## Transcripts

1. INTRODUCTION: welcome to our course on earned value management. Perfect schedule and cost performance are often cumbersome responsibilities, especially there's little or no automation in the reporting process. It also consumes time that approach imagined just can't afford. Additionally, the information be reported. Stakeholders is often inconsistent in structure and former on it could be excessive for the needs of those stakeholders. This often called stakeholders to misunderstand product status and put undue strain on the project manager on the product team. So the goal off on value management is to firstly provide a structure by which project costs and schedule performance information can easily be made available to ensure that information provided is a good reflection off product status and to ensure that the information communicated is comprehensible by critical stakeholders. So, you know, of course, today we'll be talking about what in Valium Andrew is. We'll determine the products, costs and schedule performance we learned to Spain. A family cause or project, once it is completed, will determine the amount of money that will be needed to finish the project well, anticipate any cost overruns and would be determining the performance needed to complete the project on time and on budget, despite delays, pretty informed of stuff, So let's get started
2. LESSON 1 Determining Status With EVM: So here we're going to use good value analysis to determine our carts and schedule performance. To do that, we therefore piece of information that we need to obtain, the first of which is budget at completion. But, yeah, completion is the total amount of work that needs to be done in a project represented and Tim's of the project's budget. The products budget is a yardstick of all the world took her in this project. Everything we need to figure out is planned value. Plant Valley is the amount of that work that we should have completed by today. It twos represent as a fraction of the budget. Then there's earned value. E V. In value is the amount of that work that we did complete as of today and there we have actual costs. It's the amount of money that we spent to accomplish at work as off today. So those are the four variables that we need to figure out to do and value analysis B A, C p B E V on a c. So this is gonna put us in the printouts. Just go ahead and flip over to sample data one. We're going to be using sample data one on here's all Sybil data, we have B A, C, P, V, E V and A C. So the B A c other parties budget is $1,200,000. The plan value is 50%. That means we should have been 50% done without $1,200,000 worth of work. As of today. That means we should have completed 50% of 1,200,000 which is 600,000. However, our current state of says that we're currently 33% done with a project that means we accomplished 33% at 1,200,000 which is 400,000 at our A. C is 500,000. That means so far we spend $500,000 in this project. So as a reminder, the data is on the top. There are four things we can calculate when it comes to our costs and schedule performance , the first of which is our cost variance. The cost appearances, how much we've over under spent in comparison to what we got done. Our cause variances calculated as CV. The cost appearance is what we've accomplished minus what we spend to do it. It's E v minus ese. That means this is 400,000 minus 500,000 which gives us negative 100,000 negative is bad. That means we over spent positive is good. That means we understand we're on a surplus. So they're saying that saying that we over spent by $100,000 in comparison to the world we got done. It does not mean that we've blown our budget by $100,000. It just means that we spend $100,000 more than he should have spent in comparison to where we got done. And that could be because of poor estimation. It could be because of overtime and things like that. Had that been positive, that means we have a surplus of $1000 in comparison to what we got done. The next time can calculate is all cost performance index. It's an index off How well or how badly was spending money on That's your CPI. I cost performance index Same two variables. You just divide them is e V divide by a C. That means this is gonna be 400,000 divided by 500,000 which is 0.8 less than one means we're running a deficit with bleeding money somewhere greater one as good up means was sitting on a surplus on one means were exactly on the dollar, which in reality would not happen because of accounting and saw. The next we could figure out is our schedule variance. That's contra variances approximately how far ahead or behind schedule we are scheduled. Barrens is what we accomplished minus what we should have accomplished E v minus PV. So that'll be for 2000 minus 600,000 which is native 200,000 negative means there were behind positive is good at means we're ahead. So this is saying that we're approximately $200,000 worth of work behind the $600,000 we should have accomplished by now. Had that been positive, that means we are about $200,000 worth of work. I head off the $600,000 we should accomplish by now and then as the schedule performance in next. It's an index of how well Aho rather how time your