Earned Value Management

What is a CPI Forecast

Before I get started on the details, I’ll give you a quick definition: A CPI Forecast allows project controls professionals to predict the performance of their project using a subjective CPI value rather than the calculated CPI that’s determined based on past performance. In case you’re wondering what that all means, I’ll go on to explain.  First, CPI stands for “Cost Performance Indicator" (or Index). It’s a standard EVM metric, and is calculated using the following formula: CPI = Earned Value (EV) / Actual Cost (AC) A CPI Forecast is a mechanism for providing a subjective view on the standard calculation. Using EVM for calculating the remaining costs to complete on a project – like ETC and EAC – typically use the project’s latest Progress Measurement as the basis for that calculation. This is effectively using past performance to predict the future.  What it’s saying is, for example, “Judging from where you’re at right now, your project is underperforming at a performance index of 0.8.  With that performance to date, your ETC will be $X.” While this is important information for project analysis and forecasting, users often need an alternative way to view these projections. It may be the case that there are very good reasons for the poor performance to date, and corrective action has been taken – so that the performance metric of 0.8 might be misleading. Or maybe, unforeseen circumstances had dragged performance for a while, and things are looking better now for the remainder of the project. To give you an example, let’s say that the first 6-months of a project occurred during winter; when progress moves slower than it does during the spring & summer.  A project manager wouldn’t want to

EVM Explained: Planned Value

Many EV professionals would argue that Planned Value is one of the most important metrics in earned value analysis.  It provides the critical benchmark from which numerous other metrics are being compared. To give you an idea of what PV is, consider the example where you have a $1 million project that is scheduled to take 10 months to complete. An important aspect of project controls is to be able to plan out how that $1m will be spent over the 10 months. It obviously won’t be spent in one single lump. Neither will it be spent in an even, perfectly distributed rate over the 10 months. The project spend will follow an uneven pattern – loosely following the schedule of activities and purchases that occur over the project’s duration. Planning the budget over the project’s timeline is called Time-Phased Budgeting. Planned Value is the value of scheduled project spend at a point in time of a project's duration. Planned value is also referred to as Budgeted Cost of Work Scheduled (BCWS). Comparing Planned Value against Earned Value and Actual Cost Calculating Planned Value is dependent on there being a time-phased budget in place for the project. By time-phasing the budget, project controls can determine what the expected budget outlay is planned to be at any point during the project.  Once the project has been underway for two months for example, a PV calculation will tell you how much of that budget was supposed to have been spent by that point in time.  The answer, as I’m sure you’ve guessed, is not 20% of that 10-month project. The calculation has to take into account every item or activity budgeted on the

EVM Explained: Variance

“If you keep going at this speed, you’re going to be late!” That’s my simplistic real-life analogy of earned value management. It’s a simple bit of math that we all do in our heads anytime we’re trying to get somewhere or finish something.  If you gave yourself an hour to get there and after a half-hour you’re still less than half-way, you’re going to be late.  It’s that simple. As simple as it is, it requires us to know quite a bit of information about the current situation in order to calculate late vs. on-time.  Just like EVM, you need to know 3 key elements to make the calculation: Your speed Remaining distance to go Remaining time left Cost Variance If you know those 3 values, you can not only calculate whether or not you’re going to be late, but you’ll also know how late.  In earned value management, the “how late” answer would be called Variance. Whether we’re talking about time, cost or hours, variance is determined by knowing three things about your project: Your budget How much of that budget you’ve spent so far (actual) How much work has been completed (as a percent) To save you from having to read it here, you can have a look at this site to get the details on the math for calculating variance (and any other earned value metrics). Depending on your preference, variance can be expressed as a whole number or as a percent. Most people tend to speak about variance in percent terms since it gives you a sense of the magnitude.  For example, “we’re 17% over budget.”  It’s key to point out that that would be a

