6 2 case study managing earned value

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• Cost Management / Economic Evaluation

Earned Value Management (A Case Study)

by PMHut Team · August 20, 2007

Earned Value Management (A Case Study) By Tom Carlos (PMP) – Project Perfect

There are “lucky” project managers whose projects were completed “on time” and “within budget.” But I am guessing they are in the minority. Everyone else has probably faced a situation where one of the following statements is true:

• The project is within budget and schedule but we do not see the “expected” results
• The project is taking longer than expected
• The project is costing more than anticipated

I am betting that the managers of these projects used analysis tools that are considered “two-dimensional.” “Budget” and “Actual” are the two dimensions. But in looking at a broader picture, there is a much needed third dimension- one that reflects “performance and efficiency.”

“Performance and efficiency” indicate whether or not we are actually completing the intended tasks and producing the expected project deliverables within the designated budget and schedule. To examine this concept, let’s look at the following case study.

The Assumptions:

• John is managing a software development project.
• The project estimates include a total of 100 hours of development time.
• There are five separate tasks that will take 20 hours each.
• Each task has 4 subtasks that take 5 hours to complete.
• John hires five programmers. Each will each have twenty percent of the work that can be completed concurrently.
• Each programmer will charge $100 per hour. Total budget for the project is $10,000.
• Based on the distribution of work, it is determined that the project can be completed within one week.

Initial Reports

• At the end of the week, the programmers turn in time sheets.
• A total of 90 hours is reported.
• Based on this information, John quickly assumes the project is 90% complete.
• John realizes that the project will not be completed on time.
• John’s status report claims that the project is within budget but not on time.

Question for you

Would you agree with John’s assessment of the project?

If you answered “No” or “I do not have enough information to support that claim” you’re right on track. And to understand why that is the correct answer, let’s dig further into the problem.

What do we Know (for a fact)?

• The project has 5 tasks, 20 hours each, total 100 hours.
• The programmers were given 1 week to complete their tasks.
• Timesheets show 90 hours of work.

What do we Not Know (to be true)?

• How many of the tasks (or portions of a task) have been completed?
• Do we know that work performed was solely dedicated to completing tasks or was the time spent on non-related tasks or inefficiencies?

To answer this question, John calls each programmer and gathers the following information:

Without going any further John can see the project has encountered a serious problem. Collectively, the programmers show 90 hours of work. However, no one programmer can make the claim that they have completed 90% of their assigned task (and final deliverable).

John scratches his head and is dumbfounded when it comes to understanding

• What has happened and
• What to do next.

So he asks an associate for help and she comes to the rescue.

Margie introduces John to a project management tool called Earned Value Management (EVM). In fact, she gives him an article that has the following definition:

Earned Value Management – The process of considering scope, schedule, and resources, measured against a project’s actual performance. It compares the planned amount of work to the completed tasks, to the projects’ cost, to determine if the cost, schedule, and work completed (thus far) are all in sync and in accordance with the plan. This analysis will show past performance and will estimate future efforts to complete the project (with the desired results).

The article provided by Margie also contains a table that shows all the terms, definitions, and formulas needed to conduct EVM analysis.

At this point, John feels overwhelmed and has no idea how to apply the EVM terms and formulas to his project. So with Margie’s help, they slowly begin the analysis by defining the terms and plugging in the known figures.

Step 1 – The Starting Point Calculations

PV (Planned Value) and AC (Actual Cost) are easily derived. PV is based on what should have been completed thus far. For multi-period projects, it will seldom equal the full budget figure. The idea is to calculate a figure that represents “the amount of intended work; the work performed (thus far) in relationship to the assigned tasks.” In reality, EVM analysis will be done over several periods and the value for PV will be constantly changing.

To derive EV, multiply the budget figure by the percentage of all tasks completed (see Table 1). For example, Bob was given 20 hours to complete 4 subtasks. He estimated that 60% of the subtasks are completed. You multiply $2,000 by 60% and this gives a value of $1,200. So you can clearly see that Bob’s (real) work does not equal the actual cost of $1,500. As a result, Bob has fallen behind (in schedule and cost) based on this one calculation.

To calculate EV for the entire project, simply add the individual EV values for each programmer. Refer to Table 3.

