THE VALUE OF EARNED VALUE MANAGEMENT

Transcription

1 THE VALUE OF EARNED VALUE MANAGEMENT PMI Pittsburgh Chapter Meeting February 8, 2001 Marilyn McCauley McManagement Group (f)

2 AGENDA Twelve Reasons Why Programs Fail Program Management Principles Earned Value Management s Role in PM What is Earned Value Management History of Earned Value Management The Value of Earned Value Management

3 REASONS WHY PROGRAMS FAIL John Gioia, Robbins Gioio, Inc., PM Network, November Understanding Program Complexity 2. Lack of Management Access and Internal Communication 3. Not Integrating the Key Elements of Project Management 4. No Measurable Controls 5. Requirements Creep 6. Ineffective Implementation Strategy

4 REASONS WHY PROGRAMS FAIL 7. A Software Tool is Not the Only Answer 8. Different Contractor and Customer Expectation 9. No Shared Win-Win Attitude 10. No Formal Project Management Education 11. Lack of Top Management Commitment and Sponsorship 12. Projects Not Viewed as a Business

5 REASONS WHY PROJECTS FAIL 1995 Standish Group Report 1. Incomplete requirements 2. Lack of user involvement 3. Lack of resources 4. Unrealistic expectations 5. Lack of executive support 6. Changing requirements and specifications 7. Lack of planning 8. Didn t need it any longer 9. Lack of IT management 10. Technology illiteracy

6 PROGRAM MANAGEMENT PROCESSES Initiating Planning Executing Controlling Closing Recognizing that a project or phase should begin and committing to do so Devising and maintaining a workable scheme to accomplish the business need that the project was undertaken to address Coordinating people and other resources to carry out the plan Ensuring that project objectives are met by monitoring and measuring progress and taking corrective action when necessary Formalizing acceptance of the project or phase and bringing it to an orderly end Source: A Guide to the Project Management Body of Knowledge published by Project Management Institute

7 EVM S ROLE IN PROJECT MANAGEMENT program manager needs Project management cycle Initiate Plan Execute Control Close out organize the work and the teams control changes authorize work properly corrective actions develop a realistic plan of the work scope, the budget, and the schedule performance reporting understand variances forecast of final cost and schedule

8 EVMS fits naturally into the Project Management Cycle program manager needs Project management cycle Initiate Plan Execute Control Close out organize the work and the teams control changes authorize work properly corrective actions develop a realistic plan of the work scope, the budget, and the schedule performance reporting understand variances forecast of final cost and schedule Earned Value Management

9 WHAT IS EARNED VALUE MANAGMENT EVMS IS THE PRIMARY PROJECT MANAGEMENT TOOL THAT INTEGRATES THE TECHNICAL, SCHEDULE, AND COST OBJECTIVES OF THE CONTRACT OR WORK EFFORT

10 WHAT IS EARNED VALUE VALUE A Way To Measure How much work should be done? How much work was completed? How much did the work cost? How much is the job supposed to cost? What do we expect the job to cost A Way To Manage The best way known to integrate scope, schedules, Resources and risk management

11 EVM PROCESSES PLAN - The supplier establishes a system to control management processes An integrated baseline plan is established - work is defined, scheduled, and resources are allocated EXECUTE - Work and resources are driven down to lowest level for execution Budgets are earned as work is completed = EARNED VALUE CONTROL - The system is used to control changes to the baseline Status provided against baseline - schedule and cost variances are isolated - Problem assistance - early warning - corrective plans - Early insight provided into final estimated cost - Project manager uses EVMS data to manage and control

12 FIVE CORE PRINCIPLES Organize the project team and the scope of work, using a work breakdown structure. Each task should have a single WBS number and organizational code. Schedule the tasks in a logical manner so that lower level schedule elements support other elements and the top level milestones. Allocate the total budget resources to time-phased control accounts. Establish objective means for measuring work accomplishment. Budget should be earned in the same way that it was planned. Control the project by analyzing cost and performance variances, assessing final costs, developing corrective actions, and controlling changes to the integrated baseline.

