A Guide to Planning and Managing Through Use of Earned Value Techniques
TABLE of CONTENTS
Purpose and Scope
Task Plan, Work
Packages, Planning Packages
Work Authorization
Planning and
Scheduling
Budgeting
Earned Value
(Performance Measurement)
Variance Analysis
Reporting
Purpose and Scope
This guide is designed to
help the Program/Project office, and the key members of the Project team
correctly plan, schedule, and budget a project utilizing Earned Value.
Individual elements are addressed from work authorization through reporting.
Descriptions of Task Plans (TAs), Work Packages (WPs), and Planning Packages
(PPs) have been included separately due to their significance to the Task
Manager (TM).
Author note:
The terms: "Earned
Value", Management by Objectives", and "Performance
Management" are interchangeable.
The terms: "Cost Account Manager"(CAM), "Cost Account
Leader"(
The terms: "Cost Account Plan"(CAP), ", and & 22222l1119w quot;Task
Plan" (TP) are interchangeable.
The terms: "Budgeted Cost of Work Scheduled" (BCWS) and
"Scheduled Work" (SW) are interchangeable.
The terms: "Budgeted Cost of Work Preformed" (BCWP) and
"Performed" (P) are interchangeable.
The terms: "Actual Cost of Work Preformed" (ACWP) and
"Actuals" (A) are interchangeable.
The terms: "Project" as in Project Master Schedule and " Program" as in Program Master Schedule are
interchangeable.
Task Plan, Work Package, Planning
Package
TASK PLAN (TP)
The Task Plan (TP) is the
focus for planning, monitoring, and controlling because it represents work
within a single Work Breakdown Structure (WBS) element, and it is the
responsibility of a single organizational unit.
Virtually all aspects of project performance measurement come together at the
Task Plan (TP) level, including formal work scope, budgets, schedules, work assignments,
cost collection, progress assessment, problem identification, and corrective
actions.
Day-by-day management is accomplished at the Task Plan (TP) level. Most
management actions taken at higher levels are on an exception basis in reaction
to significant problems identified within the Task Plans.
The level selected for establishment of a Task Plans must be carefully
considered to ensure that work will be properly defined in manageable units
with responsibilities clearly delineated.
WORK PACKAGE (WP)
A Work Package (WP) is a detailed job that is established by the Task Manager (TM) for accomplishing work within a Task Plan. A Work Package has these characteristics:
PLANNING PACKAGE (PP)
If a Task Plan cannot be
subdivided into detailed Work Packages, far-term effort is identified in larger
Planning Packages (PPs) for budgeting and scheduling purposes. The budget for a
Planning Package is identified specifically according to the work for which it
is intended, is time-phased, and has controls which prevent its use in
performance of other work. Eventually, all work in Planning Packages will be
planned to the appropriate level of detail for Work Packages prior to the
beginning of performing the work scope. The use of the Planning Package concept
requires the Task Manager to exercise additional care, visualizing the
evolution of the Planning Packages into Work Packages in a timely manner in the
future.
The sum of the work package budgets and the planning package budgets equal the
Task Plan budget value. The scheduled start and completion dates of all work
packages and all Planning Packages must fall within the scheduled start and end
dates set for the Task Plan.
Work Authorization
All work within a program,
regardless of origin, is described in terms of work scope, budget and schedule
and authorized through the work authorization system, which is an integral part
of the performance measurement system. The performance measurement system
relates not only to work authorization, but also planning, scheduling,
budgeting, and other elements of program planning and control which reflect the
flow of work through the functional organizations.
Although the Task Manager is most concerned with the work authorization system
at the Task Plan (TP) levels, the total system is presented to provide the Task
Manager with a sense of their role in the total system.
WORK AUTHORIZATION (WA)
I. Customer Authorization.
a. Basic Contract.
b. Contract Change Notices.
II. Internal Authorization
a. Upon receipt of a contract or contract change notice, the Contracts Department provides authorization to the Program Management Office (PMO) to start work.
b. The Program Manager (PM) prepares the Contract Work Breakdown Structure (CWBS) based on the Work Breakdown Structure (WBS) provided by the customer.
c. The Task Manager establishes the Task Plan, which includes work packages and, as necessary, planning packages.
