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Earned Value Analysis - WHY BOTHER?

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Jim Parker
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Why bother with Earned Value Analysis? (In construction)

I would like to understand peoples opinion as to any “value” there is with implementation of EVA.; I ask for the purpose of generating my dissertation. My thoughts are limited to the UK construction market. In my opinion there is tremendous advantage to the use of EVA to the client / funder but in conversation with others I am unable to persuade them to the merits of such a system.

Specifically; from a clients organisation I see tremendous value in using EVA through the lifecycle of the project; establishing durations and top down estimates for the various stages and then breaking out the detail as information becomes more available; thereby giving focus to the end date right from the beginning of design / completion of feasibility. However, there are very few organisations that take a cradle to grave approach, and / or have the “want” to implement such as system.

In relation to contractors I can see little reason for them undertaking EVA in house unless requested by the client and paid for by the client. I believe that this is mainly due to contracts being let under a fixed price lump sum arrangement. An article in February’s edition of the Cost Engineer offers the following;

In the case of fixed price contracts the usefulness of earned value analysis is limited because in this case the earned value (EV) is equal to the actual cost (AC) claimed by the contractor. The clients cost variance is zero. The project manager is only interested in any variance to the extent that the variance may be so great as to drive the contractor into liquidation This scenario pervades the UK construction market.

The contractor in a fixed price contract is concerned with three requirements relating to cost and time performance;

• Estimated Costs At Completion of the project, as this determines his profit or loss on the project.
• To ascertain the probability of completion against committed completion.
• Cost performance in relation to actual work done during a reporting period.

Even then, if a contractor has to spend say £20,000 on a 2,000,000 contract what will the benefit be? Is it a competitive advantage, or just additional overhead and renders the contractors bid less competitive.

There may be benefit to the contract in the derivatives of EVA, such as;
• Thorough understanding of the project
• Leading to better planning and understanding.
• Better appreciation of project cash flow.

These elements do not specifically relate to EVA but the derivatives of it.

To conclude I have placed this small piece on the web site to gain opinion, it is not expansive as that may bore many, but I do want your thoughts on the advantages and disadvantages of EVA , both to the client and the contractor, especially in relation to the UK construction market.

Thanks you for reading this and please post your thoughts and comments in the forum. I am truly appreciative of any comment given.

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Alex Wong
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Trevor

Everythings have pros and cons. Same thing apply to EVMS. As a planner, we shall leading the company to utilise the pros and minimize the cons.

I know most of the disadvantages about EVMS in $ or Hrs. Some of these can be overcome by other KPIs. Thats why a company need a set of KPIs to monitor its performance. Like share indicators, there isnt any single indicator to indicate the entire true of any particular share. Thats why we need share analyist to intrepert these indicators and sometime company do fuge their figures to look good. In projects, we (planner) is part of the analyist team, is the one to use these indicators to tell the true.

HTH

Alex
Trevor Rabey
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There are so many flaws in the "Earned Hours" approach that I don’t know where to start.
But do you want to hear them, anyway?
Trevor,
you have written the right words - there is a need to know power and limitations of the methods we use. I have nothing against applying EV together with other analysis methods, but those who do it shall know the limitations for each method used. I don’t like when people promote Earned Value as the universal tool not explaining that this method has its own limitations like any other. And in my postings I tried to warn about the limitations that usually are not discussed.
I did not notice resistance to CPM implementation though when resources are limited there is a need to use Resource Critical Path or Critical Chain calculations, CPM will not work.
Regards,
Vladimir
Trevor Rabey
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I am glad we can rule out long distance extrapolation from small amounts of discrete data points.
I never suggested relying only on EV, although that was the only thing being discussed, so it is fair enough that you might have thought that I might be.
Ruling out long distance extrapolation, it is useful to know that some number was such-and-such last month and the one before and is something else this month.
Then it is a discussion about which numbers are most important, depending on what they are saying about what (hard to know for sure), and what might be done about it, if anything. Especially, you will want to see if anything that you did last month appears to have any effect on the numbers but often you can’t make a direct connection.
I had a look at some of your other posts and you seem to give EV very little credit. If you favour other approaches it is not necessary to slay EV, is it? Unless everyone is so hooked on EV that they won’t consider other approaches?

I think EV deserves a bit more credit, way more powerful than is generally appreciated. But then so is CPM. Both CPM and EV hardly ever get fully unleashed. Neither will work and both are subject to mis-interpretation and way worse if not applied very carefully and the necessary data cannot be obtained and crunched fast enough etc. Other approaches will suffer the same fate if the same kinds of implementation shortcomings prevail.

I think EV is under-estimated and also that more gets read into it than should be.

There is not enough appreciation of either the power or the limitations.

I am familar with PERT (optimistic/pessimistic etc) and tools such as @RISK, Monte Carlo analysis, estimate ranges to express confidence, rather than single numbers etc etc. A pre-requisite would have to be flawless CPM and EV implementation, which are rare and even resisted.
Trevor,
I did not object against using EV. I objected against relying on EV. I also think that the cost of project performance analysis is very low if to compare with the benefits it may give.
It is not enough space for thorough description of project success probabilities calculation.
Very briefly: you create project model, simulate risks and uncertainties, and define project targets (costs, finish dates) that have reasonable probability to be successfully achieved. These targets may become an input for negotiations. Anyway, if some targets were defined you can calculate initial probability to meet these targets. Later these probabilities shall be regularly recalculated taking into account project performance data and risk changes. If they go down then you spend your reserves faster than expected or new risks may cause problems, and you shall try to find the reason and to think about corrective actions. These trends will show you what is going on in your project taking into account not only internal but also external factors (risk and uncertainties changes).
Nobody can extrapolate the data from the very beginning and it does not depend on the method used (you will not rely on CPI and SPI at the project start, isn’t it?). I did not mean extrapolation (though it is useful at the later stages). But you will see the trends of the deviations from the baseline up to date and can estimate past performance from the very beginning. This way nobody will be interested to do the work out of sequence for improving EV data, your judgment will be more objective. And in any case we always insist on management by trends – using EV we always suggest to pay attention to the trends of CPI and SPI. Managing by trends you will discover problems faster and will not let them to increase. Indicators and trends are necessary for management, not just for extrapolation. And extrapolation shall be applied to project resource work results and not to the overall project data.
Regards,
Vladimir
Trevor Rabey
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Ok, so I imagine that project cost success probability and project schedule success probability gets worse or improves, ie becomes a lower or higher number than it was. Sounds good. Does it cost anything to get these numbers and is the pay-off worth it?

