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Earned Value ManagementEarned Value Management

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Long Description

Title screen for Module 3, Lesson 5: Business Management Earned Value Management with three photos: two professionals reviewing a document, two professionals reviewing a document with another professional in the background on the phone, and spreadsheets with a calculator.


Introduction

Earned Value Management (EVM) is an industry standard method for measuring a project's progress, forecasting its completion date and final cost, and providing schedule and budget variances along the way. It is a tool that helps both Government and contractor program managers (PMs) track technical, cost, and schedule progress on their contracts. Used properly, EVM is a method for both performance measurement and performance management.

You'll be introduced to the following concepts in this lesson:

• Earned value

• The relationship between EVM and the Work Breakdown Structure (WBS)

• The benefits of EVM to an acquisition program

• Basic EVM terminology

• How EVM can help PMs assess project status and make projections

To print this lesson, select print.


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Learning Objectives

Upon completion of this lesson, you will be able to:

• Identify how EVM is related to program management

• Explain the interrelationship of a WBS and EVM

• Explain the basic concepts of EVM, including cost and schedule variance, efficiency indices, and program status indicators


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What is Earned Value?

According to DHS Instruction/Guidebook 102-01-001, "Earned Value Management (EVM) is a project performance-measurement technique that effectively integrates the contract's scope of work with schedule and cost elements at the appropriate level for optimum project and program planning and control." What does that mean in practical terms? The answer starts with the concept of earned value.

Select each tab for additional information.


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WBS Work Packages Cost/Control Accounts

EVM is based on the concept of "earned value," or work performed being tracked in terms of its budgeted cost. To be able to track work in terms of its cost on a level granular enough to be meaningful to a program office, a program needs a well-constructed, detailed, comprehensive work breakdown structure.

Earned Value

WBS

Work Breakdown Structure

Earned Value

EVM is based on the concept of "earned value," or work performed being tracked in terms of its budgeted cost. To be able to track work in terms of its cost on a level granular enough to be meaningful to a program office, a program needs a well-constructed, detailed, comprehensive work breakdown structure.

WBS

The project's WBS is the foundation for EVM. A WBS breaks a project down into work packages that can be scheduled and budgeted, includes all the work required to complete the project, and provides a framework for collecting cost, schedule, and performance information.

Work Packages

The tasks on the lowest level of the WBS are called work packages. Work packages are individually planned and budgeted, have three measurable components: the scope of the work to be accomplished, the total cost for that work, and the time frame for completion.

Cost/Control Accounts

A control account, or cost account, is essentially one or more work packages with some additional features: the assignment of the responsible individual or organization, milestones, and the earned value measurement method and performance measurement indicator. When taken all together and mapped to the project's schedule, a project's cost accounts become the baseline for tracking earned value during contract execution.


Why Use EVM?

EVM helps determine if a project is on schedule and within budget by comparing work completed to funds expended, providing an early warning if corrective action is needed while there is still time to recover. There are numerous benefits to having such information.

EVM provides benefits such as:

• Providing cost and schedule data that objectively indicates work progress, is auditable, and is presented at an easily-understandable, summary level

• Enabling a program office to more effectively manage contract performance by ensuring the Government has accurate, objective, and up-to-date contract status

• Supporting risk-based analysis through early identification of trends and potential risks

• Supporting the Government and contractor's mutual goal of completing the project on time and on budget

Aside from using EVM because of its benefits, EVM should be used because it's required. The Office of Management and Budget (OMB) requires that Federal agencies use an Earned Value Management System (EVMS) for major systems and investments in development. To comply with this requirement, DHS requires use of an EVMS on all major investments (Level 1, Level 2, and IT Level 3) in development with total acquisition costs greater than $20 million, major systems in development and their associated contracts with a contract price greater than $20 million, and any necessary program contracts with a contract price greater than $5 million (at the PM's discretion).


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EVM

Earned Value Management


Three Questions EVM Can Answer

EVM can answer the following key questions about a project:

1. Is the project on track to meet its cost and schedule targets?

2. Are we working efficiently enough to achieve our goals?

3. How much will the project cost at completion?

We'll revisit these questions during the lesson to show you exactly how EVM can answer them.


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EVM



Example: DHS Analytics Software

T&D

Select this link to review the WBS for this development contract:

DHS Analytics Software Application Work Breakdown Structure


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Transcript and Long Description

[Rachel and a security officer.]

Narrator: We\'ll be using the following fictional example to illustrate EVM concepts throughout this lesson. DHS is in the process of acquiring custom analytics software to analyze the network traffic data collected by the temporary secure communications networks it deploys for public and private events around the world.

[Rachel and contracting officers shaking hands at a conference table.]

Narrator: DHS has just awarded a contract for design, development, testing, documentation, and deployment of the software application, as well as user training and a period of post-implementation operations and support.

[Rachel and a businessman on the phone taking notes.]

