earned value management ncma workshop_june08

8/10/2019 Earned Value Management NCMA Workshop_June08

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BASICS OF

EARNED VALUEMANAGEMENT

National Contract Management Association

Colorado Springs ColoradoJune 19, 2008


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Earned Value Management(EVM) Training Objectives

Understand basic concepts What EVM is and basic terms

How to evaluate performance What does it all mean?

How to manage using Earned Value Now that we know what it is and what it means,

what do we do with it?


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Earned Value ManagementSystems measure progress

Progress = Movement Forward

to measure progress,there must be a standard

against which the forward

movement may be

compared

EVMS establishes a baseline

to measure progress


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EVM can provide answers to the

following questions: How much have we spent?

How much did we get for our money?

How much more will be have to spend to complete thetasks we wanted to accomplish?

How much longer will it take?

How efficiently is the work being done?

What has happened? (Why are we off schedule/cost?) What is happening? (What are the impacts?)

What is going to happen? (What are we doing to fix it?)


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Why use Earned ValueManagement Systems?

The Bottom Line

EVM can focus program management attention oncritical issues and risks during the project life

cycle How are you doing, and how do you know how you

are doing? Early problem identification

Completion Estimates How far along are you? (64%, 50%, >40%) What is your productivity/efficiency? Work remaining


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Earned Value ManagementIs Not:

Guarantee of profit

Restricted to projects for the production ofa products EVM can be used in servicecontracts

Solution for a poorly written statement ofwork

Magic Bullet


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Five Basic Elements

BCWS Budgeted Cost of Work Scheduled

BCWP Budgeted Cost of Work Performed

ACWP Actual Cost of Work Performed

BAC Budget at Completion

EAC Estimate at Completion


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5 Basic Performance Data

Questions & Answers

QUESTION ANSWER ACRONYM

How much work should Budgeted Cost for BCWSbe done? Work Scheduled

How much work is done? Budgeted Cost for BCWPWork Performed

How much did the is done Actual Cost of ACWPwork cost? Work Performed

What was the total job Budget at Completion BACsupposed to cost?

What do we now expect the Estimate at Completion EACtotal job to cost?


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What do we measure progress against?and Why?

Performance measurement baseline Budgetthat is spread over . . .

Time, to accomplish the scope of

Work, against which progress can be measured

Earned Value is key concept how much progress did I make against my original

plan?

expressed in dollars or hours Why? early warning

$

time

baseline

earned value


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Why do we need

Early Warn ing?

Small course corrections areeasier when made early

If you wait until you reach

the Iceberg, its too late!!!


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Terms and Definitions associated withEVM:

It starts with the Work Breakdown Structure(WBS)

Based on the WBS a total budget is assigned

Work packages are developed and priced

A process to measure the results of thosework packages is put into place

Work packages are tracked for both thedollars and time spent

The result of this effort is developing a Budget atcompletion (BAC)


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Work Breakdown Structure

1.0 Project New Marketing Campaign

for Dog Food

1.1 PrintedMedia

1.2 ElectronicMedia

1.3 Radio

1.3.1LocalSpots

1.3.2Regional

Spots

1.1.2Newspaper

inserts

1.1.1Magazines

1.2.2TV

1.2.1Website

First Level

Second Level

ThirdLevel

Systematic approach to ensuring all program work is recognized and defined intoa viable work plan should include labor and materials for complete picture

O i ti l B kd


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Organizational BreakdownStructure

New Marketing Campaignfor Dog Food -

assign to the Western Division

ChucksDesignTeam

RegionalMedia

Support

CentralizedNationalSupport

StanIn

Accounting

RayBudget

Juan forCustomerinterface

SallyFor messageAnd theme

JoshAudio

John forComputerGraphics

Identifies the functions and/or people that will do the work

Beverlyin

NationalAccounts

Admin AsstChen

Tanya Print


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Responsibility MatrixAssigns WBS work to OBS labor

design

graphics

accounting

1.1.1 1.1.2 1.2.1

AdminAsst

audio

budget

1.1 1.2

OBS WBS

- - - - - - - - - - - - - - - - - - - - - - - - - -

----------

-----------------------

- - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - -

----------

-----------------------

--------

--------------

-----------


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CONTRACT BUDGETBASE

CONTRACT

PRICE

CONTRACT

BUDGET BASE

PROFITS AND

FEES

MANAGEMENT

RESERVE

PERFORMANCE

MEASUREMENT

BASELINE

WITHHELD

FOR

UNKNOWNS

UNDISTRIBUTED

BUDGET

DISTRIBUTED

(control accountS)

