Develop and present chapter 1 (PM Using Earned Value) from the text. You will need to provide an activity and/or post a few questions from the chapter to be discussed.

You will need to present the content in 15 - 20 slides. The information needs to be presented in a logical order and should meet the goals/objectives of the chapter. The use of diagrams, tables and any other visual aids is encouraged.

23 PROJECT MANAGEMENT CHAPTER USING EARNED VALUE Objectives of this Chapter: 1. Define "project" and project management. 2. Describe the performance-oriented approach using an Earned Value Management System and explain why it is superior to actual versus budget comparisons. 3. Discuss factors affecting the appropriate level of detail for earned value implementation. 4. Introduce the process flowchart for the earned value project management process. What is a Project? A well conceived project could also be charac- Before delving into the intricacies of the earned terized as any endeavor that has a well-defined value management process, projects and earned scope of work and optimistic yet achievable sched- value management need to be defined first. A proj- ule and cost objectives. ect consists of a defined objective to develop or The words "project" and "program" are sometimes produce a new product, capability, or to expand used interchangeably in industry, resulting in some capacity within a specified time frame and budget. confusion. A program is made up of individual proj- Examples of projects include large capital-inten- ects to be accomplished. For example, the inertial sive efforts such as highway construction, new guidance system for an aircraft may be a sepa- commercial buildings, power plants and petro- rate project on a program. Because projects and chemical plants, water treatment plants, flood con- programs share the same characteristics they can trol, dams, bridges, hospitals, schools, prisons, be treated in a similar manner. For that reason, and churches. These are the obvious, highly vis- throughout this text, the term "project" will be used ible projects. generically to refer to both projects and programs. They are not the only types of projects as new Now that project has been defined, what is earned product development is also a project. A new au- value management? It is the process of defining tomobile, engine, or communication satellite is a and controlling the project so that defined ob- project. Other projects include research and de- jectives are met. The controlling aspect includes scope control, schedule control, and budget con- velopment, definition of new information systems, trol. It also includes the process of identifying and design and installation of communication systems, minimizing the potential negative impact of real- creation of new software programs, and computer ized risks. hardware advances. There are many aspects involved in earned val- Projects are so widespread that it is difficult to get ue management, including development of the through the day without being involved in some Earned Value Management System. An Earned way with a project, whether it is sitting in traffic Value Management System is a set of processes while road work continues, finding a more efficient and tools used to facilitate the management of a information flow for office communication, or man- project. aging a home improvement.Chapter 1 Project Management Using Earned Value 33 been established, the main concern from that point on is the determination of progress. ect. This can only be achieved with defined perfor- Progress is measured using the same earned val- mance factors that provide an accurate picture of ue techniques that were established as part of the what has happened to date and what is forecast to happen. planning process. The techniques used when the performance measurement baseline (PMB) was Step 14 - Variance Analysis and established must be applied consistently when Corrective Action progress is determined. Progress is compared with the plan, and this comparison, in turn, pro- Variance analysis and corrective action are very vides the schedule variance. mportant to the overall process. Much time and effort are invested in baseline establishment, and Step 11 - Collecting Actual Costs now the baseline information can be used as a ba- sis for determining the course of the project. The All projects will have a system for collection of ac- tools defined in the previous two Steps directly tual costs. Regardless of how unsophisticated a feed variance analysis and corrective action. By system may be this component must be includ comparing earned value to budget, schedule vari- ed. The challenge in this area is to define account ances can be determined. By comparing earned structures that can be used for consistently com- value to actual cost, cost variances can be deter- paring budgets, actuals, and performance. This mined. The second element, corrective action, is a could mean modification to existing accounting critical part of the control phase. At this point in the structures. Actual costs are necessary so that they process, there is a strong basis for determining the can be compared with progress, and this compari- project's true position versus the approved plan so son, in turn, provides the cost variance. that exceptions can be addressed. The carefully defined system will provide immediate feedback Step 12 - Performance Measurement as to whether the corrective