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E-kniha: Focus on Earned Value – Earned Value Management for Successful Projects - Luc De Ceuster

Focus on Earned Value – Earned Value Management for Successful Projects

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Jazyk: anglický Anotace:Focus on Earned Value – Earned Value Management for Successful Projects focuses on evaluating the project performance during project execution using Earned Value ... (celý popis)
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Základní informace o z problematiky hodnotového managementu.

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Jazyk: anglický Anotace:
Focus on Earned Value – Earned Value Management for Successful Projects focuses on evaluating the project performance during project execution using Earned Value Management instead of the classical approach that evaluates schedule and budget separately.
The book contains the necessary information to set up an Earned Value Management reporting system and defines the basic parameters like Planned Value (PV), Earned Value (EV) and Actual Cost (AC). These three basic parameters are used to evaluate project schedule and cost performance and to estimate final project duration and cost.  It includes a number of exercises, which demonstrate the calculations and comments on how to interpret these numbers when performing projects.
Using Earned Value Management will certainly improve your ability to predict the probable project outcome and react appropriately.

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APraCom

©

Project

Management

Focus on

Earned Value

Earned Value Management for Successful Projects

First Edition, 2010

Ir. Luc De Ceuster, PMP

Published in the Czech Republic by APraCom s.r.o.


First Edition, December 2010

© Ir. Luc De Ceuster, PMP

Content review: Dan Fiala, PMP, PMI-RMP

Editing and Language: R. Adriel Vasquez

Cover Design: René Slauka

ISBN 978-80-254-8709-9


Copyright © 2010

By Luc De Ceuster

All rights reserved. No part of this publication may be

reproduced in any form or by any electronic or

mechanical means, including information storage and

retrieval system without permission in writing from the

publisher. In no circumstances can this work be

retransmitted in any form, repackaged in any way or

resold through any media.

Published by:

APraCom s.r.o.

Strakonická 15

150 00 Praha 5 - Smìchov

The Czech Republic

www.APraCom.cz



i

Table of Contents

Introduction ............................................................ I

Chapter I

Project Planning for Earned Value Management ..... 1

1 Tools for preparing EVM ................................................ 9

1.1 Scope the project and create the WBS ........................... 9

1.2 Planning and Scheduling ............................................... 11

1.3 Project Budget .............................................................. 17

1.4 Project Baseline ............................................................ 24

1.5 Risk Management ......................................................... 25

1.6 Change Management Process ....................................... 26

1.7 Conclusions ................................................................... 27

Chapter II

Defining the three Basic Parameters of Earned Value

Management ....................................................... 29

2 What is the project'stimehased budget? ................. 31

3 How much of the planned work has been done? ......... 31

4 How much do we pay for the work that has been done? .

.................................................................................. 32

5 Planned Value, Earned Value, and Actual Cost............. 34

6 Project “LDC” - PV, EV and AC ...................................... 38

Chapter III

Analyzing Schedule and Cost using Earned Value .. 43

7 Questions to Answer ................................................... 45

8 Schedule Variance (SV) ................................................ 45

9 Cost Variance or CV ..................................................... 48

10 Time Based Schedule Variance .................................... 50

11 Variances and Project Status ....................................... 52

12 Project “LDC” - SV and CV ............................................ 53

Chapter IV

Measuring and Reporting Project Performance .... 55

13 Efficiency ..................................................................... 57

ii

14 How efficiently are we using time? ............................. 58

15 How efficiently are we using our money? ................... 59

16 Performance Indices and Project Status ...................... 61

17 Project “LDC” - SPI and CPI .......................................... 62

Chapter V

Forecasting Duration and Cost using Earned Value

Management ....................................................... 65

18 When will the project probably be completed?........... 69

18.1 Percentage complete approach .................................... 69

18.2 Money based approach ................................................ 70

18.3 Time based approach ................................................... 70

18.4 Using the project schedule and Gantt Chart ................. 72

18.5 Comment ...................................................................... 72

19 What will be the project’s final cost? .......................... 74

19.1 Project Manager's official estimate .............................. 74

19.2 Mathematical estimate ................................................. 74

19.3 Estimate with constant cumulative cost efficiency ....... 76

19.4 Estimate with schedule and cost position .................... 77

20 Alternative ways to estimate the project final costs .... 78

21 To-Complete Performance Index ................................. 79

22 A probabilistic approach to estimate the project final

costs ............................................................................ 82

