CEME 352 ENGINEERING MANAGEMENT II

(LECTURE SERIES 2)

TOPIC: Earned Value Management (EVM)

Lecturer: Mr. Herod Malo

School of Engineering (Civil)
Papua New Guinea University of Technology
Reference:
Malo, H. “Total Quality Management(TQM)”. Papua New Guinea University of
Technology, August 07, 2020 Lecture.
BEng (Civil) Semester II

© 2020 School of Engineering (Civil), Papua New Guinea University of

Technology 0
Earned Value Management
What is it?
Where did it come from?
What’s so special about it?
How do you do it?

© 2020 School of Engineering (Civil), Papua New Guinea University of Technology

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Earned Value Management

What is it ?
 A systematic approach to the integration and measurement of
 cost,
 schedule, and
 technical (scope) accomplishments on a project.

 Provides the ability to examine detailed

 schedule information, critical program and technical milestones,
and
 cost data.
© 2020 School of Engineering (Civil), Papua New Guinea University of Technology
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 Earned Value Management

Why do we care?
 Projects over budget and behind schedule*
 53% of IT projects finish over budget and behind schedule

 52% finish at 189% of their initial budget

 18% are simply never completed

 Statistically proven performance projections

 Performance at a project’s 25% completion point will remain steady
throughout the project’s lifecycle.

 Consistent performance measures allow comparison across the portfolio

© 2020 School of Engineering (Civil), Papua New Guinea University of Technology

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 Earned Value Management

What’s so special about it?

 Fundamental difference with traditional management is the data
used for analysis.
 Budget vs Actuals
 Earned Value Analysis

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 Earned Value Management

Traditional Management Approach:

2500000

2000000

1500000
Actuals Budget
$1,041,000
1000000 Actuals
Budget $1,000,000
500000

0
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 Earned Value Management

EVM Integrates cost, schedule, and scope.

Establishes an Integrated Project Baseline

 What is to be done? (scope)

 When will activities be completed? (schedule)

 What will it cost (and when) when to complete those

activities?

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 Earned Value Management

Based on something called Earned Value.

 A concept that task activities earn value as work progresses

 A data point that expresses the value of work accomplished

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 Earned Value

The concept that task activities “earn value” as work

progresses.

 The value earned is the budgeted cost of the activity

completed to date.

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 Earned Value

A data point that expresses the value of work

accomplished

 What is the dollar value of what you have done to date?

 Does not address the money spent in getting there.

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 Earned Value Management

So how do we do this stuff?

EVM depends on three data points
 Planned Value (PV)
 Earned Value (EV)
 Actual Cost (AC)

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 Integrated Project Baseline
Absolutely dependent on the Work Breakdown Structure

New Weather Radar

Antenna and Transmitter and Data Processing

Mechanical Receiver Systems Systems
Systems

 One WBS per program Computer

Hardware
Application
Software
Telecommunications
Systems

 Deliverable-oriented

 Organizational responsibility identified in WBS

 Work not in the WBS is out-of-scope

 All lower-level elements roll up to the WBS total

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 Integrated Project Baseline
Absolutely dependent on the Work Breakdown Structure

New Weather Radar

Antenna and Transmitter and Data Processing

Mechanical Receiver Systems Systems
Systems

Computer Application Telecommunications

Hardware Software Systems

Full (and accurate) definition is key

Defined deliverable(s)
Timeframe for delivery of product

Total cost (direct and indirect) to deliver product

Assigned organizational responsibility

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 Planned Value
Data source is the Integrated Project Baseline

How much did you expect to have done at point X ?

Expressed in dollars (PV)

How much do you expect to have done at completion ?

Budget at Completion (BAC)

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 Planned Value

$2,500,000

$2,000,000 BAC $2,000,000

$1,500,000
Planned Value
$1,000,000

$500,000

$0
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 Planned Value

$2,500,000

$2,000,000 $2,000,000

$1,500,000
Planned Value
$1,000,000

$500,000
PV = $1,000,000

$0
May

May
Mar

Nov

Mar

Nov
Sep

Sep
Jan

Jan
Jul

Jul

15
 Actual Cost
Data source is the Earned Value Management System

The dollar amount actually spent to date.

Has no relationship to work accomplished.

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 Actual Cost

$2,500,000
AC = $1,041,000
$2,000,000

$1,500,000
Planned Value
Actual Cost
$1,000,000

$500,000
PV = $1,000,000
$0
r

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Ap

Ap
Ju

Ju
Ja

Ja
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 Earned Value
Data source is the Earned Value Management System

 The dollar value of actual accomplishments to date.

 Does not address the money spent in getting there.

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 Earned Value
Several ways to “earn” it:
Percent Completion Estimates

Start/Finish of WBS Elements

25% 75% 50% 50% 0% 100%

Milestones Completed (0-100%)

Percent Completion Estimate with Milestone Gates

33% 67% 100%

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 Earned Value

$2,500,000

$2,000,000 $2,000,000
PV = $1,000,000
$1,500,000
Planned Value
Earned Value
$1,000,000

$500,000
EV = $851,000

$0
May

May
Mar

Nov

Mar

Nov
Sep

Sep
Jan

Jan
Jul

Jul

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 Integrated Performance Report

 Compares the amount of work completed with what was

scheduled and budgeted, to determine if cost (AC), schedule
(PV), and work accomplished (EV) are progressing as planned.

 By integrating these three measurements, it provides

consistent, numerical indicators with which we can evaluate and
compare projects.

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 Integrated Performance Report

2,500,000

2,000,000
AC = $1,040,979
1,500,000 Planned Value
Actual Cost
1,000,000 Earned Value
PV = $1,000,000

500,000
EV = $851,000
0
May

May
Mar

Nov

Mar

Nov
Sep

Sep
Jan

Jan
Jul

Jul

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 Integrated Performance Report
These three data points allow us to:

 Calculate variances in cost and schedule performance.

