Earned Value Variance Reporting Dos and Don ts Presenter

Earned Value Variance Reporting Dos and Don’ts Presenter: Gary Heth, PMP

Agenda ØEarned Value Basics • Earned Value in a Nutshell • Performance without Earned Value ØEarned Value Framework • Planning • Executing • Controlling ØEarned Value Benefits ØEarned Value Lessons Learned ØEarned Value Limitations ØEarned Value Do’s and Don’ts 2

Earned Value Basics 3

Earned Value Basics Earned Value In a Nutshell ØWhat is more important? • Knowing where you are on schedule? • Knowing where you are on budget? • Knowing where you are on work accomplished? ØIt compares the PLANNED amount of work with what has actually been COMPLETED, to determine if COST , SCHEDULE, and WORK ACCOMPLISHED are progressing as planned. ØWork is “Earned” or credited as it is completed. ØDid we get what we planned, for the amount of money we planned to spend, and did we get it when we needed it? 4

Earned Value Basics Project Analysis Without Earned Value? Gantt Charts ØMost used PM tool for representing phases and activities of a WBS ØA clear way of showing schedule status to your sponsor and team ØGreat for small projects but can be hard to read for larger projects with many dependencies ØOnly show part of Triple Constraint (focus on schedule management) ØMarried to waterfall development ØDoes not adequately represent project size or size of the work element ØMagnitude of “behind schedule” condition can be misleading • If two projects are the same # of days behind schedule • Which of the two has the larger impact on resource utilization? • Gantt does not represent the difference • Gantt does not show resource management • Does not indicate if the task is “front” or “back” loaded Ø% complete may be miss-represented 5

Earned Value Basics Project Analysis Without Earned Value? Gantt Charts INFO 638 6

Earned Value Basics Project Analysis Without Earned Value? Budget Spend Plan ØMedium to Large Projects – “S” Curve Project Spend Tracking • Provides a budget baseline for tracking actual costs against periodic budget targets. • Start by creating a time-phased budget by plotting your weekly, monthly, quarterly budgeted costs or hours (time and dollars) • Use MS Project baseline estimated project costs and plot graphically over time, they usually result in an “S” curve • Add MS Project actuals to plot dotted lines at each chosen interval to track variances. • Provides a simple Top-Level view of project financial performance useful for status reports and dashboards. • If you don’t have labor rates you will need to use budgeted vs actual hours. ØChallenges • Works fine if your project is on schedule – Spend plan still needs additional status information (for example Gantt) • If behind schedule – PM may not be able to understand project status from this graph • Actual budget could be in worse or better shape than shown • If your budget spend shows overspending and your schedule shows milestone slippage you know you are in trouble. You may not be able to tell how bad the trouble is. 7

Earned Value Basics Project Analysis Without Earned Value? Budget Spend Plan Budget Ceiling Spend Plan Actuals 8

Earned Value Basics Minimal Requirements ØEVM Requires 3 values • Planned Value (PV) - Baseline • Actual Costs (AC) – Based on Time Entry or Cost Entry • Earned Value (EV) – What you “earned” ØWork is “Earned” or credited as it is completed. ØDid we get what we planned, for the amount of money we planned to spend, and did we get it when we needed it? ØAnswer: • Where have we been? • Where are we now? • Where are we going? 9

Earned Value Basics Minimal Requirements Term Interpretation (PV) Planned Value How much work you planned to have accomplished by now? Replaces BCWS (AC) Actual Cost Replaces ACWP (EV) Earned Value Replaces BCWP The budgeted costs of the work scheduled • The project’s time-phased budget • Can only change when baseline is changed What is the actual cost incurred ($ / Hours) The actual costs of the work completed during the month or reporting period • Actual costs by work code • Requires accurate charging of staff time to appropriate “control account” What is the estimated value of the work actually accomplished? The project’s physical progress • Progress reported in baseline or planned dollars • Represents sum of % completion for each task or deliverable ØPlanned value and Actual Cost will be compared to Earned value in terms of differences / ratios ØWill result in variances and performances indexes 10

Earned Value Framework 11

Earned Value Framework Steps to Success Condensed ANSI/EIA 748 32 Step Standard Planning • Step 1: Define the Scope (Planning) • Step 2: Determine Who Will Perform the Work • Step 3: Plan and Schedule Work • Step 4: Establish Resources and Budgets • Step 5: Determine Performance Metrics and Thresholds • Step 6: Create Performance Measurement baseline and Mgmt Control Executing • Step 7: Record Direct Costs Controlling • Step 8: Monitor EV Performance Against Baseline (Control Step) • Step 9: Forecast Final Required Costs (Variance Reporting Step) • Step 10: Manage Scope Through Change Control 12

