Making EVA Work: Top Tips for Successful Earned Value Analysis

Earned Value Analysis:
Making it Work

February 22-23, 2012

Joe Lukas, PMP, PM, CCE
Vice-President

609-575-9306 (c)
888-762-3683 (w)
joe.lukas@pmcentersusa.com

Traditional Project Cost Curve
What can you tell about the health of this project based on this graph?

Status Date
Budget – Planned Work
$‟s or
Hours
Actual Cost

Time

 1. Completing work for less than the budgeted amount
 2. Behind the project schedule
 3. Spending less than planned
 4. Behind schedule & completing work for less than the budget amount

2
©Joe Lukas, February 22-23, 2012

Traditional Project Cost Curve
The only information you know from this graph is that spending is
less than planned!
Status Date
Budget – Planned Work
$‟s or
Hours
Actual Cost

Time


 2. Behind the project schedule

 3. Spending less than planned
 4. Behind schedule & completing work for less than the budget amount

3

Earned Value Analysis Curve
What can you tell about the health of this project based on this graph?

Status Date Budget

$‟s or Earned Value
Hours

Actual Cost

Time
 2. Ahead of the project schedule
 3. Spending less than planned
 4. Ahead of schedule & completing work for less than the budget amount

4

Earned Value Analysis Curve
You have completed more work than planned, but you can’t tell if
you are ahead of schedule! Why not?
Status Date Budget

$‟s or Earned Value
Hours

Actual Cost

Time
 1. Completing work for less than the budgeted amount
 2. Ahead of the project schedule

 3. Spending less than planned
 4. Ahead of schedule & completing work for less than the budget amount

5

What Will Be Covered?
• TOPIC 1: Quick review of
Earned Value Analysis (EVA)
terminology, calculations, and
best practices

• TOPIC 2: Top ten pitfalls that
can make EVA unsuccessful
and corrective actions that can
be applied to your project to
counter these hazards
6

Topic 1
EVA Terminology & Calculations

PV
CV EV
AC
SPI SV
CPI
ACWP BAC
BCWP
EAC
BCWS
ETC
7

Earned Value Terms
• Earned Value Analysis (EVA): Quantitative calculations
that use the progress of authorized work and the budget
for that work (called the earned value) for the purpose of
monitoring performance and predicting the final required
costs (and time) necessary to finish the project

• Earned Value Management (EVM): a method for
measuring the performance of work packages, control
accounts and the project; includes the integrated
schedule and budget based on the project
• Earned Value Management System (EVMS): the
integrated policies practices, procedures, tools and
templates used to do EVM
8

Earned Value Terms: PV

Planned Value (PV)
• Also called Budgeted Cost of Work
Scheduled (BCWS)
• Portion of the approved cost estimate
(budget) scheduled to be spent on the
task during a given time period
• This is the budget cost of what was
scheduled to be done

9

Planned Value (PV)
Time Now
75
Dollars or Hours

50 planned or
PV = scheduled work

25

0
6 12 18
Time
10

Earned Value Terms: AC

Actual Cost (AC)
• Also called Actual Cost of Work
Performed (ACWP)
• Costs incurred in accomplishing
work on the task
• This is what the work actually cost

11

Actual Cost (AC)
Time Now
planned or
75 PV = scheduled work

50
what the work
Dollars

AC = actually cost

25

0
6 12 18
Time
12

Earned Value Terms: EV

Earned Value (EV)
• Also called Budgeted Cost of Work
Performed (BCWP)
• The value of completed work calculated by
multiplying the work budget by the percent
of the work completed
• This is what was actually done (earned)

13

Earned Value (EV)

Time Now
planned or
75 PV - scheduled work

50
Dollars

what the work
AC - actually cost

25 actual work
EV = accomplished

0
6 12 18
Time
14

Earned Value Relationships
The work with the schedule
and budget is the PLAN Costs
Budget Actual
Scheduled PV
Work
Performed EV AC

Earned Value looks at the budget The work performed
amount for the work performed (done) and the costs for
that work are ACTUAL
results
15

