EARNED VALUE MANAGEMENT SYSTEM A Project Performance Tool By Roy T. Uemura, PMP, P.E., MBA Project...

EARNED VALUE EARNED VALUE MANAGEMENT SYSTEMMANAGEMENT SYSTEM

AAProject Performance ToolProject Performance Tool

ByBy

Roy T. Uemura, PMP, P.E., MBARoy T. Uemura, PMP, P.E., MBA

Project Management ConsultantProject Management Consultant

Project Professionals, LLCProject Professionals, LLC

How Is Your Project How Is Your Project Doing?Doing?

Ahead of schedule?Ahead of schedule?

Within your approved Budget?Within your approved Budget?

How Is Your Project How Is Your Project Doing?Doing?

What is your cost estimate at What is your cost estimate at completion?completion?

Will you be ahead or behind Will you be ahead or behind the scheduled completion the scheduled completion date?date?

AgendaAgenda1.1. Explanation of Earned Value Explanation of Earned Value

Management (EVM)Management (EVM)2.2. The traditional “Two Dimensional The traditional “Two Dimensional

System” of EvaluationSystem” of Evaluation3.3. EVM “Three Dimensional System” of EVM “Three Dimensional System” of

EvaluationEvaluation4.4. Critical Variables in EVMCritical Variables in EVM5.5. EVM FormulasEVM Formulas6.6. Applying EVM on projectsApplying EVM on projects7.7. Example Example

Earned Value ManagementEarned Value Management

Method for integrating scope, Method for integrating scope, schedule, and resources, for schedule, and resources, for measuring project performance.measuring project performance.

Compares what was planned with Compares what was planned with what was actually spent with what what was actually spent with what was actually “earned”was actually “earned”

Earned Value Earned Value ManagementManagement

Developed in the 1960’s Popular method for reporting and controlling

project in the Department of Defense A common language to report progress and

cost against a project Helps answer the questions:

Are we on schedule? How much did the work we do cost? Are there variances? Based on these trends, how much will it cost by the

end of the project?

Early Warning SystemEarly Warning System

“… “… based on the Project based on the Project Performance PlanPerformance Plan

and Project’s and Project’s Actual PerformanceActual Performance against against

the Plan, the Plan,

1.1. the project will likely take this the project will likely take this much time to finish, and much time to finish, and

2.2. spend this much money.”spend this much money.”

Traditional SystemTraditional System(Two Dimensional)(Two Dimensional)

CostCost:: compares what was planned compares what was planned to be expended versus what was to be expended versus what was actually expendedactually expended

TimeTime:: Compares the date you are Compares the date you are on a project versus when the project on a project versus when the project is to be completedis to be completed

ProductionProduction:: Compares how much Compares how much work was planned to be completed work was planned to be completed versus how much was actually versus how much was actually completed.completed.

Earned ValueEarned Value(Three Dimensional)(Three Dimensional)

1. Actual work that was 1. Actual work that was “earned”“earned”

versusversus

2. Work that was 2. Work that was accomplishedaccomplished

versusversus

3. Work that was 3. Work that was scheduledscheduled to to be accomplishedbe accomplished

Critical Variables to Critical Variables to EV Performance IndicesEV Performance Indices

1.1. Quality of the project baseline Quality of the project baseline planplan

2.2. Actual performance against Actual performance against baseline planbaseline plan

3.3. Management’s determination to Management’s determination to control (change) the final resultscontrol (change) the final results

Project BaselineProject Baseline

Basis of performance measurementBasis of performance measurement Represents technical, cost and Represents technical, cost and

schedule objectives of the projectschedule objectives of the project CashflowsCashflows

Outside MaterialOutside Material Outside Services Outside Services

Scope of WorkScope of Work

The scope of work of entire project The scope of work of entire project must be definedmust be defined

The Work Breakdown Structure The Work Breakdown Structure (WBS) identifies and groups major (WBS) identifies and groups major deliverablesdeliverables

Integrate scope with budget and Integrate scope with budget and schedule.schedule.

Performance Measurement Performance Measurement MethodsMethods

Fixed formula by task:Fixed formula by task:

0/100 %, 25/75%, 50/50 %0/100 %, 25/75%, 50/50 % Weighted MilestonesWeighted Milestones

Percent complete based on specific Percent complete based on specific workwork

(milestone) accomplished.(milestone) accomplished. Percent CompletePercent Complete

Increment completed / total Increment completed / total activity or taskactivity or task

Equivalent Completed Units Equivalent Completed Units

Cost Account PlanCost Account Plan

WP# WORK DESCRIPTION EV METHOD JAN FEB MAR APR BAC

1 Design Weighted PV

Milestones AC

EV

2 Site Prep Fixed Formula PV

0/100% AC

EV

3 Install Foundations Equivilent PV

Units AC

EV

4 Construct Building % Compl PV

AC

EV

Project DescriptionProject Description

Installed approximately 14.5 miles Installed approximately 14.5 miles of of transmission line of which about transmission line of which about 4,000 feet was installed 4,000 feet was installed underground.underground.

