Earned Value

Program Management vs Project Management

2012-01-06T08:25:00.000-08:00

Have you ever thought that your project would be a program?. “If all you have is a hammer, everything looks like a nail” [Bernard Baruch]. Is your problem a nail or a screw?. Is it possible that you see your needs as a project because you know about project management?. According with the PMBoK© of the PMI®, a big project can be divided in sub-projects. According with “The Standard of Program Management”© of the PMI®, a program is a “group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually”. I think that sometimes to manage related “components” as a project or as a program is simply a decision. You can manage it in both manners, but probably this will be the most important decision you will take in this process and it is going to increase or decrease significantly your probabilities of success.

In Program Management there are “components” that can be “projects” or other kind of work, like “ongoing services”. If you need to manage something that can’t be defined as a project because of its continuous nature, then you doesn’t have a big project, you have a program.

In Program Management you decide to start components if some conditions are satisfied. You are not going to start to build something that nobody can maintain or operate. In Program Management this is always an explicit concerned and in Project Management it depends on the project plan. If you need to review the start and finish of components according with superior reasons, you probably have a Program.

In Program Management the promise to the sponsors and stakeholders is more related with benefits than scope. Of course a program has a scope but the emphasis is put in benefits instead of scope. If your promise sounds as “give dwelling to a hundred people” and you are designing a solution for that; or your promise sounds as “generate green energy in an innovative way” and you are visiting innovative facilities in order to decide, then you probably have a program, not a project.

Many Programs are reviewed in decision gates every year and receive new funds after that revision. That’s why a Program manager needs to be prepared for regular auditing processes. If the Program is still useful and is creating benefits is probably going to be extended. This sounds opposed to the definition of project and is very common in Program Management.

It’s sad to say that very often I see managers fail trying to manage programs as if they were projects. I hope you have seen this article before that moment and you are at time to decide if your need a hammer or a screwdriver.

Behind schedule since project planning

2011-10-30T16:45:00.000-07:00

If you have two parallel activities preceding one, your project will be probably late. This is not rhetoric and certainly not ironic. It’s a mathematical fact.

Let’s take a plan of two activities ending at the same time. Let’s suppose the time estimation for the activities was made so that it’s equally probable to finish each activity before or after the estimated ending time t (the common way). The probability that both activities end in a moment less or equal to t, will be the product P( x <= t )P( y <= t), hence ½ * ½ = ¼. It means it is improbable that activities end on time.

The most likely finish time can be calculated adding the mean duration to the start time. The duration is a non deterministic variable. It has a probability distribution that depends on the activity nature. Nevertheless, I’m going to show this simple fact doing mathematics with two activities with different exponential distributions starting at different times. The result can be seen in the following image. The two activities can be modeled as one. The most probable ending time of the composite activity can be obtained adding delta (δ) to the ending of the parallel activities.

What is the importance of this?. This is a common problem doing plans. There are projects condemned to be late since the planning. Make the plan using feeding buffers as it is recommended by the people of “critical chain”. This is a good manner to avoid this problem. Of course you can ask consultants like me, to help you with these issues.

Proof

Let's calculate the most probable finish time of the composite activity.

The density function has the following probability:

The formula is:

The inferior limit d is because the function has value zero before the limit:

Replacing with the exponential probability functions:

Reordering:

Integrating:

The result is the finish of the activities plus delta (δ):

Risk in Project Management

2011-09-14T08:07:00.000-07:00

Project appraisers have the tendency to be over optimistic. There are two clear tendencies that govern this behavior. One comes from a natural human characteristic and the other comes from voluntary, deliberate and ethically reprehensible actions.

Wishful thinking is the formation of beliefs and making decisions according to what might be pleasing to imagine instead of appealing to evidence, rationality or reality. Holding all else equal, subjects will predict positive outcomes to be more likely than negative outcomes. In one straightforward experiment, all other things being equal, participants assigned a higher probability to picking a card that had a smiling face on its reverse side than one which had a frowning face.