23 Project “LDC” - Forecasting in terms of schedule and cost

87

23.1 Calculation of the Estimates at Completion .................. 88

23.2 Using PERT to calculate the Expected Cost ................... 91

23.3 β-distribution for project LDC at 9

th

period .................. 92

Chapter VI

Information Gathering for Earned Value

Management ....................................................... 93

24 Documents available after project planning ................ 97

25 Ways to get information .............................................. 97

25.1 Team meetings .............................................................. 98

25.2 Forms and Templates .................................................... 99

25.3 Management by walking around .................................. 99

25.4 Software and systems ................................................. 101

25.5 Informal communication ............................................ 102

iii

26 Getting the “good” information................................. 103

27 Gathering Information............................................... 105

27.1 Schedule ..................................................................... 106

27.2 Cost ............................................................................. 107

27.3 Functionality ............................................................... 107

27.4 Quality ........................................................................ 108

28 Reporting sheets ....................................................... 108

Chapter

VII Comments and Conclusions ............................ 111

29 The dangers of extrapolation..................................... 117

30 Estimating Project Duration using EVM ..................... 117

30.1 Use Money or Time as reference? .............................. 117

30.2 Is the SV or SPI really showing us bad performance? . 118

30.3 Do we really have to take action? ............................... 121

31 Estimating Project Costs using EVM ........................... 123

31.1 On Schedule ................................................................ 124

31.2 Behind Schedule ......................................................... 124

31.3 Ahead of Schedule ...................................................... 125

31.4 On Budget ................................................................... 126

31.5 Over budget ................................................................ 126

31.6 Under budget .............................................................. 127

32 Final Conclusion ........................................................ 128

Annexes .............................................................. 129

Annex 1 – Abbreviations ...................................... 131

Annex 2 – Definitions .......................................... 135

Annex 3 – Symbols and Formulas ......................... 143

Annex 4 – Project Widgets ................................... 148

Annex 5 – Project LDC ......................................... 157

Annex 6 – Beta function ...................................... 177

Annex 7 – Triangular Distribution ........................ 181

Index .................................................................. 185

Bibliography ....................................................... 189


iv

Figures

Figure 1: WBS and OBS showing allocation of project tasks

to organizational units. ...................................................... 11

Figure 2: Triple Constraint ................................................................ 12

Figure 3: Project "LDC" - PDM Diagram ............................................ 14

Figure 4: Project “LDC” – Gantt chart with indication of the

critical path and slack. ....................................................... 15

Figure 5: Project “LDC” - Gantt with non-critical path tasks

in LS position ...................................................................... 16

Figure 6: Project "LDC" - Time phased budget data .......................... 22

Figure 7: Project "LDC" - Time Phased Budget, Cumulative

Budget and S-curve. ........................................................... 22

Figure 8: Budget and Critical Path position of the project ................ 23

Figure 9: Planned Value, Earned Value and Actual Costs .................. 33

Figure 10: Overview of all 9 combinations of PV, EV and AC

that are possible ................................................................ 36

Figure 11: Project “LDC” - Planned Value, Earned Value and

Actual ................................................................................ 39

Figure 12: Project “LDC” - Graphical representation of PV,

EV and AC from .................................................................. 41

Figure 13: Project with EV<PV and AC>EV .......................................... 42

Figure 14: Graphical presentation of SV and CV ................................. 50

Figure 15: Schedule and Cost Variances ............................................. 52

Figure 16: Project “LDC” - Schedule and Cost Variance per

reporting period (week) ..................................................... 54

Figure 17: Schedule and Cost Variances ............................................. 61

Figure 18: Project “LDC” - Schedule and Cost Performance

Indexes ............................................................................... 62

Figure 19: β-distribution for "widget" project - period 7 .................... 87

Figure 20: Overview of "Expected Actual Costs" over time ................. 90

Figure 21: β-distribution for project "LDC" - 9th reporting

period ................................................................................ 92


v

Figure 22: Example of reporting sheet containing

information for EVM. ....................................................... 109

Figure 23: Planned Value, Earned Value and Actual Cost at

the end of period 7 ........................................................... 149

Figure 24: Graphical presentation of SV and CV ............................... 150

Figure 25: β-distribution for "widget" project - period 7 .................. 156

Figure 26: Precedence Network Diagram ......................................... 158

Figure 27: Initial Gantt Chart with all tasks inESosition ................ 160

Figure 28: Gantt Chart with all tasks inLSosition .......................... 161

Figure 29: Project "LDC" - Gantt chart with indication of the

cost elements ................................................................... 163

Figure 30: Project "LDC" - Time phased budget and S-curve ............ 164

Figure 31: Project “LDC” – Planned Value, Earned Value and

Actual Value from 1

st

till 9

th

reporting week. ................... 166

Figure 32: Project “LDC” - Graphical representation of PV,

EV and AC from start till end of week 9. .......................... 168

Figure 33: Project "LDC" - Calculating variances .............................. 169

Figure 34: Project “LDC” – Schedule and Cost Performance

Indexes per reporting period ............................................ 170

Figure 35: Project “LDC” – Estimates at Completion over all

periods ............................................................................. 172

Figure 36: β-distribution for project "LDC" - 9th reporting

period. .............................................................................. 175

Figure 37: Standard Symmetrical Triangular Distribution ................. 181

Figure 38: Standard asymmetrical Triangular Distribution

with θ = 0,75 .................................................................... 182

Figure 39: left triangular distribution ............................................... 182

Figure 40: right triangular distribution ............................................. 182

Figure 41: Triangular Distribution with a, b and m ........................... 183


vi

Tables

Table 1: Project “LDC” - Task Duration and Predecessor ................. 13

Table 2: Project "LDC" - Project Task, Precedence, ES, EF,

LS, LF, Slack and Critical path. ............................................ 15

Table 3: Budgeting for tasks with tangible deliverables .................. 19

Table 4: Examples of Task Cost Schedule for tangible tasks ............ 19

Table 5: Project "LDC" - Cost Budgeting for the different

tasks................................................................................... 21