Earned Value Framework Steps to Success Planning Steps Planning • Step 1: Define the Scope (Planning) • Step 2: Determine Who Will Perform the Work • Step 3: Plan and Schedule Work • Step 4: Estimate Work and Procurement • Step 5: Determine Performance Metrics and Thresholds • Step 6: Create Performance Measurement baseline and Mgmt Control Executing • Step 7: Record Direct Costs Controlling • Step 8: Monitor EV Performance Against Baseline (Control Step) • Step 9: Forecast Final Required Costs (Variance Reporting Step) • Step 10: Manage Scope Through Change Control 13

Earned Value Framework Steps to Success: Planning Step 1: Define the Scope ØScope Definition • Single most important factor to a sound EVM process and implementation ØWork Breakdown Structure • Roadmap for analyzing the project progress and performance • Each element of the WBS is broken down into pieces – each piece defines responsibility to a person for that element • 100% of scope – What is not in the WBS is not in scope • Work is broken down into measurable work packages • Focus on “authorized” work • Must be firm –Critical for Earned Value Projects ØBreak the Work Packages into activities of the project. These should be included within your WBS and will produce the project schedule activities. ØOrganization Breakdown Structure (matrix organizations) • Relates WBS elements at the work package level to the organizational unit responsible for completing the work 14

Earned Value Framework Steps to Success: Planning Step 2: Determine Who Will Perform the Work ØWho will perform the work? • Determine Skill Level ØExperience is faster but more costly ØTask identification takes place during this step ØMake or Buy Decision (Internal or Sub Contracting) • Will all or some of your project be outsourced? • Internal projects (Make Decision) has some cost flexibility • Scope definition critical for external (Buy Decision) ØContracts are unforgiving – Cost to change can be excessive ØCritical to get scope right because cost to change can be excessive ØResponsibility Assignment Matrix (RAM) • Tied to the WBS with the OBS • Responsibly Chart for activities 15

Earned Value Framework Steps to Success: Planning Step 3: Plan and Schedule Work ØScheduling is vital to Earned Value • Formal scheduling system (i. e. MS Project) is required • EV is nothing more than: Scheduling system, authorized scope, timeframes, and budgets • Reflects PM’s baseline “Planned value (PV)” for everyone to follow ØCritical Path (Task Sequencing) • Which tasks are sequential? Parallel • Network Diagramming tools • Must be aggressively managed when negative earned value schedule variances are discovered. • Will help determine which task variances receive the most attention ØHigh risk tasks must also be identified for same reason ØBegin Scheduling 16

Earned Value Framework Steps to Success: Planning Step 4: Establish Resources and Budgets ØEstablish resource requirements (budgets) for all defined tasks ØStart-up sequence may be different for your organization • Scope, Schedule, and Budget vs. Scope, Budget, Schedule • Best practices – should be iterative but SCOPE DEFINITION MUST COME FIRST ØEnter resources for each task ØDetermine the costs for the activities • Labor rates per task hour • Fixed cost per activity or work package (need to be spread across each lower level activity) ØRisk Analysis and Risk Management Plan ØResource Leveling Exercise ØManagement will then approve the budget ØContingency – Never include contingency in an individual task… why? ØWill most likely cause a variance ØContingencies and other reserves should be isolated and owned by the PM Must plan/schedule all defined tasks along with the authorized budget necessary to complete each task. This is required to have a viable project baseline. 17

Earned Value Framework Steps to Success: Planning Step 5: Determine Performance Metrics and Thresholds How is planned value completion measured? EV Systems rely on the effective collection of the Performance and the Costs. There are basically 2 types of methods of collecting the Performance: ØDiscrete – something tangible to measure against • 0/100 – no EV credit until 100% of work is completed. • 50/50 and 25/75 – some EV credit at 25% or 50%, remaining EV at close of Work Package • Weighted Milestone – Each completed milestong completion “earns” a percentage of EV. Must be individually valued. May also consider monthly milestones • Physical % Complete – ie. 5% start, 50% unit test, 75% code review, 100% signoff • % Complete based on hours necessary to complete the task (common) least desirable • Units completed – For physical counts of product or outputs • Incremental milestones - % complete based on individual milestone completion ØNon-discrete – where the measuring of performance is not associated with anything tangible ØLevel of effort should only be used when schedule performance is of no importance. A level of effort package can never give an indication of the work that has actually been performed (PV) will always equal the schedule work (PV) 18

