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CPM 300 Principles of Earned Value Implementation CPM 300B – Management Use of EV Data

CPM 300 Principles of Earned Value Implementation CPM 300B – Management Use of EV Data. Eleanor Haupt Aeronautical Systems Center eleanor.haupt@wpafb.af.mil +1-937-656-5482. Lloyd Carter MTC AustralAsia Pty Ltd llcarter@mtc.aust.com +61(0)3 5754 1010.

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CPM 300 Principles of Earned Value Implementation CPM 300B – Management Use of EV Data

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  1. CPM 300 Principles of Earned Value ImplementationCPM 300B – Management Use of EV Data Eleanor Haupt Aeronautical Systems Center eleanor.haupt@wpafb.af.mil +1-937-656-5482 Lloyd Carter MTC AustralAsia Pty Ltd llcarter@mtc.aust.com +61(0)3 5754 1010

  2. Training Objectives • Basic concepts of measuring performance • Examples • EVM guidelines for project execution • Basic concepts of reporting progress • Basic concepts of analysis • Examples

  3. Budgeted Cost for Work Performed (BCWP) the EARNED VALUE concept We’re at the end of the second month, but only 1 section of track is complete. Earned value of work completed = $1,000 • Assess progress on recurring basis • There are different methods of earning value • You earn value the same way as it was budgeted in baseline

  4. General Principles of Measuring Performance (BCWP) • Establish valid metrics as you establish the time phased baseline • Relate true work status • Objective and quantifiable • Should be a quantitative and discrete way to measure the work • May tie in with success criteria or technical measure • Example: successful completion of a specific test • Must be consistent in following established metric as work progresses • BCWP value drives both cost and schedule variances • If overstated or understated, it will distort variances • Can impact estimate at complete calculations

  5. Three Basic Methods of Earning Value • Discrete • Physical, tangible end product • Common techniques: milestone, % complete, 0/100, 50/50, units complete • Apportioned • Discrete, but dependent on another discrete work package • Example: quality assurance (depends on assembly labor) • Planned as historical estimating factor (e.g., 7%) • Level of Effort • No tangible end product • Basis of measurement: time • When clock starts ticking, you automatically accumulate earned value • Results in no schedule variance (BCWP will always equal BCWS) • Example: management personnel

  6. Be Discrete! • Discrete EV Techniques: MethodHow Value is Earned 0/100 no EV at opening, 100% EV at close of WP 50/50 50% EV at opening, 50% EV at close of WP Units Completed same budget value for identical units Equivalent Units planned unit standards, allows partial credit Weighted Milestone each milestone weighted based on planned resources ideal to have a milestone each month Percent Complete should be based on some quantitative assessment may be somewhat subjective

  7. Earning BCWP on Material • Material and Subcontracts • Earned Value: taken no earlier than receipt or progress payments to subcontractors define order receipt or progress payments payment to inventory usage • accurate cost accumulation and assignment to contract • should perform price and usage variances • should plan earned value to match expected payment period • BCWP and ACWP should occur in same period to avoid artificial cost variance • option: may report “estimated actuals” based on invoice

  8. Examples of BCWP Calculations

  9. Different EV Methodology Yields Different Results! WBS 1.1.2 (Workpackage) MONTH: Jan Feb Mar Total BCWS (Original Budget) 100 120 100 320 BCWP (Earned Value) ACWP (Actual Cost) 50 120 180 350 Assume that costs overran and work was completed behind schedule for all methods

  10. Example: Milestone Technique JanFebMar BCWS (Original Budget) 100 120 100 320 BCWP (Earned Value) 0 100 220 320 Milestone 1 Planned: 100 Milestone 2 Planned: 120 Milestone 3 Planned: 100 SCHEDULE VARIANCE -100 -20 +120 0 ACWP (Actual Cost) 50 120 180 350 COST VARIANCE -50 -20 +40-30 100 120 100

  11. Example: Level of Effort Technique JanFebMar BCWS (Original Budget) 100 120 100 320 BCWP (Earned Value) 100 120 100 320 SCHEDULE VARIANCE 0 0 0 0 ACWP (Actual Cost) 50 120 180 350 COST VARIANCE +50 0 -80 -30

  12. Example: 50/50 Technique JanFebMar BCWS (Original Budget) 160 160 320 BCWP (Earned Value) 160 0 160 320 Task – Baseline Task - Actual SCHEDULE VARIANCE 0 -160 +160 0 ACWP (Actual Cost) 50 120 180 350 COST VARIANCE +110 -120 -20-30 50% 50% 50% 50%