Calculating Earned Value (EV)

EV = % Complete x budget $ for that activity

• Percent complete is the physical progress of the
task:
 A task is 0% complete if not started
 A task is 100% complete when finished
 Different techniques can be used to evaluate progress
while a task is being done

16

Progressing Techniques

• Units Completed
• Incremental Milestones
• Start – Finish
• Apportioned Relationship
• Level of Effort
• Individual Judgment
• Combination Methods

17

Quantitative Progressing
• Units Completed - work with repeated production of easily
measured pieces of work

• Incremental Milestones - work broken down in
multiple measurable milestones, with specific budget
values

• Start–Finish - some progress
may be assigned at start;
100% at completion

18

Qualitative Progressing
• Level of Effort - assumes the progress of the activity is
equal to the amount spent

• Individual Judgment -
Important to get multiple
opinions of progress, this
provides a „checks and balance‟
on the progress accuracy

19

Misc. Progressing Techniques

• Apportioned Relationship - has a direct intrinsic
performance relationship to another discrete Work Package
& progress is same

• Combination Methods - Use two or
more of the other progressing
techniques

These techniques can be either
qualitative or quantitative

20

What Progressing Technique?
New carpet installation in company cafeteria
1. Units Completed
2. Incremental Milestones
3. Start – Finish
4. Apportioned Relationship
5. Level of Effort
6. Individual Judgment
7. Combination Methods

21

Rock Excavation for new foundation

1. Units Completed
3. Start – Finish
5. Level of Effort

22

New pill press machine purchase

1. Units Completed
3. Start – Finish
5. Level of Effort

23

Factory inspector for equipment fabrication
1. Units Completed
3. Start – Finish
5. Level of Effort

24

Schedule & Cost: Variance & Index
• Schedule Variance
measures schedule performance SV = EV - PV
at a point in time:
• Schedule Performance Index
ratio of work performed to work SPI = EV PV
scheduled (earned / plan):
• Cost Variance
measures cost performance CV = EV - AC
at a point in time:
• Cost performance index
ratio of budget costs for work CPI = EV AC
performed to actual costs:
25

SV & CV – Bad Project
Time Now
75 Planned
Budget -
(Scheduled) Work

50
Dollars

Actual Cost
SV = -25
CV = -12
25

Earned Value - Budget of Work
Accomplished
0
6 9 12 18
Time
26

SV & CV – „Good‟ Project

Time Now
Budget
75

SV = +5
50
CV = +18
Dollars

Earned Value

25 Actual Cost

0
6 9 12 18
Time
27

SPI Warning!!!
• Caution! The Schedule Performance
Index may or may not accurately reflect the
true schedule condition of the project!
• Total Float must also be considered!
• SPI > 1.0 may occur by “earning”
progress on non-critical activities

28

Key Cost Forecasting Terms

• Budget at Completion (BAC) - sum of all
authorized budgets allocated to a project - the
“Performance Measurement Baseline”

• Estimate to Complete (ETC) - the expected
additional cost to complete the project

• Estimate at Completion (EAC) - the expected total
cost of the project when the defined scope of work
is completed

29

Key Cost Forecasting Terms
EAC
BAC
TIME
NOW
Project
ETC Contingencies
DOLLARS

PV AC EV
NOTE: Most ETC & EAC formulas
include an adjustment based on
project performance (CPI, SPI)

TIME
30

EAC Formulas: CPI = 1
• „Mathematical‟ or „Overrun-to-Date‟ EAC

• EAC = AC + (BAC - EV) - assumes the plan will
be met for the remaining work (CPI = 1.0)

• Yields the most optimistic EAC when CPI < 1.0

Time Now

CPI „Good Project‟

1.0
Project #1 & #2 CPI
Actual CPI „Bad Project‟
0.0
Time
31

EAC Formulas: „Most Likely‟
• „Cumulative CPI‟ EAC
• EAC = AC + (BAC - EV)/CPI = BAC/CPI
• Assumes the performance (CPI) will remain unchanged
for the rest of the project