Earned Value Framework Steps to Success: Planning Step 6: Create Performance Measurement baseline and Mgmt Control ØEarned Value requires a baseline project schedule (time-Phased budget baseline) ØIndirect costs “could” be included in some commercial type contracts ØSchedule Management focuses on the schedule performance of the project. • It looks at the relationships between the Earned Value (EV) and the Planned Value (PV). ØThis will be your Planned Value (PV) for the life of the project ØRemember, MS Project can handle multiple baselines but you should always measure against the last baseline required by the stakeholders. ØThis information will be plotted into a traditional “S” Curve diagram. ØResults should be added to the Performance Management Plan ØSee Next Slide for an example 19

Earned Value Framework Steps to Success: Planning Traditional Cost Analysis – Budget Spend Plan Is this Good or Bad? Management Reserve Budget Ceiling Spend (PV) (Planned Costs) Dollars Cost to Date “Actuals” Time 20

Analysis Traditional Cost Analysis – Budget Spend Plan Is this Good or Bad? ØActual costs are below planned costs (good news? ) Management Reserve Budget Ceiling ØUnless you look at the planned costs of the completed work, you don’t know if this is good or bad ØThat is exactly what is missing and what Earned Value will tell you Spend Plan (Planned Costs) Dollars Cost to Date “Actuals” Time 21

Earned Value Framework Steps to Success Executing Steps Planning • Step 1: Define the Scope (Planning) • Step 2: Determine Who Will Perform the Work • Step 3: Plan and Schedule Work • Step 4: Estimate Work and Procurement • Step 5: Determine Performance Metrics and Thresholds • Step 6: Create Performance Measurement baseline and Mgmt Control Executing • Step 7: Record Direct Costs Controlling • Step 8: Monitor EV Performance Against Baseline (Control Step) • Step 9: Forecast Final Required Costs (Variance Reporting Step) • Step 10: Manage Scope Through Change Control 22

Earned Value Framework Steps to Success: Executing Step 7: Record Direct Costs ØPurpose is to show much money they have spent on a project ØUpdate the schedule with the period progress ØPM’s are required to enter actual hours on a consistent basis ØCosts from invoices are also entered ØAfter actuals are entered cost and schedule variances can be calculated ØThis is where discrete measures come into play ØEarned value must then be relatable to the actual costs in order to determine the cost efficiency factor, called the Cost Performance Index (CPI). ØThe CPI is likely the single most important metric for any project employing earned value. • To-Complete Performance Index (TCPI) 23

Earned Value Framework Steps to Success Controlling Steps Planning • Step 1: Define the Scope (Planning) • Step 2: Determine Who Will Perform the Work • Step 3: Plan and Schedule Work • Step 4: Estimate Work and Procurement • Step 5: Determine Performance Metrics and Thresholds • Step 6: Create Performance Measurement baseline and Mgmt Control Executing • Step 7: Record Direct Costs Controlling • Step 8: Monitor EV Performance Against Baseline (Control Step) • Step 9: Forecast Final Required Costs (Variance Reporting Step) • Step 10: Manage Scope Through Change Control 24

Earned Value Framework Steps to Success: Controlling Step 8: Monitor EV Performance Against Baseline (Control Step) ØNext Calculate all Earned Value components ØDetermine cost and variances from baseline ØDetermine three Required Values (PV budget, AC (Actuals) EV for the work accomplished to date • Tip: EV is based on a % of your budget – “We have actually completed “$” worth of work ØCalculate Variances, indices and factors from baseline • Variances (SV, CV, SPI) • Performance Indexes (CPI, SPI) -- ratio expressions of the Schedule and Cost Variances ØPMs should focus on exceptions using thresholds determined during planning • Management by Exception (Lessons Learned) • Cannot simply review parent tasks or phases ØWhat if there is a negative task and a positive tasks. ØBoth will need attention • How critical is the task? Is it on the critical path or is it a high risk task? ØStart at the higher levels of the plan and work your way down ØCost overruns are typically non-recoverable. 25

Earned Value Terminology Steps to Success: Controlling Basic EV - Summary Term Interpretation (PV) Planned Value This is your baselined budget as approved by your stakeholders (AC) Actual Cost ØThese are your actual hours and costs as entered by the project team. ØPM must (at a minimum) audit these to verify ØDiscrete Entries: Verify if work completed is “DONE” (EV) Earned Value What is the estimated value of the work actually accomplished? The project’s physical progress • • (BAC) Budget at Completion Progress reported in baseline or planned dollars Represents sum of % completion for each task or deliverable The sum of all of the budgets allocated to a program. How much did we Budget for the Total Job. ØPlanned value and Actual Cost will be compared to Earned value in terms of differences / ratios ØWill result in variances and performances indexes 26