So what? Is this an argument that knowing this is better than EV or sufficient without EV, and even if it is so then this is a reason to not do EV?

Of course the numbers, whatever they are, and especially whether they go up or down and how fast are all good numbers, and, provided the correct meaning can be extracted from what is happening, do describe different aspects of performance and can be used for informed decision-making.

How would you define:
success?
cost success?
schedule success?
project cost success probability?
project schedule success probability?

The future performance of the project does not depend necessarily on the past performance.
There is no reason why the future performance cannot be perfect, measured against the plan now, even though the past performance has been a shambles measured against the plan made at the beginning. Of course, if the ball is already dropped then it will be hard to pick it up again in the future. That would be expecting the future plan to make up for past mistakes and problems, so it is overloaded with performance expectations.

With measuring trends, well, I’ve got problems with em. At the beginning we only have a very small amount of past performance data to extrapolate from. eg if you are doing a 20 month project and have 1 month of actuals data which results in a single discrete data point and no idea of the shape and slope of the curve that got it there, how reliable or useful is an extrapolation out to 20 months?
Even 2 or 3 months of data doesn’t help much, especially if the numbers aren’t accumulated and plotted and trended continuously in the period between the discrete data points.
Reliable, mathematically rigorous extrapolation can be done when we are only extrapolating a little ahead of a known curve.
2 months of bad indicators might lead us to extrapolate from 2 early data points that next month some indicator will equal zero and the finish date and cost will be infinity or vice versa.
The future is not connected to the past, although 2 months of shambles does not auger well for the future.
Likewise I would not put my feet up and relax just because I had 2 months of good numbers.
What will happen depends on what we intend to do and how feasible that is and how closely we can come to actually doing it.
EAC is not measured from the trend of the BCWP or BCWS or even ACWP. It is the ACWP up to now (ie a fact) + the estimate to complete from now based on what we intend to do, assuming it is feasible.
Trevor,
you wrote:
But without EV nothing else will do it alone either.
And why not do EV?

Just imagine that you know that performance results caused project cost success probability drop from 70% to 63%, project schedule success probability - from 63% to 58%. Is it sufficient for estimating if the project is doing well or not? Another, more simple approach - finish date forecast delay increased from 5 to 8 days during the last week though the previous performance was successful - delay had the tendency to become less.
Is this information useful for decision making? Does it describe project performance results?
And this information takes into consideration not only volumes of work that have been done but also project network dependencies and project risks.
EV as the useful suporting tool, nothing more than that.
Trevor Rabey
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Of course, EV, Variances, CPI and SPI are not the only way to control a project.
Or rather EV alone won’t do it.
But without EV nothing else will do it alone either.
And why not do EV?
All it takes is data, communication, education and organisation.
Unfortunately, these are exactly the things which pose such a challenge to the construction industry especially.
It also takes hardware and software but the cost of these is insignificant in comparison to the benefits that effective use can bring to the project.

To return to the original question “why bother?”, there seems to still be a question over whether it’s worth it, whether the benefits outweigh the costs. I find it hard to believe that this question is still considered worthy of an answer.

To use another analogy, all those instruments at the front end of the aircraft aren’t just there because the pilots like the pretty lights, and they aren’t there because someone did a cost-benefit analysis and they passed. They are essential to the operation of the aircraft.
I have been on aircraft which didn’t have all of the instruments and it didn’t prevent flight but they were all missed.

Software (and management systems) leverages the initial investment if it used productively. Good tradesmen don’t buy the cheapest tools in the hardware shop.

If EV is coming, if not already routine and established, then choosing not to adopt it will not stop it coming.

Any construction business that doesn’t adopt EV is in great danger from the competition that does. You would have to be very, very sure that there was no advantage in it, or that it is just a fad, or that no one can make it work, if these are the kinds of reasons for not adopting. And how can you tell without investigation and trying it out.

A few short years ago, no one would produce 3D CAD modeling even though they had the 3D CAD software.
All of the old “reasons” were there. “it’s an extra cost for the contractor”, “the clients won’t pay for it” ,“it’s a steep learning curve and a training overhead”. Now it is routine and early adopters did not get left behind in the dust, scrambling to catch up.

The construction business is a jungle. Darwinian natural selection will ultimately answer the “why bother?” question.

That’s “why bother?”.
Trevor Rabey
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The example works much better if there is no fuzziness about the Status Date.
Let’s set an estimated duration and an actual start date and a known status date.
Duration = 10 days
Actual Start Date = Planned Start Date = Start of Planned Day 1
Status Date = end of Day 4
Scope = 500 m3 concrete
Implies 50 m3 per day
Implies BCWS =4 x 50 x $240/m3 = 200 m3 x $240/m3 = $48000
Work Performed = Actual Scope Achieved at the Status Date = 200 m3
Total Planned Cost = $120000
BCWP = Budget Cost of 200 m3 = Budget cost per unit x number of units = $12000/500 x 200 = $240/m3 x 200 = $48000
ACWP = Actual Cost of achievement of 200 m3 up to the Status Date = $40000
CPI = BCWP/ACWP = 48000/40000 = 1.2
SPI = BCWP/BCWS = 48000/$48000 = 1
How can this be interpreted?

If the Scope changes to 800 m3, and nothing else changes, including the $120000 budget, 10 day duration etc.
BCWP = $120000/800 x 200 = $150 x 200 = $30000.
Ie, BCWP changes from $48000 to $30000 because the per unit cost of 800 m3 is $150/m3 instead of $240/m3
ACWP = $40000 (given)
BCWS = (800 m3/10 days) x 4 days x $150/m3 = $48000
CPI = 30000/40000 = 0.75
SPI = 30000/48000 = 0.625
How can this be interpreted?

200 m3 in 4 days for $40000 is good if the scope is 500 m3, but very bad if the scope is 800 m3
What needs to have been achieved in 4 days to stay on schedule? 320 m3
What was achieved in 4 Days? Only 200 m3
Conclusion: progress is slow.

