Introduction to earn value management in Civil Engineering

Transcription

1 3 rd World Conference on Applied Sciences, Engineering & Technology September 2014, Kathmandu, Nepal Introduction to earn value management in Civil Engineering S. K. KAMANE, S. A. MAHADIK, A. C. LANDE Sanjay Bhokare Group of Institutes, Miraj , Maharashtra, India Abstract: Earned Value Management (EVM) helps project managers to measure project performance. It is a systematic project management process used to find variances in projects based on the comparison of work performed and work planned. The earned value management approach is considered to be the most objective method available in the measurement of project performances. Earned Value provides the project manager with an objective way of measuring performance and predicting future outcomes. This can enable him to report progress with greater confidence and highlight any overrun earlier. This in turn enables the management team to make cost and time allocation decisions earlier than would otherwise be the case. It is generally true that past performance is a good indicator of future performance and as such Earned Value is a very useful tool for predicting the outcome of projects in terms of time to completion, cost to completion and expected final costs Keywords: EVM, Project, Variance, Cost. Introduction: Earned Value analysis is a method of performance measurement. Earned Value is a program management technique that uses work in progress to indicate what will happen to work in the future. Earned Value is an enhancement over traditional accounting progress measures. Traditional methods focus on planned accomplishment (expenditure) and actual costs. Earned Value goes one step further and examines actual accomplishment. This gives managers greater insight into potential risk areas. With clearer picture, managers can create risk mitigation plans based on actual cost, schedule and technical progress of the work. It is an early warning program/project management tool that enables managers to identify and control problems before they become insurmountable. It allows projects to be managed better on time, on budget. Earned Value Management System is not a specific system or tool set, but rather, a set of guidelines that guide a company s management control system. In the case of cost overrun, project management team may execute a value engineering program for cost reduction either reducing scope and quality in some sections of project or providing additional budget to cover overrun cost. Similarly, for time overrun case, they may plan some program such as fast tracking or time crashing for time reduction. Therefore, the role of EVM as well as correct and on time forecasting is very important to achieve project goals. Earned Value Management is a project management technique used for measuring project progress in an objective manner. EVM combines measurements of technical performance (i.e., accomplishment of planned work), schedule performance (i.e., behind/ahead of schedule), and cost performance (i.e., under/over budget) within a single integrated methodology. Earned Value Management technique integrates the scope, schedule and cost of a project. EVM calculates the performance of the project and compares current performance against planned. The kernel of EVM is Earned value. EV is basically the budget for the completed work up to a point in time. Earned value is also known as budgeted cost of work performed (BCWP). It is usually expressed in money and can be periodic or cumulative. In addition to BCWP, there are two basic data elements on the EVM report that are central to proper planning, measurement, and analysis: budgeted cost of work scheduled (BCWS) and actual cost of work performed (ACWP). BCWS is the budget for work scheduled to be completed. ACWP is the actual cost incurred in accomplishing the work within a given time period. Nearly all of the other data items in EVM may be derived from these three data items. Two important performance indices are CPI and SPI. The indices are ratios. During project execution, CPI and SPI provide information about performance efficiency. CPI is the efficiency of achieving earned value with respect to the actual costs (CPI=BCWP/ACWP). SPI is the efficiency of achieving earned value with respect to the performance baseline (SPI=BCWP/BCWS). In the above formulas, 1.00 indicates that performance is on target. More than 1.00 indicates excellent performance; and less than 1.00 indicates poor performance. When the index reaches within 0.90 and 1.00, more intensive monitoring measurements need to be taken. When the index reaches below 0.90, corrective actions need to be taken to avoid losing control of project. The earned value, i.e. The Budgeted Cost of Work Performed (BCWP), is determined at regular intervals during the course of the project. At the same time, the Actual Cost of Work Performed (ACWP) is also determined, and both are compared to the baseline plan, which is the Budgeted Cost of Work Scheduled (BCWS). WCSET BASHA RESEARCH CENTRE. All rights reserved.