Earned Value Terminology Steps to Success: Controlling Variance Calculations Term Interpretation (SV) Schedule Variance Represents the difference between the amount of work actually completed and the amount of work scheduled to complete. This variance tells us if the schedule is ahead or behind what was planned for during this period of time. (CV) Cost Variance This is the Difference between the estimated and the actual cost to complete the same work. The cost variance tells us if the costs are higher than budgeted or lower than budgeted. (VAC) Variance at Completion Represents how much over/under budget will we expect to be at the end of the project It calculates the difference between the budget at completion and the estimate at completion. 27

Earned Value Terminology Steps to Success: Controlling Variance Calculations =1 (SV) Schedule Variance <1 >1 On schedule ØPoor Performance ØIf SV is less than 1. 0 than your project is behind schedule. ØLess work completed than planned ØGood Performance ØIf SV is greater than 1. 0 than your project is ahead of schedule ØMore work has been accomplished than scheduled On budget ØPoor Performance ØIf CV is less than 1. 0 than your project is over budget. ØYou have cost overruns ØTypically not recoverable ØWill continue to deteriorate unless corrective action is taken to mitigate ØGood Performance ØIf CV is greater than 1. 0 than your project is under budget ØYou have cost under runs ØA negative number means we are doing poorer with costs than we anticipated ØA positive number means we are doing better with costs than we anticipated (EV – PV) (CV) Cost Variance (EV - AC) (VAC) Variance at Completion (BAC – EAC) REQUIRES PM ATTENTION Why would attention be needed for a positive number? • What if the schedule was over estimated? • Are we using our resources efficiently? 28

Earned Value Terminology Steps to Success: Controlling Performance Indices Term Interpretation (SPI) Schedule Performance Index • Calculates a ratio of the value of what was accomplished (EV) versus what was budgeted to accomplish it (PV), up to the status date. • We are (only) progressing at __% of the rate originally planned (CPI) Cost Performance Index • Calculates a ratio of the value of what was accomplished (EV) versus what was actually spent to accomplish it (AC), up to the status date. • Indicates if the cumulative actual costs during the assessed period are higher or lower than budgeted for the work completed. • Single most important EV calculation • We are getting ___$ out of every $1 spent 29

Earned Value Terminology Steps to Success: Controlling Performance Indices = 1 (SPI) Schedule Performance Index <1 >1 On schedule ØPoor Performance ØIf SPI is less than 1. 0 than less work was completed on your schedule than what was planned On budget ØPoor Performance ØIf CPI is less than 1. 0 than you are over budget. • Spending is more than planned for the work accomplished ØGood Performance ØIf SPI is greater than 1. 0 than your work accomplished was more than planned ØWork done out of sequence can lead a team to believe the project is ahead of schedule when it is not ØGood Performance ØIf CPI is greater than 1. 0 than you are under budget. • Spending is Less than planned for the work accomplished (EV / PV) (CPI) Cost Performance Index (EV / AC) If your project is more than 20% complete, the CPI stabilizes. In other words, if you are overrunning at 20%, you will be overrunning at completion. Furthermore, the % overrun at completion will be greater than the % overrun to date! Source: research on 700 DOD contracts REQUIRES PM ATTENTION Why would attention be needed for a positive number? • What if the schedule was over estimated? • Are we using our resources efficiently? 30

Calculation Example ØYou have a project to build a new fence. ØFence is four sided (all sides are equal) ØEach side is to take one day to build ØEach side is budgeted for US $1, 000 ØThe sides are planned to be completed sequentially (one after the other) ØToday is end of day three Using the project status chart below, calculate EV, etc. When completed, check your answers on the answer sheet on the following page. Task Day 1 Side 1 S---F Side 2 Side 3 Side 4 Day 2 DAY 3 Day 4 Status Complete, Spent $1, 000 S---PF ---F Complete, Spent $1, 200 PS—S-PF Half Done, spent $600 PS----PF Not Started 31

