Saturday, 23 April 2022

Earned Value Method Baseline

 The basic indicators of the earned value method are:

  • Planned Value (PV);
    Earned Value (EV);
    Actual Cost (AU).


Let's consider each of these basic indicators on the example of a conditional AA project, which can be almost any project (building a house, developing software, creating an airplane, etc.). In any project, the basics of using the earned value method are the same, regardless of the size and type of project.
Planned volumes show how much work should be done at a particular time in accordance with the project plan, i.e. what should be the progress in the implementation of the project at a certain date. 

 

Planned volumes are a numerical expression of the volume of work planned for implementation in accordance with the schedule for the current date. Target volumes are a formalized basis for comparing all actual indicators, i.e. they are an indicator of the baseline project implementation plan. The baseline plan is a planned schedule for the distribution of funds (volumes) by work and periods. 

 

Once established, this comparison base should be conditionally unchanged, i.e. changes to it should be made only in extreme cases concerning changes in the entire content of the project. The indicator of planned volumes in the English-language literature is also called Budgeted Cost for Work Scheduled (BCWS), in the Russian-language literature - the estimated cost of the work planned for implementation, the budget cost of the planned work, planned costs, etc.


The indicator of planned volumes (as well as other basic indicators of the earned value method) is graphically presented in the form of cumulative graphs showing the planned volume of work on the project as a cumulative total. Such cumulative graphs are called S-Curves, and in relation to planned volumes, they talk about the S-curve of planned volumes (Planned Value S-Curve), i.e. about the cumulative graph of planned volumes.



Figure 1.0 shows the planned scope of the AA project.

 

 Mastered volumes show the actually completed volumes of work, expressed in terms of the planned cost of these works, as of the control date. This indicator is often called Budgeted Cost for Work Performed (BCWP), or the planned (estimated) cost of actually performed work, the budget value of the work performed. The mastered volume is the budgetary, planned, estimated cost of work actually performed to the current date. Figure 12.9 shows the Earned Value S-Curve of an AA project up to the fourth planning period of the entire project life cycle.

 


 Figure 2.0 Schedule of planned and military volumes of the AA project

 

Actual costs show the actual (actually formed) cost of the amount of work performed, i.e. the totality of all costs incurred during the performance of work on the current date. Sometimes actual costs are referred to as the amount of resources that needed to be used on the current date or over a period of time. Actual costs are also called Actual Cost of Work Performed (ACWP), the actual cost of work performed, the actual cost of work performed, etc. Figure 2.0 shows a graph (S-curve) of the Actual Cost S-Curve of the AA project up to the fourth period of the life cycle.


Figure 3.0 shows the AA project execution schedule. It is a temporary sweep of the planned scope of work for the project, i.e. the Basic Project Implementation Plan (BPM). This plan sets out the project budget, distributed over the calendar periods of all work on the project. So, for example, work 2 has a budget of 32 units, which are distributed over four periods (say, four months). The plan prescribes that during the implementation of work 2, volumes of eight units of the planned cost of resources should be utilized each month. As soon as the planned work is carried out, the planned volumes, i.e. the budget value of resources, become mastered volumes.


 


Figure 3.0 AA Project Schedule


Works can be planned and measured accordingly in a wide variety of units, such as man-hours, the amount of materials or in monetary terms.


Mastered volume is a measure of the performance of work on the project. During project planning, it is necessary to determine the methods and means of measuring the earned value. The choice of these methods and means should be determined by the key characteristics of the work, primarily the duration of work and controllability, the tangibility of the products produced.


The performance of some work, which has as the results of tangible products, can be determined directly by measuring the products produced. This kind of work is called Discrete Effort. Other works can be measured indirectly either as a function of discrete effort or as a function of time spent. Works related to discrete effort, for example, with the consumption of a material resource, are usually called distributed, or proportional (Apportioned Effort), and works related to time spent are called the level of effort (Level Of Effort - LOE).


The actual performance of work is measured periodically: daily, weekly, monthly, etc. Methods and means of determining mastered volumes largely depend on the periodicity of measurement and accounting, as well as on the number of control (planned) periods during which the work is performed. Discrete work, which lasts from one to three control periods, can be measured using fixed formulas in which a fixed value of the percentage of work completed is determined at the beginning of the work (control period) and the remaining percentage of completion is determined at the end of the work. Discrete works with longer durations (more than three periods) are measured using other approaches, such as weighted milestones and percentage of completion.