Table 6: Schedule and Cost positions .............................................. 34

Table 7: Overview of schedule and cost position for

project "LDC" at week 9 ..................................................... 40

Table 8: Comparing Money and Time Based Approach................... 52

Table 9: Shape factors and Shape of the -distribution ................... 84

Table 10: To do's and don'ts ............................................................ 105

Table 11: Comparing Money and Time Based Approach................. 151

Table 12: Project “LDC” - Task Duration and Precedence

information ...................................................................... 157

Table 13: Project “LDC” -Project Tasks, Precedence, ES, EF,

LS, LF, Slack and Critical Path ........................................... 159

Table 14: Cost per task .................................................................... 162

Table 15: Overview of schedule and cost position of project

"LDC" ............................................................................... 167

Table 16: Beta distribution .............................................................. 178

Table 17: Triangular and β-distribution ........................................... 183


For Franciscus De Ceuster

who left us too early



I want to thank my family and all my friends who have

always supported me and were especially there for me at

the end of last year when I was infected with H1N1 and

had very small chances to recover. Their energy, concerns

and help made it possible for me to recover remarkably

well and finish this work.

I explicitly want to thank Guy without whom I surely would

not be alive anymore. Of course my parents, my brother

Steven and my family, Ludo, Dan, Michal, Miluše, Erik and

Irena.

A special thank also for the Doctors and Nurses at the FN

MOTOL Hospital in Prague for their remarkable

persistence, professionalism and creativity for giving me

my life back.



Introduction - I

Introduction

nce a project starts we move from the

planning phase into the execute and control

phase. The project team executes the project

plan. The project manager will control the plan’s execution and compares actual information he/she receives from the project team members with the data that were obtained at the end of the planning phase. The main documents the project manager has at his/her disposal have been generated during the initiation and the planning phases. These are (non limited list): − Project Charter or other name; − Work Breakdown Structure (WBS); − Detailed task descriptions; − Project precedence diagram and critical path; − Gantt chart; − Project resource planning (people and other

resources)

− Periodical and Cumulative Project Budget

or S-curve;

− Project risk management plan.

Project planning will use these documents as a

project baseline and the project team members will

give the project manager detailed information related

to the tasks for which they are responsible. The

information the team members will communicate

should contain at a minimum the following data:

− Start and end date of each task;

− Cost incurred during the reporting period in order

to work on each task;

− Estimated remaining duration of each task;

− Progress of the work in detail and overall;

− Other information that may be useful.

O


Introduction - II

Using all the information available, the project

manager is able to provide project stakeholders with a

summary of the project status, and report on

important parameters indicative of the financial

position and its progress towards completion.

In the classical approach, financial information is only

used to compare the actual spending with the time

phased budget. Spending equal to the budget at that

time in the project would lead to the conclusion that

the budget is “on target”.

The main problem with the classical approach is that

the financial and scheduling information were looked

at separately and the information are not combined to

a more sophisticated evaluation and forecasting

system. There was no system set up to evaluate

project performance using variances, performance

parameters or indexes and using it to forecast the

outcome of the project.

Project managers are reporting the data without

exploiting the hidden information the data contained.

Past experience with complex projects has showed

that it is difficult to predict the final outcome of the

project. In many cases, management could only get a

accurate idea of the total cost of the project after it

was completed. In some cases, costs could only be

accurately evaluated even later, when all accounts

had been closed!

Although project success today is not only determined

by the total cost of the project, or the time by which

the project was late, money and schedule still remain

important parameters. In many projects they still

remain key elements, and project success may

depend on just these two parameters. Just imagine

some of the following examples:


Introduction - III

− Timing : schedule delays may be catastrophic

when the objective is to launch a new product or

service before the competition does. Launching a

product or service too late may have a negative

impact on sales and return on the investment

(ROI); − Cost : delivering a project that is more expensive

than initially estimated may have a serious impact

on profitability. Higher initial cost (fixed costs) will

move the break-even point to the right, which

means that more products have to be sold before

it becomes profitable. The project management community realized over time that better forecasting methods made possible by integrating financial and schedule information should become standard. A good project performance evaluation system would be beneficial for many reasons, some of which some are mentioned below: − To better allocate budgets; − Identify budget and planning problems early in the

process; − Improve portfolio management; − Better manage budgets; − Know in what direction we are heading; − .... The first to use Earned Value Management was the United States Department of Defense (DOD) in the beginning of the 1960s when they started implementing “cold war” projects like the minuteman and Polaris missile. They started looking at project efficiency to know how government money was spent and to be able to predict the total cost of the project as early as possible. The methodology they decided on was first used at the end of the 19

th

century, the beginning of

industrialization. At that time, engineers started


Introduction - IV

evaluating the work that was done and measured

efficiency of the processes they were monitoring.

The process is in fact relatively simple and,

performance can be easily measured using

information that is already available. The project

manager is monitoring project progress and budget.

During weekly reporting, information like work

executed, money actually spent and, other

parameters, are provided. Therefore, project-wide

information is available to the project manager on a

weekly basis.

