Project Management

1
PREAMBLE
Lets assume that we gave a Rs 80,000/contract for some repair work in our
house. The job was to be completed in 15
days and involved major repairs in one of
the toilets. Repair needs were mutually
agreed.
After 15 days our monitoring tells us that
all is not going well. There have been
problems in locating various water pipes in
the bathroom.
The contractor billed us Rs 85,000/- for the
work.
Your comments on the situation?
Earned Value Project Management
A closer inspection reveals that only

3/4th of the job is complete. So what
we can find out from this? and more
importantly what can we do about it?
Concept of earned value tells us that after

15 days, using earned value vocabulary, the
situation is as under:
Budgeted Cost of Work Scheduled
(BCWS) or Planned Value (PV)
=
Rs 80,000/ Actual Cost of Work Performed (ACWP)
or Actual Cost (AC)
=
Rs 85,000/ Budgeted Cost of Work Performed
(BCWP) or Earned Value (EV)
= 0.75 x 80,000
=
Rs 60,000/- 6
Cost Variance (CV)

Cost Variance = EV AC (BCWP ACWP)
= Rs 60,000 Rs 85,000
= (-) Rs 25,000
Negative value indicating cost overruns.
In a typical spend plan analysis,

physical progress is seldom taken
into account when analyzing cost
performance.
Instead, a projects actual costs are
simply compared to planned costs
often with misleading results.
8
Cost variance of (-) Rs 25,000/- means that

we are required to pay Rs 85,000/- for Rs
60,000/- worth of work. For the work we
have got done, we have overspend by Rs
25,000/-.
Note that cost variance is being assessed
against the value of the work that has
been completed.
Any negative cost variance figure suggests
over spending and positive cost variance
indicates cost savings.
9
Schedule Variance (SV)

This is the algebraic difference between
Earned Value of the work performed and the
budgeted value of the work planned. In our
case
Schedule Variance = BCWP BCWS
(EV) (PV)
= Rs 60,000 Rs 80,000
= (-) Rs 20,000
10
You find anything odd about the

measuring of schedule variance?
11
Schedule
variance
is
being
measured in monetary units not time
units.
12
A positive value for this variance

represents work ahead of schedule,
and negative value indicates behind
schedule or schedule slippage
13
These variances not only tell the

project manager about the true, rather
than the apparent state of the project,
they also
14
In this case, the larger CV (42% of

the EV) as compared to SV (33% of EV)
tells us that we need to look more at
the cost overrun aspects.
15
EARNED VALUE INDICES
Practitioners sometimes prefer to use

schedule and cost indices over the
absolute values of SV and CV, because
these indices can be considered
efficiency ratios.
Graphed indices over the project life

cycle can be very illuminating and
useful.
Trends
are
easily
identified
deliverables and the whole project.
for
16
EARNED VALUE INDICES
Indices are typically used for project

costs and schedules that allow the
Project Manager and customer to view
progress from several angles.
An index of 1.00 (100 percent) indicates

progress is as planned. An index greater
than 1.0 shows progress is better than
expected.
An index less than 1.00 suggests

progress is poorer than planned and
deserves attention.
17
SCHEDULE PERFORMANCE INDEX (SPI)
The portion of a job achieved

indicated by SPI. In our case
SPI =
is
BCWP
EV
60,000
=
=
= 0.75
BCWS
PV
80,000
We planned to accomplish Rs 80,000/- of

work, but only did Rs 60,000/- worth of
work, thus we are behind planned
schedule by Rs 20,000/- of work.
The index also shows that 75 paisas

worth of work has been accomplished
for each rupee worth of scheduled work. 18
SCHEDULE PERFORMANCE INDEX (SPI)
Given this performance the job will be

completed in
15
= 20 days
0.75
19
COST PERFORMANCE INDEX (CPI)
The burn rate at which we are

spending money it can also be
interpreted as an efficiency rate is
called the Cost Performance Index (CPI)
and is computed as
BCWP
EV
60,000
CPI =
=
=
= 0.705
ACWP
AC
85,000
CPI of 0.705 means that for each rupee

being spent, the project is achieving
70.5 paisas of value.
20
The estimate of final project cost is

called the Estimate At Completion
(EAC) a forecast value expressed in
either rupees and / or hours, to
represent the projected final costs of a
project when all work is completed.
BAC
EAC =
CPI
BAC = Budget At Completion. The sum of all
authorized budgets allocated to a
project. It is synonymous with
earned value term Performance
Measurement Baseline.
21
In our case it is ..
80,000
EAC =
= Rs 1,13,475.17
0.705
22
How would you explain the

significance of EAC, SPI and CPI
we have calculated?
23
EAC allows us to forecast the total

project costs on the basis of
efficiency
with
which
work
performance is achieved.
24
EV
= SPI
PV
When you compare where you are by

now (EV)
With where you planned to be (PV)
You get a reading of progress called

SPI
25
Ratio
EV
= CPI
AC
Compare
What have you done by now (EV)
To
What you have spent by now (AC)
You
Get a reading on productivity called
CPI
26
How much you planned to have

accomplished by now (in Rs or
hours) PV
How much you actually spent by
now (in Rs or hours) AC
The value in terms of your baseline
budget of the work accomplished by
now (in Rs or hours EV)
27
Interpretation of Indices
Index
Cost (CPI)
> 1.00
Under Cost
= 1.00
On Cost
< 1.00
Over Cost
Table 1:
Schedule (SPI)
Ahead of schedule
On schedule
Behind schedule
Efficiency Indices
28
29
PROJECT FEATURES
Project estimate Rs 1.5M to produce 10
units in house.
Project team came to this
careful study of the
budget after a
product and
preparation of project documents.

Project time: 18 months
First project report: 3 months
EVPM be employed on this project
30
PROJECT FEATURES
In a presentation made to the CEO and

management board
Budget was revised to Rs 1.0M
Time reduced to 12 months
31
FIRST QUARTERLY PROJECT

STATUS REPORT
A brief summary indicated the following
results:
3 of the ten units had been scheduled

for completion at the three-month
point, but only two accomplished, thus
the team was behind its planned
schedule.
It had forecast expenditures of Rs