action was successful Calculations Step 15 - Baseline Revisions and Change After progress is measured against the plan and Control the actual cost is entered, the three points nec- An essential aspect of the earned value manage- essary for data analyses are available. There are ment process is managing change. After all of the many calculations that aid in assessing the project effort that goes into developing the baseline plan status and assist the manager in targeting problem and determining current status, it is always a dis- areas for corrective action. These calculations also ruption to change that plan. Nevertheless, changes assist in the Estimate at Completion and Variance are a part of every project and must be addressed Analysis reporting. as to how they will be reviewed, approved, and in- corporated into the plan. Procedures are required Step 13 - Estimate at Completion and to manage the change control process or, over Schedule Forecasting time, the project's reports will relate less and less Organizations are very concerned with bottom line to the current scope, schedule, and budget as well performance. One of the essential pieces of cor- as the true status. One guideline stipulates that as much attention is needed for processing baseline ollary information needed to evaluate an ongoing changes as was used in developing the original project is, "When is it going to finish and what is it finally going to cost?" This answer will be used baseline plan. for many purposes, ranging from reward of project Step 16 - Implementation of the Project participants with better positions on new projects to Management Process project cancellation. The "Estimate at Completion" This final step provides information useful for im- is so important that it can become a highly political plementation of the Project Management process. number. A well-defined Earned Value Management Topics such as system design, development of the System will have objective means of determining system description and supporting procedures, and evaluating estimates at completion to improve flowcharting and storyboarding, defining software their accuracy even in the early stages of a proj-Section 1 Earned Value Project Management and Organization 34 requirements, and system training are discussed Review Questions in this chapter. 1- 1 . Explain the difference between a project and a program. Conclusion 1- 2 . What aspects of a project are managed DEFINITION A project is any endeavor that has a scope of work during the controlling phase of earned val. and optimistic yet achievable schedule and cost ue management? BREA targets. A project is typically managed by a sin- 1- 3 . How is a project organized differently from gle individual known as a project manager, who a functional organization? (WBS ) A must be able to coordinate a multi-functional team towards the achievement of all of the project ob- 1-4 What are some frequent causes of project jectives. One of the greatest needs of the project delays? manager is accurate, reliable, and timely informa- 1-5. Why is a comparison of actual costs to date Objectives of this Cha tion to enable effective management decisions. versus budgeted costs not adequate from The information needs to include a valid assess- 1. Explain the three an earned value management standpoint? ment of project progress and status. Projects were illustrate these wit historically monitored by comparing planned ex- 1-6. List at least three factors that will affect the 2. Define the Work penditures against actual expenditures. level of detail appropriate for implementa- 3. Provide guidance tion of earned value on a project. This approach lacks the most important element 4. Provide example of status: a measure of work accomplished. This True or False 5. Explain the WB shortcoming can be overcome by including a third 1-7. The earned value management process is data element that determines an objective value of only applicable for large projects. work completed. This is known as the performance Project objectives and oriented approach. The performance oriented ap- 1-8 The fact that more money has been spent basis of a project. P proach allows early identification of trends that in- at a point in time than was planned to be parameters that mus dicate if a project's objectives are in jeopardy. This spent means that an overrun in final cost to be considered suc "early warning system" allows a timely response s indicated. dress technical, sche on the part of management to mitigate unfavorable 1-9 outcomes by making informed decisions. A program may be made up of multiple project. Often, one be compromised to projects. ple, to meet a certai It is important that the trade off between adequate project status visibility and excessive data collec 1-10. Performance measurement can be suc- sources may be req cessfully applied in er d in engineering, construct jective to become tion be recognized and addressed. This is accom- both cost and sche plished by setting an appropriate level of detail in tion, manufacturing, oftware develop- uring, and software may have to be co the implementation process, Factors that affect ment applications, among others. 