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.

1. Earned Value Back to Basics

2. Stephen Jones
SPER Programme Lead
Chairman of APM PMC SIG
Simon Taylor
Head of Planning
Introductions

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. 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. 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. 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. 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. Example
After 4 hours the builder has laid 50 bricks
Earned Value = £100, Actual = £90

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. 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. 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. 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. 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. 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. 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. 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. Good News or Bad News

18. Good News or Bad News
Ahead of Schedule / Under Budget
Scheduled Variance
Cost Variance
Incorrect

19. Good News or Bad News

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. Good News or Bad News
Behind Schedule / Over Budget
Scheduled Variance
Cost Variance

22. Bulls-eye Chart

23. EVM in projects

24. Where is the industry?
24
PWC 2014

25. Where is the industry?
25
PWC 2014

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. 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)
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28. Managing Multiple Contracts
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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. 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. 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. 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. 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. 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. EVM & Risk

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. 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. Generating a mid curve for EVM
37
£20
£20
£20
Early Finish
£20
£20

38. Generating a mid curve for EVM
38
£- £20 £40 £60 £80 £100 £120 Day1Day3Day5Day7Day9Day11Day13Day15Day17Day19Day21Day23Day25Day27Day29Cost TimeEarly FinishEarly Finish

39. Generating a mid curve for EVM
39
£20
£20
£20
£20
£20
Late Finish

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. 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. Using Banana Curves for EVM
Done outside planning tool
Requires some skill
Is totally worth doing

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
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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
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45. Publications www.apm.org.uk/publications

46. Earned Value Management Certification
Foundation Level
Practitioner Level
http://www.apmg-international.com/earned- value.aspx

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. 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. This presentation was delivered for an APM webinar
To find out more about upcoming events please visit our website www.apm.org.uk/events