2 S. K. KAMANE, S. A. MAHADIK, A. C. LANDE 2. Basic elements of earned value management Today, EVM has become an essential part of every project tracking. Here are following three basic elements of EVM: Planned Value (PV) Actual Cost (AC) Earned Value (EV) Planned value is also referred to as Budgeted Cost of Work Scheduled (BCWS). Planned Value (PV) or BCWS is the total cost of the work scheduled/planned as of a reporting date. This is calculated as PV or BCWS = Hourly Rate * Total Hours Planned or Scheduled Actual cost is also referred to as Actual Cost of Work Performed (ACWP). Actual Cost (AC) or ACWP is the total cost taken to complete the work as of a reporting date. This is calculated as AC or ACWP = Hourly Rate * Total Hours Spent Earned value is also referred to as Budgeted Cost of Work Performed (BCWP). Earned Value (EV) or BCWP is the total cost of the work completed/performed as of a reporting date. This is calculated as EV or BCWP = Baselined Cost * % Complete Actual All these three elements can be derived from Work Breakdown Structure by associating the costs to each of the tasks. For a big project, it will be a tedious task to calculate these elements manually. Scheduling Softwares like Microsoft Project is used to calculate these three elements. 3. Earned value management terms & formula Table 1: EVM formula Name Formula Name Formula Estimate Cost BAC / At Variance EV AC CPI,AC + (CV) ETC (EAC) Schedule Variance (SV) Cost Performance Index (CPI) Schedule Performance Index ((SPI) EV PV EV / AC EV / PV Estimate To Complete (ETC) Variance At (VAC) EAC AC BAC EAC 4. Anticipated benefits of EVM implementation: Successful implementation of the Earned Value Management principles can result in: Better Visibility into Program Performance The combination of advance planning, baseline maintenance, and earned value analysis yields earlier and better visibility into program performance than is provided by non-integrated methods of planning and control. Reduced Cycle Time to Deliver a Product Earned value management is premised on careful detailed planning task decomposition, scheduling, and budgeting. This planning often addresses/prevents problems from surfacing later in the effort that result in rework. Thus, as rework is prevented cycle time may, in fact, be reduced. A Single System Perhaps the biggest benefit to implementing EVM is that it is a single system that can track the project in terms of work, time and money; Project managers do not have to learn multiple systems. EVM can measure the amount of work actually completed; forecast the cost and completion date; compare the actual performance of the project versus the plan; and track the project's budget in real time. Performance Indices The schedule performance index (SPI) and the cost performance index (CPI) are both advantageous tools in EVM. These metrics can help determine the current status of the project, be early warning signals if the project goes off track and estimate the total cost and time frame. The SPI measures all of the work completed on the project and calculate whether the project will meet, beat or miss its planned finish date. The CPI is considered by most project managers to be the most valuable EVM metric. This measures cost efficiency for the work completed. It can tell you if your project is under or over budget at any point during the process Table 2: Term Description Term Description PV (BCWS) Planned Value EAC Estimate at EV (BCWP) Earned Value ETC Estimate to Complete AC (ACWP) Actual Cost VAC Variance at Budget at BAC 5. Implementation of Earned value: Earned value has been used extensively in large projects, especially in government projects. PMI is a strong supporter of the earned value approach because of its ability to accurately monitor the schedule and cost variances for complex projects. Although it is sophisticated, earned value can be scaled to be appropriate for any size of project. The following steps include the implementation of EVM: Step 1: Develop a Work Breakdown Structure (WBS) for your project that covers its entire. Care should be taken to ensure that the same element of work is not included in more than one place. Step 2: Develop an Organizational Breakdown Structure (OBS) that aligns to the WBS that ensures responsibility for work accomplished

3 Introduction to earn value management in Civil Engineering Step 3: Distribute the project s total budget or resource effort across elements of the WBS at a consistent level in the breakdown structure) Step 4: Baseline the plan. The baseline (or rebaseline) will determine the Planned Value (PV) for the project at any point in time and is where the typical S curve for the project is generated. Step 5: Record actual costs (or actual effort expended) - preferably at activity level. Step 6: Collect and analyze performance data Step 7: Produce forecasts for remaining work. Using the three EVM ingredients of Planned Value (PV), Actual Costs (AC) and Earned Value (EV), and a multitude of formulae, forecast data can be prepared 6. Earned value analysis using M.S. Project: Microsoft Project is a project management software program which is designed to assist project managers in developing plans, assigning resources to tasks, tracking progress, managing budgets and analyzing workloads. The application creates critical path schedules, and critical chain and event chain methodology with third-party add-ons. Cost Variance and Schedule Variance are visualized in a Report. Steps involve in MSP are as follows, Step-1 Create the baseline for the project to get differentiates with Planned Vs Actual. To create base line Go to Tools Tracking Set baseline Step-2 Fix the Status date. Go to Project Project information Status date Step-3 After selecting the Status date. Go to Gantt chart right click on Gantt chart Gridline Line type Color

