FJ Application of Earned

Application of Earned Value Management (EVM) in
projects with open scope
The third annual earned value conference for Europe

Valencia Spain
Valencia,
November 23-24, 2011
Author:
Francisco Javier Rodrguez Blanco, PMP

PMO Manager
Nokia Siemens Networks
West & South-East Europe Services
Agenda
The earned value theory applied to projects scheduling control
Example of application of Earned Value Management in a project with open

scope:
Initial planning
p
g
Project evaluation
Project rebaselining based on actual data
C
Conclusions
l i
Francisco-Javier Rodrguez
The earned value theory applied to projects

scheduling control (I)
The earned value theory:

9
Introduces an objective measure about the status of projects.
Introduces measures for deviations in costs and schedule.
It permits a quick evaluation of the status of projects with regards to execution timelines,
costs and tasks.
It is a unique and simple system which integrates multiple evaluations into a unique reporting
system.
Schedule Performance Index:
e g
Being:
Cost Performance Index:
PV, Planned Value; or BCWS, Budgeted Cost Work Scheduled.
AC, Actual Costs; or ACWP, Actual Costs Work Performed.
EV Earned Value; or BCWP

EV,
BCWP, Budgeted Cost Work Performed
Performed.
The earned value theory applied to projects

scheduling control (II)
Considers the work that has been completed (for
instance in terms of number and type of
deliverables).
Schedule Performance Index:
This completed work is translated into monetary

value jjust multiplying
p y g the number of completed
p
deliverables times the approved budged for those
deliverables (calculated in the planning phase).
Considers the work that has been planned (for

instance in terms of number of type of deliverables).
Being:
9
EV, Earned Value; or BCWP, Budgeted

Cost Work Performed.
PV, Planned Value; or BCWS, Budgeted

Costs Work Scheduled.
As in the case of the EV, this planned work is

translated into monetary value just multiplying the
number of planned deliverables times the approved
budget for those deliverables (calculated in the
planning phase)
phase).
What happens if this planned work (or planned
deliverables), which defines the project scope, is
not defined when the project
j
starts?
Example of application of Earned Value

Management in a project with open scope
Network deployment project (network build) to provide cellular coverage to rural

areas in
i a certain
t i country.
t
Project scope:
9 Full turnkeyy deployment
p y
of a number of base stations to p
provide cellular coverage
g to
rural areas in a certain country.
9 Integration of those new base stations in the existing customer network.
9 For everyone of those base stations
stations, scope includes:
Terrain acquisition where to build the base station.
Design and planning of the new installation.
Civil works project.
Licenses and approvals.
Civil works.
works
Equipment installation.
Equipment integration in the existing network.
Final acceptance with customer.

Time:
9 Whole project: 1 year (2012).
9 Assume 3 months as average to build (from site acquisition to customer acceptance)
ONE SINGLE base station.
Cost:
9 Contract won with a sales value of 36,000,000 (customer project budget).
9 C
Customer
t
estimates
ti t that
th t thi
this b
budget
d t could
ld cover th
the iinstallation
t ll ti off around
d 600 new
base stations (with different configurations or types):
If customer project budget is spent with less than 600 base stations, project is
considered as finished.
If 600 new base stations are built and customer project budget has not been
totallyy spent,
p , then project
p j
will continue with the installation of new base stations
till complete spending of customer project budget ( 36,000,000).
9 Revenue recognition method: PoC, percentage of completion.

Based on previous project definition, it is clear that:

9 Customer project budget (our sales value) is known, 36,000,000.
9 Project execution duration is known, 1 year.
9 Project scope (in terms of number of base stations to built) is not known.
So, in order to plan the project (needed if we want to apply EVM) we could assume:
9 Contract won with a sales value of 36,000,000 (customer project budget).
9 Customer estimates that this budget could cover the installation of around 600 new
base stations.
9 Simply dividing previous values, they would give an average sales value of 60,000
per base station.
9 Based on our experience, and considering the mix of the different types or
configurations for the base stations,
stations we could use an average cost of a new base
station around 45,000.
9 This would give us an acceptable 25% gross margin.
9 Our
O totall project
j
cost would
ld then
h b
be around
d 27,000,000.
2 000 000

