Evm class 02 1to15 by upad

Project Earned Value
Management X 443.17
Class 2
The Basics of Earned
Value

Rauch &
Hackenberg Copyright © 2012 Bill Hackenberg. All rights reserved.

Dilbert on progress reports…

2

1

Class 1, Introduction Review
Questions
Q. What is the difference between projects and
operations:
a. Projects are ongoing activities
b. Projects are performed by people, while
operations are performed by machines
c. Projects are temporary and create a unique
product or service
d. Projects and operations are the same

Rauch &
Hackenberg Copyright © 2012 Bill Hackenberg. All rights reserved. 3

Questions
Q. The triple constraint is:
a. Scope, Cost, Time
b. Resources, Cost, Budget
c. Schedule, Duration, Time
d. Scope, Requirements, Quality

Rauch &

2

Questions
Q. Which phase-to-phase relationship in a Project
Life Cycle can have decision gates that the
project must pass through before proceeding?
a. Sequential Relationship (Waterfall)
b. Overlapping Relationship (Fast Tracking)
c. Iterative Relationship (Iterative)
d. Any of the above

Rauch &

Questions
Q. The Project Charter is used to do all the
following except:
a. Establish measurable project objectives and
related success criteria for the project
b. Communicate Project purpose or
justification to project stakeholders
c. Document high-level risks
d. Provide a baseline for progress
measurements and project control
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3

Questions
Q. How does the Project Management Maturity
Model OPM3 define process maturity for
organizations?
a. As soon as all processes have been formalized
into documentation
b. When projects are completed quickly (cost
overruns are ok)
c. When projects are complete cheaply (schedule
overruns are ok)
d. When they adopt Program & Portfolio process
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Earned Value Primitives, or Primary Metrics
•  Planned Value (PV) has to be $$$ Ex: Task A 10 hrs, $10/ per hr PV=$100
–  Budgeted Cost of Work Scheduled
–  How much work should be done?
–  What is the budget for the work scheduled (according to the original
estimate)?

•  Earned Value (EV)
–  Budgeted Cost of Work Performed
–  How much work is done?
–  What was the budget for work accomplished?
–  Interpretation of EV: “Task A, which I was supposed to complete today, is
scheduled to cost $1,000. I am only 85 percent done on this task. Thus I
have done $850 worth of work—which is my earned value (EV).”
–  EV = PV x % Complete

•  Actual Cost (AC)
–  Actual Cost of Work Performed
–  How much did the “is done” work cost?
–  What are the actual costs for the Earned Value
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Schedule Variance (SV)
difference between Planned & spent
•  SV = EV – PV

•  Interpretation of SV: “As of today, I was supposed
to have done $1,000 worth of work on Task A
(PV). I have actually done $850 worth of work
(EV). Thus, I am behind in my schedule by $150
worth of work (SV).”

•  Note: Schedule variance is valued in dollars!
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Cost Variance (CV)
•  CV = EV – AC

•  Interpretation of CV: “I have done $850 worth of
work (EV), but it actually cost me $900 to do this
(AC). It has cost me $50 more to do what I have
done than I originally thought (CV).”

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5

SV= - bad, + good (under budget)
SPI= <1 bad, >1 good (ahead of schedule)

CV= $100000 (bad)
CPI= .94 ok
Ratio of planned and spent

Schedule Performance Index (SPI)
•  SPI = EV/PV

•  Interpretation: “I have done $1,500 worth of work
(EV). The value of work scheduled is $1,000.
Each dollar of scheduled work generated $1.50 1.5 times
worth of work (schedule performance index).”

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CV
CPI: 1.1
CV= $100000 SV
CPI= .94 ok SPI: 1.1
under budget, ahead of schedule

Cost Performance Index (CPI)
•  CPI = EV/AC

•  Interpretation: “I have done $850 worth of work
(EV). It has cost me $900 to do so (AC). Each
dollar I actually spent generated 94.4 cents worth
of work (cost performance factor).”

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6

• The Project Baseline Plan

• Thousands (000) • 3 months
• Authorized
• status Budget
$1,000,000
• $1,000

• 750

• 500
• Planned Costs
= $300K
• Actual Costs = $300K
• 250

• 12 months duration

• Quentin W. Fleming 13

• Earned Value is three dimensional:
• As we perform our projects, we need to determine:

• The Planned Value
• 1. What work has been scheduled? (from PMS)
• 2. What is the budget for the work scheduled?

• The Earned Value
• 3. What work has been accomplished? (from PMS)
• 4. What was the budget for work accomplished?

• The Actual Costs
• 5. What are the actual costs for the Earned Value?


