1 BASICS OF EARNED VALUE MANAGEMENT National Contract Management Association Colorado Springs...

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BASICS OFEARNED VALUE MANAGEMENT

National Contract Management Association

Colorado Springs ColoradoJune 19, 2008

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Earned Value Management (EVM) Training Objectives

•Understand basic concepts– What EVM is and basic terms

•How to evaluate performance– What does it all mean?

•How to manage using Earned Value– Now that we know what it is and what it

means, what do we do with it?

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Earned Value Management Systems measure progress

Progress = Movement Forward

to measure progress,there must be a standardagainst which the forwardmovement may be

compared

EVMS establishes a baselineto measure progress

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EVM can provide answers to the following questions:

• How much have we spent?• How much did we get for our money?• How much more will be have to spend to complete

the tasks we wanted to accomplish?• How much longer will it take?• How efficiently is the work being done?• What has happened? (Why are we off

schedule/cost?)• What is happening? (What are the impacts?)• What is going to happen? (What are we doing to fix

it?)

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Why use Earned Value Management Systems?

“The Bottom Line”

• EVM can focus program management attention on critical issues and risks during the “project” life cycle

• How are you doing, and how do you know how you are doing?– Early problem identification

• Completion Estimates– How far along are you? (64%, 50%, >40%)– What is your productivity/efficiency?– Work remaining

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Earned Value ManagementIs Not:

• Guarantee of profit• Restricted to projects for the

production of a products – EVM can be used in service contracts

• Solution for a poorly written statement of work

• Magic Bullet

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Five Basic Elements

BCWS Budgeted Cost of Work Scheduled

BCWP Budgeted Cost of Work Performed

ACWP Actual Cost of Work Performed

BAC Budget at Completion

EAC Estimate at Completion

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5 Basic Performance Data Questions & Answers

QUESTION ANSWER ACRONYM

How much work should Budgeted Cost for BCWSbe done? Work Scheduled

How much work is done? Budgeted Cost for BCWPWork Performed

How much did the is done Actual Cost of ACWPwork cost? Work Performed

What was the total job Budget at Completion BAC supposed to cost?

What do we now expect the Estimate at Completion EACtotal job to cost?

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What do we measure progress against? and Why?

• Performance measurement baseline– Budget that is spread over . . .– Time, to accomplish the scope of – Work, against which progress can be

measured

• Earned Value is key concept– how much progress did I make against my

original plan?– expressed in dollars or hours– Why? – early warning $

time

baseline

earned value

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Why do we needEarly Warning?

Small course corrections are easier when made

early…

… If you wait until you reach the Iceberg, its too

late!!!

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Terms and Definitions associated with EVM:

• It starts with the Work Breakdown Structure (WBS) – Based on the WBS a total budget is

assigned – Work packages are developed and priced – A process to measure the results of those

work packages is put into place– Work packages are tracked for both the

dollars and time spent• The result of this effort is developing a

Budget at completion (BAC)

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Work Breakdown Structure

1.0 Project –New Marketing Campaign

for Dog Food

1.1 Printed Media

1.2 Electronic Media

1.3 Radio

1.3.1LocalSpots

1.3.2Regional

Spots

1.1.2Newspaper

inserts

1.1.1 Magazines

1.2.2TV

1.2.1Website

First Level

Second Level

Third Level

Systematic approach to ensuring all program work is recognized and defined into a viable work plan – should include labor and materials for complete picture

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Organizational Breakdown Structure

New Marketing Campaign for Dog Food -

assign to the Western Division

Chuck’sDesignTeam

Regional Media

Support

CentralizedNationalSupport

Stan In

Accounting

RayBudget

Juan for Customer interface

Sally For messageAnd theme

Josh Audio

John forComputerGraphics

Identifies the functions and/or people that will do the work

Beverly in

National Accounts

Admin AsstChen

Tanya Print

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Responsibility MatrixAssigns WBS work to OBS labor

design

graphics

accounting

1.1.1 1.1.2 1.2.1

Admin Asst

audio

budget

1.1 1.2OBS WBS

- - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

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CONTRACT BUDGETBASE

CONTRACT BUDGETBASE

CONTRACTPRICE

CONTRACTBUDGET BASE

PROFITS ANDFEES

MANAGEMENTRESERVE

PERFORMANCEMEASUREMENT

BASELINE

WITHHELDFOR

UNKNOWNS

UNDISTRIBUTED

BUDGET

DISTRIBUTED(control accountS)