I Have Mastered the Art of Talking to Myself Without Moving My Lips

Hey, don’t laugh, it’s a key skill. The only creepy thing about it is I can look at someone right in the eye and be muttering to myself at the same time. And even though I have at least another 40 years before I’m at that station in life where muttering is just something you do,  I’m getting an early start because I’ve discovered that it has high value.  I’m not the first to discover this, as it turns out. Experiments have been done to prove that regularly talking to yourself is a positive thing: http://newsfeed.time.com/2012/04/25/talking-to-yourself-may-actually-be-a-good-idea/. All the scientific research aside, the value I get from my outward-inner-dialogue is the art of practicing my next line.  That’s because I so often find myself in boardroom meetings with very passionate people.  Which is probably not that uncommon.  What’s also not uncommon, is that the people in the room don’t all share the same views. They can be passionately expressing opposing views with each other while earnestly trying their best to do what’s best for their company.  I, on the other hand, am an outsider invited in – and I’m equally passionate about trying to mediate them towards achieving the ideal solution to some often delicate challenges. The muttering comes in handy because I can try-out ideas out loud, so to speak, before I actually say them. It’s funny how things can sound so different in your head, compared to how they sound when they’re actually spoken. Or mumbled. About a week ago I was a participant in a very heated debate on a company’s policy towards the layout of their standard work breakdown structure for their projects going forward. They were growing

How do you Figure out a Realistic Cost to Complete?

Project Owners spend an extraordinary amount of time trying to get an accurate reading on all the costs to complete for a project.  On big projects, it’s hard enough determining what’s been spent to date, nevermind remaining. Gathering the right information to calculate forecasted spend can be tricky to do and requires good tools & processes to piece together a realistic estimate of projected costs. With hundreds of suppliers and contractors busily doing work and delivering materials every day, it’s a big task for Owners to keep track of how exactly things are progressing. Understanding “progress” is key. Without information on progress to date, you can’t figure out amounts remaining. Most decent project managers (especially on the owner side) understand this very well. As a result, they spend a good part of their day making a lot of phone calls &  email requests to vendors - along with regular site visits - to get an idea of how much has been completed and how much is left to do on every project activity. They’ll then punch in numbers to manually calculate those remaining amounts to produce a status report. In addition to all that, they also rely on vendor invoices. They’ll subtract invoices from the budget, and voila, all in, that’s their gauge on the cost to complete. Off goes the report to internal stakeholders. It’s not very accurate, but it’s what they have to deal with. Considering it’s such an important piece of information, it’s amazing that such a loose, time-consuming and manual system is still used. Especially one that’s full of guesswork and potential for errors.  It can be even more effort if the project manager is

Get Forecast Oversight with the new 4castplus Rules of Credit System

  Press Release To view the original press release, please click here:  http://www.prweb.com/releases/2013/4/prweb10588566.htm The new Earning Rules of Credit system available in 4castplus sets the bar for true project cost management and controls. Users can do away with the worries of subjective progress measurements of percent complete – 4castplus brings reason and accountability to a very tricky area of project management. Percent complete is such a critical project metric that forms the basis for so much project analysis. The new rules of credit system creates an objective practice to eliminate the common pitfalls of project progress measurement.   Calgary, Alberta April 2, 2013 4castplus today announced the release of the new Rules of Credit addition to its project forecasting and Earned Value Management system. With this critical new functionality, program and project managers can get project peace of mind through progress oversight and forecasting objectivity. Measuring progress in construction project management software has long been a tricky thing to tackle accurately. There is no absolute science to determining percent complete on projects or tasks. It is often left to the hands and whims of project managers who utilize best-guess methodology and a moist finger in the wind to estimate how far along a project task has progressed. Senior managers and program managers are forced to trust the motives and actions of their project management teams to be as realistic and accurate as possible. Many organizations depend on these calculations of percent complete. They’re vital for determining variance, remaining cost to complete and other earned value management metrics on a project. They’re also used in calculating amounts billable in a progress draw. With the new Earning Rules of Credit solution in 4castplus, project managers can define distinct

Why EVM Matters

Earned Value Management? When asked about where their project stands against initial budget and schedule, most project managers will have a pretty good idea. They’d be able to tell you something like, “We’re running quite close to budget”, or “We’re almost half done”. However, without the tools and tracking to provide sufficient substance to those statements, gut-feel assertions like that are often dangerous guesses that can lead to cost overruns and delays. Earned Value Management provides the tools and techniques to tell a project manager where he or she really stands in their project. It can not only report on how much over/under budget or ahead/behind schedule a project is; it can also inform a PM as to how a project is trending, so as to better predict schedule and cost remaining to complete their project.  This provides the project manager a solid grounding on current status along with a good estimate of projected final results & timing. Armed with better analysis tools like this, the cost savings to projects – along with the improved communication and control – are clear incentives to look at adopting EVM in almost any project organization. Earned value management is much simpler than it sounds. It is simple because it’s something that we all do in everyday life – we just don’t usually use an elaborate name for it like EVM. Put simply, EVM is the technical term used for the process of getting quick and accurate answers to the “Where Am I At” questions on any project (construction, IT, or other). And we’re all continuously trying to assess where we’re at in most everything we do: whether it’s managing a complex construction project, or simply planning a birthday