7

• EVM Measures 3 Dimensions

• Thousands (000) • Authorized
• 3 months
Budget
• $1,000 • status $1,000,000

• 750

PV= $300K
• 500 • Planned Value
= $300
AC= $300K
• Cost Actuals = $300K
EV= $200K
• 250 • Earned Value = $200K % = 200K/1000K(BAC)= 20%

CV= EV - AC =200K-300K=-100K
• 12 months duration CPI= 200/300= .67
SV= EV-PV= 200K-300K=-100K
• Quentin W. Fleming SPI= EV/PV = 200K/300K= .6715

over-budget, behind schedule

• The Fundamental Difference:
• Traditional Project Cost Management

• Planned costs = $300K
• Variance from the expenditure plan
• (everything is 0K)
• Actual costs = $300K

• Earned Value Project Management

• Planned value = $300K • Variance from the
planned schedule = (-$100K)
• Earned value = $200K
• The "true"
cost variance = (-$100K)
• Actual costs = $300K

8

EVM Metrics, or Reporting and Comparison Metrics

•  Earned Value Formulas:
– Schedule Variance:
SV = EV - PV
– Schedule Performance Index:
SPI = EV / PV
– Cost Variance:
CV = EV - AC
– Cost Performance Index:
CPI = EV / AC
Rauch &

EVM Metrics, or Reporting and
Comparison Metrics
•  The way to remember this is to write down the
first part of the four earned value calculations:

•  CV=...
•  CPI=...
•  SPI=...
•  SV=...

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9

Comparison Metrics
•  In each case EV is the first variable:

•  CV=EV...
•  CPI=EV...
•  SPI=EV...
•  SV=EV...

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Comparison Metrics
•  Then add the operator:
•  CV and SV (variance) use -
•  CPI and SPI (Index) use /

•  CV=EV-...
•  CPI=EV/...
•  SPI=EV/...
•  SV=EV-...
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Comparison Metrics
•  Then add the second variable:
•  C(ost)V and C(ost)PI use AC(ost)
•  S(hedule)PI and S(hedule)V use P(lan)V

•  CV=EV-AC
•  CPI=EV/AC
•  SPI=EV/PV
•  SV=EV-PV
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Forecasting Metrics PMBOK Pg. 184-185
EAC Formula

•  Three Estimate to Complete (ETC) Forecasting
formulas mentioned in PMBOK
•  EAC forecast for ETC work performed at budgeted rate:
EAC = AC + BAC – EV
Where: EAC = Estimate at Completion (forecast)
BAC = Budget at Completion (original baseline)

•  EAC forecast for ETC work performed at the present CPI:
EAC = BAC / cumulative CPI

•  EAC forecast for ETC work considering both SPI and CPI:
AC + [(BAC – EV) / (cumulative CPI x cumulative SPI)]
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•  Cumulative CPI stabilizes at 20% point
•  At 20% point variances only +/- 12%
•  At 50%point variances only +/- 08%

• Estimate at Completion
• $1,000,000 = Budget
• BAC
• At Completion

• PV • $300,000 = Planned Value

• Schedule Performance Index SPI = EV/PV = .67

• EV • $200,000 = Earned Value

• Cost Performance Index CPI = EV/AC = .67

• AC • $300,000 = Actual Cost
• EAC
• ($500K projected overrun)
• Estimate At Completion =(AC+(BAC-EV)/CPI) = $1,500,000

BAC = original planned value
EAC = PM project the project will cost

12

Break
•  10 minute break

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Learning Team Project

•  Each learning team can pick their own project.
•  The project should be a medium scale:
–  at least 50 tasks
–  at least 5 resources
•  The project must come from a business situation.
•  Learning team members will contribute background
details to define the project
•  The team will work together to create a project
deliverables for its execution.
•  Make sure projects are appropriately sized.
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Learning Team Project Objectives

•  Demonstrate a working knowledge of project
earned value.
•  The team can split up the work anyway they
choose
•  Final deliverable must be a single document for
which the team will receive a single grade.
•  This will count 30% towards your individual
grade.

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Learning Team Project Roadmap

•  Using earned value tools, learning teams will create and
present a project charter, WBS, schedule, EVM
metrics, and EVM implementation to demonstrate that
the group members have command of the project
earned value.
•  Draft deliverables will be required several times during
the course, with a final presentation of the project due
in the final week.
•  Interim deliverables will receive feedback from the
instructor as the work proceeds and modifications may
be made before turning in the final paper.

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14

Learning Team Class Exercise,
Project Charter
•  Project Charter:
–  Project purpose or justification
–  Measurable project objectives and related
success criteria
–  High-level risks

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15

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