MISUSE OF EARNED VALUE MANAGEMENT RESULTS IN ERRONEOUS

MISUSE OF EARNED VALUE MANAGEMENT RESULTS IN ERRONEOUS CONCLUSIONS Charles F. Lappenbusch, Jr. MBA, CCP, EVP, PSP Presentation to Seattle Section, AACE® International March 9, 2017

BIOGRAPHY Charles F. Lappenbusch, Jr. , MBA, CCP, EVP, PSP q q Over 30 years of financial and project management Director of Development for a new town Cost control processes, monitoring and integration with Critical Path Scheduling, Earned Value Management, and Risk Analysis. What you don’t know about me.

This is Earned Value!

INTRODUCTION �PURPOSE: q. EVM within CONTEXT OF PROJECT CONTROLS q. COMPLETION DATE? q. COMPLETION COST? q. INFORMATION FROM THE NOISE

INTRODUCTION PURPOSE: q EVM IS INTEGRATION SCOPE, RESOURCE (COST), SCHEDULE & RISK q COMMON TERMS q EXTENSION OF PI q. START THE CONVERSATION q. CRITIQUE

INTRODUCTION �ASSUMPTIONS: q. SCOPE q. BUDGET at COMPLETION (BAC) q. CRITICAL PATH METHOD (CPM) q. WORK BREAKDOWN STRUCTURE (WBS)

INTRODUCTION �FOCUS: q. EVM KEY PERFORMANCE INDICATORS (KPI) q. COST PERFORMANCE INDICATOR (CPI) q. SCHEDULE PERFORMANCE INDICATOR (SPI) q. TOTAL FLOAT (TF)

INTRODUCTION FOCUS: q. EVM a PROJECT CONTROL q. EVM to CALCULATE EAC q. EARNED VALUE (EV) vs EARNED PAYMENT (EP)

INTRODUCTION �TAKE A-WAY: q. WBS - INTEGRATOR q. EVM – PROJECT CONTROL q. EVM NOT FINANCIAL CONTROL q. EVM KPIs DEPEND UPON ALIGNMENT OF DD, PV, EV, AC, TF q. EV vs EP

EVM BENEFITS �INTEGRATES: q. SCOPE q. RESOURCE(COST) q. SCHEDULE q. RISK

EVM BENEFITS q. COMPARE UNLIKE ACTIVITIES q. COMMON NUMBER q. LOOK AHEAD TOOL q. ADDS DEPTH & INSIGHT q. EAC q. KPI IN LIEU OF DETAIL ESTIMATE TRENDING ANALYSIS

EVM BENEFITS �SUMMARY q. MEASURES PROGRESS q. OBJECTIVE MEASUREMENT q. COMPARES PROGRESS TO THE SCOPE, RESOURCE (COST), SCHEDULE & RISK PLANS

EVM FOUNDATION BAC WBS WBS CPM PMB DATA DATES (DD) WBS PLANNED VALUES (PV) Per DDs

EVM EAC q. EAC = AC + (BAC –EV)/CPI q. EAC = AC + [(BAC – EV) / (EV/AC)] q. EAC = AC + [(BAC – (%C*BAC)/AC)]

EVM EAC q. EAC = AC + (BAC –EV)/ (SPI*CPI) q. EAC = AC + {(BAC – EV) / [(EV/PV) * (EV/AC)]} q. EAC = AC + {[(BAC – (%C*BAC)/ {[(%C*BAC)/PV)]* [(%C*BAC)/AC)]}}

ALIGNMENT DATA DATE (DD) PLANNED VALUE (PV) EARNED VALUE (EV) ACTUAL COST (AC) TOTAL FLOAT (TF)

q. KPI WBS INTEGRATION ROLLED UP OR DRILLED DOWN q. BASIS q. THE FOR TRACEABILITY OF KPIs USE OF ADDITIONAL FILTERS q. Organization Breakdown Structure (OBS) q. Resource/Cost Breakdown Structures (RBD/CBS)