Installed 93 steel poles: 52 poles Installed 93 steel poles: 52 poles were direct buried and 41 were were direct buried and 41 were mounted on pier foundations.mounted on pier foundations.

Kuilima

Waialua

Visual Progress ReportVisual Progress Report Foundation: Dug Concrete Foundation: Dug Concrete

PouredPoured

Pole Erection: Pole Erection:

Lines Strung:Lines Strung:

Trench: Trench: Conduit Installed:Conduit Installed: Cable Installed:Cable Installed: Trench Covered:Trench Covered:

Kuilima

Waialua

Controlling ChangeControlling Change

Essential: Change Management Essential: Change Management Control System in the Project Plan Control System in the Project Plan prevents incorrect, inappropriate, or prevents incorrect, inappropriate, or unauthorized changes to the project.unauthorized changes to the project.

Inform appropriate stakeholders of Inform appropriate stakeholders of authorized changes to the Baseline authorized changes to the Baseline (scope/quality, schedule, cost)(scope/quality, schedule, cost)

EVM Input Data RequiredEVM Input Data Required

PLANNING PHASEPLANNING PHASE Planned Value (PV)Planned Value (PV) Budget At Completion (BAC)Budget At Completion (BAC) % Complete - Planned% Complete - Planned

EXECUTING & CONTROLLING EXECUTING & CONTROLLING PHASESPHASES

Actual Cost (AC)Actual Cost (AC) % Complete - Actual% Complete - Actual

Calculations from Input Calculations from Input DataData

Earned Value - EVEarned Value - EV Cost Variance - CVCost Variance - CV Schedule Variance - Schedule Variance -

SVSV

Calculations for AnalysisCalculations for Analysis

Cost Performance Index - Cost Performance Index - CPICPI Schedule Performance Index - Schedule Performance Index - SPISPI Budget at Completion - Budget at Completion - BACBAC Estimate to Completion - Estimate to Completion - ETCETC Estimate at Completion - Estimate at Completion - EACEAC To Complete Performance Index - To Complete Performance Index -

TCPITCPI

Primary Data ElementsPrimary Data Elements

PV (Planned Value)PV (Planned Value)

The value of the amount of work that wasThe value of the amount of work that was

planned to be accomplished on a task (or aplanned to be accomplished on a task (or a

project) as of a certain date in the baselineproject) as of a certain date in the baseline

plan. plan.

BAC (Budget at Completion)BAC (Budget at Completion)

Total cost of a task (or project) according toTotal cost of a task (or project) according to

the baseline plan.the baseline plan.

AC (Actual Cost)AC (Actual Cost)

The actual amount of money spent The actual amount of money spent

on a task (or project) as of a certain on a task (or project) as of a certain date.date.

Primary Data Elements (cont’d)Primary Data Elements (cont’d)

Performance AnalysisPerformance Analysis

EV (Earned Value).EV (Earned Value).

The value of the amount of work The value of the amount of work actually actually

completed on a task (or project) as completed on a task (or project) as of aof a

certain date, according to the certain date, according to the baselinebaseline

plan. plan.

EV = % Actual Complete x EV = % Actual Complete x BACBAC

CV (Cost Variance)CV (Cost Variance)

The difference between the value of workThe difference between the value of work

that was actually completed (EV) on a taskthat was actually completed (EV) on a task

(or project) and the cost that was actually(or project) and the cost that was actually

spend (AC) on the task (or project) as of a spend (AC) on the task (or project) as of a

certain date.certain date.

CV = EV - ACCV = EV - AC

(+$ = spending less than (+$ = spending less than planned)planned)

Performance Analysis (cont’d)Performance Analysis (cont’d)

SV (Schedule Variance)SV (Schedule Variance)

The difference between the value of work The difference between the value of work

that was actually completed (EV) on a taskthat was actually completed (EV) on a task

(or project) and the work that should have(or project) and the work that should have

been done (PV) as of a certain date.been done (PV) as of a certain date.

SV = EV - PVSV = EV - PV

(+$ = Ahead of Schedule)(+$ = Ahead of Schedule)


CPI (Cost Performance Index)CPI (Cost Performance Index)

The ratio of the value of work actuallyThe ratio of the value of work actually

completed (EV) on a task (or project) andcompleted (EV) on a task (or project) and

amount actually spent (AC) on a task (oramount actually spent (AC) on a task (or

project) as of a certain date.project) as of a certain date.

