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

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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 ...
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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 ma y 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's time-phased 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 projec t 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 in ES-position ................ 160
Figure 28: Gantt Chart with all tasks in LS-position .......................... 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 Predeces sor ................. 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 ha ve
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 plann ing
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 relat ed
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 wit h 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 tha t
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 determin ed
by the total cost of the project, or the time by which
the project was late, money and schedule still rema in
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 histo ry
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. Whe n
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 ou r
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 perfec t
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 outsid e
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 thi s
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 advanc e,
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 comparin g
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 afte r 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 Offic e
(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 eac h
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 th at
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 th at
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. E ach
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 logica l
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 wi th
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 the
timebased 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 use d.
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. Th e





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-c ritical
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 al l





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 lev el.
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 organizational 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 organizational chart.
When we combine the elements from the WBS
with the organizational chart, we refer to it as th e
Organizational Breakdown 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 each 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 th e
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 i n
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 other 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
italic 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.
The 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
tasks will also influence the time
budgeting of the project. In reality
non-critical 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 lik e
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 o r
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 portion will be
budgeted at the end of the task. Some typical
examples are:
0/100 – 25/75 – 50/50 – 75/25 – 100/0.
Long Weighted
Milestones
With each planning period corresponds a
specific cost.
Percentage
Complete
The costs are spread equally over the
duration of the task.
Percentage
with Milestone
gates
Combining “subjective” percentage complete
with performance milestones. Milestones can
only be crossed when clearly defined
milestones are met.
Table 3: Budgeting for tasks with tangible delivera bles

Short 2 period task with 25/75
fixed formula loading

Long 4 period task with weighted
milestone loading

Long 3 period task with percentage
complete loading

Long 5 period task with percentage
complete and milestone gates
Table 4: Examples of Task Cost Schedule for tangible tasks
Intangible Deliverables


       

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