1-11. Using a measure of performance allows written definition level of detail include project size and duration, risk eters. Work scop (technical, schedule and cost), type of contract, and desired level of management involvement. earlier indication of potential increases in Specification, Sta final cost. and combination The entire process of managing projects must be a logical one. Each of the steps of the earned val- 1-12. From the customer's viewpoint, a firm fixed and project obje the customer and ue management process is illustrated by the flow- price contract suggests the need for tight chart in Figure 1-8 and will be discussed in detail cost controls. Proposal and/or tive Earned Val in subsequent chapters. key external inp jectives as the Conversion of and work scope of work constit the Earned Val The work defir The first stepSection 1 Earned Value Project Management and Organization 24 Managing Projects project managers must have good processes; Many projects result in highly successful comple- project. tools to effectively manage the people and tions. Successful projects contain many common characteristics: they were well defined and orga- The project manager must orchestrate the er fort that it r nized, had a closely monitored work scope, had project to achieve the technical, schedule, ; the product optimistic yet achievable schedule and budget cost objectives. If a project is an internal ended the manage from the time of initiation, and were closely mon- or, then a project manager's role is to manage ditional ins itored and managed. Many projects have been internal departmental interfaces and contract The earne successful for another reason: they benefited from and possibly other owners and customers, in an ommende to improv mistakes on other projects. The primary factor ob- tion to all of the internal staff. By selecti served on successfully managed projects is man- aging performance. The common thread through- Unlike normal functional organizations, a project improve out all of the topics in this textbook is exactly that. has a specific duration. Even as a project is initia, ects and ed, its purpose is to accomplish defined objective There ar The approaches and techniques that will be dis- and disband. A project team's job is to quickly a, value m cussed have a performance measurement orien- complish the technical scope of work, resource a These in ministrat tation, because the better something can be mea- efficiently as possible, and then move on to the agemen sured, the better it can be managed. next project. The project manager's job is, there the disc In a performance measurement system, cost and fore, inherently complex and challenging. Besides formed schedule targets are assigned to each activity the interfaces that must be managed on a daily ba The co planned in a project and to the project itself; prog- sis, he or she must often be a motivational expert earned since the many players involved may have difer. all of th ress (performance) is measured against these tar- ent goals. For many reasons, a project manager certain gets. Deviations from the activity targets and the causes of the deviations are identified and action has a great need for accurate status information. arrang attent is taken to minimize adverse consequences to the Only with reliable indication of project status can than project. concerns be surfaced early enough to allow cor. differe Projects require expertise from many disciplines. rective action, preventing potential concerns from The becoming real concerns that adversely impad Close coordination and communication are essen- must tial parts of successful execution of a project. To technical, schedule, and cost objectives. the achieve these, a separate "project team" is typical- Examples used throughout this text are extracted expe supp y assembled for accomplishing the project's scope from actual experiences. Frequently it is easier to ly pe of work. This team is organized using individuals illustrate a concept by showing what can or will happen if certain fundamentals are ignored than ect. from various disciplines such as accounting, pur- of n chasing, engineering, manufacturing, testing, op- what happens if they are followed. If the principles fort erations, finance, contracts, construction, project in this text are followed, there is a good probability the controls, and may also include subcontractors. of executing a well-managed project. If they are ead Some people provide part time support to a proj- gnored, unpleasant, career-limiting, unsuccessful go ect. These might include any of those mentioned experiences can occur. ma above and others such as the legal department, Depending on project risk (technical, schedule, me record retention, financial services, and executive management. and cost), project duration, and cost, certain as pects may be implemented less stringently. The ple The job of managing all of these organizations and principles do not change. It is still necessary to de- people is typically assigned to a full time senior fine the scope of work, have a plan for accomplish- individual who is designated as the project man- ing the work, and to manage the plan. However, ager. A project manager should meet several spe- the level of detail of the implementation can vary. cific qualifications: many years of experience in Unsuccessful applications of these principles have the type of project being managed to be technical- ly qualified; a degree to be academically qualified; en organizations went over board on the level of detail of implementation. If and stamina to be physically qualified. In addition, common sense is forgotten, it is possible to create a management system that requires so