Calculation Example Description Calculation Answer Interpretation PV Planned Value 1, 000 + 1, 000, + 1, 000 3, 000 We should have done $3 K worth of work EV Earned Value Complete, half done or 1, 000 + 500 2, 500 We have actually completed $2, 500 worth of work AC Actual Cost 1, 000 + 1, 200 + 600 2, 800 We have actually spent $2, 800 BAC Budget at Completion 1, 000 +1, 000 + 1, 000 4, 000 Our project budget is $4, 000 CV Cost Variance EV – AC 2, 500 – 3, 000 -300 We are over budget by $300 CPI Cost Performance Index EV / PV 2, 500 / 2, 800 . 893 We are only getting 89 cents out of every dollar we put into the project SV Schedule Variance EV – PV 2, 500 – 3, 000 -500 We are behind Schedule SPI Sched. Performance Index EV / PV 2, 500 / 3, 00 . 833 We are only progressing at 83% of the rate planned EAC Est. at Completion BAC / CPI 4, 000 / 2, 800 4, 479 We currently estimate that the total project will cost $4, 479 ETC Estimate to Complete EAC - AC 4. 479 – 2, 800 1, 679 We need to spend $1, 679 to finish the project VAC Variance at Completion BAC - EAC 4, 000 – 4, 479 -479 We currently expect to be $479 over budget when the project is complete 32

Compare Actual Performance with the Baseline Plan $60 K Earned Value on Bottom: Wk 2: Management Attention Corrective Action $50 K $40 K Legend: Planned Value Earned Value Actual Costs $30 K $20 K $10 K Wk 1: Negative Cost Variance (EV-AC) Wk 1: Negative Schedule Variance (EV-PV) 1 w 2 w 3 w 4 w 5 w 6 w 7 w 8 w 9 w 10 w 33

Compare Actual Performance with the Baseline Plan $60 K $50 K $40 K Earned Value now on top: Wk 5: Positive Cost Variance (EV-AC) Wk 5: Positive Schedule Variance (EV-PV) Legend: Planned Value Earned Value Actual Costs $30 K $20 K $10 K EARLY MANAGEMENT ATTENTION…… 1 w 2 w 3 w 4 w 5 w 6 w 7 w 8 w 9 w 10 w 34

EVM – Early Attention to Issues Avoids this Problem $60 K $50 K BIG VARIANCE AT COMPLETION $40 K $30 K Legend: Planned Value Earned Value Actual Costs $20 K $10 K 1 w 2 w 3 w 4 w 5 w 6 w 7 w 8 w 9 w 10 w 35

Tracking the CPI & SPI Early Management Attention can result in improvement 10/06 11/06 12/06 01/07 02/07 03/07 36

Earned Value Framework Steps to Success: Controlling Step 8: Monitor EV Performance Against Baseline (Control Step) ØVariance analysis should address: • Separate discussion of CV, SV (current and cum) and VAC • Clear description of reason for variance • Quantity variances (e. g. , price vs. usage) • Be specific, not general • Corrective action • Technical, schedule, and cost impacts • Impact to estimate at completion ØWhat is a significant variance? • % variance (e. g. , >10%) • $ variance (e. g. , >$50, 000) • Critical path element • Risk/complexity • impact to other elements • Top 10, Top 20, etc. • Owner 37

Earned Value Framework Steps to Success: Controlling Step 8: Monitor EV Performance Against Baseline (Control Step) Potential Causes of Unfavorable -) Cost Performance ( Potential Causes of Unfavorable (-) Schedule Performance ØWork more complex than estimated ØManpower shortage ØDesign review comments extensive ØRevised Execution Plan ØRework ØSupporting organization behind schedule ØUnclear Requirements ØLate Vendor deliver ØScope Creep (Gold Plating) ØDelayed customer feedback / decision ØIncreased Market costs for labor or material ØRework ØOverhead Rate Increases ØDesign Review comments extensive ØWork more complete than anticipated ØUnclear Requirements Potential Causes of Favorable (+) Cost Performance ØScope Creep ØThe opposite of unfavorable cost performance 38

Earned Value Framework Steps to Success: Controlling Step 8: Monitor EV Performance Against Baseline (Control Step) ØCorrective Action- How to bring the task back in line • Crashing ØGoal: Gain the greatest amount of schedule compression with the least amount of cost ØLooks at cost and schedule tradeoffs ØAdd Resources to the tasks in the critical path (internal or external) ØReduce project scope ØReview changing the sequence of tasks ØOften causes costs to increase ØWhich is the most important of the triple constraints to your stakeholders? (Cost, Schedule, Quality) • Fast Tracking ØStarting two tasks at the same time that were previously scheduled to start sequentially ØCan increase risk and might cause the project team to rework tasks ØDevelop a process to “Reuse” code – This actually can reduce defect risk • Example: We are six months into a million dollar project. ØCPI = 1. 2 (we are getting 1. 2 dollars for every dollar spent ØSPI =. 89 (we are progressing only at 89% of what was planned) ØWhat can be done? • Replace a more expensive member from the project team? (This would improve cost not schedule and add risk) • Bring in an additional programmer to work on the next two tasks. (Most effective choice) 39

