evm in project cost control.pdf
TRANSCRIPT
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Earned Value Management System
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Professional Development Webinar Series
Earned Value Management System
Feb 27, 2016
Earned Value Management System
PMI, PMP, PMBOK and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc.
© 2016 3FOLD Education Centre . All rights reserved . [email protected] . www.pmexamstudy.com . www.3foldtraining.com . PMP® Exam Review
Agenda
Introduction to 3FOLD Education Centre
Definition
Context
Project Cost Management
EVM Metrics
Cost Control Formula
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Earned Value Management System
PMI, PMP, PMBOK and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc.
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Introduction
PMI Registered Education Provider & AACEI Approved
Education Provider.
We are also approved by KHDA.
Trained more than 6000 students.
Branches in UAE and Qatar.
Our flagship preparation courses are PMP and CCP.
Contact us: [email protected]
Earned Value Management System
PMI, PMP, PMBOK and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc.
© 2016 3FOLD Education Centre . All rights reserved . [email protected] . www.pmexamstudy.com . www.3foldtraining.com . PMP® Exam Review
Definition
Introduction to Earned Value Management
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Definition
Earned Value Management. A methodology that combines
scope, schedule, and resource measurements to assess
project performance and progress.
Earned Value (EV). The measure of work performed
expressed in terms of the budget authorized for that work.
Earned Value is also known as Budgeted Cost of Work
Performed (BCWP).
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
Earned Value Management System
PMI, PMP, PMBOK and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc.
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Context
Earned Value Management in Project Management
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Project Cost Management
As per the PMBOK® Guide 5th Edition, “Project Cost
Management includes the processes involved in planning,
estimating, budgeting, financing, funding, managing, and
controlling costs so that the project can be completed within
the approved budget.”
• Plan Cost Management
• Estimate Costs
• Determine Budget
• Control Cost
Project Management Institute, A Guide to the Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Page 193.
Earned Value Management System
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What is a Process ?
A systematic series of activities directed towards causing an
end result such that one or more inputs will be acted upon to
create one or more outputs.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
Project Management Institute, A Guide to the Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-10, Page 215.
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Process Interaction
Project Management Institute, A Guide to the Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-11, Page 217.
Earned Value Management System
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Project Cost Management Processes
Plan Cost Management—The process that establishes the policies,
procedures, and documentation for planning, managing, expending,
and controlling project costs.
Estimate Costs—The process of developing an approximation of the
monetary resources needed to complete project activities.
Determine Budget—The process of aggregating the estimated costs
of individual activities or work packages to establish an authorized
cost baseline.
Control Costs—The process of monitoring the status of the project
to update the project costs and managing changes to the cost
baseline.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
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1. Plan Cost Management
The process that establishes the policies, procedures, and
documentation for planning, managing, expending, and
controlling project costs.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
Project Management Institute, A Guide to t he Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-2, Page 195.
Earned Value Management System
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Cost Management Plan - Content
Units of measure
Level of precision
Level of accuracy
Organizational procedures link
Control thresholds
Reporting formats
Rules of progress measurement – this is where Earned valuemanagement (EVM) rules of performance measurement areset.
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2. Estimate Costs
Estimate Costs is the process of developing an approximation
of the monetary resources needed to complete project
activities.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
Project Management Institute, A Guide to t he Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-4, Page 200.
Earned Value Management System
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Contingency Reserve
Cost estimates may include contingency reserves (sometimes
called contingency allowances) to account for cost
uncertainty.
Contingency reserves are the budget within the cost baseline
that is allocated for identified risks, which are accepted and
for which contingent or mitigating responses are developed.
Contingency reserves are often viewed as the part of the
budget intended to address the “known-unknowns” that can
affect a project.
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Management Reserve
Estimates may also be produced for the amount of
management reserve to be funded for the project.
Management reserves are an amount of the project budget
withheld for management control purposes and are reserved
for unforeseen work that is within scope of the project.
Management reserves are intended to address the “unknown
unknowns” that can affect a project.
The management reserve is not included in the cost baselinebut is part of the overall project budget and funding
requirements.
Earned Value Management System
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3. Determine Budget
Determine Budget is the process of aggregating the estimated
costs of individual activities or work packages to establish an
authorized cost baseline.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
Project Management Institute, A Guide to t he Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-6, Page 208.
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Cost Baseline
The cost baseline is the approved version of the time-phased
project budget, excluding any management reserves, which
can only be changed through formal change control
procedures and is used as a basis for comparison to actual
results.
It is developed as a summation of the approved budgets for
the different schedule activities.
