Understand Earned Value in Under an Hour! Wayne Brantley, MS Ed, PMP, ACP, CSM, CSPO, ITIL, CRP, CPLP Associate VP of Professional Education

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1 Understand Earned Value in Under an Hour! Wayne Brantley, MS Ed, PMP, ACP, CSM, CSPO, ITIL, CRP, CPLP Associate VP of Professional Education

2 Villanova University 100% online courses in critical certifications: Agile Management Project Management Six Sigma Business Analysis Contract Management Business Intelligence Business Process Management Leadership HR Management Cyber Security S/W Testing ITIL

3 Overview Establish the link between the requirements and the performance measurement baseline Understand what the Earned Value calculations are measuring Explain Earned Value as an easy to use tool for project performance measurement

4 Earned Value and The DaVinci Code

5 Earned Value and The DaVinci Code

6 Why Do We Need Earned Value? 1994 The Chaos Report Approximately 70% of projects are: o Over budget o Behind schedule 52% of all projects finish at 189% of their initial budget *Standish Group: Chaos Report

7 How do your projects perform today? Do you have projects that are over budget? Do you have projects that are late? Do you have projects that have scope creep?

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10 How do your projects perform?

11 Why don t we want to measure? No one wants to know they have an ugly baby!

12 Variance Analysis is the Great Lie Planned Actuals You planned to do $100k of work in one month You spent $110k Variance = -$10k Now tell me how much of the work is completed?

13 What is Earned Value Management? Earned Value Analysis is: An industry standard way to: o Measure a project s progress o Forecast it s completion date and final cost o Provide schedule and budget variances along the way

14 What is Earned Value Management? EV compares: The PLANNED amount of work (PV) that has actually been COMPLETED (EV) and how much the work ACTUALLY COST (AC)

15 What EV Tells You Where you are on schedule Where you are on budget Where you are on work accomplished

16 Why you should know Earned Value 1. So you can say you are an EVM expert 2. Because there are some questions on the PMP exam 3. Because you need to control project delays and overruns 4. Government legislation requires it 5. RFP requires it

17 Earned Value Management Thresholds in the Government Federal Agency EVM Threshold EVMS Threshold DoD, NASA $20-$50 million EVMS required DoD, NASA Greater than $50 million EVMS implementation & process must be verified GSA Greater than $20 million EVMS required; implementation & process must be verified DoE Greater than $20 million EVMS required EPA Greater than $5 million EVMS required FAA Greater than $10 million EVMS required

18 Six Essential Elements to Implementing an Earned Value Management System Good requirements A detailed WBS Good estimates for durations Good estimates for budgets A good schedule A performance measurement baseline

19 How is learning Earned Value like eating an elephant? One bite at a time

20 What You Need to Know to do Earned Value Scope, Requirements, and the WBS Understand the link between requirements and the WBS Scheduling Understand the development of a schedule and time estimates Budgeting Understand how cost estimates are developed Earned Value Identify how earned value calculations are accomplished Reporting Know how earned value (EV) can be used to measure project progress

21 Understand the link between requirements and the WBS

22 Understanding the link between requirements and the WBS Where do we start in order to gather requirements? Request for Proposal Statement of Work Contract Project Charter Any others?

23 The Project Charter What should be in a Project Charter? 1. Sponsor authorization and signs-off 2. Project Manager assigned Other considerations? o Requirements o Business need o Project purpose o Milestones o Stakeholder influences o Functional organizations o Assumptions and constraints o Summary budget

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25 Obtaining Good Requirements Why are good requirements essential? SCOPE

26 Obtaining Good Requirements How do you obtain good requirements? Take time to do it Ask the right people the right questions Draw a picture Build a model Build a little Check and re-check (CYA)

27 Obtaining Good Requirements How do you obtain good requirements? Take time to do it Ask the right people the right questions Draw a picture Build a model Build a little Check and re-check (Cover Your Activities)

28 Dilbert s view on requirements gathering

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37 Understanding the link between requirements and the WBS What is a WBS? A deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project objectives and create the required deliverables.

38 Understanding the link between requirements and the WBS Why is a WBS so important? How low do you go? Project (1.0) odeliverables (1.1, 1.2, 1.3,..) Tasks (1.1.1, 1.1.2, 1.1.3,.) Activities ( , ,.) Why an 80 - hour rule?

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40 Thou shalt not have work packages over 80 hours

41 Scheduling - Understand the Development of a Schedule

42 42 Dilbert Looks at Scheduling

43 Scheduling What do we have at this point? Requirements WBS Who would you go to determine what must be done and in what order? What tools are available for scheduling?

44 The Most Powerful Scheduling Tool

45 Scheduling What do we have at this point? Requirements WBS Who would you go to determine what must be done and in what order? What tools are available for scheduling? What do scheduling and a game of chess have in common?

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47 Scheduling 101 Critical scheduling questions What comes first? What comes second? Any restrictions? Any constraints?

48 The Gantt Chart View Task Days Days Days Days Days Days Days Days 16 - End Days

49 Budgeting - Understand how cost estimates are developed

50 Budgeting What do you have at this point? Requirements WBS Schedule Where do your cost estimates come from? Where should they come from? What are the differences?