800 m3 can only replace 500 m3 if the per unit cost of concrete can be reduced from $240/m3 to $150/m3.
How can this be done?
Trevor,
I strongly disagree with your statement that Earned Value Analysis is the only way to control the project. There are other and more efficient ways. I think that trend analysis is much more useful for proper project management. Analyzing trends of project success probabilities or trends of deviations from the baseline targets you will discover project problems much earlier and will be able to apply necessary corrective actions in time. I already wrote that EVA data shall be thoroughly checked because they may lead to wrong conclusions. It does not take into account network logic, project risks, resources that caused problems. It is not safe to make conclusions based only on EVA results. It can be used only as supplementary tool.
Regards,
Vladimir
Trevor Rabey
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Referring back to Jim Parker’s original post.

"An article in February’s edition of the Cost Engineer offers the following;

In the case of fixed price contracts the usefulness of earned value analysis is limited because in this case the earned value (EV) is equal to the actual cost (AC) claimed by the contractor. The clients cost variance is zero. The project manager is only interested in any variance to the extent that the variance may be so great as to drive the contractor into liquidation This scenario pervades the UK construction market."

Jim doesn’t say what he thinks of this. I find it unbelievably shallow.

If fixed price sub-contracts prevented costs over the fixed prices no project would ever blow the budget/estimate. And there is no reference to the schedule variance and SPI.
The sub-contractor’s pain starts long before he is driven to liquidation, at the moment when the first dollar of profit disappears. It is vital to the main contractor’s project success that he takes more than a passing interest in the sub-contractor’s capability to estimate and manage his part of the project. If a sub-contractor is engaged because the fixed price is the lowest bid, and if that bid is low because the scope has been under-estimated (ie a mistake)and/or if the subbie doesn’t intend to waste any money or effort on any new-fangled project management systems or software, then it will all go pear-shaped for the subbie and that will definitely become the main contractor’s problem. Just because the main contractor can hold to the fixed price and crush the subbie like a bug, it won’t help the project. Look around. Wembley Stadium?
Trevor Rabey
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I will try to keep them shorter but we advancing on this topic on a wide front and you make many useful points that need to respond to.

I like the South Pole example because it illustrates how all projects are alike wrt scope definition, distribution of risk and responsibility, performance measurement, definitions and consequences of success and failure etc.

I looked back at the start of the thread and sure, ok, we’re off topic a bit. If the starting question is "why bother?" I say because it is the only way to control the project. It is not really a choice based on we like it or not, or it costs too much or is too much trouble or not, but how it is implemented, calculated, used etc makes all the difference in whether it pays off.

Re SPI and CPI "independence":
CPI = BCWP/ACWP
BCWP = CPI x ACWP

SPI = BCWP/BCWS
therefore SPI = CPI x ACWP/BCWS

Not very independent at all and actually at the core of the strength of EV.
Ett Di Giovanni
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Wow... that’s quite a tome you’ve written and with all due respect Trevor, I think you’re complicating the discussion.

The topic is "Earned Value Analysis - Why Bother?" and in the example I brought forward, the numbers I used were only to highlight why EVM is so useful. It wasn’t to analyze where the original estimated quantity is correct.

Maybe it was correct, based on the knowledge known at the time it was prepared and it is not the estimator’s fault. Soil conditions may have caused for the need for additional quantities... or maybe part of the foundation has to be re-done because it wasn’t initially install properly. Regardless of the reason for the increase, EVM is a good tool for highlighting early, cost and schedule problems.

Still, for your article I have the following comments:

BCWP, BCWS, and ACWP are not just measured up to the status date. They should also be measured by reporting period. EVM requires periodic determinations of these components as well as CPI and SPI.

I agree that EVM highlights the need for accurate estimates, but it also highlights the need for a proper assessment of scope; having a proper schedule; an accurate and objective method of calculating % complete; and accurate recording of acutal quantities, hours and costs that should inlcude accruals.

My Use the word "Approved" vs "Budget" is to qualify the proper budget value that should be used in EVM. There are Baseline Budgets, Approved Budgets, Control Budgets... which one should be used? The "Approved Budget" as it would include an approved scope changes.

I don’t understand why you prefer the word "Acutal" to "Forecast". My use of the word "forecast" includes acutal and forecast remaining values. They are different. I think the proper lexicon used in EVM is "Estimate At Completion" (EAC).

Your discussion on "walking to the South Pole" is interesting, but redundant and I don’t think it’s really required for our current discussion. Why bring up another situation?

I don’t agree with your comment that CPI is meaningless without SPI. They’re both separate calcs. One measures cost performance, the other schedule performance. I agree that they both need to be addressed, but they are not dependent on each other.

I didn’t include schedule data in my example because I just wanted to deal with CPI for now. The schedule data isn’t required for the CPI calculation. Still, if you want some schedule data, let’s assume that as of the Status date, the planned quantities to install were 125m3 with planned costs of $30,000.

Therefore, the BCWS = $30,000.
Calculated prior... the BCWP = $30,000.

Therefore, SPI = BCWP/BCWS = 1.0
A value of 1.0 indicates that we are on schedule.

So, EVM has told us that we are over-budget, but on schedule according to the approved plan.

Both components provide different information and are independent. One measure cost performance, the other schedule performance.

Trevor Rabey
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I thank you for this excellent example of such a typical scenario and the detail of the discussion.
I have been writing up just such a scenario as an article/teaching exercise, so this helps a lot.
May I post the relevant draft parts as my answer and be excused for the lecture/text book tone?
Any input or correction humbly appreciated.

Our difference of opinion is over whether the 300 m3 is scope, whether it is additional scope, whether it costs more or takes more time or more Hours, and whether and/or when it is included in the EV calculation. We can just consider all possible combinations one at a time. Then we can say, if such-and-such is the case, then this is the answer. If some other such-and-such is the case, then this is the other answer. Then we can eliminate the cases which are not this case. If we make a mistake here, and choose a case which is not this case, then we will have an answer but it will not be applicable to our reality.

