RETURN TO ROME Dr. Kenneth F. Smith, PMP Project Management Fundamentals 1

Transcription

1 RETURN TO ROME Project Management Fundamentals 1

2 Work - Milestones Plan: MS 4 Four Day Rome Project S-Curve Work vs Time Actual vs. Plan MS 3 MS 2 MS 1 = Plan = Actual Cumulative Milestones Completed Time - Days Project Management Fundamentals Slide 2

3 Cost Plan: $4,000 Four Day Rome Project S-Curve Cost vs Time Actual vs. Plan $3,300 $3,000 = Plan $2,100 $2,000 $1,100 $1,000 $900 $1,000 $2,400 = Actual Cumulative Cost of completing Milestones $ Time -- Days) Slide 3

4 The Four Day ROME Project REVISITED with EVIE EARNED VALUE ANALYSIS Current Status (as of Day 3) 1. % Total Cost Incurred: 60% 2. % Total Project Work Completed: 50% 3. % Planned Work Completed to Date: 67% x 4. % Planned Cost Incurred to Date: 114% 114% for Work Done vs. 73% for Work Scheduled i.e. $2,400 / $2,100 not $2,400 / $3,300 AC / EV AC / PV Project Management Fundamentals Slide 4

5 Planned Cum Costs (BUDGET) S-CURVE TRANSFORM Cost vs. Work (Milestones) = EARNED VALUE Best Practice Integrated Review of Implementation Planned Cum Work (Milestones) Project Management Fundamentals 5

6 The Transform effectively shows the integrated relationship between successfully completed Work (i.e. Quality) and its Actual, as well as its Planned, Cost (Rather than in accordance with the original Planned Schedule & Budget) Project Management Fundamentals Slide 6

7 Cost Plan: $4,000 Four Day Rome Project with S-CURVE TRANSFORM of Actual Cost vs. Planned Work as of Day 3 $3,300 $3,000 $2,100 $2,000 $1,100 = Planned Value; $1,000 $1,000 & Cumulative $900 Earned Value for the Milestones $0 Completed 0 $2, Work (Milestones) Project Management Fundamentals = Actual Cost Cumulative Cost of completing Milestones Slide 7

8 Earned Value Analysis (EVA) Compared with Traditional Analysis Earned Value Analysis reveals that contrary to the Traditional Cost vs. Schedule S-Curve Instead of a cost savings, there is actually a COST Overrun for the Work Completed (i.e. the first two Milestones) Although all the budgeted funds for the period have not yet been spent the Project is currently both Behind Schedule & has a Cost Overrun Project Management Fundamentals Slide 8

9 VARIANCE & Graphics for Monitoring & Evaluating Project Performance OVERVIEW 9

10 % Variance from Target (Plan) EVA Control Chart Variance + 100% - 100% % Cost Variance = (EV AC) / EV % Schedule Variance = (EV PV) / PV Four Day Rome Project over budget 14% Cost - 9% Variance - 18% - 36% behind schedule Schedule Variance - 48% Projected Time Schedule Schedule Can track Both Schedule & Cost Variances over Project time Management on this Fundamentals chart Slide 10

11 EVA Control Chart Significant Points to Note: Cost TARGET (EV) &/or SCHEDULE plotted through the Center of the Chart Cost (AC) &/or Schedule (PV) VARIANCE (% Variance) on Y Axis Time-Series Tracking is on X Axis Trends can be visualized based on historic Data Project Management Fundamentals Slide 11

12 EVALUATING PERFORMANCE For Quality Control and Management Decisionmaking purposes during implementation monitoring, a more meaningful scale of gradations, or ratings -- rather than just simple percentages -- should be established on the control chart for various performance levels. 12

13 % Variance from Target EVALUATING PERFORMANCE A Control Chart Target Indicators: etc