Narrator: The prime contractor, SecureSoft, Inc. (SSI), has a reputation for delivering excellent software applications, but SSI\'s projects end behind schedule and over budget 80% of the time. John Carter, the DHS Program Manager, is keenly aware of SSI\'s track record, and is determined to bring his program in on target.

[Rachel and a high level contract schedule and budget.]

Narrator: The contract period of performance is two years, and its budget is six million dollars. Because of SSI\'s history, John decided to require the use of an EVMS. We\'ll check back in a few weeks to see how things are going.


Knowledge Check

For each description below, select the corresponding term from the drop-down list provided. When you are finished, select Submit.

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:Earned Value Management (EVM)

Tracking and measuring work units based on their budgeted cost:Earned Value

The foundation for EVM; breaks down a project's work into increments that can more easily be scheduled and budgeted:Work Breakdown Structure (WBS)

An individually planned and budgeted item found on the lowest level of the WBS:Work Package

One or more work packages with an assigned owner, milestones, and earned value measurement method:Cost/Control Account

Show my answer


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• 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: Earned Value Management (EVM)• Tracking and measuring work units based on their budgeted cost: Earned Value• The foundation for EVM; breaks down a project's work into increments that can more easily be scheduled and budgeted: Work Breakdown Structure (WBS)• An individually planned and budgeted item found on the lowest level of the WBS: Work Package• One or more work packages with an assigned owner, milestones, and earned value measurement method: Cost/Control Account


Recap: Introduction

Review the key concepts introduced in this topic.

• EVM is a tool that helps both Government and contractor program managers (PMs) track technical, cost, and schedule progress on their contracts.

• EVM is based on the concept of earned value, or work being tracked in terms of its budgeted cost.

• A project's WBS is its foundation for EVM.

• At its most basic, EVM helps determine if the project is on schedule and within budget by comparing work completed to funds expended, providing an early warning that corrective action is needed while there is still time to recover.

• DHS requires use of an EVM system on all major investments (Level 1, Level 2, and IT Level 3) in development with total acquisition costs greater than $20 million and all major systems in development and their associated contracts with a contract price greater than $20 million

The next topic is EVM Terminology.


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Introduction to EVM Terminology

To start answering three key questions, we must first learn some EVM terminology and metrics. These concepts are the basic elements of the calculations that help assess project status and calculate project cost.

You'll be introduced to the following concepts in this topic:

• Budgeted Cost of Work Scheduled (BCWS)

• Performance Measurement Baseline (PMB)

• Budgeted Cost of Work Performed (BCWP)

• Actual Cost of Work Performed (ACWP)

• Schedule Variance (SV)

• Cost Variance (CV)

• Cost Performance Index (CPI)

• Schedule Performance Index (SPI)


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three key questions

1. Is the project on track to meet its cost and schedule targets?2. Are we working efficiently enough to achieve our goals?3. How much will the project cost at completion?

EVM



D

Budgeted Cost of Work Scheduled and the Performance Measurement Baseline

The Budgeted Cost of Work Scheduled (BCWS) is the planned cost of the total amount of work scheduled to be performed by a certain date. More plainly, it’s what the team planned to spend (budgeted) on the work that the contractor was scheduled to complete by now. BCWS is also called "Planned Value" (PV).

The Performance Measurement Baseline (PMB) is the Budgeted Cost of Work Scheduled (BCWS) for an entire contract, broken out by cost accounts and work packages and mapped to the project schedule. The PMB is the time-phased budget plan against which contractor performance is measured.


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Long Description

Graph comparing cost over time of a contract. The PMB curve illustrates that cost increases slowly during the first 1/3 of the contract, increases sharply during the second 1/3, and increases slowly again during the final 1/3.


Budgeted Cost of Work Performed

The Budgeted Cost of Work Performed (BCWP) is the value of the work accomplished, or earned, so far by the contractor in terms of the budget established for that work. BCWP is what the actual work the contractor has done by a certain date should have cost. BCWP is also called Earned Value.


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D

Actual Cost of Work Performed

The Actual Cost of Work Performed (ACWP) is the actual cost the contractor incurred to accomplish the work that has been performed by a given date or project milestone. ACWP is what the work the contractor has accomplished actually cost.


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Long Description

Graph comparing cost over time of a contract. The PMB curve illustrates that cost increases slowly during the first 1/3 of the contract, increases sharply during the second 1/3, and increases slowly again during the final 1/3. In this example, the ACWP at a given point in time is less than the BCWS but more than the BCWP.


Schedule Variance and Cost Variance

Next let's take a look at two derived metrics, schedule variance (SV) and cost variance (CV), that can start to help us answer our first question, "Is the project on track to meet its cost and schedule targets?" CV and SV are simple calculations that describe the difference between where we are from where we should be.



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Cost Variance

Schedule Variance is a comparison of the amount of work the contractor was scheduled to perform during a given time period to the amount of work the contractor actually performed.

SV is calculated by subtracting BCWSfrom BCWP:

SV = BCWP - BCWS

A negative SV indicates that a project is behind schedule; a positive SV indicates that a project is ahead of schedule.