4 S. K. KAMANE, S. A. MAHADIK, A. C. LANDE Step-4 Look in Tracking Gantt. It indicates comparison between Planned Vs Actual Go to View Tracking Gantt Step-5 To update the project till Status date Go to Tools Tracking Select update project. After selecting the project dialog box will appear on screen set 0% - 100% complete and press ok

5 Introduction to earn value management in Civil Engineering Step-6 After updating the project. Go to View Table entry More tables Earn value Apply 7. Earn value management example: To illustrate the concept of EVM and all the formulas, assume a project that has exactly one task. The task was baseline at 8 hours, but 11 hours have been spent and the estimate to complete is 1 additional hour. The task would have been completed already. Assume an Hourly Rate of Rs 100 per hour. Using this information Hourly Rate = Rs 100 PV or BCWS = Hourly Rate * Total Hours Planned or Scheduled PV = Rs 800 (Rs 100 * 8 hours) AC or ACWP = Hourly Rate * Total Hours Spent AC = Rs 1100 (Rs 100 * 11 hours) EV or BCWP = Baselined Cost * % Complete Actual EV = Rs 734 (baseline of Rs 800 * 91.7% complete) (NOTE % Complete Actual (below) to get the 91.7% ) BAC = Baselined Effort-hours * Hourly Rate BAC = Rs 800 (8 hours * Rs 100) EAC = AC + ETC EAC = Rs 1200 ( ) VAC = BAC - EAC VAC = - Rs 400 (Rs Rs 1200 ) % Completed Planned = PV / BAC % Complete Planned = 100% (Rs 800 PV / Rs 800 BAC) % Completed Actual = AC / EAC % Complete Actual = 91.7% (Rs 1100 AC / Rs 1200 EAC) SV = Earned Value (EV) - Planned Value (PV) SV = - Rs 66 (Rs 734 EV - Rs 800 PV) SPI = Earned Value (EV) /Planned Value (PV) SPI = 0.91 (Rs 734 EV / Rs 800 PV) CV = Earned Value (EV) - Actual Cost (AC)

6 S. K. KAMANE, S. A. MAHADIK, A. C. LANDE CV = - Rs 366 (Rs 734 EV - Rs 1100 AC) indicating a cost overrun CPI = Earned Value (EV) /Actual Cost (AC) CPI = 0.66 (Rs 734 EV / Rs 1100 AC) indicating over budget 8. Conclusion: Earned Value Analysis is a better method of program/project management because it integrates cost, schedule and scope and can be used to forecast future performance and project completion dates. It is an early warning program/project management tool that enables managers to identify and control problems before they become insurmountable. It allows projects to be managed better on time, on budget. Earned Value Management (EVM) is a proven process that has become widely recognized and accepted for managing projects. It provides early insight into developing trends, indicative of both problems and opportunities within a project. It allows Project Managers to focus attention where it is needed and then to develop corrective action where necessary. References: [1] Sagar K. Bhosekar, Gayatri Vyas,Cost Controlling Using Earned Value Analysis in Construction Industries International Journal of Engineering and Innovative Technology (IJEIT) Volume 1, Issue 4, April 2012 [2] Project Management Institute Practice Standard for Earned Value Management ISBN: [3] Andrew Fernans Tom, Sachin Paul, Project monitoring and control using primavera IJIRSET Vol 2,issue 3 March 2013 [4] Agata Czarnigowska Earned value method as a tool for project control Budownictwo i Architektura 3 (2008) [5] Frank T Anbari Earned value project management method and extensions Project Management Journal; Dec 2003; 34, 4;