WITHHELD FOR

KNOWN EFFORT

AUTHORIZED,

UNPRICED


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ORGANIZATION

BUDGET LEDGER

MASTER SCHEDULE

GENERAL WORKAUTHORIZATION

CONTRACT

Control AccountWBS # ______________ ORG # ______________

TASK DESCRIPTION________________________

SCHEDULE _______________________________

TOTAL BUDGET ________________

WORK PACKAGE

WP # ________ ORG # _________

DESCRIPTION ________________

______________________________

SCHEDULE _________________

BUDGET ___________________

WBS ELEMENT

ORGANIZATION

WORK AUTHORIZATION

SCHEDULE

BUDGET

COST ACCUMULATION


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The Control AccountA Key Management Control Point

Specific functional responsibility

Specific WBS responsibility

Work planning and assignment

Performance measurement

Cost collection

Variance analysis

Corrective action

Basis of data summarization


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CONTRACT BUDGETBASE

CONTRACT

PRICE

CONTRACT

BUDGET BASE

PROFITS AND

FEES

MANAGEMENT

RESERVE

PERFORMANCE

MEASUREMENT

BASELINE

WITHHELD

FOR

UNKNOWNS

UNDISTRIBUTED

BUDGET

DISTRIBUTED

(control accountS)

WITHHELD FOR

KNOWN EFFORT

AUTHORIZED,

UNPRICED


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PERFORMANCE MEASUREMENT

DATA ELEMENTS

UNDISTRIBUTED BUDGET (UB)

Budget applicable to contract effortwhich has

not yet been identified to CWBS elements at orbelow the lowest level of reporting to the

Government.

KEY: Only used for the effort associated

with the contractual change.


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PERFORMANCE MEASUREMENTDATA ELEMENTS

MANAGEMENT RESERVE (MR)An amount of the total allocated budget

withheld for management control purposesrather than designated for the

accomplishment of a specific task or set of

tasks.

KEY: There is no scope of work associated

with management reserve budget.


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1. DEFINE THE WORK

PLANNING AND BUDGETING

ESTABLISH THE BASELINE - AN ITERATIVE, 3-STEP PROCESS

10040

60

15

25

30

30

2. SCHEDULE THE WORK

3. ALLOCATE BUDGETS

$

CONTRACT BUDGET BASE

TIME

MR


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Work Budgeted and Earned

The value of the budgeted workis called:Budgeted Cost of Work Scheduled(BCWS)

The value of work earnedis called:Budgeted Cost of Work Performed(BCWP)

BCWP is also called Earned Value (EV)


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Questions & Answers








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Budgeted Cost of Work Scheduled

(BCWS)

Total Budget = $5,000to be spent over 5 monthsI plan to lay 1 sectionof track each month at an

estimated cost of $1,000.BCWS each month = $1,000Total BCWS = $5,000

Month 1BCWS = $1,000





sum of all BCWS = performance baseline


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Questions & Answers








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Budgeted Cost of Wo rk Performed

(BCWP)

aka. Earned Value

Were at the end of

February, Track 1 is

complete and track 2 is done.

BCWS = $1,000

Track 1

Track2

BCWS = $1,00050% done

Value of workperformed = $1,500


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Schedule Variance

BC WS

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 VARIANCEis the difference between work scheduledand work performed (expressed in terms of budget dollars)

formula: SV $ = BCWP - BCWS

B

UDGETBASED

example: SV = BCWP - BCWS = $1,500 - $2,000SV= -$500 (negative = behind schedule)


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Schedule Variance

$

BCWSthe baseline

BCWPearned value

TIME

5,000

sv


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Questions & Answers








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Actual Cost of Work Performed(ACWP)

Value is earned as the work is completedand gauged against the schedule proposedfor the work

When all work is completedit will haveearned its full budgeted valuebut the actualcostof that work may be different that the

amount budgeted this is referred to asActual Cost of Work Performed (ACWP)


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ACTUAL COST FOR WORK PERFORMED (ACWP)

The costs actually incurred and recorded in accomplishingthe work performed (BCWP) within a given time period

Labor Material (Subcontractor/vendor)

Other, computer costs, etc.

Indirect Costs


Actual Cost of Work Performed


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Actual Cost of Work Performed(ACWP)

Track 1 Cost = $1,500!

Track 2 Cost = $750 cost todate

Total Cost to Date = $2,250


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Cost Variance

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 muchdid it actually cost?