Time Now
Project #2 CPI „Good Project‟
CPI
1.0
Project #1 CPI
0.0
Time
32

EAC Formulas: CPI times SPI
• „Cumulative CPI times SPI‟ EAC
• EAC = AC + ((BAC - EV) / (CPI x SPI)) or
= BAC / (CPI x SPI) [Not quite the same calculation]

• Yields the most pessimistic EAC when both SPI & CPI < 1.0

Time Now Project #2 CPI
„Good Project‟
CPI
1.0
Project #1 CPI
0.0
Time
33

Comments on Cumulative CPI

• Cumulative CPI has been shown to stabilize
as early as the 20% completion point of the
project
• “…researchers found the cumulative CPI
does not change by more than 10% once a
contract is 20% complete; in most cases,
the cumulative CPI one worsens as a contract
proceeds to completion”1

1Dr. David S. Christensen, “Using Performance Indices to Evaluate the Estimate at Completion,” The Journal of
Cost Analysis of the Society of Cost Estimating and Analysis, Spring 1994, page 19.

34

To-Complete Performance Index
• TCPI – provides a forecast of the required performance
level, expressed as a CPI, which must be achieved on the
remaining work in order to meet the project financial goal,
which can be:
 Current authorized budget
 Project Manager‟s current EAC

• TCPI – provides a sanity check for the Project Manager on
whether the required CPI for the rest of the project is
obtainable

• Remember: “…cumulative CPI does not change by more
than 10% once a contract is 20% complete…”

35

TCPI Formulas
Work Remaining (BAC – EV)
TCPI (BAC) = =
Funds Remaining (BAC – AC)

Work Remaining (BAC – EV)
TCPI (EAC) = =
Funds Remaining (EAC – AC)
Time Now
TCPI (BAC)
CPI
Baseline
1.0 Plan

Actual CPI
0.0
Time
36

Topic 2

Top Ten List on what‟s needed to make
EVA successful

&

Actions that should be done on projects
to help ensure successful use of EVA

37

Making EVA Work

What‟s needed to make EVA Successful:

6. Integrated Project Plan (WBS-Schedule-Budget)

7. Correct Schedule & Budget

8. Effective Cost collection system

9. Accurate Reported Progress

10. No Management influence on progress

38

Making EVA Work

What‟s needed to make EVA Successful:

1. Defined Requirements

2. Complete Requirements

3. WBS Used and Accepted

4. Complete WBS

5. Change Management Process

39

#1: Defined Requirements

Business
Objectives
Problem or
Opportunity
“Why” Business
Requirements
“What”
Functional &
Technical
Requirements
WBS “What”
Solution
Architecture & “How”
Specifications
Project Scope documented
“How” by the WBS

40

#2: Complete Requirements

Schedule
Quality
Communications
Scope Staffing
Procurement
Cost Risk

Requirements Project
Plan
41

#3: WBS Used & Accepted

• WBS lists the project deliverables, which is the
input to the project schedule & budget
• Consequence if not used: Control Accounts and
Work Packages not identified – making EVA
calculations difficult and time consuming
• Correct Action:
 Prepare a WBS on your project!

42

#3: Use of a WBS

Proper Naming of Deliverables & Activities

 Major Deliverables
WBS Elements

May not be needed for small
 Deliverables or medium projects, probably
>1 level for large projects
 Work Package Lowest level for control
Deliverables

Steps needed to create the
 Activities WBS deliverable

43

#3: Naming WBS Deliverables

• Data Flow Diagram
• Risk Management Plan
• Training Manual Outline
• Test Plan

• Conduct unit test for program 21A
• Review requirements document
• Prepare report specification draft
• Write script for interface module
44

#4: Complete WBS

Project Product

Major Major Major
Deliverable 1 Deliverable 2 Deliverable 3

Deliverable 3.1 Deliverable 3.2
Deliverable 1.1 Deliverable 1.2

= Control Accounts

= Work Packages Sub-Deliverable 3.1.1 Sub-Deliverable 3.1.2

Need to verify WBS covers all project requirements!
45

#5: Change Management Process

• Consequence if not used:
 Cost / schedule deviations for Work Packages not
documented
 Scope changes not captured – baseline not updated

