Earned Value Management and Microsoft Project 2010

[Music] [Music] azita you [Music] yeah earned value management or EVM is a handy project management technique for monitoring the cost and schedule performance of your projects it is used within PMI project management body of knowledge but is not exclusive to it EVM works by comparing your actual and budgeted resource expenditures to show variants from your original project plan in terms of cost and schedule using project management software such as Microsoft Project 2010 makes it easier to work with EVM however you can of course use the technique without software since EVM is based entirely on simple mathematics in fact all you really need for EVM is a budgeted project and a little bit of patience but surely it's obvious when a project within budget and on schedule will consider this we're a third of the way through a project and we've spent eighty percent of our budget which according to our plan we shouldn't have done until two-thirds of the way through the project so now we only have 20% of our project budget left for the last six months do we have a problem well we don't know until we look at the numbers in more detail with what we know at this stage two scenarios could explain how we've managed to spend 80 percent of our budget so early on in the project scenario one we've gone over budget we may for example have spent more money on achieving the scheduled work for this part of the project scenario two were ahead of schedule we've delivered eighty percent of what was budgeted for in the project plan however it could be that it simply took us less time to do so by doing an EVM analysis we can establish which of these two scenarios is valid EVM can show you whether your project is on budget using cost variance and on schedule using schedule variance cost variance is the difference between what you plan to spend for a given work breakdown structure item and what you actually spend based on having lost or saved money scheduled variance is the difference between what you plan to spend and what you actually spend on a specific work breakdown structure item based on being ahead of or behind schedule EVM can also give you an estimate of how much the total work on a given work breakdown structure item is likely to cost note that estimate at completion is calculated based on the assumption that current spending patterns will be maintained for the remainder of the project note that Microsoft Project calculates these values for you and later in this video I will show you where you can find them however as we saw earlier you don't need special software to for man earned value management analysis in fact calculating schedule and cost variance an estimated completion is really very easy to calculate scheduling cost variance you need three pieces of information planned value PV is the total approved budget for a specific work breakdown structure item it is also commonly referred to as budgeted cost of work scheduled actual cost AC is the amount of money it actually takes to complete a specific work breakdown structure item the term actual cost of work performed is also used and means exactly the same thing earned value evie is the approved budget for the actual work completed on a given work breakdown structure item during a specific period you will also hear it referred to as budgeted cost of work performed note that just as with planned value the cost for earned value is drawn from the approved project budget but is set against actual work performed where as planned value assumes that all scheduled work will be carried out cost variance is calculated by subtracting the actual cost ie what you actually spent from the earned value ie what you are budgeted to spend for the amount of work you completed a positive cost variance means you are under budget which is of course a good thing a negative cost variance on the other hand indicates that you are over budget in the broader context of your project this may not prove to be such a big issue however it is useful to be aware of it so you can take any necessary corrective action you can also calculate a cost variance percentage which puts the figure for cost variance into context and is a handy indicator particularly for stakeholders who aren't intimately familiar with the project budget to calculate a cost variance percentage divide the cost variance by the earned value and then multiply the result by 100 again positive values are good and negative values are bad there is also a cost performance index which gives essentially the same information as your cost variance percentage simply in a different format to calculate the cost performance index divide the Earned value by the actual cost note that you don't need a cost variance percentage or a cost performance index but they are handy indicators you can use as and when needed scheduled variance is calculated by subtracting the planned value ie the budget for the scheduled amount of work to be performed from the earned value ie the budget for the amount of work you actually performed a positive scheduled variance means you're ahead of schedule which is typically a favorable scenario a negative schedule variance however shows that you're behind schedule once again in the broader context of your project this may not prove to be a problem but it is better that you know you are behind schedule to avoid any nasty surprises you can also calculate a schedule variance percentage and a scheduled performance index as with cost variance you don't need either of these indicators but they can be handy in terms of putting your schedule variance into context to calculate a schedule variance percentage divide the schedule variance by the planned value and multiply the result by 100 as always with EVM positive values are good and negative values indicate something is wrong to calculate the schedule Performance Index divide the earned value by the planned value to calculate the estimated total cost for a given work breakdown structure item or estimate at completion simply divide the actual cost by the earned value then multiply the result by the total budget for the project remember that estimated completion is by definition a simplistic gauge and it assumes that current spending patterns will continue till the end of the project