 Calculate performance indices that allow direct comparison to other

projects’ performance.

 Analyze trends in project performance.

 Formulate predictions as to how well the project will perform in the

future.

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 Calculating Variances

Cost Variance
 A comparison of the budgeted cost of work performed with
actual cost.

 A negative variance means the project is over budget.

CV = EV – AC

CV = 851,000 – 1,041,000

CV = - $190,000

Note that this is not “budget vs actuals.”

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 Calculating Variances

Schedule Variance
 A comparison of amount of work performed to what was
scheduled to be performed.

 A negative variance means the project is behind schedule.

SV = EV – PV

SV = 851,000 – 1,000,000

SV = - $149,000

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 Calculating Performance Indices

 Cost Performance Index CPI = EV/AC

 A ratio of the budgeted cost of work performed to the actual cost.

CPI = EV / AC

CPI = 851,000 / 1,041,000

CPI = 0.817

An index less than 1.00 means the project is over budget.

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 Cost Performance
Cost Variance (EV-AC)
2,500,000 $851K - $1041K = -$190K
AC = $1,040,979 CPI (EV/AC) = 0.8175
PV = $1,000,000
2,000,000
EV = $851,000

1,500,000 Planned Value

Actual Cost
1,000,000 Earned Value

500,000

0
May

May
Mar

Nov

Mar

Nov
Jan

Jan
Jul
Sep

Jul
Sep

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 Calculating Performance Indices

 Schedule Performance Index SPI = EV/PV

 A ratio of the amount of work performed to what was scheduled

to be performed.

SPI = EV / PV

SPI = 851,000 / 1,000,000

SPI = 0.851

An index of less than 1.00 means the project is behind schedule.

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 Schedule Performance
Schedule Variance (EV-PV)
$851K - $1,000K = - $149K
2,500,000
PV = $1,000,000 SPI (EV/PV) = 0.851
AC = $1,040,979
2,000,000
EV = $851,000

1,500,000 Planned Value

Actual Cost
1,000,000 Earned Value

500,000 And look at this:

$ - 149K = 1 Month Slippage
0
Nov

Nov
Jan

Jan
Jul

Jul
Mar

Mar
Sep

Sep
May

May

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 Predicting Future Performance

Estimate to Complete (ETC)

 How much will we have to spend (after today) to complete?
 Total budget less what we’ve earned to date. (With some
assumptions).

 Performance to date has been anomalous

 Cost Performance to date will continue
 Both Cost and Schedule Performance to date will continue

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 Predicting Future Performance

Estimate to Complete (ETC)

 Performance to date has been anomalous:
ETC = BAC – EV = $1,149,000

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 Predicting Future Performance

Estimate to Complete (ETC)

 Performance to date has been anomalous:
ETC = BAC – EV = $1,149,000

 Cost Performance to date will continue:

ETC = BAC - EV = $1,405,504
CPI

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 Predicting Future Performance

Estimate to Complete (ETC)

 Performance to date has been anomalous:
ETC = BAC – EV = $1,149,000

 Cost Performance to date will continue:

ETC = BAC - EV = $1,405,504
CPI
 Both Cost and Schedule Performance to date will continue:
BAC - EV
ETC = CPI * SPI = $1,651,574

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 Predicting Future Performance

Estimate at Completion (EAC)

 How much will we have spent when we’re actually done?

 Again, based on the same assumptions as ETC.

EAC = AC + (BAC-EV) = $2,190,000

EAC = AC + BAC - EV = $2,446,505

CPI

EAC = AC + BAC - EV = $2,691,856

CPI * SPI

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 Predicting Future Performance

To-Complete Performance Index (TCPI)

 How well do we have to perform to get back on track?
 Again, based on the same assumptions as ETC.

1
TCPIC = = 1.22
CPI

1
TCPIS = = 1.17
SPI

1
TCPICS = = 1.437
CPI * SPI

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 Earned Value Management

On rare cases everything goes

perfectly as show on the graph:
2,500,000

2,000,000 $2,000,000

1,500,000 AC = $1,000,000
PV = $1,000,000
1,000,000 EV = $1,000,000 Planned Value
Actual Cost
500,000
Earned Value

0
n r l ct n r l ct
Ja Ap Ju O Ja Ap Ju O

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 Earned Value Management Systems

ANSI/EIA-748 defines it:

An EVMS is a set of business practices that, when applied to a

project or program:

 integrate scope, schedule, and cost objectives,

 establish a baseline plan for accomplishment of project
or program objectives, and

 employ earned value techniques for performance

management.

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 Earned Value Management Systems

ANSI/EIA-748 prescribes 32 criteria in five categories:

Organization

Planning, Scheduling, and Budgeting

Accounting Considerations

Analysis and Management Reports

Revisions and Data Maintenance

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 EVM In a Nutshell
 Management practices and discipline vs. a tool set
 Work Breakdown Structure (WBS)
 Integrated scope/schedule/budget baseline
 Accounting system that accommodates the WBS
 Change control plan WBS
Project
Schedule

Baseline Budget
Performance
Measurement

EVMS Early Warning

&
Performance Trends

Accounting
System

Informed Management
Decisions
Corrective Actions
Recovering Planning
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 What Could Possibly Go

 Inadequate requirements definition

 No (or Incomplete) Work Breakdown Structure
 Accounting systems that can’t address the WBS
 Lack of management attention to project progress
 Failure to respond to warning signs
 Failure to reconcile baseline to funding shortfalls
(Rebaseline)

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