WITHHELD FORKNOWN EFFORT

AUTHORIZED,UNPRICED

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ORGANIZATIONORGANIZATION

BUDGET LEDGER

MASTER SCHEDULE

GENERAL WORKAUTHORIZATION

CONTRACT

Control AccountWBS # ______________ ORG # ______________

TASK DESCRIPTION________________________

SCHEDULE _______________________________

TOTAL BUDGET ________________

WORK PACKAGE

WP # ________ ORG # _________

DESCRIPTION ______________________________________________

SCHEDULE _________________

BUDGET ___________________

WBS ELEMENT

ORGANIZATION

WORK AUTHORIZATION

SCHEDULE

BUDGET

COST ACCUMULATION

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The Control AccountA Key Management Control Point

The Control AccountA Key Management Control Point

Specific functional responsibility

Specific WBS responsibility

Work planning and assignment

Performance measurement

Cost collection

Variance analysis

Corrective action

Basis of data summarization

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CONTRACT BUDGETBASE

CONTRACT BUDGETBASE

CONTRACTPRICE

CONTRACTBUDGET BASE

PROFITS ANDFEES

MANAGEMENTRESERVE

PERFORMANCEMEASUREMENT

BASELINE

WITHHELDFOR

UNKNOWNS

UNDISTRIBUTED

BUDGET

DISTRIBUTED(control accountS)

WITHHELD FORKNOWN EFFORT

AUTHORIZED,UNPRICED

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PERFORMANCE MEASUREMENTDATA ELEMENTS


UNDISTRIBUTED BUDGET (UB)

Budget applicable to contract effort which has not yet been identified to CWBS elements at or below the lowest level of reporting to the Government.

KEY: Only used for the effort associated with the contractual change.

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MANAGEMENT RESERVE (MR) An amount of the total allocated budget withheld for

management control purposes rather than designated for the accomplishment of a specific task or set of tasks.

KEY: There is no scope of work associated with management reserve budget.

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1. DEFINE THE WORK

PLANNING AND BUDGETINGESTABLISH THE BASELINE - AN ITERATIVE, 3-STEP PROCESS

PLANNING AND BUDGETINGESTABLISH THE BASELINE - AN ITERATIVE, 3-STEP PROCESS

100

4060

1525

3030

2. SCHEDULE THE WORK

3. ALLOCATE BUDGETS

$

CONTRACT BUDGET BASE

TIME

MR

PM B

ASELIN

E

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Work Budgeted and Earned

• The value of the budgeted work is called: Budgeted Cost of Work Scheduled (BCWS)

• The value of work earned is called: Budgeted Cost of Work Performed (BCWP) – BCWP is also called Earned Value

(EV)

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Budgeted Cost of Work Scheduled(BCWS)

Total Budget = $5,000to be spent over 5 monthsI plan to lay 1 sectionof track each month at anestimated cost of $1,000.BCWS each month = $1,000Total BCWS = $5,000

Month 1BCWS = $1,000





sum of all BCWS = performance baselinesum of all BCWS = performance baseline

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Budgeted Cost of Work Performed(BCWP)

aka. Earned Value

We’re at the end of February, Track 1 is complete and track 2 is ½ done.

BCWS = $1,000

Track 1

Track 2

BCWS = $1,00050% done

Value of work performed = $1,500

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Schedule Variance

BC WS

BC WP

of the work I scheduled to have done,how much did I budget for it to cost?

of the work I actually performed,how much did I budget for it to cost?