Earned Value Framework Steps to Success: Controlling Step 9: Forecast Final Required Costs ØThis step is in place to forecast the final required costs based on actual performance ØKeep management apprised so corrective action can take place ØActual performance results are sunk costs. These are unrecoverable ØAny improvements in performance must come from future work. ØEAC indicates where the cost is heading ØEarned value provides the capability to quickly and independently forecast total funds required to complete the project (ETC) ØETC is a forecast for completing the total project. ØConsiders the performance to date plus future estimates ØVariance Reporting 40

Earned Value Framework Steps to Success: Controlling Step 9: Forecast Final Required Costs (EAC) Estimate at Completion A. BAC / CPI B. AC + ETC C. AC + BAC - EV D. AC + (BAC – EV) / CPI Gives us an idea of final costs of a project. It takes into account the original budget (BAC). The earned value and the cost performance index of the already complete work. As of now, how much do we expect the total project to cost? $____. Formulas: A. Used if no variances from the BAC have occurred or you will continue at the same rate of spending B. Used when the original estimate assumptions were fundamentally flawed or no longer relevant due to a change in conditions • Requires PM to perform bottom up evaluation of Estimate to Complete • Example: Complete change in in environmental regulations creates a need for a different design than was scoped. Need rebaseline. C. Used when current variances are seen as atypical and the expectation is that similar variances will not occur in the future. Actual to date plus remaining budget modified by performance. D. Used when current variances are seen as typical of future variances Most respected, since cumulative variances are indicative of future variances (ETC) Estimate to Complete From this point on, how much MORE do we expect it to cost to finish the project? EAC - AC An estimated cost to complete the remaining work on the project. 41

Project Earned Value Analysis Sample Dashboard 1. 50 140 1. 50 Behind Schedule and Under spent Ahead of Schedule and Under spent 140 130 1. 20 0. 80 SPI = 0. 48 CPI = 0. 81 07/15/05 0. 70 0. 60 0. 50 1. 10 Target 0. 80 08/25/05 06/28/05 0. 50 0. 70 SPI = 0. 61 CPI = 0. 74 Ahead of Schedule and Over spent Behind Schedule and Over spent 0. 30 0. 90 ===== == 0. 90 SPI = 0. 71 Target CPI = 0. 86 == = CPI 1. 10 0. 70 0. 90 1. 10 1. 30 1. 40 0. 60 0. 50 1. 60 SPI 42

Project Earned Value Analysis MS Project 2003 Variance Report Example 43

Let software tools do the number crunching 44

Earned Value Framework Steps to Success: Controlling Step 9: Forecast Final Required Costs ØMS Project (2003) Earned Value tools (downloads) • Help>Performing Earned Value Analysis • You will be taken to MS Project Download Template Page ØManage costs during the project life cycle (Article) • Use these strategies to ensure that your project stays within your budget. ØGoal: Monitor costs (Article) • Examine your current, actual, remaining, and baseline cost totals in Project 2003. ØGoal: Adjust costs to keep the project on budget (Article) • After you identify a budget problem, learn to take corrective action with Project 2003. ØProject earned value analysis (Template) • Track time-phase expenses for projects by using this template. ØCost analysis with Pareto chart (Template) • Use this statistical method to identify the most critical cost problem areas to improve. ØProject resource plan (Template) • Use this template to communicate project resource planning information to all key project stakeholders. 45