In other way, planners may deliberately underestimate costs and overestimate benefits in order to get their projects approved, especially when projects are large and when organizational and political pressures are high.

No matter the origin of over optimism, you need to overcome it. The result of a project will be always better if you work with reality. Let me say something important: risk is part of reality. Even more, risk is part of the cost. That part of the cost is named “Expected Monetary Value of Risk” (EMV) and it exists.

Let’s make a physical analogy. Quantum mechanics, also known as quantum physics or quantum theory, states a fundamental limit on the accuracy with which certain pairs of physical properties such as the position and momentum of a particle, can be simultaneously known. This is also known as the uncertainty principle.

In practice, it means that we work with the probability of being at a position in a determined moment. It does not mean that matter doesn't exist. It means that there are properties that can't exactly be known, in certain conditions. Try to kick a brick of quantic matter without shoes. You are going to realize that matter exists. You are going to feel exactly the same if you ignore the Expected Monetary Value of Risk when calculating ETC (estimate to complete) of a project. The same is valid to calculate the budget of a project.

How is EMV calculated?

Program Overseeing

2011-08-19T09:54:00.000-07:00

Let's remember first that a Program is "a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually". Interpreting the definition, there are actions that could be taken in order to improve the whole result, even though some of these actions could be bad for a project in particular. In this article, I'm going to explore the basic actions for a program.

I have used certain common graphs to oversee programs for years that I'm going to change in this article, in order to present a new graph that bears in mind concepts of "earned schedule".

In the following graph, every bubble is a project. As it was explained at definition, I have replaced the x-axis by SPI, calculated as ES/AT instead of EV/PV. Otherwise, using the classical definition of SPI, every project is going to finish over the y-axis. Using SPI=ES/AT, the final position of a project will be determined by the time performance.

In this graph, the size of a bubble is determined by ETC. According to this, every project is going to end as a point.

In the following quadrant, we see the result of a bad estimation or a remarkable execution. In any case, it's better to analyze details because there is an opportunity of improvement. If the EAC confirms the tendency, my recommendation is to cut budget of the yellow project as a formal change control and increase the budget of the red project in the opposite quadrant. With the increment of budget, the red project should "buy time" that means to use the new economic resources to improve the time performance.

In the following quadrant, we see a more common situation. The blue project has a bad cost performance with a good time performance. If the EAC confirms the tendency, my recommendation is to "sell services" to the green project in the opposite quadrant. It means that blue project is going to be delayed because of a new charge of work, but this is not a problem. In return, the green project is going to release the economic resources that the blue project needs. Both changes need to be formal; otherwise we are going to patronize a bad practice: scope creep.

The last recommended actions are only ideas for an hypothetical ideal situation. Not always the proposed changes can be done. Naturally, the program manager needs to apply his own criteria after consider the real conditions.

EVM Forecasting Analysis

2011-08-01T08:13:00.000-07:00

It's good reviewing graphically EVM forecasting in order to understand possibilities and limitations. The EVM most known formulas need certain corrections to be used in practical applications. These corrections came from the practice of "earned schedule". Let's remember the definition of Earned Schedule (ES), projecting the current value of EV over the PV curve. We could use the "t" following the acronym to differentiate the Schedule Performance Index calculated with ES from the classical Schedule Performance Index calculated as EV/PV, as you can see at following picture.

Click to maximize

Using triangles similarities, it’s possible to obtain the Estimate At Completion (EAC) in the time dimension, as you can see at following picture.

Click to maximize

Now we can remember that the maximum value of EV is BAC. Then we have an end point and with it we can trace a linear forecasting of EV.

Click to maximize

Analogically, Cost Performance Index can be used as a ratio to forecast the Estimate At Completion in the dimension of cost. Using EAC it's possible to have a forecasting for AC.

