Stage III: Project Execution and Control

Earned Value Analysis

B: Chapter 8: pages 10-13

B: Chapter 12: the entire chapter

Recitation

What does RAM stand for in the context of HR Management?

What was the name of the guy who categorized all job satisfaction factors into two categories?

What were those two categories?

Freeze Requirements???

What are the PROS?

What are the CONS?

Freeze those requirements!!Late-project creeping requirements are the most

common source of cost and schedule overrunsLate-project creeping requirements are a major factor in

project cancellations

Rather than freezing, use some kind of change control system

Allows for some changes to happen, depending upon contractual considerations

Allows for the system to reject some proposed changes

Use of a CCB is considered a modern BEST PRACTICE

Forces pushing for late-project requirements change

Competition intros new version of competitive product with unanticipated KILLER features

New work is undiscovered late in the project A “Wouldn’t It be Great if…” scenario happens End-users want changes because they now know more

about their requirements than they did 18 months ago Developers want changes because they have a great

emotional and intellectual investment in all of the system’s details

Processes utilized in Stage III Integration management:

Project plan execution; integrated change control Scope management:

Scope change control Time management:

Schedule control Cost management:

Cost control Quality management:

Quality control

Processes utilized in Stage III, Continued

Communication management: Information distribution, Performance reporting

Risk management: Risk monitoring and control

Procurement management: Contract administration

Controlling Changes to the Project Schedule

Perform reality checks on schedules Allow for contingencies?? Don’t plan for everyone to work at 100%

capacity all the time Hold progress meetings with stakeholders and

be clear and honest in communicating schedule issues

Execution

Focus and leadership are keys to success in execution

Poor execution leads to losses in the business world just as it does in sports

Factors leading to poor Execution

Multitasking—doing several things at once

Procrastination (student syndrome)—putting things off until the last minute

Others we will discuss later

Multitasking

A finishes

A finishes

B finishes

Cost Control

Project cost control includesmonitoring cost performanceensuring that only appropriate project changes are

included in a revised cost baseline informing project stakeholders of authorized changes to

the project that will affect costs Earned value analysis is an important tool for cost

control

Earned Value Analysis (EVA)

EVA is a project performance measurement technique that integrates scope, time, and cost data

Given a baseline (original plan plus approved changes), you can determine how well the project is meeting its goals with EVA

You must enter actual information periodically to use EVA. Figure 6-1 shows a sample form for collecting information

Figure 6-1. Cost Control Input Form for Business Systems Replacement Project

WBS#: 6.8.1.2 Description: Design Interface Process -Customer Information

Revision: Revision Date:

Assignments ForecastHours per day Effort (in hours) Calculated

Responsible: SMC Role: PA Availability: 6 Optimistic: 20Most Likely: 30 Plan

Effort:30 Hrs

Involved: Role: Availability: Pessimistic: 40

Involved: Role: Availability: PlanDuration

:

5 Days

Involved: Role: Availability: Delay (Days):

Description Assumptions

Results / Deliverables Dependencies Predecessors (WBS#): Successors (WBS#):

4.7

Develop an operational process design for the Customer Informationinterface from the Invoicing System to Oracle Receivables. This task willaccept as input the business/functional requirements developed during thetactical analysis phase and produce as output a physical operational design,which provides the specifications, required for code development.

Process Design Document - Technical - Operation/Physical DFD - Process Specifications - Interface Data Map

- All business rules and issues will be resolved prior to this task.- The ERD & data model for Oracle Receivables & any Oracleextension required will be completed and available prior to this task.- The ERD for the Invoicing System will be completed and availableprior to this task.- Few iterations of the review/modify cycle will be required.- Primarily a documentation task.

Earned Value Analysis Terms

Budgeted cost of work performed (BCWP), also called earned value, is the percentage of work actually completed multiplied by the budget for the activity

Budgeted cost of work scheduled (BCWS),Budgeted cost of work scheduled (BCWS), also called planned value, is that portion of the approved total cost estimate planned to be spent on an activity during a given period

Actual cost of work performed (ACWP), also called actual cost, are the total direct and indirect costs incurred in accomplishing work on an activity during a given period

Earned Value analysis--EVA Earned value = Budgeted Cost of Work Performed

(BCWP) Planned value = Budgeted Cost of Work

Scheduled (BCWS), and Actual Cost = Actual Cost of Work Performed

(ACWP) When you complete an activity, you earn the

budgeted value of that activity

Schedule Variance (SV) Defined as the difference between the budgeted

cost of work performed and the budgeted cost of work scheduled

= BCWP - BCWS Indicates the deviation between the work content

performed and the work content scheduled for the control period

Cost Variance (CV) Defined as the difference between the budgeted

cost of work performed and the actual cost of work performed

= BCWP - ACWP A positive CV indicates a lower actual cost than

budgeted for the control period, while a negative CV indicates a cost overrun

Schedule Performance Index (SPI) Defined as the ratio BCWP/BCWS A value close to 1 indicates an activity that is on

schedule Values greater than 1 suggest the activity is

ahead of schedule Values less than 1 indicate a schedule overrun

Cost Performance Index (CPI) Defined as the ratio BCWP/ACWP A value close to 1 indicates an activity that is on

budget Values greater than 1 suggest the activity is

below budget Values less than 1 indicate a budget overrun

Table 6-7. Earned Value Formulas

Term Formula Earned Value Budgeted Cost of Work Performed (BCWP) =

budgeted cost of task X % complete Cost Variance CV=BCWP-ACWP (actual cost of work performed) Schedule Variance SV=BCWP-BCWS (budgeted cost of work

scheduled) Cost Performance Index CPI=BCWP/ACWP Schedule Performance Index SPI = BCWP/BCWS