14 % Variance from Standard Tolerances EVALUATING PERFORMANCE An Accept/Reject Quality Control Chart REJECT ACCEPT ACCEPT REJECT Target 14 Indicators: etc

15 % Variance from Target EVALUATING PERFORMANCE Management Decision-making Control Chart Indicators: etc Refer to Project Mgr Refer to Supervisor No action Necessary Target No action Necessary Refer to Supervisor Refer to Project Mgr

16 The key measure of performance is really the EARNED VALUE i.e. the Actual Cost of the Work successfully completed to date : compared to the Planned Cost for that same Work Regardless of when it was completed i.e. whether ahead of, behind, or in accordance with the planned schedule NOT the Burn Rate at which the budget for the Scheduled Work was Spent Project Management Fundamentals Slide 16

17 EVIE The EARNED VALUE concept provides a Different Perspective for analyzing project implementation performance Project Management Fundamentals Slide 17

18 Regardless of its Actual Cost Earned Value is merely The original estimated Cost to perform a Project Activity or Work Breakdown Structure Component When that work is completed Project Management Fundamentals Slide 18

19 Well... So What...? If The Earned Value is Greater Than the Actual Cost You got a Bargain i.e. a Cost Underrun, or Savings! If The Earned Value is the Same as the Actual Cost SoSo i.e. So Far, So Good, you are on Budget! If The Earned Value is Less Than the Actual Cost You re in Trouble i.e. you ve incurred a Cost Overrun! Project Management Fundamentals Slide 19

20 Earned Value is The original Cumulative Estimated Cost to perform Project Activity Work i.e. Work Breakdown Structure Packages, Components -- &/or to Reach Milestones When the work is completed Regardless of when originally scheduled, or the Actual Cost Project Management Fundamentals Slide 20

21 Earned Value Analysis (EVA) Compared with Traditional Analysis Earned Value Analysis reveals that contrary to the Traditional Cost vs. Schedule S-Curve There is actually a COST Overrun for the Work Completed (i.e. the first two Milestones) So the True Situation is that although all the budgeted funds for the period have not yet been spent, the Project is: Behind Schedule & has a Cost Overrun Project Management Fundamentals Slide 21

22 The Four Day ROME Project EARNED VALUE ANALYSIS Current Status (as of Day 3) End of Project Forecast: 1. Time: 1 Day Slippage 2. Cost: $571 Overrun * NOT $1,091 Savings or $300 Overrun, or SWAG *Consistently Derived by VAC (i.e. another Earned Value formula) VAC = BAC - BAC x AC EV Project Management Fundamentals Slide 22

23 Without an Analysis of Earned Value as shown by the S-Curve Transform the Traditional Perspective is inadequate, and even Misleading! Project Management Fundamentals Slide 23

24 Key EV Indicators Drivers Four Drivers : KEYS to Understanding Earned Value Analysis 1. PV = Planned Value [NOTE: Also known as the Budgeted Cost of Work Scheduled, BCWS or BS ] The Amount originally Planned to be Spent for the Work originally Scheduled to be Done to Date 2. AC = Actual Cost of Work Performed, ACWP or AP The Amount Actually Spent for the Work Actually Done to Date -- NOTE: Regardless Whether or Not it was Planned &/or Scheduled ACWP or AP 3. EV = Earned Value [NOTE: Also known as the Budgeted Cost of Work Performed, BCWP or BP ] The Original Amount Planned to be Spent for the Work Actually Done to Date [From PV: The Baseline Work Budget] 4. BAC = Budgeted Cost at Completion The Amount originally Planned to be Spent for the Total Project Project Management Fundamentals Slide 24

25 A Note & Caution RE Actual Cost Actual Cost (ACWP) for Earned Value is really only Estimated rather than Actual! Cost accruals by accounting departments occur at different times than activities - for which the cost was intended - were/are performed, or items procured. i.e. advances before, or payments following billings &/or invoicing for activities, and receipt of materials, equipment or services. Project Management Fundamentals 25

