1. Project Earned Value Analysis

2. Real World Example Vignette: London Traffic Ken Livingstone was London’s first directly elected mayor in 2000. He created Transport for London to oversee the city’s road and transport services that were previously managed separately. Mission: to upgrade London’s transportation infrastructure with a toll system project Traffic congestion is a major problem for central London. Transport for London developed a plan to install a system that would identify and charge car owners that enter defined congestion zones Technological risks were identified, and the project was divided into 5 smaller components (to be managed separately, as opposed to purchasing one large system) Project team worked together in one location on the five components to the system The project was successfully implemented by February 2003. Transport for London reports that traffic in the congestion zone has decreased by 20%, with a 5% increase during travel times

3. Project Monitoring Defined Collecting, recording, and reporting information concerning any and all aspects of project performance that the project manager or others wish to know

4. Monitoring Has Several Uses Project Monitoring has secondary uses Project auditing “Lessons learned” Reporting to client and senior management But the primary use is project control Ensuring that decision-makers have timely information enabling effective control over the project

5. The Planning-Monitoring- Controlling Cycle Effective monitoring and control begins with good project planning What are the critical areas? How and when can progress be measured? Who gathers and reports info, to whom? The plan-monitor-control cycle continues through the entire project

6. Project Monitoring System for Control Information System Structure What data are collected? Current status of project (schedule and cost) Remaining cost to compete project Date that project will be complete Potential problems to be addressed now Out-of-control activities requiring intervention Cost and/or schedule overruns and the reasons for them Forecast of overruns at time of project completion

7. Project Monitoring System… (cont’d) Information System Structure (cont’d) Collecting data and analysis Who will collect project data? How will data be collected? When will the data be collected? Who will compile and analyze the data? Reports and reporting Who will receive the reports? How will the reports be transmitted? When will the reports be distributed?

8. Project Progress Report Format Progress since last report Current status of project Schedule Cost Scope Cumulative trends Problems and issues since last report Actions and resolution of earlier problems New variances and problems identified Corrective actions planned

9. Figure: Project Control Information Flow

10. The Project Control Process Control The process of comparing actual performance against plan to identify deviations, evaluate courses of action, and take appropriate corrective action. Project Control Steps 1. Setting a baseline plan. 2. Measuring progress and performance. 3. Comparing plan against actual. 4. Taking actions

11. Monitoring Time Performance Tools used to catch negative variances from plan and communicate project schedule status: Tracking and baseline Gantt charts Show expected, actual, and trend data for event duration performance. Control charts Plot the difference in scheduled time on the critical path with the actual point on the critical path.

12. Baseline and Tracking Gantt Charts

13. Designing the Monitoring System 1. Start with the key factors to be controlled Pareto analysis: a relatively few activities determine most of the project’s success Use the project plan to identify items to be monitored Although other areas might be added also

14. Designing the Monitoring System (cont’d) 2. Develop measurement systems Measure results, not activity; outputs, rather than inputs Extract performance, time and cost goals from project plans Avoid tendency to focus on that which is easily measurable

15. Designing the Monitoring System (cont’d) 3. Collecting Data: Most data falls into one of five categories, as follows (with examples) Frequency counts: tally of occurrences... Raw numbers: dates, dollars, percents, specs... Subjective ratings: numerical ranking, red-yellow- green assessments... Indicators: surrogate measures of merit... Verbal measurement: oral or written characterizations...

16. Designing the Monitoring System (cont’d) 4. Reporting on Data Collected: To turn data into information, it must be contextualized: Reporting must be timely Data must be analyzed Trends: Getting better or worse? Comparables: Performance compared to specs, past performance, standard hours, etc. Statistical analysis Causation and correction

17. Some Behavioral Aspects of Monitoring Systems Effective monitoring reduces surprises, and this can increase trust, morale Some reporting bias is inevitable, but dishonesty is unacceptable “Shooting the messenger” today just creates concealment tomorrow

18. Earned Value Analysis (EVA) Needed: An objective way to measure overall project performance The problem comparing actual expenditures to baseline plan is that it ignores the amount of work actually completed Thus, Earned Value Analysis A sort of cost accounting for projects

19. EARNED VALUE MANAGEMENT Let us take the great pyramid of Gizeh. Here is a sketch from the Project manager’s site log Final Shape As on date Stones in Place Still to Finish The Plan calls for 1,000,000 stones blocks in all Current Status as shown in sketch: 900,000 stone blocks in place Can the Project Manager report the status as 90% complete? Penalty of wrong reporting: His ‘head’ (neatly chopped off)