Schedule Variance

BCWS

Budgeted Cost of Work Scheduled

BCWP


ACWP


BCWP


Schedule Variance

Schedule Variance is a comparison of the amount of work the contractor was scheduled to perform during a given time period to the amount of work the contractor actually performed.

SV is calculated by subtracting BCWS from BCWP:

SV = BCWP - BCWS

A negative SV indicates that a project is behind schedule; a positive SV indicates that a project is ahead of schedule.

Cost Variance

BCWS

Cost Variance is a comparison of the budgeted cost of the work the contractor performed during a given time periodto the actual cost of that work.

CV is calculated by subtracting ACWP from BCWP:

CV = BCWP - ACWP

A negative CV indicates that a project is over budget; a positive CV indicates that a project is under budget.

BCWP


Cost Performance Index and Schedule Performance Index

CV and SV are derived metrics that indicate whether the project is ahead of or behind its budget and schedule. Now let's examine two derived metrics that measure efficiency and help us answer the second question, "Are we working efficiently enough to achieve our goals?"



CPI and SPI are statistically accurate indicators of final cost results. Once a project is 15% (or more) complete, the cost overrun at completion will be greater than or equal to the current cost overrun. Once a project is 20% complete, CPI does not vary from its current value by more than 10%. These rules of thumb are based on a statistical analysis of over 770 Department of Defense contracts across a 30-year period.

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Schedule Performance Index

The Cost Performance Index (CPI) measures how much work is actually getting done for every dollar the contractor spends. CPI compares the value of the work performed to the actual cost to perform it.

CPI is calculated by dividing BCWP by ACWP:

CPI = BCWP / ACWP

If the answer is less than one, the cost the contractor has incurred so far is more than was budgeted. The project is over budget, and may run out of money before the work is complete. If the answer is greater than one, the contractor is under budget so far.

CPI measures efficiency of spending, but it doesn't reflect front-loaded budgets or unplanned inefficiencies (such as new staff who may work slowly at first as they learn). CPI also becomes less sensitive over time.

Cost Performance Index

CV

Cost Variance

SV

Schedule Variance

BCWP


ACWP


BCWP


BCWS


Critical path

The critical path is the longest path of dependent tasks in the project schedule. Objects on the critical path must be completed or developed more or less sequentially, meaning a delay in completing a task on the critical path impacts all other tasks behind it.


The Cost Performance Index (CPI) measures how much work is actually getting done for every dollar the contractor spends. CPI compares the value of the work performed to the actual cost to perform it.

CPI is calculated by dividing BCWP by ACWP:

CPI = BCWP / ACWP

If the answer is less than one, the cost the contractor has incurred so far is more than was budgeted. The project is over budget, and may run out of money before the work is complete. If the answer is greater than one, the contractor is under budget so far.

CPI measures efficiency of spending, but it doesn't reflect front-loaded budgets or unplanned inefficiencies (such as new staff who may work slowly at first as they learn). CPI also becomes less sensitive over time.


The Schedule Performance Index (SPI) tells us how efficiently the contractor is working in terms of schedule. How efficiently has the work been accomplished in comparison to the value of the work planned?

SPI is calculated by dividing BCWP by BCWS:

SPI = BCWP / BCWS

If the answer is less than one, that means we have not accomplished as much work as we expected to by this point intime. The project is behind schedule. If the answer is greater than one, the project is ahead of schedule.

SPI is not as reliable as CPI, because it ignores the impact of whether or not a particular task is on the critical pathfor the project. SPI should be used to supplement other schedule analysis.


DHS Analytics Software: High-level PMB

T&D


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[Rachel and Contracting Professional fades to Rachel and high level contract schedule and budget. Sections highlight as the narrator speaks.]

Narrator: It\'s time to take a look at the progress of the DHS Analytics Software program. Here is a high level summary of the Performance Measurement Baseline for the development contract. The contract allows 3 months for design with a budget of $750,000, 9 months for development with a budget of $2,250,000, 3 months for testing with a budget of $750,000, 2 months to develop and deliver training and documentation with a budget of $500,000, 1 month for deployment with a budget of $250,000, and 6 months of operations and support with a budget of $1,500,000. The total duration of the program is 24 months, and the total budget is $6,000,000.

It\'s been two months since contract award, and the team is deep into the design phase. Let\'s see how things are going.


DHS Analytics Software: The First Two Months

John has just received his second monthly EVMS report from SSI, and the news isn't all good. Here is a summary of the data from the report.

Budgeted Cost of Work Scheduled (BCWS) $500,000

Budgeted Cost of Work Performed (BCWP) $458,000

Actual Cost of Work Performed (ACWP) $504,000

Schedule Variance (SV) -$42,000

Cost Variance (CV) -$46,000

Cost Performance Index (CPI) 0.908

Schedule Performance Index (SPI) 0.916

By this point, SSI should have performed $500,000 worth of work (BCWS). Unfortunately, they’ve only performed $458,000 worth of work (BCWP). Worse still, they’ve spent $504,000 (ACWP). Schedule Variance and Cost Variance are currently negative, indicating the contract is both behind schedule and over budget already.