• Correct Action:
 Implement a change management process on your
project for both deviations and scope changes

46

#6: Integrated Project Plan

• WBS, Schedule and Budget are not integrated
• Consequence if not used: Makes doing EVA
calculations difficult
• Correct Action: Use WBS as the starting point in
preparing project schedule and budget

47

#7: Correct Schedule/Budget

• Schedule logic incorrect, work package estimates
incorrect
• Consequence if happens: Incorrect EVA
calculations
• Correct Action:
 Follow good scheduling practices
 Estimate at Work Package activities level
 Use a contingency fund to handle cost & schedule
deviations

48

#7: Use of Contingency

WP # WP Title/Description WP Estimate
~

~

~
15 Package Implementation $ 50,000
- Sub-total $1,545,000
- Contingency $ 155,000

- Project Total $1,700,000

Task Schedule
~

Project
P Contingency Complete
11 days

Task
~

Q

49

#7: Contingency Management
Sample Contingency Drawdown Graph
Dollars Status Days
Date
$40k 20
001 Cost Contingency Start = $38k
002

003

$30k 004
Schedule Contingency Start = 15 days 15
$29.4k
001

002
$20k 10
003

004 EAC = $15k

6 days
$10k 5

$0
Oct Nov Dec Jan Feb Mar Apr May
Project Timeline EAC = -9 days

50 ©Joe Lukas, February 22-23, 2012
50

#8: Effective Cost System

• Internal labor hours not captured, costs not
captured at Work Package level, multiple cost
systems in place
• Consequence: Difficult or impossible to report
actual costs
• Correct Action: Use SV and SPI only for internal
work if costs not available, have contractors report
EVA information for their work

51

#8: Adequate Cost System

Divide the project into internal and external work:

Use SV, SPI, CV, CPI Use SV, SPI

Project

External Work Internal Work

Deliverable A Deliverable B Deliverable 1 Deliverable 2

Work Package 1.1 Work Package 2.1

52

#9: Accurate Reported Progress

• Reported progress must be accurate – can be
team bias (usually too optimistic)
• Consequence if not accurate: Incorrect EVA
results
• Correct Action: Minimize subjective progress
techniques - if use of Individual Judgment and
Level of Effort >10%, EVA results probably not
valid

53

#10: Management Influence

• Management pressures teams to show only good
results
• Consequence if happens: Reported progress
too optimistic - results in incorrect EAC
• Correct Action: Resist management influence

54

Back to the Earned Value Curve
Time Now
Budget
75

50
Dollars

Actual Cost
Earned Value

25 This was the graph for a
real project…

0
6 9 12 18
Time
55

The Results?
• Final Costs = 4x
• Final Schedule = + 1 year
• The good news – the software worked!

So What Happened?

56

EVMS Standard

• In 1995, National Defense Industrial Association
(NDIA) started work to rewrite Cost/Schedule
Control System Criteria (C/SCSC) to make it
more compatible with the needs of private
industry
• Result was American National Standard Institute-
Electronic Industries Association ANSI/EIA 748
standard

57

EVMS Standard

• New version is called Earned Value
Management System (EVMS) Criteria and
contains 32 criteria in five groups:
 Organization
 Planning, Scheduling and Budgeting
 Accounting Considerations
 Analysis and Management Reports
 Revisions and Data Maintenance

58

Conclusion

• Earned Value is a methodology that, if used
properly, provides project performance
measurement
• EV requires complete requirements, scope
definition and a Project Plan!
• Properly used, Earned Value is a flexible
process that provides timely information on the
project health

59

Questions?

Joe Lukas, PMP, PM, CCE
Vice-President

609-575-9306 (c)
888-762-3683 (w)
joe.lukas@pmcentersusa.com

February 22-23, 2012
60

Making EVA Work: Top Tips for Successful Earned Value Analysis

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Making EVA Work: Top Tips for Successful Earned Value Analysis