I think we can agree on the definition of the mathematical parts of the problem:

CPI = BCWP/ACWP
SPI = BCWP/BCWS

And BCWP, ACWP and BCWS are all measured UP TO the Status Date. Especially, BCWS is not measured up to the completion of the project. CPI and SPI are determined AT the Status Date.
The calculation hinges on the Status Date, relative to the overall Duration, which we have to assume since it is not provided in the example.
If the 500 m3 is switched for the 800 m3 this effectively changes the necessary assumption about the Status Date, relative to the overall Duration (I think).

Perhaps we can’t usually re-cast the baseline to accommodate the 300 m3 hole that we have discovered since the project started, until we have measured performance against the existing baseline. This seems unfair because we could say that the baseline is defective to the extent of what was left out, and better information has become available, but this is what happens when the baseline does not include all of the now emerging extra scope (and emerging extra cost, duration, material and work resources). This is one of the strongest possible arguments for a precise, complete estimate at the start, with the minimum possible changes of any sort, and especially minimum possible emergent scope.

I think the client would insist on measuring performance against the baseline plan that was handed over on day 1, at least until persuaded that it should be replaced (not easy). This is perhaps also a weakness in EV, which assumes, quite rightly since what else is possible, that the estimate is, in all respects, correct, which is impossible if the scope is not correct. The longer you keep on measuring performance against an estimate that is becoming more and more superseded by actual reality and the differences are large enough to mount up to become significant, the less meaningful all of the indicators become. It is not EV itself which prevents re-casting the plan and the mechanism exists for constant, frequent and continuous monitoring, updating, re-scheduling, re-budgeting and eventually when required re-baselining. Throw out the baseline and get a new one and start measuring again. This “constant, frequent and continuous” element aligns nicely with the basic principles of the Critical Path Method (everything moves all the time). If EV forces estimates to be complete and accurate then this is a strength of EV. But many Estimates are rough and incomplete and, amongst all of the pain that that will cause, The EVA won’t work.

Contracts (or the client’s lawyers), however, freeze the early baseline overall and (some say, although very few) even freezes the early baseline detail, and rigidly prevent the baseline from being changed or replaced, regardless of how much improvement is available or needed. Talk about a terrific way to choke your own project.
Legally, this makes sense because the objective is legal certainty.
But it does not assist the achievement of the project scope, time and cost objectives and completely contradicts the concepts, principles and methods of the CPM and EV which are the tools available to achieve the project scope, time and cost objectives.
It is lazy or uninformed contract drafting, too, because it should be possible to achieve both legal certainty and unleash the project control power of CPM and EV.
The contractor’s only defence, other than educating the client and his lawyers about the difference between artificial legal constructs and real world project management, is to ensure that the Planned/Estimate/Baseline plan is so good, so exact, so error free, that it can actually be worked to as-planned and that no significant changes will occur.

The contractor in the example has contracted to fill a hole with concrete, as you say. If this is a fixed price contract, rather than cost-plus reimbursable or schedule of rates, and if the contractor under-estimates the materials or quantity or Cost or Hours or Duration it’s his risk. After all, anyone can win a contract by under-estimating the scope and bidding low. That’s called buying yourself a world of trouble and pain.

I don’t feel comfortable using the words “approved” and “forecast” in the EV discussion.
I prefer sticking to the EV lexicon which has “budget” and “actual”.

This “forecast” 800 m3 looks to me like something you know exists, that you didn’t know about at the start, and has to be dealt with but is not yet part of the plan/schedule, either at the beginning of the project or now at the Status Date (whenever that is) when we have poured 200 m3 of concrete.

Planned Cost = Estimated Cost = Baseline Cost= “what we thought it would take to get the job done, no more and no less, given what we knew about the scope at the time we made the plan, regardless of what we know now”.

Estimates must drive approval, not vice versa.

The Estimate is the minimum amount that must get “approved” and provided for if this project is to start at all. Otherwise a guy (maybe you, not me) might be walking 500 km to the South Pole with a Planned/Estimated/Baseline cost = enough to buy 1 tonne of food but an “approved” cost = only enough to buy 0.5 tonne of food. What do you think will happen? And if you do start, and are doomed already, you had better not find another 300 km on the ice or on the map that you hadn’t noticed (or it makes no difference to the outcome anyway). If someone (not me and not the board of directors and not the client/sponsor) did start off to walk to the South Pole with half the food estimated to be needed (departing from project management to gambling), and didn’t find another 300 km and actually made it (on schedule) that would be a magnificent achievement. Or, more likely, it would tell us that there was something wrong with the estimate in the first place, such as how much energy it would take or how much energy could be squeezed out of 1 tonne of food. Next time we won’t ask for so much. Notice that the sponsor/client and the board of directors who approved only half of what was asked for, but didn’t do the walking, now takes some of the credit! If the walking guy doesn’t make it and starves in the snow he gets fired by his board of directors and they get sued by the sponsor/client or the LD clause kicks in.

So Approved = Planned/Estimated/Baseline or we aren’t walking anywhere snowy (or pouring any concrete).

Then he breaks a leg or runs into bad weather or finds 300 km that was or was not on the map.
Some of these things are bad luck that he’s not responsible for or things that he is responsible for.
Un-imagined bad weather or getting struck by a meteor are bad luck, beyond the reach of risk management and scope definition. The contract will provide relief. The sponsor will fly in supplies and aid to get the job finished according to a new plan or will fly him out, probably depending a lot on where the calamity occurs and how achievable the remainder is, and how it can be achieved.

The 300 km though is hard to talk his way out of. The Estimate was wrong (not just inaccurate or imprecise) because the maps were bad (who made the maps?) or the maps were good but the counting was bad (who did the counting?).
If you spring this surprise on the client he will fly in the necessary supplies if he must to get the job done. Or he may tell the walking guy’s board of directors to fly in the supplies at their expense, as he would be entitled to do if the contract was to walk to the pole for the contracted quantities of supplies and support. They can do it and attempt to argue against the contract later and recover from the client. If they can’t do it then the client can do it under duress and sue them later. In this contest, depending on who made the maps and who did the counting, and which one (or both) was wrong, if it wasn’t the client who did it I would be betting on the client.

It would be better for the Contractor if the walking guy was hit by a meteor (and survives) before the client finds out about the 300 km. Preferably, for the contractor, the client never finds out about the 300 km. Anyway, the arbitrator/claims consultant/analyst/forensic accountant can apportion the effects and the blame and reponsibility later, using rules about “concurrency”.