20. EARNED VALUE MANAGEMENT  Another way to determine status: Since we have spent 35% of our budget, we have completed 35%. Advantages and Disadvantages of this method?  Still another way Project Manager feels it is ’40% complete’, guesstimate  Overall, these methods leave much to be desired

21. EARNED VALUE MANAGEMENT Concept of US Department of Defense Value is earned as project activities get completed Therefore, Earned value is a measure of progress Advantages  Uniform unit of measure (Rs and Labor are not so)  Consistent analysis method  Basis for judging Cost performance

22. WHY EARNED VALUE MANAGEMENT?

23. Looks Fine, but is Progress OKAY ?

24. PROJECT BUDGET Cost Accounts are created where WBS and OBS meet

25. PROJECT BUDGET

26. Integration of WBS and OBS FIGURE 4.5

27. Disparity Among Monitoring Systems Time-Phase Baseline Plan Corrects the failure of most monitoring systems to connect a project’s actual performance to its schedule and forecast budget. Systems that measure only cost variances do not identify resource and project cost problems associated with falling behind or progressing ahead of schedule. Earned Value Cost/Schedule System An integrated project management system based on the earned value concept that uses a time- phased budget baseline to compare actual and planned schedule and costs.

28. Glossary of Terms EV The percent complete times its original budget. The percent of the original budget that has been earned by actual work completed. The older acronym for this value was BCWP— budgeted cost of the work performed. PV (Planned Value) The time-phased baseline of the value of the work scheduled. An approved cost estimate of the resources scheduled in a time- phased cumulative baseline (BCWS—budgeted cost of the work scheduled). AC The actual cost of the work completed. The sum of the costs incurred in accomplishing work. (ACWP—actual cost of the work performed).

29. Glossary of Terms CV Cost variance is the difference between the earned value and the actual costs for the work completed to date where CV=EV-AC. SV Schedule variance (SV) is the difference between the earned value and the baseline to date where SV=EV-PV. BAC Budgeted cost at completion. The total budgeted cost of the baseline or project cost accounts. EAC Estimated costs at completion. Includes costs to-date plus revised estimated costs for the work remaining.

30. Glossary of Terms ETC Estimate cost to complete. VAC Cost variance at completion (BAC-EAC e ), where EAC e is derived by estimators in the field. Or, alternatively, cost variance at completion (BAC-EAC f ), where EAC f is derived from a formula using actual and earned value costs. VAC indicates expected actual over-or underrun cost at completion.

31. Developing an Integrated Cost/Schedule System 1. Define the work using a WBS. a. Scope b. Work packages c. Deliverables d. Organization units e. Resources f. Budgets 2. Develop work and resource schedules. a. Schedule resource to activities b. Time-phase work packages into a network 3. Develop a time-phased budget using work packages included in an activity.

32. Developing an Integrated Cost/Schedule System 1. Define the work using a WBS. a. Scope b. Work packages c. Deliverables d. Organization units e. Resources f. Budgets 2. Develop work and resource schedules. a. Schedule resources to activities b. Time-phase work packages into a network 3. Develop a time-phased budget using work packages included in an activity. Accumulate budgets (PV). 4. At the work package level, collect the actual costs for the work performed (AC). 5. Multiply percent complete times original budget (EV).` 6. Compute the schedule variance (EV-PV) and the cost variance (EV-AC).

33. Project Management System Overview

34. Development of Project Baselines Purposes of a Baseline (PV) An anchor point for measuring performance A planned cost and expected schedule against which actual cost and schedule are measured. A basis for cash flows and awarding progress payments. A summation of time-phased budgets (cost accounts as summed work packages) along a project timeline. What Costs Are Included in Baselines? Labour Equipment Materials Project direct overhead costs (DOC)

35. Baseline Data Relationships

36. Development of Project Baselines (cont’d) Rules for Placing Costs in Baselines Costs are placed exactly as they are expected to be “earned” in order to track them to their point of origin. Per Cent Complete Rule Costs are periodically assigned to a baseline as units of work are completed over the duration of a work package.

37. Additional Earned Value Rules Rules applied to short-duration activities and/or small-cost activities Percentage complete rule 0/100 percent rule Assumes 100 % of budget credit is earned at once and only when the work is completed – useful for very small duration work packages or for vendor deliveries. 50/50 rule Allows for 50% of the value of the work package budget to be earned when it is started and 50% to be earned when the package is completed.

38. Methods of Variance Analysis Comparing Earned Value With the expected schedule value. With the actual costs. Assessing Status of a Project Required data elements Data Budgeted cost of the work scheduled (PV) Budgeted cost of the work completed (EV) Actual cost of the work completed (AC) Calculate schedule and cost variances A positive variance indicates a desirable condition, while a negative variance suggests problems or changes that have taken place.

