PMGT3623 Week 11 Lecture Plan (With Solution) PDF

PMGT3623 Scheduling Week 11: Progress Reporting and Earned Value Analysis Dr Shahadat Uddin The University of Sydney Page 1 Acknowledgement of Country I would like to acknowledge the Traditional Owners of Australia and recognise their continuing connection to land, wa...

PMGT3623 Scheduling Week 11: Progress Reporting and Earned Value Analysis Dr Shahadat Uddin The University of Sydney Page 1 Acknowledgement of Country I would like to acknowledge the Traditional Owners of Australia and recognise their continuing connection to land, water and culture. I am currently on the land of the Gadigal people of the Eora Nation and pay my respects to their Elders, past, present and emerging. 2 PMGT3623 Overview Week Topic Week 01 Introduction to Scheduling, Course Resources and Assessment Components Week 02 Define and Sequence Project Tasks Week 03 Project Network Diagram (Discrete Approach) Week 04 Probabilistic Approach to Project Network Diagram – Part I Week 05 Probabilistic Approach to Project Network Diagram – Part II Week 06 Confidence Analysis of Project Network Diagram Week 07 Knowledge Test Week 08 Implementation of Project Network Diagram using Microsoft Project Week 09 Simple Task Allocation Approach Mid-Semester Break Week 10 Complex Task Allocation Approach Week 11 Progress Reporting and Earned Value Analysis Week 12 Group Assignment Presentation Week 13 Review 3 PMGT3623 Assessments No Assessment Name Weight Due date Comment 1 Weekly Participation 10% W2-W6; W9-W10 Best 6 (out of 7) 2 Knowledge Test 20% W7 3 Group Assignment Presentation (Part A) 10% W12 and W13 4 Group Assignment Report Submission (Part B) 20% Friday of W13 By 11:59 pm 5 Final Exam 40% Exam Week 4 Week 11: Progress Reporting and Earned Value Analysis Topics Covered - EVA: Primary and Secondary metrics - Application of EVA for Progress Reporting - Demonstration of EVA reporting in Microsoft Excel 5 Earned Value Analysis What is Earned Value Analysis (EVA)? ❖ EVA is an objective method to measure project performance in terms of triple constraints: Scope, Time and Cost. ❖ The systematic approach to the integration and measurement of cost, time and scope accomplishments of a project is the Earned Value Management System (EVMS). Why EVA? ❖ EVA is an industry-standard way to measure a project’s progress, forecast its completion date and final cost, and provide schedule and budget variances along the way. ❖ With EVA in implementation, the following questions can be answered objectively: o Where have we been? o Where are we now? o Where are we going? 6 Earned Value Analysis (cont.…) Earned Value Management History 1960s: ❖ Earned value-based performance management began in the 1960s by the US Department of Defense (DoD). ❖ DoD initially adopted Cost, Schedule, and Status Reporting (CSSR) parameters and imposed this approach on their major contracts. ❖ Earned Value was used as an objective measure for progress analysis (i.e., physical accomplishment) 1970s-1980s ❖ The DoD continued using Earned Value in response to bearing cost and schedule risk in cost-plus contracting (i.e., any extra cost will be provided by the project owner). 1990s: ❖ Policy moved Earned Value into all Federal agencies ❖ Has converged into the current Earned Value Management System (EVMS). 7 Earned Value Analysis (cont.…) Component of Earned Value Management Primary ones 8 Source: PM Knowledge center Earned Value Analysis – Primary Metrics Planned Value (PV) – What do you plan to do? ❖ It refers to the physical work scheduled and the approved budget to accomplish the scheduled work. ❖ PV is also known as the Budgeted Cost of Work Scheduled (BCWS). PV can be either cumulative or current. ❖ It can be either cumulative or current. Actual Cost (AC) – What have you spent? ❖ Actual expenditures or charges are the Actual Cost (AC). ❖ AC is also called the Actual Cost of Work Performed (ACWP). ❖ It can be either cumulative or current. Earned Value (EV) – How much work is actually done? ❖ EV tells, in physical terms, what the project has accomplished. ❖ Earned Value is also called the Budgeted Cost of Work Performed (BCWP). ❖ It can be either cumulative or current. 9 Earned Value Analysis – Primary Metrics (cont.…) Example of PV, AC and EV Suppose, Software Design is a part of the scope of a major Server design project and the time frame is 5 months with the budget for this scope is $15,000. Based on a part of WBS given below, calculate the cumulative and current PV, AC and EV. PV (current) = $3,000 PV (cum) =? PV (cum) = 3,000 + 3,000 + 3,000 = $9,000 AC (current) = $1,200 AC (cum) = 1,100 + 900 + 1,200 = $3,200 EV (current) = $1,000 EV (cum) = 800 + 1,300 + 1,000 = $3,100 10 1. Exercise on Earned Value Analysis – Primary Metrics Assume a small four-week software enhancement is budgeted for $10,000. While reporting the status during the third week, the project manager determines that his team has only completed 50% of the work. Based on the project schedule, the team was supposed to complete 75% of the work during the third week. The project manager also noticed they had spent $9,000 on the project. What are the PV, AC and EV for this project? Solution: PV = Planned (%) Complete × Project Budget = 75% × $10,000 = $7,500 EV = Actual (%) Complete × Project Budget = 50% × $10,000 = $5,000 AC = $9,000 11 Earned Value Analysis – Secondary Metrics Earned Schedule ❖ The first secondary EVA measure per the EVM component (4 slides before). ❖ ES is a simple translation of the EV of a given status date into time units by determining when this EV should have been earned in the baseline schedule. A formal definition of the ES metric can be given as follows: Find t such that EV ≥ PVt and EV 90 ES = t + 90−85 𝑃𝑉𝑡+1 − 𝑃𝑉𝑡 ES = 5 + = 5.14 weeks 120−85 13 Earned Value Analysis – Secondary Metrics (cont.