Earned Value Management, Part 2

As I mentioned in Part 1, EVM is not scary. In fact, once the tools are in place it is really a matter of interpreting the data that is presented. As far as analyzing and presenting data is concerned, I would not want to use any other tool. Nothing else can get us the granularity to see how things are really progressing with our projects at any given time. There is one key, however . . . earned value is just that, what have you EARNED. Perhaps better stated is “what have you completed”. If the customer stopped the project today and asked for completed products, what would you give them. A car that has no wheels on it is not a completed product, therefore would not be counted as complete in our calculations.

So, keep that in mind when doing your calculations.

I want to first introduce to you my favorite calculations – The Performance Indices, CPI and SPI. CPI, or Cost Performance Index, is a quick look at how your project is measuring up from a cost perspective. Meaning, how much have you spent to earn what you’ve earned. It is presented as a number that should hover around 1.0. A 1.0 CPI is a “perfect” cost index. Anything above 1.0 is good or under budget. Anything below 1.0 is bad, or over budget. And of course, a 1.0 is exactly on budget. The SPI: Schedule Performace Index is exactly the same as the cost index except it deals with time rather than dollars. Again, anything 1.0 or above is good (on or ahead of schedule) and below is bad (behind schedule).

Take a look at the following graphic. What are some things you notice?

One thing, as you can see, the CPI, or cost performance index, is way above 1.0. This is good from a budget standpoint(way under), but the PM (me in this case) chould probably take a look at his estimating techniques. The SPI has a completely different story. For much of this project, the team was behind schedule, sometimes severely. This indicated that the project was way behind schedule and more money should be spent in order to catch up. Looking back on this chart and thinking about the challenges we had, I know exactly what I would do for the next one (and it involved spending more money on specific resources that would allow for the schedule to be even higher.)

How did I get there? Simple . . .
CPI=Earned Value divided by Actual Cost (CPI=EV/AC)
SPI=Earned Value divided by Planed value (SPI=EV/PV)

Do you remember what EV is? That’s right, it is the % complete based on what deliverables have actually been completed. Your planned value, of course, is what your project plan said you were going to have completed (in % Complete) on the date of the report.

You might have noticed the little “c” at the end of CPI and SPI (CPIc – SPIc). This stands for “cumulative” or the current state of the entire projet, not just a single snap shot. The chart above has data points for each week so I could see any trends developing.

That’s it for this post. I hope you all had a Merry Christmas. Thanks for reading.

Next up: Variances!

Earned Value Management Part 1

There is a lot more to earned value than what should be described in a single blog, so I am going to break it up over several over the next few days. In the PMBoK (Project Management Body of Knowledge) Fourth Edition, Earned Value Management (EVM) would fall under a few of the knowledge areas. Mostly it will fall under: Project Time Management, Project Cost Management,  and Project Communications Management. We can and will dig into these a little deeper, but for now, you’ll just need to know that it covers these three main knowledge areas. Probably the biggest, in my professional opinion, is Project Communications Management.

Why? Simple really . . . the whole reason for EVM is for tracking the actual earned (completed) progress of your project. EVM gives you an in-depth look directly into the heart of your actual progress. The end result, if desired is a graph that you can review for trends or use to report your excellent progress to the project sponsors and other stakeholders. Here is an example of an earned value graph for a project over a year long. As you can see, this project was in trouble from the start but the adjustments that were made will end this project almost perfectly with an SPI of 1.02 and a CPI of well over that (more on those later).

Earned Value

There are a few pieces to earned value which will all be discussed over the next few installments (again, I don’t want to hit you with it all at once). Things that I will discuss are:

  • Planned Value
  • Earned Value
  • Actual Cost
  • Cost Variance
  • Schedule Variance
  • Cost Performance Index (CPI)
  • Schedule Performance Index (SPI)
  • Estimate at Completion (EAC)
  • Estimate to Complete (ETC)
  • Budget at Completion (BAC)
  • And last but not least . . . Variance at Completion (VAC)

Yes, there are a lot of accronyms in there and there are quite a few formulas as well, but don’t let them scare you. The formulas are straight forward and easy to you, especially if you set the up in some sort of tool that you use all the time such as Microsoft Excel. I will give you the formulas and show you when to use them and how to use them. I even have a tool that I’ve setup that I use on a daily basis that I will share with you if you desire. It is somewhat proprietary to my time and cost tracking systems, but we can work together to make it work for you as well.

BTW, back to the numbers that I showed you above, the Microsoft Project plan (not using EVM) shows this project as ahead most of the time. Can you imagine? I would have been telling management that my project was just fine (thinking that the whole time myself) while the project was actually in dire straights from the beginning. Using Earned Value allowed me to make serious adjustments and get this ship back on track. It wasn’t easy though, I assure you, but at least I knew issues existed early on so they could be corrected in time.

More on this topic later . . .

Earned Value

I use EVM (Earned Value Management) on all of my projects. The project stakeholders love the real-time look at actual progress acheived.

There is a difference in what percent complete really means . . . Do you want to know more?

If you don’t mind, please take this short poll so I can see where we all stand.

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