The discovered 300 m3 of concrete looks like nothing except an estimating blunder by the contractor, with all of the typical nightmare that goes with it. Here it comes. How do you break this news to the project manager, the board of directors, the shareholders and ultimately to the client? Who has to fix it? Heads will roll.

When the 300 m3 hole turns up, if it has cost, and/or materials, and/or work, and/or duration and/or schedule consequences then it is definitely scope If it is not scope because it does not have any of these consequences then we don’t have to consider it.

Actually, as an estimating blunder, it’s not the planner’s problem. It’s the estimating department’s problem. The planner just plans what he knows, what the estimating department tells him. Unfortunately, if the same person is the estimator and the planner, and perhaps also the project manager, board of directors and shareholder, then he definitely has an un-shiftable problem. The client will not be enthusiastic about the Contractor’s blunder becoming his problem, especially if he gets told about it late after a serious of glowing assurances and hyped-up progress reports.

Is the $12000 the best estimate of enough money to pour 500 m3 or 800 m3?
Is the Duration (not given) the best estimate of enough time to achieve 500 m3 or 800 m3?

The example leaves out some essential information, namely everything to do with the schedule/timing.
The example does not incude any consideration of SPI = BCWP/BCWS
CPI is just about meaningless without SPI as well.
EV is inextricably linked with schedule/timing and rates of consumption of dollars compared to rates of achievement of Tasks (not compared to the rate of consumption of hours or materials, neither of which is achievement or progress).
No schedule information essentially renders meaningful EV calculations impossible or else forces the adoption of a high risk assumption that planned and actual production has been achieved proportional to time elapsing at the planned production rate, and similarly that planned Cost is proportional to planned duration (pro-rata distribution of production and Cost over time).

So, if 25% of the Task (measured by concrete) has been achieved up to the Status Date, in the absence of any timing information, and, forced to make an assumption, mainly that the Task started at the planned ES and production rates have been exactly as planned, we can take this to imply that the Status Date is at 25% of planned Duration (whatever that is/was).
This is a really risky assumption because it so unlikely to be exactly correct, and if you are forced to make this on-site in real life because you don’t have the records of actual start/finish compared to planned start/finish, especially this early in the project, then you can expect to be losing control. First rule in number crunching: get the numbers.

Examples follow.
Ett Di Giovanni
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Trevor,

Re-baselining the task because of the "the 300 m3 hole that we have discovered since the project started" should not be linked to the measurement of performance. Just because the forecast quantity is now 300 m3 greater than the estimated quantity does not always mean that the scope of the project has changed.

The approved budget required a concrete foundation. Just because additional quantities of concrete for the foundation has increased doesn’t warrant a change in the approved budgeted cost of the work. The increase in size may be due to other issues on the project that are not considered changes in scope resulting in a change in the approved budgeted cost of the task.

As to the doubts regarding how I calculated the Earned Value as being $30,000 in my example... let’s take a different perspective by analysing the other method put forward by Rashid, that resulted in a value of $48,000. Let’s calculate the Earned Value using his method at the time the task is complete.

Therefore, at completion the BCWP = 800m3 x ($120,000/500m3) = $192,000. But, the approved budget is only $120,000. How can we earn more the the approved budget? It’s not possible, so the calculation is not correct and therefore the $48,000 is not correct.

Earned value is based on work accomplished. Work accomplished and this is calculated as Approved Budget x percent complete. Therefore, BCWP=$120,000 x 25% = $30,000 and the CPI = 0.75.

We can now use this CPI value to help us forecast the final cost of the task. EVM provides for a calculation refered to as the "Indedependent Estimate At Completion" (I-EAC). "Estimate At Completion" is just another way of saying total forecasted cost.

The calculation of I-EAC= Approved Budget/CPI.

So, in my example, I-EAC= $120,000/0.75 = $160,000.

EVM is telling me that based on my performance thus far on this task, I’m heading for a $40,000 overrun (120,000-160,0000).

And, that’s the beauty of EVM. It helps prevent surprises by highlighting problems early on. My task is only 25% complete, but I’m already forecasting of budget overrun.

EVM lets project managers know early that there a cost and schedule problems, thereby giving them time to decide on how to remedy them.
Naveed Tariq, PE,...
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Trevor is right... you shall be considering budgeted quantities till this point. Any variance will be covered in actual quantities. Forecast has nothing to do with CPI at this time.

However if you feel this difference is so significant or it may be due to scope change/creep, you shall follow the change control mechanism to rebaseline your project. This is the only way to cater for forecasted quanitites in this example/situation.

Regards

Trevor Rabey
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Perhaps we can’t usually re-cast the baseline to accommodate the 300 m3 hole that we have discovered since the project started until we have measured performance against the existing baseline. This seems unfair because we could say that the baseline is defective to the extent of what was left out, and better information has become available, but this is what happens when the baseline does not include all of the now emerging extra scope (and emerging extra cost, duration, material and work resources).
Trevor Rabey
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Sorry,...me too
Rashid Iqbal
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I doubt.............

Ett Di Giovanni
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Rashid,

No, the CPI is still 0.75 because you haven’t accounted for the additional quantities required. Work accomplished is based on a forecast total of 800 m3 to install, not 500 m3.

In my example, I didn’t include a Forecast cost because it isn’t relevant for indicating the value of te work accomplished. Note that the Forecasted costs would include the actual costs, so it isn’t a good measure for calculating percent complete and subsequently, earned value.

Regards,

Ett
Rashid Iqbal
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Hi,

I think either there is some problem in calculation or may be i am seeing the problem differently.


Earned value is the Budgeted Cost of work performed and the work performed in this case is 200 m3. And so the BCWP cost of 200 m3 would be =200x(120,000/500)=48,000. And So CPI woudl be 48,000/40,000= 1.2

Regards
Rashid Iqbal


Ett Di Giovanni
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Trevor,

One of the key requirements of earned value is coming up with an accurate method for calculating the % complete.

To do this, you must first determine what "drives" the task/activity based on the nature of the work it represents. i.e. what is the best indicator of percent complete for this task? Is it quantities? hours? cost? level of effort? apportionment?

Once you’ve determine this, then you can apply the best method to calculate earned quantities, hours and costs.