The database that has been built during many years

of projects by the DOD is in fact a very valuable

treasure. Unlike private companies, military and

government agencies tend to keep records of all

projects including those that were overdue and over

budget. Certainly in military history, it has become

very important to learn from mistakes and not to

conceal, or make them appear better. Military history

is still a very important topic in Military Academies

worldwide and is still the basis of Military Operations

today. Hiding the “bad” experiences would reduce the

capability of today’s military commanders to act in the

most optimally decisive way.

I had the same experience during my aviation

teaching. Some years ago, I met one of my old

students flying back from Nice (France) to Brussels

(Belgium). All passengers had been waiting

impatiently because everybody saw the plane

landing, but boarding never seemed to start.

My old student invited me to the cockpit for the flight

and I also could invite a friend. When he arrived in the

cockpit, the question was obvious: “why did we have

to wait so long to board the plane and why did we

leave with an important delay while we saw you arrive

even before time?” Without any problems, he


Introduction - V

explained that his approach was not how it should

have been and he decided to make a “go around”

1

and start the approach procedure again.

Hiding mistakes would only lead to unsafe behavior

and would not guarantee safe flying conditions. When

a pilot makes a mistake in the cockpit, he/she

shouldn't hide it but openly speak about it. In fact, the

people hiding their mistakes to others in order to

appear perfect will finally get into a situation where

they do everything wrong. The problem is that in our

world around us, many people are posing like

“perfect” or are playing the role of the person who

made mistakes and learned from it. In fact many of

them are hypocrites who only believe in themselves

and are hiding their imperfection.

For companies, it may be important to appear perfect

to their customers and competitors. In reality, we all

know that this is certainly not the case. People should

not select companies because they appear to be

perfect. We should select a company because we

believe in their capabilities to do what we expect from

them, and therefore it is more important to know and

trust how they manage and solve problems and crises

than to assume they will not make any mistakes.

1

A “go around” in aviation relates to a landing that is broken off.

There are many reasons for which a landing can be cancelled:

another plane may still be on the runway, a technical problem that

changes the approach parameters, unsafe weather conditions, too

much deviation from the glide slope or from the center of the runway

and many other reasons. In most cases it is not related to an

emergency. For the passengers however, it may be a bit scary. The

pilot will first return to a safe position and then explain to the

passengers what really happened. During one event, coming back

from Rwanda in a DC10, the flaps system showed an alert related to

an asymmetry between the left and right flaps. Continuing the

landing would be very dangerous and the pilot decided to “go

around”, recalculate the approach parameters with a safe flap

setting and tested everything at a safe altitude to be sure not to

encounter any problems at the final approach. As you may assume,

everything ended well!

Introduction - VI

If a company wants to hide its errors to the outside

world, it should at least be honest to take into account

all their experiences, also the worst ones, to set up

company statistics. Removing the projects that

management does not like will falsify the statistics,

which will be using in the future to do business. In

fact, this would be like navigating a ship through

dangerous waters with the wrong maps! Just tell this

to your shareholders when you explain another

failure!

Projects are not always done in a perfect way. Many

parameters influence what is being done and the

experience of the project manager does not relate to

the fact he can plan a project perfectly. His or her

experiences become really valuable from the moment

the project begins and how he or she will handle

unforeseen events. Making plans is and remains an

important phase of the project and should never be

neglected. Preparation will show, already in advance,

what can go wrong. In fact, once the project starts it is

the ability of the project manager to manage the

unforeseen events that will determine the success of

the project.

The Japanese company Toyota has built a strong

worldwide reputation related to quality and reliability

of their products. The company’s methodology has

been discussed on many occasions. One of the most

important elements in their philosophy relates to the

fact that nothing is perfect. A production process or a

project going on without interruptions or errors cannot

exist. Each time an issue or problem show up, it is an

opportunity for improvement. Hiding problems only

lead to more and larger problems.

The classical tools that project managers use and get

trained with relate to planning, estimating, scheduling

and others. These focus on the initiation and planning

phases of the project. Earned Value Management

Introduction - VII

(EVM) is in fact an additional tool, that will help the

project manager to better manage his/her project

during project execution.

EVM has been used by the DOD for more than 40

years and has been applied also by other US

government agencies like the Department of Energy

(DOE). EVM has also been integrated in Public

Offering Procedures in the US. Nevertheless, the

EVM is not yet widely in use in the industry. In many

cases, financial control and forecasting is in many

cases limited to following up spending and comparing

it with the budgeted cost. In many cases however, no

real financial control is done at all.

Using EVM is in fact not difficult. The necessary

parameters can be calculated using very simple

mathematical formulas, and predictions of final project

costs can be done very quickly. EVM can be used on

any project whatever duration or complexity. Of

course, the technique and its conclusions become

very interesting for complex, high risk and long

duration projects.

As we all know, the more detail we want, the more

work we ask to be done and the more complex and

time consuming the interpretation of the results

becomes. Obviously, the rigor and the frequency of

application of EVM will increase with project

complexity and risk.

Since computing software has become more

available to project managers, gathering and

consolidating data has also become easier. Many

software programs offer functions that allow us to

integrate EVM without any supplementary effort. Of

course, having the data at hand does not mean that

the people will use it.

