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Measuring Employee Performance the Earned Value Way

Measuring Employee Performance the Earned Value Way. Developed by Jim Greer Boise State University Fall 2003 Dr Tom Foster, Instructor. Overview. Link to Quality and Corporate Growth Objectives Key Definitions and Importance of Earned Value Discussion of Concepts

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Measuring Employee Performance the Earned Value Way

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  1. Measuring Employee Performance the Earned Value Way Developed by Jim Greer Boise State University Fall 2003 Dr Tom Foster, Instructor

  2. Overview • Link to Quality and Corporate Growth Objectives • Key Definitions and Importance of Earned Value • Discussion of Concepts • How Does Earned Value Work? • A Real World Example, and then another…. • Application of Earned Value • Training Development with an Exercise • Limitations • Summary • Readings

  3. The Link….to Growth and Quality • Earned Value is a performance measurement tool. The knowledge from this measure increases a firm’s ability to boost performance. The bottom line is that performance improvements drive productivity.

  4. Key Definitions • Performance is a dimension of quality that refers to the efficiency in which a product performs its intended purpose • Productivity indicates the output per man-hour of labor

  5. Productivity drives our Economy “Worker productivity accelerated last year at the fastest rate in more than a half century. This high productivity means our workers receive higher wages, our nations exports get a competitive boost in world markets and our economic recovery gains momentum at a crucial time” --President Bush, Labor Day 2003 Weekly Radio Address

  6. Productivity Impact at the Firm Level • Productivity is producing more goods and services with the same resource inputs • Higher productivity lowers the cost of production. Lower costs increase competitiveness and build profits, and allow cost savings to pass on to consumers • To succeed, firms must continue to adopt practices that increase productivity. Earned Value is one such powerful tool.

  7. Earned Value from a Nuts and Bolts Perspective EV compares and measures… …the amount of work actually completed and resources actually consumed at a certain point in a project …with the amount of work planned (budgeted) to be completed and resources planned to be consumed at that same point in the project

  8. More nuts and bolts…. • EV is a performance and productivity metric for projects • To refresh one’s knowledge, a project consists of a scope of work directed towards a specific goal. All projects are managed with a budget and schedule. In fact, budget and schedule are the two key quality measures in any project. The third is the actual quality of the work performed. • The schedule is a collection of work broken down into short, specific, and interrelated tasks. The budget represents the cost of the resources allocated to the project.

  9. Even more nuts and bolts….. • The bottom line is that EV is a powerful tool for measuring the Actual performance of a project against its Planned performance. …….It’s that simple, really! So let’s dive into the concept……..

  10. How does it work? Earned Value Concepts Earned Value consists of three key concepts >> • Budgeted Cost of Work Scheduled (BCWS) is the cost of the work scheduled or planned to be completed in a certain time period per the plan • Budgeted Cost of Work Performed (BCWP) is the budgeted cost of the work done up to a defined point in the project • Actual Cost of Work Performed (ACWP) is the actual cost of work up to a defined point in the project

  11. Earned Value Math Variance Metrics Schedule Variance: SV = BCWP - BCWS Schedule Performance Index: SPI = BCWP / BCWS Cost Variance: CV = BCWP - ACWP Cost Performance Index: CPI = BCWP / ACWP Criteria SV, CV = 0 Project On Budget and Schedule SV, CV < 0 Over Budget and Behind Schedule SV, CB > 0 Under Budget and Ahead of Schedule CPI, SPI = 1 Project On Budget and Schedule CPI, SPI < 1 Over Budget and Behind Schedule CPI, SPI > 1 Under Budget and Ahead of Schedule

  12. Let’s work a real example…. Project Statement: • A supplier is contracted to install ten new testers at a semiconductor manufacturing plant. The project must be completed within 6 weeks duration. 600 manhours is the estimated labor resource commitment, at a $10 per hour fully loaded time and materials cost. Goal Statement: • Use EV to measure project performance at week 3 • Use traditional methods to measure performance • Compare the results using both approaches

  13. Example Continued… Determine Project Status at Week 3 using traditional methods: Given Information: • At Week 3, 4 testers have been installed • 400 manhours have been consumed • 3/6 weeks = 50% complete • 4/10 testers installed = 40% complete • 400/600 manhours “cost” budgeted = 67% complete • What is the project status at week 3? Is the project ahead or behind schedule and is it under budget or over budget? It is very difficult to tell

  14. Example Continued…EV is introduced Determine BCWP, BCWS, and ACWP: BCWP = (600 mh*$10/hr )* (4 testers / 10 testers) = $2400 BCWS = (600 mh*$10/hr)*(3 weeks / 6 weeks) = $3000 ACWP = 400mh*$10/hr =$4000 With this information, we can determine the metrics: SV = BCWP – BCWS = $2400 – $3000 = - $600 CV = BCWP – ACWP = $2400 – $4000 = -$1600 SPI = BCWP / BCWS = 2400/3000 = .8 Criteria: .8<1 CPI = BCWP / ACWP = 2400/4000 = .6 Criteria: .6<1 Our project is behind schedule and over budget!

