Integrating Earned Value into the Management of Software Development

Projects

Dan Brandon, Christian Brothers University

• Presented at Information Resources Management Association (IRMA)

Annual International Meeting, June 1999, Hersey, PA, USA; Reprinted in “Managing Information Technology

Resources in Organizations in the Next Millennium (ISBN: 1-878289-51-9)

Project Management & IT Management

• “IT managers careers will rise and fall based on their ability to deliver high quality projects on time.”

– J. I. Cash, Harvard Business School• Only 27% of software development projects succeed;

another 33% are over budget (average cost overrun is 189%) and/or late and/or scaled back

– Standish Group

Project Management Areas

• Project Feasibility/Justification

• Project Organization

• Project Planning & Scheduling

• Project Staffing

• Project Tracking

Typical Project Scheduling (i.e. MS Project)

• Indicate project start date (and any individual task start dates that cannot float)

• Indicate tasks (WBS) and their resource requirements (how much of whose time)

• Indicate Task Interdependencies

• Indicate Milestones

• Indicate resource availability; do resource “leveling”

• Produce “baseline” schedule

Typical Top Level Software WBS

• Requirements Definition

• Overall Design

• Detail Project Plan

• External Design

• Detail Design

• Implementation

• Integration

• Internal Documentation

• Training

• Installation

Example Second Level WBS [Figure 1 in Paper]

• Requirements Definition• External Requirements• Standards Requirements• Performance Requirements• Interface Requirements• Overall Design• External Design• Internal Design

Project Cost Plan• Using a spreadsheet program or using a

project scheduling program,

• Develop a cost plan which indicates:– the cost for each task– when the cost is planned to be incurred

• Software development is mostly labor cost

• Figure 2 (shows top level cost Plan)

• Figure 3 is a graphical representation

• Jan Feb Mar Apr• Requirements Definition 10 5• Overall Design 5 5• Project Plan 5 5• External Documentation 5•

•

• Partial View of Plan•

• Monthly Cost 10 10 10 10• Cumulative 10 20 30 40

Project Cost Plan

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Project Tracking

• “Well done is better than well said.”– Benjamin Franklin (1706 - 1790)

Cost & Schedule Tracking

• Traditional

– Gantt Chart

– Cost versus Budget

• Earned Value (Cost/Schedule Control Systems Criteria [C/SCSC] )

Typical Approach• Present reports to management:

– Cost versus Budget (Planned Cost)

• Figure 4

– Gantt Chart of Progress

• Figure 5

• The example here is for project work thru July

Blue = Plan, Yellow = Actual

Plan and Actual Cost

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Triangle = Actual

Diamond = Plan

• From the information shown:– Are we in good shape on this project

(i.e. ahead of, or behind schedule) ?

– When can we expect to finish this project ?

– What will be our cost at completion ?

• Earned Value can answer these questions !

Earned Value

• “Never mistake motion for action.”– Ernest Hemingway (1889 - 1961)

• “One of the most underused cost management tools available for project managers is the earned value performance measurement concept”

• Q. Fleming & M. Koppelman - Primavera Systems, Inc.

History of Earned Value

• Been around in several forms since 1950’s• DoD required many contracts (those where the

government was at risk for cost overruns) to use Earned Value (originally PERT/COST)

• Earned value was a key concept in the 1967 DoD (Dept. of Defense) policy to which contractors had to comply called Cost/Schedule Control System Criteria (C/SCSC)

• Revised in recent years by DoD to avoid “over implementation”

• Now working very well in DoD (particularly Air Force, Army, ...)

• Large body of statistical data available

• Has its own Internet site in DoD

• However use in private industry is still low:– No exposure to concepts

– Don’t understand concepts

– Don’t know how to effectively implement

Earned Value

• A quantifiable way to express real cost and schedule variances

• Work Plan - shows the budgeted cost associated with the project in time by task (work packet), rolled up to a particular level (the “reporting level”) of the WBS

• Concepts:

– Budgeted cost of work scheduled

– Actual cost of work performed

– Budgeted cost of work performed (EV)

Budgeted Cost of Work Scheduled

• A point on the planned cost (or budget) baseline representing the value of work planned (scheduled) as of a given point in time.

