Master Earned Value Management Like a Boss - PMP Exam Tips

it's your friend fail project management training coach today we're taking a look at a very cool subject a lot of people love this subject because of the formulism those who are really good at it they love it and those who are not good they don't like it so much but let's talk about earn value formulas and let's start off by looking at some of the relationships between these core metrics so we have three whole metrics we have a metric that I would like you to look at as how much it will cost right how much it will cost I'm going to call how much it will cost the promise okay how much it will cost I'm calling that the promise the next metric is how much did it cost in reality how much did it cost in reality and I'm going to call that actual right the actual amount of money spent so think about it how much it will cost the promise that is how much you're telling management or you're telling your customer it will cost the next metric how much did it cost in reality is really the actual amount of money that it cost and then the final one is how much did I get done and I'll call this performance so think about it like this three core metrics the promise the actual and the performance think about the promise as a budget that's a budget so your talent management oh I think this is how much it will cost this is before you've done any work we call that a budget the next one how much did it cost in reality actual it's going to be easy to remember this because we call this the actual cost and lastly how much did I get done that the real performance and this is your work performed that is so easy isn't it three things that you are looking at as the core metrics of earn value how much it will cost the promise I promise this will cost X amount how much did it cost in reality the actual and lastly how much did I get done that's the performance that's the work performed so I'm going to give you a very ridiculously easy example of these three things okay so let's look at a promise to go from point x2 point why this is the promise so the promise is how long or how much rather it will cost to go from point x to point y the promise that fairly the shore infill says oh I promise it's only going to cost a hundred dollars to go from X to Y ok so Phil starts his journey but here's one other piece of the promise Phil says I promise I'll go from point x to point y in one hour ok so whenever we make this promise it's usually within a time period okay so your promise is within a time period I promise it will cost me a hundred dollars to go from X to Y in one hour so Phil starts off his journey unfortunately in one hour he's exactly let's call this the mid point he's exactly at the midpoint in one hour so the passage of time instead of Phil going from X to Y he was only able to go from X to let's call this midpoint M he was only able to get to point M in one hour this is where we need to look at the other two aspects how much did it cost in reality for Phil to go from X to M and also what percentage of the work is actually done to go from point x2m phil said he would get to why but he only got to em so let's see how bad this is okay so the three metrics again the promise $100 now for the sake of this illustration I'm going to say that the actual amount of money that fell spent to get this job done is in this case $80 is that good or is that bad take a look at the promise Phil promised he would go from here to here but he only got from here to here and he spent $80 last but not least how much did I get done how much did Phil get done we call this the work performed or the performance if you look at the performance in dollars if this is a linear project for the sake of this illustration the work that Phil has accomplished is only 50% of what was planned so 50% of the hundred dollars worth of what was planned is really what he has been able to perform and that's really point five times a hundred and that is $50 so the promise was to spend a hundred within one hour to get all of this done but in one hour phil has only accomplished 50% and he has spent $80 now let me introduce you to the more rigorous definitions of these three core metrics so I call them the promise which is budget how much did it cost in reality the actual cost how much did I get done the performance but the terms that are used to describe these other things here goes how much it will cost the promise is actually known as the budgeted cost of work scheduled BC WS the budgeted cost of work scheduled think about it in my example the budgeted cost of work scheduled for the one hour its $100 bc WS which I call the promise is one of the most important metrics in earned value management it's not called on value it's called planned value it's also known as planned value P V so budgeted cost of work scheduled is also called planned value the next one actual cost is also known as the actual cost of work performed in government circles especially in in aerospace circles they refer to it as a CW P but that is also commonly referred to as AC actual cost next one how much did I get done the performance this is earned value itself and this is known as the budgeted cost of work performed remember I said it's the performance and this is called unvalued evey so I broke it down into easy-to-understand chunks first of all to get you more familiar with these three concepts first concept how much will it cost in totality second concept how much will it comic did it actually cost in reality and lastly how much did I get done so I got 50 of the work done and I spent more than 50% of the budget and I didn't get I didn't get it done within that one hour time period and this is where we go into something I call derivative metrics so I'm going to go into the derivative metrics I'm going to use the blue so that you know this is for derivative and I've talked about this in quite a few videos the derivative metrics of and value management evie ACN and PV the derivative metrics are known as schedule Performance Index cost Performance Index schedule variance and cost variance and I'm sure you know these by now if you're watching this video hopefully if not no big deal you can always watch my easy-to-understand videos on this but they all start with earn value all of these metrics if it's a variance schedule variance and cost variance we subtract if it's an index we divide and it would have the word schedule in it remember the promise is within one hour it's scheduled within one hour right it's time boxed and that's planned value we also have the same metric at the end anytime you've got an S you've got a plan a p4 plan schedule is the plan just remember that and for the CPI we have the other metric a/c okay so very quick computation to find out what our derivative metrics are in this example for the SPI that will be equal to the earned value of 50 divided by the planned value of a hundred and that's $50 divided by a hundred and that gives us point five what does that mean that means you are only 50 percent efficient schedule-wise now if we find the SV the SV takes these same two numbers and just subtracts the planned value from the earned value so we have schedule variance is equal to the $50 - $100 and that gives you - watch that - very important - fifty - fifty dollars what does that tell me that tells me that I am fifty dollars worth of work behind schedule remember in the example fell should have been done in one hour well he's fifty dollars behind because at one hour he should have done that done okay take a look at the CPI CPI is equal to the earned value of 50 divided by the actual cost of 80 what does this give us okay that's the end of part one stay tuned for part two welcome back to part 2 now to wrap this up let's do our customary our cost variance is going to be equal to 50 minus 80 $50 minus 80 dollars and that gives us minus minus $30 so you can see from this very simple illustration that we have the full derivative metrics scheduled performance index which tells us we have 50% efficient schedule-wise $50 behind schedule $50 behind where we should have been and CPI cost performance index which tells us we are only 0.625 efficient in other words with sixty two point five percent efficient cost wise which means for every dollar we're spending we're only getting sixty two cents worth of work done we are not breaking even we're losing money and lastly minus thirty dollars cost variance that tells us that we are over budget like thirty dollars that work that we got done and spend $80 we should only spend what we should have only spent $50 for that work because that's just a midpoint okay so to better understand known value I would HIGHLY advise you to get acquainted with with your BC WS a cwp and be cwp think about what they mean budgeted cost work scheduled actual cost of work performed and budgeted cost of work performed if you could get those into your subconscious understand what they mean you'll find it a lot easier to tackle earned value management and that's all for the first of this I should say modules on earned value management the next one I'm about to do is going to be a module on the graphs the charts of earn value taking a look at what would happen if we plot out PV a CEV explain that in some more detail all right so look out for the video thanks for your audience all the best in the exam

Channel: Praizion

Views: 30,025

Rating: 4.8617282 out of 5

Keywords: pmp exam, capm exam, praizion, praizion media, pmp cd, pmp dvd training, pmp coach, pmp certification, pmi, project management, project management institute, time management, risk management, cost management, leadership, training, mentor, pmbok guide, pmbok

Id: Ch2QR-OQL5Q

Length: 17min 32sec (1052 seconds)

Published: Mon Nov 28 2016