it is april 2012 a rich and sophisticated albeit very old-fashioned and rather austere gentleman from Eastern Europe has just purchased a new home after his former residence in his home country burned down in mysterious circumstances in 2013 it will be his turn to organize his family's annual ball which takes place every year in November however the family portraits that hung on the walls of his previous home were destroyed in the fire since it would be very embarrassing for the rich gentleman to welcome his wider family to his new home and have no portraits of them he has decided to Commission a painter to paint new ones he will pay the painter 150 euros per day and has estimated that each of the 20 portraits needed will take about 20 working days to complete and should be ready just in time for the family ball on 8th of November 2013 on 1st of September several months into the project the rich gentleman who has been away traveling and has just flown back asks the painter for a status update now according to the project plan at this stage the painter should have completed four portraits given that it was estimated that he would need about 20 working days to complete each portrait and that he has paid 150 euros per day our planned value for the period between 1st of September and the start of the project is 12,000 euros however in actual fact the painter has only completed three portraits which gives us an earned value of nine thousand euros it turns out that the reason only three portraits have been painted so far is that two of them took 30 days ie 50 percent longer than scheduled to paint giving us an actual cost of 12,000 euros first let's look at the cost variance according to the budget three portraits at three thousand euros each should only cost nine thousand euros in total however as we've seen the actual cost was twelve thousand euros since two of the completed portrait actually took fifty percent longer than scheduled and cost four thousand five hundred euros each this gives us a cost variance of - three thousand euros from which we can derive a cost variance percentage of - thirty three percent in other words the actual cost for the work done is three thousand euros more than the rich gentleman originally planned to pay for it which means that the project is now 33% over budget now let's look at schedule variance although the painter has completed three portraits budgeted at three thousand euros each representing an earned value of nine thousand euros according to the plan he should actually have completed four by this stage of the project and the plan value is therefore twelve thousand euros this indicates a variance on the baseline schedule of - three thousand euros from which we can derive a schedule variance percentage of minus twenty five percent in other words the painter has done 3000 euros less worth of work than the rich gentleman had expected by this point and is therefore 25% behind schedule in this part we're going to look at the same pictures for a new home project that we looked at in the first part of the tutorial to give you a basic understanding of how you can work with earned value management in Microsoft Project 2010 so let's just remind ourselves of the essential details of that project a rich and slightly sinister Eastern European gentleman has just hired a painter to paint 20 portraits of various members of his family the portraits need to be ready by 8th of November 2013 the day on which the gentlemen will host his family's annual ball he has agreed to pay the painter 150 euros per day and has calculated his budget based on the assumption that each portrait should take the painter roughly 20 working days to complete each portrait should therefore cost about 3000 euros and his total budget is 60,000 euros the project is scheduled to start on 30th of April 2012 and to end on 8th of November 2013 so let's get started after opening Microsoft Project the first thing I'm going to do is set the way project calculates earned value so if I go to the backstage view click on options then click on advanced and scroll down until I get to earned value options for this project what we're interested in here is default tasks earned value method now project has two ways of calculating earned value percentage complete and physical percentage complete to give you an example of percentage complete let's say we have a task scheduled for 8 days of work that task is considered to be 50% complete after four days so the earned value is 50% of the approved budget for completing the task ie 50% of the planned value an example of physical percentage complete would be say a task that concerned making 6,800 copies of a brochure that task would be physically 25% complete one 1,700 brochures had been printed so the earned value would be 25% of the budget for the 6,800 copies or 1,700 times the approved budget for a single copy however for the purposes of our pictures of a new home project we want earn value to be calculated on the basis of percentage complete so let's leave that as it is the setting below baseline for earned value calculation concerns the baseline against which you want project to calculate earn value if your project has multiple baselines you can select the appropriate one from the drop down here however as we are only going to use one baseline for our project and the system will automatically select that baseline as the default once we have created it we don't need to make any changes here however one thing I do want to change is in schedule I want to change the way new tasks are created so as you can see they can either be manually scheduled or auto scheduled what I'm going to change it to auto scheduled note that we can make other changes in the options section but to keep things simple we're going to leave them as they are and assume for example the standard 5-day working week with 8 hours per day for a total of 40 hours for the week although these are things that you can modify so click on OK now we can get down to setting up our project so let's click on the project tab and click the project information icon to bring up the project information window I'm going to change the start date of the project to 30th of April 2012 and so I don't get any nasty surprises with my pre-prepared example I'm going to change the current day