Click to maximize

This way, we can have a forecast for cost and time. This way of forecasting EV and AC is taking the past as enough information to predict the future. A better result is obtained if we categorize activities such way that the past performance is applied only to similar activities in the future.

EVM Web

2011-07-11T07:48:00.000-07:00

I have created Earned Value Management Web (http://evmweb.com), a collaborative system based on EVM. It has an "Integrated Changes Control" too. It is free for majority of users. Temporally the system is available in English and Spanish and is open to beta testers.

Like many other professionals, I discovered EVM while I was preparing my PMP certification test. I found that it is possible to implement an EVM system over many common project management systems even datasheets, possible but not probable. I had been slave of the datasheet for years. The efforts of implementing the system were comparable with benefits. I have found that those systems are not focused on EVM and I decided to create something more specialized. Sign up now. I hope to receive your opinion and your help to improve it.

EVM for Small Projects and Big Projects

2011-06-21T09:23:00.000-07:00

Have you ever managed a small project?. Off course, small projects are the rule and big ones are the exception. Nevertheless, all of us have learned about how to manage big projects and only a few of us have learned how to manage small ones.

If you only have experience in small projects, don’t be ashamed of that. Small projects have small budgets and go very fast. If you don’t think that fast projects with small budgets are difficult, probably you don’t know too much about projects. Sometimes, I have thought that good project managers really are tested in small projects.

It’s easy to say what a kick-off meeting needs to have, when you have weeks and even more to prepare it. When you have only a couple of days to prepare it, you don’t have too much time to think about philosophy. In that case, you better know today what is necessary to say, because you will not have another opportunity.

Have you ever tried to oversee a small project using EVM?. Well, tell me if this doesn’t sound familiar to you: It’s is almost impossible to know how the cost that has being spent. If you are not agreeing with last statement, think again. A few of main reasons for this are:

The first report of accountability probably is going to be as late as the project.
The majority of bills are received close to the end of the project.
Human resources efforts are controlled counting (with the fingers of your hands) how many people you can see and comparing with how many people have you planed.

Receive a few suggestions of an expert in small projects (me):

Maintain it as simple as possible
Is there a simpler form of EVM that can be used in small projects? Yes, there is. EVM doesn’t mean you need to measure every hour spent in your project. A good way to avoid the task of oversee each hour, is to define mean values and big units of efforts, like month-person.
EVM's standard measurement methods include the alternative of LOE (Level of Effort). It means you can measure human resources efforts, like project management, to be accounted automatically when the time goes on.
Another simplification is possible. The Accounting Principles say that a cost is accounted when it occurs. No matter if the bill was printed and, certainly it doesn't matter if it was in your hands. Define at the beginning of project a mechanism to formalize the cost, even though the accounting could go slower.

Off course, using a good and simple EVMS will be a big help to diminish the efforts to oversee a project. Let's remember that I promised to launch a web based EVMS in July 2011. I’m working on it.

NASA proposed to reduce requirements for Earned Value Management System for firm-fixed price (FFP) contracts

2011-06-09T14:31:00.000-07:00

According to the Federal News Radio, recently NASA proposed to scale back its requirements for establishing and maintaining an Earned Value Management System for firm-fixed price (FFP) contracts. It means that for small FFP contracts, there is not going to exist the need of a complete application of the known technique.

I have used EVM in small projects for many years with a spreadsheet and an assistant. The Practice Standard for Earned Value Management of the PMI has 50 pages and is very easy to read and apply. The ANSI/EIA-748-B-2007 has less than 25 pages and is equally easy to apply. Nevertheless, I have reviewed some public documents of NASA about EVM and I think that the system is big and complex. Probably, the processes of NASA were designed for projects larger than US$ 50 millions.

EVM is a good technique that combines measurements of scope, schedule, and cost in a single integrated system. When properly applied, it provides an early warning of performance problems even for small projects. It is clear that the majority Project Management Systems are not focused in EVM and are not a very good help. That’s why I’m building a simple web based EVM system that is going to be launched on July of this year. Please, send me a message if you want to become a beta tester for it.

