Earned value management
-
Upload
drtahirhanif -
Category
Business
-
view
7 -
download
1
description
Transcript of Earned value management
An introduction to Earned Value Management
Simplex project managementEducation|Training|Mentoring|Coaching|Consulting
www.simplexpm.co.uk
Introduction
• A short presentation to describe WHAT Earned Value is and HOW to calculate it
www.simplexpm.co.uk
...some important definitions!
Price– The price for work to be undertaken by a contractor
Value– The amount of work carried out by the contractor in accordance with the
contract
Cost– The amount of money it cost the contractor to do the work
Contract Value– The agreed price for carrying out the work between client and contractor
Budget– The amount of money the client has set aside for the work
Cash-flow– The difference between payments received and expenses incurred
www.simplexpm.co.uk
The justification for Earned Value
The issue with this graph• One sided view only – i.e. COST• Where are we in relation to schedule ?• Have we spent the money on the right work?
www.simplexpm.co.uk
The justification for Earned Value (Cont’d)
•Integrated cost & schedule info•Predictions about future performance•Better management of budgets•Better decision making ability
www.simplexpm.co.uk
Earned Value - History
• Basic form of EV traced back to 1800s, used on the factory floor
• 1967 – EVM introduced by US federal government agencies as part of Cost / Schedule Control Systems Criteria (C/SCSC)
• C/SCSC discarded by the end of 1996• PMI PMBoK simplified EVM terminology and formulas
www.simplexpm.co.uk
Earned Value – PMI definition
A technique to measure performance of a project as it moves from project initiation to project closure.
It also provides a means to forecast future performance based on past performance.
(PMI PMBoK)
www.simplexpm.co.uk
Earned Value – APM definition
“ Earned value management is a project control process based on a structured approach to planning, cost collection and performance measurement”
www.simplexpm.co.uk
Benefits of Earned value
• 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
(APM EVM Guideline)
www.simplexpm.co.uk
Earned Value Structure
Control Accounts
Work Breakdown Structure
Organisation Breakdown Structure
Scope of work
Work Packages
PlanningPackages
Source: Earned Value Management APM Guideline
www.simplexpm.co.uk
Budget elements
Contract Price
Contract Budget Baseline Margin
Performance Measurement Baseline Management Reserve
Distributed Budget Undistributed Budget
Control Account Budgets
Work Packages
Planning Packages
Source: Earned Value Management APM Guideline
www.simplexpm.co.uk
Getting the WBS right !
The further you go downthe more administrationrequired in terms of datagathering
!
www.simplexpm.co.uk
Its about improving visibility
Client(Agreed Costs)
Contractor(Contractor costs that cannot be recovered from the client)
Contract
www.simplexpm.co.uk
Earned Value application to construction
• Project type (large or complex)• Imposed by the Client!• Traditional way of delivering projects• Availability of skilled resources• Ability of organisations to embrace this technique• Attitude • Culture
Earned Value Standards & Guidance
www.simplexpm.co.uk
www.simplexpm.co.uk
Earned Value Guidance
Earned Value Management
PMI(Project
Management Institute)
DAU(Defense
Acquisition University)
APM(Association for
Project Management)
www.simplexpm.co.uk
Earned Value terminology
Abbreviation Description New terminology Abbreviation
BCWS Budgeted Cost for Work Scheduled Planned Value PV
BCWP Budgeted Cost of Work Performed Earned Value EV
ACWP Actual Cost of Work Performed Actual Cost AC
www.simplexpm.co.uk
Measuring actual performance
www.simplexpm.co.uk
www.simplexpm.co.uk
Measurement of work
Milestones
•Roof completion•Groundwork completion
Deliverables
•Nr of drawings•Nr of reports
Split %
•50/50•20/80•0/100•Etc
% Compl
ete
Ways of measuring work
Earned Value – Worked Example
www.simplexpm.co.uk
www.simplexpm.co.uk
Worked Example – Base data
www.simplexpm.co.uk
Worked Example - Work Breakdown Structure
www.simplexpm.co.uk
Worked Example – Schedule & Cost
www.simplexpm.co.uk
Worked Example – Performance in week 3
www.simplexpm.co.uk
Worked Example – Earned Value Graph
www.simplexpm.co.uk
Earned ValueReport
Earned Value Metrics
www.simplexpm.co.uk
www.simplexpm.co.uk
CPI (Cost Performance Index) & SPI (Schedule Performance Index)
www.simplexpm.co.uk
CPI / SPI Index
www.simplexpm.co.uk
Cost Variance
www.simplexpm.co.uk
Schedule Variance
www.simplexpm.co.uk
EAC (Estimate At Completion)
www.simplexpm.co.uk
VAC (Variance At Completion)
www.simplexpm.co.uk
TCPI (To Complete Performance Index)
www.simplexpm.co.uk
The EV graph & metrics
Earned Value Management - Summary
www.simplexpm.co.uk
www.simplexpm.co.uk
Earned Value Management
“it is a concept that integrates project scope, schedule and cost in terms of monetary value thus allowing performance to be measured and understood”
www.simplexpm.co.uk
The essential ingredients
Earned Value
Schedule
Scope (WBS)
Costs
www.simplexpm.co.uk
How it fits all together!
Project Scope
Schedule Cost Profile Performance Measurement
Changes to introduced
here
Reflected in Schedule
Reflected in Costs
Taken into account when measuring performance
www.simplexpm.co.uk
The overall aim
In theory, ACWP and BCWP should be as near enough to the BCWS as possible
www.simplexpm.co.uk
Challenges with using Earned Value
1. Client is not familiar with the method
2. The project team is not familiar with the method
3. Too many different organisations delivering the project
4. Lack of common understanding of what needs to be done
5. ‘Too many chiefs!’
6. Seen as cumbersome and an administration burden
7. Requires training
8. Takes too long before the benefits can be seen
9. Used as a weapon by senior management!
www.simplexpm.co.uk
...some words of advice!
• Understand the contract• Know your obligations• Take time to develop and create a structure• Keep it simple• Try to obtain data from the source• Don’t aim for 100% accuracy that’s NOT the objective
www.simplexpm.co.uk
Useful WebsitesWeb Address Organisation
www.dau.mil/default.aspx Defense Acquisition University
www.acoste.org.uk Association of Cost Engineers
www.apm.org.uk Association for Project Management
www.pmi.org Project Management Institute
www.aacei.org/ The Association for the Advancement of Cost Engineering
www.simplexpm.co.uk