Project Earned Value Analysis MS Project 2003 Project earned value analysis (Template) Track time-phase expenses for projects by using this template. Metric Budget at Completion Actual Cost Earned Value Planned Value Cost Variance Cost Performance Index Schedule Variance Schedule Performance Index Estimate to Completion Estimate at Completion Variance at Completion Status Thresholds Abbre v. XYZ Project Jan Description Formula/Value BAC Baseline cost for 100% of project. N/A AC Total costs actually incurred so far. N/A Amount of budget earned so far based on physical work accomplished, without EV reference to actual costs. N/A The budget for the physical work scheduled to be completed by the end of the time PV period. N/A Measure of cost overrun. The difference between the budget for the work actually Earned Value–Actual Cost CV done so far and the actual costs so far. EV–AC Cost efficiency ratio. A CPI of 1. 00 means Earned Value/ that the costs so far are exactly the same Actual Cost CPI as the budget for work actually done so far. EV/AC Measure of schedule slippage. The difference between the budget for the work Earned Value–Planned Value actually done so far and the budgeted cost SV of work scheduled. EV–PV The schedule efficiency ratio. An SPI of 1. 0 Earned Value/Planned means that the project is exactly on Value SPI schedule. EV/PV Estimate at Completion– Actual Cost ETC The expected additional cost to complete. EAC–AC Budget at Completion/Cost Performance Index Expected total cost based on the current EAC cost efficiency ratio. BAC/CPI Budget at Completion– Estimate at Completion VAC Estimated cost overrun at the end of project. BAC–EAC (Cost Performance Index+Schedule Performance Index)/2 Average of CPI & SPI. (CPI+SPI)/2 GREEN = On track >1. 0 YELLOW = Slightly behind schedule or budget >0. 85 RED = Needs immediate attention >0. 65 BLACK = Killed or Restore <0. 65 Feb Mar May Jun Aug Sep $1, 230 $1, 400 $1, 400 Earned Value (EV) $100 $200 $300 $450 $750 $800 $1, 125 $1, 200 $1, 400 Actual Cost (AC) $100 $205 $315 $600 $800 $1, 000 $1, 200 $1, 350 $1, 475 $1, 525 Planned Value (PV) $100 $220 $325 $550 $725 $925 $1, 175 $1, 275 $1, 450 $1, 500 Cost Variance (CV) $0 ($5) ($150) ($200) ($75) ($150) ($75) ($125) Schedule Variance (SV) $0 ($20) ($25) ($100) $25 ($125) ($50) ($75) ($50) ($100) Cost Performance Index (CPI) 1. 00 0. 98 0. 95 0. 75 0. 94 0. 80 0. 94 0. 89 0. 95 0. 92 Schedule Performance Index (SPI) 1. 00 0. 91 0. 92 0. 82 1. 03 0. 86 0. 94 0. 97 0. 93 Estimate to Completion (ETC) $1, 130 $1, 056 $977 $1, 040 $693 $750 $293 $225 $0 Estimate at Completion (EAC) $1, 230 $1, 261 $1, 292 $1, 640 $1, 493 $1, 750 $1, 493 $1, 575 $1, 475 $1, 525 Variance at Completion (VAC) $0 ($31) ($62) ($410) ($93) ($350) ($93) ($175) ($125) YELLOW YELLOW Budget at Completion (BAC) Status based on Average Performance Index GREEN Apr RED YELLOW RED Jul Oct Comments New baseline set 46

Project Earned Value Analysis MS Project 2003 Trend Analysis Earned Value Analysis $1, 800 Performance Index 1. 10 $1, 600 $1, 200 $800 $ (000) $1, 000 0. 90 0. 80 Efficiency 1. 00 $1, 400 $600 0. 70 $400 $200 0. 60 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Period 0. 50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Period Budget at Completion (BAC) Actual Cost (AC) Earned Value (EV) Planned Value (PV) Cost Performance Index (CPI) Schedule Performance Index (SPI) 47

Project Earned Value Analysis MS Project 2003 Trend Analysis Variance Analysis Estimate at Completion $1, 800 $50 $1, 700 $0 ($100) $1, 500 ($150) ($200) $1, 400 $(000) $1, 600 $ (000) ($50) $1, 300 ($250) ($300) $1, 200 ($350) $1, 100 ($400) $1, 000 Jan ($450) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Period Cost Variance (CV) Schedule Variance (SV) Budget at Completion (BAC) Estimate at Completion (EAC) 48

Earned Value Framework Steps to Success: Controlling Step 10: Manage Scope Through Change Control ØIntegrated Change Control ØWithout a CC process performance baselines become invalid ØChanges and new work due to issue management should be added to the schedule. ØAll change requests must be addressed quickly • Accept or reject by Change Control Board, Steering Committee or Sponsor ØPMs should have authority to say no to changes ØAll changes should be documented ØNo Gold Plating! • Single most important factor to a sound EVM process and implementation 49

Earned Value Benefits 50

Earned Value Benefits Ø Provides managers with information at a practical level of summarization Ø Alerts PMs to potential schedule and cost risks early Ø Provides a documented project performance trail Ø Communicates project status Ø Tracks and monitors discrete project metrics Ø Relates time-phased budgets to specific contract tasks Ø Provides comparisons between planned and actual work Ø Provides accurate and reliable readings of cost and schedule performance Ø Actual performance at the 15% complete point can be used to predict final performance. Ø The schedule performance index (SPI) is useful in assessing how much work has been accomplished. Ø The CPI index provides a statistical basis for a “best case” final estimate. Ø The CPI and SPI indices may be combined to statistically forecast the “most likely” final estimate. 51