Given SSI’s track record, John is not surprised, but he is a little bit disappointed. He made it a point to emphasize cost and schedule goals at the beginning of the program. Only 91.6% of the planned work has been accomplished (SPI) and SSI is doing less than $0.91 of work for every dollar they spend (CPI).

John will have to drill down into SSI’s performance thus far and find out where the inefficiency lies. We’ll check back in when he’s had a chance to make some strategic adjustments.


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EVMS

Earned Value Management System

SSI

SecureSoft, Inc. (fictional)


Knowledge Check

For each description below, select the correct EVM term or metric from the drop-down list provided. When you are finished, select Submit.

The planned cost of the total amount of work scheduled to be performed by a certain dateBudgeted Cost of Work Scheduled (BCWS)

A graph of the budgeted cost of the work for the entire contract, broken out by cost accounts and work packages and mapped to the project schedulePerformance Measurement Baseline (PMB)

The value of the work accomplished, or earned, so far by the contractor in terms of the budget established for that workBudgeted Cost of Work Performed (BCWP)

The actual cost the contractor incurred to accomplish the work that has been performed by a given date or project milestoneActual Cost of Work Performed (ACWP)

A comparison of the amount of work the contractor was scheduled to perform during a given time period to the amount of work the contractor actually performedSchedule Variance (SV)

A comparison of the budgeted cost of the work the contractor performed during a given time period to the actual cost of that workCost Variance (CV)

A measure of how much work is actually getting done for every dollar the contractor spendsCost Performance Index (CPI)

A measure of how efficiently the contractor is working in terms of the project scheduleSchedule Performance Index (SPI)

Show my answer


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• The Budgeted Cost of Work Scheduled (BCWS) is the planned cost of the total amount of work scheduled to be performed by a certain date.• The Performance Measurement Baseline (PMB) is a graph of the budgeted cost of the work for the entire contract, broken out by cost accounts and work packages and mapped to the project schedule.• The Budgeted Cost of Work Performed (BCWP) is the value of the work accomplished,or earned, so far by the contractor in terms of the budget established for that work. • The Actual Cost of Work Performed (ACWP) is the actual cost the contractor incurred to accomplish the work that has been performed by a given date or project milestone.• A Schedule Variance (SV) is a comparison of the amount of work the contractor was scheduled to perform during a given time period to the amount of work the contractor actually performed.• A Cost Variance (CV) is a comparison of the budgeted cost of the work the contractor performed during a given time period to the actual cost of that work.• The Cost Performance Index (CPI) is a measure of how much work is actually getting done for every dollar the contractor spends.• The Scheduled Performance Index (SPI) is a measure of how efficiently the contractor is working in terms of the project schedule.


Recap: EVM Terminology


• The Budgeted Cost of Work Scheduled (BCWS) is the planned cost of the total amount of work scheduled to be performed by a certain date, also called Planned Value.

• The Performance Measurement Baseline (PMB) is the Budgeted Cost of Work Scheduled (BCWS) for an entire contract, broken out by cost/control accounts graphed over time.

• The Budgeted Cost of Work Performed (BCWP) is the value of the work accomplished so far by the contractor in terms of the budget established for that work, also called Earned Value.

• The Actual Cost of Work Performed (ACWP) is the actual cost the contractor incurred to accomplish the work that has been performed by a given date or project milestone.

• A negative Schedule Variance (SV = BCWP - BCWS) indicates that a project is behind schedule; a positive SV indicates that a project is ahead of schedule.

• A negative Cost Variance (CV = BCWP - ACWP) indicates that a project is over budget; a positive CV indicates that a project is under budget.

• If the Cost Performance Index (CPI = BCWP / ACWP) is less than one, the cost the contractor has incurred so far is more than was budgeted. If CPI is greater than one, the contractor is under budget so far.

• If the Schedule Performance Index (SPI = BCWP / BCWS) is less than one, the contractor is behind schedule. If SPI is greater than one, the project is ahead of schedule.

The next topic is Assessments and Projections.


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Introduction to Making Assessments & Projections

Now that we know the basic terminology and metrics that EVM commonly uses, we can use those metrics in basic calculations and comparisons to assess the status of projects and project the final cost based on current trends.

You'll be introduced to the following concepts in this topic:

• Budget at Completion (BAC)

• Percentage Spent

• Percentage Complete

• Percentage Scheduled

• Budget Status

• Schedule Status

• Estimate at Completion (EAC)


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EVM



Budget at Completion

In order to start assessing a project's progress and predict its future, a PM must first establish a baseline for comparison.

Budget at Completion (BAC) is the sum of all work packages within the scope of work for the contract. It's what the entire project is expected to cost. BAC is established at the start of the project and remains constant (unless the project is formally rebaselined).


BAC is the BCWS for the entire period of performance, or the terminal point on a graph of the PMB.

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BCWS


PMB

Performance Measurement Baseline


Percentage Spent, Percentage Complete, and Percentage Scheduled

We can use BAC and the metrics introduced in the previous topic to calculate some telling percentages.

