Deployment of Earned Value Management Systems in Project ... - QAI

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The basic component of EVM is the WBS – representing the deliverables to be produced at the lowest level as Work packages. The line of decomposition of Work packages facilitates Activity definition, responsibility assignments and management of risks at the micro level. Activities get associated at the Work Package level. EV can be tracked at the Activity level or the Deliverable level. The activities controlled by single manager get grouped together as Control Account Plan (CAP), which usually coincides with the EVM reporting levels. Thus, in effect, CAPs are derived by taking WBS and Organisational Breakdown Structures (OBS) together into account. Cost Baselines are derived from planned resource allocations and resource rates across the Project lifecycle. This Baseline represents Budgeted Cost of Work Scheduled (BCWS), which is also called the Planned Value (PV) for the project. (Note – BCWS etc were nomenclature used in earlier versions of application of the method and are retained for understanding purposes only) Most of the Projects use automated Project Management Information Systems (PMIS) to load cost data during the Project execution. Typically, the actuals vary from budgets due to multiple factors – including resource usages, resource rates and difference in the tasks performed as compared to schedule. The cumulative costs incurred during the Project life cycle get plotted as the Actual Cost of Work Performed (ACWP), also called Actual Costs (AC) currently. The next element in the EV Management system is to determine the Budgeted Costs of Work performed. ( BCWP) – which is also commonly known as the Earned Value (EV). Herein, we assess the extent ofwork performed at any time and relate it to the original budgets. BCWP can be determined in different ways: - Based on Task percent completion, prorate the budgeted costs - Loading EV accruals for intermediate Phases EV Calculation for assessment of current performance At any intermediate point during the Project, we have three factors: a) Actual Costs (AC) : Actual Costs of the Work Performed so far, which get typically accumulated via the Project Accounting system established for the Project. b) Planned Value (PV) which is the Budgeted Cost of Work Scheduled so far. c) Earned Value (EV), which is the Budgeted Cost of Work Performed so far. Above three factors are basic to EV calculations. The variance of actual performance with planned schedule arises on account of slippages of two kinds: A) Schedule slippage: Tasks are not getting completed as per planned schedule. This is measured by Schedule Variance (SV), as EV – PV or Schedule Performance Index (SPI), which is computed as EV/PV. At the reference time point, this formula computes the ratio of the value of the Work performed to the value of the Work Scheduled. As expected, any value of SPI greater than 1 is favorable for the Project Management. - 2 -
B) Cost Slippage: It is quite likely that the Project is on schedule but behind in cost performance. This phenomenon typically occurs due to overspending as compared to budgets. The performance metric for measuring Cost slippage is Cost variance (CV), which is computed as EV-AC. In ratio terms – Cost Performance Index (CPI) is calculated as EV/AC. At the reference point again, CPI calculates the ratio of Budgeted costs to Actual costs for the work performed. As with SPI, any value of CPI greater than 1 is advantageous to Project Management. SPI and CPI vary dynamically across the Project Lifecycle and could fluctuate in different directions depending on schedule and cost efficiency of the project performance. A composite index - CSI (Cost-Schedule Performance Index), defined as CPI x SPI., measures the combined performance on schedule and cost fronts. The indices are used for measuring the current performance of the Project and for future prediction. D. Use of EV for future predictions Under the assumption that the current efficiencies in the cost and time fronts continue to prevail, CPI and SPI can be used to predict for future. If BAC (Budgeted at Completion) is the original budget of the Project, then BAC/CPI gives an estimate of the likely total spending on the Project at completion. (This is also known as Estimate at Completion – EAC). Adjustment for both Schedule and Cost Parameters – gives a future Cost prediction of EAC = AC + (BAC-EV)/(CPI*SPI) Similarly, if OSAC is the original Scheduled at Completion, then OSAC/SPI gives an estimate of the revised schedule for completion, which may be termed as Likely Schedule at Completion ( or LSAC). Thus (OSAC, BAC) represent the original coordinates as per the Plan and (LSAC, EAC) represent the expected durations and costs at the end of the project, based on the current progress so far. Of course, it is possible to compute these statistics for any interim milestone also. The reporting periodicity can be pre determined with the Contractor for various Control Account Plans and for the overall Project. Significant variations between the planned and actual performances may call for rebaselining, which the Project Manager has to undertake, through established Change Control Procedures. E.Which are the industry standards for EVM? ANSI/EIA standard 748 Industry Guidelines for EVM as a part of Cost/Schedule Control Systems (C/ SCS) to be followed by the organizations. These guidelines cover multiple aspects including the Organization, Planning, Scheduling, and Budgeting, Accounting Analysis and Management Reports, Revisions and Data Maintenance standards to be used by the Organizations. In all, 32 criteria have been laid down in the ANSI standards, significant of these include: - 3 -
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