EPM 2193 Monitoring and Controlling Project Requirements

Monitoring and Controlling

Project Requirements
EPM 2193: Monitoring and Controlling Project Requirements
Day 4, Unit 4
UNIT 4 – Earned Value Management
 EPM 2193 Monitoring and Controlling Project Requirements

Done, Doing, To Be Done and Impediments

For a team to accomplish their goal, everybody's got to give up a little bit of their individuality – Bill Belichick

Good teams become great ones when the members trust each other enough to surrender the Me for the We

– Phil Jackson
• Done: Unit 3

• Doing: Unit 4 – Earned Value Management (EVM)

• To Be Done: 8 Units
 EPM 2193 Monitoring and Controlling Project Requirements

UNIT 4 - Earned Value Management

Guidance and recommendations for the application of earned value management and forecasting
• Earned value (EV): a technique that project management practitioners have developed to measure
project performance and progress based on a combination of schedule, costs, and work performed
with a focus on early warning of trends in either of these areas
• Earned Value Management (EVM): A management methodology for integrating scope, schedule
and resources, and for objectively measuring project performance and progress
• PMBOK 7.4.2.2 - EVM (or EVA - Earned Value Analysis) is a data analysis technique that can be used to
control costs. It compares the performance measurement baseline to the actual schedule and cost
performance.

• Performance is measured by determining the budgeted cost of work performed (i.e., earned value) and
comparing it to the actual cost of work performed (i.e., actual cost). Progress is measured by comparing the
earned value to the planned value

• Project Managers (PMs) can use earned value management as one tool to monitor progress and to
develop cost and schedule forecasts for active projects
 EPM 2193 Monitoring and Controlling Project Requirements

Implementing EVM
• First PM must make a detailed plan of both time and budget, then make a corresponding detailed
valuation of the work on the project before it starts.
• PM must assess, as project progresses, at predetermined reporting periods and earning rules
• (1) how much value should have been achieved according to the plan,

• (2) how much value has been produced and

• (3) how much money has been spent.

• These three assessments form the basis for all earned value analysis techniques. With a few simple calculations,
a PM can easily determine the project’s health in terms of both cost and schedule and use these data to
forecast project trends

• The PM must be aware that earned value management is just one project management technique. To
maximize its benefit, corrective action must be taken to address potential issues as they are identified.
In other words, earned value management will help identify problems, but the PM must solve them.
 EPM 2193 Monitoring and Controlling Project Requirements

Earned Value Management Basics

• Key earned value management elements according to PMI:

• Planned Value (PV) – The authorized budget assigned to the scheduled work to be accomplished for a
schedule activity or work breakdown structure component
• This is the time-phased spending (aging of dollars) plan (cost and schedule) and is comprised of engineering,
right-of-way, construction and other estimated costs. Establishing the planned value includes development of
“earning rules” for each Control Account. In other words, assign a value to the completion of each work task.
There are many acceptable methods of establishing earning rules, but the key is to use them consistently from
the start to finish of the project and ensure that they are as objective as possible
• Earned Value (EV) – The value of work performed expressed in terms of the budget assigned to that
work for a schedule activity or work breakdown structure component
• This is the key measure of the earned value management technique and requires the project team to
determine the progress made on a task based upon the pre-established earning rules. The team would
determine the percent complete for the task, and apply that percentage to the planned value (budget) for the
task to get a dollar value for the work completed. EV = % complete X PV
• Actual Cost (AC) – Total costs actually incurred and recorded in accomplishing work performed for a
schedule activity or work breakdown structure component
• Actual costs include amounts paid to outside agencies, consultants and contractors as well as in-house labor
and expenses. The application of earned value management requires the ability to capture actual costs (or a
reasonable estimate of actual costs) for the performance period. It is imperative that actual costs and earned
value are based upon the same status data date to ensure a reliable evaluation
 EPM 2193 Monitoring and Controlling Project Requirements

Earned Value Management Basics (Continued)

• Cost Variance (CV) - measure of cost performance on a project. It is the algebraic difference between
earned value (EV) and actual costs (AC). CV = EV – AC.
• A positive value indicates a favorable condition and a negative value indicates an unfavorable condition
• CV indicates whether actual project expenditures are exceeding the planned amount for the corresponding
value achieved, i.e. is more OR less spent than planned to achieve a defined level of progress?
• Cost Performance Index (CPI) – A measure of cost efficiency on a project. CPI = EV / AC
• It is a ratio of earned value (EV) to actual costs (AC).
• A value equal to or greater than one indicates a favorable condition and a value less than one indicates an
unfavorable condition
• CV tells the PM if costs are being expended efficiently. In other words, are we getting more, less or the
planned value for actual amounts spent?
• Schedule Variance (SV) – A measure of schedule performance on a project). SV = EV – P V
• It is the algebraic difference between the earned value (EV) and the planned value (PV)
• SV tells the PM if the actual progress achieved is ahead of or behind the baseline schedule
• Schedule Performance Index (SPI) – A measure of schedule efficiency on a project. SPI = EV / PV
• It is the ratio of earned value (EV) to planned value (PV)
• An SPI equal to or greater than one indicates a favorable condition and a value of less than one indicates an
unfavorable condition. SV tells the PM if effort is being expended efficiently. In other words, are we getting
more, less or the planned value for effort (time) expended?
 EPM 2193 Monitoring and Controlling Project Requirements