Statistics held by DOD show that EVM offers a very

Introduction - VIII

useful tool for estimating total project costs after 15 or

20% of the project has been completed. Having this

information so early in the project can help

management to take the necessary measures to

make “good” business decisions.

Unfortunately, sometimes management does not want

to know the bad news and they hide their heads in the

sand like an ostrich that does not want to see the lion

that is ready to attack.

Statistics as set up by DOD will be further used in this

publication about Earned Value Management. These

data can be used without problems to start EVM in

your company. The common factor is a “project”.

Whatever the military have been doing for the last

100 years, they were doing projects and projects still

remain projects.

It is of course true that some differences may exist

between all the projects the military has been doing

and still are doing. It may be a surprise for you, but

military agencies also do things that are very “normal”

to us.

They also construct office buildings, airports,

information systems, hotels, BBQ, cinemas and other

projects. These statistics of DOD take into account all

their projects, in whatever disciplines they may be,

however many differences may exist between

different disciplines like ICT or Construction, and

others when viewed independently. Of course,

nothing is withholding the Project Management Office

(PMO) to start building their own, industry and

company related statistics. This may be part of the

lessons-learned sessions held at the closure of each

project, and upon which the data are stored in the

archives of the PMO.

Chapter I

Project Planning

for Earned Value

Management

Focus on Earned Value

Chapter I - 3

arned Value Management cannot be introduced

without taking precautions and may be different

from how you are managing your projects at

this moment. In order to use EVM it is important that

the Initiation and Planning phases of the life cycle

have been done with the future EVM in mind.

Introducing EVM is not changing the general

principles of Project Management. The same

principles will be applied; nevertheless, it is important

to emphasize those principles that are important

when you will start applying EVM in your projects.

Earned Value Management can only be done

correctly when the 10 steps of the project life cycle

are done in a rigorously way. This does not mean that

EVM is present in all phases. Nevertheless, all

phases are linked, and badly executing one phase will

definitely influence the next phase. We give a short

overview of the project life cycle and the 10 steps we

defined in these phases:

Initiation

• Step 1: Creating the Project Definition Document

A well-defined “scope of work”, or whatever you

may call this document, is the basis for defining the

project. “When you don't know where you want to

go, it does not matter where you go” as Carol

Lewis stated correctly in the fairy tale “Alice in

Wonderland”. This does not mean that not knowing

where you are going is bad. You may encounter

fantastic things, meet great people, and see nice

places. It is just NOT about project management.

That’s all!

A well-defined scope, including what is not

included, is of course the most important part of

the project. All following steps depend on it and a

bad job here will make all the following work and

information obsolete. E Project Planning for Earned Value Management

Chapter I - 4

Planning

• Step 2: Creating the Project Work Breakdown

Structure (WBS)

The WBS is a hierarchical representation of the

project starting at the project level or level 0. Each

subsequent level shows more and more details

until the final level or task level is reached. Tasks

are independent work packages that generally take

one or two weeks to complete. When all the tasks

are completed, the project is also completed.

Each task is described in detail on a “task

description sheet” which contains a detailed work

description, success criteria, deliverables and

skills. • Step 3: Resources, Effort and Duration Estimates

Identifying skills, people, responsibilities and effort

to complete the tasks will finally lead to the

resources assignment matrix (RAM), costs, and

duration of the tasks. • Step 4: Task Precedence, Project Network and

Critical Path Analysis

Once the tasks and their duration have been

determined, it is important to determine the logical

order in which the tasks have to be completed. In

fact for each task the predecessors have to be

identified. A task can only start when all preceding

tasks have been completed. Once the precedence

relationships have been identified, the project

network diagram can be drawn. The diagram will

identify all possible logical paths through the

project and the duration of all paths can be

calculated using the Precedence Diagramming

(PDM) and Critical Path Method (CPM).

Finally, the project duration is determined by the

path with the longest duration or the critical path.

Each project manager wants to know the critical

path or paths of his project because each delay of

Focus on Earned Value

Chapter I - 5

a critical path task will increase the duration of the

project. In addition to the critical path, it is

important to know how the non-critical path tasks

are positioned relative to the critical path. This is

also known as the critical path position of the

project. • Step 5: Gantt Chart

Once the start and finish dates of each task have

been determined, the sequence of the tasks can

be represented in the Gantt diagram. This diagram

was first introduced by Gantt at the end of the 19

th

century and was used to schedule resources over

time. Although the method as designed by Gantt,

only allowed scheduling tasks in sequence, the

design of the chart is still used today together with

the PDM.

The chart is generally used in the project

management arena to graphically represent the

project schedule, the critical path, and the critical

path position of the non-critical tasks. • Step 6: Resource Loading and Leveling

The resources needed for each task can be

represented on the Gantt chart and can be

analyzed by the project manager and his or hers

team. It allows them to identify problem areas and

find solutions by resource leveling. Resource

leveling can be done by moving non-critical path

tasks into their float, adding resources, moving

resources or other techniques. Once an

acceptable solution has been reached, the final

project plan can be determined. • Step 7: Project Budget and S-curve

Adding the costs for each task to the Gantt chart

following the task sequence gives us thetimebased project budget. This indicates how much

money will be spent during each reporting period,

every week or month, For example. In the same Project Planning for Earned Value Management

Chapter I - 6

way it is possible to calculate the cumulative cost

for the project (S-curve). The name S-curve refers

to the curve form has which is typical for many

projects • Step 8: Risk and contingency planning

Risks, threats, or opportunities, may occur during

the project and an in-depth risk qualification and

quantification is done to determine the possible

impacts on the project. Where necessary, a

contingency plan will be set up.