much ef-Chapter 1 Project Management Using Earned Value 25 fort that it requires an extensive staff just to provide the production and distribution of data. The cost of development projects in most companies required the management system is then not worth the ad- so much lead-time that the intended users had to ditional insight received regarding project status. find alternative ways of accomplishing their goals. The earned value management tools that are rec- In other cases, competitors beat software devel ommended in this book have been effectively used opment firms to the marketplace and millions of dollars were wasted. Water treatment and sewer to improve management on a multitude of projects treatment plants soared in cost, with immediate By selectively employing tools, the practitioner will impact on the consumer's water bill. Research mprove management on current and future proj- and development projects and military projects ects and thus, the prospects for project success. were cancelled because of continually escalating There are several other topics related to earned schedule and cost projections. The U.S. auto in- value management that are not directly covered. dustry suffered from a perceived lack of quality These include contract administration, project ad- and unit prices increased. Many of these cases ministration, and material and subcontract man- became highly visible to a large number of people. agement. These are, however, incorporated within For the project managers, the owners, and cus- the discussions of related subjects generally per- tomers of these projects, this was not the object formed by these functions. tive envisioned in the project plan. How did this The contract type has an impact on the extent of happen? earned value management implementation, but Causes were both internal and external. Scope all of the basic information is still necessary to as- changes occurred without being recognized and certain project status regardless of the contracting incorporated into a revised plan for accomplishing arrangement. Experience shows that too much the work. Customer needs changed, sometimes attention is placed on the type of contract rather because of a delay in finishing a product, thus than incorporating all of the information, but at a resulting in obsolescence. Delays in material de- different level of detail. livery occurred without properly reflecting the im- pact to other work activities. Regulations changed, The human aspects of earned value management frequently affecting the time needed to acquire must not be forgotten either. As mentioned before, permits or authority to proceed. Lack of coordi- the project manager needs to be a motivational nation between contributing groups meant delays expert. The project manager also needs a strong because of missing information, design or other- supporting staff. No single person can successful- wise. When these and other disruptions occurred, ly perform all of the work involved in a major proj- resulting schedule slippage had large cost impacts ect. The project manager must rely on the support because of high rates of escalation. Every delay of many others. This makes the project a team ef- was penalized with a significant negative econom- fort. Even the best systems will be less effective in ic consequence. the hands of individuals who do not cooperate with Typically a domino effect is observed. First, a tech- each other and do not work towards a common nical problem occurs. This is followed by a nega- goal. An underlying assumption is that effective tive schedule variance and ultimately a negative management tools will facilitate better manage- cost variance. Sometimes the dominos fall very ment of a project and minimize the confusion that fast, but problems could evolve over months. results from a project that is not well defined and Regardless of the source of difficulty, the underly- planned. ing problem was that impacts were not recognized quickly enough when conditions changed. In some Background cases, project managers were ignoring variances from the plan and failing to take action because In the past few decades, many large projects they did not believe the variances were real. In in numerous industries experienced significant others, they were not informed well enough about schedule delays and cost overruns. Nuclear power the variances. The situation was much like that projects stretched for years beyond their original shown in Figure 1-1. schedule and more than tripled in cost. SoftwareSection 1 Earned Value Project Management and Organization 26 shocking it takes very few additional resources to any and Surprises ! ate and resolve variant conditions. At the the project activity, it takes enormous reson just to stay even with the progress curve, may Budget catch-up very difficult. At the end of a project, Total Budge EA Baseline great cost expenditures may do little to accele. Estimate At technical and schedule progress. Improved Completion (EAC) visibility is a primary objective of any project me agement system. $ TIME The Performance-Oriented Actual Figure 1-1 Shocking Surprises Approach In Figure 1-1, the Estimate at Completion (EAC) Every company has some sort of tracking system Figure is below budget throughout most of the life of the to indicate how it is performing. Unfortunately, project. While challenges were faced daily in the many cases, the tracking may have been no more A budget ve