COST VARIANCEis the difference between budgeted costand actual cost

formula: CV $ = BCWP - ACWP

PERF

ORMANCE

BASED

example: CV = BCWP - ACWP = $1,500 - $2,250CV= -$750 (negative = cost overrun)


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Cost Variance

$

TIME

BCWPearned value

ACWPactual cost

5,000

cv


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Variance Summary

The difference between the BCWP and theACWP is called a cost variance

The difference between the BCWP andBCWS is called schedule varianceand isprovided in terms of dollars


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Questions & Answers








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Budget at Completion (BAC)

$

time

BAC

$

$

$

$

$

$

$

when all work has been phased, cumulative BCWS = BAC


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Est imate at Complet ion

(EAC)

Just a few littleglitches. We should

be able to do thecomplete job.ack

lets see, for about

$7,000


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Variance at Completion (VAC)

B AC what the total job is supposedto cost

E AC what the total job is expected

to cost

VARIANCE AT COMPLETIONis the difference between what the totaljob is supposed to cost and what the total job is now expected to cost.

FORMULA: VAC = BAC - EAC

Example: VAC = $5,000 - $7,000VAC = - $2,000 (negative = overrun)


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Formulas

Cost varianceBCWP ACWP

Schedule variance

BCWP BCWS

Cost variance inpercentage

BCWP ACWP x 100

BCWP

Schedule variance inpercent

BCWP BCWS x 100

BCWS

Negat ive var iance = cos t overrun or behin d sch edule

Posit ive var iance = cost und errun or ahead of sch edule

d l


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Trend Analysis

Cost Performance Index (CPI) measure of cost efficiency

CPI = Value of Work Completed (BCWP)Cost of Work Completed (ACWP)

Schedule Performance Index (SPI) measure of schedule efficiencySPI = Value of Work Completed (BCWP)

Value of Work Planned (BCWS)

Closer to 1 the better

Less than 1 = overrun (CPI); behind schedule (SPI)

Greater than 1 = underrun (CPI); ahead of schedule (SPI)


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DO I THINK THE CONTRACTOR WILL COME IN ON BUDGET?

COST PERFORMANCE INDEX:

CPI = cost efficiency for work performed to date(The value of work accomplished for each dollar spent)

SCHEDULE PERFORMANCE INDEX:

SPI = schedule efficiency with which work has been accomplished

(The rate at which work is being accomplished)

Performance Eff iciencies

WORK= ACCOMPLISHED

ACTUALS

WORK= ACCOMPLISHED

WORKSCHEDULED

WORK

BCWP ACCOMPLISHED $1500

= BCWS = WORK = $2000 = .75

SCHEDULED

WORK

BCWP ACCOMPLISHED $1500

= ACWP = ACTUAL = $2250 = .67

COST


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EXERCISES

Attendees Go to your ExercisePacket

EVM E i


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EVM Exercise

BAC = 500BCWS = 300BCWP = 320ACWP = 330

What is the cost variance? What is the Schedule variance?

What is the Cost Performance Index? What is the Schedule Performance Index? How would you describe this project?


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Solution

BAC = 500

BCWS = 300

BCWP = 320

ACWP = 330

What is the cost variance?

BCWPACWP = -10 What is the Schedule variance?

BCWPBCWS = +20


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Solution

BAC = 500

BCWS = 300

BCWP = 320

ACWP = 330

What is the Cost Performance Index?

BCWP/ACWP = .97

What is the Schedule Performance Index?BCWP/BCWS = 1.07


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Solution

Cost Variance = -10

Schedule Variance = + 20

CPI= .97SPI= 1.07

How would you describe this project?Over budget, ahead of schedule


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The table that follows presents keyinformation for several elements of the

contract WBS

Example Of PerformanceAnalysis By WBS Element.

What can it tell us?


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Cost Performance Report Work reakdown Structure

Budget

Baseline

Cumulative Cost To Date (in $000) Cost At Completion (in $000)

$1.5 mil Budgeted Cost ActualCost

Variance

WBSElement

WorkScheduled

WorkPerformed Schedule Cost Budgeted Estimated Variance

1.1 250 250 260 0 (10) 250 260 (10)

1.2 90 85 84 (5) 1 100 100 01.3 130 150 155 20 (5) 330 340 (10)

1.4 200 200 185 0 15 250 235 15

1.5 300 310 320 10 (10) 400 415 (15)

1.6 120 120 140 0 (20) 120 140 (20)

Subtotal 1,090 1,115 1,144 1,450 1,490 (40)

