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EVMS Phases

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Introduction

• Within an EVMS one of the most difficult areas to understand and manage is the difference between Budgets and Funding.

• The following slides hope to put the concept of budget and funding forward.

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3 Phases of an EVMS

• In a successful Earned Value Management System there are 3 distinct phases:– 1. Creating the Performance Measurement Baseline– 2. Monitoring against the Baseline– 3. Changing the Performance Measurement Baseline

Each has it’s priorities, and each has it’s role to play. A full understanding of each of these is needed to appreciate the power of an EVMS.

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Time now

Baseline Plan

Current PlanB

ud

get

Slip

SV (£)CV(£)

EAC

(BCWP = Earned Value accrued by progress against Baseline schedule)

(ACWP = Spends recorded against progressing schedule to date)

Time

(BCWS = Resource and Cost information applied to baseline schedule)

Forecast£

Basic EVM Terminology

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1. DEFINE THE WORK AND organise TEAMS

100

4060

1525

3030

2. SCHEDULE THE WORK

3. ALLOCATE BUDGETS

£

CONTRACT BUDGET BASE

TIME

MR

PM B

ASELINE

4. APPLY RATES TO RESOURCES

Phase 1 – Creating the PMB

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Phase 1 – Creating the PMB

• Definitions– Scope – This is the customer requirements– Assumptions – The contractors view on how they

will achieve the customers requirements• Example

– Scope – Build a vehicle to transport people from London to Blackpool

– Assumption – As the contractor we will build a four seater car with an economical engine and enough luggage space for 4 people.

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Assumptions• In order to come up with a plan and an estimate the

contractor would come up with some lower level assumptions probably based on past information.

• These assumptions need to be agreed and documented. The documented assumptions become a part of the Control Account baseline documentation suite as this forms part of the basis of estimate.

• The only thing sure about the PMB and the Baseline is that it will change.

• The PMB requires that to the best of the CAMs knowledge all work has been planned and therefore budgeted for.

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Phase 2 – Monitoring against the PMB

• Once the baseline has been set all EV variances are created against the PMB.

BCWS - PMB

BCWP

ACWP

TIME

sv

cv£

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EV Variances• SV – A £ showing the amount of work that has been

achieved relative to the work that should have been achieved (negative value is underachievement).

• CV – A £ value identifying the difference between the work performed and the cost (negative value is over cost).

• SPI – An index value showing the adherence of performance against the PMB (less than 1 underachievement).

• CPI – The value of work that is being performed against the cost of £1 (under 1 over costing).

• VAC – The difference between the budget and funding requirement (negative value more funds needed)

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EV Variances• BAC – Total value of the CA (budget)• LRE – The CAMs outturn view of cost based on current

knowledge• EAC – The authorised Funding amount• TCPI (B) – To complete performance index against

budget, the amount the CPI has to be from that point forward to achieve on budget. A check to see the validity of the BAC.

• TCPI (E) – To complete performance index against Estimate (EAC), the amount the CPI has to be from that point forward to achieve to the EAC. A check to see the validity of the EAC.

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Variance question - 1

• SV = BCWP – BCWS• CV = BCWP – ACWP• BCWS = 150• SV = -50• CV = -70• In relation to the 3 line graph is the BCWP and

ACWP above or below the BCWS?

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Variance question - 2

• SV = BCWP – BCWS• CV = BCWP – ACWP• BCWS = 500• SV = -100• CV = 150• In relation to the 3 line graph is the BCWP and

ACWP above or below the BCWS?

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Budget and Funding• One of the main areas of confusion in an EVMS is the

difference between Budget and Funding.• In an EVMS the budget is the BAC and the authority is the

CAP. This was created by the resource allocation and rates applied to the schedule. The Budget is an estimate of financial requirement to achieve the customer scope of work.

• The EAC is the Funding authority. The CAM and the SMT agree that the original assumptions that supported the PMB have changed and that either more or less funds are needed to complete the customer scope.

• The only point that BAC=EAC is on the initial PMB creation (Full CAP)

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Budget and Funding• The following should help to demonstrate the difference between budget

and funding: CA – Imagine this is a bank account BCWS – Monthly income paid into the bank account (budget) ACWP – Monthly bills from the account (outgoings) BAC – This is the total amount of money that is going to be paid into

the account (budget) EAC – This is the total authorised amount that is going to be

withdrawn from the account (funding) LRE – The CAMs proposed spending amount which has yet to be

authorised (funding)N.B. if the EAC is more than the BAC it is like asking the bank

manager for an overdraught.

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Example of Budget and funding

• The following slides will demonstrate the mechanics of dealing with budgets and funding.

