Basic EVM Part 1

hi i'm matt ambrose of the defense acquisition University in the next few minutes I'm going to do my best to go through a simple example of earned value management and demystify some of the alphabet soup of acronyms that we have in our in value management and also just the basic calculations basic terms and basic ideas of earned value management so that you can then progress on look at some more complicated examples perhaps or and take some more training on EVM but it really helps to kind of start at a lower level and just understand what the terms are and how they're used the simple example we're going to use today is Bubba Incorporated Bubba Incorporated has been contracted to dig a hundred metres worth of ditch at a cost of a hundred dollars in ten days in that statement you find three things above and needs to come up with a plan that we're going to compare his actual results to to see how he's doing on cost and schedule so three things are the budget which is also known as the budget at completion in our case a hundred dollars or in Bubba's case now also we need to know the work what's the work that has to be done on the contract in our case a hundred meters worth of ditch needs to be dug on this contract and then the last thing is what's the schedule the schedule ten days Bubba's got ten days to get this work done so Bubba's gonna come up with a plan we always have the contractor come up with a plan and then we compare how they're doing against that plan and since Bubba is a simple guy Bubba's decided to dig ten meters of ditch each day to get to a hundred meters by the end of his schedule at day ten okay so given that plan then we can take a look and see how Bubba is doing at any point in time and we take snapshots in the case of a normal program that would be every thirty days or so that we would take a snapshot we would get a monthly report called an integrated program management report from the contractor and tell how they're doing and then we would do some calculations and see hey are you on budget are you over budget under budget or you ahead of schedule behind schedule so let's take a look at day three for this example of Bubba's 100 meters of ditch that he has to dig okay on day three we already know what the plan is and the term an EVM earned value management that goes along with the plan is budgeted cost of work scheduled what that means is how many dollars worth of work that Bubba have scheduled to be done at the end of day three okay that's the number we're looking for here and we already know this right he doesn't have to report this because this plan has already been approved so the plan is for how many dollars worth of ditch to be dug at the end of day three right 30 okay so that's our budgeted cost of work scheduled or the plan at the end of day three the next thing we need to know is what's reported to us by the contractor which is how much work has actually been performed or the budgeted cost of work performed also known as the BC WP and what I like to call the earned value the earned value is absolutely key because every calculation that we're going to do pretty much is going to have earned value or budgeted cost of work performed in and think about it if you don't know how much work the contractor is actually done how do you know how they're doing so you got to have something to compare against and that's what we're always going to kind of compare against is the earned value at this point okay in this case Bubba has told us I've got 40 meters of ditch duck okay right there forty meters a ditch so in terms of earned value how much work in terms of dollars worth of dirt work remember that Bubba said every meter is worth a dollar here in my hundred meters of ditch with a budget of $100 at the end of it so if he's dug 40 meters how many dollars worth of work are done at the end of day three that's 40 right simple example okay so we're gonna be using that term quite a bit because again it's kind of the key term the earned value at this point on the program now next up we need to know what were the actual costs so this one actually is pretty easy to understand it's called the AC WP or actual cost of work performed how much money has Bubba paid to get that work done to this point so that's the cost and again that is something that you're going to get on your integrated program management report or IPM are from the contractor so I asked Bubba how much did this cost you to get 40 meters worth of ditch dug and he said we're doing pretty good only spent $8 a day $24 to this point okay so now we have the three pieces of information that we really need to tell how the contractor is doing at any point in time and that is again what's the plan at this point what's their earned value in terms of work that's actually been done in terms of dollars or the work and then what did it cost the contractor to get those things done if we know those three things then we can do some calculations and figure out how are they doing in terms of cost and schedule now in our simple example here you could probably figure out that bubbles are looking pretty good right now but let's do the calculations and find out and these are on your gold card first thing we're going to look at is a schedule variance and all of these equations you're going to see are going to start with the Earned value right that thing that told you is very important so the Earned value is going to be what you're gonna start with and then in this case we're gonna subtract the plan how much work was planned to be done by this point we're gonna subtract from