EVM – Do You Really Know What the Numbers Mean? Booz | Allen |Hamilton Seth Huckabee EVP, PMP, PMI-SP

2 Agenda Part I: The Project Management Context Part II: Earned Value Management Overview Part III: Earning Value –Metrics, Variances, Root Causes, and Variance Analysis Scenario I: Work Package with 0/100 EVT, On Time and Over Budget Scenario 2: Work Package with 0/100 EVT, Behind Schedule and Over Budget –Forecasting Scenario 3: Two Similar Work Packages Implemented Sequentially

3 Agenda  Part I: The Project Management Context Part II: Earned Value Management Overview Part III: Earning Value –Metrics, Variances, Root Causes, and Variance Analysis Scenario I: Work Package with 0/100 EVT, On Time and Over Budget Scenario 2: Work Package with 0/100 EVT, Behind Schedule and Over Budget –Forecasting Scenario 3: Two Similar Work Packages Implemented Sequentially

4 Where We Are in the Project Lifecycle Initiating efforts are complete (other than those related future baseline changes) Planning efforts are complete Executing is underway EVM is part of Monitoring and Controlling, which is underway

5 Sample WBS with Control Accounts, Work Packages, and Planning Packages

6 An Integrated PM System Was Created During the Planning Phase

7 The Performance Measurement Baseline A Performance Measurement Baseline (PMB) has been established, against which we measure progress The PMB has been broken into periods of time for metrics and reporting purposes (i.e. weeks, months, or quarters) The PMB has been broken into Control Accounts with associated technical requirements, cost estimates, schedule durations, resources, risks, etc. We measure progress on the Work Packages within each Control Account

8 Agenda Part I: The Project Management Context  Part II: Earned Value Management Overview Part III: Earning Value –Metrics, Variances, Root Causes, and Variance Analysis Scenario I: Work Package with 0/100 EVT, On Time and Over Budget Scenario 2: Work Package with 0/100 EVT, Behind Schedule and Over Budget –Forecasting Scenario 3: Two Similar Work Packages Implemented Sequentially

9 What Is the Essential Difference between Traditional Management and Earned Value Management? Q: Which two data sources does Traditional Management use to derive its status? A: Budgeted Cost and Actual Cost Q: Which three data sources does Earned Value Management use to derive its status? A: Budgeted Cost, Actual Cost and Earned Value

10 The Data We Need for EVM How much work should have been completed by now – the planned value of the work –Based on cost estimates –Budgeted Cost of Work Scheduled (BCWS) or Planned Value (PV) –Budget at Completion (BAC) is the planned value for a given WBS level How much work has actually been done – the earned value –Progress measured in terms of hours/dollars, at the budgeted value –Budgeted Cost of Work Performed (BCWP) or Earned Value (EV) How much has the completed work actually cost – the actual cost –Extracted from the accounting system –Actual Cost of Work Performed (ACWP) or Actual Cost (AC) From these three data points, we are able to calculate all the metrics needed for Earned Value Management

11 Example of Traditional Management: Three Months of Activity on a Single Work Package BCWS = Planned Value (derived from cost estimate) ACWP = Actual Cost (from accounting system) BAC = Budget at Completion (total planned value for the WP)

12 Agenda Part I: The Project Management Context Part II: Earned Value Management Overview  Part III: Earning Value  Metrics, Variances, Root Causes, and Variance Analysis Scenario I: Work Package with 0/100 EVT, On Time and Over Budget Scenario 2: Work Package with 0/100 EVT, Behind Schedule and Over Budget –Forecasting Scenario 3: Two Similar Work Packages Implemented Sequentially

13 How Do We Earn Value on a Work Package? The type of effort and the time-phasing of the resources are usually the determining factors in deciding which Earned Value Technique (EVT) to assign to a work package Some frequently used EVTs are listed in the table below:

14 Scenario 1: Work Package with 0/100 EVT, On Time and Over Budget WP is expected to start and finish within one reporting period, so EVT is 0/100 (zero% earned at start; 100% at finish) BCWS = Planned Value (derived from cost estimate) The WP actually did finish in January, as planned, so Jan BCWP = 200 ACWP = Actual Cost (from accounting system)

15 Variances and Metrics – Cost Cost Variance (CV) –The arithmetic difference between BCWP and ACWP to perform work –CV = BCWP – ACWP –Positive is favorable (work cost less than planned for the period) –Negative is unfavorable (work cost more than planned for the period) Cost Performance Index (CPI) –Cost variance as a ratio; indicates how efficiently budget is being spent –CPI = BCWP / ACWP –Above 1.0 is favorable (work is being accomplished more efficiently than planned) –Below 1.0 is unfavorable (work is being accomplished less efficiently than planned; for example, if the CPI is.50: for every dollar spent, the project has earned 50 cents worth of completed work)