39. Methods of Variance Analysis Cost Variance (CV) Indicates if the work accomplished using labour and materials costs more or less than what was planned at any point of time in the project. Schedule Variance (SV) Presents an overall assessment in dollar terms of the progress of all work packages in the project scheduled to date.

40. Cost/Schedule Graph

41. Earned Value Review Exercise

42. FIGURE: Network Diagram for the Packaging Machine Project

43. FIGURE: Work Breakdown Structure for the Packaging Machine Project

44. FIGURE: Budgeted Cost by Period for the Packaging Machine Project

45. FIGURE: Cumulative Budgeted Cost Curve for the Packaging Machine Project

46. FIGURE: Actual Cost by Period for the Packaging Machine Project

47. FIGURE: Cumulative Budgeted and Actual Cost for the Packaging Machine Project

48. FIGURE: Cumulative Percent Complete by Period for the Packaging Machine Project

49. FIGURE: Cumulative Earned Value by Period for the Packaging Machine Project

50. FIGURE: Cumulative Budgeted, Actual, and Earned Value for the Packaging Machine Project

51. FIGURE: Packaging Machine Project Status as of Week 8

52. Developing A Status Report: Another Hypothetical Example Assumptions Each cost account has only one work package, and each cost account will be represented as an activity on the network. The project network early start times will serve as the basis for assigning the baseline values. Baseline value will be assigned linearly, unless stated differently. From the moment work on an activity begins, some actual costs will be incurred each period until the activity is completed.

53. Work Breakdown Structure and Cost Accounts

54. Digital Camera Prototype Project Baseline Gantt Chart

55. Digital Camera Prototype Project Baseline

56. Digital Camera Prototype Status Reports: Periods 1–3

57. Digital Camera Prototype Status Reports: Periods 4–6

58. Digital Camera Prototype Status Reports: Period 7

59. Digital Camera Prototype Summary Graph (000)

60. Digital Camera Project Tracking Gantt Chart Showing Status—Through Period 7

61. Digital Camera Project Rollup at End Period 7 (000)

62. Indexes to Monitor Progress Performance Indexes Cost Performance Index (CPI) Measures the cost efficiency of work accomplished to date. CPI = EV/AC Scheduling Performance Index (SPI) Measures scheduling efficiency SPI = EV/PV Percent Complete Indexes Indicates how much of the work accomplished represents of the total budgeted (BAC) and actual (AC) dollars to date. PCIB = EV/BAC PCIC = AC/EAC

63. Interpretation of Indexes

64. Indexes Periods 1–7

65. Forecasting Final Project Cost Methods used to revise estimates of future project costs: EAC e Allows experts in the field to change original baseline durations and costs because new information tells them the original estimates are not accurate. EAC f Uses actual costs-to-date plus an efficiency index to project final costs in large projects where the original budget is unreliable.

66. Forecasting Model: EAC f The equation for this forecasting model:

67. Example Assume a work package expected to be finished today, at cost of $1500. But you’re only 2/3 complete, and you’ve spent $1350. CPI = EV/AC = $1000/$1350 =.74 SPI = EV/PV = $1000/$1500 =.67 CSI = CPI*SPI =.74 X.67 =.49

68. Example (cont’d) Then you can calculate the estimated cost to complete the project (ETC) and the estimated cost at completion (EAC) ETC = (BAC – EV)/((EV/AC) = CPI) = $(1500 – 1000)/.74 = $676 EAC = AC + ETC = $1350 + $676 = $2026

69. Project Control

70. Project Control Defined CONTROL: The act of reducing the difference between plan and reality The last element in the plan-implement- monitor-control cycle Uses the information from the monitoring process to get and keep a project on track

71. Control Can Be Complicated Performance, cost, and schedule issues all have a human element Symptoms are obvious, but root causes never are “Messes” vs. “problems” Hard to separate random events from systemic difficulties

72. Two Fundamental Purposes of Project Control Regulate project results through alteration of activities Efficiently use and protect organizational assets

73. Purpose of Control To make the actual meet the plan The Process 1. Identify key performance areas 2. Set standards 3. Measure performance 4. Compare 5. Take corrective action

74. Project Schedule Control Chart

75. Indices Help Visualize Performance Projects on cost, on schedule will have indices = 1.0 Indices below 1.0 are unfavorable Cost Performance Index (CPI) Schedule Performance Index (SPI) Cost-Schedule Index (CSI), also simply called the Critical Ratio (basically equal to (actual progress/scheduled progress) x (budgeted cost/actual cost)) = CPI X SPI CSI is plotted as a control variable as in a quality control chart, PM will ignore this ratio in some ranges, typically 0.9-1.1

