Earned Value Planning

Quick reference

• 00:04 Hi, this is Ray Sheen, let's talk about a project management technique,
• 00:08 that's called Earned Value Analysis.
• 00:11 I'll introduce it here with resource planning and
• 00:14 we'll address it again in future courses on project control.
• 00:17 The Project Management Body Of Knowledge the PMBOK Guide describes
• 00:21 Earned Value Management as.
• 00:23 A methodology that combines scope, schedule and
• 00:26 resource measurements to assess project performance and progress.
• 00:30 In my opinion, Earned Value is one of the most effective tools we can use for
• 00:35 measuring progress on a predictive project.
• 00:38 Earned Value compares differences between three project costs perspectives.
• 00:43 The first project perspective is the project plan,
• 00:46 this is the plan costs based upon the project estimates and schedules.
• 00:49 It is created for the entire project at the time that the project planning is
• 00:54 completed, this is called Planned Value.
• 00:56 The second perspective is the Actual Cost expended on the project.
• 01:00 This will be the cost recorded in the financial system applied to the project.
• 01:05 From the time a project start until the present time, it is called Actual Cost.
• 01:11 The third perspective is the Project Progress,
• 01:14 this is an assessment by the project management team.
• 01:17 The value for the assessment is created by first determining how much progress has
• 01:22 been completed on each task.
• 01:24 That percent of completed progress on a task is then multiplied by the planned
• 01:29 cost for that task.
• 01:30 What this is essentially saying, is that when the project was planned,
• 01:35 the task was assigned a value equal to its estimate.
• 01:38 When the task is completed, it has then earned the value for that project task,
• 01:43 that's why the perspective is called the Earned Value.
• 01:47 The building block for Earned Value is at the task level,
• 01:50 it uses task level estimates or budgets for the planned value.
• 01:54 The project expenses should be collected in the financial system at the task
• 01:59 level for actual cost.
• 02:01 And the project progress is first determined at the task level and
• 02:06 this task level progress is rolled up into the total project earned value.
• 02:11 Since everything is based upon task level data,
• 02:14 it's important that the task level budgets be accurately planned.
• 02:18 This includes both the amount of cost and the timing of when those costs will occur.
• 02:22 We will be covering estimated costs and other modules of this program.
• 02:26 I want to talk now about setting the timing of the task budgets to support
• 02:31 Earned Value analysis.
• 02:32 The tasks costs must be assigned in the month in which the task occurs.
• 02:36 If the task is short, let's say a week, it's likely that all of the tasks will
• 02:41 be done within one month and then the timing is easy.
• 02:44 But what if the task is a ten week task, then what?
• 02:47 One approach is to level load the timing of the costs,
• 02:51 this means to spread the costs evenly over the duration of the task.
• 02:56 For that ten week task, if it starts at the beginning of a month,
• 02:59 put 40% in the first month, representing four weeks.
• 03:03 40% in the second month, representing another four weeks, and
• 03:06 20% in the third month representing the final two weeks.
• 03:10 This is a quick and simple method, for assigning the timing of tasks costs.
• 03:15 But what if I know,
• 03:16 there will be a high amount of costs at one point of time in the task.
• 03:20 Then do what we call event loading, in this case,
• 03:23 the task must be planned in detail.
• 03:25 Essentially breaking it into micro tasks and
• 03:28 then assigning the estimated costs for each micro task when it will occur.
• 03:33 So if I know that during the last week of that ten week task, there will be a big
• 03:38 meeting with delegates coming in from around the world for a review.
• 03:41 I would assign a higher estimated cost in that month to cover the meeting expenses.
• 03:47 The advantage of this is that it is the most accurate, since the date for
• 03:51 the planned cost matches when it will likely occur.
• 03:54 So let's wrap this up with a closer look at Earned Value Planning.
• 03:58 The Project Management Body of Knowledge, the PMBOK Guide.
• 04:02 Defines Planned Value as the authorized budget assigned to scheduled work.
• 04:06 Planned Value or PV is based upon all the task estimates for
• 04:10 all the tasks within the project scope.
• 04:13 Which is how Earned Value ties to the scope side of the triple constraint
• 04:17 triangle.
• 04:18 Of course, PV is based upon the estimated cost for each of those tasks.
• 04:23 So that is how it ties to the resource side of the project triple constraint
• 04:27 triangle.
• 04:28 And the PV for a task is scheduled to occur based upon the scheduled start and
• 04:33 completion date of each task.
• 04:36 Which is how it ties to the schedule side of the project triple constraint triangle.
• 04:41 On Project Earned Value reports, you'll find PV presented in two ways.
• 04:46 The first is the current PV, which is the estimated cost for
• 04:50 the project work that was planned to be done in the current month.
• 04:54 The second is the Cumulative PV which is the estimated costs for
• 04:58 all of the project work that is scheduled to have been done since the project start.
• 05:03 Let's look at a picture of this, this project is 19 months long.
• 05:07 As soon as the plan is approved, we know the PV for
• 05:10 each task and the project, the blue line is a graph of that cumulative PV.
• 05:16 It is the budgeted cost of all the work time phased per the project schedule.
• 05:21 The final value of PV is the budget at completion or BAC.
• 05:24 This represents the sum of the estimates of all of the identified work that must
• 05:29 be done on the project.
• 05:31 Often a project is approved with a total budget value that was a rough estimate
• 05:36 of the approval created before the detailed project plan was done.
• 05:41 This is shown by the black line across the top labeled PB for Project Budget.
• 05:46 When the detailed project plan is completed, the PV for the project is done.
• 05:50 And the budget at completion is hopefully less than that project budget.
• 05:55 The difference is a project level management reserve shown here as MR.
• 05:59 The plan value is one of the three perspectives that's used with
• 06:04 Earned Value Management.
• 06:06 The others will be covered in the course on project execution and control

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