january 10, 2008 office of acquisition and property management

Department of the InteriorDepartment of the InteriorCPIC ForumCPIC Forum

Better Control of Cost and Schedule Variancethrough Earned Value Management

January 10, 2008

Office of Acquisition and Property Management

Department of the InteriorJanuary 2008

2Project Manager’s Challenges

Need for accurate and consistent planning and “real time” status information

Need for accurate measuring and forecasting tools

• High dollar, potentially risky projects

• Complex projects with many activities to track

• Expectations of many stakeholders (visitors/users to OMB/Congress)

• Performance metrics and milestones to meet

• Competition for limited resources


3Much Opportunity for Improvement70% of projects are over budget and/or behind schedule

52% of all projects finish at 189% of their initial budget

Many don’t meet original design specs and stakeholder expectations after huge investments of time and moneySource: Standish Group

In some DOI construction programs:

25% of projects are not completed five years after the initial appropriation

30% of completed projects have a cost variance of >10%

Almost 50% of all major projects (> $10 million) had a significant cost and schedule variance (>10%)


4Threats to Cost Performance

Potential Causes of Poor Cost Performance:

• Inaccurate estimating data• Vaguely defined user needs and requirements• Insufficient oversight of A-E firm during design phase• Poorly defined scope that allows for scope creep• Contract provisions are not rigorously enforced to limit cost

increases• Construction management is inadequate/ineffective • Complications during construction that could not be foreseen• Inordinate amount of change orders• Unfavorable market fluctuations in the cost of labor/material• Inadequate contingency for weather disruptions


5Threat to Schedule Performance

Potential Causes of Poor Schedule Performance

• Extensive design changes• Poorly developed schedule• Insufficient use of tools to track/manage schedule (e.g., EVM)• Contractors not held to contract performance requirements• Differing site conditions / other “unforeseen” conditions• Inordinate number of change orders• Poor performing subcontractors or venders• Competition for resources• Scope creep• Inclement weather


6Answering the Critical Questions

“Have we done what we said we’d do?”

% of budget spent% of work done% of time elapsed

And if we don’t do what we said we’d do --

• Will the mission be adversely affected?• Will a critical health and safety risk remain?• Will ongoing completion funding be available?• Will the project be able to complete successfully?


7Earned Value Management (EVM) Can HelpEVM is a project management tool that integrates the project scope of work with schedule and cost elements.


8Earned Value Management (EVM) Strengths

Provides customers and contractors the ability to:

• Examine detailed schedule information; critical program data, technical milestones; and costs

• Measure a projects progress

• Forecast its completion date and final cost

• Identify schedule and budget variances

• Take preemptive action to keep the project on track


Requirements to Use EVM

EVM is an industry standard

Mandates Set the Stage:

• Government Performance Results Act ; 1993• Federal Acquisition Streamlining Act, Title V; 1994• Clinger-Cohen Act; 1996

OMB Requires It (Circular A-11, Part 7)

"Agencies must use a performance based acquisition management system, based on ANSI/EIA (EVMS) Standard 748, to measure achievement of the cost, schedule, and performance goals."


10Three Measurements for EVM

EVM provides consistent, numerical indicators with which you can evaluate and compare projects

EVM compares the PLANNED amount of work with what has actually been COMPLETED, to determine if COST, SCHEDULE, and WORK ACCOMPLISHED are progressing as planned

Work is “Earned” or credited as it is completed


11EVM Terms

BCWS - Budgeted Cost of Work ScheduledPlanned cost of the total amount of work scheduled to be performed by the milestone date

ACWP - Actual Cost of Work Performed Cost incurred to accomplish the work that has been done to date

BCWP - Budgeted Cost of Work Performed The planned (not actual) cost to complete the work

that has been done


12Foundation of EVM

EVM work is ‘compartmentalized’ (manageable segments)

Compartmentalization achieved with a Work Breakdown Structure (WBS) – basic building block for all authorized work

Well-planned WBS is the most important planning element


13Work Breakdown Structure Design

The WBS provides a framework from which:• A project’s work content to be easily identified, tracked, and

summed• Planning can be performed• Costs can be accumulated• Budgets can be established and managed• Performance can be tracked• Objectives can be linked to resources in a logical manner• Schedules and status-reporting procedures can be established• Responsibility for each element can be established


14Work Breakdown Structure DesignIdentifies final project products (outcomes) and major deliverables necessary to meet the final products

Incorporates levels of work detail appropriate for management insight and integrated control

WBS reviewed and refined until project stakeholders agree that:

• Project planning can be successfully completed

• Managing, monitoring and control will successfully produce desired outcomes


15Sample Work Breakdown Structure


16WBS Units are “Work Packages”

Lowest level WBS elements

Have three measurable components• Scope of work to be accomplished • Total (direct and indirect) cost• Timeframe for completion

Duration of a work package is a relatively short span of time


17Making Projections/Estimate to Complete

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18Metrics Derived from an EVM

SV: Schedule Variance (BCWP-BCWS)A comparison of amount of work performed during a given period of time to what was scheduled to be performed.

A negative variance means the project is behind schedule

CV: Cost Variance (BCWP-ACWP)A comparison of the budgeted cost of work performed with actual cost.

A negative variance means the project is over budget.


19Other Derived Metrics

SPI: Schedule Performance IndexSPI=BCWP/BCWSSPI<1 means project is behind schedule

CPI: Cost Performance IndexCPI= BCWP/ACWPCPI<1 means project is over budget

CSI: Cost Schedule Index (CSI=CPI x SPI)The further CSI is from 1.0, the less likely project recovery becomes


20Establishing an EVMS

ANSI/EIA 748 Standard Criteria provides a list of guidelines - Organization- Planning, Scheduling, and Budgeting- Accounting Considerations- Analysis and Management Reports- Revisions and Data Maintenance (change management)

ANSI/EIA 748 doesn’t identify ‘approved systems’


21Setting Up an EVMS1. Develop Sound Statement of Work (SOW)

2. Determine Reporting Requirements

3. Develop WBS to Appropriate Level

4. Develop Project Schedule Structured in accord with WBS

5. Develop Resource Requirements/Budget Based on approved scope (WBS)

6. Develop Schedule and Cost Baseline a.k.a Performance Measurement Baseline (PMB)

7. Integrated Baseline Review (IBR) Definition


22Earned Value Challenges

Time required for data measurement, input, and manipulation can be considerable

At the start of the project, the risk and uncertainty are highest

Identify risks and plan accordingly (mitigation strategy)

A project schedule must meet three criteria to be complete: buy-in, be achievable and realistic, and formal

Integrated Project Management Team is actively involved


23Summary

Earned Value Management is a tool for performance measurement (cost and schedule) and forecasting

Informal measures of progress are inaccurate

Degree of planning increases with greater complexity and cost


24Earned Value Resources

Project Management Institute -- http://www.pmi.org/

Department of Defense, Under Secretary for Acquisition, Technology and Logistics -- http://www.acq.osd.mil/pm/

National Defense Industrial Association (NDIA) --http://www.ndia.org/

Earned Value Management CoEye (Community of Interest) -- http://www.fedevm.org/

ANSI/EIA 748 is available from Global Engineering Documents at 800-854-7179