Earned Value Management System
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Project Budget Components
Project Management Institute, A Guide to t he Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-8, Page 213.
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S-curve
Since the cost estimates that make up the cost baseline are directly tied to
the schedule activities, this enables a time-phased view of the cost
baseline, which is typically displayed in the form of an S-curve
Project Management Institute, A Guide to t he Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-9, Page 214.
Earned Value Management System
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4. Cost Control
Earned Value Management
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4. Control Costs
Control Costs is the process of monitoring the status of the
project to update the project costs and managing changes to
the cost baseline.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
Project Management Institute, A Guide to the Project Management Body of Knowledge, ( PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-10, Page 215.
Earned Value Management System
PMI, PMP, PMBOK and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc.
© 2016 3FOLD Education Centre . All rights reserved . [email protected] . www.pmexamstudy.com . www.3foldtraining.com . PMP® Exam Review
Cost Control Tools and Techniques – on focus
1. Earned Value Metrics
2. Progress Measurement
3. Performance Measurement
4. Forecasting
5. To-complete performance index (TCPI)
6. Variance At Completion
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1. EVM Metrics
Planned Value, Actual Cost, Earned Value
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EVM Metrics
EVM develops and monitors three key dimensions for each
work package and control account:
• Planned value
• Actual cost
• Earned Value
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Planned Value
Planned value (PV) is the authorized budget assigned to scheduled
work.
It is the authorized budget planned for the work to be accomplished
for an activity or work breakdown structure component, not
including management reserve.
This budget is allocated by phase over the life of the project, but at
a given moment, planned value defines the physical work that
should have been accomplished.
The total of the PV is sometimes referred to as the performancemeasurement baseline (PMB). The total planned value for the
project is also known as budget at completion (BAC).
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
Earned Value Management System
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Actual Cost
Actual cost (AC) is the realized cost incurred for the work
performed on an activity during a specific time period.
It is the total cost incurred in accomplishing the work that the
EV measured.
The AC needs to correspond in definition to what was
budgeted in the PV and measured in the EV (e.g., direct hoursonly, direct costs only, or all costs including indirect costs).
The AC will have no upper limit; whatever is spent to achieve
the EV will be measured.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
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Earned Value
Earned value (EV) is a measure of work performed expressed interms of the budget authorized for that work. It is the budgetassociated with the authorized work that has been completed.
The EV being measured needs to be related to the PMB, and the EVmeasured cannot be greater than the authorized PV budget for acomponent.
The EV is often used to calculate the percent complete of a project.
Progress measurement criteria should be established for each WBScomponent to measure work in progress.
Project managers monitor EV, both incrementally to determinecurrent status and cumulatively to determine the long-termperformance trends.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
Earned Value Management System
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Earned Value
Earned Value = % completed x Budget
Progress measurement technique measures the percent
complete which will assist in calculating the earned value. The
budget is the budgeted cost of the measured component
which could be a work package, control account, or the
project.
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2. Progress Measurement
Units completion, Start/Finish, Incremental
Milestone, Supervisor Opinion, Cost Ratio and
Equivalent Units/Weighted Average
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Units Completion
Formula
x 100
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Start/Finish (Fixed Formula)
30% 100%
Start Finish
This method is applicable to tasks that lack
readily definable intermediate milestones or
those for which the effort/time required is
very difficult to estimate.
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Incremental Milestone
30%
Start Finish
60% 80% 100%
This method is applicable
to any control account that includes subtasks
that must be handled in sequence.
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Supervisor Opinion
In this method, the supervisor
simply makes a judgment of
percent complete.
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Cost Ratio
This method is applicable to tasks that involve a long period of
time or that are continuous during the life of a project, and
which are estimated and budgeted on bulk allocations of
dollars and work hours rather than on the basis of production.
x 100
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Weighted or Equivalent Units
This method is applicable when the task being controlled
involves a long period of time and is composed of two or
more overlapping subtasks, each with a different unit of work
measurement.