Mgt. Reserve 50 50

Total 1,090 1,115 1,144 1,500 1,490 10


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Graphical Depictions of EVM


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TIME

$

BUDGET

Contract

Complete


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TIME

$

BUDGET

CV


Contract

Complete

BCWP All I l ti f


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BCWP Allows Isolation ofSchedule and Cost Variances

schedule variance = BCWP - BCWS = negative numbercost variance = BCWP - ACWP = negative number

behind schedule,over cost

BCWS

BCWP

ACWP

TIME

5,000

sv

cv$

Budget at Complete (BAC), Estimate at Complete (EAC)


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Budget at Complete (BAC), Estimate at Complete (EAC)and Variance at Complete (VAC)

$

TIME

BAC= Sum of BCWS

(Planned cost of all work)

BAC = $5,000

EAC(kr)*= ACWP plus estimated

to complete (ETC)(Actual cost to date plus expected

cost to finish all work)

EAC = $7,000

BAC

EAC

ETC

VAC= BAC-EAC

VAC = $5,000-$7,000

VAC = -$2,000

VAC

Schedule

Delay

* EAC(kr) = Contractor EAC


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TIME

$

BUDGET

CV

VAC

Contract

Complete

SV

T d A l i U i


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Trend Analysis UsingPerformance Indexes

Time

Time

Time

1.0

1.0

1.0

CPI

CPI

CPI

SPISPI

SPI

Trend Analysis Using Performance


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Trend Analysis Using PerformanceIndexes

Time

Time

Time

1.0

1.0

1.0

CPI

CPI

SPI

CPISPI

SPI

E d V l M t


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Earned Value Management

Trend Analysis

Time

Time

Time

1.0

1.0

1.0

CPI

CPI

SPI

CPISPI

SPI


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Sample combined numerical

and graphical display


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Ways of Earning Value


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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 measurethe work

May tie in with success criteria or technical measure e.g., successful completion of a specific test, QPs

Ways of Earning Value

Contractor Reports


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Contractor Reports

Cost Performance Report (CPR)

Format 1:cost and schedule progress byWBS(specified reporting level usually at level 3)

Format 2: cost and schedule progress byorganization

Format 3:changes to performance measurement

baseline

Format 4:manpower forecast

Format 5: variance analysis

Format 1 Block Descriptions


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Block #

1. Contractor Information - Tells you name and address of contractor

2. Contract Information - Tells name, number, type and Share ratio of contract

3. Program Information- Name and Phase of program4. Report Period - Beginning and end dates of the report data

5. Contract Data - Includes quantities, prices, fees, profit, and ceilings

6. Estimated cost - Estimated cost at completion and variance

7. Contractor Representative - Name, Title, Signature, and Date signed

8. Broken in to sections a through g and in 4 groups of data

- Current period - BCWP, BCWS, ACWP, Cost and Schedule Variances- Cumulative to date - BCWP, BCWS, ACWP, Cost and Schedule Variances

- Reprogramming Adjustments - Cost Variances and Budget

- At Completion - Budgeted, Estimated, and Variance

8a WBS cost data

8b Cost of money

8c General and administrative cost8d Undistributed money

8e Subtotal (Total without Management Reserve)

8f Management Reserve

8g Total

9a Variance adjustments (Cumulative to Date)

9b Total Contract Variance (Cumulative to Date and At Completion)

Format 1 Block Descriptions

Format 2: Organizational


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Format 2: OrganizationalCategories

Used when contractor organizationalstructure does not mirror the WBSstructure

Provides CPR data in an organizationalformat


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Format 3: Baseline

Used to track changes to the performancebaseline and future authorized work Identifies all changes to authorized work

during the reporting period Identifies distribution of any undistributed

budget during the reporting period


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Format 4: Staff ing

Provides planned staffing

Current Period

Cumulative to the end of Current Period

Staffing forecast's to end of authorized work

At Completion

Broken down into organizational

categories

Format 5: Explanation and


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Format 5: Explanation andProblem Analysis

Also called Variance Analysis Report(VAR)

Provides explanations, impact, andcorrective actions of WBS that exceed

thresholds


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Format 5 variance analysis shouldaddress: separate discussion of CV, SV (current and

cum) and VAC

clear description of reason for variance quantity variances (e.g., price vs. usage)

be specific, not general

corrective action

technical, schedule, and cost impacts impact to estimate at completion

Variance Exp lanat ions

A big hammer fora big variance!