300,000
and
had
committed
Rs
300,000, so the team was right on
schedule with its funding profile. Any
optimistic person could easily paint a
positive picture of the project.
32
FIRST QUARTERLY PROJECT STATUS REPORT
We are right on our cost spending

plan,
a
little
behind
schedule
perhaps, but we are doing well,
would be the positive spin put on
these results by most practitioners.
33
EVPM EMPLOYMENT
Remember the CEO had specifically asked
that EVPM be employed on this project.
That requirement adds a slightly different
orientation to project performance data.
EVPM requires a detailed bottom-up
performance
plan,
and
a
three
dimensional measurement against the
base line plan.
EVPM also requires a periodic forecast of
the final expected results, based on actual
performance.
34
EVPM EMPLOYMENT
In order to employ EV, there must be plan

in place that will allow for continuous
measurement of actual performance. This
may sound difficult, but
Value simply requires
it
a
is not.
focus
Earned
on the
completed physical or intellectual work,

together with managements authorized
budget for the completed work. We call
this the Earned Value.
35
EVPM EMPLOYMENT
In order to employ EV concept, a project

must measure three dimensions of
performance:
The first dimension is called the

planned
value
(also
called
the
Budgeted Cost of the Work Scheduled
BCWS). To determine planned value
(PV), the project must ascertain:
36
EVPM EMPLOYMENT
How much physical or intellectual

work has been scheduled to be
completed as of a point in time.
Managements
authorized
budget
for this authorized work.
PV is simply a direct fall out of

those detailed tasks specified on
the project master schedule (PMS).
37
EVPM EMPLOYMENT
EV requires a baseline master project

schedule; or stated
another way
without a master project schedule, one
cannot employ Earned Value.
38
EVPM EMPLOYMENT
In this case, the master schedule had

specified three units to be completed as
of the first quarter, and each unit had a
budgeted value of Rs 100,000 per unit.
Thus, the project team could determine

that the planned value for the first three
months of the project was Rs 300,000.
39
EVPM EMPLOYMENT
Next, project team members will need to

measure the second dimension called
earned value for the same reporting
period. To measure EV they will need to
determine:
How much of the authorized work they
actually accomplished.
The amount of managements original
budget for the accomplished work.
Their actual performance results; they
completed two units each with a value
of Rs 100,000, for a total earned value
of Rs 200,000/-.
40
EVPM EMPLOYMENT
The third dimension that team members

need to determine is how much money
was spent converting the planned value
into
earned
value
during
the
measurement period. So they look at the
cost ledger and find that they have
incurred actual costs of Rs 300,000/-.
The three dimensions of EVPM are now

set for the first quarter and expressed in
monetary terms and a performance
pattern has emerged for this project:
41
EVPM EMPLOYMENT
The Planned Value (PV) ____________.

The Earned Value (EV) _____________.
The Actual Cost (AC) _______________.
42
EVPM EMPLOYMENT
The earned value principle is not difficult

to understand it comes from a basic
concept that goes back to industrial
engineering and accounting
of the nineteenth century
procedures
some sixty
years before project management arrived

on the scene.
43
EVPM EMPLOYMENT
Prior to introduction of EV methods,

project
managers
were
used
to
measuring the performance of their
projects by reference to Gantt charts and
Critical Path Analysis for the scheduling
aspect, and any difference between the
planned expenditure and the actual costs
to see how the money was going.
44
EVPM EMPLOYMENT
From a time dating back to the 1950s, it

was realized that this was not a very
satisfactory way of managing projects as
there was always
reconciling these two
the problem of
different measures
of project progress i.e. time and cost.
45
EVPM EMPLOYMENT
Furthermore, some organizations were

embarrassed by cost overruns that never
seemed to be predicted until it was too
late to do anything, but swallow hard and
pay up.
46
EVPM EMPLOYMENT
The answer they came up with was

perfectly simple: make both a detailed
plan and detailed valuation of all the
work in the project before you start, then
as the project progresses, make a note at
each reporting point of:
How much value should have been

achieved according to the plan.
How much value has been created

according to the work done.
How much money has actually been

spent
47
Planned value
Cost
Actual spend
Value generated
Fig 1
These three quantities are the basis of all

earned value performance measurements
Time
48
EVPM EMPLOYMENT
With EV, a schedule variance is

defined
as
the
difference
between..
49
EVPM EMPLOYMENT
In this case, team members planned to

accomplish Rs 300,000/- of work but only
did ___________; thus, they are behind their
planned baseline schedule by __________.
Not so bad until they realize that they
only accomplished, 67 paisas worth for
each planned rupee.
50
EVPM EMPLOYMENT
Lastly, they need to know if there was a

cost variance. An earned value cost
variance is determined by taking the
earned
value
accomplished
and
subtracting the _________________.
51
EVPM EMPLOYMENT
Team members spent Rs 300,000/- in

actual costs to accomplish only Rs
200,000/- in earned value. Not so good
when they realize that for each rupee,
they spent, they got only 67 paisas of
earned value. Thus, this project is behind
its planned baseline schedule, and
overrunning costs.
The negative schedule variance is

serious, but the negative cost variance
may be non-recoverable.
52
EVPM EMPLOYMENT
This project at the end of the first

quarter is performing at only 67% of its
planned schedule, and 67% of cost
performance. Stated another way, it is
overrunning its costs by 50%.
53
EVPM EMPLOYMENT
Although only at 20% completion

point, by monitoring these three
dimensions of earned value data, the
project is forecasting a significant final
overrun of costs.
54
EVPM EMPLOYMENT
The project has already spent Rs

300,000/- to complete only Rs 200,000/- of
work, so it is experiencing a Rs 100,000/overrun of costs, and if the project
continues at its present cost efficiency
rate of earning 67 paisas for each rupee
spent, it would need a 50% increased
budget to complete the work.
55
EVPM EMPLOYMENT
Decisions After Project Quarterly

Progress Review
Project budget revised to
Rs 1.5M
Time schedule remained at
12 months
Main performance objective
Getting project
back on schedule
56
Final Results
EVPM EMPLOYMENT
Project completed with all technical

requirements on time within 12
months schedule.
Final actual costs Rs 2.0M.
The new product worked exactly as

required.
The management picked up early

signals at 20% completion point of
cost overruns and provided necessary
funds by cancelling two projects of
lesser importance.
57
EVPM EMPLOYMENT
58
EVPM EMPLOYMENT
The value of Earned Value
59
EVPM EMPLOYMENT
Will the use of earned value on

projects prevent cost overruns?
60
EVPM EMPLOYMENT
Never. Overruns are typically caused by

some combination of these three
factors:
Management authorization of too

low a budget to do the job
Poor technical performance from

the project team
Scope creep
61
EVPM EMPLOYMENT
If
management
authorizes
an
inadequate budget, the project team
performs poorly, or the work is
constantly added because the project
scope was never properly defined in the
first place. EV will not prevent cost
growth. EV cannot perform a miracle!
62
EVPM EMPLOYMENT
The central focus of

consistent:
EV has been
The accurate measurement of

the physical work performed
against a baseline plan. It has
provided a reliable prediction of
the final costs and schedule
requirements for a given project.
63
EVPM EMPLOYMENT
EV
is
based
on
an
integrated
management approach that provides the
best indicator of true cost performance,
available
with
no
other
management technique
project
64
EVPM EMPLOYMENT
EV requires that the projects scope be

fully defined, and that a bottom-up
baseline plan be put in place to
integrate the scope with authorized
resources in a specified time-frame.
65
EVPM EMPLOYMENT
Project management tools must be

simple and easy to use or they will be
ignored. Likewise EV must be made
simple or it will be ignored.
66
67
Internal Development Project

