EARNED VALUE MANAGEMENTIncorporating Risks and integrated Master-EVM models

Muhammad Iftikhar Anjum

“You cannot manage what you cannot measure…and what gets measured gets

done.”

Bill Hewlett,Co-founder Hewlett Packard

INTRODUCTION Earned Value Management (EVM) is an

effective tool for project performance measurement on Time, Cost & Scope baselines

If used properly, EVM can ensure project success without major delays

EVM models are mainly effective for Predictive Life Cycle Projects

Certain limitations are associated with use of EVM, for which different extensions have been proposed by various researchers

INTRODUCTION

In this Study EVM models (Task-EVM) for each task is

proposed that are to be integrated for Project or Master-EVM

Risk Costs and Time Buffers are added in Planned Value (PV) calculations based on probability-impact factors for Risk

In order to apply the proposed EVM extensions, a hypothetical tourism facility project is taken as a model

AIM OF STUDYAim of the study is to propose techniques for addressing EVM model limitations based on a

Hypothetical Tourism Facility Project

BASIC CONCEPTS - EVMPV: Planned ValueEV: Earned ValueAC: Actual Cost

SV: Schedule VarianceSV = EV – PV

CV: Cost VarianceCV = EV – AC

Cost

TimeTime t

PV

EV

ACScheduleVariance

Management Reserve

CostVariance

COST & SCHEDULE PERFORMANCE INDICES

Excellent

Bad

Cost Performance Index

CPI = EV/AC

Schedule Performance Index

SPI = EV/PV

1 or 100%

CPI, SPI = 1, Cost & Schedule are as planned

BASIC CONCEPTS - EVM

Cost

TimeTime t

PV

EV

ACScheduleVariance

Management Reserve

CostVariance

BAC

EAC

LIMITATIONS OF EVM Risks are not accounted for in EVM model

Exact measurement of Earned Value (Physical work completed) may not be accurate

There may be variations in Cumulative Earned Value and Physical work done on individual tasks

HYPOTHETICAL MODELVash-Rung MakranTourism Facility Project

HYPOTHETICAL MODEL FOR RESEARCH A Tourism Business Company planned for

establishing a tourism facility at Kund Malir, Balochistan

Tourism attractions include, Beach, Landscape, Hangol River, Nani mandar, graves of Bin Qasim’s soldiers, Princes of Hope, Star-sighting etc

Project is named as Vash-Rung Makran (VRM)

Company believes in use of sustainable energy, clean environment and use of local human resource

TASKSTask Time (weeks) Cost (million of rupees)

Hotel Renovation 13 13Security 12 10Training 26 10Patrol Pump 12 20Shuttle Service 12 40Wind-Solar Energy System 20 40Marketing 26 20Hospital 12 10Seawater Treatment 24 40Sewerage Treatment 24 20Trial Trip 1 1Plan for Expansion 1 1Total 50 (based on PERT) 225

Project Vash Rung

PERT/CPM FOR THE MODEL

PROPOSED EVM MODELS to address the limitations

TASK-EVMS INTO MASTER-EVM MODEL In order to get the real time data of AC and EV a

separate EVM for each task is to be planned and maintained

Task manager, with assistance of accounting/ stores professionals should keep his Task-EVM updated

Data for each Task-EVM is to be communicated to Master-EVM, by a network or data link

Periodicity of update of EVM is to be planned and same is to be used for keeping every concerned onboard of actual project performance

EXAMPLEAt time t, there are 3 parallel tasks A, B & C

Cumulative Calculations for Master-EVM

EVP = EVA + EVB + EVC

ACP = ACA + ACB + ACC + Ο

Ο is other associated costs, that does not add to the Physical Work done in terms of cost

TASK & MASTER EVM

*Calculations were made from POM-QM software PERT cost-budgeting module

INCORPORATION OF RISK FACTORS Project Risk Management is a factor that

assures a project performance and completion as per schedule

PMs usually avoid maintaining a Risk Register A conflict situation may occur or project

performance may be affected badly, if risk management is not done properly

In order to avoid this situation, it is proposed that risks are to be added to EVM planned value (PV)

INCORPORATION OF RISK FACTORS

0.36 here is Probability-Impact Factor

INCORPORATION OF RISK FACTORS All other Risks can be converted in terms of

Cost and Schedule

In the model, only Cost & Schedule risks are proposed for incorporation into EVM

For calculation of risk values, Probability-Impact factor (PI) is used in proposed EVM model