Table 6-6. Earned Value Calculations for One Activity After Week One

Activity Week 1 Week 2 Total % Complete after Week 1

EarnedValue after Week 1

(BCWP) Purchase web server 10,000 0 10,000 75% 7,500 Weekly Plan (BCWS) 10,000 0 10,000 Weekly Actual (ACWP) 15,000 5,000 20,000 Cost Variance (CV) -7,500 Schedule Variance (SV) -2,500 Cost Performance Index (CPI)

50%

Schedule Performance Index (SPI)

75%

Rules of Thumb for EVA Numbers Negative numbers for cost and schedule

variance indicate problems in those areas. The project is costing more than planned or taking longer than planned

CPI and SPI less than 100% indicate problems

Figure 6-2. Earned Value Calculations for a One-Year Project After Five Months

In the Figure above Budget at Completion = BAC = original budget at the

planned completion date Time at Completion = TAC = original completion time In the figure above, $100,000 in month 12 Estimate at completion = EAC = BAC/CPI Estimate at completion = $100,000/.83 = $120,455 Estimated time to complete = ETAC = TAC/SPI Estimated time to complete = 12/.96 = 12.55 mos.

Why Earned Value Analysis?? You can’t tell what your true cost variance is

because you don’t know where you are relative to scheduleSuppose you are behind schedule but also you have

spent less than what the schedule has called for. Are you really under budget?

Updating cost estimates BAC = Budget at completion = total budget of the

project activities based on the original project plan Assuming the original budget (the BAC) was

$200,000 and the CPI is 1.12, what is EAC? EAC = BAC / CPI = $200,000 / 1.12 $178,571

Updating schedule estimates TAC = Time at completion = total time required to

complete the schedule ETAC = Estimated (revised) time to complete Assuming the TAC was 12 months what is the

ETAC? ETAC = TAC / SPI = 12 / .77 15.6 months Project will be delayed almost 4 months

Updating, Cont’d WR = Work Remaining = budgeted cost of the

work not yet accomplished by the end of the reporting period

WR = BAC - BCWP ETC = updated estimate of the cost of work

remaining = COST(WR) EAC = updated estimate of the total project cost =

ACWP + ETC

Figure 6-3. Earned Value Chart for Project After Five Months

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1 2 3 4 5 6 7 8 9 10 11 12

Month

$

BCWS or Cumulative Plan ACWP or Cumulative Actual BCWP or Cumulative EV

BCWS

ACWP

BWCP

BAC

EAC

Using Software to Assist in Cost Management

Spreadsheets are a common tool for resource planning, cost estimating, cost budgeting, and cost control

Many companies use more sophisticated and centralized financial applications software for cost information

Project management software has many cost-related features

Using MS Project for Execution & Control

First, make certain your project plan is complete and final

Second, save it as a baseline Begin entering actual information

Actual costsPercentage complete

Tracking: MS Project will track—

Task start dates Task finish dates Task duration Task cost work Percentage of task that is complete

Getting Earned Value Data Visible You can go to view and replace the entry table

with the Earned Value table Or, you can enter the earned value columns into

your existing table through the Insert Column facility.The columns are BCWP, BCWS, ACWP, CV, SC, SPI,

CPI, etc.You can also request the Tracking Gantt Chart off the

LHS side of MS Project

Entering actual start & Finish dates for a task

On the view bar, click Gantt chart In the task name field select the task to update On the Tools menu, point to tracking and click

Update Tasks Under Actual, type the dates in the Start and

Finish boxes

Indicating progress on a task as a percentage

In the task name field of the Gantt Chart Double click—this brings up the task information

sheet Select the general tab In the percentage complete box type a whole

number between 0 and 100

Entering actual costs for a resource assignment

On the Tools menu, click options, then click the calculation tab

Clear the Actual costs are always calculated by MS Project check box

Click OK On the view bar, click Task usage On the view menu, point to the Table, and click Tracking Drag the divider bar to the right to view the Activity Cost field In the activity cost field, type the actual cost for the assignment

for which you want to update costs

James R. Burns, Texas Tech Univeresity

Earned Value analysis--EV

= Budgeted Cost of WorkPerformed (BCWP)

Also uses Budgeted Cost of WorkScheduled (BCWS), and

Actual Cost of Work Performed(ACWP)

When you complete a milestone,you earn the budgeted value of thatmilestone

James R. Burns, Texas Tech Univeresity

An Example

TIME

Budget

Budget

Actual

Overrun???

James R. Burns, Texas Tech Univeresity

Budgeted Cost of WorkPerformed (BCWP)

Defined as the monetary value ofthe work actually accomplishedwithin the control period.

ACTIVITY BCWP

1 $12,0002 $30,0003 $16,000

$58,.000CUMULATIVE

James R. Burns, Texas Tech Univeresity

Cost Variance (CV)

Defined as the difference betweenthe budgeted cost of workperformed and the actual cost ofwork performed

= BCWP - ACWP A positive CV indicates a lower

actual cost than budgeted for thecontrol period, while a negative CVindicates a cost overrun

Recitation What are two of the four Myers/Briggs

dimensions? What are the other two? To what Myers/Briggs category do most IT

professionals belong? Who is the motivation guru? What are his five levels? Who gave us Theory X and Theory Y??