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Making it Work
609-575-9306 (c)
888-762-3683 (w)
joe.lukas@pmcentersusa.com
Traditional Project Cost Curve
What can you tell about the health of this project based on this graph?
Status Date
Budget – Planned Work
$‟s or
Hours
Actual Cost
Time
2
©Joe Lukas, February 22-23, 2012
Traditional Project Cost Curve
The only information you know from this graph is that spending is
less than planned!
Status Date
Budget – Planned Work
$‟s or
Hours
Actual Cost
Time
3
©Joe Lukas, February 22-23, 2012
Earned Value Analysis Curve
What can you tell about the health of this project based on this graph?
Actual Cost
Time
1. Completing work for less than the budgeted amount
2. Ahead of the project schedule
3. Spending less than planned
4. Ahead of schedule & completing work for less than the budget amount
4
©Joe Lukas, February 22-23, 2012
Earned Value Analysis Curve
You have completed more work than planned, but you can’t tell if
you are ahead of schedule! Why not?
Status Date Budget
Actual Cost
Time
1. Completing work for less than the budgeted amount
2. Ahead of the project schedule
5
©Joe Lukas, February 22-23, 2012
What Will Be Covered?
• TOPIC 1: Quick review of
Earned Value Analysis (EVA)
terminology, calculations, and
best practices
PV
CV EV
AC
SPI SV
CPI
ACWP BAC
BCWP
EAC
BCWS
ETC
7
©Joe Lukas, February 22-23, 2012
Earned Value Terms
• Earned Value Analysis (EVA): Quantitative calculations
that use the progress of authorized work and the budget
for that work (called the earned value) for the purpose of
monitoring performance and predicting the final required
costs (and time) necessary to finish the project
9
©Joe Lukas, February 22-23, 2012
Planned Value (PV)
Time Now
75
Dollars or Hours
50 planned or
PV = scheduled work
25
0
6 12 18
Time
10
©Joe Lukas, February 22-23, 2012
Earned Value Terms: AC
11
©Joe Lukas, February 22-23, 2012
Actual Cost (AC)
Time Now
planned or
75 PV = scheduled work
50
what the work
Dollars
AC = actually cost
25
0
6 12 18
Time
12
©Joe Lukas, February 22-23, 2012
Earned Value Terms: EV
13
©Joe Lukas, February 22-23, 2012
Earned Value (EV)
Time Now
planned or
75 PV - scheduled work
50
Dollars
25 actual work
EV = accomplished
0
6 12 18
Time
14
©Joe Lukas, February 22-23, 2012
Earned Value Relationships
The work with the schedule
and budget is the PLAN Costs
Budget Actual
Scheduled PV
Work
Performed EV AC
16
©Joe Lukas, February 22-23, 2012
Progressing Techniques
• Units Completed
• Incremental Milestones
• Start – Finish
• Apportioned Relationship
• Level of Effort
• Individual Judgment
• Combination Methods
17
©Joe Lukas, February 22-23, 2012
Quantitative Progressing
• Units Completed - work with repeated production of easily
measured pieces of work
18
©Joe Lukas, February 22-23, 2012
Qualitative Progressing
• Level of Effort - assumes the progress of the activity is
equal to the amount spent
• Individual Judgment -
Important to get multiple
opinions of progress, this
provides a „checks and balance‟
on the progress accuracy
19
©Joe Lukas, February 22-23, 2012
Misc. Progressing Techniques
20
©Joe Lukas, February 22-23, 2012
What Progressing Technique?
New carpet installation in company cafeteria
1. Units Completed
2. Incremental Milestones
3. Start – Finish
4. Apportioned Relationship
5. Level of Effort
6. Individual Judgment
7. Combination Methods
21
©Joe Lukas, February 22-23, 2012
What Progressing Technique?
Rock Excavation for new foundation
1. Units Completed
2. Incremental Milestones
3. Start – Finish
4. Apportioned Relationship
5. Level of Effort
6. Individual Judgment
7. Combination Methods
22
©Joe Lukas, February 22-23, 2012
What Progressing Technique?
New pill press machine purchase
1. Units Completed
2. Incremental Milestones
3. Start – Finish
4. Apportioned Relationship
5. Level of Effort
6. Individual Judgment
7. Combination Methods
23
©Joe Lukas, February 22-23, 2012
What Progressing Technique?
Factory inspector for equipment fabrication
1. Units Completed
2. Incremental Milestones
3. Start – Finish
4. Apportioned Relationship
5. Level of Effort
6. Individual Judgment
7. Combination Methods
24
©Joe Lukas, February 22-23, 2012
Schedule & Cost: Variance & Index
• Schedule Variance
measures schedule performance SV = EV - PV
at a point in time:
• Schedule Performance Index
ratio of work performed to work SPI = EV \ PV
scheduled (earned / plan):
• Cost Variance
measures cost performance CV = EV - AC
at a point in time:
• Cost performance index
ratio of budget costs for work CPI = EV \ AC
performed to actual costs:
25
©Joe Lukas, February 22-23, 2012
SV & CV – Bad Project
Time Now
75 Planned
Budget -
(Scheduled) Work
50
Dollars
Actual Cost
SV = -25
CV = -12
25
Time Now
Budget
75
SV = +5
50
CV = +18
Dollars
Earned Value
25 Actual Cost
0
6 9 12 18
Time
27
©Joe Lukas, February 22-23, 2012
SPI Warning!!!