Actual Cost of Work Performed

• The total accrued resources spent on the project thusfar

Budgeted Cost of Work Performed

• Same as “Earned Value”

• A point on the planned cost (budget) baseline representing the budgeted value for work completed as of a point in time.

• Determined by looking at each task initiated, the planned cost for that task, and the amount of that task completed (% complete) -- Figure 5 in paper

External Documentation [Figure 5]

• Task Plan % C Value

• Overall Control 2 100 2

• Tables 3 100 3

• Sorts, Selects, ... 1 0 0

• Forms 2 60 1.2

• Reports 2 65 1.3

• Totals10 75 7.5

EV Variances• Cost Variance = ACWP - BCWP (EV)

– Note difference from simple budget variance: ( ACWP - BCWS)

– Figure 6 in paper

• Schedule Variance = BCWS - BCWP– Can be expressed in time or dollars

– To convert to time use spending rate at the measured point in time

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ACTUAL COST

BCWS

XBCWP

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X BCWP

• We can clearly see from the graph that we are over cost not under cost:

– ACWP - BCWP is positive– Even though budget variance (ACWP - BCWS) is

negative (under budget) !!!

• We can also se that we are behind schedule; we should have been at this point several weeks ago !

• Formulas here have sign reversed from PMI PMBOK versions

Extrapolations [Figure 8]• Schedule:

– Schedule Efficiency Factor:• EarnedValue/BCWS = 0.7

– Schedule variance

• In either dollars (24) or calendar time (1.2) !

– Estimated Time to Complete (16):• PlanTime/ScheduleEfficiencyFactor

• Cost:– Cost Efficiency Factor:

• EarnedValue/ACWP = 0.9

– Estimated Cost at Completion (EAC):

• PlanCost/CostEfficiencyFactor = 211

Effective Use of Earned Value in IT

• Proper Task Level Specification

• Meaningful Percent Complete Reporting

• “Non-Intrusive” Tracking Systems

• Accurate and Timely Cost Data

• Integration with SEI’s CMM

• TQM vs Individual Performance Evaluation

Task Level

• General rule for application software development - smaller of

– one manweek’s effort

– individual component (screen, report, memu,...)

• Important to match to accounting and/or timekeeping frequency !!

Percent Complete Reporting

• Keep it simple !• Common method (weighted milestone):

– Not started zero

– Working on it 50%

– Finished 100%

• Trade off in ease of reporting versus accuracy of reporting

IT % Complete

• Have not begun work 0%

• Working on packet 50%

• Finished packet 75%

• Packet Verified 100%

• Figure 9 in paper suggest verification methods for typical IT packet types

Integration with SEI’s CMM

• Software Engineering Institute’s Capability Maturity Model (for software)

• Level 2 (Repeatable) mainly concerns project management; key process areas:– Software Project Planning– Software Project Tracking and Oversight

• “The project’s software effort and cost are tracked, and corrective actions are taken as necessary.”

Tracking Systems

• Non intrusive

• Gather only necessary information:– time (manhours)

– per cent complete by component

• By product of normal time & attendance system (i.e. timecards):– person id (rbs)

– task id (wbs)

– % complete

– manhours

Timely and Accurate Cost Data

• Note that EV schedule variances do not need actual costs• Getting necessary and timely cost data from G/L, even at

top level of WBS may not be possible• Need to “feedward” cost data based upon regular (i.e.

weekly) time card and other input:– Base Earned Value on hours instead of dollars

– Or base cost on hours times a category “rate” for each type of employee (ie Programmer II); using actual rates is also possible but probably is both a maintenance problem and confidentially problem).

TQM as Basis

• Employee acceptance problem– “Extra paperwork”– “Effect on my performance evaluation”– “Cannot report accurately” - see % complete

reporting methods

• Justify on TQM Basis (adopt as part of overall TQM program)– Improve Task Estimation Process– Accuracy of estimating time/cost to complete

• “If you can’t measure it, you can’t manage it”.........Peter Drucker (TQM Guru)

• Project Management Institute - www.pmi.org