Earned Value Key Lessons Learned 52

Earned Value Key Lessons Learned Lesson Attributed To 1 Schedule Compression incurs Corrective Action • Work cannot be scheduled and resourced in an optimal fashion • Schedule compression almost always results in inefficiencies due to resource loading and reword additional project cost 2 Education and buy-in are crucial Lack of Senior Level Commitment • Executives • Project Managers • Staff 3 WBS Quality / Reliability WBS Quality not maintained • All parties buy in to the WBS • WBS is simple - composed of measurable, deliverable pieces • Risk-adjusted SPI/CPI 4 Sustenance Perceived Complexity Keep Process Simple and Tool Supported – See #2 5 No variance reports / No policy in place or no standard • Weekly high level metrics, Monthly Dashboard reporting with full EV • Graphs and text – Period/period compare 6 Manage by Exception – Too Micro Management Manage by exception. Focus on significant variances to the plan. Apply timely corrective actions. 7 Tracking conducted PM Discipline Track – Track No Pain NO Gain 8 Time for data measurement, Growing Pains Plan ahead – Provide amble PM time to create and research results Through time not just to start Plan the work carefully and accurately dashboards much management will scare your PMs inconsistently. input, and manipulation can be considerable. 53

Earned Value Limitations 54

Earned Value Limitations ØTraditional EV is not intended for non-discrete (continuous) effort. • When a plan contains a significant portion of LOE intermixed with discrete effort, EVM results will be contaminated ØThe use of EVM presumes that stakeholders care about measuring progress objectively. ØQuantifying/measuring work progress can be difficult. ØTime required for data measurement, input, and manipulation can be considerable. ØEVM requires thorough and accurate planning of cost and schedule to be effective. ØFuture performance is being forecast based on past performance (so if your data is bad, so is your forecast) ØEarned Value does not measure quality EVM is designed to ensure that the future predicted by EVM does not materialize – as it encourages corrective action 55

Earned Value Do’s and Don'ts 56

Earned Value Do’s and Don'ts Do’s ØTake the necessary building steps seriously • Integrate the scope of work, schedules, and costs using a WBS. ØTrain your stakeholders. It is critical they can understand the variance reports ØDocument all performance metrics and thresholds in the Project Plan (Performance Plan) ØDetermine how you will measure your tasks (discrete options) ØAssess variances early – No later than 15 % in. . Highest Potential for Cost / Schedule Recovery. . ØMake sure the bad news is heard ØTake corrective action • Staff changes? • Mid-term evaluation of work • Crashing • Fast Tracking 57

Earned Value Do’s and Don'ts Do’s ØRequest and monitor that staff enters actual hours each week ØProvide PMs with a reliable labor and overhead rates for each resource. • Without the rate CPI does not mean much ØHave policies in place for rebaselining • Keep your original baseline in tact and always measure against it • If for no other reason, it keeps historical estimates in place ØRe-plan as necessary • Budget increase? • Scope change? • Schedule change? ØCreate a weekly or Monthly Variance Report ØUse standard templates for reporting • Helps with the learning curve • Helps to compare or aggregate data across projects ØInstitute Standard Reporting Cycles 58

Earned Value Do’s and Don'ts Do’s ØPerform scheduling and WBS creating at the same time. • There is a documented order defined in the PMBOK • Most Common Error ØDon’t set up your project with “level of effort” planning. • Creating one task (i. e. design) and allocating a certain number of people to it over a fixed amount of time. • Earned value will not be possible. The only measurement possible will be cash flow ØLeave planning until your financials and WBS are integrated through Cost Control • Cost account structures and the level of detail to be tracked must support the earned value management system. • Each cost account should have a unique identifier to enable an accurate calculation of the actual cost of work performed (ACWP). ØManage at only the contract / engagement level • Rarely are projects managed at the WBS Deliverable Level – EV Loses Control 59

Earned Value Do’s and Don'ts ØFocus solely on schedules. This is the typical PM Mindset by Business Culture. PMs: • Are focused on Schedules --NOT Costs • Manage at the contract level vs the WBS Deliverable Level ØLeave real Billing Rates out of the WBS • Competition Sensitive Data • Artificial Blended Rates • Fixed Price, So Why Bother • The $1. 00 per hour fix ØLet your tasks or milestones get too large in duration, cost and scope • Could impact PM’s ability to identify variances at a level that can be corrected ØInclude multiple individuals on the same task whenever possible • Helps identify root cause of variances easier ØForget Success factors • A full WBS is required (all scope) • Beware of GIGO: Garbage-in, garbage-out ØNo Gold Plating! ØIf you know there is a significant variance don’t wait until you create the monthly report to begin corrective action planning ØAssume adding a resource or adding paid overtime will “fix” the schedule variance – most likely will create a CPI issue. Cover this with stakeholders early. 60

Why do we need early warning Course corrections are easier when you have time to make small adjustments It’s too late when you’re this close to the iceberg! 61