Percent Spent

The Percent Spent indicates how much money has been spent to date relative to the total amount budgeted for the project. Percent Spent is calculated by dividing ACWP by BAC:

% Spent = ACWP / BAC

Percent Complete

The Percent Complete indicates how much work has been performed relative to the total amount of the work that has to be performed. Percent Complete is calculated by dividing BCWP by BAC:

% Complete = BCWP / BAC

Percent Scheduled

The Percent Scheduled indicates how much of the total work the contractor should have accomplished at a given point in time. Percent Scheduled is calculated by dividing BCWS by BAC:

% Scheduled = BCWS / BAC


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ACWP


BAC


BCWP


BAC


BCWS


BAC



Budget and Schedule Statuses

Alone these percentages are somewhat informative, but when compared with each other they provide more meaningful information.

Budget Status

To get a rough idea of the status of the project's budget, compare the Percent Spent with the Percent Complete. If Percent Spent is greater, then the project will run out of money before the end of work, if the project continues on the current trend.

Schedule Status

To get a rough idea of the status of a project's schedule, compare Percent Scheduled with Percent Complete. If the Percent Scheduled is greater, then the work on the project will not be completed on schedule, if the project continues on the current trend.


The following rule of thumb is based on data from over 770 DoD contracts over the last 35 years. Once a contract is 15% or more complete, the percentage it is over budget at completion will be greater than the percentage it is currently over budget.

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Estimate at Completion

After assessing a project's status, a PM can use EVM metrics to project its future. Estimate at Completion (EAC) is an extremely important metric, and can answer our third key question. An EAC is a current estimate of what the project will cost when completed. At a high level, EAC is calculated by adding ACWP to the estimated cost to complete the remaining work of the project, i.e., BAC minus BCWP, divided by a performance index.

There are multiple ways to calculate EAC based on the selection of performance index. The two most common are:

EAC = ACWP + [(BAC - BCWP) / CPI

EAC = ACWP + [(BAC - BCWP) / (CPI * SPI)]

An EAC greater than the contract's BAC is a bad sign. If a PM is diligently tracking earned value, he or she should be aware of the negative trends in the project long before that point. However, if a project's EAC becomes larger than its BAC, the PM has to either secure more funding or scale back the requirements of the contract to achieve what is affordable under the current budget.


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ACWP


BAC


BCWP


CPI


SPI



To Complete Performance Index

The To Complete Performance Index (TCPI) is the cost efficiency at which the contractor must perform the work remaining on the project to hit the BAC. TCPI is the ratio of the remaining work to the remaining cost.

To calculate TCPI, subtract BCWP from BAC and divide by the difference between BAC and ACWP:

TCPI = (BAC - BCWP) / (BAC - ACWP)

The target TCPI is one, which would indicate that the contractor only needs to maintain current efficiency. A TCPI greater than one indicates that the contractor has to work more efficiently (i.e. accomplish more than a dollar's worth of work for every dollar spent) to complete the project at BAC.


You can also calculate TCPI to determine how efficiently the contractor must work to complete the project at the current estimate (EAC). In this case:

TCPI = (BAC - BCWP) / (EAC - ACWP)

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BCWP


BAC


BAC


ACWP


EAC



DHS Analytics Software: Update

T&D


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[Rachel and images of professionals]

Narrator:It\'s been four months since we last checked in on John Carter and the DHS Analytics Software program. After learning the project was already behind schedule and over budget, John drilled down into SSI\'s performance to try to locate the root cause of the inefficiencies. He discovered that SSI was extremely risk averse during the design process, spending the time and money to prototype each design alternative in order to prove out concepts and validate their analysis. John worked with them to first eliminate unlikely and well-understood alternatives to significantly narrow the field prior to prototyping. He also helped them apply this waste-eliminating approach to other aspects of their design work.

Let\'s see if John\'s adjustments have had any effect on SSI\'s performance.


Budgeted at Completion (BAC) $6,000,000

Budgeted Cost of Work Scheduled (BCWS) $1,500,000

Budgeted Cost of Work Performed (BCWP) $1,448,000

Actual Cost of Work Performed (ACWP) $1,510,000


Cost Variance (CV) -$62,000



Percentage Spent 25.16%

Percentage Complete 24.13%

Percentage Scheduled 25.00%

Estimate at Completion (EAC) using CPI $6,256,611

Estimate at Completion (EAC) using CPI/SPI $6,428,768

To Complete Performance Index (TCPI) 1.014

DHS Analytics Software: Four Months Later

Here is a summary of the data from the latest EVMS report, six months into the contract.

The answer is yes; John's adjustments have paid off. SSI is still behind schedule (schedule status: 25% scheduled is greater than 24.13% complete) and over budget (budget status: $25.16 percent spent is greater than 24.13% complete), but they are working much more efficiently than before, doing $0.96 of work for every dollar spent (CPI).

