This topic does not fit the background of this class very well but it is one of the essential things we need to discuss in this class. Most of these articles cover the basics of EVM and should be able to give you glimpse of what EVM is and its applications.
This week’s required reading is Article 10, Earned Value Management - Why Am I Being Forced to Do It?, by Ursula Kuehn, EVP. It is a step by step guide for EVM implementation, using a small project as an example. Articles 4, 6, and 11 also fit in the category of basic introduction, but with different flavors. Article 4 is an earlier overview of EVM, with colorful language. Article 6 provides some historical perspectives on the subject and explains where the concept of EVM was from. Article 11 explains the terminology very well, thus ABCs in the title.
If you are interested in the practical side, read Articles 2, 3, 8, and 9. Articles 2 and 3 focus on “small projects”. Note how they define small projects. Article 8 represents standard practices on EPC project. I had to include Article 9 because it is about how military projects are tracked and audited.
The rest are special topics. Article 12 is about how EVM could be beneficial to fixed-price contract. For the architects, you might be interested in progress measurement in design and how EVM fits in. Read Articles 1 and 5 for this. EVM is a critical tool for forecasting. Read Article 7 about this.
- System for Establishing Drawing Status, John G. Koval, CCE, AACE Transactions, 1981
- Application of a Manual Earned Value System for Small Engineering Projects, John Canepari; M. J. Varrone, PE, AACE Transactions, 1985
- EV - Not Only for Large Projects, Walter F. Adamczyk, PE, AACE Transactions, 1989
- Understanding the Value of Earned Value or Where Have All Your Dollars Gone?, Lee R. Lambert, AACE Transactions, H.2, 1989
- Applying Earned Value Procedure to Engineering Management, Mark T. Chen, AACE Transactions, 1991
- The Essence and Evolution of Earned Value, Quentin W. Fleming; Joel M. Koppelman, AACE Transactions, 1994
- Going for the Goal, Forecasting, Joseph M. Brown, CCC, AACE Transactions, 1996
- Practical EVMS for an EPC Project, Tetsuya Yonezawa, CCE, AACE International Transactions, CSC.18, 2005
- EVMS Internal and DCAA Audit Recommendations, Sean T. Regan, CCE, AACE International Transactions, EVM.03, 2006
- Earned Value Management - Why Am I Being Forced to Do It?, Ursula Kuehn, EVP, AACE International Transactions, EVM.05, 2007
- The ABCs of Earned Value Application, Mark T. Chen, PE CCE, AACE International Transactions, EVM.03, 2008
- Earned Value on Fixed-Price Projects, Carol J. Christensen-Day, EVP PSP, AACE International Transactions, EVM.S02, 2010
Earned Value Management – Why Am I Being Forced to Do IT?: I enjoyed the analogy of a performance measurement baseline to a flight plan in that the pilot is usually not directly on the plan, other than at takeoff and landing, but he is always close to the flight plan; or if pulled far off course, another plan can be created to get him back close to the flight plan (baseline) to end up at the correct destination (on budget). The basic tools involved in this involve way too many acronyms for those of us acronym challenged, but two of the most important are SPI (Scheduled Performance Index) and CPI (Cost Performance Index). The formula for predicting the actual total project costs will be on a given baseline, “if things do not change,” is called the EAC (Estimate at Completion).
ReplyDeleteThis analysis would only be cost effective for projects of sufficient size and scope to make it economically viable in estimated cost savings for a given project. At what point is not easy to determine, but I would think any large ($1,000,000+) project would make sense. Essentially, a balanced “triple constraint” must be established. The team would need to create a Work Breakdown Structure (my favorite class epiphany) to perform this process. As appropriate in most any project, this is a good way to see what is actually involved in doing a given job. The costs and time frame of all the parts would then need to be agreed upon by all stakeholders. This would establish a Budget at Completion “BAC”, which is essentially our “destination” in the flight plan analogy.
All of the work packages, which each have a budget, then allow us to form a budget line throughout the project process to gauge our status with reference to where we are supposed to be. The Scheduled Performance Index “SPI” is simply the Earned Value “EV” (based on what has actually been completed per original budget value) divided by the Planned Value “PV” (what it was expected to cost at that point). If this number is less than 1, the job is over budget: if it is more than 1, the job is under budget. The Cost Performance Index “CPI” is simply the Earned Value “EV” (based on what has actually been completed per original budget value) divided by the Actual Cost of Work Performed “ACWP”. Using these indexes, at any given time allows a clear picture of the variance of the budgeted cost of a project to what it is actually costing. This gives all parties a great tool during the construction process to decide on how to rectify the budget issues, as opposed to being surprised at the time of (or near) completion. I was very surprised however at the extremely wide variance of the Estimate at Completion “EAC” formulas. For the example given, depending on the formula which was used, the results would indicate the total completed job being anywhere from about 8% over budgeted cost to nearly double. I did not understand how these can have much validity with so great a variance.