Earned Value Management Basics (Continued)

• Forecasts - estimates or predictions of conditions and events in the project’s future based on
information and knowledge available at the time of the forecast. Forecasts are updated and reissued
based on work performance information provided as the project is executed. The information is based
on the project’s past performance and expected future performance, and includes information that
could impact the project in the future, such as estimate at completion and estimate to complete.
• Estimate To Complete (ETC) and Estimate At Completion (EAC) are earned value measurements and
key components of project forecasts, as defined above
• EAC:
• Project Managers should provide an estimate at completion (EAC) for each active project on a monthly basis
• EAC forecast is important because it provides an ongoing reassessment of project costs and schedule to
enable Project Managers, Program Management and Executives to gauge project/program performance,
identify trends and facilitate proactive decision-making or corrective action to affect the outcome of the
project/program positively.
• Project Managers may use information obtained from the Project Team, Consultants, Contractors/Suppliers
and outside parties in developing project forecasts
• Other formulas may be used to calculate EAC based on the specific circumstances of the project. Whichever
formula is selected, it must be used consistently from start to finish of the project
 EPM 2193 Monitoring and Controlling Project Requirements

Forecasting and Earned Value - PMBOK 7.4.2.2

• Estimate to Complete (ETC) – expected cost needed to complete all the remaining work for a
schedule activity, work breakdown structure component, or the project.
• ETC can be calculated based on either performance to date or a more subjective assessment based on other
factors. For example, higher than anticipated right-of-way costs may not show up in a simple calculation but
should be included in the evaluation to reflect accurately the cost of completing remaining work.
• Estimate at Completion (EAC) – expected total cost of a schedule activity, work breakdown structure
component, or the project when the defined scope of work will be completed. EAC = AC + ETC
• EAC is equal to the actual cost (AC) plus the estimate to complete (ETC) for all of the remaining work.
• EAC may be calculated based on performance to date or estimated by the project team based on other
factors, in which case it is often referred to as the latest revised estimate. PMBOK 7.4.2.2, pg 264:
EPM 2193 Monitoring and Controlling Project Requirements
EPM 2193 Monitoring and Controlling Project Requirements

Fig 5.6, pg. 69

Read also pgs. 233 & 261

 EPM 2193 Monitoring and Controlling Project Requirements
The following table shows the plan of a project and the project status at the end of July. At the end of
July, calculate: CV, SV, EAC, VAC, and Estimated Time to Complete
EPM 2193 Monitoring and Controlling Project Requirements
Earned Value Value/ Description
Calc
Budget at Completion (BAC) The original project budget
Cost Performance Index EV/AC We are actually getting ----- cents out of the
(CPI) dollar
Estimate at Completion BAC/CPI What do we expect the total project cost
(EAC)
Estimate to Complete (ETC) EAC - AC How much will it cost from now to complete the
project
Variance at Completion BAC - How much over or under budget do we expect to
(VAC) EAC be at the completion of the project
Schedule Performance Index EV/PV We are progressing at ---- % of the rate
(SPI) originally planned
Cost Variance (CV) EV - AC NEGATIVE is over budget, POSITIVE is under
budget
Schedule Variance (SV) EV – NEGATIVE is behind schedule, POSITIVE is
Planned ahead of schedule
Value
EPM 2193 Monitoring and Controlling Project Requirements
MS Project
• Tool designed to assist project managers in
developing project schedule,
assigning resources to tasks, tracking schedule
progress.
• MS Project is project SCHEDULE (timelines) tool
and not project plan
• The concept is relationship between children
(tasks) to parents (Milestone) and Grandparents
(Phase)
• Graphical representation of the how the tasks
and milestones are dependent on each other
EPM 2193 Monitoring and Controlling Project Requirements
MS Project Cont.…
• Graphic representation of the project flow
• Measure timeline progress, cost, variances and
Earn Value
• Produce different reports
• MS Project
 EPM 2193 Monitoring and Controlling Project Requirements

UNIT 4 – Using MSP to Produce Reports and Update Project Status

Objectives (Course Outline and Teaching Plan):
• Produce project reports using Microsoft Project
• Enter project status information and update task completion as necessary to show project progress
• Reschedule remaining project work as required to reflect current project status
• Analyze changes to resource allocations, working days, and costs as necessary and print updated Tracking
Gantt Charts to reflect current project status
• Import and export data between Microsoft Project and Microsoft Excel to allow further manipulation and
analysis
• Update project status and determine project health in terms of schedule and budget using Microsoft
Project
• Examine and report project progress and costs using Earned Value Management
 EPM 2193 Monitoring and Controlling Project Requirements

• Project tab > Set Baseline, and then click Set Baseline
• Set Baseline dialog box appears; Set the baseline for the entire plan by using the default settings of the
dialog box; Click OK.
EPM 2193 Monitoring and Controlling Project Requirements
EPM 2193 Monitoring and Controlling Project Requirements
EPM 2193 Monitoring and Controlling Project Requirements