---The plan---
Thousands (000)
Authorized
Budget
1,000,000
1,000
750
500
Cost Spend
Plan
250
Quarters
Fig 2: A typical project cost expenditure projection
68

---1st Quarter Results--
Thousands (000)
Status
date
Authorized
Budget
1,000,000
1,000
750
500
Planned
Costs
= 300K
Actual Costs = 300K
250
Quarters
Fig 3:
Traditional cost management: plan versus

actual costs
69

---1st Quarter Results---
Thousands (000)
1,000
Status
date
Authorized
Budget
1,000,000
750
500
Planned
Value =
300
Actual Costs = 300K
250
Earned Value = 200K
Quarters
Fig 4: Earned value project management: 3 dimensional
70
EVPM EMPLOYMENT
We can also call this actual condition

what it is:
Overrun of costs. The project can
be said to be running a negative Rs
100,000, cost variance. The delicate
relationships reflected with these
actual
cost
and
schedule
performance relationships can now
be used to predict the final costs
and schedule results of the project.
71
EVPM EMPLOYMENT
This project is in trouble. But one could

not have discerned that condition using
a
traditional
cost
management
approach. It is only when EV brings in
three dimensions of performance that
we can tell the project is experiencing
problems.
Such issues need to be addressed

immediately by the project manager in
order to avoid adverse cost overruns
and schedule slippage.
72
73
There is an important and fundamental

distinction to be made between the data
available for management using a
traditional cost control approach as
compared to the three-dimensional data
available when a project employs EV.
74
Traditional Project Cost

Management
Planned funds = 300 K
Actual costs = 300 K
Variance from an
expenditure plan =
(0K)

Planned value = 300 K
Earned value = 200 K
Actual costs = 300 K
Fig 5:
Variance from the planned

schedule = (- 100K)
The true cost
variance = (- 100K)
The Fundamental Differences
75
Cumulative cost (in thousands)
80
60
40
20
10
15
20
25
30
35
Elapsed Time (in weeks)
Fig 6:
Project S-Curves
40
45
76
Activity
Duration (in weeks)

5
10
15
20
25
30
35
40
45
Design
Engineer
Install
20
Test
Total
12
28
Cumulative
12
20
32
60
68
74
78
80
Table 2:
Total
80
Budgeted Costs for Project Siera

77
Cumulative cost (in thousands)
80
60
10,000 Negative Var.
40
20
10
15
20
25
30
35
40
45
Elapsed Time (in weeks)

Cumulative Budgeted Cost
Cumulative Actual Cost
Fig 7:
Project Sieras S-Curve showing negative Variance
78
79
S-curves
Assume that your organization tracks

project costs employing an S-curve
approach and uses that information to
assess the status of an on-going
project.
Also assume that the project is to be

completed in 12 months and has a
budget of Rs 150,000/-. At the six-month
check up you discover that the project
S-curve shows significant shortfall; you
have spent far less on the project to
date than was originally budgeted.
80
Is this good or bad news?
81
S-curves
The bottom line is this:

Simply evaluating a projects status
according to its performance on time
versus budget expenditures may lead us
into making inaccurate assumptions
about project performance.
82
S-curves
Of greater concern, however, is the

relationship of the value of the work
done, the EV, compared to the funds
expended to accomplish the work. A
total of Rs 300,00/- was expended to
accomplish only Rs 200,000/- worth of
work.
Thus the project has experienced a cost

overrun of Rs 100,000/- for the work
performed todate.
83
S-curves
This negative cost trend is of critical

importance to the project because
experience has indicated that such cost
overruns do not correct themselves
overtime, in fact cost overruns tend to
get worse.
84
85
S-curves
Cost
Project
S-curves
Performance
Fig 8: Monitoring Project Performance
Schedule
86
S-curves
Project S-curve analysis directly links

budget expenditures with the project
schedule.
Again
the
obvious
disadvantage to this approach is that it
ignores
the
project
performance
linkage.
87
S-curves
Cost
Performance
Tracking control charts,
Gantt charts
Fig 9: Monitoring Project Performance
Schedule
88
S-curves
Project control charts such as tracking

Gantt charts link project performance
with schedule, but may give budget
expenditures short shrift. The essence
of a tracking approach to project status
is to emphasize project performance
overtime.
89
S-curves
While argument could be made that

budget is implicitly assumed to be spent
in some preconceived fashion, this
metric does not directly apply a link
between
the
use
of
time
and
performance factors with project cost.
90
S-curves
Cost
Earned
Value
Performance
Tracking control charts,
Gantt charts
Fig 10:
Monitoring Project Performance
Schedule
91
S-curves
Technical performance goals must be

developed first.
These goals are basis and reason for

the project.
These goals provide the focal point for

what will be delivered and what the
customer needs.
Schedule
and
cost
must
be
subordinate to technical performance.
92
S-curves
Schedule goals must follow the

technical performance goals and to
provide a path that is unconstrained
by cost considerations at this time.
Cost goals follow both technical

performance and schedule goals.
Building a product with many more

features and functions than are
needed will affect schedule and cost.
Therefore, the technical performance

goals need to be linked to what
customers want and is willing to pay.
93
94
Forecasting the Final Cost

and Schedule Results
EV allows any project to continuously

monitor its cost (CPI) and schedule (SPI)
efficiency
rates,
reflecting
actual
performance trends. These efficiency
indices can also be used to statistically
forecast the expected final position on a
continuous basis to precisely quantify
their actual performance.
95

Overs the years, a number of formulae

have evolved to statistically forecast
the final estimated cost at completion
(EAC). By last count there were close to
twenty distinct formulae available to
predict the final cost position.
96
The Project Managers Official Estimate

(Actual costs + a new bottom-up ETC
EVPM independent statistical EAC comparisons:

1) Low-end over-run to date. the best case
(Mathematical EAC formula)
2) Middle range EAC the most likely case

(Cumulative CPI EAC formula)
3) High-end range EAC. The worst case

(Cumulative CPI x SPI EAC formula)
Fig 11:
Forecasting a Range of Estimates at

Completion
97

How do projects typically estimate

their final costs?
98

Most projects, when it becomes apparent

that
they
are
going
to
exceed
managements authorized budget, will take
their total costs for work performed, and
prepare a new detailed estimate to
complete (ETC) all of the remaining work.
The formula is thus:
Cumulative actual costs plus a new
ETC.
This forecast is likely the most reliable
because it builds on the actual experience
of the project for the work performed to
99
date.