III. Change Control.
a. Customer contractual baseline change or internal replanning will:
1. Alter work by addition or deletion, causing Task Plan budget adjustments.
2. Cause adjustment of work, schedule and budget between Task Plans.
b. The Project Manager approves add/delete transactions to Management Reserve
(MR).
c. Parties to the original budget agreement must approve revisions.
d. The Task Plan budget cannot be changed by such actions as:
1. Actual or projected cost overruns or cost underruns.
2. Changes that affect program schedules or milestones, because of work performance.
3. Retroactive adjustments.
Planning and Scheduling
This description of planning
and scheduling from the program level on down gives the Task Manager an overall
view of his function.
I. Planning and scheduling must be performed in a formal, complete, and
consistent way. The Project Master Schedule and related program subordinate
schedules through the Task Plant/Work Package levels provide a logical sequence
from summary to detailed work activities. The Project Master Schedule may use
network scheduling techniques which are derived from the Task Plan data base.
II. Schedule logic including milestone identification and traceability must be
established for all interfaces within the framework of the Contract Work Breakdown
Structure CWBS.
III. The Responsibility Assignment Matrix (RAM) is the result of the fully
extended program plan. The RAM is created by properly locating the intersection
of the responsible functional organization, assigned to accomplish the work scope,
and the Contract Work Breakdown Structure CWBS, where the work scope is
contained. This extended intersection point then becomes the identification of
each Task.
IV. When work plans are detailed, the lower level tasks are interfaced and
scheduled. These tasks are identified as either:
a. Discrete Effort (DE): Effort that can be scheduled in relation to clearly definable start and completion dates, and which contain objective milestones against which performance can be measured.
b. Apportioned Effort (AE): Effort that by itself is not readily divisible into short-span work packages but which is related in direct proportion to measured effort.
c. Level of Effort (LOE): Support effort that is not easily measured in terms of discrete accomplishment. LOE is characterized by a sustained rate of activity over a specific period of time.
Where possible, categorize
tasks in terms of discrete effort. The use of level of effort as a performance
type is to be limited to those tasks that cannot be discretely measured.
V. Schedules - General Characteristics.
a. Schedules shall be coordinated (with other performing organizations) by the Task Managers in conjunction with the program/project office.
b. Commitment to lower level schedules provides the basis for the schedule baselines.
c. All Work Package schedules are directly identifiable to a Task Plan.
d. After a baseline has been established, schedule dates must remain under strict revision control, changing only within the constraints of higher tier schedule, and with the appropriate manager's approval.
VI. Program/Project Schedules
a. Two categories of schedules are used: Program/Project Level and Detailed Schedules.
1. Program/Project Level Schedules are either Program Master Schedules or Work Breakdown Structure (WBS) Intermediate Schedules.
2. Detailed Schedules are either Task Plan Schedules or Work Package Schedules.
a) Task Plan Schedules
1) Have milestones applicable to responsible organizations.
2) Are developed by the organizations to extend interfaces to lower task items.
3) Are at the level at which status is normally reported monthly to the program office for updating of higher level schedules.
4) Will correlate with the Task Manager, Work Breakdown Structure, Scope of Work, and with reports to customer.
5) Document the scheduled baseline for the program.
b) Work Package Schedules:
1) Provide milestones and activities required to identify specific measurable tasks.
2) Supply the framework for establishing and time-phasing detailed budgets, various status reports, and summaries of cost and schedule performance.
3) Are the level at which work package status is normally discussed; and provide input for performance measurement.
4) Are the responsibility of a single organization.
5) Provide a schedule baseline against which each measurable Work Package must be identified.
6) Require formal authorization for changes after work has started, or the work package is within the frozen baseline period.
VII. Schedule Change Control.
The Task Managers can commit their organization to a revised schedule only after formal approval by the program/project office.
VIII. Work Package Status.
a. Objective indicators are used to identify measurable intermediate events.
b. Milestone schedule status and earned value calculations are normally performed monthly.
Budgeting
In accordance with the
Statement of Work (SOW) negotiated with the customer, the Functional Manager
allocates work scope and budgets to the Task Manager (TM).
The following top-down outline gives the Task Manager (TM) an overview of the
budgeting systems.
CONTRACT BUDGET BASE (CBB)
The CBB consists of Contract Target Cost (negotiated) plus the estimated value of Authorized Unpriced Work (unnegotiated).
PERFORMANCE MEASUREMENT BASELINE (PMB)
The PMB is the time-phased budget plan against which contract performance is measured. It is formed by the budgets assigned to scheduled cost accounts; in some cases it may also include budgets assigned to higher level CWBS elements and undistributed budgets. It equals the total allocated budget less management reserve.
BUDGETING
I. Program Budgeting
a. Budget Allocation
1. The Project Manager Office (PMO) develops the Project Directive (PD) and issues task planning information to the Functional Managers.