• Caution! The Schedule Performance
Index may or may not accurately reflect the
true schedule condition of the project!
• Total Float must also be considered!
• SPI > 1.0 may occur by “earning”
progress on non-critical activities
28
©Joe Lukas, February 22-23, 2012
Key Cost Forecasting Terms
29
©Joe Lukas, February 22-23, 2012
Key Cost Forecasting Terms
EAC
BAC
TIME
NOW
Project
ETC Contingencies
DOLLARS
PV AC EV
NOTE: Most ETC & EAC formulas
include an adjustment based on
project performance (CPI, SPI)
TIME
30
©Joe Lukas, February 22-23, 2012
EAC Formulas: CPI = 1
• „Mathematical‟ or „Overrun-to-Date‟ EAC
Time Now
1.0
Project #1 & #2 CPI
Actual CPI „Bad Project‟
0.0
Time
31
©Joe Lukas, February 22-23, 2012
EAC Formulas: „Most Likely‟
• „Cumulative CPI‟ EAC
• EAC = AC + (BAC - EV)/CPI = BAC/CPI
• Assumes the performance (CPI) will remain unchanged
for the rest of the project
Time Now
Project #2 CPI „Good Project‟
CPI
1.0
Project #1 CPI
Actual CPI „Bad Project‟
0.0
Time
32
©Joe Lukas, February 22-23, 2012
EAC Formulas: CPI times SPI
• „Cumulative CPI times SPI‟ EAC
• EAC = AC + ((BAC - EV) / (CPI x SPI)) or
= BAC / (CPI x SPI) [Not quite the same calculation]
• Yields the most pessimistic EAC when both SPI & CPI < 1.0
1Dr. David S. Christensen, “Using Performance Indices to Evaluate the Estimate at Completion,” The Journal of
Cost Analysis of the Society of Cost Estimating and Analysis, Spring 1994, page 19.
34
©Joe Lukas, February 22-23, 2012
To-Complete Performance Index
• TCPI – provides a forecast of the required performance
level, expressed as a CPI, which must be achieved on the
remaining work in order to meet the project financial goal,
which can be:
Current authorized budget
Project Manager‟s current EAC
35
©Joe Lukas, February 22-23, 2012
TCPI Formulas
Work Remaining (BAC – EV)
TCPI (BAC) = =
Funds Remaining (BAC – AC)
Actual CPI
0.0
Time
36
©Joe Lukas, February 22-23, 2012
Topic 2
&
37
©Joe Lukas, February 22-23, 2012
Making EVA Work
38
©Joe Lukas, February 22-23, 2012
Making EVA Work
1. Defined Requirements
2. Complete Requirements
4. Complete WBS
39
©Joe Lukas, February 22-23, 2012
#1: Defined Requirements
Business
Objectives
Problem or
Opportunity
“Why” Business
Requirements
“What”
Functional &
Technical
Requirements
WBS “What”
Solution
Architecture & “How”
Specifications
Project Scope documented
“How” by the WBS
40
©Joe Lukas, February 22-23, 2012
#2: Complete Requirements
Schedule
Quality
Communications
Scope Staffing
Procurement
Cost Risk
Requirements Project
Plan
41
©Joe Lukas, February 22-23, 2012
#3: WBS Used & Accepted
42
©Joe Lukas, February 22-23, 2012
#3: Use of a WBS
Major Deliverables
WBS Elements
43
©Joe Lukas, February 22-23, 2012
#3: Naming WBS Deliverables
Project Product
= Control Accounts
• Correct Action:
Implement a change management process on your
project for both deviations and scope changes
46
©Joe Lukas, February 22-23, 2012
#6: Integrated Project Plan
47
©Joe Lukas, February 22-23, 2012
#7: Correct Schedule/Budget
48
©Joe Lukas, February 22-23, 2012
#7: Use of Contingency
WP # WP Title/Description WP Estimate
~
~
15 Package Implementation $ 50,000
- Sub-total $1,545,000
- Contingency $ 155,000
Task Schedule
~
Project
P Contingency Complete
11 days
Task
~
49
©Joe Lukas, February 22-23, 2012
#7: Contingency Management
Sample Contingency Drawdown Graph
Dollars Status Days
Date
$40k 20
001 Cost Contingency Start = $38k
002
003
$30k 004
Schedule Contingency Start = 15 days 15
$29.4k
001
002
$20k 10
003
6 days
$10k 5
$0
Oct Nov Dec Jan Feb Mar Apr May
Project Timeline EAC = -9 days
51
©Joe Lukas, February 22-23, 2012
#8: Adequate Cost System
Project
52
©Joe Lukas, February 22-23, 2012
#9: Accurate Reported Progress
53
©Joe Lukas, February 22-23, 2012
#10: Management Influence
54
©Joe Lukas, February 22-23, 2012
Back to the Earned Value Curve
Time Now
Budget
75
50
Dollars
Actual Cost
Earned Value
0
6 9 12 18
Time
55
©Joe Lukas, February 22-23, 2012
The Results?
• Final Costs = 4x
• Final Schedule = + 1 year
• The good news – the software worked!
So What Happened?
56
©Joe Lukas, February 22-23, 2012
EVMS Standard
57
©Joe Lukas, February 22-23, 2012
EVMS Standard
58
©Joe Lukas, February 22-23, 2012
Conclusion
59
©Joe Lukas, February 22-23, 2012
Questions?
609-575-9306 (c)
888-762-3683 (w)
joe.lukas@pmcentersusa.com