E.g. Assume a task has the following data:

Description - Install concrete foundations
Approved Quantities - 500 m3
Forecast Quantities - 800 m3
Approved Hours - 2000
Approved Costs - $120,000

You’ve determined that the best method for % complete for this task should be based on quantities installed.


So, assume 200 m3 have been installed at an acutal cost of $40,000.
Percent complete = Actual Qty/Forecast Qty = 200/800 = 25%

Therefore, earned value calcs will be:
25% x 500 m3 = 125 m3 earned quantities
25% x 2000 hours = 500 earned hours
25% x 120,000 = $30,000 earned.

From there you can determine the CPI: $30,000/40,000 = 0.75
This means that for every $ spent on this task, you are only receiving 0.75 worth of work.

So, earned value can be applied using quantities or hours or any other indicator that best determines the work accomplished. It need not be based only on using costs.
Trevor Rabey
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Using work Hours instead of Cost is wrong, or at least pointless and ambiguous and confusing, unless all Hours have the same Cost, in which case you know the Cost so you may as well use it. Why not use Cost? If you don’t know what they cost but know that they are equal (but if you know this then you must know what they cost), you can set Cost = $1/hour or $X/hour and you may as well use it.

In the example:
Design 15Hrs $10, $0.66/Hour
Procurement 2Hrs $60, $30.00/Hour
Installation 50hrs $30, $0.60/Hour

Similarly, using elapsed (actual) duration is just as wrong unless each day of each Task has the same cost.

There is too much missing information in the example.
Suppose Status Date is end of Hour #17
Take hours to be Duration, not Work, or if work then hours work = hours duration.
If not, then what are the Durations?

Example 1

Status Date is end of Hour #17
BCWP up to the status date = $25
BCWS up to the status date = $25
then
SPI = BCWP/BCWS = 1

BCWS is not the BCWS for the entire project, ie not $100, but only up to the status date.

ACWP up to the status date = not given, but if
ACWP up to the status date = $25
BCWP up to the status date = $25
then
CPI = BCWP/ACWP = 1

all ok.

But really more information is required re actuals, especially what is the status date and what is the actual start and finish day of design and procurement, and what were their actual cost.

Example 2
Status Date is end of Hour #17
Suppose Design started and finished as scheduled, or earlier (good) but actually cost $20 instead of $10 as planned.
Suppose Status Date is end of Hour #17 (ie when Procurement should have finished, or rather was scheduled to finish).
But suppose Procurement perhaps has started but has spent $0, 0 Hours, and achieved nothing.

Then, up to the status date:
ACWP = $20
BCWP = $10
BCWS = $70

Then:
SPI = 10/70 = approx 0.14
CPI = 10/20 = 0.5

Conclusion: you have schedule problems and cost problems.

Example 3
Suppose the Status Date is the end of Hour #67, or any time/date after that.
Design and Procurement have started and finished and actual cost for them is as planned but Installation has not started.
ACWP = $70
BCWP = $70
BCWS = $100
SPI = 70/100 = 0.7
CPI = 70/70 = 1.0

Conclusion: what you are spending is buying at least what you estimated/expected/planned (but no better) but you are not doing enough to be on schedule.

Examples 4,5,6,7... etc: other combinations of Durations, Hours, Actuals and especially Tasks completely or partially performed earlier and/or later than the scheduled ES/EF.
manulal inasu
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Hi Naveed,

I got your point. Thank you.

Regards,

manu.
Naveed Tariq, PE,...
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Dear Manu!


From Alex saying

"Eg
Project have a planned budget of $100"

I am assuming that he mentions this is the project budget for this reporting period i.e. till data date.

Peace!!
manulal inasu
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Hi Naveed,

Thank you for your input.

How can the BCWS be 100?

Manu.
Naveed Tariq, PE,...
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Dear Manulal and others!

Here SPI (BCWP/BCWS = 25/100 = 0.25) is equally bad as CPI of 0.35.

We have applied EV concept on different projects, it gives true picture of the project.

Few people discussed on the forum that planners/PMs can fudge the data by completing high value activities. Friends use trend charts i.e. plot CPI and SPI on time axis. Data can be fudged only for a week or 2, later jumps in trend will show the data was fudged.

Cheers!!
manulal inasu
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Alex

In this example you just cited, the Cost performance index will be BCWP/ACWP = 25/70 = 0.35 . Since a value less than 1 is a negative indication, Don’t you think CPI may give a confusing indication even if the project is progressing as scheduled?

Manu.
Alex Wong
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Ett

Properly you have a mis-conception here about the Value ($)

Using a EVMS methodology not necessary refer to $ (Although it is using $ to measure)

One of the company I worked, we use man hrs as earned value calculation.

Eg
Project have a planned budget of $100
Three activity only
Activity Des Budgeted Hr Budgeted $
Design 15Hrs $10
Procurement 2Hrs $60
Installation 50hrs $30


If the project had completed the procurement and Design
it only earned 17/67 = 25% completed instead of $70/100 = 70% completed
Then the overall project EV for this project = $100 * 25% = $25

Hope you can see the logic that in EVMS you are not bounded of using $ in the progress, you can have options ie hrs, quantity of works completed, weighted activity, activity (remaining) durations ...

As a result, rule in rolling out a EVMS is important - As I stated in earlier post.

Regards

Alex
Ett Di Giovanni
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I also agree with Alex, but Vladamir makes a good point.

Earned Value is a useful tool but it can be abused by project managers to give the perception that a project is running well, when in fact, thinks are not what they seem.

The reporting of Earned value components, such as CPI and SPI, can be influenced by having work done on high cost, non-critical tasks.

I think that when reporting CPI and SPI, there needs to also be some indication of total float.

Comments?
Charleston-Joseph...
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Hello Alex,

I agree with your idea.

Earned Value Analysis is important in project management.

Cheers,

Charlie
Alex,
I agree with you. Using EV as one of program performance measurement indicators is useful.
Regards,
Vladimir
Alex Wong
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Dear All,

Hmm... I don’t know how to put this.

Projects that we do today are some how more complex than the old days. (That statement alone will create a lot of discussion)
A typical major project will involve
Civil, E&M, Building Service, Computer Control stuff, Fittings, Plumbing and Drainage...
Because it is getting more complex, management do not want or have time to listen to the details, rather they want a simple set of indicators (KPIs) to make decision base on these indicators. EV is one of them.