SCHEDULE VARIANCE is the difference between work scheduled and work performed (expressed in terms of budget dollars)

formula: SV $ = BCWP - BCWS

SCHEDULE VARIANCE is the difference between work scheduled and work performed (expressed in terms of budget dollars)

formula: SV $ = BCWP - BCWS

BU

DG

ET

BA

SE

D

example: SV = BCWP - BCWS = $1,500 - $2,000 SV= -$500 (negative = behind schedule)

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Schedule Variance

$

BCWS“the baseline”

BCWP“earned value”

TIME

5,000

sv

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Actual Cost of Work Performed (ACWP)

• Value is earned as the work is completed and gauged against the schedule proposed for the work

• When all work is completed it will have earned its full budgeted value but the actual cost of that work may be different that the amount budgeted… this is referred to as Actual Cost of Work Performed (ACWP)

ACTUAL COST FOR WORK PERFORMED (ACWP)

The costs actually incurred and recorded in accomplishing the work performed (BCWP) within a given time period

• Labor

• Material (Subcontractor/vendor)

• Other, computer costs, etc.

• Indirect Costs



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Actual Cost of Work Performed(ACWP)

Track 1 Cost = $1,500!

Track 2 Cost = $750 cost to date

Total Cost to Date = $2,250

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Cost Variance

BC WP

AC WP

of the work I actually performed,how much did I budget for it to cost?

of the work I actually performed,how much did it actually cost?

COST VARIANCE is the difference between budgeted costand actual cost

formula: CV $ = BCWP - ACWP

COST VARIANCE is the difference between budgeted costand actual cost

formula: CV $ = BCWP - ACWP

PE

RF

OR

MA

NC

E B

AS

ED

example: CV = BCWP - ACWP = $1,500 - $2,250 CV= -$750 (negative = cost overrun)

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Cost Variance

$

TIME

BCWP“earned value”

ACWP“actual cost”

5,000

cv

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Variance Summary

• The difference between the BCWP and the ACWP is called a cost variance

• The difference between the BCWP and BCWS is called schedule variance and is provided in terms of dollars

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Budget at Completion (BAC)

$

time

BAC

sum of all BCWS =

$

$

$$

$

$

$

• when all work has been phased, cumulative BCWS = BAC• when all work has been phased, cumulative BCWS = BAC

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Estimate at Completion(EAC)

Just a few little glitches…. We should be able to do the complete job….ack…

let’s see, for about $7,000

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Variance at Completion (VAC)

B AC what the total job is supposed

to cost

E AC what the total job is expected

to cost

VARIANCE AT COMPLETION is the difference between what the total job is supposed to cost and what the total job is now expected to cost.

FORMULA: VAC = BAC - EAC

VARIANCE AT COMPLETION is the difference between what the total job is supposed to cost and what the total job is now expected to cost.

FORMULA: VAC = BAC - EAC

Example: VAC = $5,000 - $7,000VAC = - $2,000 (negative = overrun)

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Formulas• Cost variance

BCWP – ACWP

• Schedule variance BCWP – BCWS

• Cost variance in percentage BCWP – ACWP x 100

BCWP

• Schedule variance in percent

BCWP – BCWS x 100 BCWS

Negative variance = cost overrun or behind schedule

Positive variance = cost underrun or ahead of schedule

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Trend Analysis

Cost Performance Index (CPI) measure of cost efficiency

CPI = Value of Work Completed (BCWP)

Cost of Work Completed (ACWP)

Schedule Performance Index (SPI) measure of schedule efficiency

SPI = Value of Work Completed (BCWP) Value of Work Planned (BCWS)

Closer to “1” the better

Less than 1 = overrun (CPI); behind schedule (SPI)

Greater than 1 = underrun (CPI); ahead of schedule (SPI)

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• DO I THINK THE CONTRACTOR WILL COME IN ON BUDGET?

