favorableSPI > 1.0 is favorable SPI = 1.25 would mean we earned $1.25 for every $1 we planned to earn during this period. SPI = 1.25 would mean we earned $1.25 for every $1 we planned to earn during this period.

21. 21 SPI: Revise Estimated Duration Use SPI to revise estimated total duration, thus the new estimated finish dateUse SPI to revise estimated total duration, thus the new estimated finish date Assumes current SPI will continue to end of projectAssumes current SPI will continue to end of project Revised Remaining Duration (Rem.Dur.) = Remaining Duration / SPI Task 1: = 2d / 0.67 = 3dRevised Remaining Duration (Rem.Dur.) = Remaining Duration / SPI Task 1: = 2d / 0.67 = 3d Finish Date = Status Date + Rem. Duration Task 1: = Day 3 + 3d = Day 6Finish Date = Status Date + Rem. Duration Task 1: = Day 3 + 3d = Day 6

22. 22 Earned Value and Actual Costs Are equal if everything goes as plannedAre equal if everything goes as planned Both use Actual Work, but it’s valued at different costs (planned vs actual) – any difference is due to the cost of the workBoth use Actual Work, but it’s valued at different costs (planned vs actual) – any difference is due to the cost of the work Differences can arise when (for example):Differences can arise when (for example): Unplanned overtime was usedUnplanned overtime was used Resource cost rates changedResource cost rates changed Higher cost resources were substitutedHigher cost resources were substituted Earned Value minus Actual Costs is the Earned Value Cost Variance: CV = EV – ACEarned Value minus Actual Costs is the Earned Value Cost Variance: CV = EV – AC

23. 23 Figure 5 (substitute more costly resource)

24. 24 Figure 6 (CV, CV%, CPI)

25. 25 CV: Earned Value Cost Variance CV = Earned Value – Actual CostsCV = Earned Value – Actual Costs CV = BCWP – ACWP Task 1: $16 – $20 = – $4CV = BCWP – ACWP Task 1: $16 – $20 = – $4 Positive CV is favorable: the value of the work was greater than the cost of producing it.Positive CV is favorable: the value of the work was greater than the cost of producing it. Negative CV is unfavorable: the value of the work is less than the cost of producing it.Negative CV is unfavorable: the value of the work is less than the cost of producing it.

26. 26 CV%: Cost Variance Percent Expresses CV as a % of Earned ValueExpresses CV as a % of Earned Value CV% = CV / EV = (BCWP – ACWP) / BCWP Task 1: = ( $16 – $20 ) / $16 = - 25% That means 25% of planned work was not finishedCV% = CV / EV = (BCWP – ACWP) / BCWP Task 1: = ( $16 – $20 ) / $16 = - 25% That means 25% of planned work was not finished CV% is useful when comparing CV between projects of vastly different sizesCV% is useful when comparing CV between projects of vastly different sizes

27. 27 CPI: Cost Performance Index Most important version of CVMost important version of CV Is ratio of Earned Value to Actual Cost CPI = EV / AC = BCWP / ACWP Task1: $16 / $ 20 = 0.80Is ratio of Earned Value to Actual Cost CPI = EV / AC = BCWP / ACWP Task1: $16 / $ 20 = 0.80 CPI < 1.0 is unfavorableCPI < 1.0 is unfavorable If CPI = 0.80 means for every dollar of actual cost we produce work worth only $0.80 If CPI = 0.80 means for every dollar of actual cost we produce work worth only $0.80 CPI > 1.0 is favorableCPI > 1.0 is favorable IF CPI = 1.25 it would mean that for every $1 we actually spent we produced work worth $1.25 IF CPI = 1.25 it would mean that for every $1 we actually spent we produced work worth $1.25 Use CPI to calculate if project will go over budget and by how muchUse CPI to calculate if project will go over budget and by how much

28. 28 Estimate to Complete (ETC) What will it cost to finish the remaining budgeted work (unearned value) assuming the current CPI will continue to the end of the project?What will it cost to finish the remaining budgeted work (unearned value) assuming the current CPI will continue to the end of the project? Divide remaining budgeted work by CPIDivide remaining budgeted work by CPI Remaining budgeted work = BAC - EV *BAC is Budgeted At Completion (Baseline Cost)Remaining budgeted work = BAC - EV *BAC is Budgeted At Completion (Baseline Cost) ETC = (BAC – EV ) / CPI Task 1: ( $32 – $16 ) / 0.80 = $20ETC = (BAC – EV ) / CPI Task 1: ( $32 – $16 ) / 0.80 = $20

