The Project Management Institute has several Blogs. Michael Hatfield writes about Earned Value - a topic near and dear to my heart and paycheck. I was excited to see the title of the Blog. When I read the content I was confused. Because the Estimate At Complete (EAC) formula did not contain the cumulative earned value (BCWP) or the cumulative planned cost (BCWS) or the Budget At Completion (BAC), the way the DoD does Earned Value.
Let's first start with the source materials. Anyone interested in or actually using Earned Value needs to have the DAU Gold Card in the hands at all times. Access to the DAU site gives a Certificate Error. Just proceed with the link and you'll get to the right page. All DoD sites do this for those outside the net. While you're at it, go to the Defense Acquisition University site and start reading the articles on Earned Value, Programmatic Risk, and subscribe to the Defense AT&L Magazine.
At a minimum in their notebook. We have a scaled down version of the Gold Card on our lanyards, where our picture security badge, the financial calendar, and other "feathers" hang.
The Gold Card is a summary of the Earned Value principles. Principles that seem to have been missed in the PMI Blog.
Michael speaks about a quick way to compute the Estimate at Complete (EAC). Something every project or program manager should know on a weekly basis. But first there is some needed background:
- Earned Value is a powerful tool in the hands of the right people. But good numbers must be in place. With these numbers, experienced program controls people as well. These good numbers come from the Performance Measurement Baseline (PMB). Establishing the PMB is a straight forward process. Here's a talk I gave at the PMI College of Scheduling with the same title. There is more to the PMB than described here, but the principles are simple.
- The three variables of EV are ACWP, BCWS, and BCWP. Only two are independent. BCWP is calculated. Forget the PMI notation of AC, PV, EV. The DoD world has the first notation baked into every form and every ERP system on the planet. Learn the notation.
- Finally, program and project managers are most interested in the Schedule Performance Index (SPI). Cost analyst are interested in the Cost Performance Index. So measuring the performance of a project through the Actual Cost for Work Performed (ACWP) is not allowed under the DCMA (Defense Contract Management Agency) guidelines. Cost Variance is reported, but the Control Account Manager (CAM) lives by the schedule performance.
Simple Formulas Are Just That Simple - Maybe Too Simple
In the PMI Blog post, there is a formula for EAC (Estimate at Complete)
ACWP(cum) is the cumulative ACWP (Actual Cost of Work Performed). This is the cumulative cost of the work to date. In other words "how much money have I spent so far?" The Percent Complete is a measure of the physical progress. BUT this measure is not against the money spent to date, but against the "planned" money that SHOULD have been spent to date. This value is the Budgeted Cost for Work Scheduled (BCWS). Measuring against ACWP provides little or no insight into the project performance, other that the expenditure of money. And as we all should know spending money has little to do with progress other than spending money.
The gory chart below shows that using ACWP can be a forecast of the future, ONLY if you have spent exactly what you have planned to spend. This is almost never the case unless the project is a Level of Effort activity.
Guidance for Applying Earned Value
- Determine what money should have been spent at a period of time (the period of performance). This is BCWS.
- Determine the physical percent complete at that period of time. This should - this MUST - be evidenced by some physical deliverable, that is 100% complete. No almost done, no "we'll be done on Monday," no rework, no bugs. It's either done or not done. Any other result is unfunded work past the due date. You're know late AND over budget.
- The "earned value" is calculated by the Planned Cost (BCWS) x The Physical Percent Complete. This the BCWP - The Earned Value.
With these values the Estimate at Complete can be calculated using:
CPI = BCWP / ACWP
The notion that:
only works if the spend rate is linear and therefore ACWP = BCWP. And that's the definition of Level of Effort.
Actually LOE is defined as