  15. Let’s try one more example… Project Statement: • One employee is tasked with developing six new procedures for a sales group. The project must be completed within 4 weeks duration. 200 manhours is the estimated labor resource commitment. Goal Statement: • Use EV to measure employee performance week 2 • Use traditional methods to measure performance • Compare the results using both approaches

  16. Second Example Continued… Determine Project Status at Week 2 using traditional methods: Given Information: • At Week 2, 5 procedures have been written • 100 manhours have been consumed • Assume a $1/hour rate. This will wash from equation. • 2/4 weeks = 50% complete • 5/6 procedures have been written = 83% complete • 100/200 manhours “cost” budgeted = 50% complete • What is the project status at week 2? Is the project ahead or behind schedule and is it under budget or over budget? It is still very difficult to tell

  17. Example using EV… Determine BCWP, BCWS, and ACWP: BCWP = (200 mh)* (5 procedures / 6 procedures) = 167 mh BCWS = (200 mh)*(2 weeks / 4 weeks) = 100 mh ACWP = 100 mh With this information, we can determine the metrics: SV = BCWP – BCWS = 167 mh – 100 mh = 67 mh CV = BCWP – ACWP = 167 mh – 100 mh = 67 mh SPI = BCWP / BCWS = 167/100 = 1.67 Criteria: 1.67>1 CPI = BCWP / ACWP = 167/100 = 1.67 Criteria: 1.67>1 Our project is ahead of schedule and under budget!

  18. How is EV applied??? • Powerful performance and productivity metric for a project team using project schedule and budget • Measures performance of an employee • Provide an integrated approach versus traditional methods for task and project evaluation • Useful for any type of project from small in-house office jobs to complex contracted projects. For projects with multiple tasks or activities, EV can be calculated for each task

  19. It’s time for an exercise… Project Statement: • One employee is tasked with developing three databases. The project must be completed within 10 weeks duration. 500 manhours is the estimated labor resource commitment. Goal Statement: • Use EV to measure employee performance week 7 • Use traditional methods to measure performance • Compare the results using both approaches

  20. Walk through Exercise Process… • Establish “givens” • Determine project status using traditional method • Determine BCWP, BCWS, and ACWP • Calculate SV, CV, SPI, CPI • Apply Criteria 6) Summarize project performance based on EV

  21. Exercise Solution • Givens: At week 7, 350 manhours consumed and 2 databases completed • 7/10 weeks = 70% • 350 mh / 500 mh = 70% • 2/3 databases complete = 67% • Can you tell from this traditional method the project status??? • Apply EV……..

  22. Rest of Solution….. BCWP = 500 mh * (2/3 databases) = 333 mh BCWS = 500 mh * (7/10 weeks) = 350 mh ACWP = 350 mh SV = BCWP – BCWS = 333-350 mh = -17 mh CV = BCWP – ACWP = 333 – 350 mh = -17 mh SPI = 333/350 = .95 CPI = 333/350 = .95 Bottom Line Project is slightly behind schedule and over budget

  23. EV Limitations • The EV math assumes linearity. Linearity doesn’t exist in the real world but is a good approximation when tasks in a project are broken into simple elements. • EV standing alone is a powerful measure, but only a measure. The knowledge derived from EV must be understood and used to actually drive performance and productivity improvements.

  24. Summary • Earned Value provides an integrated, holistic approach to measuring performance of employees and projects • Use of the approach creates a framework for evaluating project status based on project quality objectives • Adoption of EV and application of the results will improve performance and drive up productivity

  25. Readings President Bush Weekly Radio Address, Aug 2003 www.whitehouse.gov/news/releases/2003 US Labor Sec Chao, Remarks to Joint American Enterprise Institute – US Dept of Labor Conference on Productivity in 21st Century, ASI, Oct 23, 2002 Dept of Labor Statistics Homepage, www.bls.gov “Retailers Can Increase Productivity and Improve the Bottom Line with Labor Analytics”, John Andersen, www.executivetechnology.com

  26. More Readings Managing Quality – An Integrative Approach, 2nd Ed, 2004, S Thomas Foster EconDash -- www.econdash.net/definitions/laborprod.asp “Earned Value – Why be right when it’s so much fun to Guess?”, Ozzie Lomax, PMP, PMI KC Chapter May 2000 “Project can help you better understand Earned Value”, May 2003 www.zdnet.com.au/builder/manage/project/story Use of Earned Value Management to Mitigate Software Development Risk, Paul E Young, 21 April 1997, George Mason Univ

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