COST PERFORMANCE INDEX:

CPI = cost efficiency for work performed to date(The value of work accomplished for each dollar spent)

SCHEDULE PERFORMANCE INDEX: SPI = schedule efficiency with which work has been accomplished(The rate at which work is being accomplished)

Performance Efficiencies

WORK= ACCOMPLISHED

ACTUALS

WORK= ACCOMPLISHED

WORKSCHEDULED

WORK BCWP ACCOMPLISHED $1500= BCWS = WORK = $2000 = .75 SCHEDULED

WORK BCWP ACCOMPLISHED $1500= ACWP = ACTUAL = $2250 = .67

COST

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EXERCISES

• Attendees – Go to your Exercise Packet

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EVM Exercise

BAC = 500BCWS = 300BCWP = 320ACWP = 330

• What is the cost variance?• What is the Schedule variance? • What is the Cost Performance Index?• What is the Schedule Performance Index?• How would you describe this project?

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Solution

BAC = 500

BCWS = 300BCWP = 320ACWP = 330

• What is the cost variance? • BCWP – ACWP = -10

• What is the Schedule variance? • BCWP – BCWS = +20

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Solution

BAC = 500

BCWS = 300BCWP = 320ACWP = 330

• What is the Cost Performance Index?BCWP/ACWP = .97

• What is the Schedule Performance Index?

BCWP/BCWS = 1.07

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Solution

Cost Variance = -10

Schedule Variance = + 20

CPI = .97SPI = 1.07

• How would you describe this project?

Over budget, ahead of schedule

The table that follows presents key information for several elements of the

contract WBS

Example Of Performance Analysis By WBS Element.

What can it tell us?

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Cost Performance Report Work Breakdown Structure

Budget Baseline

Cumulative Cost To Date (in $000) Cost At Completion (in $000)

$1.5 mil Budgeted Cost Actual Cost

Variance

WBSElement

Work Scheduled

Work Performed Schedule Cost Budgete

dEstimate

dVariance

1.1 250 250 260 0 (10) 250 260 (10)

1.2 90 85 84 (5) 1 100 100 0

1.3 130 150 155 20 (5) 330 340 (10)

1.4 200 200 185 0 15 250 235 15

1.5 300 310 320 10 (10) 400 415 (15)

1.6 120 120 140 0 (20) 120 140 (20)

Subtotal 1,090 1,115 1,144 1,450 1,490 (40)

Mgt. Reserve 50 50

Total 1,090 1,115 1,144 1,500 1,490 10

Graphical Depictions of EVM



TIME

$

BUDGET

BCWS

ContractComplete

TIME

$

BUDGET

BCWP

CVBCW

S

ACWP



ContractComplete

BCWP Allows Isolation of

Schedule and Cost Variances

schedule variance = BCWP - BCWS = negative numbercost variance = BCWP - ACWP = negative number

behind schedule,over cost

behind schedule,over cost

BCWS

BCWP

ACWP

TIME

5,000

svcv

$

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Budget at Complete (BAC), Estimate at Complete (EAC)

and Variance at Complete (VAC)

$

TIME

PM B

ASELINE

BAC = Sum of BCWS

(Planned cost of all work)

BAC = $5,000

EAC(kr)* = ACWP plus estimated to complete (ETC)

(Actual cost to date plus expected cost to finish all

work)

EAC = $7,000

BAC

EAC

ETC

VAC = BAC-EAC

VAC = $5,000-$7,000

VAC = -$2,000

VAC

Schedule

Delay

* EAC(kr) = Contractor EAC



TIME

$

BUDGET

BCWP

CVBCW

S

ACWP

ESTIMATE

VAC

ContractComplete

SV

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Trend Analysis Using Performance Indexes

Per

form

ance

Per

form

ance

Per

form

ance

Time

Time

Time

1.0

1.0

1.0

CPI

CPI

CPI

SPI

SPI

SPI

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Trend Analysis Using Performance Indexes

Per

form

ance

Per

form

ance

Per

form

ance

Time

Time

Time

1.0

1.0

1.0

CPI

CPI

SPI

CPI

SPI

SPI

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Earned Value Management

Trend AnalysisP

erfo

rman

ceP

erfo

rman

ce

Per

form

ance

Time

Time

Time

1.0

1.0

1.0

CPI

CPI

SPI

CPI

SPI

SPI

Sample combined numerical and graphical

display

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• Earned Value techniques– Discrete