  13. Example: Percent Complete Technique JanFebMar BCWS (Original Budget) 100 120 100 320 BCWP (Earned Value) 60 100 160 320 Task 1 (100) Task 2 (120) Task 3 (100) SCHEDULE VARIANCE -40 -20 +60 0 ACWP (Actual Cost) 50 120 180 350 COST VARIANCE +10 -20 -20-30 60% 40% 50% 50% 100%

  14. Which Technique Accurately Reflects Work Progress? JanFebMarTotal Milestone SV -100 -20 +120 0 CV -50 -20 +40 -30 LOE SV 0 0 0 0 CV +50 0 -80 -30 50/50 SV 0 -160 +160 0 CV +110 -120 -20 -30 % Compl SV -40 -20 +60 0 CV +10 -20 -20 -30

  15. EVM Guidelines for Project Execution

  16. Work Packages Work Package (closed) Work Package (open) Work Package (open) Work Package (open) Work Package (not open) Time Now

  17. Authorizing the Work • Can only work on work package if it has been opened • Charge costs to open work packages only • Contractor system sets procedure • Contractor maintains baseline log which tracks: • Distribution of budget • Additions of authorized work • Total equals value of contract at cost • Contract changes incorporated in disciplined manner • Cannot start work without authorization and budget • Baseline changes are controlled

  18. more rules of the road... • cannot move budget and work independently • cannot use management reserve budget to cover overruns • may replan open work packages as necessary • contractor sets internal policy • maintain valid performance information • cannot change budgets or costs for completed work • except to fix errors

  19. BCWS BCWP $ time Project Control • So, your project has been baselined and work has started • Is everything going according to plan? • Next step in the process: • figure out your status • figure out the problems • figure out what you need to do to fix them • figure out what the impact might be

  20. Status Reporting • Report on periodic basic • weekly • monthly • Tailor the data to match how you’re managing • Provide performance reports to: • Senior management • Customer • Based on contract terms • Use data in reports and variance analysis to manage and control project

  21. Contractor Reports (Example of data item from U.S. Department of Defense) • Cost Performance Report (CPR) • Format 1: cost and schedule progress by WBS (specified reporting level usually at level 3) • Format 2: cost and schedule progress by organization • Format 3: changes to performance measurement baseline • Format 4: manpower forecast • Format 5: variance analysis current and cum data

  22. Formats 1 and 2 • Contents • header: • basic contract information (target, ceiling, name of contractor, etc.) • range of final estimates • body • performance data • variances • budget at completion, estimate at completion WBS or ORGANIZATION

  23. Variance Explanations • Format 5 variance analysis should address: • separate discussion of CV, SV (current and cum) and VAC • clear description of reason for variance • quantity variances (e.g., price vs. usage) • be specific • discuss needed corrective action • technical, schedule, and cost impacts • impact to estimate at completion • should be written by CAM! A big hammer for a big variance!

  24. Sample of Variance Analysis

  25. Basic Concepts of Analysis or figuring out where the problems are

  26. Looking Forward PAST PRESENT FUTURE Are we on schedule? Are we on cost? What are the significant variances? Why do we have variances? Who is responsible? What is the trend to date? What risks have been reduced or added? What is the “to go” plan? How is it resourced? When will we finish? What will it cost at the end? How can we control the trend? How do we adjust for risk? We analyze the past performance………to help us control the future

  27. Basic Analysis Techniques • Find significant variances • eliminate almost complete, just starting, etc. • Graph and analyze trends • Look at comparative data • e.g. cumulative performance vs. projected performance • Examine written analysis by contractor • does it answer why? • adequacy of corrective action plans • Analysis of schedule trends, critical path • Analysis of EAC realism what are the drivers? what can we do about them?

  28. Types of Variances • Values can be expressed as either current period or cumulative • current tends to be more volatile • use cum data to show trends • Easy rule of thumb: negative value = BAD positive value = GOOD index < 1.0 = BAD index > 1.0 = GOOD • Absolute • expressed in terms of dollars or hours (e.g., -$1,000) • may not be able to tell significance from this amount • Percent • relates absolute variance to a base (e.g., -35%) • shows significance • Index • compares one value to another in a simple ratio • if you are on plan, index = 1.00

  29. Where are the significant problems? sorted by CV $

  30. Graphing Techniques Overall cost and schedule trend EAC realism graphs show overall trend... are you getting better, or worse?