Guidance for choosing a method for determining mastered volumes is presented in Table. 12.2.
Table 12.2 Resource requirements by component


Methods for determining mastered volumes

Works

Duration of work

from 1 to 3 planning periods

more than 3 planning periods

Tangible

Fixed Formula Method

Weighted Milestone Method Percent Complete Method

Intangible

Method of proportional work Method of the level of effort

 

 Fixed formula method. A typical example of a fixed formula method is the 50/50 method. Under this method, 50 per cent of the work is considered to have been completed at the beginning of the planning period in which work begins, regardless of how much is actually completed. The remaining 50% is attributed when the work ends. The 50/50 method is most effective in controlling small and short works.


Based on the data of Fig. 12.11 it can be said that when planning the AA project, the 50/50 method is chosen for works 1, 4, 5 and 6. Other variants of the fixed formula method may be methods 0/100 and 25/75. Thus, the 0/100 method is supposed to be used to determine the mastered volumes of work 3 of the AA project.


Weighted milestone method. This method breaks down the work into parts that are completed within the required time frame, and then assigns certain volume values to those parts that will be completed within the designated timeframe. The weighted milestone method is more suitable for long-term work that has intermediate results and products. As can be seen from Fig. 12.11, in the project, the weighted milestone method is used to work 2.


The percent-complete method. The method of percent completion can be called the simplest and easiest, but at the same time the most subjective of the possible methods for estimating the earned volume. The essence of this method is that in each planning period, the responsible employee or manager estimates the percentage of work performed. Typically, such estimates determine the amount of completion by cumulative total in comparison with the plan. At the same time, if there are objective performance indicators in the work (such as the amount of products created, divided by the total required amount of products produced during the performance of all work), then the subjectivity of this method can be eliminated completely.


The method of proportional works. If the work is directly related to another work that has its own earned amount, then the value of the earned amount for the dependent work can be determined based on (or proportionally) the value of the earned amount of related work. Examples of proportional work can be product quality control (which depends on the quantity of products to be inspected) or inspections (which also depend on the number of objects inspected or the duration of the inspections).


For example, consider work 2 of the AA project (see Figure 12.11) and try to evaluate this quality control work. Using the method of proportional works, we can take 10% of the planned volume of work 2 for the planned volume of quality control. Thus, the planned volume of quality control in the first planning period will be equal to 3.2, i.e. 10% of 32. In the same way, the mastered volume of quality control will be determined: as 10% of the mastered volume of work 2.


The method of the level of effort. Some works do not produce tangible products that can be measured or evaluated based on objective data. For example, works related to the functioning of the technical library. Such work consumes resources, should be included in the overall project plan and monitored as part of the earned amount method. The method of the level of effort is to break down all the work into parts corresponding to each planning period and determine the appropriate values of the planned volumes for them. 

 

Planned volumes are automatically converted into mastered volumes at the end of controlled periods. Work such as "level of effort" never has deviations from the schedule. Therefore, this method should be used very carefully and only for works that have all the signs of a level of effort.


The scope of work is planned and measured using the methods described above. In the course of the planned work, the volumes are mastered. The mastered amount receives its value in the course of the work in accordance with the methods of assessment. For discrete works, the value of mastered volumes should be based on objectively existing, tangible and measurable results of work, i.e. products.


Figure 12.12 shows the status of the AA project after four months of work. As you can see from the figure, work 1 is completed completely. This discrete work was planned and evaluated using the 50/50 method. The earned value (4) was assigned in January (work began in January) and the remainder (4) was added in February (the results of the work were received in February).


The work of AA Project 2 is discrete. It was planned and measured using the weighted milestone method. The reporting data presented in Fig. 11.13 shows that some of the work scheduled for completion in April is not yet complete. Two of the four milestones have been reached (which must be confirmed by the actual results of these parts of the work), but the third is not yet. Therefore, the planned volume assigned to the third milestone cannot be converted to the mastered volume.


To determine the actual costs (AC), it is necessary to use the cost accounting system in the context of the project life cycle periods and control elements, project work packages. The complexity of such an accounting system depends on the project and the organizational structure of project management, the composition of participants and other organizational conditions. But in any case, the accounting system should be able to record costs and reconcile them with other basic indicators of the earned value method.

Calendar schedule showing the status of the AA project after four months of work.

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