Learning Earned Value Management using Lego Bricks

Predicting progress on
your project
- using Lego bricks to
understand EarnedValue
Presented by
Youssef Mourra
Director, Principal Consultant
021 423 620 youssef@nonsuch.co @youssefmourra
September 4
PM Conference 2015
Te Papa Museum,Wellington
www.nonsuch.co
info@nonsuch.co

© Nonsuch Consulting 20152
A bit about me…
• 25 years’ experience in project, programme and portfolio management in
various countries.
• For the past 12 years, based inWellington and servicing customers and
clients in NZ and Australia and nearby.
• I have three children under 13 and when I have time, I enjoy music,
reading, fruit trees, cricket, theatre, travel, wine, politics and etymology
(the history and study of words).
• I’m a regular presenter at the annual Project Management Conference in
NZ and occasionally in Australia:
• Eddie Obeng – ProjectTypes
• The Zombies of Project Management
• The Zombies of Programme and Portfolio Management
• SoYou think you’re ready to be a Consultant?

Today’s session
• On a Friday afternoon…
• You’ve been out partying last night…
• You’ve just had lunch…
• Your eyelids are heavy…
• You will fall asleep…
• This is going to be great session, don’t you think?

Predicting progress on your
project
What are our options?

Horoscope?
Imagine a Scorpio Project Manager!
Or a Libran sponsor!

Crystal Ball?

Tarot Cards?

Superstition?

Mood?

What is EarnedValue Management?
• EarnedValue Management (EVM) is a management methodology for
integrating scope, schedule and resources for objectively measuring
project performance and progress and for forecasting project
outcome
• It 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.

EarnedValue Management
• In English, please!
• Okay, think about going to a friend’s bbq in a different city to your own…
• Scope – driving to a different city to catch up with friends and have a bbq
• Schedule – the time you are due at your friend’s place along with an estimated duration of the
journey
• Resources – your time, effort and costs involved in the journey
• However, at some point in the journey, you might find yourself or your partner asking
these questions
• Are we on schedule?
• Are we running a bit late?What will we do?
• Are we running a bit too fast?What will we do?
• Will we get there on time?
• Will we be late? How late?
• With EarnedValue Management, we can answer these questions confidently and more

Point in time…
• So, EarnedValue Management is about a ‘point in time’ calculation.
In other words, it’s about what the future looks like based on
performance to this point in time. It’s not a fixed prediction but
rather a prediction at this point of time that still allows, hopefully, for
time to intervene and in some cases wilfully and positively change
the final prediction.
• Today, I will be taking you through the Change Management lifecycle
to ensure that I help effect some change in your approach and
understanding of EarnedValue Management.The first step is
Awareness and so I hope I’ve just made you aware of EarnedValue
and what it purports to do.

Change Management : ADKAR
Current State Transition State Future State
Awareness
of the need
for change
Desire
to participate
and support
the change
(WIIFM)
Knowledge
on how to
change
Ability
to implement
required skills
and behaviours
Reinforcement
to sustain the
change
Change Management
A D K A R
‘Unfreeze’ ‘Move’ ‘Refreeze’

EarnedValue
• What’s the problem we’re trying to fix here?
• What’s in it for you and your organisation?

What’s the problem?
• 70% of projects are:
• Over budget
• Behind schedule
• 52% of all projects finish at 189% of their initial
budget
• And some, after huge investments of time and
money, are simply never completed!
• Source: The Standish Group

Have we done what we said we’d do?
• % complete estimating
• % of Budget spent
• % of work done
• % of time elapsed
• subjective, incomplete
• draws false conclusions

What’s More Important
• Knowing where you are on schedule?
• Knowing where you are on budget?
• Knowing where you are on work accomplished?
• It’s difficult to judge one of the three over the other, so in fact all
three are equally important.

EVM IntegratesAllThree elements
• It compares the PLANNED amount of work with what has actually
been COMPLETED, to determine if COST , SCHEDULE, and WORK
ACCOMPLISHED are progressing as planned.
• Work is “Earned” or credited as it is completed.
• By integrating three measurements, it provides consistent,
numerical indicators with which you can evaluate and compare
projects.

The challenging questions that EVM
answers
• Are we delivering more or less work than planned?
• When is the project likely to be completed?
• Are we currently over or under budget?
• What is the remaining work likely to cost?
• What is the entire project likely to cost?
• How much will we be over or under budget at the end of the project?
• What is driving the significant cost and/or schedule variances?

EarnedValue is Needed because….
• …it provides an Early Warning Indicator (EWI) for
prompt corrective action when there is still time
to intervene – timely change requests if required
• There is often a need to “roll up” progress of
many tasks into an overall project status
• There is a need for a uniform unit of measure
(dollars or work-hours).

