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Back to basics - Earned Value Management for beginners webinar

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Back to basics - Earned Value Management for beginners webinar

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This webinar was presented by Stephen Jones, Chair of the APM Planning, Monitoring and Control SIG and Simon Taylor, Vice-Chair of the same SIG on Thursday 11th December 2014.

Earned value management is a project control process based on a structured approach to planning, cost collection and performance measurement.

Earned value helps us manage a project by:

providing data to enable objective measurement of project status;
providing a basis for estimating final cost;
predicting when the project will be complete;
supporting the effective management of resources;
providing a means of managing and controlling change.
Earned value provides information which enables effective decision making by knowing:

what has been achieved of the plan;
what it has cost to achieve the planned work;
if the work achieved is costing more or less than was planned;
if the project is ahead of or behind the planned schedule.

Good planning leads to good project execution and good management information.

This webinar was presented by Stephen Jones, Chair of the APM Planning, Monitoring and Control SIG and Simon Taylor, Vice-Chair of the same SIG on Thursday 11th December 2014.

Earned value management is a project control process based on a structured approach to planning, cost collection and performance measurement.

Earned value helps us manage a project by:

providing data to enable objective measurement of project status;
providing a basis for estimating final cost;
predicting when the project will be complete;
supporting the effective management of resources;
providing a means of managing and controlling change.
Earned value provides information which enables effective decision making by knowing:

what has been achieved of the plan;
what it has cost to achieve the planned work;
if the work achieved is costing more or less than was planned;
if the project is ahead of or behind the planned schedule.

Good planning leads to good project execution and good management information.

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Back to basics - Earned Value Management for beginners webinar