to the 29th of April ok which is the day before the project is due to start of course a real-world project you generally won't want your current date to be in the past so now let's click on OK and now we can enter our tasks you can of course enter your tasks directly onto the Gantt chart view but you can also transfer a list made in Microsoft Word which is what I'm going to do here so if we open our word file as you can see I've already organized these into tasks and subtasks so all I need to do is copy and then if I go to this square here and paste as you can see thanks to the formatting I used in word project has organized these correctly into one task and 20 subtasks so that has now kept the correct formatting for Microsoft Project so let's select all the subtasks and go to the tasks tab there if I click on the information icon on the properties ribbon we can change all the sub class duration to 20 days as per our project plan so click on ok now let's link all of our subtasks by clicking on the link tasks icon on the schedule section of the task ribbon okay the idea here is that the painter will complete each portrait before moving on to the next rather than working on multiple portraits in parallel so it's for that reason that we linked all the tasks now we need to add the painter as a resource so let's go to the View tab and select resource sheet from the resource views section of the ribbon here we can directly enter our painter so going to call him Istvan we're going to set his standard rate to what was agreed ie 150 euros per day note that we're not going to change anything else for example he won't be paid a special rate for any overtime he works ok so now we can go back to the Gantt chart view and here we can assign his fan as a resource by selecting all the subtasks and going to the resource tab and selecting assign resources from the assignment section of the ribbon and here we see it's vans name and all we have to do is click on the assign button and he'll be assigned to all these subtasks so now we can close this window and all that remains to be done is to level the resources so we'll click on level resource and click on level now so I'm just going to adjust the magnification here so you can see the Gantt chart a little bit better and we'll scroll along to the right just to bring everything a bit better interview ok so now we've got our project set up as per our plan we can set this as the baseline so we go to the project tab and click on set baseline and then click on set baseline here I'm going to click on OK now because there's nothing that I want to change but as you can see you have a choice of baselines but we're just going to have one for this particular project ok our baseline is now set if we now go to the Gantt chart tools format tab we can make the baseline visible on the Gantt chart there you can see the baseline in gray below the normal task view note that both currently reflect the same dates because we haven't yet deviated from our baseline so let's imagine now that it's the first of August and the project has already been underway for a few months the rich gentleman has just returned home after several months away on business to his dismay he finds out that just as the painter was about to begin work on the project he had a nasty accident and broke both of his arms therefore no work at all has been done on the project since the scheduled start date of the 30th of April so let's go to the project tab and click on the calendar icon underneath status date on the status section of the ribbon here we can enter 1st of August 2012 in the window and then click on OK and the status date is now set to August the 1st of course it would be nice if we could actually display the status date on the Gantt chart itself so let's do a right-click over the area of the Gantt chart and select grid lines from the menu then we scroll down the list until we get to status date and select that then we can select the line type from the type drop-down and we can choose a color for our line and I'm going to choose purple because I think it's a nice visible color ok so now I can click on OK and we can see that our status date is now indicated by a purple line on the Gantt chart in basic terms then we are now looking at the project as if it was the 1st of August so let's take a look at our earned value data if we do a right click on this space on the top left-hand corner of the task area and select morte bawls we can access the earned value table just going to adjust the view to make it a little clearer and reveal some of the columns that I want to draw your attention to so here you can see columns with names that you will recognize from the first part of the tutorial I planned value earned value actual cost schedule variance cost variance and estimate at completion now as we know the artist has not been able to do any work because he broke both his arms so just as we expect the column for cost variance which as we know is based on the difference between earned value and actual cost is empty no work work at all has been done therefore no value has been earned however in terms of schedule according to the project plan the painter should have completed three portraits by now and begun work on 1/4 the planned value for this period is therefore 10050 that is 3000 euros per completed portrait and 1050 euros for partial work on the portrait of great aunt Catherine on the plus side the rich gentleman only agreed to pay the painter for work done and isn't obliged to pay him for sick leave however on the down side we can clearly see that the project is behind schedule at this point we could now go to the Earned value schedule indicators table to see the schedule variance percentage and the scheduled performance index but there isn't really a need at this stage because the situation is very clear the project is 100% behind schedule how the rich gentleman chooses to deal with this situation is up to him he could for example hire an additional painter to work in parallel with this fund he could also hire an assistant for his fund to help him work faster or he could simply decide that it wouldn't be so bad after all if only 17 out of 20 family portraits were completed in time for the family ball now let's look ahead to 1st of January 2013 the rich gentleman had