Awareness
of the need
for change
Desire
to participate
and support
the change
(WIIFM)
Knowledge
on how to
change
Ability
to implement
required skills
and behaviours
Reinforcement
to sustain the
change
Change Management
A D K A R

What do I need to get started?
• You will need aWork Breakdown Structure (WBS)/ Product
Breakdown Structure (PBS)
• It needs to be deliverable or product oriented
• If it’s not in the WBS/PBS, then it is out-of-scope
• Each descending level represents more detail
• Full (and accurate) definition is key
• Defined deliverables/products
• Timeframe for delivery of deliverables/products
• Total cost (direct and indirect) to deliver deliverables/products
• Let’s look at an example…

A sample schedule (with aWBS/PBS
embedded)

Requirements of EarnedValue
• Proper PBS/WBS Design
• Baseline Budget Baseline Schedule
• Work measurement by work-hours, dollars, units, etc.
• Good Project Scheduling Practices involving the following:
• A baselined schedule with costs (as mentioned above)
• The recording of actual progress on effort and costs
• The recording of estimates to completion for effort and costs

EarnedValueTerminology
• Let’s learn the terminology.We’ll start with the first two:
• PV – PlannedValue
(Formerly known as BCWS - Budgeted Cost ofWork Scheduled)
• PlannedValue is the authorised, time-phased budget assigned to accomplish
the scheduled work. At any given point on a time line, PV describes how
much of the project work was planned to be performed
• BAC – Budget at Completion
• The sum of all budgets established for the work to be performed.The project
BAC is the sum of all the work package BACs
• Please note. At the start of a project, before any progress has been made and after budgets
have been set and baselined, the PV and BAC are normally identical

What does it look like?
Please note
that the PV and
BAC are
identical at the
start of the
project before
any work
commences or
any costs are
incurred

It’s getting too theoretical….
It’s Lego time!!

Grab your worksheet
You have 100 bricks.You have 4 minutes
You will earn $10 per minute
per person and $1 per brick
laid
You will build a wall

[what happened with the audience]
• I asked them to build a wall like the
one displayed here except it was to
be 10 bricks wide and 10 bricks
high. I promised them 4 minutes
and emphasised it wasn’t a race
and then I abruptly asked them to
stop immediately after 2 minutes
had passed and to record how
many bricks they had laid in their
incomplete wall.This number of
bricks is significant.

Work these out
• PV – PlannedValue
• (Formerly known as BCWS - Budgeted Cost ofWork Scheduled)
• PlannedValue is the authorised, time-phased budget assigned to accomplish the
scheduled work. At any given point on a time line, PV describes how much of the
project work was planned to be performed
• BAC – Budget at Completion
• The sum of all budgets established for the work to be performed.The project BAC is
the sum of all the work package BACs
• Assuming there are 2 builders working on this and based on the
assumptions outlined in Slide 28, the answers and workings are:
• PV = 100 bricks @ $1 [$100] plus 2 people @ $10/minute for 4 minutes [$80] = $180
• BAC = same as above = $180

The Answer sheet
Calculation 2 person teams 3 person teams
PlannedValue – PV $180 $220
PlannedValue – PV2 $90 $110
Budget At Completion $180 $220
Cost per brick laid $1.80 $2.20
Note the use of PV with a little ‘2’.This denotes the PlannedValue at 2 minutes into
the 4 minute estimated duration of the task.This is significant as we use the PV2 value
from here on as we are interested in measuring EarnedValue at this point of time,
namely 2 minutes into our 4 minute task. Please also note the cost per brick laid.This
is significant later on.

EarnedValueTerminology
• Okay, another two:
• AC – Actual Cost
• (Formerly known as ACWP - Actual Cost ofWork Performed)
• The realised cost incurred for the work performed on an activity during a specific time
period.This can be reported for cumulative to date or for a specific reporting period.
• EV – EarnedValue
• (Formerly known as BCWP – Budgeted Cost ofWork Performed)
• The measure of the work performed, expressed in terms of the budget authorised for that
work. EarnedValue can be reported for cumulative to date or for a specific reporting period.
• Assuming there are 2 builders working on this and based on the assumptions
outlined in Slide 28, and that only 60 bricks have been laid, the answers and
workings are on the next slide

The Answer sheet
Category 2 person
teams
3 person
teams
PlannedValue – PV $180 $220
PlannedValue – PV2 $90 $110
Budget At Completion - BAC $180 $220
No. of bricks built = B B B 60
Actual Cost – AC (B *$1 ) + Cost of Effort to Date $100
EarnedValue – EV B * Cost of Bricks Laid $108

What does it look like?
Please note
that the EV and
the AC are
often different
values unless
we are strictly
on target wit
progress.