Management in a project with open scope Initial
planning
Lets consider the construction of 600 base stations

stations.
As we are going to apply PoC, Percentage of Completion, as revenue recognition

method, lets define some intermediate milestones where we will recognize our costs
(through subcontractor invoicing once those milestones are met).
Lets assume, based on our experience, the following cost distribution:

Cost distribution ((weights)
g )
Site acquisition
Engineering
Civil work, equipment installation & integration
8%
22%
70%
Jan12
Feb'12
Mar'12
Apr'12
May'12
Jun'12
Jul'12
Aug'12
Aug
12
Sep'12
Oct'12
Nov'12
Dec'12
TOTAL
30
60
30
30
90
90
30
90
90
60
0
0
600
Engineering
Civil w orks,
equip. Install. &
integr.
0
0
30
0
60
30
30
60
30
30
90
30
90
90
30
90
90
30
90
90
60
90
0
60
600
600
INITIAL PLANN
NING
Site acquisition
TOTAL
(Planned cost of the planned
d base stations))
(Planned n
number of new b
base stations)
INITIAL PLANN
NING
TOTAL
Jan12
Feb'12
Mar'12
Apr'12
May'12
Jun'12
Jul'12
Aug'12
Aug
12
Sep'12
Oct'12
Nov'12
Dec'12
TOTAL
Site acquisition
Engineering
Civil w orks,
equip. Install. &
integr.
TOTAL
108,000
216,000
108,000
108,000
324,000
324,000
108,000
324,000
324,000
216,000
0
0
2,160,000
0
297,000
594,000
297,000
297,000
891,000
891,000
297,000
891,000
891,000
594,000
0
5,940,000
0
0
945,000
1,890,000
945,000
945,000
2,835,000
2,835,000
945,000
2,835,000
2,835,000
1,890,000
18,900,000
108,000
513,000
1,647,000
2,295,000
1,566,000
2,160,000
3,834,000
3,456,000
2,160,000
3,942,000
3,429,000
1,890,000
27,000,000

planning
Initial Planning
100
700
90
Number of new b
base stations
500
70
60
400
50
300
40
30
200
Numb
ber of new base sta
ations (cumulative))
600
80
20
100
10
Site acquisition
Engineering
Civil works, equip. Install. & integr.
Site acquisition
Engineering
Civil works, equip. Install. & integr.

planning
InitialPlanning
30,000,000
BAC
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
Jan12
Feb'12
Mar'12
Apr'12
May'12
Jun'12
Jul'12
InitialPlanning
10
Aug'12
Sep'12
Oct'12
Nov'12
Dec'12

Project evaluation
P j t evaluation
Project
l ti
on 31
31stt J
July,
l 2012
2012:
9
Planned Value (PV) calculation
11
Site acquisition
Engineering
Civil w orks,
equip. Install.
equip
Install &
integr.
30
60
30
30
90
90
30
0
30
60
30
30
90
90
0
0
30
60
30
30
90
360
330
240
Jan12
Feb'12
Mar'12
p
Apr'12
May'12
Jun'12
Jul'12
Aug'12
Sep'12
O t'12
Oct'12
Nov'12
Dec'12
TOTAL
(Planned cost of the pla

anned base stati ons)
TOTAL
PLANNED VALUE
(Planned number of n
new base station
ns)
PLANNED
D VALUE
TOTAL
Jan12
Feb'12
Mar'12
Apr'12
Apr
12
May'12
Jun'12
Jul'12
Aug'12
Sep'12
O t'12
Oct'12
Nov'12
Dec'12
TOTAL
Site acquisition
Engineering
Civil w orks,
equip. Install.
equip
Install &
integr.
TOTAL
108,000
216,000
108,000
108 000
108,000
324,000
324,000
108,000
0
0
0
0
0
1,296,000
0
297,000
594,000
297 000
297,000
297,000
891,000
891,000
0
0
0
0
0
3,267,000
0
0
945,000
1 890 000
1,890,000
945,000
945,000
2,835,000
0
0
0
0
0
7,560,000
108,000
513,000
1,647,000
2 295 000
2,295,000
1,566,000
2,160,000
3,834,000
0
0
0
0
0
12,123,000

