Measuring Employee Measuring Employee Performance the Earned Performance the Earned Value WayValue Way

Developed by Jim GreerDeveloped by Jim Greer

Boise State UniversityBoise State University

Fall 2003Fall 2003

Dr Tom Foster, InstructorDr Tom Foster, Instructor

OverviewOverview

• Link to Quality and Corporate Growth ObjectivesLink to Quality and Corporate Growth Objectives• Key Definitions and Importance of Earned ValueKey Definitions and Importance of Earned Value• Discussion of ConceptsDiscussion of Concepts• How Does Earned Value Work?How Does Earned Value Work?• A Real World Example, and then another….A Real World Example, and then another….• Application of Earned ValueApplication of Earned Value• Training Development with an ExerciseTraining Development with an Exercise• LimitationsLimitations• SummarySummary• ReadingsReadings

The Link….to Growth and The Link….to Growth and QualityQuality

• Earned Value is a performance Earned Value is a performance measurement tool. The knowledge measurement tool. The knowledge from this measure increases a from this measure increases a firm’s ability to boost performance. firm’s ability to boost performance. The bottom line is that The bottom line is that performance improvements drive performance improvements drive productivity.productivity.

Key DefinitionsKey Definitions

• Performance is a dimension of Performance is a dimension of quality that refers to the efficiency quality that refers to the efficiency in which a product performs its in which a product performs its intended purposeintended purpose

• Productivity indicates the output Productivity indicates the output per man-hour of laborper man-hour of labor

Productivity drives our Productivity drives our EconomyEconomy

““Worker productivity accelerated last year at the Worker productivity accelerated last year at the fastest rate in more than a half century. This fastest rate in more than a half century. This high productivity means our workers receive high productivity means our workers receive higher wages, our nations exports get a higher wages, our nations exports get a competitive boost in world markets and our competitive boost in world markets and our economic recovery gains momentum at a economic recovery gains momentum at a crucial time”crucial time”

--President Bush, Labor Day 2003 Weekly --President Bush, Labor Day 2003 Weekly Radio AddressRadio Address

Productivity Impact at the Productivity Impact at the Firm LevelFirm Level

• Productivity is producing more goods and Productivity is producing more goods and services with the same resource inputsservices with the same resource inputs

• Higher productivity lowers the cost of Higher productivity lowers the cost of production. Lower costs increase production. Lower costs increase competitiveness and build profits, and allow competitiveness and build profits, and allow cost savings to pass on to consumerscost savings to pass on to consumers

• To succeed, firms must continue to adopt To succeed, firms must continue to adopt practices that increase productivity. Earned practices that increase productivity. Earned Value is one such powerful tool.Value is one such powerful tool.

Earned Value from a Nuts Earned Value from a Nuts and Bolts Perspectiveand Bolts Perspective

EV compares and measures… EV compares and measures…

……the amount of work actually completed and the amount of work actually completed and resources actually consumed at a certain resources actually consumed at a certain point in a project point in a project

……with the amount of work planned (budgeted) with the amount of work planned (budgeted) to be completed and resources planned to be to be completed and resources planned to be consumed at that same point in the projectconsumed at that same point in the project

More nuts and bolts….More nuts and bolts….

• EV is a performance and productivity metric for projectsEV is a performance and productivity metric for projects

• To refresh one’s knowledge, a project consists of a scope To refresh one’s knowledge, a project consists of a scope of work directed towards a specific goal. All projects are of work directed towards a specific goal. All projects are managed with a budget and schedule. In fact, budget managed with a budget and schedule. In fact, budget and schedule are the two key quality measures in any and schedule are the two key quality measures in any project. The third is the actual quality of the work project. The third is the actual quality of the work performed. performed.

• The schedule is a collection of work broken down into The schedule is a collection of work broken down into short, specific, and interrelated tasks. The budget short, specific, and interrelated tasks. The budget represents the cost of the resources allocated to the represents the cost of the resources allocated to the project. project.

Even more nuts and Even more nuts and bolts…..bolts…..

• The bottom line is that EV is a powerful The bottom line is that EV is a powerful tool for measuring the Actual tool for measuring the Actual performance of a project against its performance of a project against its Planned performance. Planned performance.

………….It’s that simple, really! So let’s dive .It’s that simple, really! So let’s dive into the concept……..into the concept……..

