Project Management Earned Value Analysis Project Control and

Project Management Earned Value Analysis– Project Control and Monitoring Raushan Aman Raushan. aman@sdu. edu. kz 1

Reviewing Project’s Progress Each time progress is reviewed, you must ask these three questions: 1. Where are we (subject to project plan)? 2. When there is a deviation, what caused it? 3. What should be done about the deviation? q Note that there are only four actions that can be taken (in response to questions). These are: 1. Cancel the project. 2. Ignore the deviation. 3. Take corrective action to get back onto the planned progress. 4. Revise the plan to reflect a change in status that can’t be corrected. q 3 -2

Earned Value Analysis (EVA) or Method (EVM) v Earned Value is an approach where you monitor the project plan, actual work and work-completed value to see if a project is on track. v Earned value indicates how much of the budget and time should have been spent, with regards to the amount of work done to date. q It compares the amount of work that was planned with what was actually accomplished to determine if cost and schedule performance is as planned. 3

Significance of Earned Value Analysis (EVA) Earned Value Analysis (Method) contributes to: 4

How to do Earned Value Analysis (EVA) q q The manager needs to agree the project/work scope, create a Work Breakdown Structure (WBS) and assign budget to each work package, the lowest level of the WBS. Next he/she will create a schedule showing the calendar time it will take to complete the work. This overall plan is baselined (this is the planned value) and used to measure performance throughout the project. As each work package is completed (earned) it is compared with planned value, showing the work achieved against plan. A variance to the plan is recorded as a time or schedule deviation. It is necessary to obtain the actual costs incurred for the project from the organizations' accounting system. This cost is compared with the earned value to show an overrun or under run situation. 5

Earned Value Analysis (EVA) 6

Earned Value Analysis (EVA) 7

Earned Value Analysis (EVA) q q q Planned Value (BCWS) = £ 800 Earned Value (BCWP) = £ 600 Actual Cots/Value (AV) = £ 700 8

Earned Value Analysis (EVA) q 9

Earned Value Analysis (EVA) v The Critical Ratio is the product of CPI and SPI; It can also be called the Cost-Schedule Index It is used as an indicator of the overall health of the project Ø CR = CPI x SPI v v If CPI = EV / AC, e. g. CPI = 40 / 60 = 0. 67 SPI = EV / PV, e. g. SPI = 40 / 50 = 0. 80 CR = 0. 67 x 0. 80 = 0. 53 q q q A CR of "1" indicates that the overall project performance is on target. A CR of more than "1" indicates that the overall project performance is good. A CR of less than "1" indicates that the overall project performance is poor. 10

Traditional Cost Analysis 11

Earned Value Analysis 12

Earned Value Analysis – Example Find BAC, EV, AV, PV, CPI, SPI, Critical Ratio, Schedule Variance, Cost Variance, EAC, ETC and Total Project Time 13

Earned Value Analysis – Example’s Solution ETC = (BAC-EV)/CPI=19 M (to complete project) Total Project Time = 100(2)/5 = 40 months Time Variance =10 -40=-30 months =75% behind 14

The Process Review Report A company may decide to conduct process reviews in varying degrees of thoroughness, from totally comprehensive, to partial, to less formal and cursory. A formal, comprehensive process review should be followed by a report. The report should contain as a minimum the following: q q q Current project status. The best way to do this is to use earned value analysis, as presented in the following chapter. However, when earned value analysis is not used, status should still be reported with as great accuracy as possible. Future status. This is a forecast of what is expected to cost, performance, or scope? If so, the report should specify the nature of the changes. Status of critical tasks. The report should describe the status of critical tasks, particularly those on the critical path. Tasks that have high levels of technical risk should be given special attention, as should those being performed by outside vendors or subcontractors, over which the project manager ma have limited control. Risk assessment. The report should mention any identified risks that could lead to monetary loss, project failure, or other liabilities. Information relevant to other projects. The report should describe what has been learned from this process review that can/should be applied to other projects, whether in progress or about to start. Limitations of the process review. The report should mention any factors that may limit the validity of the process review. Are any assumptions suspect? Are any data missing or perhaps contaminated? Was anyone uncooperative in providing information for the process review? 15

Project Control and Monitoring q q q The only way a project is really in control is if all team members are in control of their own work. The effort used to control a project should be worthwhile. You don’t want to spend $100 to purchase a $3 battery, for example. If you take no action in response to a deviation, you have a monitoring system, not a control system. Project working times must be recorded daily. If people wait a week to capture what they have done, they rely on memory and end up writing down estimates of what they did. Such data are no good for future estimating. Project evaluation is done to determine whether a project should continue or be canceled. Process reviews also should help the team learn in order to improve performance. 16

Project Control q q q Control is exercised by analyzing from the plan. Well-defined projects can achieve tighter control over variations than poorly defined ones. There is a tendency to sacrifice quality when deadlines are difficult to meet. It is not enough to recognize a variance. Its cause must be determined so that corrective action can be taken. Acceptable variances can be determined only through experience. Every system has a capability. Your team may have the ability to maintain better tolerances on their work than another team. 17

Project is behind schedule and overspent 18

Project is behind schedule but spending correctly 19

Project is ahead of schedule and under spent 20

EVA EXERCISE FOR PRACTICE 1 21

EVA EXERCISE FOR PRACTICE 2 q A project has a budget of $100 000 and schedule for 10 weeks. It’s assumed that the total budget will be spent equally each week until the 10 th week is reached. After 3 weeks the Project Manager finds that only 10% of work is finished and a total of the $40 000 spent. q Find BAC, EV, AV, PV, CPI, SPI, Critical Ratio, Schedule Variance, Cost Variance, EAC, ETC and Total Project Time 22

EVA EXERCISE FOR PRACTICE 3 q A project has a budget of $100 000 and schedule for 10 weeks. It’s assumed that the total budget will be spent equally each week until the 10 th week is reached. After 3 weeks the Project Manager finds that only 10% of work is finished and a total of the $40 000 spent. Solution: q q q q q BAC= $100 000; PV= $30 000; EV= $10 000; AC= $40 000 CV=EV-AC= 10 000 - 40 000= -30 000 CV% = 100(CV/EV) = 100 (-3)= -300% (over budget) SV=EV-PV=10 000 – 30 000 = -20 000 SV% = 100(SV/PV) = 100(-20000/30000)=-66. 67% (behind schedule) CPI=EV/AC=10000/40000=0. 25 (for every dollar spent, you received $0. 25 worth of cost performance) SPI =EV/PV= 10000/30000=0. 33 (for every dollar spent you are only receiving $0. 33 of schedule performance) EAC=BAC/CPI=100000/0. 25=400 000; ETC=(BAC-EV)/CPI=90000/0. 25=360 000 Total Project Time=3(100)/10=30 weeks; Time Variance=10 -30=-20 weeks 23

Project Management Earned Value Analysis– Project Control and Monitoring Raushan Aman Raushan. aman@sdu. edu. kz 24