• physical, tangible end product

– Apportioned• discrete, dependent on another discrete work package• example: quality assurance• planned as historical estimating factor (e.g., 7%)

– Level of Effort• no tangible end product• basis of measurement: time• when clock starts ticking, you automatically accumulate earned value• no schedule variance• example: management personnel

• Should be a quantitative and discrete way to measure the work

• May tie in with success criteria or technical measure• e.g., successful completion of a specific test, QP’s

Ways of Earning Value

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Contractor Reports

• Cost Performance Report (CPR)

– Format 1: cost and schedule progress by WBS (specified reporting level usually at level 3)

– Format 2: cost and schedule progress by

organization

– Format 3: changes to performance measurement

baseline

– Format 4: manpower forecast

– Format 5: variance analysis

current and cum

datacurrent and cum

data

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Block # 1. Contractor Information - Tells you name and address of contractor 2. Contract Information - Tells name, number, type and Share ratio of contract 3. Program Information- Name and Phase of program 4. Report Period - Beginning and end dates of the report data 5. Contract Data - Includes quantities, prices, fee’s, profit, and ceilings 6. Estimated cost - Estimated cost at completion and variance 7. Contractor Representative - Name, Title, Signature, and Date signed 8. Broken in to sections a through g and in 4 groups of data

- Current period - BCWP, BCWS, ACWP, Cost and Schedule Variances- Cumulative to date - BCWP, BCWS, ACWP, Cost and Schedule

Variances- Reprogramming Adjustments - Cost Variances and Budget- At Completion - Budgeted, Estimated, and Variance

8a WBS cost data 8b Cost of money 8c General and administrative cost 8d Undistributed money 8e Subtotal (Total without Management Reserve) 8f Management Reserve 8g Total 9a Variance adjustments (Cumulative to Date) 9b Total Contract Variance (Cumulative to Date and At Completion)

Format 1 Block Descriptions

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Format 2: Organizational Categories

• Used when contractor organizational structure does not mirror the WBS structure

• Provides CPR data in an organizational format

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Format 3: Baseline

• Used to track changes to the performance baseline and future authorized work– Identifies all changes to authorized work

during the reporting period– Identifies distribution of any

undistributed budget during the reporting period

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Format 4: Staffing

• Provides planned staffing – Current Period– Cumulative to the end of Current Period– Staffing forecast's to end of authorized work– At Completion

• Broken down into organizational categories

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Format 5: Explanation and Problem Analysis

• Also called Variance Analysis Report (VAR)

• Provides explanations, impact, and corrective actions of WBS that exceed thresholds

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• Format 5 variance analysis should address:– separate discussion of CV, SV (current and cum) and

VAC– clear description of reason for variance– quantity variances (e.g., price vs. usage)– be specific, not general– corrective action– technical, schedule, and cost impacts– impact to estimate at completion

Variance Explanations

A big hammer for a big variance!

71EVM Home Page = https://acc.dau.mil/evm eMail Address: [email protected]

DAU POC: (703) 805-5259 (DSN 655)Revised April 2008

TERMINOLOGYNCC Negotiated Contract Cost Contract price less profit / fee(s)AUW Authorized Unpriced Work Work contractually approved, but not yet negotiated / definitizedCBB Contract Budget Base Sum of NCC and AUWOTB Over Target Baseline Sum of CBB and recognized overrun TAB Total Allocated Budget Sum of all budgets for work on contract = NCC, CBB, or OTB BAC Budget At Completion Total budget for total contract thru any given levelPMB Performance Measurement Baseline Contract time-phased budget planMR Management Reserve Budget withheld by Ktr PM for unknowns / risk managementUB Undistributed Budget Broadly defined activities not yet distributed to CAs CA Control Account Lowest CWBS element assigned to a single focal point to plan & control

scope / schedule / budgetWP Work Package Near-term, detail-planned activities within a CA PP Planning Package Far-term CA activities not yet defined into WPsBCWS Budgeted Cost for Work Scheduled Value of work planned to be accomplished = PLANNED VALUEBCWP Budgeted Cost for Work Performed Value of work accomplished = EARNED VALUEACWP Actual Cost of Work Performed Cost of work accomplished = ACTUAL COSTEAC Estimate At Completion Estimate of total cost for total contract thru any given level;

may be generated by Ktr, PMO, DCMA, etc. = EACKtr / PMO / DCMA

LRE Latest Revised Estimate Ktr’s EAC or EACKtr

SLPP Summary Level Planning Package Far-term activities not yet defined into CAs TCPI To Complete Performance Index Efficiency needed from ‘time now’ to achieve an EAC