You can see that 6 months into a 24 month contract, SSI has spent 25.16% of the budget and completed 24.13% of the work. At this point, the contract will likely cost between $6,256,611 (optimistic EAC) and $6,428,768 (pessimistic EAC). Four months ago, the pessimistic EAC was $7,167,236, so John has significantly improved the outlook of his program.

SSI needs to accomplish $1.01 worth of work for every dollar they spend from here on out (TCPI) to complete the work for $6,000,000 (BAC). Unfortunately, with nearly 25% of the work complete, history says that it’s very likely that the project will finish over budget and behind schedule.

We'll check back in a few months and see if historical trends hold true.


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SSI

SecureSoft, Inc. (fictional)

pessimistic EAC was $7,167,236

Recall that two months into the program, ACWP was $504,000, BCWP was $458,000, CPI was 0.908, and SPI was 0.916. That results in:

EAC = ACWP + [(BAC - BCWP)/(CPI * SPI)]

EAC = $504,000 + [($6,000,000 - $458,000)/(0.908 * 0.916)]

EAC = $7,167,236


Knowledge Check

For each description below, select the correct term or metric from the drop-down list provided. When you are finished, select Submit.

The sum of all authorized work packages within the scope of work for the contract:Budget at Completion (BAC)

How much money has been spent to date relative to the total amount budgeted for the project:Percent Spent

How much work has been performed relative to the total amount of the work that has to be performed in the project:Percent Complete

How much of the total work the contractor should have accomplished at a given point in time:Percent Scheduled

A comparison of the Percent Spent with the Percent Complete:Budget Status

A comparison of the Percent Scheduled with the Percent Complete:Schedule Status

A current estimate of what the project will cost when completed:Estimate at Completion (EAC)

Show my answer


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• The sum of all authorized work packages within the scope of work for the contract: Budget at Completion (BAC)• How much money has been spent to date relative to the total amount budgeted for the project: Percent Spent• How much work has been performed relative to the total amount of the work that has to be performed in the project: Percent Complete• How much of the total work the contractor should have accomplished at a given point in time: Percent Scheduled• A comparison of the Percent Spent with the Percent Complete: Budget Status• A comparison of the Percent Scheduled with the Percent Complete: Schedule Status• A current estimate of what the project will cost when completed: Estimate at Completion (EAC)


Recap: Making Assessments & Projections


• Budget at Completion (BAC) is the sum of all authorized work packages within the scope of work for the contract.

• Percent Spent (% Spent = ACWP / BAC) is how much money has been spent to date relative to the total amount budgeted for the project.

• Percent Complete (% Complete = BCWP / BAC) is how much work has been performed relative to the total amount of the work that has to be performed in the project

• Percent Scheduled (% Scheduled = BCWS / BAC) is how much of the total work the contractor should have accomplished at a given point in time

• If Percent Spent is greater than Percent Complete, the project will run out of money before the end of work, if the project continues on the current trend. (Budget Status)

• If the Percent Scheduled is greater than the Percent Completed, the work on the project will not be completed on schedule, if the project continues on the current trend.

• Estimate at Completion (EAC = ACWP + [(BAC - BCWP) / CPI] or EAC = ACWP + [(BAC - BCWP) / (CPI * SPI)]) is an extremely important metric that represents a current estimate of what the project will cost when completed.

The next topic is Takeaways.


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Introduction to Takeaways

Now that we've explored the many metrics and derived metrics involved in EVM, ask yourself, "What do these metrics mean for my program?" Programs use an EVMS to identify issues or potential issues as early as possible, and to have a current, high-level picture of the health of a project. A program office will receive regular EVMS reports from the contractor with summary data already calculated; program office personnel need to know how to interpret that data and what, if any, action to take.

In this topic you will:

• Revisit the three questions EVM can answer

• Look at an example EVMS report

• Check on the DHS Analytics Software project one last time

• Practice interpreting EVMS summary data


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EVM


EVMS



Revisiting the Three Questions

To start understanding the significance of EVM metrics, let's revisit the three questions that EVM can answer.

Is the project on track to meet its cost and schedule targets?

Are we working efficiently enough to achieve our goals?

How much will the project cost at completion?


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EVM


CV

Cost Variance

SV

Schedule Variance

CPI


SPI


TCPI

To Complete Performance Index

EAC


Is the project on track to meet its cost and schedule targets?

Though not always negative indicators, CV and SV can draw attention to parts of a project that need attention. A monthly or cumulative negative variance should trigger a root cause analysis. When conducting an analysis, a program office should try to determine if the variance can be recovered before project completion, or if the projections for the project are unrealistic in light of the variance. SV is usually a leading indicator, trending negative before CV, and giving program offices a chance to take corrective action. History indicates that projects that are under performing by the 15% completion mark are unlikely to recover.

Are we working efficiently enough to achieve our goals?

CPI and SPI reveal how a contractor has been performing. Remember, though, that SPI is less meaningful than CPI, and that CPI becomes less sensitive over time. Generally, if SPI and CPI are less than one, the project is behind schedule and over budget. TCPI indicates how efficiently the contractor has to perform from that point forward to hitthe project’s original cost target. The earlier in the project the program office identifies the cause of the inefficiency, the more likely it is that adjustments can be made to get the project back on track.