26 Consequently -- to preclude inadvertently exceeding their budget -- Project Managers should track their expenditures for subcontracts, consultants, purchased labor, goods and supplies, travel, per diems etc., as soon as they are allocated with intent to be incurred -- as well as the Project s estimated running Indirect Cost and the cumulative accrued total reported as their Actual Costs as of the reported time period. Project Management Fundamentals 26

27 Although the Project Manager s Estimated Actual Cost is also sometimes referred to as Approved or Accrued Actual Cost (AAC) I prefer to call it A Crude Actual Cost In any event, remember that Actual Cost reported by program & project managers in Earned Value Analysis is NOT the same as the financial manager s perspective of actual costs for any advances, invoices received &/or payments made (at a much later date) for goods acquired & services rendered. Project Management Fundamentals 27

28 EVM APPLICATION There is a systematic pattern in the relationship between These Four indicators: PV AC EV & BAC that provide a consistent, unified analysis of project performance, as well facilitating presentation of a Project s Implementation Status in familiar terms. Project Management Fundamentals Slide 28

29 EV vs Traditional Analysis An Example $3,300 Traditional Actual vs. Scheduled Cost Comparison $2,400 Traditional Analysis: Actual Costs to date were Less than Planned indicating a Cost UNDERRUN, but not whether the work was completed. Planned Value PV (i.e. the Budget for the Time period) Actual Cost AC to date Project Management Fundamentals Slide 29

30 EV vs Traditional Analysis An Example Traditional Analysis of 4 day ROME : Actual Costs to date were Less than Planned indicating a Cost Underrun. EVA s Analysis: 1. Spending Rate was slower than planned, but Traditional Actual vs. Scheduled Cost Comparison Actual Costs $3,300 for the work successfully completed were greater than planned Thus instead of an Underrun there is A Cost Overrun 2. Furthermore, since the Earned Value! is less than the Planned Value as of that time period, $2,400 this indicates that the Project is also Behind Schedule $2,100 EV Actual Cost for Work Completed vs. Planned Cost Comparison i.e. Budget regardless of the work plan schedule $3,300 $2,400 $2,100 Planned Value PV (i.e. the Budget for the Time period) Actual Cost AC to date Earned Value EV (Budget for the completed Work) Slide 30

31 EVA Analysis Another Example $410 $530 $440 EV Analysis: 1. Spending is greater than planned, and Actual Costs for the work successfully completed are also greater than planned i.e. A Cost Overrun. 2. However, since the Earned Value is also Greater than the Planned Value as of that date, this indicates that the Project is Ahead of Schedule Planned Value PV (Budget for the Time period) Actual Cost AC Earned Value EV (Budget for the completed Job) Project Management Fundamentals Slide 31

32 EVM INNOVATION II During implementation Thirteen (13) different Combinations* of PV AC & EV. are possible Reflecting 13 different Performance Status Conditions * Technical Note: Derived from 25 or 27 Permutations (i.e. 1 x 5 x 5 or 3 x 3 x 3) See Appendix Project Management Fundamentals Slide 32

33 Unfortunately, Traditional Time & Cost Monitoring systems DO NOT analyze and report project status systematically in terms of these 13 possible scenarios -- even though the information already exists. Consequently, erroneous management decisions can be -- and often are -- made. Project Management Fundamentals Slide 33

34 HOWEVER, You Can...! The characteristics of these Thirteen different combinations Can be rank-ordered and color-coded from 1 (High) to 13 (Low) To create an overall Integrated Project Performance Index (PPI) Project Management Fundamentals Slide 34

35 Project Performance Index (PPI)* & Traffic Light System (TLS)* for Quick & Easy Application of Earned Value Project Management Fundamentals Slide 35

36 Of these Thirteen Project Status Conditions: 6 are Good for each indicator 4 are Mixed (i.e. good & bad ), and 3 are Bad for all indicators Project Management Fundamentals Slide 36