management process, there was no way to quan- sophisticated than what is shown in Figure 1-2 Figure 1-4. titatively assess the impact in a timely manner. By Budget Plan versus Actual Cost. This was the tra underrun is the time a schedule slip or an overrun was fore- ditional approach used for many years in compe for projectin tion. It ma cast, it was too late to do anything to minimize its nies and is still used in too many organizations. underrun, impact. The result was shocking surprises hind sche This scenario occurred often enough that there Time Now erate sign was a heightened awareness of the negative im- Total Budget pact of realized technical, schedule, and cost risks associated with projects. Because of this negative Budget impact, many organizations reacted by creating better management systems. These systems pro- $ $ vided the capability of integrating all of the avail- Actual Cost able data into a cohesive form so that better visibil ity would result. One of the greatest challenges for these systems was timeliness. If information were not available until after the fact, all that would be TIME accomplished from its use was a well documented history of what went wrong rather than an effective Figure 1-2 Budget Plan vs. Actual Cost tool for management during the life of the project. This improved visibility must allow for earlier iden- Actual costs are collected and compared with bud- tification of trends so that situations like the one geted costs. This is done in the only only common de- pictured in Figure 1-1 can be prevented. nominator available for resources - dollars in the U.S., Canada, and Australia, or the corresponding Most projects develop a time phased plan to ac- local currency in other countries. Does this ap- complish the work. This resembles an S-curve proach provide improved visibility? shape. In the early stages, staffing and progress may be slow. In the middle part of the curve, both A good system must provide status and, therefore, staffing and progress should be at their peak. At the necessary visibility into progress. The graph the end of the curve, progress slows while actual shown in Figure 1-2 at least allows comparison of staffing may still be at peak or near-peak levels. expenditures with what was planned to be spent. The implications are obvious: identify and address However, there is no assurance that project sta- the problems earlier in the project life and there tus is known. Actual cost to date is higher than is a much greater chance of avoiding schedule dicate a cost overrun of planned, but does that indicate a cos slips and large cost overruns. Early in the project, is the project ahead of schedule? This situation is shown in Figure 1-3.Chapter 1 Project Management Using Earned Value 27 Time Now Total Budget What is missing from the comparison shown in Figures 1-4 and 1-5? There is no measure of what Ahead of Budget has actually been accomplished for what has been spent. The fact that money was being spent slower $ than planned could mean that there would be a cost underrun. It could just as easily mean that the Actual Cost project is behind schedule, or both, or neither. The key to knowing what the true progress and status actually are requires the addition of a third line to the curve that reflects the dollar value for the work that has been completed. TIME This third line results from a "performance-orient- Figure 1-3 Overrun or Ahead of Schedule? ed" approach. This approach shifts the emphasis A budget versus actual comparison is shown in from expenditures to work accomplishment. The Figure 1-4. This may appear to indicate that a cost project objective should be to accomplish all of the work rather than to spend all of the money. underrun is occurring. However, there is no basis for projecting what status will be at project comple- When using a performance oriented approach, tion. It may be that the project is incurring a cost work scope and associated responsibilities must underrun, but it may also be that the project is be- be defined in the initial planning phase of the proj- hind schedule and future expenditures will accel- ect. This is a far better approach than defining erate significantly. This is shown in Figure 1-5. responsibility in some form of finger-pointing ex- ercise of guilt determination after a crisis occurs. It allows the person responsible for an emerging Time Now variance to take action before it becomes a prob- Budget lem. The entire organization benefits from this ap- proach. If action cannot be taken in time to entirely avoid a problem, at least the impact can be accu- $ rately assessed if an objective method of measur- ing progress were used. By setting variance stan- Actual Cost dards or "thresholds", the system can be used as a high level Management by Exception indicator. A result is the ability to develop improved forecasts of technical performance, scheduled completion, TIME and final cost earlier in the project. The third line that represents work accomplishment has been Figure 1-4 Underrun or Behind Schedule? added to Figure 1-6. Now there is a completely different picture of the Time Now project status. This graphic depicts the value of the Actual work scheduled to be accomplished, the value of Cost the work accomplished, and how much the accom- plished work actually cost. Actual costs to date are Budget still below the budget line, but the value of work ac- complished is even less. In other words, cost