Again, we can see that the group as a whole has fallen behind on their work. They have submitted $9,000 as the cost but produced only $5,500 of (Earned) value. So at this point in time, the project appears to be $3,500 over budget. And we also know the project is behind schedule (because the tasks were not completed within the 1 week time frame).

Step 2 – The Performance Index Calculations

The Performance Index figures help us quantify efficiency. They are also used in subsequent EVM calculations.

By plugging in our known values for PV, AC, and EV, we can calculate CPI and SPI.

Based on these results, John can see that his team is working at an average of 61.11% performance efficiency. The 55% SPI index tells him that the project will most likely need another week for completion.

Step 3 – The Final Cost Estimates

John then asks Margie; “Based on this information can we calculate the project’s final cost?” So Margie rolls out the next set of terms and calculations.

BAC is the original budget total. For this project, it is $10,000.

Calculating a value for EAC can be tricky. There are four different methods for calculating EAC. Each method can yield a different result. Since Bob employs the principle of “conservatism” and wants the “worst case scenario” he uses the formula the yields the highest figure.

ETC is an easy calculation. This figure represents the additional costs from this point forward in order to finish the project.

At this point in time, the project appears to be $6,363 over budget (VAC). It will be next to impossible to hit the original target figure of $10,000. The current EAC value assumes that the programmers will continue working at the same pace.

The Cost (CV) and Schedule (SV) variances indicate that the project is “over budget” and “behind schedule.”

Step 4 – Overall Efficiency Ratings

John is shaking his head in disbelief. Not only is his project struggling to meet the original estimates, but he must now report the bad news at the next steering committee meeting. He knows that the management team will not be able to follow the calculations shown above. So he needs to simplify the reporting to three simply values.

Using the known values, John calculates PE, PS, and CSI.

The values for PE and PS do not surprise John. He has seen these figures before. But CSI is surprising. This value is far from “1” and indicates the seriousness of the project’s inefficiency.

The formulas provide a mathematical analysis of performance. Unfortunately, they cannot explain “why” the inefficiencies have occurred. For this, John will need to examine the work of each programmer in order to understand why they are all running over the allotted time for each task. Hopefully, he can correct the problems.

The other issue to consider is that the task lengths were severely underestimated. Interviews with the programmers may show that they in fact are working to the best of their ability. The problem may have occurred in the original project estimates.

There is much more to EVM than discussed in this article. But you are now aware of the third dimension of a project’s financial analysis. All three dimensions are key elements that must be considered when analyzing project performance.

Tom Carlos has over 20 years of cumulative experience in business, technical, and training environments. He is a Certified Project Management Professional (PMP) and member of the Sacramento Valley PMI Chapter. For other articles on similar subjects, you can visit www.carlosconsulting.com or contact him at [email protected] .

Project Perfect is a project management software and project infrastructure consulting organisation based in Sydney Australia. Their focus is to provide creative yet pragmatic solutions to Project Management issues as well as to set up the infrastructure an organisation requires to successfully manage projects.

Project Perfect sell “Project Administrator” software, which is a tool to assist organisations better manage project risks, issues, budgets, scope, documentation planning and scheduling. They also created a technique for gathering requirements called “Method H”, and sell software to support the technique. For more information on Project tools or Project Management visit www.projectperfect.com.au

PMHut.com is a website dedicated to providing PM articles, detailed project management software reviews, and the latest news for the most popular web-based collaboration tools.

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Please note you do not have access to teaching notes, ariba implementation at med-x: managing earned value.

Publication date: 20 January 2017

Teaching notes

The Ariba Implementation at MED-X case is designed to teach students how to analyze a program that is experiencing problems and recommend solutions. Specifically, the case introduces students to earned value analysis and program oversight for an e-procurement technology program. The case centers on MED-X's need to quickly discover why the company's e-procurement implementation project was not going according to plan. Once a cause has been discovered, students will need to make a recommendation to fix the problem. Data for the simplified program, consisting of two concurrent projects, is given to students, who should in turn analyze the project using earned value analysis. The case is an easy introduction to program management and oversight for executives and MBA students, and teaches the essentials of earned value project management.

Students will learn how to control and act in oversight of large complex programs, as well as how to apply earned value metrics to analyze a simplified program consisting of two projects. Analyzing the project enables students to learn the strengths and pitfalls of the earned value approach. From a management decision perspective, the case gives students the tools to succinctly answer the questions: How much will the project cost? How long will it take? What is wrong with the project?