The occurrence of risk events during the project

may influence the project plan and budget. Funds

to deal with risks will be provisioned in a special

budget. Execution and Control • Step 9: Project Status and Follow-up

During this phase, you will collect data related to

project progress and actual spending, a task that

becomes even more important since you will use

the gathered data to make some predictions

related to the project outcome. Gathering the data

should be well thought out during the planning

phase. The project manager and team leaders

should be well instructed as to what data is to be

collected, how to collect them and at what

frequency (in most of the cases weekly). Close-out • Step 10: Project Completion and Project History

Documentation

During the close-out phase we collect lessons

learned. One of the elements we will collect is the

data related to the EVM we calculated and

interpreted during the life span of the project.

These data will, after some time, give us more

information about our industry and company

Focus on Earned Value

Chapter I - 7

specific parameters, and will also give us

information about how we are growing into maturity

while executing projects. It is also important that

also our “catastrophes” are taken into account.

Although we may not like the outcome and want to

hide the results to the world outside, we should

always stay honest with ourselves and learn from

the mistakes we made in the past. These mistakes

may teach us in what fields we are not performing

well, and we can then learn lessons on how to

improve in those areas or just withdraw and focus

more on our strong areas. Isn't portfolio

management also about identifying the projects we

will be successful in? In the basic concept of Earned Value Management, there is no reference to a scheduling system that has to be used in combination with the EVM calculations. Using the parameters we will determine in the following chapters without referring to a schedule may also lead to the wrong conclusions. It is therefore important that a formal scheduling technique is used. Those of you who are already more experienced and followed some courses before, or who already obtained the PMP certification, will know that there are different scheduling techniques available. Today, the most commonly used is the “Precedence Diagramming Method” or PDM. (In some cases also wrongly referred to as “PERT”). In addition, with the PDM, project planning is typically represented in a Gantt chart, showing dependencies, start & stop dates, and slack. While EVM will give you indications related to the efficiency of use of time and money, the PDM and Gantt chart will show how the project is evolving time wise. Adding the Gantt and the PDM will help you to improve your judgment and forecasting precision. The

Project Planning for Earned Value Management

Chapter I - 8

PDM and Gantt will also show clearly what the

projects critical path position is or how the non-critical

path tasks are scheduled compared to the critical

path tasks. Are they starting at their “early start” (ES)

or “late start” (LS) dates, or at an intermediate date?

Focus on Earned Value

Chapter I - 9

1 Tools for preparing EVM

EVM can only be successful when project

preparation has been done as described in the

previous reference work regarding tools and

techniques. More detailed information can also be

found in the references mentioned in the

bibliography at the end of this publication.

During the project preparation and planning

phases of the project life-cycle, a number of

interesting documents have been prepared that

will be used by the project manager during the

execution and control phase, and which of course

will also be available for EVM.

The most important documents are:

− Project Scope as described in the “project

charter” which included the “triple constraint”;

− Detailed WBS in tree and table form, up to the

task level;

− Detailed task descriptions including a detailed

list and cost of resources needed to complete

each task successfully;

− Time-based project periodical and cumulative

budget (S-curve);

− Project Baseline;

− Risk Management Process;

− Change Management Process;

− Project Reporting Process.

Without carefully preparing these documents

and/or procedures it is NOT possible to set up and

maintain a reliable EVM system!

1.1 Scope the project and create the WBS

Defining the final goal of the project including all

Project Planning for Earned Value Management

Chapter I - 10

important elements is done in the Project Charter.

In some cases different names are used like

“Project Definition Document” or PDD, “Project

Charter”, “Business Case”, or many other

possibilities. It is of course not the goal to

summarize all possibilities here. This would be a

waste of time since your company may have

defined its own name.

From the definition, the projects WBS is created

starting at level 0 (=project) down to the task level.

A typical example of a WBS is given in figure 1.

The WBS has to be set up in such a way that

when all tasks have been executed the project is

completed. In case some tasks are still open, then

the project is not yet complete!

As a result of the detailed WBS, a number of

discrete independent tasks has been identified,

and for each task a detailed description of the

deliverables and success criteria is available. In

addition, the task description sheets also contain

information related to the tasks that have to be

completed before the task can start

(interdependencies related to other tasks), the

effort needed to complete the task, and the

necessary resources (people and other).

Preparing a detailed WBS and detailed task

descriptions will help the project manager to

manage the project in a more efficient way and

will help task leaders and team members to better

follow the instructions. They will be guided to

complete each task as originally intended and

scope creep should be reduced to a minimum.

Figure 1: WBS and OBS showing allocation of project tasks

to orga nizational units.

Once the WBS has been completed, the project

organization can be integrated into it and the

individual tasks can be assigned to specified

organizational entities within the organization.

Starting from the WBS , tasks or task gr

be assigned to specific people or teams

have their own position in the company as defined

in the organiza tional chart.