Whats wrong with this approach?
100

Preparing a new ETC is a royal pain in

the neck! Preparing a new ETC is nonproject work. The very people who are
performing on the project, who are often
frustrated because they are running
behind their schedule, must stop doing
real project work and prepare a new
baseline plan called the ETC.
101

Whenever a project commits to

employing even a simple form of EV,
the project team will want to focus on
the actual results against their
baseline plan. They will look for
exceptions to the plan and monitor
the schedule and cost variances as
shown.
102
+
1.00
Good = +1.0
Plan = 1.0
Poor = -1.0
Perfect Schedule performance = 1.0
(for every 1.00 work planned you get 1.00 in earned value)
Perfect Cost performance = 1.0
(for every 1.00 in cost actuals you get 1.00 in earned value)
Fig 12: Monitoring earned value performance
103

The process of statistically forecasting

a range of final cost estimates will
centre on setting three variables for a
project, as of any given point of time:
Determine the total actual costs

incurred to date.
104

Determine the value of the Work

Remaining (WR). By definition, this is
considered to be the budgeted value
for the uncompleted work. This is
typically expressed as the total
budget at completion (BAC) less the
EV already accomplished, which
equals WR.
Divide the Work Remaining (WR) by

some performance factor (PF). For
example 1.0 or the CPI or the CPI
times SPI.
105
106
1. The Mathematical or
Overrun-to-Date
Estimate at Completion
107
Status
date
+
1.00
Long EAC Formula:
Actual Costs + Remaining Work
Cost Overrun to date
(BAC EV)
1.0 pf
Short EAC Formula:
AC + BAC EV
Fig 13: The Mathematical or Overrun-to-Date EAC
108
EVPM Independent
Statistical EAC
Comparison
This EAC formula is not widely

accepted
in
public
sector
organizations, but it is frequently
used within private industry for a
couple of valid reasons:
109
EVPM Independent
Statistical EAC
Comparison
First reason to use this formula:

The Mathematical or Overrun-to-date is
often the first indication announcing to
the project manager and executive
management the first indication that
they may have cost problem on their
project. If a project spends Rs. 300,000/to accomplish only Rs. 200,000/- of
budgeted work, the project experienced
a cost overrun for the initial work that
it has performed. Management deserves
to know this fact.
110
EVPM Independent
Statistical EAC
Comparison
Second reason to use this formula:

The Mathematical EAC is important
because an early overrun does not go
away with the passage of time. It is rare
for
an
early
front-end
overrun
disappearing
through
exemplary
performance of the remaining work.
111
EVPM Independent
Statistical EAC
Comparison
In a project baseline, where are

the best scope definition, best
planning, best budget, and best
scheduled dates placed; in the
first half or the last half of the
baseline?
112
EVPM Independent
Statistical EAC
Comparison
Likely the best of every thing will be

incorporated in to the first half
baseline. Thus, if a project incurs an
overrun in the first half, what are the
chances of making a later recovery of
the overrun? Little to none. This EAC
formula provides a sort of minimum
overrun that does not go away.
113
EVPM Independent
Statistical EAC
Comparison
Short of a project dropping scope

features (i.e. the outright elimination of
authorized tasks), an overrun in the
early phases of the projects is very
serious
and
likely
constitutes
a
permanent loss of funds for any project.
The Mathematical or Overrun-to-Date

formula adds utility in that it constitutes
the lowest best case scenario in the
range of possible final costs for any
project.
114
2.
The Cumulative CPI

Estimate at Completion
115
EVPM Independent
Statistical EAC
Comparison
Likely the most common and most

respected of all the EV statistical
forecasting methods is called the
cumulative
CPI,
estimate
at
completion (EAC).
116
Status
date
+
Plan
1.00
Cumulative CPI
Long EAC Formula:
Actual Costs + Remaining Work (BAC EV)

(Cumulative CPI pf)
EAC
Short EAC Formula:
BAC
Cum. CPI
Fig 14: The Low-end Cumulative CPI EAC
EAC
117
EVPM Independent
Statistical EAC
Comparison
While any project team will want to

monitor its periodic position to assess
recent performance results, periodic
data are also subject to anomalies,
sometimes caused by placing good data
into wrong time frame. Cumulative
performance data tends to smooth out
variations, but nevertheless retains its
value as a long term forecasting tool.
118
EVPM Independent
Statistical EAC
Comparison
The cumulative (not periodic) CPI

provides particularly reliable index to
watch
because
it
has
been
demonstrated to be an accurate and
reliable forecasting metric.
The cumulative CPI has been shown to

stabilize from as early as the 20 percent
completion point of the project. One
important scientific study described the
value of using cumulative CPI to
forecast the final cost results on
projects.
119
119
EVPM Independent
Statistical EAC
Comparison
------------------- researchers found that the

cumulative CPI does not change by more
than ten percent once a contract is 20
percent complete, in most cases, the
cumulative CPI only worsens as a
contract proceeds to completion.
120
EVPM Independent
Statistical EAC
Comparison
Important empirical findings with all

projects employing EV:
Project performance results at 20
percent
completion
point
will
stabilize.
The remaining performance will not
likely change by more than plus or
minus 10 percent at the point of
project completion.
No
other
project
management
technique provides such performance
in sight.
121
3. The Cumulative CPI times

SPI estimate at completion
122
EVPM Independent
Statistical EAC
Comparison
The last statistical formula that has

wide
professional
acceptance
in
forecasting the final project costs is one
that combines both the cost efficiency
(CPI) factor and the schedule efficiency
(SPI) factor.
123
Status
date
+
Plan
1.00
Cumulative SPI
Cumulative CPI
Long EAC Formula:
Actual Costs + Remaining Work (BAC EV)

(Cumulative CPI x SPI pf)
EAC
There is no short EAC

Formula
Fig 15: The High-end Cumulative CPI times SPI EAC
124
EVPM Independent
Statistical EAC
Comparison
There is a natural human tendency to

want to get back on schedule even if it
means consuming more resources to
accomplish
the
same
amount
of
authorized work. The use of paid
overtime and additional resources (more
people) is often employed, which simply
results in permanent, non recoverable
cost damage to the most important
efficiency factor, the CPI.
125
EVPM Independent
Statistical EAC
Comparison
What is the utility of providing a

statistical range (low /most likely /
high) of final cost results for a
given project?
126
EVPM Independent
Statistical EAC
Comparison
Simply put, it is to test the

reasonableness
of
the
project
managers official cost position
against a statistical range of possible
EV forecasts. EV forecasts can quickly
provide
management
with
an
understanding of the cost risk facing
any project.
127
EVPM Independent
Statistical EAC
Comparison
If the project manger predicts a final

cost performance of project outside the
statistical range either above or below
it, then the rationale for his position
should be explained to all parties with a
vested interest in the project.
128
129
Time Management
How long will it take to complete the