• Project Management
• Earned Value
• Risk Management
• E-Procurement

Jeffery, M. , Norton, J.F. , Gershbeyn, A. and Yung, D. (2017), "Ariba Implementation at MED-X: Managing Earned Value", . https://doi.org/10.1108/case.kellogg.2016.000021

Kellogg School of Management

Copyright © 2006, The Kellogg School of Management at Northwestern University

You do not currently have access to these teaching notes. Teaching notes are available for teaching faculty at subscribing institutions. Teaching notes accompany case studies with suggested learning objectives, classroom methods and potential assignment questions. They support dynamic classroom discussion to help develop student's analytical skills.

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Applied Earned Value Management

Based on “Cost Engineering Principles”-

With Practical Case Studies for Validation Purposes

FEATURED PAPER

By Dr. Paul D. Giammalvo , CDT, CCE, MScPM, MRICS

Jakarta, Indonesia

INTRODUCTION

Two important papers, “ It’s Time to “Reboot” Earned Value Management ” [1] and “ Planning for the Future of Earned Value Management ,” [2] were recently published in the March issue of the Defense Acquisition University’s (DAU) blog.

In these well-written, well-documented papers, the authors summarized many years of relatively recent experience, both their own and that of others, telling us what, as taxpayers, we all knew intuitively, and that is “Earned Value Management” at least as practiced under ANSI 748 C or D has not worked, at least in the context of measuring and validating “value for money” by the US Governments stewardship of taxpayer funds.  Specifically, one author  posited that:

“ Program leaders need to stop the bleeding and redirect budget resources when EVM analysis shows that progress is too slow, too expensive, and fails to meet performance goals or provide timely, reliable information.

This is a fundamental change in emphasis. The audit-like DoD compliance process is sclerotic. It is implemented by external specialists who lack detailed knowledge of the project and have no stake in the outcome.”

When someone with the gravitas of these authors and others from the DAU [3] tells us it is time to rethink Applied Earned Value Management, don’t you think we need to take his advice seriously?

Back around 2006, Brian Hobbs and Claude Besner published research showing that “Earned Value” was used “from limited to very limited use” and that “S-Curves and Statistical Process Control Charts” experienced “less than very limited use.” [4] This was also followed in 2006 in published research by Chance Reichel, who told us, “Unfortunately, it seems as if this phrase or title, “Earned Value Management,” is met and greeted with dread instead of the thought of usefulness.” [5] Other published research indicates that very few project managers used EVM, at least not as the US DoD advocated it in the Earned Value Management Systems Intent Guide (EIA-748-D Intent Guide. [6] )

More recently, Millennial Ms. Shohreh Ghorbani reiterated these same observations in several of her 2021 postings on Linked In. It was also mentioned on at least one occasion by Patrick Weaver in his postings in 2021-22 and was also discussed on several occasions between Dr. Ken Smith, Colonel USAF (Ret), Andrew J. Grandage, Ph.D., Assistant Professor, Political Science, at the Public Affairs Department Western Carolina University and the author of this article during 2022. Meaning that there is a broad consensus that what we have been doing is not working, and as Henry Ford supposedly told us, “If you always do what you’ve always done, you will always get what you always got,” or Einstein, who told us “doing the same thing over and over again but expecting different results is the definition of insanity.”

Figure 1- EVM as the US Government (and PMI [7] , AACE [8] et al.) advocate using it TODAY. [9] , [10]

In recent months, at least one group of international EVM advocates have organized with the following objectives:

• To develop a message to convey EVM so that organizations will feel compelled to embrace it as a core business management practice.
• To devise a strategy to disseminate such a message globally and implement the strategy effectively using tested and PROVEN tactics.