Earned Value Management – Why AM I Being forced to DO It?, Ursula Kuehn, EVP
ReplyDeleteThis article defines “Earned Value Management”, the process to establish the parameter and the process to use it. While reading this article, I found some of the wording a bit difficult to read.
The author establishes 10 steps in the earned value management technique.
• Define the Scope – WBS: this is an important step in understanding the scope of the project. I think the analogy of “peeling an onion” is very helpful in understanding the purpose of a WBS. The author uses the term “deliverable oriented WBS.
• Determine who will perform the work and cost: The author does not say anything about defining “who will perform the work?” She spends time in this step discussing a “triple constraint” (scope to budget to time). I am not clear how this equates to who might perform the work?
• Plan and Schedule: Schedule using a variety of techniques.
• Control: This is the step in which you establish the items to use in the calculations.
• Budgets: This step you finalize and commit to the individual item budgets. At this point in the process the performance measurement base-line is established. This also sets up the total for the PMB. Also known and the budget at completion. This number is going to be used throughout the calculations of the earned value.
• Control Metrics: This step lets you establish the data to be used in calculation for percent complete. This data can be general rules, actual percentages milestones or an effort based number.
• Record Actual: during this step you record the actual costs (AC) of the WBS.
• Measure Performance: In this step there are two types of performance to be measured individual and project. The basic values used in the next step are calculated. The earned value (EV), planned value (PV), actual cost (AC) and budget at completion (BAC) are all collected during these calculations.
• Forecast: The values collected during the previous step are used to perform forecasts to let the project manager know how well the project is performing. The schedule variance (SV) and the cost variance (CV) are calculated using the previous values. The variances will be obtained as a positive or negative number. A positive number for the SV means the project is ahead of schedule and CV the project is under budget. Negative numbers mean the opposite. Having these variances allow the project manager to calculate the schedule performance index (SPI) and the cost performance index (CPI). These two indexes are aligned. When they are positive the project is ahead of schedule and below budget. By establishing an acceptable limits where the indexes are allowed to fluctuate between
• Manage Change: Having the data generated from steps 8 & 9 will allow the project manager to make the necessary adjustments to the project, if necessary.
The indexes are the most useful part of all of this information. They are relative to the size of the project and offer the quickest insight into the health of the project. If these indexes are outside of the established limits, the project manager can dig deeper into the numbers and determine the proper changes to make to the project.
The ABC’s of Earned Value Application, Mark T. Chen, PE CCE
ReplyDeleteThis article explains some portions of the EARNED Value Management system (EVMS) well. The EVMS is designed to answer the question “What did I get for what I spent?” The author does a good job of explaining the basic concepts and benefits from an EVMS, but leaves several references under explained.
The three basic variables are Planned (PV), Earned Value (EV) and Actual Costs (AC). All of the other calculations are based on these three values. These values should be easily discernible from the projects record keeping, schedule and accounting systems. Using this information the project management can learn the schedule variance (SV), Cost Variance (CV) and the budget Variance (BV). These variances will indicate the health of the project. After obtaining these variances, the project management can determine the Estimate to Complete (ETC) and the Estimate at Complete (EAC). These two estimates provide extremely valuable information to the project management as to how to make adjustments to the project resources. Figure 2 – simplified EVMS Process is a very easy to understand diagram.
There are two terms used that I do not understand, Time-Phased schedule of values and Quantifier production. The first term “time-phased schedule of values is defined as a prerequisite for and EVMS. The term “quantifier production” is used in the sentence “these tasks are usually estimated and budgeted on bulk allocations of dollars and work hours rather than on the basis of quantifier production.” I need a little help in understanding this statement.
Overall this article provides a little more clarity on the EVMS.
Earned Value Management – Why I Am I Being Forced to Do It? By Ursula Kuehn, EVP is a good introduction into the importance of this aspect of project controls that you can follow in 10 steps. This article probably has the shortest conclusion of any of the articles so far, “Because earned value management is just basic good project management.” Short and sweet!
ReplyDeleteEarly on in the article I was wondering where she was going with this, because a lot of time was spent on the pond analogy and its related Work Breakdown structure (WBS). It is a plus to read some additional stuff about WBS which once again seems an extremely important aspect of scheduling. The figures of the PDM and The Performance Measurement Baseline chart were beneficial to see. If she did not provide all of the figures I probably would have been lost. Thankfully the pond analogy turned into a fairly reasonable, laymen like explanation of earned value methodology that I can hopefully use later on in life if I am ever faced with doing calculations of this sort.