DATA DATE (DD) q. RECURRING q 1 st RECORDING DATE DAY AFTER RECORDING PERIOD q. SEPARATES ACTUAL (HISTORY) FROM SCHEDULED DATA q. PV, EV, AC, TF MUST ALIGN WITH DD q. THE BASIS OF KPI TRENDING

PLANNED VALUE (PV) q. PV PER BAC, CPM, PMB q. PV IS FIXED TO DD q. PV IS IN SAME UNITS OF MEASUREMENT AS EV

EARNED VALUE (EV) q. EV IS NOT FIXED TO DD q. EV IS ACCOMPLISHMENT OF PV q. EV IS IN SAME UNITS OF MEASUREMENT AS PV

ACTUAL COST (AC) q. AC IS ACTUAL RESOURCE (COST) q. AC SAME DD AS EV q. INVOICE DELAY A DISTORTION OF AC q. AC ACCRUAL q. AC vs. EP

TOTAL FLOAT (TF) q. CRITICAL PATH (CP) SCHEDULE KPI q. MEASURES q. TF THE CP ACTIVITIES MUST BE ALIGNED WITH THE DD & SPI ARE NEEDED TO ANALYZE BOTH THE FLOAT AND CP ACTIVES

EVM KPIs COST PERFORMANCE INDEX (CPI) q. CPI =EV/AC q. CPI = <1 – OVER BUDGET q. CPI = 1 – ON BUDGET q. CPI = 1< - UNDER BUDGET

EVM KPIs �SCHEDULE PERFORMANCE INDEX (CPI) q. SPI = EV/PV q. SPI = <1 - BEHIND SCHEDULE q. SPI = 1 – ON SCHEDULE q. SPI = 1< AHEAD OF SCHEDULE q. NOTE: WHEN EV = PV = SPI = 1 q. SCHEDULE VARIANCE = $0 q. REGARDLESS OF SCHEDULE

27 EVM KPIs CPI, SPI, TF = 27 KPI MATRIX EXAMPLES: q 1 – CPI=1. 00, SPI=1. 00, TF=0 q 2 – CPI=1. 00, SPI=0. 85, q 3 – CPI=1. 00, SPI=1. 25, q 4 – CPI=1. 00, SPI=0. 85, q. OBSERVATIONS q 5 – CPI=0. 85, SPI=1. 00, q 6 – CPI=0. 85, SPI=0. 85, TF=0 TF=-20 TF=+20 TF=-20

EARNED PAYMENT (EP) q EP DETERMINISTIC q. PER T& C OF THE CONTRACT q. PV FLOATS WITH EP q. DD FLOATS WITH EP q EV PROBABILISTIC q. EAC AND KPIs q. PV FIXED PER PMB q. DD FIXED PER EV q. AC IS FIXED TO EV

EV vs EP EVM ELEMENT Earned Value (EV) EV is a EV & EP measurement Functions of a Project's progress Earned Payment (EP) EP is used to determine payment

EV vs EP Earned EVM Earned ELEMENT Value (EV) Payment (EP) EV measures EP measures progress of Progress actual progress of payment a project

EV vs EP EVM Earned ELEMENT Value (EV) Payment (EP) Data Date (DD) EV is measured EP of several activities will for all most likely activities prior to the have different DD DD

EV vs EP EVM ELEMENT Earned Value (EV) Earned Payment (EP) Planned PV is fixed PV moves Value (PV) to a specific with the EP time period

EV vs EP EVM ELEMENT Actual Cost (AC) Earned Value (EV) Earned Payment (EP) The cost EP is cash (not cash flow and not flow) to necessarily achieve the AC. EV

EV vs EP EVM ELEMENT Earned Value (EV) SUMMARY EV measures project progress. Earned Payment (EP) EP measures project payment.

q ONLY SUMMARY AS GOOD AS FOUNDATION SCOPE, RESOURCE (COST), SCHEDULE and RISK q EVM q NEEDS WBS TO INTEGRATE MUST ALIGN DD, PV, EV, AC, TF q EP MEASURES PAYMENT q EV MEASURES PROGRESS

This is Earned Value!

QUESTIONS & CRITIQUE