project?
This is another matter of great interest

to any project manager, to executive
management, and especially to the
owner or paying customer. By definition,
a project can only be completed within
the ------------------------------.
130
Time Management
Outer limits of its critical path, which is

defined as such: the critical path is
the longest path through a project and
so determines the earliest completion
for the work
131
Time Management
The management of the projects

critical path and the near (sub) critical
paths are thus vital to the successful
completion of any project at the earliest
possible date. An important point to
understand:
132
Time Management
The EV schedule performance data

alone will not be sufficient to manage or
predict the projects time dimension.
Projects need to have a solid scheduling
process in place that allows them to
manage their critical paths.
133
Time Management
As discussed earlier:
The
EV
schedule
variances
represent the difference between
what
was
actually
physically
accomplished (the EV) less what
was planned to be accomplished
(the PV)
SV = EV PV
134
Time Management
Negative EV schedule variances are

important because they are often one of
the first indications of a problem.
Negative SV indicates that the project is
falling behind its baseline plan. EV
schedule variances may be used in
conjunction with the CPM as a way of
reinforcing the forecast date for project
completion. However:
135
Time Management
Do not rely on EV schedule

variance alone to help predict the
final completion date for a project.
136
Status date
Budget
Budget
100%
75%
Planned value
50%
Earned value
25%
Year 1
Year 2
2 months behind
2 months late?
Fig 16: Monitoring the earned value schedule

performance
137
Time Management
As a general rule, management at all

levels dislikes being behind schedule, no
matter how critical the schedule variance
may be. It is sometimes an emotional
issue, resulting in a decree such as
Everyone on overtime
or
Bring in more people for
this job
138
Time Management
When ever a project is employing EV and

it experiences a negative schedule
condition, it should understand the true
meaning of this condition:
Negative schedule variance indicates
that the project is running behind in
accomplishing its planned work, that
is, it is running a schedule position of
less than 1.0 as shown.
139
Compare late earned value tasks against the

critical path and high risk tasks
Status date
1.00
These tasks are late to

the baseline schedule
Baseline
Plan
Cumulative SPI
Time
Fig 17: Earned value schedule variances must be

analyzed
140
Recommendation
Those tasks that

original baseline
carefully assessed
issues:
Time Management
are late to the

plan should be
to determine two
Issue One: Are any, of the late

tasks on the projects critical path,
or on the near (sub) critical paths,
so as to potentially delay the final
completion of the project? If so
overtime and / or additional
resources may be warranted.
141
Time Management
Issue Two: Are the late tasks

considered to be high risks to the
project, that is, do they constitute
a risk of not meeting project
objectives? If so, overtime and /or
additional
resources
may
be
warranted.
142
Time Management
If, however, these late-to-the-baseline

plan tasks are determined to have a
positive schedule float position (slack)
and are not felt to represent high risks
to the project, then added resources
should not be authorized. The reason?
143
Time Management
Any added resources will have a

permanent negative impact on the cost
efficiency rate and produce no positive
critical path schedule results. The
critical path will determine the earliest
time that the project can be completed.
144
Time Management
Unless there are compelling reasons,

additional resources should not be
spent merely because the project is
experiencing a negative schedule
variance.
145
Time Management
The bottom-line questions

project are typically:
for
any
How much will it cost to complete

the job?
How much time until the project is

over?
146
Time Management
Two reliable techniques are currently

available to any Project Manager:
The use of EV schedule / cost

performance data.
The critical path method
147
148
Activation Limits
of EVM Indices
Index Thresholds
Action SPI /CPI
Greater than 1.25
Work ahead of schedule, should use

time on other problem / issues.
Very good productivity should use
improvement on other problem / issues.
Between 0.9 and

1.25
Schedule as expected. No action.

Productivity as expected. No action.
Warning! Work getting behind schedule,

Between 0.75 and should act to get on track / Warning!
0.9
Productivity low should act to get on
track
Less than 0.75
Fig 18
Out of control
149
Activation Limits
of EVM Indices
When these proven indices are used by

people working with a single integrated
data base, they can provide accurate
and reliable forecast to the age-old
questions:
How long will my project take to

complete?
How much money will it cost?
150
Activation Limits
of EVM Indices
Use EV data to predict the projects

cost dimension.
Use CPM to predict the projects

time dimension.
151
152
Three Factors
While the EV performance indices

can be most useful in predicting the
final results on any project, the
benefits from these indices are
dependent on three critical factors.
153
Three Factors
Factor-1: The quality of project baseline plan
EV will measure performance to the

baseline plan, whether the plan is
realistic or ambitious or impossible
to meet. The quality of project
plans will vary and will influence
the final result. Some people
consistently
FIRE FIRST AND AIM LATER
154
Three Factors
The quickest way to experience

scope creep is not to adequately
define the initial project scope.
The surest way to overrun project

costs is to under budget the project.
The best way to assure a schedule slip

is to mandate a completion date that is
impossible to achieve.
155
Three Factors
EV
accurately
measures
project
performance, but must assume that
scope definition is adequate and that
the project has been given an
achievable budget and a realistic
schedule.
156
Three Factors
Factor-2: Actual performance against

approved baseline plan
the
Is the projects performance meeting,

exceeding, or falling behind the
approved
project
plan?
Such
performance factors can be quantified
and monitored for the duration of the
project. Both, the CPI and the SPI can
be watched for trends, and also used
to statistically forecast the final
results for any project employing EV.
157
Three Factors
Factor-3: Managements
determination
influence the final results
to
If project management closely tracks

the EV performance trends and does
not like, or can not accept, the final
forecast results, to what extent will
management take aggressive actions
on the remaining work to alter the
final outcome?
158
Three Factors
Final project results can often be

altered, but only when aggressive
management actions are taken ..
early.
To
what
extent
will
project
performance data be monitored and
the data believed by management?
159
Three Factors
What actions will be authorized to

alter the management approach on
the remaining project tasks?
And, finally, if the projects final

forecasts are unacceptable, to what
extent will all discretionary (non
critical) work be eliminated, budgets
reduced, risks taken, and so forth, in
order to bring the final projected
results down to acceptable levels?
160
161
Forecasting Final Project Status TCPI Metric
One of the most valuable metrics

resulting from EV employment is known
as the to complete performance index
(TCPI). It should be used in conjunction
with tracking the cumulative CPI.
Basically:
Work remaining
TCPI =
Funds remaining
on the status
check date
162
Status date
TCPI
1.00
Baseline
Plan
Cumulative
CPI
Formula:
Work remaining
Funds remaining
= TCPI
Fig 19: The To-Complete (the work) Performance Index

163
(TCPI)
The cumulative CPI represents work

that has already been completed and
TCPI constitutes future work. TCPI
addresses the question:
What performance factor (CPI)
must the project achieve in order
to stay within the tangible future
financial goal?
It takes the work remaining and

divides it by funds remaining.
164
The funds remaining can be represented

by two distinct financial goals as shown
in figure fig-20
165
TCPI using managements Budget at Completion (BAC):
Work Remaining (BAC EV)