is not underrunning, but in fact is overrunning relative to the value of the work accomplished. Similarly, a behind schedule condition is apparent. The vari- ous methods for measuring the accomplishment of work will be presented in later chapters of this text, TIME Figure 1-5 Significant Overrun or Accelerated Schedule?Section 1 Earned Value Project Management and Organization 28 accomplishing that work. Budgets and other re- but the important point is that it can be measured sources that are allocated to the project need to be and compared with an approved plan. identified. In other words, a plan for accomplishing Because of the the work is needed. Then progress must be mea- cost projects, it Time Now sured against that plan. When variances and their months to devel Budget impacts are identified, corrective action should be ing the project identified, evaluated, and implemented in the most do not have at cost effective manner. These are standard tech- does not sugge niques that apply in any situation. no plan, but rath plan featuring EA Experience shows small, short duration projects Similarly, it will n Actual Cost are often managed far worse than the large p rate monthly rep ysis reports and Accomplishment ects that have high visibility. Because small proj- ects are considered less significant towards the project will be overall profit picture, they are sometimes over- can even be p TIME looked with very unfavorable results. When small need to be ider projects ignore basic management concepts, they them, but it will Figure 1-6 A Performance Oriented Approach Provides ably involving Better Visibility commonly miss their budgets by 100 to 300 per- cent. The accumulation of absolute dollars may be Risk is anothe With this type of information, it is possible to project more than a large project that misses its budget lates to maturit schedule slippage and cost overrun in early stages by 10 percent. The point is that the summation of project were t of the effort. This early warning feature is one of products or se many poorly managed small projects could exceed the most important advantages of including a mea- progress over t sure of work accomplished. Figure 1-7 illustrates the impact of a large project. if it were the A convenient aspect of the performance oriented greater detail how these projections might be represented. approach is that it works in all environments in- managing prog Estimate at Time Now Completion cluding research and development, manufacture The project co (EAC) emphasis of c - - - - -"-I- ing, testing, construction, procurement, software Projected Cost Overrun development, and design. It also works on all tract, cost mo types of contracts, regardless of whether they are not emphasize Budget firm fixed price, cost plus, or some other type be- contractor will $ Actuals tween these two extremes. However, these factors responsible fo ted Schedule Slip play an important part in deciding on the level of type is used. Accomplishment nical and sch detailed implementation to be used. important for fi port contracto TIME Factors Affecting System tor program as Figure 1-7 Cost and Schedule Impacts Implementation Detail and projects still be a conc Among the factors that will impact the selection of schedule can Summary Implementation project controls for a particular application, are the vironment, co following: eration since Concerns by increasing Project size and duration. work. The lev The earned value management process concepts Technical, schedule and cost risk. trol systems are appropriate in any single project or multi-project The level of environment. On any type of project in any indus- Project contract environment. try, regardless of how small it is, a project must be er contributin Management involvement level. lementation effectively defined to be effectively accomplished. The size and duration of a project are critical con- customer and A project cannot be completed if its scope is not siderations when making key decisions on desired ems for dete understood. Individuals or organizations must be responsible identified with responsibility for completing the management system characteristics. work, and a time frame must be established forChapter 1 Project Management Using Earned Value 29 Because of the complexity of long duration, high cost projects, it is not surprising when it takes six a detailed system. However, the owner/customer months to develop a detailed plan for accomplish- should need a far less involved reporting system ing the project objectives. Smaller projects often and could track progress on a higher level. There do not have a total of six months duration. This are exceptions to this as well. If the owner/custom- does not suggest that the smaller project needs er were hiring the labor for the project and oper- no plan, but rather that it will have a less detailed ating in a hands-on management situation, then plan featuring the same general requirements. detailed controls may be needed in the owner's/ Similarly, it will not make sense to set up an elabo- customer's organization. rate monthly reporting scheme with variance anal- Common sense and reason must be used when ysis reports and corrective action plans since the developing and implementing Earned Value project will be completed before such a program Management Systems. Implementing systems at can even be properly established. Variances still too low a level of detail and with unnecessary