How does it work? Earned How does it work? Earned Value ConceptsValue Concepts

Earned Value consists of three key concepts >>Earned Value consists of three key concepts >>

• Budgeted Cost of Work Scheduled (BCWS) is the cost of the Budgeted Cost of Work Scheduled (BCWS) is the cost of the work scheduled or planned to be completed in a certain time work scheduled or planned to be completed in a certain time period per the planperiod per the plan

• Budgeted Cost of Work Performed (BCWP) is the budgeted cost Budgeted Cost of Work Performed (BCWP) is the budgeted cost of the work done up to a defined point in the projectof the work done up to a defined point in the project

• Actual Cost of Work Performed (ACWP) is the actual cost of Actual Cost of Work Performed (ACWP) is the actual cost of work up to a defined point in the projectwork up to a defined point in the project

Earned Value MathEarned Value Math

Variance MetricsVariance MetricsSchedule Variance: Schedule Variance: SV = BCWP - BCWS SV = BCWP - BCWSSchedule Performance Index: SPI = BCWP / BCWSSchedule Performance Index: SPI = BCWP / BCWSCost Variance: Cost Variance: CV = BCWP - ACWP CV = BCWP - ACWPCost Performance Index: Cost Performance Index: CPI = BCWP / ACWP CPI = BCWP / ACWP

CriteriaCriteriaSV, CV = 0 Project On Budget and ScheduleSV, CV = 0 Project On Budget and ScheduleSV, CV < 0 Over Budget and Behind ScheduleSV, CV < 0 Over Budget and Behind ScheduleSV, CB > 0 Under Budget and Ahead of ScheduleSV, CB > 0 Under Budget and Ahead of ScheduleCPI, SPI = 1 Project On Budget and ScheduleCPI, SPI = 1 Project On Budget and ScheduleCPI, SPI < 1 Over Budget and Behind ScheduleCPI, SPI < 1 Over Budget and Behind ScheduleCPI, SPI > 1 Under Budget and Ahead of ScheduleCPI, SPI > 1 Under Budget and Ahead of Schedule

Let’s work a real example….Let’s work a real example….

Project Statement: Project Statement: • A supplier is contracted to install ten new testers at a A supplier is contracted to install ten new testers at a

semiconductor manufacturing plant. The project must semiconductor manufacturing plant. The project must be completed within 6 weeks duration. 600 manhours be completed within 6 weeks duration. 600 manhours is the estimated labor resource commitment, at a $10 is the estimated labor resource commitment, at a $10 per hour fully loaded time and materials cost. per hour fully loaded time and materials cost.

Goal Statement: Goal Statement: • Use EV to measure project performance at week 3 Use EV to measure project performance at week 3 • Use traditional methods to measure performance Use traditional methods to measure performance • Compare the results using both approaches Compare the results using both approaches

Example Continued…Example Continued…

Determine Project Status at Week 3 using traditional methods:Determine Project Status at Week 3 using traditional methods:

Given Information:Given Information:– At Week 3, 4 testers have been installedAt Week 3, 4 testers have been installed– 400 manhours have been consumed400 manhours have been consumed

• 3/6 weeks = 50% complete3/6 weeks = 50% complete• 4/10 testers installed = 40% complete4/10 testers installed = 40% complete• 400/600 manhours “cost” budgeted = 67% complete400/600 manhours “cost” budgeted = 67% complete

• What is the project status at week 3? Is the project ahead or What is the project status at week 3? Is the project ahead or behind schedule and is it under budget or over budget? It is behind schedule and is it under budget or over budget? It is very difficult to tellvery difficult to tell

Example Continued…EV is Example Continued…EV is introducedintroduced

Determine BCWP, BCWS, and ACWP:Determine BCWP, BCWS, and ACWP:

BCWP = (600 mh*$10/hr )* (4 testers / 10 testers) = $2400 BCWP = (600 mh*$10/hr )* (4 testers / 10 testers) = $2400 BCWS = (600 mh*$10/hr)*(3 weeks / 6 weeks) = $3000 BCWS = (600 mh*$10/hr)*(3 weeks / 6 weeks) = $3000 ACWP = 400mh*$10/hr =$4000ACWP = 400mh*$10/hr =$4000

With this information, we can determine the metrics:With this information, we can determine the metrics:

SV = BCWP – BCWS = $2400 – $3000 = - $600SV = BCWP – BCWS = $2400 – $3000 = - $600CV = BCWP – ACWP = $2400 – $4000 = -$1600 CV = BCWP – ACWP = $2400 – $4000 = -$1600 SPI = BCWP / BCWS = 2400/3000 = .8 Criteria: .8<1SPI = BCWP / BCWS = 2400/3000 = .8 Criteria: .8<1CPI = BCWP / ACWP = 2400/4000 = .6 Criteria: .6<1CPI = BCWP / ACWP = 2400/4000 = .6 Criteria: .6<1

Our project is behind schedule and over budget!Our project is behind schedule and over budget!