Externalities of Deepwater Horizon platform of BP and the Fukushima Daiichi nuclear plant

2011-05-29T12:39:00.000-07:00

An externality is a positive or negative effect of some economic agents, not transmitted through any charge or payment, affecting consume or production of other agents. Pollution and risks generated by dangerous activities are some examples of negative externalities.

Many projects are economically feasible because of the lack of control over negative externalities. The Deepwater Horizon platform of BP and the Fukushima Daiichi nuclear plant have something in common: the time has showed that the externalities were underestimated.

How to estimate externalities of risks of a project?. A not graduated student of engineering can do it. The cost of externalities is the sum of different risks multiplied by the impact of those risks. The problem is not how to estimate risks; the problem is the lack of will to do it.

The overall cost and benefit to society is defined as the sum of the economic benefits and costs for all parties involved (the stakeholders). Simplifying, the society has to avoid participate in any way in projects with an overall expected cost bigger than expected benefit. A good way to do this is charging a bad project with the expected cost of externalities, converting that project in an economically unfeasible one.

Projects are my passion. I'm not proposing to stop doing projects. I'm proposing to work with social responsibility, performing a good Stakeholder Management.

Propose projects with clear negative externalities, is a matter of extremely incompetent engineers and bad persons. A good Project Manager has to be conscious of the externalities of his projects. The Code of Ethics and Professional Conduct of PMI declares that "We make decisions and take actions based on the best interests of society, public safety, and the environment".

The Project CityTime at New York Shows Importance of Overseeing Projects

2011-05-28T16:44:00.000-07:00

The CityTime Project has as main deliverable, an automated system designed to streamline employee timekeeping in New York City. Federal prosecutors in Manhattan charged some CityTime consultants with an $80 million fraud scheme that began in 2005. Gerard Denault, an executive of the company that is overseeing CityTime, was charged with receiving over $5 million in kickbacks for his work as the project’s senior manager. The project has had large cost overruns and delays. The administration of mayor Bloomberg is handling this situation as a big scandal that is threating to sink their credibility.

In situations like this, I remember that one of the main objectives of following a recognized methodology is protecting the Project Manager. Another thing that comes to my mind is the importance of following an ethic code like the one of PMI. Finally, I remember something that I heard from a company's president: a good system deployment is not important, but a bad one could sink the company's president. My conclusion is that spend some money in a good system to overseeing projects is always a good investment. Consider an EVMS in your core strategy to avoid this kind of risks.

Forecasting with EVM: the story of Dick Cheney and the A-12 Avenger

2011-05-18T19:39:00.000-07:00

The A-12 Avenger II was a planned stealth bomber plane, proposed by McDonnell Douglas and General Dynamics. The development project of the A-12 was troubled by cost overruns and several delays, causing questions of the program's ability to deliver results upon its objectives. The development program was finally canceled in 1991 by Secretary of Defense Dick Cheney because of performance problems detected using EVM. This decision was widely considered to prove that EVM mattered to secretary of defense-level leadership.

The Secretary of Defense Dick Cheney said: “The A-12 I did terminate. It was not an easy decision to make because it's an important requirement that we're trying to fulfill. But no one could tell me how much the program was going to cost, even just through the full scale development phase, or when it would be available. And data that had been presented at one point a few months ago turned out to be invalid and inaccurate.”

How can we know how much money a project is going to cost?. In order to explain some concepts, variables and abbreviations are used in following formulas. You can find the definitions of these variables in this Blog.

In EVM, the final cost of a project is called Estimated At Completion (EAC). There are three main methods to calculate EAC depending on the nature of deviations. If there hasn´t been deviation, the formula is very simple:

Supposing there has been a deviation and it has been a good example of what is going to happen in the future, EAC would be calculated in the following way:

When a deviation has been something that is not going to happen in the future, EAC would be calculated in the following way:

When we realize that the estimation of the project was a totally wrong or new information arises that has not yet been considered, it would be better to calculate ETC as a new estimation of the remaining cost. In any case:

As you can see, the variables and indexes of EVM have the capability of forecasting the final cost of a project in an easy way. I hope the story of Dick Cheney motivates the decision makers to understand the importance of using EVM.