How much will the project cost at completion?

Calculating EAC answers this question. The difference between the various methods for calculating EAC is their level of optimism. For example, using only CPI will typically produce a lower (more optimistic) EAC than using both CPI and SPI. The method a program office chooses must suit the program's unique situation and the PM's confidence in the contractor's ability to perform and deliver.


Sample EVM Report

Take a look at this sample EVMS report from an actual program.

Select this link to open a larger version in a separate window.

So items of interest on the sample report:

• Section 1 identifies the contractor's name and address.

• Section 2 lists the contract type and share ration.

• Section 4 identifies the EVM reporting period from which this data was gathered.

• Section 5 includes the negotiated cost and target price of the contract.

• Section 7 includes:

◦ Work Items from the WBS (left-most area of Section 7)

◦ Data from the current period (second area from the left)

◦ Cumulative figures to date for the contract (middle area), which include BCWS, BCWP, ACWP, SV, and CV (already calculated)

◦ At Completion figures (right-most area), including BAC, EAC, and Variance


EVMS


WBS

Work Breakdown Structure

BCWS


BCWP


ACWP


SV

Schedule Variance

CV

Cost Variance

BAC


EAC



DHS Analytics Software: Final Update

T&D


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[Rachel and Contracting Professional fades to Rachel with a refined project outlook. Sections highlight as the narrator speaks.]

Narrator: It\'s been 10 months since we last checked in on John Carter and the DHS Analytics Software project, now 16 months into the 24 month period of performance. Let\'s check in on them one last time.

[Cost Performance Index (CPI) is 0.959 at 6 months and 0.955 at 16 months.]

Narrator: As you can see, the project outlook has changed relatively little. SSI is performing a little more efficiently in terms of schedule, but appears to have done so at the expense of cost performance efficiency.

[The Estimate at Completion (EAC) using CPI is $6,256,611 at 6 months and $6,161,241 at 16 months. The EAC using CPI/SPI is $6,428,768 at 6 months and $6,223,788 at 16 months.]

Narrator: The EAC range has narrowed, and both the optimistic and pessimistic estimates are a bit lower than they were 10 months ago.

[Budgeted Cost of Work Scheduled (BCWS) is $1,500,000 at 6 months and $4,000,000 at 16 months. Budgeted Cost of Work Performed (BCWP) is $1,448,000 at 6 months and $3,884,000 at 16 months.]

Narrator: As indicated by the historical analysis, the amount of the cost overrun has grown by over $120,000. However, that is only 2% of the total budget.

[The Estimate at Completion (EAC) using CPI is $6,256,611 at 6 months and $6,161,241 at 16 months. The EAC using CPI/SPI is $6,428,768 at 6 months and $6,223,788 at 16 months.]

Narrator: It\'s safe to say that barring any unforeseen events, John\'s project is going to finish a little over budget and a little behind schedule, with a final cost somewhere in the EAC range indicated here.


Knowledge Check

Use the data below to answer the question that follows.





Which of the following statements are true based on the data provided in the table above? Select all that apply.

The contractor is behind schedule

The contractor is over budget

The contractor is ahead of schedule

The contractor is under budget

The contractor is on schedule

The contractor is on budget

Submit


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There are two correct answers. Because the Budgeted Cost of Work Performed (BCWP) is less than the Budgeted Cost of Work Scheduled (BCWS), the contractor appears to be behind schedule. And because the Actual Cost of Work Performed (ACWP) is greater than the Budgeted Cost of Work Performed (BCWP), the contractor appears to be over budget.


Knowledge Check







Cost Variance (CV) -$2,510,498



Percentage Spent 41.43%

Percentage Complete 40.40%

Percentage Scheduled 40.61%

Estimate at Completion (EAC) using CPI $251,254,088

Estimate at Completion (EAC) using CPI/SPI $252,025,962

To Complete Performance Index (TCPI) 1.017

Based on the data, what is an optimistic estimate of the contract's final cost?

$251,254,088

$252,025,962

$245,000,000

$249,165,000

Submit


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$251,254,088, EAC calculated using CPI only, is an optimistic (i.e., lower) estimate of the contract's final cost. EAC calculated using CPI and SPI is a pessimistic (i.e., higher) estimate of the contract's final cost.


Knowledge Check


Metric JULY 01 AUG 01 SEPT 01

Budget at Completion (BAC) $495,000,000 $495,000,000 $495,000,000

Budgeted Cost of Work Scheduled (BCWS) $82,500,000 $96,250,000 $110,000,000

Budgeted Cost of Work Performed (BCWP) $81,440,000 $94,224,000 $107,395,000

Actual Cost of Work Performed (ACWP) $83,510,000 $97,467,000 $111,679,000

Cost Performance Index (CPI) 0.975 0.967 0.962

Schedule Performance Index (SPI) 0.987 0.979 0.976

Which of the following statements is true based on the data provided in the table above?

