Pending Articles in Draft:
- Capitalizing on Lessons Learned (Part 1)
- Lessons Learned (Part 2)
- Motivating Without Authority
- Contributing to the 'Project Good'
- Process Improvement
Friday, July 27, 2012
Current Blog Info:
For Latest Post - scroll below or see Blog Archive at right
Value of Earned Value
a case for taking the time to understand and apply Earned Value methods
A lot has been written in corporate control and contingency management circles about Earned Value Management (EVM) over many decades; it has been embraced by some organizations, yet ignored by many. Is it really that unknown, or merely under appreciated? Perhaps it is deemed of questionable value, or just considered too complicated and time-consuming. Some may profess to have the essential sum of data needed to establish comfort in their projects' risk stance and burn rate. Is it quantifiable? Is it reliable? How early can they confidently project 'estimate at complete'?
EVM is a method of cost containment and cash flow projection thought first to evolve in large corporations of the 40's-60's before being developed to a close approximation of the stage it is today by government DoD controllers in the 60's and 70's. Earned Value excels mostly at trending future risk and cash flow based on variance from planned progress, and providing confidence in the final output of a project knowing only the progress to date. One of the more convincing arguments for the use of EVM is that post-project analysis revealed that as early as 15% into project completion, the final (cost & schedule) outcome could be accurately extrapolated. In essence, if over budget at 15% completion, the project was likely to be over budget at project end, and by a predictable, measurable amount. Further, any subsequent cost or schedule mitigation exercises could rarely succeed in affecting project outcome by more than +/- 10%. What would you give to be able to predict your project outcome with that degree of certainty?
As a brief introduction, this posting cannot begin to be a 'how to' on implementing EVM on your projects; for a thorough account of EVM calculations and methodology, a quick online search will uncover dozens of potentially useful sources. The basic variables and calculations are listed below:
Primary variables include:
BAC (budget at completion)
BCWS (budgeted cost of work scheduled - or 'Planned Value')
BCWP (budgeted cost of work performed - this is also your 'Earned Value')
ACWP (actual cost of work performed)
Basic cost performance measures:
CV (cost variance) = BCWP - ACWP
CPI (cost performance index) = BCWP / ACWP
Percent Complete = (BCWP / BAC) *100
EAC (estimate at completion) = BAC / CPI
Basic schedule performance measures:
SV (schedule variance) = BCWP - BCWS
SPI (schedule performance index) = BCWP / BCWS
The starting point in applying an EVM approach on your project is in matching work packages to budget dollars in a time-based manner (effectively linking scope, cost and schedule together). The most effective approach I have found is to first quantify the number of units for each task in your work breakdown structure; then divide the total budget for each completed task by the number of units. Here you are effectively equating dollars spent with work accomplished. Then plot the planned number of units expected to be done per month from initiation to close. When current actuals are updated monthly, these become the building blocks for calculating the primary EVM variables (above). Like most things in life, the more you put into it the more you get out of it - and like most aspects of project planning, the vast majority of the effort is front-end weighted.
A typical monthly focus would look at SPI (schedule performance
index) and CPI (cost performance index) values, derived from the primary variables above. How far they
deviated from '1.0', in simple terms, points to three broad states
to worry about: are you over, under or on track? If you found your project schedule or cost to be pretty near 1.0 at, say, 25% complete,
consider yourself on a very good track. Similarly, if you are straying far off by this
time you know you have some serious decisions to make and perhaps a chat with the project stakeholder(s). In the above pictured example, the blue line is the PV (planned value or BCWS). It would be taking little risk for this PM to predict that this project was headed for an on-time deliverable, and potentially somewhat under budget.
In the end, EVM is a tool like any other, adding support and confidence to project execution; it cannot do the work for you or account for product quality. There is great benefit to be derived from investing the required time to apply these methods, but beware becoming so immersed in tracking the numbers as to miss paying proper attention to other aspects of project execution and stakeholder satisfaction.
A lot has been written in corporate control and contingency management circles about Earned Value Management (EVM) over many decades; it has been embraced by some organizations, yet ignored by many. Is it really that unknown, or merely under appreciated? Perhaps it is deemed of questionable value, or just considered too complicated and time-consuming. Some may profess to have the essential sum of data needed to establish comfort in their projects' risk stance and burn rate. Is it quantifiable? Is it reliable? How early can they confidently project 'estimate at complete'?
EVM is a method of cost containment and cash flow projection thought first to evolve in large corporations of the 40's-60's before being developed to a close approximation of the stage it is today by government DoD controllers in the 60's and 70's. Earned Value excels mostly at trending future risk and cash flow based on variance from planned progress, and providing confidence in the final output of a project knowing only the progress to date. One of the more convincing arguments for the use of EVM is that post-project analysis revealed that as early as 15% into project completion, the final (cost & schedule) outcome could be accurately extrapolated. In essence, if over budget at 15% completion, the project was likely to be over budget at project end, and by a predictable, measurable amount. Further, any subsequent cost or schedule mitigation exercises could rarely succeed in affecting project outcome by more than +/- 10%. What would you give to be able to predict your project outcome with that degree of certainty?
As a brief introduction, this posting cannot begin to be a 'how to' on implementing EVM on your projects; for a thorough account of EVM calculations and methodology, a quick online search will uncover dozens of potentially useful sources. The basic variables and calculations are listed below:
Primary variables include:
BAC (budget at completion)
BCWS (budgeted cost of work scheduled - or 'Planned Value')
BCWP (budgeted cost of work performed - this is also your 'Earned Value')
ACWP (actual cost of work performed)
Basic cost performance measures:
CV (cost variance) = BCWP - ACWP
CPI (cost performance index) = BCWP / ACWP
Percent Complete = (BCWP / BAC) *100
EAC (estimate at completion) = BAC / CPI
Basic schedule performance measures:
SV (schedule variance) = BCWP - BCWS
SPI (schedule performance index) = BCWP / BCWS
The starting point in applying an EVM approach on your project is in matching work packages to budget dollars in a time-based manner (effectively linking scope, cost and schedule together). The most effective approach I have found is to first quantify the number of units for each task in your work breakdown structure; then divide the total budget for each completed task by the number of units. Here you are effectively equating dollars spent with work accomplished. Then plot the planned number of units expected to be done per month from initiation to close. When current actuals are updated monthly, these become the building blocks for calculating the primary EVM variables (above). Like most things in life, the more you put into it the more you get out of it - and like most aspects of project planning, the vast majority of the effort is front-end weighted.
In the end, EVM is a tool like any other, adding support and confidence to project execution; it cannot do the work for you or account for product quality. There is great benefit to be derived from investing the required time to apply these methods, but beware becoming so immersed in tracking the numbers as to miss paying proper attention to other aspects of project execution and stakeholder satisfaction.
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