Week 10 Lecture 10a Earned Value Management Analysis PDF

Course Title PROJECT MANAGEMENT Course Code 0404438 Course Leader: Prof. Alex Opoku (PhD, MSc, BSc (Hons), PGCHE, FHEA, MCIOB, FRICS) Professor of Sustainable Built Envionment Lecture overview Project Earned Value...

Course Title PROJECT MANAGEMENT Course Code 0404438 Course Leader: Prof. Alex Opoku (PhD, MSc, BSc (Hons), PGCHE, FHEA, MCIOB, FRICS) Professor of Sustainable Built Envionment Lecture overview Project Earned Value Management Course Learning Outcomes covered: 1.Understand what a Project is, what Project Management is, and the role and responsibilities of the Project Manager within the construction team. 2.Understand how Project Managers manage projects by integrating scope, time, cost, quality, human resources, communications, risk and procurement of a project. 3.Learned to apply methods for estimating time and cost and managing quality in a construction context. 4.Learned theories of leadership, communication, motivation, conflict management within teams. 5.Understand Procurement and Risk management and how they are related. Earned Value Management/Analysis  Earned Value is the value we assign to work – it can be expressed in hours or in monetary units (dirham, dollars, euros, yen, etc.)  Earned Value Management (EVM) is a technique, or a method, used to help project managers assess the costs of labour on a project, and predict project performance Earned Value Management EVM exists to answer three important questions on every project:  Where were we?  Where are we right now?  Where will we be / Where are we going? Earned Value Management focuses on three important data sources:  The planned value (initial budget for the project)  The actual value of the finished project  The earned value of the work that was completed The basic elements of EVM At the core of EVM are these four elements:  Work Breakdown Structure (WBS) – the foundation of your project  Planned Value (PV) – the budget given to realize the project  Earned Value (EV) – the value created by the project in production  Actual Cost (AC) – the cost of the work during the realization of the project Earned Value Key questions Item Questions Planned Value (PV) How much work should be done? Earned Value (EV) How much work was done? Actual Cost (AC) How much did the work cost? Budget at Completion What is the total job (BAC) budgeted to cost? Estimate at Completion What do we expect the (EAC) total job to cost? Typical Budget vs. Actual Comparison Earned Value Comparison Earned Value helps us manage a project by:  providing data to enable objective measurement of project status;  providing a basis for estimating final cost;  predicting when the project will be complete;  supporting the effective management of resources;  providing a means of managing and controlling change Earned Value Management Benefits Contractor benefits of earned value management:  Creates a solid performance framework;  Provides solid risk management;  You can accurately measure and see the project’s progress at any stage;  There’s a single system that tracks time, work done, and the budget, instead of multiple;  Forecasts the completion date and expenses by the end of the project Earned Value Management Benefits Client benefits of earned value management: Informs which projects and/or agencies are worth investing in; It’s easier to be provided with more accurate reports; Greater transparency; Tracking the progress of the project in near- real-time makes for more informed choices on further funding Earned Value Formulas NAME FORMULA NOTES Cost Variance (CV) EV-AC Negative = Over budget Positive = Under budget Schedule Variance EV-PV Negative = Behind Schedule (SV) Positive = Ahead of Schedule Cost Performance EV/AC How much are we getting for every Index (CPI) dollar we spend? Schedule Perform EV/PV Progress as % against plan Index (SPI) Cost Forecasting Budget at Completion (BAC) BAC is the sum of all budgets established for the work to be performed It indicates how much was initially planned for the project to cost BAC is derived by looking at the total budgeted cost of the project Planned Value (PV), or Budgeted Cost of the Work Scheduled (BCWS) Planned value is the authorized budget assigned to the scheduled work It indicates how much work should have been completed at a point in time based on a plan PV = Planned % complete x BAC Variances Cost Variances (CV) How much under or over budget CV = EV-AC NEGATIVE is over budget, POSITIVE is under budget Schedule Variances (SV) How much ahead or behind schedule SV = EV-PV NEGATIVE is behind schedule, POSITIVE is ahead of schedule Performance Indices Cost Performance Index (CPI) Cost Performance Index is the rate at which the project performance