  1. 1. Earned Value Back to Basics
  2. 2. Stephen Jones SPER Programme Lead Chairman of APM PMC SIG Simon Taylor Head of Planning Introductions
  3. 3. What is Earned Value? Earned Value Management –Establishing and managing goals throughout the life of a project –Provides indication of Project efficiency Three pieces of Information –Earned Value –Actual Cost –Planned Value
  4. 4. Earned Value Budget Cost of Work Performed (BCWP) The value of the work actually done at a given point in time How do you decided on the Value of work done? It’s the portion of the budget which should have been spent to achieve the work done.
  5. 5. Actual Cost The Actual Cost of Work Performed(ACWP) is the cost of the work done. It is the amount reported as actually expended in completing the work accomplished within a given time period
  6. 6. Planned Value Budgeted Cost of Work Scheduled (BCWS) It is the value of the work that should have been done at a given point in time. It indicates the budget at a given point.
  7. 7. Example A builder estimates to build a wall will require 100 bricks at £1 each. The builder can lay 10 bricks per hour. The builder charges £10 per hour
  8. 8. Example After 4 hours the builder has laid 50 bricks Earned Value = £100, Actual = £90
  9. 9. Schedule Performance Index SPI measures progress against the plan. Greater than 1.0 is good (ahead of plan) Less than 1.0 is bad (behind plan) Equals 1.0 when we are on plan SPI = BCWP / BCWS Schedule Variance = BCWP – BCWS
  10. 10. Example In our example Earned Value (BCWP) = £100 Planned value (BCWS) = £80 SPI = BCWP / BCWS SPI = 1.25 The builder is ahead of schedule SV = 100 – 80 = +20
  11. 11. Cost Performance Index CPI is a ratio of the value of work to actual cost incurred. Greater than 1.0 is good (under budget) Less than 1.0 is bad (over budget) Equals 1.0 when we are on budget CPI = BCWP / ACWP Cost Variance = BCWP – ACWP
  12. 12. Example In our example, after 4 hours the cost will be £40 for labour plus £50 for brick = £90 Earned Value (BCWP) = £100 Actual cost (ACWP) = £90 CPI = BCWP / ACWP CPI = 1.11 The cost is under budget CV = 100 – 90 = +10
  13. 13. EAC Estimate at Completion A forecast of the cost required to complete the project based on current progress EAC = Budget at Completion / CPI EAC = £200 / 1.11 EAC = £180 (should finish under budget)
  14. 14. Estimated Duration A forecast of the time required to complete the project based on current progress Estimated Duration = Planned Duration / SPI In our example = 10 hours / 1.25 Estimated Duration = 8 hours Should finish ahead of schedule
  15. 15. Summary BAC = budget at Completion Earned Value EV = %complete x BAC Cost Variance CV = BCWP – ACWP Schedule Variance SV = BCWP – BCWS Cost Performance Index CPI = BCWP/ ACWP Schedule Performance Index SPI = BCWP/ BCWS EAC = Total Budget / CPI Est. time at completion = Planned duration / SPI
  16. 16. Benefits of Earned Value Analysis Measures work done against expenditure Control is achieved by calculating variances Positive: good, negative: Bad Indices give a summary of project health >1.0: good, < 1.0: bad Generates forecast to completion based on current trends SPI and CPI can be used as a measure of efficiency
  17. 17. Good News or Bad News
  18. 18. Good News or Bad News Ahead of Schedule / Under Budget Scheduled Variance Cost Variance Incorrect
  19. 19. Good News or Bad News
  20. 20. Pole Results Ahead of Schedule / Ahead of Budget Ahead of Schedule / Over Budget Behind Schedule / Ahead of Budget Behind Schedule / Over Budget On Schedule / On Budget
  21. 21. Good News or Bad News Behind Schedule / Over Budget Scheduled Variance Cost Variance
  22. 22. Bulls-eye Chart
  23. 23. EVM in projects
  24. 24. Where is the industry? 24 PWC 2014
  25. 25. Where is the industry? 25 PWC 2014
  26. 26. What is Earned Value Management? Earned Value Management (EVM) is a project management system that combines schedule performance and cost performance to answer the question, “What did we get for the money we spent?” To summarise....the basics: How will you do the job? – Plan How much will it cost? – Cost Loaded How much have you achieved? - % Complete 26
  27. 27. Why use EVM? It enables project teams to ask the questions “have I spent too much money achieving too little?” “is the project behind or ahead of schedule?” Allows efficient and effective use of time and deployment of resource Requires discipline and rigour to operate successfully (i.e. Robust baseline & proactive change control) 27
  28. 28. Managing Multiple Contracts 28 Week 1 Week 2 Week 4 Week 5 This is a proven way to measure performance Contract 2 Contract 3 Contract 4 Contract 5 Contract 1 SPI: 0.95 – CPI: 0.98 Week 3 SPI: 0.99 – CPI: 1.01 SPI: 0.89 – CPI: 0.76 SPI: 0.98 – CPI: 1.10 SPI: 0.98 – CPI: 1.15 If can you only make 1 phone call today who should it be too?
  29. 29. Managing Multiple Contracts 29 Week 1 Week 2 Week 4 Week 5 An integrated WBS & CBS will really help here! Contract 2 Contract 3 Contract 4 Contract 5 Contract 1 SPI: 0.95 – CPI: 0.98 Week 3 SPI: 0.99 – CPI: 1.01 SPI: 0.89 – CPI: 0.76 SPI: 0.98 – CPI: 1.10 SPI: 0.98 – CPI: 1.15
  30. 30. Trending EV Graphs 30 EVM Metric shows underachievement and overspend. In a programme with complex plans and multiple contracts EVM quickly shows areas that need further analysis. £- £10 £20 £30 £40 £50 £60 £70 £80 Week 1 Week 2 Week 3 Week 4 Week 5 Work P ac kag e 1 P lanned Value E arned Value Ac tual C os t 0.69 0.61 S P I: C P I: P otential Overs pend P otential D elay Trend Week 6 Week 7 Project will need to over perform in order to recover
  31. 31. EVM and progress % complete examples for –Software (closing logs or validated functionality) –Design, 25% across task, 75% on FDR –Units, RWI’s etc. –No persistent 99% crawl
  32. 32. EVM in Contracts NEC WI T&C’s as measuring in working schedule is preferred –Agree structure –Agree % complete for work type –Agree data format and align with systems –Separate EVM baseline outside of accepted schedule
  33. 33. EVM & Risk Risk monies not held in baseline plan as there is not 100% chance of occurrence and subsequent earn EV baseline budget = Project authority – Risk & Contingency Risk events are time phased activities
  34. 34. EVM & Risk
  35. 35. EVM & Risk As risk occurs the baseline is updated with the allocated funds maintaining historic performance measures and validity of baseline going forward As project proceeds EFC stays the same but baseline budget increases
  36. 36. Using Banana Curves for EVM EV baseline is based on early CPM logic Initial early plan know as P0  Not much hope of positive SPI Too much red hides real issues
  37. 37. Generating a mid curve for EVM 37 £20 £20 £20 Early Finish £20 £20
  38. 38. Generating a mid curve for EVM 38 £- £20 £40 £60 £80 £100 £120 Day1Day3Day5Day7Day9Day11Day13Day15Day17Day19Day21Day23Day25Day27Day29Cost TimeEarly FinishEarly Finish
  39. 39. Generating a mid curve for EVM 39 £20 £20 £20 £20 £20 Late Finish
  40. 40. £- £20 £40 £60 £80 £100 £120 Day1 Day3 Day5 Day7 Day9 Day11 Day13 Day15 Day17 Day19 Day21 Day23 Day25 Day27 Day29 Day31 Day33 Day35 Cost Time Early & Late Finish Early Finish Late Finish Generating a mid curve for EVM 40 Terminal Float
  41. 41. Generating a mid curve for EVM 41 £- £20 £40 £60 £80 £100 £120 Day1 Day3 Day5 Day7 Day9 Day11 Day13 Day15 Day17 Day19 Day21 Day23 Day25 Day27 Day29 Day31 Day33 Day35 Cost Time Mid Curve (Baseline Cost Forecast) Early Finish Late Finish Baseline Terminal Float
  42. 42. Using Banana Curves for EVM Done outside planning tool Requires some skill Is totally worth doing
  43. 43. Key Points Used to measure performance only at contract / project level by the project team (not summarised) Baseline midpoint generated from the approved working schedule Costs associated with non productivity based tasks will not be included in baseline (PM costs, Materials, Risk, Contingency etc.) Budgets and progress will be quantified using an agreed method of measuring progress (agreed units of measurement shall be identified and standardised wherever possible) EV based progress analysis and reporting should be part of any regular progress meetings Application for payment can be based on earned value achieved 43
  44. 44. Common Issues around using EV Senior management reaction to low SPI & CPI Non effort based costs skewing EV figures Schedule quality and baseline control No standardised way of EV implementation across supply chain Varied levels of cost information from others Non standardised, scientific progress quantification to inform physical % complete Summarisation of EV at programme and portfolio level clouded real performance issues 44
  45. 45. Publications www.apm.org.uk/publications
  46. 46. Earned Value Management Certification Foundation Level Practitioner Level http://www.apmg-international.com/earned- value.aspx
  47. 47. CARBs – Energising your project Full Day event, 21st January. £60+ vat Complex Agile Risk Benefits Lunch included http://www.apm.org.uk/event/carbs-energising-your-projects
  48. 48. Join the PMC SIG Register at your email address at http://www.apm.org.uk/ It’s Free!!! You don’t have to be a member of APM.
  49. 49. This presentation was delivered for an APM webinar To find out more about upcoming events please visit our website www.apm.org.uk/events

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