Funds Remaining (BAC AC)
= TCPI (BAC)
TCPI using the Project Managers

Estimate at Completion (EAC):
Work Remaining (BAC EV)
Funds Remaining (EAC AC)
= TCPI (EAC)
Fig 20: Two To-Complete Performance Index (TCPI)

Formulas
166
167
The TCPI Using Management

Budgets at Completion
The TCPI metric is important any time a

project
experiences
negative
cost
performance, that is, when CPI is
running below 1.0 performance. A
negative CPI indicates that the project is
spending -------------------------.
168

More than it has budgeted for the work

completed. It is overrunning costs. The
question then becomes:
Will the current overrun cause the
project to need more funds than
management has authorized in its
budget (BAC)?
169
Sunk
Costs
Status
date at
50%
Complete
TCPI
1.25
Baseline Plan
1.00
Opportunity
Costs
Cumulative
CPI
.75
Fig 21: The relationship of Cumulative CPI versus TCPI
170

The cumulative CPI can best thought of

as actual sunk costs. If a project
spends more money than it has
budgeted for the completed work, those
costs are likely gone for ever. Early cost
overruns are rarely (if ever) recovered by
subsequent performance.
171

The remaining work can thus be

considered to be opportunity costs.
That is, if any cost improvement is to be
made, they must
remaining work.
come
from
that
172

When managing a portfolio of projects,

executives will want to begin the
continuous
comparison
of
EV
performance data as early as possible10%, 20%, 30% etc.
To illustrate the utility of the TCPI, we

will focus on the 50% completion point
to describe the concept.
173

When monitoring the TCPI, the juncture

of 50% completion point is critical to
any project. It represents the point at
which the sunk cost will precisely equal
to the opportunity costs.
174

However, once the project goes past the

50% completion point the sunk cost will
exceed the opportunity costs and the
required performance factor to meet the
financial
goal
will
increase
exponentially.
At some point, the project manager and

executive management must recognize
that more funds are needed in order to
complete the project. Management then
has some hard choices to make.
175
176
The TCPI Using The PMs

Estimate at Completion (EAC)
Once it becomes obvious that a project

can no longer be completed within
managements authorized funds (BAC),
the next question then becomes:
What is the real number needed to
complete the project, the estimate at
completion (EAC)?
177

We are not talking here about the

statistically calculated EACs discussed
earlier the Mathematical, or CPI or
CPI times SPI calculated EACs.
Rather we are referring to the project
managers official position on what it
will take to complete the project.
This is typically created by taking the
actual costs to date, and then
preparing
detailed
task-by-task
estimate to complete the job.
178

Ones personal pride often comes into

play. Sometimes, the real number of
required costs to complete the project is
suppressed, at least temporarily. The
project managers official EAC may
increase each month ----------- little piece
at a time. This condition is unfortunate,
but too often real.
179

However, senior management and the

buying customer deserve to know the
full truth. They may elect to cancel the
project and invest their funds in other
endeavors.
It is their money, and they deserve to

know the full truth.
180

That is where the TCPI based on

available EAC funds becomes a valuable
tool. A TCPI based on the EAC funds can
be used to validate the reasonableness
of the project managers official EAC.
181
(1)
1.00
PM EAC
Baseline Plan
Cumulative
CPI
Math EAC
(2)
Cum. CPI EAC
(3)
CPI x SPI EAC
Fig 22: Using the TCPI to validate the Project

Managers EAC
182

The utility of TCPI based on either the

BAC or EAC is that allows management
at all levels to assess the forecast future
of a project based on the past EV
performance.
183

It portrays in graphical form the past

performance (sunk costs) versus the
future expectations (opportunity costs),
so that management at all levels can
feel comfortable that their financial
goals can, in fact, be achieved.
The TCPI can be a valuable aid in this

process.
184

The TCPI is compared to cumulative CPI

to determine if the target EAC is
reasonable:
A target EAC is assumed to be

reasonable, if the TCPI is within plus
or minus 0.05 of the cumulative CPI
EVM metric.
Some industry system descriptions

allow a 0.10 margin.
185

If a TCPI is more than 0.05 higher

than the cumulative CPI the target
EAC may be overly optimistic.
If the cumulative CPI is more than

0.05 higher than the TCPI, the target
EAC may be overly pessimistic.
186

Given a TCPI of 1.1, the plain language

definition is:
For every rupee spent from here to the
end of the contract, a rupee and ten
paisas of budgeted work must be
completed or earned to achieve the
target EAC.
Likewise a TCPI of 0.95 would mean: For

every rupee spent from here to the end
of the contract, only 95 paisas worth of
budgeted work must be completed.
187

TCPI metrics primary purpose is as an

EAC reasonableness metric. EAC is an
independent EVM variable (also latest
revised estimate, LRE). The EAC is not
the result of an EVM equation, but
represents the project estimate at
completion based on risk and all
available project data.
188
189
Methods used to Plan

and Measure EV
EV is dependent upon the projects

scheduling
system
to
provide
mechanisms
for
measurement
of
performance.
Stated
another
way,
without
a
scheduling
system
in
place,
EV
performance cannot take place.
190

and Measure EV
A project scheduling system will by

definition reflect the projects scope of
work and then place all the defined work
tasks into a specific time frame for
execution.
When
one
adds
resources
(managements authorized budget) to
the scheduling system and metrics to
plan and consume such resources, the
EV performance plan is in place.
191

and Measure EV
Bear in mind that a major requirement of

EVPM is:
That where ever practicable, objective
measures (rather than management
judgment) should be used to take credit
for work performed.
192
1.
Milestones weighted values.
2.
Fixed formula (40/60, 25/75,

50/50 etc).
3.
Percent complete estimates.
4.
Percent complete with

milestone gates.
5.
Equivalent units.
6.
Earned standards.
Typically used
for non-recurring
tasks
Used for either

non-recurring or
recurring tasks
Fig 23: EV Measurement Methods

193

and Measure EV
1.
Milestones with Weighted Values
Each designated milestone is assigned a

specified budgeted value, which will be
earned upon 100 percent completion of
the event.
The total work package budget is

divided based on a weighted value
assigned to each milestone. Once work
is underway, values should not be
changed.
194

and Measure EV
The weighted milestone method is a

preferred method used in performance
measurement, but it is also a most
difficult method to initially plan and then
administer.
This approach requires a close working

relationship between the work package
managers, the scheduling people, and
the resource-estimating function in order
to set meaningful milestone values for all
planned work.
195
1.
Milestones with Weighted Values
2.
Fixed formula which adds to 100%

25%
75%
50%
50%
40%
60%
3.
Percent complete estimates
4.
Percent complete with Milestone Gates

