7. Earned Value Project Management Cost Variance (CV) Cost Variance = EV – AC (BCWP – ACWP) = Rs 60,000 – Rs 85,000 = (-) Rs 25,000 Negative value indicating cost overruns.
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10. Earned Value Project Management Schedule Variance (SV) This is the algebraic difference between Earned Value of the work performed and the budgeted value of the work planned. In our case Schedule Variance = BCWP – BCWS (EV) – (PV) = Rs 60,000 – Rs 80,000 = (-) Rs 20,000
12. Earned Value Project Management Schedule variance is being measured in monetary units – not time units.
13. Earned Value Project Management A positive value for this variance represents work ahead of schedule, and negative value indicates behind schedule or schedule slippage
14. Earned Value Project Management These variances not only tell the project manager about the true, rather than the apparent state of the project, they also ………………
15. Earned Value Project Management In this case, the larger CV (42% of the EV) as compared to SV (33% of EV) tells us that we need to look more at the cost overrun aspects.
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22. COST PERFORMANCE INDEX (CPI) 80,000 0.705 EAC = In our case it is ………….. = Rs 1,13,475.17
23. COST PERFORMANCE INDEX (CPI) How would you explain the significance of EAC, SPI and CPI we have calculated?
24. COST PERFORMANCE INDEX (CPI) EAC allows us to forecast the total project costs on the basis of efficiency with which work performance is achieved.
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26. COST PERFORMANCE INDEX (CPI) EV AC Compare What have you done by now (EV) To What you have spent by now (AC) You Get a reading on productivity called CPI = CPI Ratio
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28. COST PERFORMANCE INDEX (CPI) Interpretation of Indices ........Summary Table 1: Efficiency Indices Index Cost (CPI) Schedule (SPI) > 1.00 Under Cost Ahead of schedule = 1.00 On Cost On schedule < 1.00 Over Cost Behind schedule
33. FIRST QUARTERLY PROJECT STATUS REPORT “ We are right on our cost spending plan, a little behind schedule perhaps, but we are doing well” , would be the positive spin put on these results by most practitioners.
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38. EV requires a baseline master project schedule; or stated another way without a master project schedule, one cannot employ Earned Value. EVPM EMPLOYMENT
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48. Cost Actual spend Value generated Planned value Time These three quantities are the basis of all earned value performance measurements Fig 1
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54. EVPM EMPLOYMENT Although only at 20% completion point, by monitoring these three dimensions of earned value data, the project is forecasting a significant final overrun of costs.
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56. EVPM EMPLOYMENT Decisions After Project Quarterly Progress Review Project budget revised to Rs 1.5M Time schedule remained at 12 months Main performance objective Getting project back on schedule
69. Internal Development Project ---1 st Quarter Results-- Fig 3: Traditional cost management: plan versus actual costs Authorized Budget 1,000,000 Planned Costs = 300K Thousands (000) 1,000 750 500 250 1 2 3 4 Quarters Actual Costs = 300K Status date
70. Internal Development Project ---1 st Quarter Results--- Fig 4: Earned value project management: 3 dimensional Authorized Budget 1,000,000 Planned Value = 300 Thousands (000) 1,000 750 500 250 1 2 3 4 Quarters Actual Costs = 300K Status date Earned Value = 200K
75. Fig 5: The Fundamental Differences Traditional Project Cost Management Planned funds = 300 K Actual costs = 300 K Variance from an expenditure plan = (0K) Earned Value Project Management Planned value = 300 K Earned value = 200 K Variance from the planned schedule = (- 100K) Actual costs = 300 K The “true” cost variance = (- 100K)
76. Fig 6: Project S-Curves Cumulative cost (in thousands) 80 60 40 20 40 35 30 25 20 15 10 5 45 Elapsed Time (in weeks)
98. How do projects typically estimate their final costs? Question: Forecasting the Final Cost and Schedule Results
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100. What’s wrong with this approach? Question: Forecasting the Final Cost and Schedule Results
101. Preparing a new ETC is a royal pain in the neck! Preparing a new ETC is non-project work . The very people who are performing on the project, who are often frustrated because they are running behind their schedule, must stop doing real project work and prepare a new baseline plan called the ETC. Answer: Forecasting the Final Cost and Schedule Results
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103. Fig 12: Monitoring earned value performance Perfect “Schedule” performance = 1.0 (for every 1.00 work planned you get 1.00 in earned value) Perfect “Cost” performance = 1.0 (for every 1.00 in cost actuals you get 1.00 in earned value) Good = +1.0 Plan = 1.0 Poor = -1.0 1.00 + –
108. Fig 13: The “Mathematical” or “Overrun-to-Date” EAC Short EAC Formula: AC + BAC – EV 1.00 + – Status date Cost Overrun to date Long EAC Formula: Actual Costs + Remaining Work (BAC – EV) 1.0 pf