Let’s try one more Let’s try one more example…example…

Project Statement: Project Statement: • One employee is tasked with developing six new One employee is tasked with developing six new

procedures for a sales group. The project must be procedures for a sales group. The project must be completed within 4 weeks duration. 200 manhours is completed within 4 weeks duration. 200 manhours is the estimated labor resource commitment. the estimated labor resource commitment.

Goal Statement: Goal Statement: • Use EV to measure employee performance week 2 Use EV to measure employee performance week 2 • Use traditional methods to measure performance Use traditional methods to measure performance • Compare the results using both approachesCompare the results using both approaches

Second Example Second Example Continued…Continued…

Determine Project Status at Week 2 using traditional methods:Determine Project Status at Week 2 using traditional methods:

Given Information:Given Information:– At Week 2, 5 procedures have been writtenAt Week 2, 5 procedures have been written– 100 manhours have been consumed100 manhours have been consumed– Assume a $1/hour rate. This will wash from equation.Assume a $1/hour rate. This will wash from equation.

• 2/4 weeks = 50% complete2/4 weeks = 50% complete• 5/6 procedures have been written = 83% complete5/6 procedures have been written = 83% complete• 100/200 manhours “cost” budgeted = 50% complete100/200 manhours “cost” budgeted = 50% complete

• What is the project status at week 2? Is the project ahead or What is the project status at week 2? Is the project ahead or behind schedule and is it under budget or over budget? It is behind schedule and is it under budget or over budget? It is still very difficult to tellstill very difficult to tell

Example using EV…Example using EV…

Determine BCWP, BCWS, and ACWP:Determine BCWP, BCWS, and ACWP:

BCWP = (200 mh)* (5 procedures / 6 procedures) = 167 mhBCWP = (200 mh)* (5 procedures / 6 procedures) = 167 mhBCWS = (200 mh)*(2 weeks / 4 weeks) = 100 mhBCWS = (200 mh)*(2 weeks / 4 weeks) = 100 mhACWP = 100 mhACWP = 100 mh

With this information, we can determine the metrics:With this information, we can determine the metrics:

SV = BCWP – BCWS = 167 mh – 100 mh = 67 mhSV = BCWP – BCWS = 167 mh – 100 mh = 67 mhCV = BCWP – ACWP = 167 mh – 100 mh = 67 mhCV = BCWP – ACWP = 167 mh – 100 mh = 67 mhSPI = BCWP / BCWS = 167/100 = 1.67 Criteria: 1.67>1SPI = BCWP / BCWS = 167/100 = 1.67 Criteria: 1.67>1CPI = BCWP / ACWP = 167/100 = 1.67 Criteria: 1.67>1CPI = BCWP / ACWP = 167/100 = 1.67 Criteria: 1.67>1

Our project is ahead of schedule and under budget!Our project is ahead of schedule and under budget!

How is EV applied???How is EV applied???

• Powerful performance and productivity metric for a Powerful performance and productivity metric for a project team using project schedule and budget project team using project schedule and budget

• Measures performance of an employeeMeasures performance of an employee

• Provide an integrated approach versus traditional Provide an integrated approach versus traditional

methods for task and project evaluationmethods for task and project evaluation

• Useful for any type of project from small in-house office Useful for any type of project from small in-house office jobs to complex contracted projects. For projects with jobs to complex contracted projects. For projects with multiple tasks or activities, EV can be calculated for each multiple tasks or activities, EV can be calculated for each tasktask

It’s time for an exercise…It’s time for an exercise…

Project Statement: Project Statement: • One employee is tasked with developing three One employee is tasked with developing three

databases. The project must be completed within 10 databases. The project must be completed within 10 weeks duration. 500 manhours is the estimated labor weeks duration. 500 manhours is the estimated labor resource commitment. resource commitment.