untimely we are same two variables justified them. TV divide by PV that'll be 400,000 Divide by 600,000 which is zero point seven roughly lesson one means were behind greater the one means were ahead. So this is set. So if you already have ah cost parents and a schedule variance that says that we're not doing too well, why do we need a c p i and SP Donatella's? The very same thing is because the c p. R and the S b ia, both indices and you're gonna plug over time, whether daily or weekly or biweekly, to notice what a trend is in the project would regard to cause on schedule performance. But sometimes my notice that I did a c p i and or the SP I would be doing something like this where it's begun. A descent, a couple things to start checking. Check your estimates. You might have underfunded a project. All you might have underestimated the durations of the activities. Also double check your wrist margin process. That means that it could be a problem with the way we're identifying risks or we're measuring the wrist or even responding to risks. Also, quality issues could be occurring where you're incurring things like scrap on overtime. You're probably having donna warranties. You're probably getting a lot of returns coming in. Also, vendor performance. It could be other vendors were initially according you for two hours of work, but their invoicing you for six. Also, it could be that the estimated to take 10 hours to get something done and they're taking 15 hours together that'll show up on the C B. I and the FBI Also fluctuations that could be fluctuations and labour and material prices on also fluctuations and availability of labor and material, which is schorpen CP I and S P. I so does a standard things a check If the CPI I or the s guys falling Nevins, the SP I that's falling. You would check the initial five, but also check four additional things morale, communication, breakdowns, conflict on logistics. Either Those four things could cause work to slow down. And when it does, it will show up on the SP I so that covers the analysis side of and value it says where we are into the schedule and cost. We're now going to get into the forecasting side of in value that says, based on the trend, what is a part of gonna cost in the end, on what is the pace of work we need to maintain to still hit up budget on cause talk it's
3. LESSON 2 Forecasting With EVM: so that we determined the performance of the project. We're now going to determine the estimated final cost of the project based on our performance, and we're good at that as estimate at completion. What is the project at a cost In the end, based on observed performance? That's really hard to do because the final cost of any project is determined by the events that are going to transpire between now and then. And there's really no way you could know for sure those events are gonna be so We're Mawr approaching from a philosophical point of view. Ah, wanna philosophies? Is this the estimate at completion or the final price tag on the project? Is your original budget divided by the way with spending money? So that will be 1,200,000 divided by R. C P I of 0.8, which gives us 1,500,000. This product is supposed to cost 1,200,000. But based on the way we've been spending money, if nothing changes be doing now and then, this product is likely to cost $1,500,000 which may not be very fair because who's to say that we have, um, able to solve the problem, and then at least from this point on, things will continue as they were originally planned. We're not going to get back the bad money we already spend that's going, That's water under the bridge. But from this point on, what's left to be done is gonna be a done according to plan on. That's where we have a second formula for Essman at completion. In that case, as when I completion is what we spend so far added to the remaining work to be done, that means it's going to be 500,000 plus 1,200,000 minus 400,000. That's 500,000 plus 800,000 which is 1,300,000 better than 1,500,000 but still significantly over budget. So now we know what a part it is going to cost. In the end, how much money would we need to finish this project now that we know what is going to cost in the end, that's your E T. C. Estimate to complete. Yes, mythically is your revised price tag less what you spend from it. Now we have to be a sees to choose from. Let's choose the more dramatic won the 1,500,000. So this will be 1,500,000 minus a sea of 500,000 which is $1 million. Even we're gonna need $1 million of finishes project which we know we don't have because we were only given 1,200,000 not 1,500,000. So we know for sure we don't have $1 million in the bank. So it's obvious that we are going to overshoot, but how much we're gonna overshoot by. That's our variance at completion v A c variance That completion is the original budget minus that revised budget. So that will be 1,200,000 minus 1,500,000 which is gonna be negative. 