However, this information would be more helpful and make more sense to me if I had previous project exposure to it. I guess a comparison would be certain aspects of Architecture seemed difficult to grasp in undergraduate or early on in my career while today some of these same ideas are easy to grasp and makes me kind of laugh today why I struggled with them early on. I guess if I was working with all of these terms on a daily, weekly, or monthly basis it would be second nature by now. These terms are:
• Performance measurement baseline (PMB)
• Budget at completion (BAC)
• Actual cost (AC)
• Actual cost of work performed (ACWP)
• Planned value (PV),
• Budgeted cost of work scheduled (BCWS)
• Earned value (EV)
• Budgeted cost of work performed (BCWP)
• Cost variance (CV)
• Schedule variance (SV)
• Schedule performance index (SPI)
• Cost performance index (CPI)
I would found myself continually flipping back to the previous pages to recall what the abbreviation stands for the first time through.
My introduction to these ideas or topic was last summer for the prerequisite course I took.
An excerpt from that assignment that I find very relevant with this week’s topic is:
EV analysis is budget driven and scheduling updating focuses on the critical path without regard to monetary issues. These two items may yield conflicting results where schedule variance (SV) is positive and scheduling updating may show the project is behind (Mubarak 185).
Table 2 confused me, and still may by class time, under % comp. for Task B, C, and D. Task B appears to be 50% in Figure 8 by Day 10 but shows up as 25% complete in Table 2? Task C appears to be complete by Day 10 on Figure 8 but is only 75% complete in Table 2? A similar thing appears to be happening with Task D? Is this a typo or me not fully grasping the concept?
The authors point about performance indicators are relative to the size of the project is well taken based on her example until she mentions Figure 12 with the blue numbers. This is obviously my inexperience because I am not seeing where she is getting them from? At least I recognize anything between .90 and 1.10 is respectable and in control.
I can only imagine how complicated these calculations could get with a huge project and hundreds of tasks on the WBS. What happens on a project like the Big Dig in Boston for instance? Can EVM be incorporated into BIM?
DS
Part 1:
ReplyDeleteThe ABCs of Earned Value Application by Mark T. Chen, PE CCE is a good article for the beginner, that’s me or for someone looking for a refresher. This article grows on the required article and allowed me to start to get more comfortable with the overall concept of Earned Value Management. Industrial engineers were first to use this in the 1800’s to measure performance on the factory floor and then onto the government using in starting in the 1960’s.
EVM answers the simply question of, “What did I receive for what I spent?” The two most common denominators used in EVM are monetary and human resources (work-hours). The traditional cost management uses two-variables approach to related actual and planned cost while earned value adds a third variable earned value to measure actual accomplishment.
What this author did more effective than Kuehn from the Required Article is to use a Table to show the three variables, planned, earned and actual. (Unfortunately you can not copy paste a Table from MS Word into this blog), so right below this looks more jumbled up)
Planned, PV, Planned Value, BCWS, Budgeted Costs Work Scheduled, Baseline/planned cost for work scheduled to be finished
Earned, EV, Earned Value, BCWP, Budgeted Costs Work Performed, Costs of work finished expressed in budget term
Actual, AC, Actual Costs, ACWP, Actual Costs Work Performed, Costs incurred on work you have already finished
From the table(pretend a Table is above) above you can start to analyze variances or performance indices and to forecast estimate to complete (ETC) and estimate at complete (EAC).
Chen mentions Cost/schedule control system criteria (C/SCSC) that is a term that I do not recall from the required article this week or have heard before.
The authors figure 2 - Simplified EVMS process is easy to understand graphic that is beneficial at least for me to see basic variables, analysis/calculation, and forecast/risk management. All three basic variables must be in the same unit, money ($) or work hours (WH).
I found this be an important tidbit of information #1: “Engineering progress is linked to the deliverable packages, which are closely related to the engineering effort measured in WH. Many projects select WH as the basis to measure engineering earned value [2]. The selection of $ vs. WH is also influenced by the data available from the chosen contract style (i.e., lump sum vs. cost reimbursable). It is essential to determine the project preferred contract style, and select the appropriate unit ($ or WH) in EVMS” (EVM.03.3).
His explanation of performance variance is more or less the same as Kuehn’s. For me the more I read new information the more likely I might remember it in the future or know where to look for it.