is meeting cost expectations during a given period of time It is expressed as a ratio of the earned value to the actual cost CPI = EV / AC Schedule Performance Index (SPI) Schedule Performance Index is the rate at which the project performance is meeting schedule expectations up to a point in time It is expressed as a ratio of earned value to planned value SPI = EV / PV Performance Indices  Cost Performance Index CPI = EV / AC Over (< 1) or under (> 1) budget  Schedule Performance Index SPI = EV / PV Ahead (> 1) or behind (< 1) schedule Planned Value (PV) vs. Earned Value (EV) You have a project that spans over 10 months. The budget is AED100,000. After 5 months, you’ve estimated to have 50% (half) of the project done. What you want to know is how much of the budget would be spent by then? PV = (Planned completion %) x (BAC) PV = 0.5 x 100,000 PV = AED50,000 You have a planned budget of AED100,000 and 10 months for completion. After 5 months, you realize that only 30% of the work has been completed. How much value has the work actually garnered? EV = (actual completion %) x (BAC) EV = 0.3 x 100,000 EV = AED30,000 Schedule Variance Schedule Variance formula: SV = EV – PV  This variance shows if you are ahead or behind schedule  If the SV is positive, you are ahead of schedule If it is negative, you are behind, and if it equates to 0, you are right on schedule. For example: As per previous slide, Earned value is AED30,000, while Planned value was AED50,000. According to the formula: SV = 30,000-50,000 SV= – 20,000 Since the result is negative, it means the project is behind schedule Cost Variance Cost Variance formula: CV = EV – AC This variance shows you how over or under budget you currently are A negative result signals you’re over budget, while a positive result means you’re under budget For example: In our established example, we’ve seen that EV is AED30,000, while the AC is AED60,000. To calculate the cost variance you would apply the formula in the following way: CV = 30,000 – 60,000 CV = -30,000 The value of your project at the current state is lower than the money spent on it, bringing you way over budget The cost and schedule variances give a general idea of where you currently stand with the project To identify precisely how much the project is behind, or over budget, you use performance indexes Schedule Performance Index The formula of Schedule Performance Index: SPI = EV / PV This index will show how close the project is to its completion when compared to the schedule If the result is greater than 1,the project is doing well ahead of schedule Less than 1 means it is behind, while equal to one means everything is according to schedule For example: Our EV is AED30,000,while our PV is AED50,000. Using the formula: SPI = 30,000/50,000 SPI = 0.6 Which translates to: For every hour of work on the project, the team is completing 0.6, which is a little over 30minutes Cost Performance Index The formula of Cost Performance Index: CPI = EV / AC This index shows how budget-efficient the project is. If the result is higher than 1, the project is doing better than planned If the result is 1, everything is working according to the planned budget, and if it is less than 1, the project is over budget For example: Using the values above, we can do the following: CPI = 30,000 / 60,000 CPI = 0.5 As we’ve seen in Cost Variance before, the project is over budget. Note: These four formulas are the ones most commonly used in EVM, because of their applicability to any project References  Project Management Institute. (2004) A Guide to the Project Management Body of Knowledge (PMBOK® Guide). (Third ed.) Newtown Square, PA: Project Management Institute  Project Management Institute. (2005) Practice standard for earned value management (PMI Global Standard) (2005 ed.) Newtown Square, PA: Project Management Institute  Government Electronics and Information Association. (2002) Earned value management systems Approved: May 19, 1998. Reaffirmed: August 28, 2002. ANSI/EIA-748-A-1998  United States Department of Energy (2005) Earned value management application guide, version 1.6. January 1, 2005. Office of Engineering and Construction Management.  Reichel, C. W. (2006). Earned value management systems (EVMS): "you too can do earned value management" Paper presented at PMI® Global Congress 2006—North America, Seattle, WA. Newtown Square, PA: Project Management Institute.  Kerzner, H. 2013 “Project Management”, John Wiley Inc.  Lock, D. 2007 “Project Management” 9th edition, Gower Publishing Ltd.  Smith, NJ. 2002 “Engineering Project Management” 2nd edition, Blackwell Science  Turner, J. R. (2014). The Handbook of project-based management: Leading strategic change in organizations. London, UK: McGraw-Hill