SCHEDULE RISKS It is proposed that for schedule risks, buffer

times are to be added to all tasks Calculations of buffer times are on the basis

of PI factors for proposed modelPIp: Probability-Impact factor (positive risks)RVp : Risk Value (positive risks) RVp

PIn : Probability-Impact factor (negative risks)

RVn : Risk Value (negative risks)TB: Time BufferEquation for Buffer Time:

TB = (PIn)*(RVn) – (PIp)*(RVp)

SCHEDULE RISKS - CALCULATIONS Following table, taking hypothetical values of

risks, in 4 tasks was created

RV, PS, PR in weeksPetrolPump

EnergyPlant

SeawaterPlant

SeweragePlant

PIp 0.4 0.2 0.3 0.7RVp 1 1 2 1(PIn)*(RVn) 0.4 0.2 0.86 0.7PIn 0.68 0.74 0.7 0.9RVn 5 7 3 4(PIp)*(RVp) 3.4 5.2 2.6 3.7Time Buffer 3 5 4 3Planned Schedule 12 20 24 24Planned Schedule with Risks 15 25 28 27

SCHEDULE RISKS – PERT/CPM

SCHEDULE RISKS – EVM

COST RISKS It is proposed that for cost risks, additional

cost, based on PI factor is to be added to tasks

PIp: Probability-Impact factor (positive risks)RVp : Risk Value (positive risks) RVp

PIn : Probability-Impact factor (negative risks)

RVn : Risk Value (negative risks)RC: Risk Cost (in million of rupees)Equation for Risk Cost:

RC = (PIn)*(RVn) – (PIp)*(RVp)

COST RISKS - CALCULATIONS Following table, taking hypothetical values of

risks, in 4 tasks was created

RV, PB, PR in million of Rupees TrainingShuttle Service Marketing

SeweragePlant

PIp 0.4 0.2 0.3 0.7RVp 1 1 2 1(PIn)*(RVn) 0.4 0.2 0.6 0.7PIn 0.7 0.6 0.7 0.9RVn 2 2 3 2(PIp)*(RVp) 1.4 1.2 2.1 1.8Risk Costs 1 1 1.5 1.1Planned Cost 12 20 24 24Planned Cost with Risks 13 21 25.5 25.1

COST RISKS – EVM

EVM WITH ALL RISKS

IMPLICATIONS OF STUDY In practical approach, some risks cannot be quantified and

are based on previous experience and expert judgment of PM.  There are Force Majeure Risks, like natural disasters, those

can only be dealt with by a project team’s efficiency, experience, knowledge and resources.

Efficiency in upkeep of Task EVMs by Task-Managers can vary as per the priority of the task itself, associated works, time and expertise in finance/management.

Model of Vash-Rung tourism facility project is based on hypothetical company, costs, schedules, team members and potential for revenue in the project. It is not to be used for any practical approaches, except for getting an idea for such projects.

CONCLUSION Earned value management methodology takes into

account all three triple constraints that may delay a project or cost extra expenditure.

There always remain an element of error and difference between on-ground project status and management level documentation and tools like EVM. Proposed model for dividing Master-EVM into task-EVMs will keep all stakeholders onboard at any instant of time and real-time project performance will be measured affectively.

Project Risk Management is another major factor that assures project performance and efficiency of team. Project Managers generally avoid maintaining a risk register. Proposed model for incorporating risks into EVM at planning level will give a clear insight to all stakeholders. Moreover, during the project life cycle, clear visibility of forthcoming risks will ensure early risk responses.

FUTURE RESEARCHES Future researches can target reducing the gap

between theoretical/financial models and practice/physical status of a Project.

Identifying and quantifying risks is core competency of any project management organization. Project Risk Management integration with planning, execution and monitoring & controlling of a project can be another area of research.

Hypothetical model of a tourism facility in Kund Malir can be a full fledge research and business project, that can be studied and implemented practically.

Use of sustainable energy resources, capacity building of local population and self-sufficiency in water resources are few other areas that can be researched for business as well as for poverty alleviation.

REFERENCES PMI’s Project Management Body of

Knowledge PMBOK®.

Practice Standard for Earned Value Management.

Practice Standard for Project Risk management.

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"ANSI EIA-748 Standard - Earned Value Management Systems", Electronic Industries Alliance. 1998.

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Azeem S.A., Hossam E. Hosny, Ahmed H. Ibrahim, “Forecasting project schedule performance using probabilistic and deterministic models” HBRC Journal (2014)10, 35–42.

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THANK YOU

Dedicated to:Dr. Muhammad Zaki Rashidi

Mr. Syed Ahsan RizviMr. Kashif Siddiqui

Mr. Muhammad Iftikhar Mubashir