33%
Fig 24:
100%
67%
Measure Earned Value with the Project Schedule
100%
196

and Measure EV
2.
Fixed (Start/Finish) Formula

(40/60, 25/75, 50/50 etc.
by
Task:
For example the 25/75 method works well

when applied to those work packages
that are scheduled to start and be
completed within the same or two
measurement periods. In this scenario,
25% of the budget value is earned when
the activity starts, and other 75% of the
budget value is earned when the task is
completed.
197

and Measure EV
One important rule to follow when using

this method is that the defined tasks
should not exceed one or two maximum
reporting periods, measured weekly or
monthly.
198

and Measure EV
3.
Percent Complete Estimates

This discrete measurement method
allows for a periodic (weekly or monthly)
estimate
of
the
percentage
work
completed during the reporting period.
Such (subjective) estimates are made by

the individual in charge of a given work
package. For ease of administration such
estimates are expressed as a cumulative
value against the full (100%) value of the
specified work package.
199

and Measure EV
To
minimize
inflated
subjective
estimates, some firms have developed

internal written procedures (operating
guidelines) on specific segments of
work to more accurately assign percent
complete values based on actual work
accomplishment.
200

and Measure EV
Examples of these guidelines may be:

Planning completed, lines of code
released, drawings issued, materials
ordered, parts received, tool orders
released, etc.
201

and Measure EV
Another effective practice, which is

sometimes used to buffer excessive
optimism while using the percent
completion method is to set a
maximum ceiling allowed for any
work package until it is 100%
complete.
202

and Measure EV
Thus with an 80% ceiling in place, a

given work package may earn up to
80% of the managers subjective
estimate
complete,
until the task

at which time the
is 100%
balance of
20% may be earned.
203

and Measure EV
4.
A Combination of Percent with Milestone

Gates
Recently, there has been an evolution in

EV applications that seems to have
captured the best of both measurement
techniques:
The ease of subjective percent
complete
estimates
used
in
conjunction
with
hard
tangible
milestones.
204

and Measure EV
This method seems to work well in any

industry and with any type of project.
Thus, the broad universal acceptance of
EVPM may well be the result of finding
the right balance between ease of
implementation
and
accurate
performance measurement.
Subjective estimates with milestones
as Gates may provide that balance.
205

and Measure EV
5.
Equivalent Completed Units
This measurement method allows for a

given Planned Value to be earned for
each full unit of work completed, and
also for a fractional equivalent of a full
unit.
The equivalent completed unit approach

works well when the project periods are
of an extended duration. It is also used
for the management of repetitive work.
206

and Measure EV
6.
Earned Standards
The use of earned standards to initially
set a budget and subsequently to
measure the earned performance of
repetitive work is perhaps the most
sophisticated of all the methods, and
requires the most discipline on the part
of the participants.
207

and Measure EV
It requires the prior establishment

equivalent
unit
standards
performance
of
the
tasks
to
completed.
of
for
be
Historical cost performance data, time

and motion studies, set up and lost time
factors etc, are all essential to the
process
of
measuring
performance
against earned work standards.
208
209
The Genesis and Evolution

of Earned Value
The EV concept was conceived over

a hundred years ago, sometime in
the later part of the nineteenth
century.
210

and Measure EV
Phase 0 The Factory Floor: In the late 1800s

Industrial engineers employ a three
dimensional approach to assess their
performance efficiency or work done in the
factory.
They measure performance against a base

line called the planned standards and
then measure the earned standards
achieved against the actual expenses,
incurred to accurately measure the
performance in their factories.
211

and Measure EV
Phase 0
The result of this approach is Earned

Value
Management
in
its
most
fundamental form. Perhaps of most
significance:
The industrial engineers have defined a
cost variance as representing the
difference between the actual costs
spent
and
the
earned
standards
achieved.
212

and Measure EV
Phase 1 PERT / Cost: 1962-1965

PERT was first introduced to industry as a
network scheduling and risk management
device by the US Navy in 1958. PERTs
original approach was two-fold:
To simulate the development planning

of a new project in the form of a logic
flow diagram.
And
to
assess
the
statistical
probability of actually achieving the
plan
213

and Measure EV
Phase 1
Around 1962, the advocates of PERT as a

scheduling tool chose to take another
bold step to expand the concept. Their
thinking:
If one could accurately simulate the

logic of a project taking the form of a
network, why not add resources into
the network and manage both time
and costs?
The result was the introduction of PERT /

Costs in 1962.
214
214

and Measure EV
Phase 1
To accurately describe environment at

the time:
Since neither the computer hardware
nor the computer software programs
were available to properly support
simple network scheduling, the addition
of cost resources into these logic
networks
merely
aggravated
the
problem.
215

and Measure EV
Phase 1
Neither the original PERT (which then

went by the term PERT / TIME) nor
PERT / COSTS survived by the mid
1960s. Today the term PERT does live
on, but only as a generic title to
describe
any
network
scheduling
method. In fact, most of the networks
today that are called PERT are actually
Precedence Diagram Method (PDM)
networks, not true PERT networks.
216

and Measure EV
Phase 1
What of importance did survive from the

short-lived PERT / COSTS experience
was the earned value concept. The
implementation of PERT / COSTS in the
industry at the time required eleven
reporting formats from the contractors.
One of these formats include a:
Cost of work report.
contained what was then
value of work performed
actual costs.
Its format
called the
versus the
217

and Measure EV
Phase 1
A comparison of the actual costs

accumulated to date and the contract
estimate for the work performed to date
will show whether the work is being
performed at a cost which is greater or
less than planned.
Thus, Earned Value as a project

management
tool
was
initially
introduced to modern industry in 1962.
As a part of PERT / COST, however, it
would not last long.
218

and Measure EV
Phase 1
PERT / COST had a life span of perhaps

three years, but it did leave an exciting
legacy:
The use of earned value to monitor
the true cost performance during the
life of any project.
219

and Measure EV
Phase 1
By the mid 1960s, both PERT / TIME

and PERT / COST had all but vanished
from the scene. Industry executives
and private companies did not take
kindly to being told what management
techniques they must employ and how
they must manage their projects, no
matter how beneficial such ideas may
have been. The DOD realized that they
had to take a more sensitive approach
towards private industry; and they did
just that with the introduction of the
C/SCSC approach.
220

and Measure EV
Phase 2 C / SCSC: 1967 to 1996
The USAF took the lead to set standards

that would allow it to oversee industry
performance, without specifically telling
industry what it must do.
The notion of merely requiring that

contractors
satisfy
broadly
defined
criteria with their existing management
control systems was born.
221

and Measure EV
Phase 2
A
subtle
departure
from
PERT
experience but it made all difference
between success and failure for the
new approach.
The criteria concept simply required a

response from industry to some basic
questions,
based
on
sound
management principles:
222

and Measure EV
Phase 2
Does the contractor break down the

work into short span packages that
can be budgeted, scheduled and
evaluated?
Do they have a cost accumulation

system?
Do
they
measure
performance
against those packages of work ..
.. and do.
They report status and variances to

their internal management?
223

and Measure EV
Phase 2
Introduced in Dec 1967 the C/SCSC

carefully incorporated the earned value
concept in the form of thirty-five criteria
that were imposed on any private
contractor wishing to be chosen for a
new
major
systems
contract
or
subcontract that exceeded 20 million
dollars.
224

and Measure EV
Phase 3 Earned Value Management (ANSI/

EIA 748): 1996 to the Present
To reduce complexity in the C/SCSC, the

industry established their own version of
the 35-C/SCSC in 1995.
The called the new industry version the:

Earned Value
(EVMS) criteria
Management
System
225

and Measure EV
Phase 3
It contained 32 criteria. Gone were the

vague terms like BCWS and BCWP, in
their place were Planned Value and
Earned Value.
In Dec 1996, 32 criteria industry Earned

Value Management System was issued
as DOD Instruction 500.2R. And finally in
1998, this was issued as an American
National Standard Institute / Electronic
Industry Association (ANSI / EIA 748)
document.
226
Factory Floor ------------------------ 1890
PERT / COST -------------------------- 1962
C / SCSC ------------------------ 1967-1996
EVM ANSI-EIA-748 Standard -1998

Simple EVPM ------ into 21st Century
Fig 25: Getting back to Earned Value Basics
227
EPILOGUE
Focussing on Value of Work

Accomplished (i.e. the earned
value)
228
229
What do Project Managers

want to know?
Is the project on schedule?
Is the project on budget?
Simple project analysis tools can answer

these questions using time and cost
tracking.
Earned value asks

important questions:
and
answers
more
How much of the budget should have

been spent at this point in the project?
How much Value has the work on the

project Earned so far?
230

want to know?
Most
corporate
/
public
sector
executives
measure
their
cost
performance on projects by using only
two dimensions:
The projected
costs
cost
versus
actual
Thus if all the allotted budget is spent,

they are right on target. If less is spent,
then there is an underrun of costs. If
more is spent, then an overrun exists.
231

want to know?
This is not cost performance, but

rather funding performance.
232

want to know?
What is missing?
233

want to know?
It is the measurement of the value

of the work performed,
money spent we call this
for the
missing
link the Earned Value.
234

want to know?
If a projects budget was set at Rs

100 million and only Rs
were spent, but it
90 million
had only
accomplished Rs 80 million in work

value, what should you call this
condition?
235

want to know?
It should be called what it is:

A Rs 10 million overrun of costs
236

want to know?
The missing third dimension on

most public sector projects today is
a measurement of the value of the
physical work accomplished for the
money being spent.
237

want to know?
A century ago, the industrial engineers

led
by
the
father
of
scientific
management, Frederick W. Taylor, were
correct in their assessment of what
represented true cost performance in
their factories.
Cost
performance
represented
the
difference between the accomplished
work (represented by earned standards)
versus the actual costs incurred.
238

want to know?
It was not the difference between

the planned costs and actual costs.
239
Is this any good?
Cost
Planned Cost
Cost to date
Time
Fig 26
240

want to know?
Today many corporate executives

still do not grasp this simple
concept and are content to focus
on projected costs versus actual
costs, calling this their cost
performance.
241

want to know?
The early industrial engineers

created what they called their
planned standards representing
two components:
The authorized physical work
Authorized
budget
authorized work
for
the
242

want to know?
Planned
standards
simply
represented their baseline plan. It
was only when such work was
completed
that
they
could
determine
their
true
cost
performance.
243

want to know?
Thus a century ago Taylor focussed

on the earned standards that
represented physically accomplished
work, plus its original authorized
budget.
He then compared the earned

standards against the actual hours
expended to determine the true cost
performance. It worked then. It can
work now!
244

want to know?
Scientifically
documented
empirical evidence collected from
over 700 DOD contracts (projects)
that
have
employed
EVM,
demonstrate
a
pattern
of
consistent
and
predictable
performance. Summary of findings
is as shown:
245
Given
Contract more than 15% complete
1. Overrun at completion will not be less than
overrun to date.
2. Percent overrun at completion will be
greater than percent overrun to date.
Conclusion
You cant recover
Who says
More than 700 major DOD contracts since 1977
Why
If you under estimated the near, there is no
hope that you can do better on the far term
planning.
Fig 27:
The DOD EV BOK
246
KEEP AWAY!
Motto of unsuccessful project manager
247
Living with latent

unease is better than
facing the unpalatable
truth
248

Project Management

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Your comments on the situation?

Earned Value Project Management

A closer inspection reveals that only

Earned Value Project Management

Concept of earned value tells us that after

Earned Value Project Management

Cost Variance (CV)

Earned Value Project Management

In a typical spend plan analysis,

Earned Value Project Management

Cost variance of (-) Rs 25,000/- means that

Earned Value Project Management

Schedule Variance (SV)

You find anything odd about the

Earned Value Project Management

Earned Value Project Management

A positive value for this variance

Earned Value Project Management

These variances not only tell the

Earned Value Project Management

In this case, the larger CV (42% of

EARNED VALUE INDICES

Practitioners sometimes prefer to use

Graphed indices over the project life

EARNED VALUE INDICES

Indices are typically used for project

An index of 1.00 (100 percent) indicates

An index less than 1.00 suggests

SCHEDULE PERFORMANCE INDEX (SPI)

The portion of a job achieved

We planned to accomplish Rs 80,000/- of

The index also shows that 75 paisas

SCHEDULE PERFORMANCE INDEX (SPI)

Given this performance the job will be

COST PERFORMANCE INDEX (CPI)

The burn rate at which we are

CPI of 0.705 means that for each rupee

COST PERFORMANCE INDEX (CPI)

The estimate of final project cost is

COST PERFORMANCE INDEX (CPI)

COST PERFORMANCE INDEX (CPI)

How would you explain the

COST PERFORMANCE INDEX (CPI)

EAC allows us to forecast the total

COST PERFORMANCE INDEX (CPI)

When you compare where you are by

With where you planned to be (PV)

You get a reading of progress called

COST PERFORMANCE INDEX (CPI)

COST PERFORMANCE INDEX (CPI)

How much you planned to have

COST PERFORMANCE INDEX (CPI)

preparation of project documents.

In a presentation made to the CEO and

Budget was revised to Rs 1.0M

Time reduced to 12 months

FIRST QUARTERLY PROJECT

3 of the ten units had been scheduled

It had forecast expenditures of Rs

FIRST QUARTERLY PROJECT STATUS REPORT

We are right on our cost spending

In order to employ EV, there must be plan

completed physical or intellectual work,