51 The Gantt Chart View - Cost at $10,000/day per task Task Days Days Days Days Days Days Days Days 16 - End Days

52 Building the cumulative cost curve $10,000/day each task

53 - The Cumulative Cost Curve - S Curve - - Performance Measurement Baseline -

54 BAC = $290k PV = $200k

55 Earned Value Identify how earned value calculations are accomplished

56 Spending Rates Budget at completion is $290k Why at day 9 (half of 18 days) are we at $200k and not $145k (half of $290k)? Why is the cost curve not linear? How does this correlate to EV? Spending Rates?

57 Tying in the Cumulative Cost Curve and EV Planned Value (PV) = Planned costs for the planned work to be done at a particular time (BCWS) Earned Value (EV) = The percentage of the planned work that was accomplished (BCWP) Actual Costs (AC) = Amount spent on the work that was accomplished (ACWP) Budget At Completion (BAC) = Total of all planned costs

58 Tying in the Cumulative Cost Curve and EV BAC = $290k is the total costs of all work to be done PV (BCWS) = $200k is amount spent through Day 9 EV (BCWP) = The % assessed of the work completed AC (ACWP) = The actual costs spent on the work done

59 Why People Hate Earned Value The Math Who has had Calculus 3 or Differential Equations?

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61 Earned Value Formulas Variance Analysis = subtraction formulas Cost Variance (CV) = Earned Value (EV) Actual Costs (AC) (EV-AC) Schedule Variance (SV) = Earned Value Planned Value (PV) (EV-PV) Performance Indices = division formulas Cost Performance Index (CPI) = Earned Value / Actual Costs (EV/AC) Schedule Performance Index (SPI) = Earned Value / Planned Value (EV/PV)

62 How to create the EV formulas on test day EV PV AC

63 How to create the EV formulas on test day EV PV AC SV = SPI = CV = CPI =

64 How to create the EV formulas on test day EV PV AC SV = SPI = EV EV CV = EV CPI = EV

65 How to create the EV formulas on test day EV PV AC SV = SPI = EV EV - / CV = EV - CPI = EV /

66 How to create the EV formulas on test day EV PV AC SV = SPI = EV EV - / CV = EV - AC CPI = EV / AC

67 How to create the EV formulas on test day EV PV AC SV = SPI = EV EV - / PV PV CV = EV - AC CPI = EV / AC

68 How to create the EV formulas on test day EV PV AC SV = SPI = EV EV - / PV PV EAC = CV = EV - AC CPI = EV / AC

69 How to create the EV formulas on test day EV PV AC SV = SPI = EV EV - / PV PV EAC = BAC/CPI CV = EV - AC CPI = EV / AC

70 How to create the EV formulas on test day EV PV AC SV = SPI = EV EV - / PV PV EAC = BAC/CPI CV = EV - AC = AC + (BAC-EV) = AC +[BAC-EV)/ CPI = EV / AC (CPIXSPI)]

71 How to create the EV formulas on test day EV PV AC SV = SPI = EV EV - / PV PV EAC = BAC/CPI CV = EV - AC CPI = EV / AC

72 How to create the EV formulas on test day Notice all formulas are dependent on EV Typical variance analysis is planned actual dollars spent or in earned value language PV AC We are determining the percent of the work that was completed (= EV) based on what we planned to do (= PV) EV shows you what you did versus what you said you would do

73 Reporting Know how earned value (EV) can be used to measure project progress

74 Dilbert Looks at EV Meetings 74

75 Dilbert Looks at EV Meetings Earned Value 75

76 Earned Value Calculations Time to do the Math! We know the following: BAC = $290k Day 9 PV what is it? o Planned Value (PV) to spend is $200k If at day 9 we have accomplished 80% of the scheduled work we can calculate the EV. What is it? Earned Value (EV) is $160k = 80% of PV ($200k) Accounting tells us we have spent $175,000 what does this tell us? The Actual Cost (AC) is $175k

77 Earned Value Calculations PV, EV, AC CV CPI SV SPI EAC

78 Earned Value Calculations - Costs PV = $200k EV = $160k AC = $175k CV = EV - AC 160k-175k = -$15k (Over Budget) Rule of thumb = negative is BAD! CPI = EV / AC 160k/175k = $.91 or 91%

79 How are we doing? It depends What was an acceptable variance? +/- 15%

80 Earned Value Calculations - Schedule PV = $200k EV = $160k AC = $175k SV = EV - PV 160k - 200k = -$40k (Behind Schedule) SPI = EV / PV 160k / 200k = $.80 or 80% How are we doing? +/-15% How about as compared to CPI?

81 Earned Value Calculations - EAC The CPI?.91 BAC? $290k Now you can calculate the EAC = BAC/CPI $290k/.91 = $318k

82 Forecasting - Where are you trending? EAC = $318k BAC = $290k

83 Forecasting calculations EAC = BAC / CPI = $290k /.91 = $318k ETC = EAC EV = $318k - $160k = $158K VAC = BAC EAC = $290k - $318k = -$28k TCPI = (BAC EV) / (BAC AC) = $290k - $160k / $290k - $175k $130k / $115k = 1.13

84 Did you see what happened? G.I.G.O.

85 Summary Establish the link between the requirements and the performance measurement baseline Understand what the Earned Value calculations are measuring Explain Earned Value as an easy to use tool for project performance measurement