The contractor appears to be working more efficiently in terms of cost and schedule as time goes by.

The contractor appears to be working less efficiently in terms of cost and schedule as time goes by.

The contractor appears to be working at the same level of efficiency as time goes by.

There is not enough information provided in the table to judge the contractor's cost and schedule performance efficiency.

Submit


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CPI and SPI indicate that the contractor is working less efficiently in terms of cost and schedule as time goes by.


Lesson Summary

Review the key concepts introduced in this lesson.

Earned Value Management (EVM) is a tool that helps both Government and contractor program managers (PMs) track technical, cost, and schedule progress on their contracts. EVM is based on the concept of earned value, or work being tracked in terms of its budgeted cost. A project's Work Breakdown Structure (WBS) is its foundation for EVM. At its most basic, EVM helps determine if the project is on schedule and within budget by comparing work completed to funds expended, providing an early warning that corrective action is needed while there is still time to recover.

DHS requires use of an EVM system on all major investments (Level 1, Level 2, and IT Level 3) in development with total acquisition costs greater than $20 million and all major systems in development and their associated contracts with a contract price greater than $20 million

EVM Terminology

The following calculations are the foundation for making assessments and projections about a project.

• Budgeted Cost of Work Scheduled (BCWS): the planned cost of the total amount of work scheduledto be performed by a certain date, also called Planned Value.

• Performance Measurement Baseline (PMB): the Budgeted Cost of Work Scheduled (BCWS) for anentire contract, broken out by cost/control accounts graphed over time.

• Budgeted Cost of Work Performed (BCWP): the value of the work accomplished so far by thecontractor in terms of the budget established for that work, also called Earned Value.

• Actual Cost of Work Performed (ACWP): the actual cost the contractor incurred to accomplish thework that has been performed by a given date or project milestone.

• Schedule Variance (SV = BCWP - BCWS): a negative SV indicates that a project is behind schedule; apositive SV indicates that a project is ahead of schedule.

• Cost Variance (CV = BCWP - ACWP): a negative CV indicates that a project is over budget; a positiveCV indicates that a project is under budget.

• Cost Performance Index (CPI = BCWP / ACWP): if CPI is less than one, the cost the contractor hasincurred so far is more than was budgeted; if CPI is greater than one, the contractor is under budget sofar.

• Schedule Performance Index (SPI = BCWP / BCWS): if SPI is less than one, the contractor is behindschedule; if SPI is greater than one, the project is ahead of schedule.


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Lesson Summary (Cont.)

Making Assessments and Projections

The following metrics help assess the status of projects and predict project cost at completion.

• Budget at Completion (BAC): the sum of all authorized work packages in the contract.

• Percent Spent (% Spent = ACWP / BAC): how much money has been spent to date relative to thetotal budget for the project.

• Percent Complete (% Complete = BCWP / BAC): how much work has been performed relative to thetotal amount of the work that has to be performed in the project

• Percent Scheduled (% Scheduled = BCWS / BAC): how much of the total work the contractor shouldhave accomplished at a given point in time

• Estimate at Completion (EAC = ACWP + [(BAC - BCWP) / CPI] or EAC = ACWP + [(BAC -BCWP) / (CPI * SPI)]): the current estimate of what the project will cost when completed.

• To Complete Performance Index (TCPI = (BAC - BCWP) / (BAC - ACWP)): the cost efficiency atwhich the contractor must perform the work remaining on the project to finish on budget.

If Percent Spent is greater than Percent Complete, the project is likely to run out of money (Budget Status). If Percent Scheduled is greater than Percent Completed, the project is likely to overrun its schedule (Schedule Status).

Takeaways

Programs use EVM to identify issues or potential issues as early as possible and to get a high-level picture of project health. A program office will receive regular reports from the contractor's EVMS with summary data already calculated; program office personnel need to know how to interpret that data and what, if any, action to take.

Is a project on track? Check Cost Variance (CV) and Schedule Variance (SV). CV and SV can draw attention to parts of a project that need attention. A negative CV or SV should trigger a root cause analysis. SV is usually a leading indicator, trending negative before CV.

Are we working efficiently enough? Check Cost Performance Index (CPI) and Schedule Performance Index (SPI). Generally, if SPI and CPI are less than one, the contractor is behind schedule and over budget. The earlier in the project the program office identifies the cause of the inefficiency, the likelier it is that adjustments can be made to get the project back on track.

How much will the project cost at completion? Calculate the Estimate at Completion (EAC). The difference between the various calculation methods for EAC is their level of optimism. The method a program office chooses must suit the program's unique situation and the Project Manager's (PM's) confidence in the contractor's ability to perform and deliver.

You have reached the end of Earned Value Management. To continue, select the next lesson from the Table of Contents.

To print this lesson, select print.


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Documents

Earned Value Management - GDIT · EVM is based on the concept of "earned value," or work performed being tracked in terms of its budgeted cost. To ... Earned Value Management schedule