37 Possible States of Project Implementation PV AC EV PV AC EV Target In terms of PV AC & EV PV AC EV The Constellation Combinations Project Management Fundamentals Slide 37

38 Project Performance [Index] Planned Value PV Actual Cost AC Earned Value EV [Index] PROJECT STATUS CONDITION 1 $100 $80 $120 Good. Work ahead of schedule & with cost savings on work done, as well as an apparent cost under-run on the budget. 2 $100 $100 $120 Good. Work is ahead of schedule, with cost savings even though the budget has been spent as planned. 3 $100 $80 $100 Good. Work is on schedule, with cost savings. 4 $100 $120 $140 Good. Work is ahead of schedule, with costs savings. [But may have a cash flow problem if funds are released incrementally.] 5 $100 $120 $120 Good. Work is ahead of schedule, with costs as planned for work done. [But may have a cash flow problem if funds are released incrementally.] 6 $100 $100 $100 Ideal. Everything going according to plan On Schedule & Spending. [Extremely Rare!] 7 $100 $60 $80 Mixed Good & Bad. Saving money on the work performed; but work is behind schedule. Project Management Fundamentals Slide 38

39 Project Perform - ance [Index] Planned Value PV Actual Cost AC Earned Value EV [Index] PROJECT STATUS CONDITION 7 $100 $60 $80 Mixed Good & Bad. Saving money on the work performed; but work is behind schedule. 8 $100 $120 $100 Mixed Good & Bad. Work on schedule, but cost overrun incurred. [May have a cash flow problem if funds are released incrementally.] 9 $100 $80 $80 Mixed Good & Bad. Spending as planned; but work is behind schedule. 10 $100 $140 $120 Mixed Good & Bad. Work ahead of schedule, but a cost overrun has been incurred. [May have a cash flow problem if funds released incrementally.] 11 $100 $80 $60 BAD. Spending is slower than planned, but the Value is low indicating a cost overrun; and the work is also behind schedule. 12 $100 $100 $80 BAD. Although the spending rate is as planned, since the Value is low, there is a cost overrun; and the work is also behind schedule. 13 $100 $120 $80 BAD. Work behind schedule, cost overrun [and possible cash flow problem.] Project Management Fundamentals Slide 39

40 1. PPI & TRAFFIC LIGHT SYSTEM QUICK & EASY TEMPLATE for monitoring INTEGRATED PROJECT PERFORMANCE STATUS Project Management Fundamentals Slide 40

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42 2. EVA SOFTWARE for monitoring INTEGRATED PROJECT PERFORMANCE STATUS Project Management Fundamentals Slide 42

43 Monitoring the Triple Threat with EVA-2006 Calculating all the foregoing Earned Value Indicators manually for various status situations and preparing the related charts is laborious, time-consuming, as well as prone to error. However, I have developed a software program (in a Project Management Toolkit ) that calculates these EVA indicators and draws related charts and graphs. The Tool Kit is available from: Project Management Fundamentals Slide 43

44 2. Automated Early Warning Traffic Light System To facilitate both computation and analysis I had Software developed to: 1. Calculate all the other 16 EV indicators from the four basic Drivers 2. Display the Performance Index results in Color -- with Icons & a summary explanation 3. Together with several supporting graphics and an Executive Summary Project Management Fundamentals Slide 44

45 EVA-2006 Software* Accepts project plan & implementation driver data [activity/milestone work schedule & cost] Then calculates: Monetary data in two (2) different currencies Eighteen (18) key Earned Value Performance indicators Assesses the Project Status Condition on a 13- point scale, & a color-coded Traffic Light system as either Good Mixed or Bad Provides an Executive Summary for briefings with several supporting graphics [See EVA PPI & Traffic Light in my Project Management Tool Kit ] *Programmed by BLASTASIA Slide 45