16 Variances and Metrics – Schedule Schedule Variance (SV) –The arithmetic difference between BCWP and BCWS; relates the schedule status in terms of dollars (Earned Schedule uses time) –SV = BCWP – BCWS –Positive is favorable (planned work was completed ahead of schedule) –Negative is unfavorable (planned work was not completed as planned) Schedule Performance Index (SPI) –Schedule variance as a ratio; indicates how efficiently work is being accomplished –SPI = BCWP / BCWS –Above 1.0 is favorable (more work was accomplished than planned work during the period) –Below 1.0 is unfavorable (planned work was not completed as planned; the project may be behind schedule if the incomplete work is on the critical path)

17 Scenario 1: Work Package with 0/100 EVT, On Time and Over Budget With Calculations

18 Potential Root Causes of Unfavorable Cost Performance (CV < 0 or CPI < 1.0) Poor planning – cost estimate was flawed Unclear requirements or scope creep Work more complex than anticipated More revisions and rework than anticipated Cost of labor or material more than anticipated Improper earned value technique used

19 Potential Root Causes of Favorable Cost Performance (CV > 0 or CPI > 1.0) Poor planning – cost estimate was flawed Unexpected cost efficiencies were realized Work less complex than anticipated Fewer revisions and rework than anticipated Cost of labor or material less than anticipated Improper earned value technique used

20 Potential Root Causes of Unfavorable Schedule Performance (SV < 0 or SPI < 1.0) Manpower shortage Scope creep Late vendor delivery Delayed customer/sponsor feedback/direction/acceptance Work more complex than anticipated More revisions and rework than anticipated Improper earned value technique used

21 Potential Root Causes of Favorable Schedule Performance (SV > 0 or SPI > 1.0) Realized efficiencies Work less complex than anticipated Fewer revisions and rework than anticipated Subcontractor ahead of schedule Improper earned value technique used

22 Scenario 1: Work Package with 0/100 EVT, On Time and Over Budget With Variance Analysis

23 Scenario 2: Work Package with 0/100 EVT, Behind Schedule and Over Budget

24 Agenda Part I: The Project Management Context Part II: Earned Value Management Overview  Part III: Earning Value –Metrics, Variances, Root Causes, and Variance Analysis Scenario I: Work Package with 0/100 EVT, On Time and Over Budget Scenario 2: Work Package with 0/100 EVT, Behind Schedule and Over Budget  Forecasting Scenario 3: Two Similar Work Packages Implemented Sequentially

25 Forecasting Performance The main purpose of EVM is to provide more accurate predictions about the future than would otherwise be the case The previous slides have described the past only (CV, CPI, SV, and SPI) These historical metrics and variances, along with our Integrated PM System, allow for an empirical approach to evaluating the past, assessing our current status, and, most importantly, forecasting the future Estimate to Complete (ETC) –The expected future cost needed to complete an activity, a group of tasks, or the project –Usually involves adjusting the BAC for performance to date –ETC = BAC – EV or ETC = (BAC – EV)/CPI To-Complete Performance Index (TCPI) –A value indicating how we must perform for the remainder of the project in order to meet our desired cost goal –TCPI = (BAC – BCWP) / (EAC – ACWP)

26 Forecasting the Finish Estimate at Completion (EAC) –The expected total cost of an activity, work package, control account, or the project at the completion of its scope –Usually involves adjusting the BAC for performance to date –EAC = BAC/CPI or EAC = AC + (BAC-EV)/CPI –(BAC-EV) is sometimes called Work Remaining (WR) Variance at Completion (VAC) –The arithmetic difference between the Budget at Completion (BAC) and the Estimate at Completion (EAC) –VAC = BAC – EAC

27 Recall Scenario 1: 0/100 Work Package On Time and Over Budget With Calculations

28 Scenario 3: Two Similar Work Packages Implemented Sequentially The project’s scope is to install two steering wheels on two similar vehicles between January and April Each steering wheel installation is a Work Package and has the same estimated cost ($200) and same EVT (0/100) Today’s date is the first day of March WP #1 was described in Scenario 1: we exceeded our estimate by $20 (CV), have a CPI of less than 1.0 (.91) and finished the work on time WP #2 is scheduled to be completed in April

29 Scenario 3: Forecasting

30 Overview of EV Metrics and Variances

31 Questions?

32 Contact Information

33 Recommended EVM Educational Sources A Practical Guide to Earned Value Project Management, Second Edition, by Budd, C. I., & Budd, C. S. (2010). Vienna, Va.: Management Concepts. DAU EVM ‘Gold Card’ (Nov 2010), Earned Schedule, by Walter H. Lipke (2009). Lulu Publishing. EVM Classes by Ray Stratton, GAO Cost Estimating and Assessment Guide - Best Practices for Developing and Managing Capital Program Costs (GAO-09-3SP). (2009). U.S. Government Accountability Office. Free download at Project Management Using Earned Value, Second Edition, by Humphreys & Associates, Ray Stratton's EVPrep™ Earned Value Professional (EVP) Exam Study Guide,

34 Recommended EVM Certification Earned Value Professional (EVP) by the Association for the Advancement of Cost Engineering International (AACEI), –Experience Required: At least 8 full years of professional experience, of which up to 4 years may be substituted by a college/university degree. –The EVP examination consists of four parts (1 hour 45 minutes each). –Current 191 individuals worldwide hold the certification, 10 of whom are employees of Booz Allen Hamilton.