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Using Earned Value Management Concepts to Improve Commercial Project Performance
R. Scott Brunton, PMP, PMI-RMP/SP, EVP Principal Solutions Consultant
Lewis Fowler, LLC – www.lewisfowler.com
Welcome to the PMI Houston Conference & Expo and Annual Job Fair 2015
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• Q&A will be taken at the close of this presentation
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EV Within PMI®
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Project Cost Management Knowledge Area Controlling and Monitoring Process Group
Reference: PMI PMBOK and PMI
EV Within PM Methodology
• As an analytical technique for assessing progress of technical maturity through cost and schedule Performance Measurement
3 Reference: PMI PMBOK
Capabilities of EV Management
• Objective, measurable metrics • Informs the organization decision
making process • Supports project controls to enable
successful project execution through Performance Measurement
• Relevant to internally driven business efficiency requirements for commercial programs
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Why EV Was Developed
• Late 1800s – Optimize performance of factories
• 1950s and 1960s – Navy developed into PERT/Cost techniques – Cost/Schedule Control Systems Criteria (C/SCSC)
• 1998 – 32 guidelines in ANSI/EIA-748 by NDIA
• Performance Measurement as a means to make better business decisions
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What’s In A Name
• Historically driven and mandated within the defense industry
• Perception of being operationally burdensome
• “Uncomfortable” – Involves “a priori” planning and periodic reporting – Requires root cause analysis and mitigation – Drives accountability and active management
6 Reference: Earning Value from Earned Value Glen Alleman, Aug 2013
What EV Isn’t or Won’t Do
• Performance Measurement – Will not ensure project success by itself – Is not a one size fits all strategy – Does not make up for a bad plan, incomplete
requirements, or poor project management – Is not just a government reporting requirement
• Performance Measurement is not a solution as much as it is an efficiency enabling methodology 7
Here’s The Value
• Success enabler – Element of PM fundamentals – Disciplined project controls and performance
monitoring
• Performance Measurement enhances program management capability through insight
• Increase the probability of program success • Equally applicable in commercial business
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Cost of EVM Process
9 Reference: The Costs and Benefits of the EVM Process D. Christensen, Fall 1998
Author (Year) Source of Estimate Cost Range Kouts (1978)
Survey of Industry 0.5% to 5%
MITRE Corp. (1982)
Survey of Industry 0.1% to 0.2%
DOD IG (1984)
Survey of DoD Experts 5.0%
Decision Planning Corp. (c1992)
Industry Cost Estimating Model 0.6% to 1.0%
Humphreys and Assoc. (c1992)
Consultant Experience 0.5% to 4.0%
Lampkin (1992)
Average of Five Studies Above 0.4% to 1.63%
Program Customer Satisfaction
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Best
Worst
Minimal Capability
Composite World Class
Qualified Performer
Program Management Capability
Reference: DCMC Conference, March 2000
When to Consider EV
• High value programs • Long duration programs • Progress payment programs • Contract types: Firm Fixed, Cost Plus, T&M • In support of broader corporate mission to
drive efficiency and effectiveness in program execution and utility of organizational resources
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Performance Measurement
• In support of objective technical maturity • Objectively validated and measured time-
phased cost and schedule performance • Alerts program to potential execution problems
– Absolute or trend measures
• Enables problem diagnosis by variance analysis that leads to active program risk management
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Why Measure Performance?
• To further increase the probability of program success through: – Risk and opportunity management – Program governance and controls
• Answer the questions – Is the program performing according to plan? – Are there performance trends emerging? – How does this program relate to corporate success?
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Concepts
• Validate the technical scope • Establish ‘The Plan’
– What scope, by when, for how much
• Measure performance and assess variance • Analyze to reveal root cause • Implement corrective actions • Inform the organization
– Project and Portfolio levels
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Portfolio Dashboard
Performance Measurement/Analysis
Scope
Schedule
Cost / Resources
Concept as a System
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Earned Value Management
System
• Performance Analysis • Root Cause Determination • Corrective Action Planning
Cost and Schedule Performance Data Collection
Program Funding
Performance Measures • Cost Measures: CV = EV – AC ; CPI = EV / AC • Schedule Measures: SV = EV – PV ; SPI = EV / PV • Estimate-at-Complete (EAC): Various • Estimate-to-Complete (ETC): ETC = EAC - AC
16 Reference: PMI PMBOK, Table 7-1
Establish the Plan • Plan what you know in objective terms
– Entire plan, Rolling Wave
• “Don’t create variances during planning”
17 Reference: 8-31-2013 © Scott Adams, Inc
Measure Performance
• Collect cost and schedule data based on predefined, objective, measureable criteria
• Scope management through governance
18 Reference: Jorge Cham © 2014
Assess Variance
• Mechanical process of determining performance as compared to ‘The Plan’
• Provides visibility in objective terms • Focus on primary drivers of plan variance
– Absolute and relative measures
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Root Cause
• Meaningful level of detail • Ask ‘Why’ more than once • Recommend and
implement solutions • Capture in risk action register • Informs the program of risks and opportunities
20 Reference: MindTools http://www.mindtools.com/pages/article/newTMC_5W.htm
Implement Corrective Action
• Supports the program controls function • Assess cost and schedule impacts • Baseline program governance • Log, track, and report • Archive
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Broader Context
• Risk and opportunity management • Dashboard reporting • Project portfolio management
– Projects | Programs | Portfolios
• Supportive of enterprise strategic objectives and “Value Chain” of the organization
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Deploy Incrementally
• Reconcile objective sources of performance information for cost and/or schedule
• Measure performance period-over-period • Allow the variance analysis to inform next
steps in evolving measurement maturity – Rigorous management of baseline plan – Reveal need for scope management
through governance
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• ANSI/EIA 748: Compliant versus Certified • Begin with cost or schedule performance
Tailored Solution
24 Reference: Earning Value from Earned Value Glen Alleman, Aug 2013
Overhead Burdens
• Training and education – Stakeholders, PMO Team,
Project Managers
• Supporting IT infrastructure – Cost and schedule information collection – Excel spreadsheets to enterprise solutions
• Reporting and analysis time • In comparison to value of improved
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Frame the Conversation
• Speak in terms of Performance Measures
• Recognize the value of performance insight
• Recognize performance data as a corporate asset • Value of improved probability of program
success outweighs organizational cost factors • Improved internal/external customer satisfaction • Align to corporate objectives
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Prepare for Implementation
• Shared vision of what success looks like
• Stakeholder alignment and visible support
• Project identity and organizational brand • Motivated, capable, and visionary team • Integrated governance, change management • Build open cross functional relationships
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Company Return On Sales
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+15%
Minimal Capability
Composite World Class
Qualified Performer
Program Management Capability
Reference: DCMC Conference, March 2000
+10%
+5%
-15%
-10%
-5%
0%
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Using Earned Value Management Concepts to Improve Commercial Project Performance
R. Scott Brunton, PMP, PMI-RMP/SP, EVP Principal Solutions Consultant
Lewis Fowler 383 Inverness Parkway, Suite 475 Englewood, CO 80112 www.lewisfowler.com Phone: 719.339.0748 E-mail: [email protected] LinkedIn: www.linkedin.com/in/sbrunton
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