This group and perhaps others appear to agree on at least two major questions:

To read entire paper, click here

How to cite this paper: Giammalvo, P. D. (2023). Applied Earned Value Management Based on “Cost Engineering Principles”- With Practical Case Studies for Validation Purposes, PM World Journal, Vol. XII, Issue IV, April. Available online at https://pmworldjournal.com/wp-content/uploads/2023/04/pmwj128-Apr2023-Giammalvo-Applied-Earned-Value-Management-based-on-Cost-Engineering-Principles.pdf

About the Author                      

Dr. Paul D. Giammalvo , CDT, CCE (#1240), MScPM, MRICS, is a Senior Technical Advisor (Project Management) to PT Mitratata Citragraha. (PTMC), Jakarta, Indonesia. www.build-project-management-competency.com . He is noted for the development and delivery of graduate level, blended learning curricula designed for the mid-career path, English as Second Language (ESL) professionals to develop competency in the local practitioner and build capacity for the local organizations. For 25+ years, he has been developing and delivering Project Management training and consulting throughout South and Eastern Asia Pacific, the Middle East, West Africa, and Europe.

He is also active in the Global Project Management Community, by playing a “thought leadership” role for the Association for the Advancement of Cost Engineering International, (AACEI) http://www.aacei.org/ since 1991 ; He has also been active in two IPMA member organizations: The Green Project Management Association (GPM) http://www.greenprojectmanagement.org/ where he served on the Certification Board of Directors for two years and the American Society for the Advancement of Project Management http://www.asapm.org/ for which he served for four years on the BoD as Director of Marketing. He also sat on the Board of Directors of the Global Alliance for Project Performance Standards (GAPPS), www.globalpmstandards.org , Sydney, Australia and is active as a regional leader. Currently, he is a compensated consultant to the International Guild of Project Controls. http://www.planningplanet.com/guild   as the primary author of their “Compendium and Reference” as well as the chief architect of their competency-based credentialing program. http://www.planningplanet.com/guild/certification

He has spent 35 of the last 50 years working on large, highly technical international projects, including such prestigious projects as the Alyeska Pipeline and the Distant Early Warning Site (DEW Line), upgrades in Alaska and the Negev Airbase Constructors, Ovda, Israel and the Minas Oil Field in Rumbai, Sumatra. His current client list includes Fortune 500 major telecommunications, oil, gas and mining companies plus the UN Projects Office and many other multi-national companies, NGO organizations and Indonesian Government Agencies.

In addition to 45+ years of hands-on field experience, Dr. Giammalvo holds an undergraduate degree in Construction Management, his Master of Science in Project Management through the George Washington University and was awarded his PhD in Project and Program Management through the Institute Superieur De Gestion Industrielle (ISGI) and Ecole Superieure De Commerce De Lille (ESC-Lille) under the supervision of Professor Christophe Bredillet.  “Dr. PDG” can be contacted at [email protected] .

To view other original work by Paul Giammalvo, visit his author showcase in the PM World Library at http://pmworldlibrary.net/authors/dr-paul-d-giammalvo/

[1] Abba, Wayne (2023) “ It’s Time to “Reboot” Earned Value Management ” Defense Acquisition University Blog https://www.dau.edu/library/defense-atl/blog/Reboot-Earned-Value-Management [2] Reynolds, Chad (2023) https://www.dau.edu/library/defense-atl/blog/PlanningfortheFutureofEarnedValueManagement [3] Reynolds, Chad (2023) https://www.dau.edu/library/defense-atl/blog/PlanningfortheFutureofEarnedValueManagement [4] 1 Claude Besner, B. Hobbs (2006) The Perceived Value and Potential Contribution of Project Management Practices to Project Success [5] Reichel, C. W. (2006). Earned value management systems (EVMS): “you too can do earned value management” Paper presented at PMI® Global Congress 2006—North America, Seattle, WA. Newtown Square, PA: Project Management Institute. [6] NDIA (2018) “Earned Value Management Systems EIA-748-D Intent Guide” https://cupdf.com/document/earned-value-management-systems-eia-748-d-intent-guide.html?page=1 [7] Practice Standard for Earned Value Management – Second Edition (2011) https://www.pmi.org/pmbok-guide-standards/framework/earned-value-management-2nd [8] AACE (2014) “RP 81-31- Required Skills & Knowledge for Earned Value Management” https://www.pathlms.com/aace/courses/2928/documents/3864 [9] DAU Gold Card (2020) https://www.dau.edu/tools/t/EVM-General-Reference-(Gold-Card) [10] Reichel, C. W. (2006). Earned value management systems (EVMS): “you too can do earned value management” Paper presented at PMI® Global Congress 2006—North America, Seattle, WA. Newtown Square, PA: Project Management Institute.

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