com- need to be identified and actions taken to correct plexity has probably caused nearly as many prob- them, but it will be a far less formal process, prob- lems as having no system at all. While that may be ably involving little documentation. a slight exaggeration to make a point, the objective Risk is another important consideration and re- of improved visibility can be clouded just as easily lates to maturity of the technology involved. If the by too much data (and not enough information) as it can by lacking enough input. project were the tenth in a long series of similar products or services, some simple indicators of progress over time may be all that is required. But Earned Value Management if it were the development of a new technology, System Recognition greater detail will be needed for monitoring and The techniques developed and explained through- managing progress against the goal. out this text were implemented widely only after it The project contract environment may impact the became apparent that they were necessary. They emphasis of controls. On a firm fixed price con- have not always been enthusiastically embraced tract, cost monitoring and evaluation is typically by all project participants for various reasons. not emphasized by the customer. However, the Some do not want extra visibility into the status of contractor will be very cost conscious, since it is their work if that same information is in the hands responsible for any overruns when this contract of their boss and/or their customer. Typically, man- type is used. From a customer's perspective, tech- agers prefer to attempt resolution of problems be- nical and schedule considerations are also very fore they are discovered by others. While this is important for firm fixed price contracts with its sup- understandable from a human nature standpoint, it port contractors, especially on a multiple contrac- is entirely unacceptable from a project manager's tor program as the interfaces between contractors viewpoint. If problems are hidden and not satis- and projects must be managed. Productivity may factorily resolved, they will later have increasingly still be a concern since it will relate to whether the substantial impacts to project cost and schedule. schedule can be met. In a cost reimbursable en- It is essential that the project manager has the information and tools to assess status accurate- vironment, cost controls are a paramount consid ly, allowing more rapid, effective management eration since the contractor can maximize income by increasing the hours required to complete the decisions. work. The level of detail for cost and schedule con- trol systems will vary in detail accordingly. The Earned Value The level of management involvement is anoth- Management Process er contributing factor to decisions regarding im- Successful management of a project involves plementation detail. In many cases, both owner/ many concepts and implementation concerns. customer and contractor will have their own sys- A project is any endeavor that has a well under- tems for determining project status. The contractor stood statement of work and optimistic, yet achiev- responsible for accomplishing the work will need able, schedule and cost targets. An Earned Value30 Section 1 Earned Value Project Management and Organization Management System is a tool set used to facilitate management of a project. There are many consid When the owners and customers reviewed the contractor's plan, they realized that the primary erations in this complex discipline. A series of flow- objectives had not been explained clearly enough charts are used throughout the text to exhibit how The contractor was sent back to completely redo Step 2 the various chapters interrelate. the plan to support the eight and a half-month re- Work The master flowchart is shown in Figure 1-8, quirement. If this project had been managed to the Definition 18-month plan, it would have lost much of its com- Chapter 2 "Earned Value Project Management: The Process". This chart is repeated at the beginning of each mercial appeal. Step 1 Step 2 Step 3 chapter to show where that chapter fits in the over- The project plan is the set of documentation and Project Risk and Responsibility all process. directives that formalize the entire management Objectives Assignment Chapters 1-2 Chapter 3 The fundamental concept of this entire book is that process described in this text, including project the earned value management process should be objectives, general scope, project organization, logical, well-defined, and integrate all of the perti- desired schedule/cost goals, and a description of nent information relating to a project's status into management systems and procedures to be used a comprehensive picture. Every organization im- in completing the project. The project plan reflects plements many of the concepts; few of them in- the project specific internal as well as customer Step 10 tegrate those concepts into a unified status. That management, reporting, and analysis require Establishing is the primary challenge: to use all of the tools in ments. The approach used to code and organize the Baseline the project data is an important up front activity Chapter 11 the tool box in a coordinated manner so that they Step 10 meet the objective of improved project visibility, to establish a standard approach to integrate the Measuring leasurer allowing earlier management decisions