  31. Analysis of Variances CURRENT OR CUM TO DATE Schedule Variance SV ($) = BCWP - BCWS SV (%) = BCWP - BCWS x 100% BCWS Cost Variance CV ($) = BCWP - ACWP CV (%) = BCWP - ACWP x 100% BCWP

  32. Performance Indices COST PERF INDEX (CPI) = BCWP ACWP SCHED PERF INDEX (SPI) = BCWP BCWS 1.2 “GOOD” 1.1 TIME 1.0 CPI .9 SPI “BAD” .8

  33. Past and Present Cost Efficiency • IS THE CONTRACTOR'S EAC REASONABLE? • Compare the CPI to the TCPI-LRE • TCPI-EAC = Efficiency necessary to complete at the contractor’s estimate • WORK $5000 - $1000$4000 • = BAC-BCWP = REMAINING = $6400 - $2400 = $4000 = 1.00 • EAC-ACWP ESTIMATE • REMAINING • Cumulative performance to date (CPI) = .42 • Contractor has been performing at 42% efficiency, but expects to • complete remaining work at 100% efficiency! reasonable?

  34. Schedule Status % scheduled = BCWS x 100% BAC % completed = BCWP x 100% BAC compare example: I should have completed 60% of the work (% scheduled), but I only completed 42%

  35. Budget Status budget status % spent = ACWP x 100% BAC compare: % spent vs. % complete example: 60% spent vs. 50% complete

  36. Mutual Goal: Effective Variance Analysis • Make it meaningful • avoid routine explanations • Make it timely • Make it streamlined • significant variances • Make it right • work with contractor to get the information we need • Get the information to the managers • Use the information to control the project make this a mutual goal between contractor and customer

  37. What will be the final cost? • Estimate at Completion (EAC) • defined as actual cost to date + estimate to complete • contractor develops comprehensive EAC at least annually • reported by WBS in cost performance report • should examine on monthly basis • consider the following in EAC generation • performance to date • impact of approved corrective action plans • known/anticipated downstream problems • best estimate of the cost to complete remaining work • EAC = ACWP + ETC

  38. Need to Estimate Costs for Remaining Work • Budgeted Cost for Work Remaining (BCWR) • Budgeted, baseline value for remaining work • Update estimate of costs for BCWR • Can be detailed estimate • Can calculate with performance factors (CPI or SPI) • Assumes performance will continue at same level of efficiency • Basic formula: BCWR / performance factor • Example: • CPI = .9 • BCWR = 1,000 • Estimate to complete = 1,000 / .9 = 1,111

  39. Common EAC Formulas • Common EAC Formulas: EAC = BAC CPI = ACWPcum + Budgeted Cost of Work Remaining CPI3 =ACWPcum + Budgeted Cost of Work Remaining .5(CPI) +.5(SPI) = ACWPcum + Budgeted Cost of Work Remaining CPI * SPI

  40. Other methods of EAC calculation • “Grass Roots” or formal EAC • detailed build-up from the lowest level detail • hours, rates, bill of material, etc. • Average of statistical formulae • Statistical regression • Complete schedule risk analysis for remaining work, estimate work remaining

  41. Past vs. Projected Efficiency Efficiency needed to achieve EAC 1.0 CPIcum = .42

  42. Earned Value Enables Realistic Forecasts CONTRACT BUDGET BASE $24M COST VARIANCE AT COMPLETE FORECASTED ACTUALS BUDGET 20M SCHEDULE VARIANCE FORECAST SCHEDULE SLIP Cost Var 16M PMB 12M FORECASTED EARNED VALUE 8M 4M 2 4 6 8 10 12 14 16 18 20 22 TIME PERIODS TIME NOW PROGRAM IS BEHIND SCHEDULE AND OVERRUNNING COST

  43. The “Box of Uncertainty”(courtesy Swedish Defense Material Administration) $24M POTENTIAL COST OVERRUN 20M POTENTIAL SCHEDULE SLIP 16M PMB 12M 8M 4M 2 4 6 8 10 12 14 16 18 20 22 TIME PERIODS TIME NOW BOX OF UNCERTAINTY SHOWS POTENTIAL RANGE OF COST OVERRUN AND SCHEDULE SLIP

  44. Managing with Earned Value Data

  45. Program Manager Responsibilities • Assign integrated responsibility to teams • Demand accountability • Ask tough questions • project office • contractor • Look ahead – manage the risks • Integrated analysis and reviews • EVMS • Integrated Master Schedule • Risk Plan • Manage to the baseline • Control statement of work growth • Lead assessment of baseline realism • Integrated Baseline Review (IBR) • Call for realistic estimates

  46. Quotes from Project Managers “Are we looking good, or are we in trouble? And, how do we know?” CAPT Joe Dyer, US Navy F/A-18E/F Program Manager “It forces you to plan, and then to manage to the plan.” Lt Col Paul Vancheri, US Air Force JSTARS Production Program Manager

  47. Additional Referenceshttp://www.cpm-pmi.orghttp://www.acq.osd.mil/pm

  48. Summary • Be careful to establish correct value for reported BCWP (earned value) • Set up and maintain system discipline • Maintain a realistic baseline • Analyze earned value data • Calculate a realistic estimate at completion • Manage with earned value data

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