Goal Statement: Goal Statement: • Use EV to measure employee performance week 7 Use EV to measure employee performance week 7 • Use traditional methods to measure performance Use traditional methods to measure performance • Compare the results using both approachesCompare the results using both approaches

Walk through Exercise Walk through Exercise Process…Process…

1)1) Establish “givens” Establish “givens”

2)2) Determine project status using traditional methodDetermine project status using traditional method

3)3) Determine BCWP, BCWS, and ACWPDetermine BCWP, BCWS, and ACWP

4)4) Calculate SV, CV, SPI, CPICalculate SV, CV, SPI, CPI

5)5) Apply CriteriaApply Criteria

6)6) Summarize project performance based on EVSummarize project performance based on EV

Exercise SolutionExercise Solution

• Givens: At week 7, 350 manhours consumed and 2 Givens: At week 7, 350 manhours consumed and 2 databases completeddatabases completed

• 7/10 weeks = 70%7/10 weeks = 70%• 350 mh / 500 mh = 70%350 mh / 500 mh = 70%• 2/3 databases complete = 67% 2/3 databases complete = 67%

– Can you tell from this traditional method the project Can you tell from this traditional method the project status???status???

– Apply EV……..Apply EV……..

Rest of Solution…..Rest of Solution…..

BCWP = 500 mh * (2/3 databases) = 333 mhBCWP = 500 mh * (2/3 databases) = 333 mh

BCWS = 500 mh * (7/10 weeks) = 350 mhBCWS = 500 mh * (7/10 weeks) = 350 mh

ACWP = 350 mhACWP = 350 mh

SV = BCWP – BCWS = 333-350 mh = -17 mhSV = BCWP – BCWS = 333-350 mh = -17 mh

CV = BCWP – ACWP = 333 – 350 mh = -17 mhCV = BCWP – ACWP = 333 – 350 mh = -17 mh

SPI = 333/350 = .95SPI = 333/350 = .95

CPI = 333/350 = .95CPI = 333/350 = .95

Bottom LineBottom Line

Project is slightly behind schedule and over budgetProject is slightly behind schedule and over budget

EV LimitationsEV Limitations

• The EV math assumes linearity. Linearity The EV math assumes linearity. Linearity doesn’t exist in the real world but is a good doesn’t exist in the real world but is a good approximation when tasks in a project are approximation when tasks in a project are broken into simple elements. broken into simple elements.

• EV standing alone is a powerful measure, but EV standing alone is a powerful measure, but

only a measure. The knowledge derived from only a measure. The knowledge derived from EV must be understood and used to actually EV must be understood and used to actually drive performance and productivity drive performance and productivity improvements.improvements.

SummarySummary

• Earned Value provides an integrated, holistic approach Earned Value provides an integrated, holistic approach to measuring performance of employees and projectsto measuring performance of employees and projects

• Use of the approach creates a framework for evaluating Use of the approach creates a framework for evaluating project status based on project quality objectives project status based on project quality objectives

• Adoption of EV and application of the results will improve Adoption of EV and application of the results will improve performance and drive up productivityperformance and drive up productivity

ReadingsReadings

President Bush Weekly Radio Address, Aug 2003President Bush Weekly Radio Address, Aug 2003www.whitehouse.gov/news/releases/2003www.whitehouse.gov/news/releases/2003

US Labor Sec Chao, Remarks to Joint American Enterprise Institute US Labor Sec Chao, Remarks to Joint American Enterprise Institute – US Dept of Labor Conference on Productivity in 21– US Dept of Labor Conference on Productivity in 21stst Century, Century, ASI, Oct 23, 2002ASI, Oct 23, 2002

Dept of Labor Statistics Homepage,Dept of Labor Statistics Homepage,www.bls.govwww.bls.gov

““Retailers Can Increase Productivity and Improve the Bottom Line Retailers Can Increase Productivity and Improve the Bottom Line with Labor Analytics”, John Andersen, with Labor Analytics”, John Andersen,

www.executivetechnology.comwww.executivetechnology.com

More ReadingsMore ReadingsManaging Quality – An Integrative Approach, 2Managing Quality – An Integrative Approach, 2ndnd Ed, 2004, S Thomas Foster Ed, 2004, S Thomas Foster

EconDash -- EconDash -- www.econdash.net/definitions/laborprod.aspwww.econdash.net/definitions/laborprod.asp

““Earned Value – Why be right when it’s so much fun to Guess?”, Ozzie Lomax, PMP, PMI KC Chapter Earned Value – Why be right when it’s so much fun to Guess?”, Ozzie Lomax, PMP, PMI KC Chapter May 2000May 2000

““Project can help you better understand Earned Value”, May 2003Project can help you better understand Earned Value”, May 2003www.zdnet.com.au/builder/manage/project/storywww.zdnet.com.au/builder/manage/project/story

Use of Earned Value Management to Mitigate Software Development Risk, Paul E Young, 21 April 1997, Use of Earned Value Management to Mitigate Software Development Risk, Paul E Young, 21 April 1997, George Mason UnivGeorge Mason Univ