Project evaluation
P j t evaluation
Project
l ti
on 31
31stt J
July,
l 2012
2012:
12
Earned Value (EV) calculation
TOTAL
TOTAL
Site acquisition
Engineering
Civil w orks,
equip. Install.
equip
Install &
integr.
26
53
15
36
81
93
26
0
26
53
15
36
81
93
0
0
26
53
15
36
81
330
304
211
Jan12
Feb'12
Mar'12
Apr'12
Apr
12
May'12
Jun'12
Jul'12
Aug'12
Sep'12
O t'12
Oct'12
Nov'12
Dec'12
TOTAL
(Budg
geted value of the completed bas
se
stations)
EARNED V
VALUE
(Completted works in term

ms of completed
d base
stations)
EARNED V
VALUE
Jan12
Feb'12
Mar'12
Apr'12
Apr
12
May'12
Jun'12
Jul'12
Aug'12
Sep'12
O t'12
Oct'12
Nov'12
Dec'12
TOTAL
Site acquisition
Engineering
Civil w orks,
equip. Install.
equip
Install &
integr.
TOTAL
93,600
190,800
54,000
129 600
129,600
291,600
334,800
93,600
0
0
0
0
0
1,188,000
0
257,400
524,700
148 500
148,500
356,400
801,900
920,700
0
0
0
0
0
3,009,600
0
0
819,000
1 669 500
1,669,500
472,500
1,134,000
2,551,500
0
0
0
0
0
6,646,500
93,600
448,200
1,397,700
1 947 600
1,947,600
1,120,500
2,270,700
3,565,800
0
0
0
0
0
10,844,100

Project evaluation
P j t evaluation
Project
l ti
on 31
31stt J
July,
l 2012
2012:
13
Actual Cost (AC) calculation
TOTAL
TOTAL
Site acquisition
Engineering
Civil w orks,
equip. Install.
equip
Install &
integr.
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Jan12
Feb'12
Mar'12
Apr'12
Apr
12
May'12
Jun'12
Jul'12
Aug'12
Sep'12
O t'12
Oct'12
Nov'12
Dec'12
TOTAL
(Actual c
cost of the comp
pleted base statiions)
ACTUAL COST
(Completted works in term

ms of completed
d base
stations)
ACTUAL COST
Jan12
Feb'12
Mar'12
Apr'12
Apr
12
May'12
Jun'12
Jul'12
Aug'12
Sep'12
O t'12
Oct'12
Nov'12
Dec'12
TOTAL
Site acquisition
Engineering
Civil w orks,
equip. Install.
equip
Install &
integr.
TOTAL
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
85,468
433,445
1,184,209
1 974 302
1,974,302
870,898
2,101,607
3,241,904
9,891,833

Project evaluation
Project evaluation by 31st July, 2012
30,000,000
25 000 000
25,000,000
EARNED VALUE > ACTUAL COST => CPI > 1

From the completed work point of view, BUDGETED COST of the
WORK PERFORMED is greater than the ACTUAL COST of the
p
g less than
WORK PERFORMED. This means that we are spending
expected f or the same amount of completed work.
EARNED VALUE < PLANNED VALUE => SPI < 1
20,000,000
15,000,000
From the completed work point of view, BUDGETED COST of the

WORK PERFORMED is less than the BUDGETED COST of the
WORK SCHEDULED. This means that we are running with some
delay in terms of completed base stations as per the initial plan.
GLOBAL ANALYSIS OF THE PROJECT STATUS
point of view,, theyy are even less than
From the cost p
the approved cost baseline.
10,000,000
However, if we are not able to recover the delay in

terms of completed base stations with regard to the
plan, then the project will f inish later than the planned
date. This means that f ix costs (direct and indirect
costs) could have a meaningf ul impact in the f inal
project cost.
5,000,000
Initial Planning
14
PLANNED VALUE
EARNED VALUE
ACTUAL COST

Project evaluation
Project evaluation by 31st July, 2012 - CPI & SPI
2.5
15
1.5
0.5
Red-Low
15
Green-High
Green-Low
Red-High
CPI
SPI

Project rebaselining based on actual data (I)
Whatt if,
Wh
if once completed
l t d a project
j t evaluation,
l ti
we realice
li that
th t the
th final
fi l number
b off
completed sites is going to be, lets say 500 (instead of the 600 initially planned) ?
This could be due, for instance, because as we go on with the deployment, we

realice sites are being more expensive than initially planned. So, customer will
spend its budget with less sites than the 600 initially planned.
In order to keep
p on using
g EVM indicators,, we could rebaseline the p
project
j
with an
updated average planned cost per site and with the new number of planned
sites.
If doing that,
that we would guarantee that SPI,
SPI upon project completion,
completion will continue
tending to 1.
Upon project
completion
l ti
16