76. Critical Ratio Control Limits

77. Effective Control Systems Must be Balanced Balance means Measuring both tangibles and intangibles Looking at both long-term and short Keeping flexibility in the system Addressing human factors Focusing on correction, not punishment Optimizing control, not maximizing it

78. A Question of Balance Too little control? Too much control? $ Amount of Control C Control C Mistakes

79. Controlling Changes and Scope Creep Changes can drive higher costs and stretched out schedules So controlling them is an essential project management task A formal change system is a must for project control

80. Five Principles of a Formal Change Program All contracts specify formal change process All changes require formal change order All change orders approved in writing by client and project organization Project manager is always consulted The approved change order becomes part of the master plan

81. EARNED VALUE MANAGEMENT EXERCISE 2 A company has a fixed cost contract for the supply, installation Testing and commissioning of 200 computers at a cost of 600 Lakhs. Company estimates it can put up 10 computers per day. A Review on Day 16 reveals that 380 Lakhs have been spent And 120 computers installed

82. EARNED VALUE MANAGEMENT EXERCISE 2 ANSWERS Cost per computer = 600/200= 3L PV=16 days * 10 * (600/200)= 480 L EV=120 * 3`= 360 L AC= 380 L CV=EV – AC= 360-380 = -20L CPI360/380= 0.947 SVEV – PV= 360 – 480 = -120L SPI360/480= 0.75 EACAC + (BAC-EV) / CPI 380 + (600-360)/0.947= 633L TAC20/0.75= 26.67 d

83. EVA Game Bathroom (5 hours) (1.2 liters) Bedroom 1 (10 hours) (1.8 liters) Bedroom 2 (10 hours) (1.8 liters) Kitchen (10 hours) (1.6 liters) Living-room (15 hours) (3.6 liters) The sequence is Bedroom1, Bathroom, Living, Kitchen and Bedroom 2.

84. EVA Game Bathroom (5 hours) (1.2 liters) Bedroom 1 (10 hours) (1.8 liters) Bedroom 2 (10 hours) (1.8 liters) Kitchen (10 hours) (1.6 liters) Living-room (15 hours) (3.6 liters) The sequence is Bedroom1, Bathroom, Living, Kitchen and Bedroom 2. You have to paint a house in 5 days of 10 hours each with 10l of paint

85. EVA Game DAY – 1 For people born in the first six months of the year, the day started badly. You relative’s dog overturned the paint while you were preparing your materials. Luckily, you were able to tighten the tin before too much had been spilt. However, you spent half an hour cleaning up the mess. For people born in the second six months of the year, painting the ceiling proved much more difficult than anticipated. You had to use more paint than you had planned. AC = 2.0 litres (dog victims) AC = 2.2 litres (ceiling difficulties) Project progress = + 15 percent

86. DAY 1 PROJECTIONS DAY – 1 EV = 1.5L PV = 1.8L AC = 2.0 litres (dog victims) AC = 2.2 litres (ceiling difficulties) CPI= EV/AC = 1.5/2.0 = 0.75 (Dog Case) SPI=EV/PV = 1.5/1.8 = 0.83 Project progress = + 15 percent

87. DAY 1 PROJECTIONS: COST DAY – 1 Cost Projections (Optimistic) EV = 1.5L (Project progress = + 15 percent) PV = 1.8L AC = 2.0 litres (dog victims) AC = 2.2 litres (ceiling difficulties) BAC = Budget at Completion = 10 L Actual Cost + (BAC- EV) 2 (dog case) + (10 – 1.5) = 10.5 Liters

88. DAY 1 PROJECTIONS: COST DAY – 1 Cost Projections (Likely) EV = 1.5L (Project progress = + 15 percent) PV = 1.8L AC = 2.0 litres (dog victims) AC = 2.2 litres (ceiling difficulties) BAC = Budget at Completion = 10 L CPI = 0.75 Actual Cost + (BAC –EV) / CPI 2 (dog case) + (10 – 1.5)/0.75 = 13.3 Liters

89. DAY 1 PROJECTIONS: COST DAY – 1 Cost Projections (Pessimist) EV = 1.5L (Project progress = + 15 percent) PV = 1.8L AC = 2.0 litres (dog victims) AC = 2.2 litres (ceiling difficulties) BAC = Budget at Completion = 10 L CPI = 0.75 AC + BAC –EV (CPI * SPI ) Assumes Time and Cost relationship