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110. First reason to use this formula: The Mathematical or Overrun-to-date is often the first indication announcing to the project manager and executive management the first indication that they may have cost problem on their project. If a project spends Rs. 300,000/- to accomplish only Rs. 200,000/- of budgeted work, the project experienced a “cost overrun” for the initial work that it has performed. Management deserves to know this fact. EVPM Independent Statistical EAC Comparison
111. Second reason to use this formula: The Mathematical EAC is important because an early overrun does not go away with the passage of time. It is rare for an early front-end overrun disappearing through exemplary performance of the remaining work. EVPM Independent Statistical EAC Comparison
112. In a project baseline, where are the best scope definition, best planning, best budget, and best scheduled dates placed; in the first half or the last half of the baseline? Question: EVPM Independent Statistical EAC Comparison
113. Likely the best of every thing will be incorporated in to the first half baseline. Thus, if a project incurs an overrun in the first half, what are the chances of making a later recovery of the overrun? Little to none. This EAC formula provides a sort of minimum overrun that does not go away. Answer: EVPM Independent Statistical EAC Comparison
117. Fig 14: The Low-end “Cumulative CPI” EAC Short EAC Formula: BAC = EAC Cum. CPI 1.00 + – Status date Cumulative CPI Plan EAC Long EAC Formula: Actual Costs + Remaining Work (BAC – EV) (Cumulative CPI pf)
124. Fig 15: The High-end “Cumulative CPI times SPI” EAC There is no short EAC Formula Long EAC Formula: Actual Costs + Remaining Work (BAC – EV) (Cumulative CPI x SPI pf) 1.00 + – Status date Cumulative SPI Plan EAC Cumulative CPI
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126. What is the utility of providing a statistical range (low /most likely / high) of final cost results for a given project? Question: EVPM Independent Statistical EAC Comparison
127. Simply put, it is to test the reasonableness of the project manager’s “official” cost position against a statistical range of possible EV forecasts. EV forecasts can quickly provide management with an understanding of the cost risk facing any project. Answer: EVPM Independent Statistical EAC Comparison
136. “ Do not rely on EV schedule variance alone to help predict the final completion date for a project. Time Management
137. Fig 16: Monitoring the earned value schedule performance Status date Planned value Earned value 2 months behind 2 months late? Budget Budget 100% 75% 50% 25% Year 2 Year 1
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140. Fig 17: Earned value schedule variances must be analyzed Compare late earned value tasks against the critical path and high risk tasks 1.00 + – Status date Cumulative SPI Baseline Plan These tasks are late to the baseline schedule Time
149. Fig 18 Activation Limits of EVM Indices Index Thresholds Action SPI /CPI Greater than 1.25 Work ahead of schedule, should use time on other problem / issues. Very good productivity should use improvement on other problem / issues. Between 0.9 and 1.25 Schedule as expected. No action. Productivity as expected. No action. Between 0.75 and 0.9 Warning! Work getting behind schedule, should act to get on track / Warning! Productivity low should act to get on track Less than 0.75 Out of control
163. Fig 19: The To-Complete (the work) Performance Index (TCPI) Work remaining Funds remaining = TCPI Formula: 1.00 + – Status date Cumulative CPI Baseline Plan TCPI
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166. TCPI using management’s “ Budget at Completion” (BAC): Fig 20: Two “To-Complete Performance Index” (TCPI) Formulas TCPI using the Project Manager’s “ Estimate at Completion” (EAC): Work Remaining (BAC – EV) Funds Remaining (BAC – AC) = TCPI (BAC) Work Remaining (BAC – EV) Funds Remaining (EAC – AC) = TCPI (EAC)
170. Fig 21: The relationship of Cumulative CPI versus TCPI Status date at 50% Complete Sunk Costs Opportunity Costs 1.00 + – Cumulative CPI Baseline Plan TCPI .75 1.25
182. Fig 22: Using the TCPI to validate the Project Manager’s EAC 1.00 + – Cumulative CPI Baseline Plan PM EAC (1) (2) (3) Math EAC Cum. CPI EAC CPI x SPI EAC
193. Fig 23: EV Measurement Methods Typically used for non-recurring tasks Used for either non-recurring or recurring tasks 1. Milestones weighted values. 2. Fixed formula (40/60, 25/75, 50/50 etc). 3. Percent complete estimates. 4. Percent complete with milestone gates. 5. Equivalent units. 6. Earned standards.
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196. Fig 24: Measure Earned Value with the Project Schedule 1. Milestones with Weighted Values 2. Fixed formula which adds to 100% 25% 75% 50% 50% 40% 60% 3. Percent complete estimates 100% 4. Percent complete with Milestone Gates 33% 67% 100%
227. Fig 25: Getting back to Earned Value Basics Factory Floor ------------------------ 1890 PERT / COST -------------------------- 1962 C / SCSC ------------------------ 1967-1996 EVM ANSI-EIA-748 Standard -- 1998 Simple EVPM ------ into 21 st Century
228. EPILOGUE Focussing on Value of Work Accomplished (i.e. the earned value)