…) For Cost Management Cost Variance (CV) ❖ The Cost Variance (CV) is the difference between the EV of work performed and the AC. It is used to determine whether a project is under or over budget at a specific point in time. ❖ It can answer this question: How much is the project over or under budget? ❖ Mathematically, CV = EV – AC Cost Performance Index (CPI) ❖ The CPI measures the value of work performed against the actual cost. 𝐸𝑉 ❖ Mathematically, CPI = 𝐴𝐶 ❖ CPI 1: Project is ahead of schedule; o SPI < 1: Project is behind the schedule o SPI = 1: Project is on schedule 16 Earned Value Analysis – Secondary Metrics (cont.…) For Schedule Management – Example Using the project status figure given below, determine the SV and SPI. What do these values mean to the project? 𝐸𝑉 𝑆𝑉 = 𝐸𝑉 − 𝑃𝑉 𝑆𝑃𝐼 = = $33,149 − $38,269 𝑃𝐶 33,149 = −$5,120 = = 0.87 38,269 Behind schedule - what was earned Project is 13% behind the schedule, or to date is less than what was The project team working at an 87% planned to be accomplished. efficiency. 17 2. Exercise on CV, CPI, SV and SPI A factory is designed to make 1,000 cups of soft drinks over 50 days at a steady rate of 20 cups per day. The budgeted cost per cup is $0.50, and the total project budget is $500. It was reported that at the end of day-10, 150 cups had been made with a total cost of $90. What is the project status (in terms of CV, CPI, SV and SPI) of this soft drink manufacturing company? Solution: Here, PV = $100 [10 days x 20 cups per day x $0.50/cup] EV = $75 [150 cups x$0.50/cup] AC = $90 Therefore, CV = EV – AC = $75 - $90 = -$15 CPI = EV/AC = 0.83 SV = EV – PV = 75 – 100 = -$25 SPI = EV/PV = 0.75 Thus, the status of the manufacturing company as of day 10 is: The project is experiencing cost overrun such that the return is 83¢ on every $1 spent on this project. The project is behind schedule and 75% efficient 18 Earned Value Analysis – Secondary Metrics (cont.…) SV and SV(t) We know, SV = EV – PV; and 𝐸𝑉−𝑃𝑉𝑡 ES = t + [where, t ϵ EV ≥ PVt and EV < PVt+1] 𝑃𝑉𝑡+1 −𝑃𝑉𝑡 SV(t) represents how much time the project is ahead or behind compared to the current Actual Time (AT). In equation, 𝑺𝑽 𝒕 = 𝑬𝑺 − 𝑨𝑻 SV(t) > 0: project is ahead of schedule SV(t) = 0: project is on time SV(t) 1: project is ahead of schedule SPI(t) = 1: project is on time SPI(t) < 1: project is delaying 20 Earned Value Analysis – Secondary Metrics (cont.…) SV(t) and SPI(t) – Example Find out the SV(t) and SPI(t) in week 7 from the figure below AT=7 ES=5.14 EV in week 7 = $90 SV (t) = 5.14 – 7 = -1.86 (project is delaying) t = week 5 since 85 ≤ 90 and 120 > 90 SPI (t) = 5.14/7 = 0.73 or 73% (project delays) ES = 5 + (90 - 85)/(120 - 85) = 5.14 21 Project Progress Reporting Derived measures of Earned value management system Project Reporting – Cost Performance Report (CPR) Effective analysis of variations from the plan for both schedule and cost provides management the ability to rapidly and effectively implement corrective actions. Cost Performance Report (CPR) is a reporting style which is mostly used for Earned Value Management Reporting and Analysis. ❖ The CPR compares the EV with the PV and with the AC to provide schedule and cost variances. ❖ The CPR also compares the BAC (Budget At Completion) with the EAC (Estimate At Completion) to provide a Variance At Completion (VAC). ❖ The CPR provides the Project Manager (PM) with the impact or quantification of problems in dollars ❖ It is also known as Contractor Performance Report/ Contract Performance Report 22 22 Project Progress Reporting (cont.…) Cost Performance Report (CPR) format The Cost Performance Report (CPR) is the most comprehensive of all types of EVMS reports. It is normally a monthly report and has five different formats: ❖ Format 1 Work Breakdown Structure (WBS): It provides data to measure cost and schedule performance at WBS level. ❖ Format 2 Organisational Categories (OBS) : It provides data to measure cost and schedule performance by organisational or functional cost categories. ❖ Format 3 Baseline: It provides the budget baseline plan against which performance is measured. ❖ Format 4 Staffing (Manpower): It provides manpower loading forecasts for correlation with the budget plan and cost estimate predictions. ❖ Format 5 Variance Analysis Report: It provides a narrative report used to explain significant cost and schedule variances and other identified contract problems. 23 Review Questions a) What is Earned Value Analysis? b) What are the differences between cost variance and schedule variance? c) What are the differences between the cost performance index and the schedule performance index? d) What are the differences between SV and SV(t)? e) What are the differences between SPI and SPI(t) f) What are the limitations of SV and SPI? What other measures can overcome these limitations? g) What is Earned Schedule? 24