• SV (Schedule Variance) = Earned–Planned = EV–PV
Part 2:
ReplyDeleteInteresting Tidbit #2: “A positive SV indicates the work is accomplished more favorably than the original plan. However, this does not always imply the project is ahead of schedule. When EVMS is combined with the critical path method (CPM) schedule, the true project schedule status is revealed. A project could devote excessive resources to accomplish noncritical path activities with a resultant positive SV while critical path activities fall behind unknowingly” (EVM.03.3).
• CV (Cost Variance) = Earned–Actual = EV–AC
Interesting Tidbit #3: Cost overruns are generally more serious than being late to the planned schedule, only because the schedule might be recovered using crashing technique. However, the cost overruns are rarely (if ever) fully recovered” (EVM.03.3).
Based on my memory of crash technique and looking at some notes from last year, if you happen to be behind in the schedule and are incurring cost overruns, crashing the schedule may work but at some point the direct and indirect costs start to add up to where your cost overruns become even more?
Interesting Tidbit #4: Schedule and cost variances are meaningful to a given project since they reflect the deviation magnitude applicable to that project only. They are not suitable for comparing against the performance of another project. I guess collecting historical SPI and CPI analysis are not possible like one might do for estimating?
The Schedule and cost performance index equations SPI= EV/PV and CPI= EV/PV are explained just as well as in Kuehn’s article. The section that goes into forecasting costs and managing risks probably makes more sense now, with one exception, having the Kuehn article laying the ground work. Reminder: Estimate at completion (EAC), budget at completion (BAC)
• Low EAC = BAC/CPI (Kuehn’s simple way)
• High EAC = BAC/(CPI x SPI)
• EAC=AC + ((BAC-EV)/(CPI x SPI)) (Kuehn’s more complex way - why the difference?)
Interesting Tidbit #5: “Earned value analysis is a backward-looking tool based on past performance [7]. When combined with trending analysis and above EAC forecast, it becomes a valuable forward-looking tool as well” (EVM.03.5).
• Low ETC = (BAC-Earned)/CPI
• High ETC = (BAC-Earned)/(CPI x SPI)
To be honest I am not sure how Chen obtained the cumulative earned and actual values of $368,000 and $460,000?
I guess it is helpful to know that Chapter 14 of the AACE International Skills & Knowledge of Cost Engineering 5th edition defines six different methods to measure progress. These are:
• unit completed*;
• incremental milestone*;
• start/finish;
• supervisor opinion;
• cost ratio*; and
• weighted or equivalent units.
* indicates methods Chen says are most used
Towards the end of this article Chen mentions a paper called Cost–Time–Risk Diagram: Project Planning and Management which is a new concept. “CTR is a diagram that illustrates current project cost and time performance status associated with evaluated risks. It represents an advanced graphical analysis of earned value management similar to a project health-monitoring map. The diagram also provides risky and healthy cost/schedule boundaries at each period of time during the project life cycle” (EVM.03.7).
I agree with his conclusion, “The modern EVMS has become a simple and effective tool to detect early warning signs and contain project risks. Bad news never gets better with time. The earlier you sense the problem, the better chance you will have to mitigate the problem” (EVM.03.7).
DS
Steve Nellis
ReplyDeletePage one of two
Required reading: Earned Value Management: Why am I Being Forced to do it.
This article introduces the concept of Earned Value Management (EVM). I will describe this process using my understanding of the article.
By using the tools and the techniques of EVM it allows a project team to identify the control areas around a baseline of performance for the project. It then identifies the positive and negative sides of the baseline in an effort to keep the project online. The author then identifies each step of the process.
Step One: Defined the project scope via a work breakdown structure.
In this step, we are introduced to the WBS term again as a method to manage the overall process of the EVM. The whole point of the WBS, and this point in the EVM structure, is to identify anything that may take time, and since time is money, it helps to determine if we can really afford to do the project within the budget. Decisions are made as to the number of individual WBS projects and if there are too many, which ones can be eliminated while still producing the goals of the project.
Step Two: Determine who will perform the work and what it might cost.
Basically, this step is to balance the scope of the work to the budget for the project before the work identification is complete.
Step Three: Plan and Schedule the Defined Work for the Agreed Scope
Once the work is known that will produce the agreed upon final product, the schedule must then be completed.
Step Four: Determine the Points of Management Control
This step will identify the points during the life cycle of the project of when data will be analyzed.
Step Five: Authorize Budgets for the Baselines Plan
Now that the scope has been agreed upon, the costs and scheduling are turned in to determine the budget. Then the performance baseline measurement (PMB) can be established. The PMB is an accumulation of the individual budgets for each work package over the period of time. The final data point is called the budget at completion (BAC) and will be the data point used in the earned value analysis.