13 Planning is is a 3 Step Process 1. DEFINE THE WORK AND ORGANIZE TEAMS CONTRACT BUDGET BASE 2. SCHEDULE THE WORK 3. ALLOCATE BUDGETS $ INTEGRATED BASELINE TIME

14 ESTABLISH OBJECTIVE MEASURES Earned Value techniques Discrete physical, tangible end product Apportioned discrete, dependent on another discrete work package example: quality assurance 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 no schedule variance example: management personnel Should be a quantitative and discrete way to measure the work May tie in with success criteria or technical measure e.g., successful completion of a specific test, reliability growth curve

15 FIVE BASIC PERFORMANCE DATA QUESTIONS & ANSWERS QUESTION ANSWER ACRONYM How much work should Budgeted Cost for BCWS be done? Work Scheduled How much work is done? Budgeted Cost for BCWP Work Performed How much did the is done Actual Cost of ACWP work cost? Work Performed What was the total job Budget at Completion BAC supposed to cost? What do we now expect the Estimate at Completion EAC total job to cost?

16 Schedule Variance BC WS BUDGET BASED BC WP of the work I scheduled to have done, how much did I budget for it to cost? of the work I actually performed, how much did I budget for it to cost? SCHEDULE VARIANCE is is the the difference between work work scheduled and and work work performed (expressed in in terms terms of of budget budget dollars) dollars) formula: SV SV $ = BCWP --BCWS example: SV SV = BCWP BCWP --BCWS BCWS = $1,000 $1, $2,000 $2,000 SV= -$1,000 (negative = behind behind schedule) SV= -$1,000

17 Cost Variance PERFORMANCE BASED BC WP AC WP of the work I actually performed, how much did I budget for it to cost? of the work I actually performed, how much did it actually cost? COST VARIANCE is is the the difference between budgeted cost cost and and actual actual cost cost formula: CV CV $ = BCWP --ACWP example: CV CV = BCWP BCWP --ACWP ACWP = $1,000 $1, $2,400 $2,400 CV= CV= -$1,400 (negative = cost cost overrun)

18 Variance at Completion (VAC) B AC E AC what the total job is supposed to cost what the total job is expected to cost VARIANCE AT AT COMPLETION is is the the difference between what what the the total total job job is is supposed to to cost cost and and what what the the total total job job is is now now expected to to cost. cost. FORMULA: VAC = BAC --EAC Example: VAC VAC = $5, $7,500 VAC VAC = -- $2,500 (negative = overrun)

19 WHAT WILL BE THE FINAL COST? Estimate at Completion (EAC) defined as actual cost to date + estimated cost of work remaining supplier develops comprehensive EAC at least annually reported by WBS in cost performance report customer should develop a range of independent EACs for comparison 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 ACWP + ETC = EAC

20 One method: statistical formulae Common EAC Formulae: EAC = BAC CPI = ACWPcum + Budgeted Cost of Work Remaining CPI3 = = ACWPcum + Budgeted Cost of Work Remaining.8(CPI) +.2(SPI) ACWPcum + Budgeted Cost of Work Remaining CPI * SPI

21 THE VALUE OF EARNED VALUE MANAGEMENT Early and accurate identification of trends and problems Accurate picture of project status Cost, schedule and technical Basis for course correction Supports mutual goals of supplier and customer Bring project in on schedule and cost

22 Why do we need EVMS? Course corrections are easier when you have time to make small adjustments It s too late when you re this close to the iceberg!

23 EARNED VALUE EVOLUTION Dept of Defense Instructions late Cost/Schedule Control Systems Criteria Financial Management Subculture Contractor Validation Procedures Evolution in Late 1990 s Value reaffirmed Industry Ownership Principles in Federal Policy Global Acceptance of EVM Application to DoD In-House Activities Enterprise-Wide Utilization Commercial Use

24 ANSI/EIA Earned Value Management Systems INDUSTRY DEVELOPED GUIDELINES FOR EVALUATION OF SUPPLIER S SYSTEM 32 Guidelines 1. Organization 2. Planning and Budgeting 3. Accounting 4. Analysis 5. Revisions and Access to Data Standard does not prescribe specific systems, software, or procedures, only general guidelines

25 INTERNATIONAL USERS AUSTRALIA CANADA JAPAN SWEDEN UNITED KINGDOM

26 REFERENCES INDUSTRY EVM STANDARD ANSI/EIA