300,000. Negative, as usual, is bad. Negative is bad. Negative means I've been going to overshoot. Positive is good. That means we're gonna undershoot. So this is saying that we have an overshoot by $300,000. Well, as depressing as this sounds, what if we set ourselves was still going to bring this project in on budget. So that means we're going to do whatever it takes to bring this project it on budget. Now we know that all CP I right now is 0.8. So we're running 20% of us overspending. So what CPI I would have to maintain from this point on to recover the money that we over spent and still bring the project it on on budget, That's gonna be the next slide, which is all a t c p i the TCP I is a seat guy who have to maintain from this point on to still bring the project in on budget. So are TCP. I is gonna be the remaining work divided by the remaining money remaining would divide by the remaining money. So that being this is gonna be 1,200,000 minus 4000 divided by 1,200,000 minus 500,000. That's gonna be 800,000 divided by 700,000 which works out to be 1.14 or approximately one point. Let's assume one point. So we got to maintain a C p I of 1.2. From this point on, in order to compensate for the overspending, we did and still bring the project in on budget. That means we're going up to save 20 cents on the dollar in order to recover the money that we spend and still come in on budget What we set ourselves. You know what? We couldn't even maintain one. How could we maintain 1.2? So what if we say All right, the target is not gonna be the original budget. We know that we're anticipated coming on the E A C, which is 1,500,000. What CPI I will. We have to maintain to hit 1,500,000 and not go past that. Some things you have a new target, not be a see any more than you talk. It is e a C. So the formula changes a little bit. It's the remaining work divided by the E A C minus the A C. So we know. Ah, this is 800,000 on the top, divided by 1,500,000 minus 500,000 which is 800,000 divided by 100,000 which is 0.8. So we hold a C p I of 0.8. From this point on, we're gonna come in exactly on $1,500,000. So we can see here that this formula is pretty versatile and its sense that you could set the target. The target is set right there. You don't have to stick to be a C or e a C. You could make up any arbitrary number you like on a formal is gonna tell you what CPR you have to maintain to hit that target. Well, we know what it performs. We have to maintain to hit our budget target. We also know where behind schedule RSP right now is 0.7. What s B I would have to maintain to catch up to our was supposed to be and still coming on time. That's your TSB. I So what has made you have to maintain is still coming on time. It's gonna be the remaining work as off today. Excuse me. Let me get a little correction. They're divided by the remaining work that was supposed to be as of today. So this will be 800,000 divided by 1,200,000 minus RPV is 600,000. That would be 800,000 divided by 600,000 which is 1.3. So we got to maintain an SP I of 1.3 were after with 50% faster to catch up to where we were were other way we're supposed to be and still come in on time. So when you look at all this visually, it can all starts to make sense. This is the earned value visual scale. If there's a zero all the way to the left hand side than this is what the project is supposed to cost the B A C. That's all budget. But based on performance, this is what it looks like. It's going to cost big difference. This is what we spend so far, and therefore, this is what it's gonna take to finish the project on. This is how much we're gonna overshoot by so up next, we're going to do an exercise that encompasses everything we've discussed so far.
4. EXERCISE: way. Invited concept. Let's try an example. Using sample data to be a C is 925,000. PV is 700,000 e. V is 580,000 on A C is 610,000. So here we can calculate C v c p i SV on FBI. Go ahead and pause the video and I'll see you on the other side and we're back. So the first thing we can calculate is our cause. Variances. How much we over understand compared to what we got done. That's E V minus a C. That's 5 80 minus 6 10 which is negative. 30. Native is bad. That means we will spend So we were spent by $30,000 in comparison to what we got done again. That could be because of overtime, poor risk management, vendor issues and so on. There are C P. I is even by by a C, which is 5 80 Divide by 6 10 which is 100.9 less and one that's bad. That means we were overspending. We're losing money somewhere. Great. The one that's good. That means we have a surplus. So this is saying there were about 10% over spending. Because we're less than one, then we have schedule variances. How far ahead or behind schedule we are. It's what we got done, minus what we're suppose have gotten done. That's 580,000 minus 700,000 which is negative. 