Step Six: Define metrics to measure the performance of work within each control point
This step just simply describes the metrics used to measure the work.
Step Seven: Record the actual costs of the work.
There are two new terms presented here: the actual cost (AC0 which is also known as the actual cost of work performed (ACWP). These are easily captured by basic “bean counting” – adding up the total amount of money expended for the work performed.
Steve Nellis
ReplyDeletepage 2 of 2
Step Eight: Measure the performance and determine the project performance.
In this step the author introduces many new terms / acronyms that are used to provide metrics in the EVM. She introduces the Performance Measurement Baseline (PMB) which is a line graph that shows the amount of planned expenditures over the planned schedule of time for the duration of the project. She also introduces cost variance, schedule variance and how these two metrics are identified in the PMB. There are several other key concepts that are used in evaluating the EVM tool and also tolerances are suggested for identifying areas for improvement of the performance of the project.
Step Nine: Forecasting the future performance.
The author identifies ways to utilize the key points / metrics as an aid to forecast the future performance of the project.
Step Ten: Manage change to the agreed upon baseline
The baseline never changes once it has been established unless a formal change process has taken place. The change process needs to include an agreement by the customer and the project team, forms documenting the change, a team to analyze the change, a governing board, the new budget and time approved for the changes and a rebaselining of the replan. In my opinion, this is a very bureaucratic process that in itself will add time and costs to the project which will need to be incorporated into the changes of the baseline.
Overall, the concepts of EVM make sense for very large projects that consume large quantities of costs and time. However, I do not really see the need for such a cumbersome process in the high-production home building operations. A case could be made that we would use this concept for some of our larger land development projects, but other than that, this concept doesn’t makes sense for the normal home building operations of selling and building houses.
The ABCs of Earned Value Application: As the name implies, this article gives a logical and straightforward definition of what the Earned Value Management System is. The core reason for needing such a system is the fact that during a construction project with a budget in place, it is not possible to know if you are on budget based on costs incurred up to a certain point. In the residential home building arena, I learned the hard way a long time ago that the cost of a given project may have little to do with the actual market value of that project. Per the author’s analogy, if a project is budgeted to cost $5,000,000 and 50% of the money has been spent, this may or may not have any relation to whether or not 50% of the job is complete. Thus the term, “Earned Value”, which quantifies what value has been received or “value earned” on a given project relative to the initial budget. In this way actual value can be measured and then compared to what actual costs have been.
ReplyDeleteThe three primary variables in this system are:
• PV – Planned Value or BCWS –Budgeted Costs of Work Scheduled
• EV – Earned Value or BCWP – Budgeted Costs of Work Performed
• AC – Actual Cost or ACWP – Actual Costs of Work Performed
All of the other performance indices and variances are derived from these three basic variables. This is essentially the same information as our required reading - it just took me a while to connect the dots……
Response to Why I am being forced to do it:
ReplyDeleteOverall I found this article to be informative on different calculations used to measure where a project stands in terms of budget and schedule. Before reading this article I had never heard of the “triple constraint” which is detrimental to developing and understanding of the earned value concept. The earned value management tool is a new way of project management to me which, based on the formulas given is a statistical way of predicting the outcome of a project as well as being able to compare it to other project indirectly in terms of performance, schedule and scope.
I also found it very useful the graphical representation of the PMB ( Performance Measurement Baseline) which gave me a visual representation of the results of the calculations. I personally grasp concepts better with visual rather than spoken other methods.
While I am still trying to absorb the concepts presented in this article I have been enlightened with new vocabulary which will only diversify my project management capabilities even more. By statistically being able to predict the performance of a project problem or the natural trend can be monitored and corrected if needed which, I believe to be the advantage of using earned value analysis.
Response to 1989 understanding the value of earned value:
ReplyDeleteBeing that I have had no real practical experience with earned value I at times during the required article found myself flipping back and forth looking up certain vocabulary terms and abbreviations. I chose to read this article to gain the basic background and general idea to build a solid foundation to start from. Basically there are three key factors in developing a earned value analysis. BCWS (Budgeted Cost of Work Scheduled), BCWP (Budgeted Cost of Work Performed) and ACWP (Actual Cost of Work Performed). I have to agree with the author that the trend analysis, cash flow etc. are all powerful tool in managing a project but the comfort zone of the analyzer needs to be established and familiarized before going into to much detail as to avoid confusion. Overall this article gave me guidance as how to adopt the earn value method of project management in manageable increments because the first article was a little intimidating with all of the equations.