When we combine the elements from the WBS

with the organizational chart, we refer to it as the

Organizational Breakdo wn Structure

example of WBS and OBS is given in

1.2 Planning and Scheduling

Once the WBS has been completed and all tasks

have been identified including their dependencies,

it becomes possible to create a preliminary project

network diagram that later may be changed to

accommodate scheduling and use of resources.

The process itself is in most cases iterative but in

all cases it should lead to the final network

diagram in which e ach task is identified by its

Focus on Earned Value

Chapter I - 11

and OBS showing allocation of project tasks

nizational units.

has been completed, the project organization can be integrated into it and the individual tasks can be assigned to specified organizational entities within the organization.

, tasks or task gr oups will

be assigned to specific people or teams that each

have their own position in the company as defined

tional chart.

When we combine the elements from the WBS

with the organizational chart, we refer to it as the

wn Structure or OBS. An

example of WBS and OBS is given in the figure 1.

Planning and Scheduling

has been completed and all tasks have been identified including their dependencies,

becomes possible to create a preliminary project

network diagram that later may be changed to

accommodate scheduling and use of resources.

The process itself is in most cases iterative but in

all cases it should lead to the final network

ach task is identified by its


Project Planning for Earned Value Management

Chapter I - 12

duration, early start and finish, late start and

finish, slack, and of course, the critical path and

important milestones. Finally the

obtained in the PDM is represented in a Gantt

chart.

In case the initial calculated project completion

date does not comply with the triple constraint

(figure 2), the planning has to be adjusted using

one or more compression techniques like task

crashing, fast tracking, and/or oth

until the final plan is compliant with the triple

constraint and approved by the project client.

Figure 2: Triple Constraint

Other problems to resolve may be the allocation

of resources to the different tasks

availability of these resources. Lack of resources

may push the project manager to change the

schedule or to re-arrange resources in order to

obtain an acceptable solution. Finally, probably

after some iteration, the project manager will

finalize the PDM and will draw the final project

schedule on the Gantt . This Gantt chart will be

further used during the project execution and

control phase.

Project Planning for Earned Value Management

duration, early start and finish, late start and

the critical path and

important milestones. Finally the information

is represented in a Gantt

In case the initial calculated project completion

date does not comply with the triple constraint

2), the planning has to be adjusted using

one or more compression techniques like task

and/or oth er methods used

until the final plan is compliant with the triple

constraint and approved by the project client.

Constraint

Other problems to resolve may be the allocation

of resources to the different tasks , and the

availability of these resources. Lack of resources

may push the project manager to change the

arrange resources in order to

obtain an acceptable solution. Finally, probably

after some iteration, the project manager will

PDM and will draw the final project

. This Gantt chart will be

further used during the project execution and


Focus on Earned Value

Chapter I - 13

At the end of the planning and scheduling phase,

the project manager will have a clear overview of

how the project should be executed. In addition,

he will have gathered a lot of information about

the project even before the start and can build

detailed project documentation in the project

workbook.

Elements to include in the workbook are:

− task description with effort and duration

estimates;

− task success factors;

− task progress measurement system;

− human and other resources;

− detailed task budgets;

− task interdependencies and relationships;

− Precedence Diagram with ES, EF, LS, LF,

slack and critical path;

− Gantt Charts.

Let us consider the following project “LDC” which

is composed by the 10 tasks from A to J as

summarized in table 1.

Task Duration Predecessor

A 1 -

B 2 A

C 4 A

D 3 B, C

E 3 D

F 5 D

G 4 D

H 5 E, F

I 3 G

J 2 H, I

Table 1: Project “LDC” - Task Duration

and Predecessor


Project Planning for Earned Value Management

Chapter I - 14

The complete network diagram with calculation of

Early Start (ES), Early Finish (EF), Late Start (LS),

Late Finish (LF), and Slack is given in appendix 1.

Figure 3 represents a simpler version of the

network diagram.

The critical path is indicated on the network

diagram by the gray color of the task boxes and

the thick connection lines. The total duration of the

project following the critical path A-C-D-F-H-J is

20 weeks. The calculation details are summarized

in table 2.

Figure 3: Project "LDC" - PDM Diagram

The tasks with corresponding information in bold

itali c indicate the projects critical path. The critical

path tasks are of course the tasks with slack equal

to zero!

With this information, we can draw the project

schedule in the Gantt chart as shown in figure 4.

The critical path tasks are represented by dark

rectangles, the non-critical path tasks by light

rectangles, and the slack by striped rectangles.

The Gantt chart gives a clear graphical overview

of the project tasks and their planning. It will also

be used to add information related to resource

planning and budgeting.


Task Duration Predecessor

A 1 -

B 2 A

C 4 A

D 3 B, C

E 3 D

F 5 D

G 4 D

H 5 E, F

I 3 G

J 2 H, I

Table 2: Project "LDC" - Project Task, Precedence,

ES, EF, LS, LF, Slack and Critical path.

Th e Gantt chart will also be a valuable tool to

report, monitor, and control progress and predict

the project completion date. It will also show

clearly the critical path position of all tasks of the

project and will give an early warning about

slippage of non-critical path tasks and critical path

convergence. It is of course obvious that it will

display valuable information for the project

manager and the project team about the critical

path tasks and the duration of the project.