2. The Functional Managers will distribute budgets and assign work to the Task Managers.
3. When all project effort is time-phased, the PMO will review and approve task plans and will indicate their approval by signing a copy of each task plan.
4. All program planning is at the work package level. The time-phased work package budgets are the basis for calculating the planned value each month.
b. Budget Adjustments.
1. The Performance Measurement Baseline (PMB) can be changed with the PMO's approval when either of the following occurs:
a) Changes in SOW (additions or deletions) cause adjustments to budgets.
b) Formal reprograming results in a revised total allocation of budget.
2. PMB budgets may be internally replanned for changes in schedule (acceleration or slips) with PMO notification.
3. Management Reserve (MR): MRs are budgets set aside to cover unforeseen requirements. The PM will authorize add/delete transactions to these budgets.
4. Detailed Planning: The PP is a portion of the Task Plan budget that is identified to the Task Manager but is not yet defined into detailed WPs.
COST ACCUMULATION
Cost Accumulation provides the Task Manager (TM) with a working knowledge of the accounting required in performance measurement.
COST ACCUMULATION ACCOUNTING
(ACTUAL COSTS)
The accounting system uses a series of alphanumeric codes to identify various levels of cost detail. Since all Accounting Systems are unique, consult your accounting department for a breakdown of the codes.
II. Direct Costs:
All direct costs are collected by element of cost and, as a minimum, are collected at the Cost Account level of the Performance Measurement System.
a. Labor Elements of Costs:
Timekeeping/cost collection for labor costs uses a labor distribution/accumulation system. The system produces a series of labor distribution reports containing weekly expenditure data based on labor charges against the established contract task codes. Each direct labor classification utilized for the project is displayed on the labor distribution report.
b. Non-labor Elements of Costs:
1. Material Cost: Material Cost Collection Accounting shows weekly expenditure data base on purchase order/ subcontract expenditure against work packages.
2. Open Commitments: The Open Commitment Report records the week-end unpaid value of purchase orders and subcontracts issued against work packages.
3. Other Direct Costs (ODC): ODC is expenditures for data processing, travel & living expense, and special external support expertise against work packages.
III. Indirect Costs.
a. Indirect costs are accumulated in allocation pools for distribution to each contract.
b. Allocated indirect costs are recorded at the WBS and OBS reporting level and summarized to appropriate levels of the WBS and OBS for internal and customer reporting.
Earned Value (Performance
Measurement)
Performance Measurement for the Task Manager consists of evaluation WP status, with earned value calculated at the WP level. Comparison of planned value versus earned value is made to obtain Schedule Variance (SV), and comparison of earned value to actual cost is made to obtain Cost Variance (CV). Earned Value provides a basis for management decisions by both the contractor and the customer.
EARNED VALUE
I. Earned Value provides:
a. Work progress status.
b. Relationship of planned cost and schedule to actual accomplishment.
c. Valid, timely, auditable data.
d. Base for Estimate at Completion (EAC).
e. Summaries developed at the lowest practical WBS and organizational level.
II. Cost and Schedule Earned Value.
a. Elements required to measure project progress and status are:
1. Work Package (WP) schedule status.
2. Budget at Completion ( BAC)
3. Scheduled Work (SW) is the same as: Budgeted Cost for Work Scheduled (BCWS)
4. Budgeted Cost for Work Performed (BCWP), and is the same as: Performed (P).
5. Actual (A) or recorded cost is the same as: Actual Cost for Work Performed (ACWP)
6. Estimate at Completion ( EAC)
b. The sum of Work Packages (WPs) and Planning Packages (PPs) planned values must equal the Task Plan (TP) budget value.
c. Development of budgets provides these capabilities:
1. Capability to plan and control cost.
2. Capability to identify incurred costs for actual accomplishments.
III. Task Plan/Work Package Earned Value Measurement Levels.
a. Measurable work and related event status form the basis for determining progress for earned value calculations.
b. Earned value measurements at summary CWBS and organizational levels results from accumulating earned value upward through the CWBS and organization from the Task Plan (TP) level.
1) Within each Task Plan (TP) , the inclusion of LOE is kept to a minimum to prevent distortion of the total earned value.