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Allowed
CreditSubtask Total U/M Total Qty To-Date Qty Earned Tons
0.02run foundation bolts each 120 120 12.00
0.03shim % 100 100 18.00
0.06shakeout % 100 100 36.00
0.04columns each 80 70 21.00
0.12beams each 987 230 16.78
0.12cross braces each 780 0 0.00
0.17girts and sag roads bay 40 0 0.00
0.08plumb and align % 100 0 0.00
0.31connection each 3000 90 5.580.05punch list % 100 0 0.00
1Steel Totals Ton 600 109.36
Earned Quantity = (allowed credit)*(summary quantity)*
Earned Tons Columns
=
.04 x 600 x7
8
21 Tons
Percent Complete
=109.36
600
18.23%
Equivalent Units
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Earned Value Calculation
Wall 1
W a l l 2
Wall 3
W a l l 4
Schedule Plan
Schedule: To complete the work in 4
weeks – work is equally distributed
Budgeted Cost
USD 10,000 per side
Status at the end of week 3
Wall 1 – 100% - $ 12000
Wall 2 – 100% - $ 13000
Wall 3 – 50% - $ 7000
Wall 4 – 0% - $ 0
Calculate BAC, PV, AC and EV
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Solution
Work
Package
Planned
Value
Actual Cost Progress Earned
Value
Wall 1 10000 12000 100 % 10000
Wall 2 10000 13000 100 % 10000
Wall 3 10000 7000 50 % 5000
Wall 4 10000 0 0 % 0
Total 40000 32000 25000
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3. Performance Measurement
Cost Variance, Cost Performance Index, Schedule
Variance, Schedule Performance Index
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Performance Measurement
Cost Performance
Cost Variance Cost Performance Index
Earned Value – Actual Cost
Positive = Under planned cost
Neutral = On planned cost
Negative = Over planned cost
Greater than 1.0 = Under planned cost
Exactly 1.0 = On planned cost
Less than 1.0 = Over planned cost
Schedule Performance
Schedule Variance Schedule Performance Index
Earned Value – Planned Value
Positive = Ahead of Schedule
Neutral = On schedule
Negative = Behind Schedule
Greater than 1.0 = Ahead of schedule
Exactly 1.0 = On schedule
Less than 1.0 = Behind schedule
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Cost Performance
Cost Variance Cost Performance Index
25000 – 32000 = (7000) 25000 / 32000 = 0.781
Schedule Performance
Schedule Variance Schedule Performance Index
25000 –
30000 = (5000) 25000 / 30000 = 0.833
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4. Forecasting
Estimate At Completion & Estimate To Complete
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BAC = $ 40,000 PV = $ 30,000 AC = $32,000 EV = $ 25,000 CPI = 0.781 SPI = 0.833
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Estimate At Completion
Estimate At Completion
EAC EAC
AC + (BAC – EV)
CPI is expected to be the same for the remainder of
the project
Future work will be accomplished at the planned rate
EAC EAC
AC +( −)
( )AC + Bottom up ETC
CPI and SPI inf luence the remaining work Initia l plan is no longer va lid
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Estimate At Completion
EAC EAC
.= 51216 32000 + (40000 – 25000) = 47000
CPI is expected to be the same for the remainder of the
project
Future work will be accomplished at the planned rate
EAC EAC
32000 + ( −)(. .)
= 55055 32000 + Bottom up ETC
CPI and SPI influence the remaining work Initial plan is no longer valid
Earned Value Management System
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Estimate To Complete
Estimate To Complete
ETC ETC
EAC – AC Re-EstimateAssumes work is proceeding on plan. Re-estimate the remaining work from the bottom up.
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Estimate To Complete
ETC ETC
51216 – 32000 = 19216CPI is expected to be the same for the remainder of the project. Re-Estimate
Assume s work is proceeding on plan. Re-estimate the rema ining work from the bottom up.
Earned Value Management System
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5. TCPI
To Complete Performance Index
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To Complete Performance Index
To Complete Performance Index
TCPI TCPI
(BAC – EV)/(BAC – AC) (BAC – EV)/(EAC – AC)
The efficiency that must be maintained in order to
complete on plan.
The efficiency that must be maintained in order to
complete the current EAC.
Earned Value Management System
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To Complete Performance Index
TCPI TCPI
(BAC – EV)/(BAC – AC)
(40000-25000) / (40000-32000)
1.875
(BAC – EV)/(EAC – AC)
(40000-25000) / (51216-32000)
0.781
The efficiency that must be maintained in order to
complete on plan.
The efficiency that must be maintained in order to
complete the current EAC.
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6. Variance At Completion
VAC
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Variance At Completion
Variance At Completion
VAC
BAC – EAC
The estimated difference in cost at the completion of the project.
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CPI = 0.781 SP I = 0.833 EAC = $ 51216 ETC = $ 19216
Variance At Completion
VAC
BAC – EAC
40000 – 51216 = (11216)
The estimated difference in cost at the completion of the project.
BAC = $ 40,000 BCWS = $ 30,000 ACWP = $32,000 BCWP = $ 25,000
Earned Value Management System
PMI, PMP, PMBOK and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc.
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End of the Seminar
Thank you