Figure 4: Project “LDC” – Gantt

critical path and slack

Focus on Earned Value

Chapter I - 15

Timing

ES EF LS LF Slack

1 1 1 1 0

2 3 4 5 2

2 5 2 5 0

6 8 6 8 0

9 11 11 13 2

9 13 9 13 0

9 12 12 15 3

14 18 14 18 0

13 15 16 18 3

19 20 19 20 0

Project Task, Precedence,

ES, EF, LS, LF, Slack and Critical path.

e Gantt chart will also be a valuable tool to

and control progress and predict

the project completion date. It will also show

clearly the critical path position of all tasks of the

project and will give an early warning about

critical path tasks and critical path

It is of course obvious that it will

display valuable information for the project

manager and the project team about the critical

path tasks and the duration of the project.

Gantt chart with indication of the

critical path and slack .


Project Planning for Earned Value Management

Chapter I - 16

In our day and age with the unconditional use of

computer technology to perform even the simplest

calculation, it is cl early understandable that even

people working today in project management don't

even know the term “critical path”

case, they heard about the term but don't really

understand its real meaning and importance

important when working as a project manager or

project team member, to know how the non

tasks are positioned relative to the critical path.

This is also referred to as the “critical path

position” of the project.

Figure 5: Project “LDC” - Gantt with non

in LS position

In figure 4, it is clear that all the non

have been scheduled at their “Early Start

so that all the slack occurs at

This means that a non-critical path task may slip

for a time equal to the slack before a problem

occurs. In case the non-critical path tasks would

have been scheduled at their “Late Start

shown in figure 5, they all are on the critical path

and any slippage will influence the duration of the

project!

In addition, the position of the non

tas ks will also influence the time

budgeting of the project. In reality

non-criti cal path tasks will start on their ES

Project Planning for Earned Value Management

In our day and age with the unconditional use of

computer technology to perform even the simplest

early understandable that even

people working today in project management don't

even know the term “critical path” , or in the best

case, they heard about the term but don't really

eal meaning and importance . It is

a project manager or

project team member, to know how the non -critical

tasks are positioned relative to the critical path.

This is also referred to as the “critical path

with non -critical path tasks

in LS position

4, it is clear that all the non -critical tasks

have been scheduled at their “Early Start ” dates

occurs at the end of the tasks.

critical path task may slip

for a time equal to the slack before a problem

critical path tasks would

have been scheduled at their “Late Start ” date as

5, they all are on the critical path

and any slippage will influence the duration of the

In addition, the position of the non -critical path

ks will also influence the time -scheduled

budgeting of the project. In reality , however, some

cal path tasks will start on their ES


Focus on Earned Value

Chapter I - 17

position while some others will start on their LS

position, and others will start somewhere in

between. All depends on the way the project

manager resolved the problems he encountered

during the planning phase.

It is obvious that during project execution, the

position of the non-critical path tasks may change

following the weekly status reports and the actions

taken by the team members, the project manager,

the project client, and eventually other

stakeholders.

1.3 Project Budget

Once the details of each task are known and the

final position related to resources and other costs

is known, a detailed cost overview including the

timing of the costs during the task execution can

be determined.

Elements related to costs and timing may relate to

the scheduling of people working on the task,

goods that have to be delivered at a certain time,

work that is done which will result in costs later in

the task, value of work completed at a specific

time, or other specific rules that determine the

scheduling of costs over the lifespan of the task.

Tasks can be classified according to different

criteria like duration or the outcome of the task. In

general tasks are divided in “short” or “long”

duration tasks. “Short” duration tasks in general

refer to tasks that take one to two planning

periods (weeks or months) to complete.”Long”

duration tasks take longer than two planning

periods to complete.

A second classification is related to the outcome


Project Planning for Earned Value Management

Chapter I - 18

of the task which can be a tangible deliverable like

a manual, number of lines of software code or a

product or service. On the other hand, some tasks

may have intangibles as deliverable or not really a

deliverable at all. These tasks for example relate

to the project management effort that is delivered

during the total lifespan of the project. The task

starts when the project starts, and finishes when

the project finishes. In this case there is no

specific deliverable.

In the “Tools and Techniques” program, we

already considered different types of loading the

budget. Some were called “even” loading or fixed

loading. At that time we did not specify in which

circumstances these types of loading would be

used. Of course, in the EVM we have to carefully

define the cost budgeting, and we will do this in

more detail in the following points.

Tangible Deliverables

Tangible tasks are as specified before, tasks that

have a deliverable at completion. Most tasks of

the project should fall in this category.

Tangible tasks will be budgeted according to the

length of the task. Tasks taking up to 2 planning or

reporting periods are classified as “short duration”

tasks, while tasks that take longer will be

considered as “long duration” tasks.

Both tasks will be treated differently depending on

the budgeting of the costs over the lifespan of the

task. An overview of the different possibilities is

shown in table 3 and 4.


Focus on Earned Value

Chapter I - 19

Duration Type Comment

Short Fixed Formula A fixed cost will be budgeted at the start of

the task and the remaining p



       
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