46 Project Management Fundamentals Slide 46

47 Monitoring the Triple Threat Three (3) BAD States Planned Cost of Work Scheduled PPI - Project Performance Index Current Project Status: Condition Work Being Completed Behind Schedule 2. Positive Cash Flow Actual Cost of Work Performed 3. Cost Overrun Incurred on the Work Done Earned Value of Work Performed $3,300 $2,400 $2,100 Project Management Fundamentals Slide 47

48 EVA Quadra-Graph Project Implementation Summary COST VARIANCE 100% Under Budget 0% Over Budget Current Status 100% 0% Behind Ahead 100% SCHEDULE Project Management VARIANCE Fundamentals Slide 48

49 EXECUTIVE SUMMARY ANALYSIS Automatically computed: The Project s Present Status Condition is PPI 11: BAD The Project is 53% Complete (%CS), and is 36% Behind Schedule (%CV) At current trends, the project is now estimated to complete on 20-Aug-2016 (ECD) US$2,171 will be needed to complete the project (ETC) For a total of US$4,671 (EAC) This represents a Cost Overrun of US$571 (VAC) Project Management Fundamentals Project Management Fundamentals Slide 49

50 EVA SOFTWARE DEMONSTRATIONS Project Management Fundamentals Slide 50

51 3. PIMS QUICK & EASY TEMPLATE for Recording, Tracking, Monitoring & Analyzing INTEGRATED PROJECT PERFORMANCE STATUS Project Management Fundamentals Slide 51

52 ROJECT ID: PROJECT INTEGRATED MONITORING SYSTEM (PIMS) -- WORK, BUDGET & COST PERFORMANCE For Projects up to One Hundred (100) Months duration with Milestone %s, Physical & Financial S-Curves, Control Chart Variance, Earned Value Histogram, S- Curve Transform & PPIndex Sample Demonstration Planned MON Indirect Overhead Project Duration: 7 THS OK Rate: 25% 2014, Dr. Kenneth F. Smith, PMP INSTRUCTIONS FOR USE. On initial use, first Delete all the data in the Three yellow cells above, and the cell & Four yellow Rows in the table below. Then enter YOUR PLAN, & ACTUAL Data in the yellow cells, and immediately view the Analyzed results in the table, graphs and chart below. YEAR 1 YEAR MONTHS Jan-15 Feb-15 Mar- 15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 ilestones nned (POW) umulative estones Plan ect Planned ost / Mo direct Cost allocated] ct + Indirect OH Cost umulative ct + Indirect OH ulative MS PLAN Sep- 15 V=BCWS ulative Cost $6 $10 $19 $26 $34 $39 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 PLAN ctual Cost AC+OH 2013 Dr. $7 Kenneth $8 F. $1 Smith, $4 PMP $10 $3 Project Management Fundamentals 52 umulative $7 $15 $16 $20 $30 $33 $33 $33 $33 $33 $33 $33 $33 $33 $33 $33 $33 $33 $33 $33 Oct- 15 Nov- 15 Dec-15 Jan-16 Feb-16 Mar- 16 Apr-16 May- 16 Jun-16 Jul-16 Aug $5 $3 $8 $5 $7 $4 $1 $1 $1 $1 $1 $1 $1 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $6 $4 $9 $6 $8 $5 $1 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $6 $10 $19 $26 $34 $39 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $

53 ANALYSIS Percent Complete On, Ahead or Behind Schedule On, Over or Under Budget 14% 14% 43% 43% 57% 71% 71% Project Performance Index (PPI) PPI Key: 1 through 6 = GOOD EV = BCWP "Earned Value" $6 $6 $10 $10 $19 $26 $26 Running Budget Variance from Plan 14% 46% -18% -22% -11% -15% -18% Work Schedule Variance from Plan 0% -40% -47% -60% -42% -34% -36% True Cost Variance from Plan 14% 144% 56% 94% 54% 29% 29% Project Management Fundamentals 53