Project rebaselining based on actual data (II)
Butt we could
B
ld also
l decide
d id to
t keep
k
(for
(f reporting
ti purposes)) the
th initial
i iti l number
b off
planned sites with the initial average planned cost per site.
If doing that, we should use the new average planned cost per site from the
rebaseline date onwards and only in the upper part of the SPI equation.
By doing it in this way, we would still guarantee that SPI, upon project
completion,
p
, will continue tending
g to 1.
Upon project
completion
17
Conclusions
18
Introduces an objective
objective measure about the status of projects.
projects
Introduces measures for deviations in costs and schedule.
It permits a quick evaluation of the status of projects with regards to execution

timelines, costs and tasks.
It is a unique and simple system which integrates multiple evaluations into a unique
reporting
p
g system.
y
If the Project Manager is going to use the data provided by the Finance Department
about project costs, he / she must take into account that those costs are recognized
costs (according to the agreed revenue recognition method)
method).
So, during the planning of project costs (planning phase), the Project Manager should
know (and take into account) the method that will be used to recognize those project
costs
t during
d i th
the executing
ti phase.
h
Calculation of EVM indexes (mainly CPI and SPI) will depend on the way to measure
and track the degree of project progress.
If scope is not totally defined at the beginning of the project, and we want to use EVM
in the monitoring and control phase, some assumptions should be made about the
scope,
p for instance, making
g use of average
g values for the number and type
yp of
deliverables.
Application of Earned Value Management (EVM) in

projects with open scope
The third annual earned value conference for Europe

Valencia Spain
Valencia,
November 23-24, 2011
Author:
Francisco Javier Rodrguez Blanco, PMP

PMO Manager
West & South-East Europe Services

FJ Application of Earned

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

FJ Application of Earned

Transféré par

Droits d'auteur :

Formats disponibles

Application of Earned Value Management (EVM) in

projects with open scope

The third annual earned value conference for Europe

Francisco Javier Rodrguez Blanco, PMP

The earned value theory applied to projects scheduling control

Example of application of Earned Value Management in a project with open

Project rebaselining based on actual data

Nokia Siemens Networks

The earned value theory applied to projects

The earned value theory:

Introduces an objective measure about the status of projects.

Introduces measures for deviations in costs and schedule.

Schedule Performance Index:

Cost Performance Index:

PV, Planned Value; or BCWS, Budgeted Cost Work Scheduled.

AC, Actual Costs; or ACWP, Actual Costs Work Performed.

EV Earned Value; or BCWP

Nokia Siemens Networks

The earned value theory applied to projects

Schedule Performance Index:

This completed work is translated into monetary

Considers the work that has been planned (for

EV, Earned Value; or BCWP, Budgeted

PV, Planned Value; or BCWS, Budgeted

Nokia Siemens Networks

As in the case of the EV, this planned work is

Example of application of Earned Value

Network deployment project (network build) to provide cellular coverage to rural

Terrain acquisition where to build the base station.

Design and planning of the new installation.

Civil works project.

Licenses and approvals.

Equipment integration in the existing network.

Final acceptance with customer.

Nokia Siemens Networks

Example of application of Earned Value

9 Revenue recognition method: PoC, percentage of completion.

Nokia Siemens Networks

Example of application of Earned Value

Based on previous project definition, it is clear that:

Nokia Siemens Networks

Example of application of Earned Value

Lets consider the construction of 600 base stations

As we are going to apply PoC, Percentage of Completion, as revenue recognition

Lets assume, based on our experience, the following cost distribution:

Example of application of Earned Value

Nokia Siemens Networks

Civil works, equip. Install. & integr.

Civil works, equip. Install. & integr.

Example of application of Earned Value

Nokia Siemens Networks

Example of application of Earned Value

Planned Value (PV) calculation

Nokia Siemens Networks

(Planned cost of the pla

Example of application of Earned Value

Earned Value (EV) calculation

Nokia Siemens Networks

(Completted works in term

Example of application of Earned Value

Actual Cost (AC) calculation

Nokia Siemens Networks

(Completted works in term