finally decided that he would simply let the project run its course and that the painter would work faster in order to catch up the lost time let's first go back to the main Gantt chart view by right-clicking on the square in the top left-hand corner of the task list and selecting entry so it turns out that great-uncle Caligula's portrait took 60 days rather than 20 so let's change the duration to 60 days and I'm just going to select the reason so I can get rid of this green triangle okay the first five portraits have nevertheless all now been completed select select them and mark them as complete by going to the task tab and clicking on the 100% icon on the schedule section of the ribbon now we can change the status date to the 1st of January 2013 by going to the project tab and selecting the calendar icon underneath status date on the status section and changing the date in the window to 1st January 2013 if we now look at the Gantt chart we can see that according to the baseline which is indicated by the bars in grey eight portraits should have been completed by the current status date of first of January 2013 and a ninth should be very near to completion which is clearly quite different from the actual situation so let's go back to the own value table and see how we're now getting on if we look at the planned value column we can see that according to our original plan 26,000 400 euros worth of work ie eight portraits and partial work on a ninth portrait should have been completed by now in the earned value column we can see that we have done far less work than that because the budgeted value of the work we have actually done only comes to 15,000 euros now as we know scheduled variance is calculated by subtracting the planned value from the earned value so an earned value of 15,000 euros minus a planned value of 26,000 400 euros should give us a sheduled variance of minus eleven thousand four hundred and if we look at the schedule variance column we can see that that's indeed the case we'll have a look at the Earned value scheduled performance indicators table in just a minute to get a better idea of just how that delay in schedule relates to the project as a whole before we do that let's look at cost variance cost variance as we know is calculated by subtracting the actual cost in this case 21,000 from the Earned value which as we have just seen is 15,000 for the current reference period this gives us a cost variance of 6,000 euros - 6,000 euros that is which is the amount we see in the cost variance column okay now we've seen the variance amounts let's take a look at the two earned value indicator tables so we can get additional intelligence on our projects performance in terms of cost and schedule again go to the top left hand corner of the task area and do a right click on the empty space there we can select from more tables earn value scheduled performance indicators here we see some tables that we saw on the main earned value table such as planned value earned value and schedule variance however in addition we see columns for schedule variance percentage shown as SV percentage and also schedule performance index or SPI we can see from the schedule variance percentage that we are 43 percent behind schedule and we can see from the schedule performance index that our schedule performance is 57 percent efficient if we now look at the Earned value cost indicators table once again in addition to columns from the main earn value table such as planned value earned value cost variance estimate at completion we also see columns for the indicators ie cost variance percentage and cost performance index or CPI looking at the table we can see that we are 40% over budget looking further down the cost variance percentage column we can identify the culprit as the portrait of great-uncle Caligula which is over budget by 200% this as we know is due to the fact that it took three times longer than scheduled to paint looking at the cost performance index we can see that our cost performance is currently running at only 71% efficiency this is caused entirely by the extra time the painter needed to complete great-uncle Caligula's portrait which was completed with only 33 percent cost performance efficiency so let's go back to the main entry view now that the rich gentleman has this information on cost and schedule he can decide what if any corrective actions need to be taken let's assume he has a word with the artist and suggest that in order to make up lost time he can make the remaining portraits 3/4 the size which means he can now complete them 25% faster so let's select those last remaining portraits and change their duration to 15 days and mark them as 100% complete finally let's move the state state to 21st of September ie the day after the new project end date of 20th of September now we can take a look at what the cost and schedule variance will look like at the end of the project first let's look at the Earned value cost indicators table the first thing that should be immediately apparent is that the cost variance percentage and the cost performance indicator are both positive this means that our project has been completed under budget which is a good thing however we should bear in mind that the rich gentleman did agree to a change in the specification of the deliverables to be produced by the project in other words savings were only made by the clients willingness to accept reduced versions of what was originally budgeted for so how did we do then in terms of schedule let's take a look at the Earned value schedule indicators table here we can see that we ended the project ahead of schedule by 10% so in the end the rich gentleman was able to get his house nice and ready for his family ball in November 2013 although to be fair poorest fund did end up being paid less money for the whole project so that concludes this tutorial you should now have a good understanding of earned value management and how to work with it in Microsoft Project thank you for watching you you

Channel: Simon Hoare

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Keywords: microsoft, project, 2010, project2010, earned, value, EVM, earnedvalue, projectmanagement

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Length: 36min 16sec (2176 seconds)

Published: Wed May 02 2012