based on technical, schedule, cost, and risk/opportunity ccomplishmer Calculati accurate information. This provides a project man- data to generate reliable information for effective Chapter 10 Steps 10 & 11 ager the best opportunity to meet project schedule management, reporting, and analysis for the life of and cost objectives while achieving the technical the project. requirements. Chapter 12 Step 2 - Work Scope Definition, Risk and The following is an overview of the process steps Baseline Revisions and Change C Opportunity Management in Figure 1-8. Once the project objectives have been defined, the Implementation of the Project Manage The Process Steps next function that must be fulfilled is to delineate, capture, and define the entire scope of the project. Figure 1-8 Eame Step 1 - Project Objectives This is the best opportunity to assure understand- ing among the various project participants. It also The first step in the process is definition of the s the best chance to avoid later nightmares with Step 3 - Responsibility Assignment project objectives. These objectives include a gen- numerous scope changes and possible litigation. Teams eral description of the technical requirements of The work breakdown structure (WBS) and work Once the scope is crisply defined, the ne the project, its budget, and the time frame for the breakdown structure dictionary are the tools used to document who is responsible for the work to be completed. A targeted start date and to segregate the work into manageable compo- component of work defined in the work a completion date are included in this description. nents and to define each component. structure will have one individual assign There may even be some guidance provided as A risk assessment of the technical goals is an im- be responsible for the scope, schedule to whether this is a technical, schedule and/or portant part of this process. Risks or threats that for that work. cost critical project. These can be critical pieces could negatively impact the project are identified It takes an entire project team workin of information: as an example, at one of the ma- and mitigation plans are developed. Any opportu to make the project a success, but or jor auto manufacturers a project to design a new nities that could positively impact the project are individual to cause it to fail. This exp bumper system was being initiated. The time for also identified and capture plans are developed. of the reason for the growing popula this product to reach the market was critical, with a After the organization is assigned in Step 3, ad- teams that help break down the traditic goal of eight and a half months. However, the con- ditional risks or opportunities may be identified between functional work areas (i.e tractor's project manager assumed that the project which can also include subcontract and the risk and opportunity management plans was more cost critical than schedule critical, This updated. courage a team spirit. resulted in the project plan being stretched to 18 months to lower the peak cost requirements.Chapter 1 Project Management Using Earned Value 31 Step 2 Steps 4 & 5 Work Step 8 Scope Definition Planning Schedule and Cost and Chapter 2 Scheduling Risk/Opportunity Assessment Chapter 6 Chapters 3, 6, 7, 11, 13, 14 Step Step 2 Step 3 Step 9 Step 3 Risk and Step 6 Project Integrated Objectives Opportunity Responsibility Work Management Assignment Estimating Baseline Plan Teams and Work Chapters 1- 2 Chapter 3 Chapter 4 Authorization Chapter 5 Chapter 7 Development Step 7 Chapters 11 & 16 Definition of Earned Value and Earned Value Techniques Chapters 8 - 10 Step 10 Establishing the Baseline Chapter 11 Step 10 Step 12 Step 13 Step 14 Measuring Performance Estimate at Variance Accomplishment Measurement Completion and Calculations Analysis and Chapter 10 Schedule Forecasting Corrective Action Chapter 13 Chapter 13 Chapter 14 Steps 10 & 11 Collecting Actual Cost Chapter 12 Baseline Revisions and Change Control Step 15 Chapter 15 Implementation of the Project Management Process Step 16 Chapter 17 Figure 1-8 Earned Value Project Management: The Process Step 3 - Responsibility Assignment, Work Work teams are composed of the functional ele- Teams ments necessary to develop or produce the end product. This work team structure has advantages Once the scope is crisply defined, the next step is in that fewer management accounts are needed, to document who is responsible for the work. Each there is improved communication and efficiency, component of work defined in the work breakdown and potential risks often are surfaced earlier. structure will have one individual assigned who will be responsible for the scope, schedule and budget Step 4 - Planning for that work. Once the work definition and organizational con- It takes an entire project team working together cerns have been addressed, the particulars of the to make the project a success, but only a single earned value management process must be devel- individual to cause it to fail. This explains some oped. These include the functions of scheduling, of the reason for the growing popularity of work estimating, budgeting, and performance measure- teams that help break down the traditional barriers ment. These elements must all be performed and between functional work areas (i.e. departments integrated for the baseline plan to be developed. which can also include subcontractors) and en- courage a team spirit