EVM POLICY: DoDI 5000.2, Table E3.T2 . EVMS in accordance with ANSI/EIA-748 is required for cost or incentive contracts, subcontracts, intra-government work agreements, & other agreements valued > $20M (Then-Yr $). EVMS contracts > $50M (TY $) require that the EVM system be formally validated by the cognizant contracting officer. Additional Guidance in Defense Acquisition Guidebook and the Earned Value Management Implementation Guide (EVMIG). EVMS is discouraged on Firm-Fixed Price, Level of Effort, & Time & Material efforts regardless of cost.

EVM CONTRACTING REQUIREMENTS: Non-DoD FAR Clauses – Solicitation – 52.234-2 (Pre-Award IBR) or 52.234-3 (Post Award IBR) – Solicitation & Contract – 52.234-4 DoD( ≥ $20M) DFAR Clauses - 252.234-7001 for solicitations and 252.234-7002 for solicitations & contracts Contract Performance Report – DI-MGMT-81466A * 5 Formats (WBS, Organization, Baseline, Staffing & Explanation) Integrated Master Schedule – DI-MGMT-81650 * (Mandatory for DoD EVMS contracts) Integrated Baseline Review (IBR) - Mandatory for all EVMS contracts

* See the EVMIG for CPR and IMS tailoring guidance.

Management Reserve

Work Packages Planning Packages

OVERRUN AUW

Control Accounts

NCC

UndistributedBudget

OTB CBB

TAB Profit / Fees

PMB

Summary Level Planning Packages

Contract Price

DoD TRIPWIRE METRICS Favorable is > 1.0, Unfavorable is < 1.0

Cost Efficiency CPI = BCWP / ACWPSchedule Efficiency SPI = BCWP / BCWS

VARIANCES Favorable is Positive, Unfavorable is Negative

Cost Variance CV = BCWP – ACWP CV % = (CV / BCWP) *100

Schedule Variance SV = BCWP – BCWS SV % = (SV / BCWS) * 100

Variance at Completion VAC = BAC – EACOVERALL STATUS

% Schedule = (BCWSCUM / BAC) * 100

% Complete = (BCWPCUM / BAC) * 100

% Spent = (ACWPCUM / BAC) * 100

BASELINE EXECUTION INDEX (BEI) (Schedule Metric)BEI = # of Baseline Tasks Actually Completed / # of Baseline Tasks Scheduled for Completion

CPLI = (Critical Path Duration + Float Duration (to baseline finish)) / Critical Path DurationCRITICAL PATH LENGTH INDEX (CPLI) (Schedule Metric)

TO COMPLETE PERFORMANCE INDEX (TCPI) # §TCPIEAC = Work Remaining / Cost Remaining = (BAC – BCWPCUM) / (EAC – ACWPCUM)

ESTIMATE AT COMPLETION #

EAC = Actuals to Date + [(Remaining Work) / (Efficiency Factor)]EACCPI = ACWPCUM + [(BAC – BCWPCUM) / CPICUM ] = BAC / CPICUM

EACComposite = ACWPCUM + [(BAC – BCWPCUM) / (CPICUM * SPICUM)]

# To Determine a Contract Level TCPI or EAC; You May Replace BAC with TAB§ To Determine the TCPI BAC or LRE Replace EAC with either BAC or LRE

Earned Value Management‘‘Gold Card’Gold Card’

Management Reserve

Cost Variance

Schedule Variance

ACWP

BCWP

BCWS

$

EAC

TimeNow

Completion Date

PMB

TAB

BAC

time

mailto:[email protected]

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