I was growth up in construction/hands on environment. I know the importance of first hand information. However, the higher we get, the more projects in our portfolio, the lesser time we can spend on site, and the desire of seeking project information is stronger each date(Because we cannot see the actual project). Physically it is impossible to manage all these at once. That why we delegate to the project managers to manager daily/projects issues. In order to keep my finger in the pulse I have to rely on indicators, trend, reports, and analysis to manage the portfolio.

I guess this is like running an army in old days, communication from the battle field to the commando is key to battle success. Being able to make decision on few indicators, develop strategy in deploying troops, and instruct your sub-ordinate (Project Manager) to execute according to plan. It is more real life and real time. That why we need system to summarize 400,000 activities into 4-5 indicators. If Napoleon need to visit the field (micro manage is troop) before he make any decision, he properly die in the first day. Although at the end he did made that mistake of not listen to his sub-ordinate and not trusting them.

Anyway, properly said too much. Yes I still think that EV is a set of excellent indicators for managing a large no of projects.

Regards

Alex
Alex Wong
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Vladimir

EVMS is only one of the many tools/methodology should be use in a project.

I am still waiting for one tools fix all...

I guess in the mean time we have to use a series of tools and indicators to help manage a project.

I have to disagree with your statement - about the project manager try to play smart. A full, EVMS should includes a set of rules to goverance the progress of a activity, training to the manager, benchmark, change management, roll out methodology, audit... Of course if you think that all U need is a software tools without invest in Process / Procedure and People then I think any system will fail.

A schedule developed with no rules and standard will give you wrong information.

Hope that ease the concerns that you might have in EVMS.

Alex
And if you will estimate project performance by EV figures project managers will be motivated to spend money on non-critical but expensive tasks to show good performance, isn’t it? This tool is not perfect and is not reliable. I understand your project managers. And they are right paying attention to trends.
Alex Wong
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Dear All

I been promoting EVMS in many organisation. And observed the followings:

Accountant - Cannot visualise what is Value Earned, they only know what is being spend... If you said your project is 50% ahead of progress, he will only complaint about your 30% overspend on your original cash flow...

Project Manager - They only want to know the end result "not the means", whether the project is going to finish on time on schedule, what is the trend, he will uses his 6 senses rather than a quantify figures??

Portfolio Manager - They want no of projects are currently active and no of them are forecasted a profit and ahead of schedule time, again end result only cannot see in between.

However when you ask them question like these they cannot give you an answer, like
**How is the overall performance of your portfolio? (A)How can I add them together they are all different type of projects.
**What is the physical % complete of the overall projects ? (A) How would I know they are all different activities I know I am ahead in procurement, and installation but late in T&C.....
** What is the progress trend of the project?? Well they spend the money in accordance with the cash flow, so the project is running great...

EVMS in my opinoin is a Tool to measure performance for all stakeholders Cients, PM, Accountant, Engineers, Site supervisor. And it is a critical tools in a project organisation.

Cheers

Alex
Clive Randall
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Alex and Vladimir this is in no way directed at you but the larger community.
In the long and hairy past, when carpenters were site agents and project managers had no name, a rough guide to progress was a look at how much had been paid for the number of months worked. Another was if you had not made money coming out of the ground the project would lose money. Raw indicators of success such as KPI earned value trends and curves are all instruments which convey the status in an easy to follow form. Management that group that decides what has to be done wants simple answers to complex questions or not so complex. Are we on time??
To present an updated 40000 activity schedule does not hit the spot. Planning is about getting the message across its heart is communicating not software. How you arrive at the answer is irrelevant to the management decision process. The output prentation is the key. If you dont get your message across but the estimator or QS does there will be no need to come to work you will be redundant. So before you run off praising yourself as a major planner because you have a million activities with 2 million links think why and what planning is for.
Got carried away but it happens if you believe in what you say. Charlie we are not unique, we are merely a cog in the bigger wheel, take us away the wheels will not fall off.
Alex Wong
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Vladimir

Agree!!
As I said EV indicators are only part of the KPIs in a projects. (One tool out of many)

However, "Dont rely on EV" I would resentence it to "Dont rely on EV only" IMO that is more true. Because EV have a lot of functionality and charactistic that other indicator dont have.

What I want to said is EVM/EVMS do have a lots of value dont overlook it’s power. Especially in a portfolio management area and that is why the US Defence develop this system as a tool to manage their portfolio

Cheers

Alex
Alex,
training is fine, nobody argues about that. I only want to advise not to rely on Earned Value indicators that do not take into account project network.
We use other more reliable indicators though also collect EV data as supporting (facilitating) tool.
Regards,
Vladimir
Amr Radwan
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I know alot of you think that EV is just a US OMB requirement as a result of frivolous expenditures on government contracts resulting in ridiculous cost data statements in the media like " 1 Hammer... $215, 1 Toilet Seat... $415"

Earned Value Management is an integrated approach to Project Management. It requires the definition of a Performance Measurement Baseline, a Change Control Process, reporting of cost and schedule data ( CPI, CV, SPI, SV) and using all of these to ensure that a contractor finishes the project on time and within his budget, for the scope that was documented. In a FFP contract, EV is actually beneficial for the contractor to ensure that changes are identified and additional cost and schedule is given to perform out of scope work, as well as to protect the profitability of the project. For CPFF or CPAF, it is beneficial for the client, to ensure that they are getting their monies worth. Validating progress is an essential aspect of the system, and this is the crutch of the whole thing. All prices should be broken down to the lowest possible quantity, allowing for simple calculations of installed quantity and thereby giving accurate installed cost data. This prevents the contractor from stating that more was installed then really was, and it pushes the owner ( or the prime in a FFP) to go out and take a look, be more hands on and ensure accurate quantities are being reported in invoices and schedules. Being an arm-chair quarterback gets you no-where these days, and if you are one, EV is certainly not for you.

Charleston-Joseph...
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Hello to all

We need to keep the flames of Earned Value Management (EVM) light up continuously as we honestly believe its benefits to the advancement of project management. May by this forum the message cut across continents, crush boudnary walls, reach out to planners out there irrespective of nationalities and open our minds and generate passion for the best approach and for the attainment of excellence in project management.

