Project Control – Earned Value Management

1. Project Control – Earned Value Management

2. Earned Value Management is a methodology used to measure and communicate the real physical progress of a project taking into account the work complete, the time taken and the costs incurred to complete that work. Earned Value helps evaluate and control project risk by measuring project progress in monetary terms. Project Control - Earned Value Management System, By Prof. Nadpurohit

3. By taking a snapshot of the project and calculating the Earned Value metrics we can compare the planned with the actual and make a subjective assessment of the project progress. By extrapolating the curves and further calculation we can also estimate the costs to project completion and the probable completion date. Project Control - Earned Value Management System, By Prof. Nadpurohit

4. Steps in Setting up an Earned value Management system • Define the scope of the works. • Set up a Work Breakdown Structure (WBS). • Develop a Project Master Schedule showing when every Work Package will be carried out. • Allocate budget costs to each Work Package (the lowest level of WBS). • Establish a practical way of measuring the actual work completed. • Set, in concrete, the performance measurement baseline. Project Control - Earned Value Management System, By Prof. Nadpurohit

5. Project Control - Earned Value Management System, By Prof. Nadpurohit

6. Budgeted Cost for Work Scheduled (BCWS) – the budgets for all activities planned to be completed. The BCWS curve is derived from the Work Breakdown Structure, the project budget and the Project Master Schedule. The cost of each Work Package is calculated and the cumulative cost of completed Works Packages is shown based on the planned completion dates shown in the Master Schedule. Project Control - Earned Value Management System, By Prof. Nadpurohit

7. Actual Cost of Work Performed (ACWP) – the real costs of the work charged against the completed activities. The ACWP curve is found by actual measurement of the work completed. Actual costs recorded from invoices and workmen's time sheets. This appears a daunting task but it can be very simple with sufficient planning and organizing. Project Control - Earned Value Management System, By Prof. Nadpurohit

8. Budgeted Cost of Work Performed (BCWP) – the planned costs of the work allocated to the completed activities. This is the Earned Value. The BCWP is calculated from the measured work complete and the budgeted costs for that work.Earned Value = Percentage project complete X Project Budget Project Control - Earned Value Management System, By Prof. Nadpurohit

9. Variances Schedule and cost variances can both be calculated in monetary terms from the data needed to produce the S-curves. Schedule variance is the difference between the Earned Value and the planned budget. SV = BCWP – BCWS Cost Variance is the difference between the Earned Value and the actual costs of the works. CV = BCWP - ACWP Project Control - Earned Value Management System, By Prof. Nadpurohit

10. Schedule Variance (SV) • Indicates the deviation between the work content performed and the work content scheduled for the control period Project Control - Earned Value Management System, By Prof. Nadpurohit

11. Cost Variance (CV) • A positive CV indicates a lower actual cost than budgeted for the control period, while a negative CV indicates a cost overrun Project Control - Earned Value Management System, By Prof. Nadpurohit

12. Performance Indices Schedule Performance Index and Cost Performance Index give indications of the health of the project. Is the project on time, in budget or what? Schedule Performance Index is a ratio of Earned Value and the planned value of completed works. SPI = BCWP / BCWS SPI < 1 is not good Cost Performance Index is a ratio of Earned Value and the actual costs of completed works. CPI = BCWP / ACWP CPI < 1 is not good Project Control - Earned Value Management System, By Prof. Nadpurohit

13. Schedule Performance Index (SPI) • Defined as the ratio BCWP/BCWS • A value close to 1 indicates an activity that is on schedule • Values greater than 1 suggest the activity is ahead of schedule • Values less than 1 indicate a schedule overrun Project Control - Earned Value Management System, By Prof. Nadpurohit

14. Cost Performance Index (CPI) • Defined as the ratio BCWP/ACWP • A value close to 1 indicates an activity that is on budget • Values greater than 1 suggest the activity is below budget • Values less than 1 indicate a budget overrun Project Control - Earned Value Management System, By Prof. Nadpurohit

15. Rules of Thumb for EVA Numbers • Negative numbers for cost and schedule variance indicate problems in those areas. The project is costing more than planned or taking longer than planned • CPI and SPI less than 1 indicate problems Project Control - Earned Value Management System, By Prof. Nadpurohit

16. Two Additional Formulas • What will be the final cost of the project if status quo is maintained? • Estimated cost at completion (EAC) • EAC = the original cost estimate for the project, called the Budget-at-Completion (BAC), divided by the Cost Performance Index EAC = (BAC / CPI) • What is the estimated time to complete the project if status quo is maintained? • Estimated time to completion (ETC) • ETC = the original time estimate for the project divided by Schedule performance index (SPI) ETC = (original time estimate / SPI) Project Control - Earned Value Management System, By Prof. Nadpurohit

17. Critical Ratio • (Actual Progress/Scheduled Progress) X (Budgeted Costs/Actual Costs) • This critical ratio is a good measure of the general health of a project as it combines both schedule and cost in that a poor performance in one is compensated by a good performance in the other. A critical ratio greater than 1 is good, less than one is bad. Furthermore the project manager should also set control limits on the various critical ratios. If the ratios are outside the limits then corrective action is necessary. Project Control - Earned Value Management System, By Prof. Nadpurohit