90. DAY 1 PROJECTIONS: TIME DAY – 1 Time Projections (Optimistic) EV = 1.5L (Project progress = + 15 percent) PV = 1.8L AC = 2.0 litres (dog victims) AC = 2.2 litres (ceiling difficulties) BAC = Budget at Completion = 10 L CPI = 0.75 SPI = 1.5/1.8 (Elapsed Time / SPI + Time Remaining as per schedule) 10/(1.5/1.8) + 40 = 10*1.8 /1.5 +40 = 12 +40 = 52 hrs

91. DAY 1 PROJECTIONS: TIME DAY – 1 Time Projections (Likely) EV = 1.5L (Project progress = + 15 percent) PV = 1.8L AC = 2.0 litres (dog victims) AC = 2.2 litres (ceiling difficulties) BAC = Budget at Completion = 10 L CPI = 0.75 SPI = 1.5/1.8 Total Scheduled Time / SPI = 50/ (1.5/1.8) = (50 *1.8)/1.5 = 60 hrs

92. DAY 1 PROJECTIONS: TIME DAY – 1 Time Projections (Pessimist) EV = 1.5L (Project progress = + 15 percent) PV = 1.8L AC = 2.0 litres (dog victims) AC = 2.2 litres (ceiling difficulties) BAC = Budget at Completion = 10 L CPI = 0.75 SPI = 1.5/1.8 Actual Time spent + (Time Remaining as per schedule / CR) = 10+(40 / (SPI*CPI))

93. EVA Game DAY – 2 You finished the first bedroom during the day (20 percent completion) and started the bathroom. People whose first name begins A to J made a mess of the mirror and wasted time cleaning off the paint. People whose first name begins K to Z took an hour’s break for a shower and a cup of coffee. You finished the bathroom (10 per cent) and started the lounge / living-room. AC = + 1.4 litres Project progress = + 17 percent (names A to J) + 19 percent (names K to Z)

94. EVA Game DAY – 2 You finished the first bedroom during the day (20 percent completion) and started the bathroom. People whose first name begins A to J made a mess of the mirror and wasted time cleaning off the paint. People whose first name begins K to Z took an hour’s break for a shower and a cup of coffee. You finished the bathroom (10 per cent) and started the lounge / living-room. AC = + 1.4 litres Project progress = + 17 percent (names A to J) + 19 percent (names K to Z) PV = 4.2

95. EVA Game DAY – 3 You had a full day painting your way around the living-room. People with brown eyes were inspired by the music on the radio and worked much more quickly and efficiently than on the previous two days. People with eyes other than brown were joined by a friend for the day. Although the work was done more quickly, the friend needed a lot of guidance and used far more paint than was necessary. At the end of the day the living room was nearly finished. AC = + 3.2 liters (brown eyes) AC = + 3.6 liters (not brown eyes) Project Progress = + 25 percent (brown eyes) + 30 percent (not brown eyes))

96. EVA Game DAY – 3 You had a full day painting your way around the living-room. People with brown eyes were inspired by the music on the radio and worked much more quickly and efficiently than on the previous two days. People with eyes other than brown were joined by a friend for the day. Although the work was done more quickly, the friend needed a lot of guidance and used far more paint than was necessary. At the end of the day the living room was nearly finished. AC = + 3.2 liters (brown eyes) AC = + 3.6 liters (not brown eyes) Project Progress = + 25 percent (brown eyes) + 30 percent (not brown eyes)) PV = 6.6

97. EVA Game DAY – 4 You finished the living-room (30 per cent) in the morning and started the kitchen. Males had trouble accessing some of the tight spots between the wall unit and the roof, between the shelves, and between the oven and the wall. As a consequence they used up more paint than was necessary. Females had trouble painting behind the refrigerator, and had to return to this at the end of the day. AC = + 1.6 litres (males) + 1.3 litres (females) Project progress = + 18 per cent (males) + 16 per cent (females)

98. EVA Game DAY – 5 You finished off the kitchen (20 per cent) and worked more or less continuously to try to finish the second bedroom. People wearing glasses found their painting experience really starting to pay off and worked faster than on the previous days. People not wearing glasses found their brushstrokes becoming more effective and economical than on previous days. If you reached 100 per cent or more of physical progress then the work was finished within the 50 hours. If not, then you had to return on the sixth day in order to round things off and to tidy up your materials. AC = + 1.7 litres (wearing glasses) + 1.4 litres (not wearing glasses) Project progress = + 24 per cent (wearing glasses) + 21 per cent (not wearing glasses) PV = 10.0