I believe what i read about Earned Value Management but Im not fortunate to get involve with project management teams that incorporate EVM an essential tool in project management including decision making using EVM.

The companies I work with still use the two dimension variance analysis

Hopefully after some time we will have a new thread, EARNED VALUE ANALYSIS - A MUST IN PROJECT MANAGEMENT
William Cormack
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Ett

"In fact, Earned Value is a set of guidelines that when implemented on a project results in an integrated project management approach that, when followed, integrates scope, cost, scheudule, physical progress and actual cost."

I wholeheartedly agree. In a previous incarnation working on a contract for MoD we were asked to implement an EVMS by them and following an independent baseline review actually moved to payment by earned value. The benefits were immense. We improved our project management process significantly. Scheduling improved. There were no problems getting accurate and timely progress reports from line. Estimates for work packages were realistic and supported by risk analysis. Cost control improved. Our understanding of the project status was very good. I could go on.

EV is a misunderstood animal. It is an excellent performance measurement tool and every planner should be thoroughly familiar with it and the subtleties of it.

Regards
Ett Di Giovanni
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Jim,

The problem has been that many people see Earned Value as just a computation. Calculate the earned value, compare it to the planned value and note the difference.

In fact, Earned Value is a set of guidelines that when implemented on a project results in an integrated project management approach that, when followed, integrates scope, cost, scheudule, physical progress and actual cost.

I point you to a good article on on the Benefits of Earned value by David Christensen.

http://www.thedacs.com/topics/earnedvalue/benefitsEV.pdf

Ett


Philip Jonker
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Hi Jaco,

Well said, however, there is an out, someone is proposing the use of QS’s as planning engineers, if this happens, and all the estimators are fired as well as planning engineers, what are we going to do without any QS’s around. Who is going to count the beans?

Regards (Groete)
Philip
Jaco Stadler
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Hi Jim

My opinion.

EVA was designed to ensure that a project/contract is Completed on time and under Budget. (And not as a reporting tool to the owner)

Even though a contractor signs a lump sum deal he need to manage that work. The idea is when the PM makes a decision he can see the impact.

Example

Lump Sum = 200 000

Budgeted Cost for Work Schedule = 100 000
Budgeted Cost for Work Performed = 110 000
Actual Cost = 120 000

This Means even tough You are 5 % Ahaed of Schedule you have overspend 10 000. So now the PM can start cutting on over time and cost and still complete on time under budget.

Also the reverse are true the PM can ad in additional cost / overtime.

EVA was designed so that who ever need to make the decision know where he is and wat is the financial status.

As for sofware I tend to agree CPM software is not the way to go but rather have skilled people that can do this "manualy".

As for how many contractors use this. (I dont know I dont think many)

Most contractors (In my opinion) after completion of the project goes -

Why have we not made money on this project we did complete on time (Fire Estimating)

We have made money on this job but we have incured penalty’s so now are profit is cut in Half. (Fire the Planner)


We have made money on this JOB and we did not incur penalty’s. Give the PM/Directors a bonus.



Cheers
Rafael Davila
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Earned Value = 50% job costing

-does not take into account production units but just percentage
-unit cost is intuitive, earned value terms are not
-contractors are interested in unit costs, a value meaninfull to them, it is their bread and butter
so they perform earned value + the other 50%, they just don’t use the terminology
-earned value is basic budgeting in a foreign language
-it is insane doing job costing with CPM software although they provide, or attempt to provide some functions
-true job costing must be integrated into accounting
-accounting cannot be determined by a CPM software although vendors will push for the sale
-I have no idea on who besides government (or worst pharmaceuticals) would be interested in earned value over job costing


Dylan Wan, PMP EVP
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We can see EVA from two perspectives -

1. A reporting system developed by the government from a
owner perspective to oversee perfomance of contractors
that they are procuring from.
2. A method to truely measure the cost peformance of work
produced, calculate the variance, and help alerting
and identifying the corrective actions.

If we are talking about the latter, EVA can be applied to any projects for a contractor, and do not have to be required by the owner.

The problem is to do a full EVA analysis, you may need to include detailed project planning, work breakdown structure development, work package formation, etc. It may be too costly and time consuming. The organization may not be ready to do a full EVA.

Fleming and Koppelmen suggested a simplified low-end earned value approach - basically they took the 10 criteria from 32 ANSI EVMS criteria. You can see a paper
http://www.pmi-cpm.org/public/downloads/measnews/MN2001_dec/0112.fleming...

Some people develop an alternative using the "Unit Rate" or "Burned Rate" base approach. I feel that it could be practical for the construction projects.
Philip Jonker
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Hi Jim,

Has this question anything to do with Vadim’s EVA? The reason I ask is that I had a query earlier this week about it, but cannot find any definitive information about it. If you know, more let me know where to find it. The problem I have is that in my thinking, Earned Value is different in planning than in costing, maybe just a sign of age:-)
Earned value in costing is fairly simple, however in planning I have always understood it to be the percentage of scheduled work completed, excluding any activities ahead of schedule. In other words, when you run a s-curve, you end up with actual/early/late and earned curves, and if you want, a scheduled or planned curve ( in the case of resource leveling). The reason being as you rightly say is to determine, how good is the planning. However, this can be done using costing info (performance factors) as well. If you use both methods, it could be a very handy tool for contractors. But as I say I am a bit unclear on the EVA methods you are talking about.
I think this is an interesting topic and deserves some discussion, and might be of value to most planners.

Regards

Philip
Alex Wong
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Vladimir

Just back from 5 weeks holiday and glad to see all these posting about EVMS.

Yes, agree, EVMS is one of many method to measure project performance. It have pros and cons, limitations, and strengths. I had indicated in previous posting that if EVMS is using jointly together with others KPIs it will be highlight the projects / program performance that other tools might not able to indicated.

EVMS especially strong in combining performance. Ie lots of different type of projects. What are the combined performance...

Trevor,

Back to some posting back in relate to using man hrs to measure performance. I applied the methodology in one of the company I worked for - because it have a $800M/year project expenditure, it is very hard to only measure $, because management want to know the labor utilisation (efficiency) thats make using hrs to measure as EVMS is a very useful tools.

Cheers

Alex