CPI = EV/ACCPI = EV/AC

(>1 = Spending less than (>1 = Spending less than planned)planned)


SPI (Schedule Performance Index)SPI (Schedule Performance Index)

The ratio between the value of work that The ratio between the value of work that waswas

actually completed (EV) on a task (or actually completed (EV) on a task (or project)project)

and the work that should have been doneand the work that should have been done

(PV) as of a certain date.(PV) as of a certain date.

SPI = EV/PVSPI = EV/PV

(>1 = Ahead of Schedule)(>1 = Ahead of Schedule)



ETC (Estimate To Completion)ETC (Estimate To Completion)The forecasted cost of the remaining task The forecasted cost of the remaining task (or project) is calculated by CPI or (or project) is calculated by CPI or CPI x SPICPI x SPI

ETC = Remaining Work / CPIETC = Remaining Work / CPI = (BAC - EV/ CPI= (BAC - EV/ CPI oror ETC = Remaining Work/ (CPI x ETC = Remaining Work/ (CPI x

SPI)SPI) = (BAC - EV/(CPI x SPI)= (BAC - EV/(CPI x SPI)

EAC (Estimate at Completion)EAC (Estimate at Completion)

The value expressed in either dollars or The value expressed in either dollars or hourshours

to represent the projected final cost of workto represent the projected final cost of work

when completed. The EAC equals the when completed. The EAC equals the actualactual

costs (AC) incurred plus the estimated costs (AC) incurred plus the estimated costscosts

to complete the remaining work (ETC). to complete the remaining work (ETC).

EAC = AC + ETCEAC = AC + ETC


Performance Analysis (cont’d)Performance Analysis (cont’d)Ranges of Estimate at Ranges of Estimate at

CompletionCompletionHigh-End Projection (Cumulative CPI x SPI)High-End Projection (Cumulative CPI x SPI)

EAC = AC + (BAC - EV) / (CPI x SPI)EAC = AC + (BAC - EV) / (CPI x SPI)

In-Between Projection (80% CPI x 20% SPI)In-Between Projection (80% CPI x 20% SPI)

EAC = AC + (BAC - EV) / (0.8 CPI x EAC = AC + (BAC - EV) / (0.8 CPI x 0.2 SPI)0.2 SPI)

Low-End Projection (Cumulative CPI)Low-End Projection (Cumulative CPI)

EAC = AC + (BAC - EV) / CPIEAC = AC + (BAC - EV) / CPI

To Complete Performance IndexTo Complete Performance IndexTCPI: Project performance which must beTCPI: Project performance which must beachieved on all remaining work in order toachieved on all remaining work in order tomeet the financial goal by managementmeet the financial goal by management

TCPI = Work Remaining / Funds TCPI = Work Remaining / Funds RemainingRemaining

= = (Total Budget - Earned (Total Budget - Earned value) value)

(BAC - Actual Costs)(BAC - Actual Costs)

= = (BAC - EV)(BAC - EV) (BAC - AC)(BAC - AC)

PMP ExamPMP Exam

Estimate At Completion Estimate At Completion (EAC)(EAC)

EAC = EAC = BACBAC CPICPIEstimate to Complete Estimate to Complete

(ETC)(ETC) ETC = EAC - ACETC = EAC - AC

Rita Mulcahy, PMP Exam Prep 5Rita Mulcahy, PMP Exam Prep 5thth Edition (2005) Edition (2005)

ExampleExample

Time: 4Time: 4thth month of 10 month month of 10 month scheduleschedule

Budget at Completion: BAC = Budget at Completion: BAC = $10,000$10,000

Planned Value: PV = $4,000Planned Value: PV = $4,000 Actual Cost: AC = $3,800Actual Cost: AC = $3,800 Actual % Complete: 36%Actual % Complete: 36% Earned Value: Earned Value:

EV = 0.36 x $10,000 = $3,600EV = 0.36 x $10,000 = $3,600

Time

3

BAC$10,000

$5,000

1 6 7

AC = $3,800

EV = $3,600

Status Date

PV = $4,000

Earned Value Analysis

2 4 5 8 9 10

Traditional AnalysisTraditional AnalysisCost Variance:= Planned Expenditure - Cost Variance:= Planned Expenditure -

Actual CostActual CostCV = PV - ACCV = PV - ACCV = $4,000 - $3,800 = $200 (under spent CV = $4,000 - $3,800 = $200 (under spent

by $200)by $200)Earned Value AnalysisEarned Value AnalysisCV = EV - ACCV = EV - ACCV = $3,600 - $3,800 = -$200 (spending CV = $3,600 - $3,800 = -$200 (spending

more than planned for work performed)more than planned for work performed)SV = EV - PVSV = EV - PVSV = $3,600 - $4,000 = -$400 (less work SV = $3,600 - $4,000 = -$400 (less work

was done than planned)was done than planned)