1 20 Negative is bad. That means we're behind positives. Good. It means we're ahead. So does it say the way about $120,000 worth of work behind the 7000 we should have accomplished by now? And then we have the Schedule Performance Index, an indicator of whole timely or untimely. We are. It's e v divide by PV. That's 580,000 divided by 700,000 which is 0.8. Lesson one means we're behind grated A one means were ahead. So that's a saint where about 20% behind schedule since we're below one. So now we can do the forecasting side of in value. So if you haven't already done this shoot, just go ahead and pause the video and I'll see you when you come back and we're back. So the first thing we can calculate is R E. A C estimate at completion, it's how much the product is likely to cost. In the end, if nothing changes, the performance remains the same. It is B a C Divide by C p i, which is 9 25 divided by 250.9, which is one million and 27,000 substantially above the 9 25 that we were originally forecasted to be. But that's if things remain the same. What if we fix the reason for the overspending? At least from this point on things going to continue as planned, then it's a second form of EEC. It's what we spend so far, plus the remaining work to be done that 6 10 plus 9 25 minus 5 80 which is 955,000. Safe from this point on, things going to go as planned, we are gonna exceeded 9 25 originally, but it's gonna come in at 9 55 So we have to ea sees to work with. We're gonna choose the upper one the water one million on 27,000. So using that the A. C. We want to figure out how much is it gonna take to finish this project? that's our estimate. To complete the mind needed to finish the project. That's gonna be our vice price tag. G a. C minus what we spend so far from it. That's 1,000,027 minus 610,000 which is 417,000. Wigan needs 7 417,002 finishes project, which we know we don't have because we weren't given 925,000 not 1,000,027. So we know we don't have $417,000 in the bank. And since it's obvious that we are going to overshoot, how much are we going to overshoot by? That's all V A C variants that completion its original price tag minus or revised price tag . That's 9 25 minus 1,000,027 which is negative. 102 we likely to overshoot by $102,000. So now that we know that we're not doing too well, what performance will you have to maintain to still hit the target out? B A. C. That's gonna be our TCP I for a target of B A C. If you haven't done machine already got and pause on. We'll see you again. All right, so here we are back So the TC guy or the see paragraph to maintain from this point on to still hit a target of B A C that is gonna be the remaining work divided by the remaining money as B A C minus e v a Divided by B A C minus a C. That's 9 25 minus 5 80 Divided by 9 25 minus 6 10 Which works out to 1.1. We're gonna have to work 10% cheaper. We'll save 10 cents on the dollar to recover the money to be spent and also come in on budget. But what if we say that that's not practical that we say Now we're gonna come in on the e A c. We believe that the problems really gonna cost E. C despite our best efforts. So our target this EEC what CPI I would we have to maintain to make sure that we don't exceed that e c. So the target is being es See, that's gonna be the remaining work divided by the E A. C minus a c. Again. That's 9 25 minus 5 80 divided by 1,000,027 minus 6 10 which is 0.8. So as long as we hold a C B I of 0.8, we will come in at one million and 27. The easy that covers the budget. What about a schedule? RSP right now is also below one. That means we're moving too slowly. What SP I would have to maintain to catch up to where we need to be and coming on time. That's our TSP I It's gonna be the remaining work as of today, divided by what the remaining work was supposed to be as all today. That's 9 25 minus five e divided by 9 25 minus 700 which is 1.5. We got to work 50% faster to catch up to where we're supposed to be on coming on time. So next up, going toe, summarize everything we did so far, I don't share some final thoughts
5. SUMMARY: so we've covered quite a bit of ground. We looked at what earned value really is. We identified the four basic piece of information that we need in order to do in value by B , A, C, P, V, E V and A C. We also determine the cost variance and also the cost before Mr Next, which are indices of how well we're performing cost wise. We also determine these schedule variants on the Schedule Performance Index which says, How timely are we in performing work? We also approximated the final cost of the project what the product is likely to cost in the end by the E A. C. We also determine what would it take to finish a project. Now that we know what our final cause is going to be you all to determine how much we're gonna overshoot or undershoot our budget by and we also determine the performance needed in order to catch up our schedule on our spending when violent Majerten is an efficient means off ascertaining project status on delivering that status to stakeholders. For this arrangement to work, they need to be an alignment off certain assets and actors. The brunch imagine needs to perform in value analysis who regularly team members must submit evey and easy data reliably. Stakeholders must be educated to interpret the meaning off information be reported. The logistics and technology needs to be configured as the underlying mechanics. That makes all this possible. The technology needs to be automated. The data on reporting process needs to be standardized on the data as well as information needs to be centralized. Only then could earned value management be a practical means of gauging party performance. Thank you so much for watching on. Be sure to check out one of our other weekly project Majin courses on skill share until then, take here and keep it simple.