Some Derived Metrics
 SV: ScheduleVariance (BCWP-BCWS) or (EV – PV2)
 A comparison of amount of work performed during a given period of
time/earned value to what was scheduled to be performed/planned value.
 A negative variance means the project is behind schedule
 CV: CostVariance (BCWP-ACWP) or (EV – AC)
 A comparison of the budgeted cost of work performed /earned value with
actual cost.
 A negative variance means the project is over budget.

The Answer sheet
Category 2 person teams 3 person 2 person
PlannedValue – PV $180 $220 $180
PlannedValue – PV2 $90 $110 $90
Budget At Completion - BAC $180 $220 $180
No. of bricks built = B B B 60
Actual Cost – AC (B *$1 ) + Cost of Effort to Date
$100
EarnedValue – EV B * Cost of Bricks Laid
$108
ScheduleVariation – SV EV - PV2
$108 - $90 =
$18
CostVariation - CV EV - AC $108 - $100 =
$8

Some More Derived Metrics
 SPI: Schedule Performance Index
 SPI=BCWP/BCWS or SPI = EV/PV2
 SPI <1 means project is behind schedule
 CPI: Cost Performance Index
 CPI= BCWP/ACWP or CPI = EV/AC
 CPI <1 means project is over budget
 CSI: Cost Schedule Index
 (CSI=CPI x SPI)
 The further CSI is from 1.0, the less likely project recovery becomes.

The Answer sheet
Category 2 person teams 3 person 2 person
PlannedValue – PV2 $90 $110 $90
Actual Cost – AC (B *$1 ) + Cost of Effort to Date
$100
EarnedValue – EV B * Cost of Bricks Laid
$108
ScheduleVariation – SV EV - PV $108 - $90 =
$18
CostVariation - CV EV - AC $108 - $100 =
$8
Schedule Performance Index – SPI EV/PV2
$108/$90 =
1.2
Cost Performance Index – CPI EV/AC $108/ $100 =
1.08
Cost Schedule Index - CSI CPI x CSI 1.2 * 1.08 =
1.296

Making Projections
• Once a project is 10% complete, the overrun at
completion will not be less than the current overrun.
• Once a project is 20% complete, the CPI does not
vary from its current value by more than 10%.
• The CPI and SPI are statistically accurate indicators of
final cost results.
Source: DefenseAcquisition University

Today’s Challenges
• Today’s executives must achieve critical outcomes, respond rapidly
to business changes, and make strategic project decisions earlier
than ever in the project life cycle—all with increased visibility into the
decision-making process.
• Need for accurate and consistent status information
• Numerous complex (and interrelated) projects with many activities
with many dependencies
• Project managers are asked to reduce project costs while improving
forecasting and to compress schedules while increasing schedule
accuracy.

CPI / SPI charting

Any shortcomings with EarnedValue?
• Yes, sometimes quantifying/measuring work progress can be difficult.
Think about the challenges that Agile project management might throw
up. How might you tackle that? Is there value in EarnedValue
Management for projects using the Agile approach?
• The time required for data measurement, input, and manipulation can be
considerable.
• You will need to be cognizant of effort curves and ensure you have that
built into your baseline
• Front loaded, back loaded, turtle, double peak, etc.
• It mustn’t be the SOLE arbitrator in making decisions about projets within
a portfolio.This is just one perspective in decision making – don’t forget
benefits, strategic alignment, risk etc.

Awareness
of the need
for change
Desire
to participate
and support
the change
(WIIFM)
Knowledge
on how to
change
Ability
to implement
required skills
and behaviours
Reinforcement
to sustain the
change
Change Management
A D K A R

So, IsThis Stuff New ?
• It’s been around since the sixties.
• It was also known as “Cost/Schedule Control
Systems Criteria” (C/SCSC)

Do I have to create this from scratch
each time?
• So where do I get one?
• Buy a prepackaged application. (Lots of them around)
• Make your own in Microsoft Excel
• Use Microsoft Project, or Microsoft Project Server
• Most PMIS (Project Management Information System) applications
systems will EarnedValue built into their views, reports and tables

EarnedValue – Reports &Views

EarnedValue -Tables

In summary
• Need to get beyond misleading measures of progress.
• EarnedValue Management will help reduce guesswork in:
• measuring performance
• forecasting

One Final Caveat – a positive one
Past Performance is Not Necessarily Indicative
of Future Results
How?
If we are using EarnedValue, we have time to
intervene and help Shape the Future of our
project’s results

Awareness
of the need
for change
Desire
to participate
and support
the change
(WIIFM)
Knowledge
on how to
change
Ability
to implement
required skills
and behaviours
Reinforcement
to sustain the
change
Change Management
A D K A R

Best of luck!
• Thanks for your attendance
• For more information or if you have any questions, please
contact me on
• Phone: 021 423 620
• Website: www.nonsuch.co
• Email: youssef@nonsuch.co
• Twitter: @youssefmourra

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