Profit / Fees

Contract Price



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TERMINOLOGYNCC Negotiated Contract Cost Contract price less profit / fee(s)AUW Authorized Unpriced Work Work contractually approved, but not yet negotiated / definitizedCBB Contract Budget Base Sum of NCC and AUWOTB Over Target Baseline Sum of CBB and recognized overrun TAB Total Allocated Budget Sum of all budgets for work on contract = NCC, CBB, or OTB BAC Budget At Completion Total budget for total contract thru any given levelPMB Performance Measurement Baseline Contract time-phased budget planMR Management Reserve Budget withheld by Ktr PM for unknowns / risk managementUB Undistributed Budget Broadly defined activities not yet distributed to CAsCA Control Account Lowest CWBS element assigned to a single focal point to plan & control

scope / schedule / budgetWP Work Package Near-term, detail-planned activities within a CAPP Planning Package Far-term CA activities not yet defined into WPsBCWS Budgeted Cost for Work Scheduled Value of work planned to be accomplished = PLANNED VALUEBCWP Budgeted Cost for Work Performed Value of work accomplished = EARNED VALUEACWP Actual Cost of Work Performed Cost of work accomplished = ACTUAL COSTEAC Estimate At Completion Estimate of total cost for total contract thru any given level;

may be generated by Ktr, PMO, DCMA, etc. = EACKtr / PMO / DCMALRE Latest Revised Estimate Ktrs EAC or EACKtrSLPP Summary Level Planning Package Far-term activities not yet defined into CAsTCPI To Complete Performance Index Efficiency needed from time now to achieve an EAC

EVM POLICY: DoDI 5000.2, Table E3.T2 . EVMS in accordance with ANSI/EIA-748 is required for cost or incentivecontracts, subcontracts, intra-government work agreements, & other agreements valued > $20M(Then-Yr$). EVMScontracts > $50M(TY $) require that the EVM system be formally validated by the cognizant contracting officer. Additional

Guidance in Defense Acquisition Guidebook and the Earned Value Management Implementation Guide (EVMIG). EVMS isdiscouraged on Firm-Fixed Price, Level of Effort, & Time &Material efforts regardless of cost.

EVM CONTRACTING REQUIREMENTS:Non-DoDFAR Clauses Solicitation 52.234-2 (Pre-Award IBR) or 52.234-3 (Post Award IBR)

Solicitation & Contract52.234-4

DoD( $20M) DFAR Clauses - 252.234-7001 for solicitations and 252.234-7002 for solicitations & contractsContract Performance Report DI-MGMT-81466A * 5 Formats (WBS, Organization, Baseline, Staffing & Explanation)

Integrated Master Schedule DI-MGMT-81650 * (Mandatory for DoD EVMS contracts)Integrated Baseline Review (IBR)- Mandatory for all EVMS contracts

* See the EVMIG for CPR and IMS tailoring guidance.

ManagementReserve

Work Packages Planning Packages

OVERRUNAUW

ControlAccounts

NCC

UndistributedBudget

OTBCBB

TAB Profit / Fees

PMB

Summary LevelPlanning Packages

DoD TRIPWIRE METRICS Favorable is > 1.0, Unfavorable is < 1.0

Cost Efficiency CPI = BCWP/ ACWPSchedule Efficiency SPI = BCWP/ BCWS

VARIANCES Favorable is Positive, Unfavorable is NegativeCost Variance CV = BCWP ACWP CV %

= (CV / BCWP) *100Schedule Variance SV = BCWP BCWS SV %

= (SV / BCWS) *100Variance at Completion VAC = BAC EACOVERALL STATUS

% Schedule = (BCWSCUM / BAC) *100% Complete = (BCWPCUM / BAC) *100% Spent = (ACWPCUM / BAC) *100

BASELINE EXECUTION INDEX (BEI) (Schedule Metric)BEI = # of Baseline Tasks Actually Completed / # of Baseline Tasks Scheduled for Completion

CPLI = (Critical Path Duration + Float Duration(to baseline finish)) / Critical Path DurationCRITICAL PATH LENGTH INDEX (CPLI) (Schedule Metric)

TO COMPLETE PERFORMANCE INDEX (TCPI) #

TCPIEAC = Work Remaining / Cost Remaining = (BACBCWPCUM)/ (EACACWPCUM)

ESTIMATE AT COMPLETION #

EAC = Actuals to Date+ [(Remaining Work) / (Efficiency Factor)]

EACCPI = ACWPCUM + [(BACBCWPCUM) / CPICUM ] BAC / CPICUM

Gold ard

Management Reserve

CostVariance

Schedule Variance

ACWP

BCWP

BCWS

$

EAC

TimeNow

CompletionDate

PMB

TAB

BAC

time

earned value management ncma workshop_june08

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