18. Uses of Earned value • Earned Value is based on the idea that the value of the product of the project increases as tasks are completed. And therefore the Earned Value is a measure of the real progress of the project. • Earned Value provides a standard means of objectively measuring work accomplished by integrating cost, schedule and technical performance into one set of metrics so that effective comparisons can be made. • Earned Value can be used to communicate the progress of the works. This is historical information, "water under the bridge", you can't do anything about it. • The more relevant use to the proactive project manager is to measure variances and define trends. Actions can then be taken to reduce the unwanted variances and the wayward trends. Project Control - Earned Value Management System, By Prof. Nadpurohit

19. Table 6-7. Earned Value Formulas Project Control - Earned Value Management System, By Prof. Nadpurohit

20. Table 6-6. Earned Value Calculations for One Activity After Week One Project Control - Earned Value Management System, By Prof. Nadpurohit

21. Figure 6-2.Earned Value Calculations for a One-Year Project After Five Months Project Control - Earned Value Management System, By Prof. Nadpurohit

22. In the Figure above • Budget at Completion = BAC = original budget at the planned completion date • Time at Completion = TAC = original completion time • In the figure above, `100,000 in month 12 • Estimate at completion = EAC = BAC/CPI • Estimate at completion = `100,000/.83 = `120,455 • Estimated time to complete = ETAC = TAC/SPI • Estimated time to complete = 12/.96 = 12.55 mos. Project Control - Earned Value Management System, By Prof. Nadpurohit

23. Updating cost estimates • BAC = Budget at completion = total budget of the project activities based on the original project plan • Assuming the original budget (the BAC) was `200,000 and the CPI is 1.12, what is EAC? • EAC = BAC / CPI = `200,000 / 1.12 • `178,571 Project Control - Earned Value Management System, By Prof. Nadpurohit

24. Updating schedule estimates • TAC = Time at completion = total time required to complete the schedule • ETAC = Estimated (revised) time to complete • Assuming the TAC was 12 months what is the ETAC? • ETAC = TAC / SPI = 12 / .77 • 15.6 months • Project will be delayed almost 4 months Project Control - Earned Value Management System, By Prof. Nadpurohit

25. Updating, Cont’d • WR = Work Remaining = budgeted cost of the work not yet accomplished by the end of the reporting period • WR = BAC - BCWP • ETC = updated estimate of the cost of work remaining = COST(WR) • EAC = updated estimate of the total project cost = ACWP + ETC Project Control - Earned Value Management System, By Prof. Nadpurohit

26. Figure 6-3. Earned Value Chart for Project After Five Months EAC Project Control - Earned Value Management System, By Prof. Nadpurohit

27. Using Software to Assist in Cost Management • Spreadsheets are a common tool for resource planning, cost estimating, cost budgeting, and cost control • Many companies use more sophisticated and centralized financial applications software for cost information • Project management software has many cost-related features Project Control - Earned Value Management System, By Prof. Nadpurohit

28. Using MS Project for Execution & Control • First, make certain your project plan is complete and final • Second, save it as a baseline • Begin entering actual information • Actual costs • Percentage complete Project Control - Earned Value Management System, By Prof. Nadpurohit

29. Tracking: MS Project will track— • Task start dates • Task finish dates • Task duration • Task cost work • Percentage of task that is complete Project Control - Earned Value Management System, By Prof. Nadpurohit

30. Getting Earned Value Data Visible • You can go to view and replace the entry table with the Earned Value table • Or, you can enter the earned value columns into your existing table through the Insert Column facility. • The columns are BCWP, BCWS, ACWP, CV, SC, SPI, CPI, etc. You can also request the Tracking Gantt Chart off the LHS side of MS Project Project Control - Earned Value Management System, By Prof. Nadpurohit

31. Entering actual start & Finish dates for a task • On the view bar, click Gantt chart • In the task name field select the task to update • On the Tools menu, point to tracking and click Update Tasks • Under Actual, type the dates in the Start and Finish boxes Project Control - Earned Value Management System, By Prof. Nadpurohit

32. Indicating progress on a task as a percentage • In the task name field of the Gantt Chart • Double click—this brings up the task information sheet • Select the general tab • In the percentage complete box type a whole number between 0 and 100 Project Control - Earned Value Management System, By Prof. Nadpurohit

33. Entering actual costs for a resource assignment • On the Tools menu, click options, then click the calculation tab • Clear the Actual costs are always calculated by MS Project check box • Click OK • On the view bar, click Task usage • On the view menu, point to the Table, and click Tracking • Drag the divider bar to the right to view the Activity Cost field • In the activity cost field, type the actual cost for the assignment for which you want to update costs Project Control - Earned Value Management System, By Prof. Nadpurohit

34. Project Control - Earned Value Management System, By Prof. Nadpurohit

35. Project Control - Earned Value Management System, By Prof. Nadpurohit

36. If the costs are incurred linearly in proportion to activity completion, find out the • Budgeted Cost of Work Scheduled (BCWS) • Budgeted Cost of Work Performed (BCWP) • Cost Variance • Cost Performance Index (CPI) • Schedule Performance Index (SPI) Project Control - Earned Value Management System, By Prof. Nadpurohit

37. End of chapter Project Control - Earned Value Management System, By Prof. Nadpurohit

38. Why Earned Value Analysis?? • You can’t tell what your true cost variance is because you don’t know where you are relative to schedule • Suppose you are behind schedule but also you have spent less than what the schedule has called for. Are you really under budget? Project Control - Earned Value Management System, By Prof. Nadpurohit

39. Cost Control • Project cost control includes • monitoring cost performance • ensuring that only appropriate project changes are included in a revised cost baseline • informing project stakeholders of authorized changes to the project that will affect costs • Earned value analysis is an important tool for cost control Project Control - Earned Value Management System, By Prof. Nadpurohit