what's actually been done to this point so if we throw those numbers in we get 40 minus 30 and that's going to equal $10 so right now our schedule variance is a positive number that's important okay and it's a positive $10 everything is in dollars in EVM so we're ten dollars worth of work because this is a good thing ahead of schedule and whether you know what's good or bad is by whether this number is positive or negative if it's a negative number it's a bad thing if this were a negative 10 we'd be ten dollars worth of work behind schedule at this point but what we know now is that Bubba is ten dollars worth of work ahead of schedule if we go back to the example that kind of makes sense at the end of day three we've got forty meters worth a ditch dug that's 10 more meters worth of ditch or $10 worth of ditch more than we would have expected at this point so that's a good thing that tells us again Bubba is ahead of schedule to the tune of $10 worth of work at the end of day three let's look at cost now okay cost variance again we start with the earned value budgeted cost of work performed budgeted cost of work performed and then we're gonna subtract instead of the plan we're gonna subtract now to get the cost variance we're gonna subtract the actual cost of work performed or a CWP so if we run those numbers real quick we got 40 minus 24 and that is going to come out to again a positive number in this case $16 okay so what does that mean if we have a cost variance of $16 what do we have we have a situation where we got a positive number which is good and here you got to think a little bit in terms of budget is good under budget or over budget well good and everybody's world pretty much is under budget so this is telling us that Bubba is $16 under budget at the end of day three how do we know that because he's gotten $40 worth of work done only paid $24 to get $40 worth of work done so in terms of budget again on the cost variance positive numbers aren't good and we have good numbers here in both cases what does that tell us just in general tells us Bubba's ahead of schedule and under budget and this gives us the raw dollars now that we have the variances we can now look at efficiency this is a little bit different than looking at just the raw dollars that we had there and these are two different calculations you're gonna see they use the same terms but different calculations so for scheduled efficiency what you calculate is the schedule Performance Index or SPI and you're gonna see something very interesting here notice that you have exactly the same terms that you used for the schedule variance in this case though we're gonna divide instead of subtracting so if we put the numbers in there we divide 40 by 30 and you run that through a calculator you'll find that that comes out to 1.3 3 we'll stick the two decimals for our example now in terms of the indices like schedule performance index and cost performance index we look at our U at 1 over 1 or under 1 to see if it's a good or bad thing and because the math has to stay consistent here if we had a good schedule variance then your SPI has to be good also otherwise you didn't do the math right in this case we see that is true because our SPI is 1.33 now this is a measure of efficiency if Bubba was right on plan he would be at 1.0 in this case he's at 1 point 3 3 another way to look at that is that Bubba is about 33% more efficient on schedule than we would have expected where he's 133 percent efficient on schedule let's take a look at cost now we know that Bubba was good on cost in terms of being under budget from the cost variance so would you expect this number to be over 1 or under 1 think about that while we run the numbers so 40 by 2 divided by 24 we're going to get 1.67 so is that a good thing or a bad thing in terms of the cost performance index that's a good thing right because it's over one much better than you would ever expect to see on a real program what this tells us is that Bubba is very efficient on cost and we would expect that because Bubba is way under budget at this point as well so the numbers again mathematically should be consistent if you're doing the math right another way to look at this is that I would say Bubba's giving us a dollar and sixty seven cents worth of work for every dollar that's spent on the program to this point so cost now is also very efficient along with schedule in this simple example here at the end of day three so that's just a simple way to look at EVM and you can dig much deeper in devian there's lots of concepts that you could look at and things like management reserve and and how that plays on things we're not going to get into that in this video or even the second part of the video but if you want to get deeper into EVM there are several continuous learning modules and several courses that da Yu has that you can take as well so check out the information at the end of the video here if you want to take in some more information on EVM and go further in your education come see me in acquisition 201 be some time because we also get into earn value management in that particular course if you want to check out how bub is doing on day seven just check out part two of the video and we'll go a little deeper into this thanks for watching you

Channel: Defense Acquisition

Views: 64,404

Rating: 4.9260969 out of 5

Keywords: Defense Acquisition University (Organization), Earned Value Management, Business, Training, United States Department Of Defense (Governmental Body)

Id: W1aW7HAgRSs

Length: 14min 29sec (869 seconds)

Published: Mon Aug 05 2013