29. 29 Estimate at Completion (EAC) A revised total cost at completionA revised total cost at completion EAC = AC + ETC Task 1: $20 + $20 = $40EAC = AC + ETC Task 1: $20 + $20 = $40 Project 2002 now calculates EAC this wayProject 2002 now calculates EAC this way The new Earned Value Cost Indicators table shows EAC, BAC, and VAC (Vac = Variance at Completion)The new Earned Value Cost Indicators table shows EAC, BAC, and VAC (Vac = Variance at Completion)

30. 30 Figure 7: (BAC, EAC, VAC, TCPI)

31. 31 TCPI: To Complete Performance Index Is there enough left in the budget to complete the project? (BAC – BCWP) (Budgeted cost of unfinished work) --------------------- = ------------------------------------------------ (BAC – ACWP) (Unspent Budget) * where BAC = Baseline Cost(BAC – BCWP) (Budgeted cost of unfinished work) --------------------- = ------------------------------------------------ (BAC – ACWP) (Unspent Budget) * where BAC = Baseline Cost Task1: = ($32 - $16) / ($32 - $20) = 16 / 12 = 1.33Task1: = ($32 - $16) / ($32 - $20) = 16 / 12 = 1.33 If TCPI > 1: Not enough in the budget to complete the planned work. Must increase productivity or reduce scope or quality.If TCPI > 1: Not enough in the budget to complete the planned work. Must increase productivity or reduce scope or quality. If TCPI < 1: Running under budget. Could increase scope or quality, or can increase contract profitIf TCPI < 1: Running under budget. Could increase scope or quality, or can increase contract profit

32. 32 Summary of EV Metrics Three core metrics Planned Value PV (BCWS) Earned Value EV (BCWP) Actual Costs AC (ACWP) Variances Schedule Variance SV = EV-PV; SV% = SV/PV Cost Variance CV = EV-AC; CV% = CV/EV Indicators (performance indexes) Schedule Performance Index SPI = EV/PV Cost Performance Index CPI = EV/AC To Complete Performance Index TCPI = (BAC-EV)/(BAC-AC)

33. 33 MS Project’s EV Calculation For Assignments: EV = % Work Complete * BAC For Tasks: 1.Calculate Actual Duration ( = % Complete * Duration) 2.Sum timephased Baseline Cost for periods spanned by Actual Duration Note: Assignments are not rolled-up to the task. So, Sum of Assignment EV’s <> Task EV

34. 34 Work around: How to con Project into using % Work Complete 1.Work with a backup copy of the project file 2.Choose Tools, Options, Calculation tab: Disable Updating task status updates resource status 3.Add % Complete and % Work Complete columns to the Earned Value table 4.Copy % Work Complete column into % Complete column * Assignments still don’t roll up to tasks, but … * Assignments still don’t roll up to tasks, but …

35. 35 EV Enhancements in Project 2002 New EV fields: SV%, SPI, CV%, CPI, TCPINew EV fields: SV%, SPI, CV%, CPI, TCPI Changed calculations: EACChanged calculations: EAC New tables:New tables: Earned Value Cost Indicators TableEarned Value Cost Indicators Table Earned Value Schedule Indicators TableEarned Value Schedule Indicators Table New calculation Method: Physical % CompleteNew calculation Method: Physical % Complete Select any of 11 Baselines to use in EV calculationsSelect any of 11 Baselines to use in EV calculations

36. 36 Figure 8 Using Physical % Complete

37. 37 Generating EV Graphs Graphing EV metrics reveals trends over timeGraphing EV metrics reveals trends over time Use Analysis Toolbar: Analyze Timescaled Data in ExcelUse Analysis Toolbar: Analyze Timescaled Data in Excel Adjust data and graph formatsAdjust data and graph formats

38. 38 Figure 9 Plain EV Graph

39. 39 Figure 10 BCWS extended to Finish Date

40. 40 Figure 11 PV, EV, AC, SV, and CV