Reduce Errors by Forecasting Regularly

  Running forecasts on your project is an extremely powerful way to get critical insight into your project’s current status and projected final results.  Forecasts, however, do a lot more than that; especially if you run forecasts on regular intervals. Regularly forecasting is a key strategy for the project manager in any construction project. There are several reasons for this. First of all, entering percent complete on the tasks in your project is prone to some subjectivity and error. Regardless of how you go about determining percent complete – whether it’s pre-defined earning rules,  best-guess approach or team-based assessment – it’s practically impossible to know exactly how far along any task is. There are a number of techniques for mitigating the errors in applying percent complete – and we’ll talk about more of these in other articles – but one of these techniques lies is the power of executing forecasts on a regular basis. In 4castplus, forecasts are easy to do and provide a quick, high-value snapshot of where things are at right now in your project. What you may not have realized is that 4castplus also keeps a copy of all the information in your project as it was in that forecast period. So taking that snapshot means that all that information is preserved for historical reporting. If you run forecasts on, for example, a weekly basis, 4castplus will enable you run reports on the history of how your project progressed over time, on a week-by-week basis. Have a look at the screenshot below (click on it for a full view). It shows a summary-detail report that’s interactive for the user to click-through the forecast periods in a project. The detail report below shows

Top Challenges with Running Complex Projects

  Construction projects are saddled with a whole host of complexities that require careful planning and management in order to result in a successful, profitable outcome.  Most construction businesses themselves struggle with an equally broad set of challenges when comes to successfully running a project-based business. Here are some of those challenges.   Project Visibility. Getting reliable information that’s up-to-date, accurate and detailed enough to understand what’s going on at all levels in a project. As I’m sure you’re aware, knowledge and good information are the ultimate control weapons for keeping projects on track. I often hear C-level managers express frustration about not knowing where they’re at with projects or even parts of projects.   Getting Organized. One of the biggest sore points we hear about from construction management professionals, is a feeling that it just takes too much time, and they need to simplify & streamline how they go about their day-to-day controlling of projects. They often experience a sinking feeling of chaos and a need to pull together all the project-related information, processes and tools into one place where they can plan, execute and report without having to spend endless hours trying to cobble together a simple progress report.   Managing Project Changes. Change can be notorious for causing cost overruns, delays, misunderstandings and even disputes.  Changes are easily underestimated and overlooked when you’re busily trying to complete project work. There’s a tendency to be optimistic, agreeable and eager to just get things done and ignore the control aspect of change management.  Everyone has to face project changes, but no-one really wants to deal with it.   Access to Information. Many construction organizations struggle with having all their project information well organized and

Anticipation and the Project Bottom Line

Projecting the Final Results The big question everyone – including all project managers and stakeholders – wants to know is, “How long and how much.” That’s a reasonable and typical question; and it’s a question that resonates for the project as a whole, as well as every piece and subsection within a project. When it comes to actually using the information collected when adopting Earned Value Management, you need to know the full value of that information. And a big part of the value of that is in getting a handle on what the final numbers will be - and then communicating that information to other project stakeholders.   Earned Value and Cost Performance Index When we discuss things like Earned Value (EV) and Cost Performance Index (CPI), while these are important indicators as to the current health of the project, they additionally serve as stepping stones to get to the bottom line numbers. The ultimate bottom line numbers are: Estimate At Complete and Variance.   Anticipate Estimate At Complete is essentially the projected final cost. It’s ultimately what everyone wants to know, and it’s really what makes news. Whether you’re talking about the project as a whole or any section within the project, everyone wants to know, “What’s the final cost looking like?” Forecasting the results of a project not only enables a project team on any construction project to communicate project outcomes, it delivers the power to anticipate. Being able to anticipate what’s going to happen is the ultimate control weapon. It’s why we all check the weather before we leave the house in the morning – we want to be prepared. The second key Bottom Line indicator is Variance. Variance is one