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Earned Value Training

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Patrick Weaver
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We are running an EV course for a major contractor next week.  As part of the development our White Paper on Earned Value Formulae has been updated and is available for downloading from: http://www.mosaicprojects.com.au/WhitePapers/WP1081_Earned_Value.pdf

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Stephen Devaux
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Overall, not a bad summary, with one major exception: EVM is NOT about value, it IS about cost!  This is a huge misunderstanding, due in large part to the misnomer "earned value". If instead we use the original terms (BCWS for PV, BCWP for EV and ACWP for AC), note the third letter is ALWAYS "C" and stands for cost.  And anyone who does not understand the difference between cost and value has no place managing projects, which are investments undertaken ONLY if the value is expected to be greater than the cost.

On a project investment, it is always important to track both investment (i.e., budget and actual cost) as well as value. But value does NOT work in the same way as cost in that, unlike cost, value is not directly additive. For example, if you are building an aeroplane with a budget of $150,000 and an expected monetary value of $200,000, but you have not put on the wings, then even though you may have spent $145,000, the value of the plane is close to zero (or whatever it's worth as scrap metal!). The left wing is a MANDATORY activity, and all mandatory activities have the value-added equal to that of the entire project or $200,000.  Of course, the right wing is manadatory as well, as is a propulsion system and landing gear.  All of these have value equal to the total value of the project -- but their value is not simply additive, unlike the cost of doing each item of work.

Some more comments based on the white paper:

"Importantly, EVM should not be confused with cost management or financial control, these are quite
different processes."

Actually, they are not, and anyone who tries to make correlations from the financial processes of budget-based earned value to other processes (such as value, and even schedule, such as through SV, SPI or earned schedule) is woefully misguided, as value and schedule obey entirely different rules from cost. For example, the most important aspect of schedule is the critical path, yet traditional EV pays zero attention to the CP.  It is entirely possible to have an SPI of 1.15 and still be woefully behind schedule or to have an SPI of .85 and to be on schedule, depending on the progress of the critical path and the float burn rates on non-critical tasks.

"Cost Variance = CV the difference between the value of the work accomplished (EV) and the cost of
accomplishing the work (AC)"

No, CV is the difference between the BUDGET for the work accomplished (i.e., the BUdgeted Cost for Work Performed, or BCWP) and the cvost of accomplishing the work (AC or ACWP). This mistake is repeated throughout the paper (e.g., "Schedule Performance Index = CPI a ratio of the difference between the value of the work actually
accomplished (EV) and the value of work planned to be accomplished in the period (PV)". 
Replace "value of the work" with "budget for the work". I would dearly like to play poker with anyone who does not understand the difference between cost and value!)

All the stuff about Earned Schedule is irrelevant until the issues regarding critical path (which, as mentioned above, also afflict standard SV and SPI) are resolved. One way to do this is through the process of:

1. Using a separate schedule for schedule EV metrics, where all the activities/milestones are on the backward pass (ALAP) dates, and

2. Not allowing the taking of EV credit for schedule for tasks completed in a reporting period before they are scheduled.

I also think that if your white paper is going to claim to adequately cover EV, it should include an explanation of TCPI (to-complete performance index) and critical ratio CPI.

Fraternally in project management,

Steve the Bajan