Cost Performance Index (CPI)Cost Performance Index (CPI)CPI = EV / ACCPI = EV / ACCPI = $3,600/$3,800 = 0.95 (<1, for CPI = $3,600/$3,800 = 0.95 (<1, for

every $1 spent, only $0.95 in every $1 spent, only $0.95 in physical work was done)physical work was done)

Schedule Performance Index (SPI)Schedule Performance Index (SPI)SPI = EV / PVSPI = EV / PVSPI = $3,600 / $4,000 = 0.9 (<1, for SPI = $3,600 / $4,000 = 0.9 (<1, for

every $1 of physical work planned, every $1 of physical work planned, only $0.9 was done)only $0.9 was done)


Estimate To Complete (ETC)Estimate To Complete (ETC)

ETC = (BAC - EV) / CPIETC = (BAC - EV) / CPI

ETC = (BAC - EV) / (CPI x ETC = (BAC - EV) / (CPI x SPI)SPI)


Estimate At Completion (EAC)Estimate At Completion (EAC)

EAC = AC + [(BAC - EV)/(CPI x SPI)]EAC = AC + [(BAC - EV)/(CPI x SPI)] = 3,800 + [(10,000 – 3,600) / = 3,800 + [(10,000 – 3,600) /

(0.95 x 0.90)](0.95 x 0.90)] = $11,285 (high end)= $11,285 (high end)

EAC = AC + [(BAC - EV) / CPI] EAC = AC + [(BAC - EV) / CPI] = 3,800 + (10,000 – 3,600) / = 3,800 + (10,000 – 3,600) /

0.950.95 = $10,537 (low end)= $10,537 (low end)


To Complete Performance Index To Complete Performance Index (TCPI)(TCPI)

TCPI = (BAC - EV) / (BAC - AC)TCPI = (BAC - EV) / (BAC - AC)

TCPI = ($10,000 - $3,600) / ($10,000 TCPI = ($10,000 - $3,600) / ($10,000 - $3,800)- $3,800)

TCPI = $6,400 / $6,200TCPI = $6,400 / $6,200

TCPI = 1.03TCPI = 1.03

Analyzing Data for TrendsAnalyzing Data for Trends

$0

($5)

($10)

($15)

($20

$5

$10

Cost Variance

Schedule Variance

Earned Value AnalysisEarned Value Analysis

CPI

SPI

EAC ($7.5 M)

EAC $9.5 M

Time

Baseline BudgetCPI & SPI = 1

1.0

Performance ReportPerformance Report

Actual Cost Baseline Actual % Compl Earned Value P lanned P lanned % Planned Value

(AC) (BAC) % Wt. % Compl by Wt (EV) % Compl Compl by Wt (PV)

Total - Manage $96,533 $185,243 1.8% 66.7% 1.2% $126,051 66.7% 1.2%

Total - Engineer $422,574 $38,438 0.4% 100% 0.4% $38,438 100% 0.4%

Total - Construct $3,575,578 $9,969,624 97.8% 43.0% 42.1% $4,294,051 68.5% 67.0%

Grand Total $4,094,685 $10,193,305 100.0% 43.7% $4,458,540 68.6% $4,531,495

EARNED VALUE ANALYSIS:

Schedule Variance (SV) = (EV) - (PV) = -$72,955 (1.7 % behind schedule)

Cost Variance (CV) = (EV) - (AC) = $363,855 (spending 8.1% less than w ork performed)

Schedule Perform Index (SPI) = (EV) / (PV) = 0.98 (Progressing only 98% of the rate originally planned)

Cost Performance Index (CPI) = (EV) / (AC) = 1.09 (Getting 9% more w ork done than the planned cost )

Estimate at Completion (EAC) = AC+[(Tot Budget-EV)/(CPI*SPI)] = $9,447,623To Complete Perf Index (TCPI) = (Tot Budget - EV)/Funds Remain = 0.94

Float and Management ReservesFloat and Management Reserves

The project manager should control The project manager should control contingency reserve and schedule floatcontingency reserve and schedule float

The work at hand expands to fill The work at hand expands to fill the time availablethe time available

Expenditures will rise to meet the Expenditures will rise to meet the budget.budget.

The remaining “management The remaining “management reserves” should be added to EAC reserves” should be added to EAC until such time when the reserve is until such time when the reserve is no longer needed.no longer needed.

Earned Value Management Earned Value Management SystemSystem

Performance ManagementPerformance Management Accurate Baseline EstimateAccurate Baseline Estimate Measure Performance against Measure Performance against

the Planthe Plan Analyze variances to PlanAnalyze variances to Plan Assess impacts to Overall Assess impacts to Overall

PlanPlan Identify corrective actionsIdentify corrective actions Implement the corrective Implement the corrective

actionsactions

Questions?Questions?

EARNED VALUE MANAGEMENT SYSTEM A Project Performance Tool By Roy T. Uemura, PMP, P.E., MBA Project...

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