2) Calculation methods used for measuring WP performance are:
a) Short work packages (2 months or less) may use the measured effort or formula method (50-50%, or other increments of 10%) or a percent complete method where a status can be applied each month.
b) Longer work packages (exceeding 2 months in duration) should have milestones assigned. The milestones are then statused monthly for the life of the work package. There are multiple milestone techniques available to the planner for planning and taking performance measurement. Some of the names given to milestone techniques are:
(1) Value Milestones Technique
(2) Percent Complete Milestone Technique
(3) Weighted Milestone Technique
(4) Engineering Standards Milestone Technique
c) Long-term sustained efforts can be established using the Level of Effort (LOE) method. Performance is earned in direct proportion to the time-phased plan.
d) In manufacturing, a special performance type, Standard Percent Complete (SPC) is assigned. Performance is based on the manufacturing work measurement system output. Manufacturing may also use Apportioned Effort (AE) for inspection efforts that relate directly to assembly labor.
3) The measurement method to be used will depend on an analysis of work to be performed in the WP. Whatever method is selected for planning (planned value) must also be used for determining progress (earned value).
4) Estimate to Complete (ETC) Preparation.
To develop an ETC, the Task Manager (TM) must consider and analyze:
a. Cumulative actual/commitments.
b. Schedule status.
c. Earned value to date.
d. Remaining Task Plan (TP) budget.
e. Previous ETC.
f. Historical data.
g. Necessary labor by type.
h. Projected cost improvements.
i. Future actions.
j. Approved changes.
5) The Task Manager prepares an ETC and EAC each month, and a comprehensive EAC when scheduled by the PMO.
6) The performance measurement system summarizes the EAC to all necessary reporting levels for customer reporting and corporate management review.
VARIANCE ANALYSIS
If Performance Measurement (Earned Value) gives schedule or cost variances in
excess of pre-established thresholds, analyses must be made to determine their
cause. The Task Manager is mainly concerned with variances that exceed
thresholds established for the program. Analyses of these variances provide
opportunities to identify and resolve problems.
I. Preparation.
a. The automatically generated variance analysis reports provide current period, cumulative and at - completion statistical data. Task Plans which have schedule variances or cost variances which exceed the established thresholds are reported to the Task Manager (TM).
b. The report will indicate, at the Task Plan level, whether a variance is cost related, schedule oriented, or both.
c. Statistical variance analysis reports are provided to the Task Manager for any cost account whose variances exceed the established parameters.
d. The Task Manager must determine and document the cause of the variance by element of cost; labor, material, or ODC.
e. The Task Manager completes the Variance Analysis Report (VAR) by providing a description of the cause of the variance, its impact on the cost account and other elements of the program, and corrective action to be taken.
II. Presentation.
a. Variance analysis will be made when one or more of the following exceed the reporting thresholds established by the PMO.
1. Schedule variance (earned value to planned value).
2. Cost variance (earned value to actual).
3. At-completion variance (BAC to EAC).
III. Operation.
a. Internal analysis reports will document variances that exceed thresholds. They are called Variance Analysis Reports.
b. Explanations are submitted to customer when contractual thresholds are exceeded.
c. Emphasis will be placed upon corrective action for resolution of variant conditions.
d. Corrective action will be assigned to specific individuals (TM) and tracked for effectiveness and completion.
e. Internal program variance analysis and corrective action will be formally reviewed in monthly management meetings.
f. Informal reviews of cost and schedule variance analysis data may occur daily, weekly, or monthly depending on the nature and severity of the variance.
REPORTING
There are two basic report categories: Customer (external) and Project
(internal). Customer performance reports are contractually established with
fixed content and timing. Internal reports support programs with data that
relates to lower organizational and WBS levels. The Task Manager (TM) is mainly
concerned with these lower level reports.
REPORTING
I. Customer Reporting.
a. Customer requires summary level reporting on a monthly basis.
b. Customer examines the detailed data for areas that may indicate a significant variance.
c. The Cost Performance Report (CPR) is the vehicle used to accumulate and report cost and schedule performance data.
II. Program Reporting.
a. Internal management practices emphasize assignment of responsibility for internal reports to an individual Task Manager (TM).
b. Reporting formats reflect to-date and current performance, and the forecast level of future performance.
c. Performance review meetings are held:
1. Monthly for cost and schedule.
2. As needed for review of problem areas.
d. The TM emphasizes cumulative to-date and to-go cost, schedule, and equivalent manpower for the Task Plan work packages.
1. It is primarily at the work package level that review of performance earned value, actual, and budget planned value is coupled with objective judgment to determine the ETC.
2. The TM is responsible for the accuracy and completeness of the estimates.
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Noel N. Harroff
<[email protected]>
Created:
Updated:
NNH Enterprise
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