• Remember that profit is created from the EAC.• Once the PMB and budgets are in place the

focus then becomes understanding the variances created relative to the baseline.

• After the PMB is in place the total agreed funding needs to be managed.

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Is it budget or funding

• The following should be used as a guideline.– Budget changes

• Significant new scope or CR agreed with customer• Significant reduction in scope agreed with the customer• Total re-plan

– Funding• Work more or less complicated than planned, with no

change in scope.• Small CR (that increases work to achieve scope and not

the scope itself) that will occur within 3 months of time now

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Example of budget vs funding

• In this example the CA is going to overspend. The scope of work has not changed, however the cost to achieve scope has increased.

• In the bank account scenario this cam needs an authorised over draught of £1,250

CA1 Budget vs Funding

0

2000

4000

6000

8000

Months

£

Acc BCWS Acc EAC

Acc BCWS 1000 2000 3000 4000 5000 6000

Acc EAC 1000 2250 3500 4750 6000 7250

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

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Example of Budget vs fundingCA2 Budget vs Funding

0

2000

4000

6000

8000

Months

£

Acc BCWS Acc EAC

Acc BCWS 1000 2000 3000 4000 5000 6000

Acc EAC 600 1200 1800 2400 3000 3600

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

• In this example the work is less complicated than planned. Again the deliverable has not changed but the route to deliverable is less than originally thought.

• In the bank account scenario this CAM is not going to spend £2,400. This will be left as a credit in his account.

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Example of Budget vs fundingIPT Budget vs Funding

0

2000

4000

6000

8000

10000

12000

14000

Months

£

Acc BCWS Acc EAC

Acc BCWS 2000 4000 6000 8000 10000 12000

Acc EAC 1600 3450 5300 7150 9000 10850

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

• The net effect of these 2 CA at the IPT level means that the IPT will be in a position to spend less money than originally thought. This underspend against the PMB cannot be moved anywhere, however the IPT is ‘capped’ with a funding authority lower than the BAC.

• In the bank account scenario this IPT is intending to spend £1,150 less than budget.

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Budget vs funding

CAM 1.1BAC = 6000EAC = 7250Funding = 1250

CAM 1.2BAC = 6000EAC = 3600Funding = -2400

CAM 2.1BAC = 2000EAC = 3000Funding = 1000

PDBAC = 36000EAC = 36850Funding = 850

IPT 1BAC = 12000EAC = 10850Funding = -1150

IPT 2BAC = 9000EAC = 12000Funding = 3000

CAM 2.2BAC = 2000EAC = 3000Funding = 1000

CAM 2.3BAC = 5000EAC = 6000Funding = 1000

IPT 3BAC = 15000EAC = 14000Funding = -1000

CAM 3.1BAC = 5000EAC = 6000Funding = 1000

CAM 3.2BAC = 5000EAC = 4000Funding = -1000

CAM 3.3BAC = 5000EAC = 4000Funding = -1000

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ExplanationIn this example IPT 1 are going to under spend by £1,150IPT 2 are going to over spend by £3,000IPT 3 are going to over spend by £1,000

The effect of these are than potentially the contract will over spend by £850.

This does not mean that £850 is needed from MR. MR can only be used where scope has been defined. Basically the project will over run. This is now £850 less profit being made, unless the customer is happy to fund it.

IPT 1 and IPT 3 have funding authority less than their budget, and are therefore required to under spend. IPT 2 is given authority to over spend.

This assumes that these CAMs EAC figures have been challenged and agreed by the IPTLs.

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EAC Authorisation• The CAM identifies the funding required (LRE) and agrees this with the

IPT.• The IPT Leader summates the CAM inputs and proposes the required IPT

funding (LRE) to the Project Director.• The Project Director reviews the overall proposed funding requirement

(LRE) and authorises the monthly EAC.

– Note : • The project EAC position is agreed on a quarterly basis.• The quarterly EAC figures should support the IBPP • The EAC should contribute to the RPS inputs.

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CA management

• It is also important to note that if a Control Account manager looks after several Control Accounts he cannot off-set any under or over spends between his Control Accounts. He has been identified as the most appropriate person in the organisation to look after identified Control Account. If the CAM leaves it does not necessarily mean that a single person will be given the same CAs to manage.

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Changing the PMB• There are examples of when the PMB should/could be

changed, please note that an EVMS is DESIGNED to create variances. Therefore, any baseline changes should not be requested that specifically equalise any variances.

• If work package has been completed for less money than originally thought (BCWS = £200K, ACWP = £150K) this is left as a positive cost variance in that control account. If everything else in the control account is expected to go as planned then the EAC should reflect this reduction. It cannot be removed from the budget as the scope of work has been achieved.