Protests against HidroAysen project at Chile

2011-05-09T18:43:00.000-07:00

According with many studies about project management, some errors in Stakeholder Management are one of the most important reasons of project failure in the world. In a last post (http://www.earned-value.com/2011/03/john-nashs-theory-applied-to-project.html) I have presented a thesis about the use of the theory of Nash to explain the failure of some projects. I have seen recent protests in my country (Chile) against HydroAisen project that are showing bad practices in Stakeholder Management.

HydroAisen is a project of 5 hydroelectric power plants with an average generation of 18,430 GWh in the rivers Baker and Pascua at Aysén Region in the south of Chile. I’m sad to say that if the efforts in Stakeholder Management don’t increase, the project would be finished before starting.

The Role of Web Based Project Management Systems

2011-05-01T15:36:00.000-07:00

The statistics of failure of IT projects in the world are shocking. In the last ten years the success rate has improved from 16% to 32%. This means that 3 out of every 10 IT projects fail (chaos). There are many reasons but these are frequently mentioned:

User Involvement
Executive Management Support
Clear Statement of Requirements
Changing Requirements & Specifications

As you can see, two of these are related with Stakeholder Management and two are related to Integrated Change Control. It’s very common that Project Managers concentrate their efforts in Project Execution, forgetting to work enough in the areas that are frequently the origin of the failure of the project.

In the last few years, there has been a tendency of defining requirements in a more flexible and iterative way. New methods like Agile are focused on quick responses to change and continuous development. In my experiences, transforming projects in continuous operations is how the projects become a goal in and of themselves. A project is always a vehicle to achieve a more important goal. It has to be temporal by definition. Nevertheless, a quick response to change is something that has to be considered seriously.

There are a few information technologies that point to the heart of the failure. The web as a whole and the ubiquity as one of the most important of their characteristics, convert web technology in a good way to manage communications in a project. Transactional Databases allow evolving every piece of a project, maintaining traceability and integrity, something that is very difficult with electronic documents or physical ones. As a consequence, a great recommendation to Project Managers: use a web based transactional system to manage your project and give access to every stakeholder. This tendency is quietly revolutionizing project management.

Earned Value at Frequency Domain

2011-04-24T14:58:00.000-07:00

Abstract

EVM is a known Project Management Technique that could be considered ineffective in activities that do not ordinarily contain temporal work to create a unique result (projects), such as services or ongoing operations. A good analogy is proposed to use EVM in services, converting the model to the Frequency Domain using Fourier Transform. A simple example is shown to obtain conclusions about how to manage a continuous service with this new technique.

Introduction

Earned Value Management (EVM) is a very known, elegant and effective Project Management Technique. It unifies the three main knowledge areas (Scope, Time and Cost) of Project Management in a common framework that mathematically represents the relationship between them. It can be used to dramatically improve the success rate in projects when it is complemented with other techniques of Project Management.

A project could be defined as a temporal work to create a unique result. Unfortunately, the application of EVM to efforts that may be categorized as “non-schedule-based”, i.e., those that do not ordinarily contain temporal work to create a unique result, could be considered ineffective. “Non-schedule-based” efforts include services composed primarily of Level of Effort (LOE) activities, such as maintenance services or continuous services.

Almost every product of a project have a continuous operation phase after a transition stage. Different skills and techniques needed to manage continuous operations are the reason to divide this cycle in a "project phase" and an "ongoing operations phase". Even more, many projects have a portion of their first activities responding better to the definition of ongoing operations. It is a challenge to fight against the ineffectiveness of EVM in ongoing operations, extending the model to manage “non-schedule-based” efforts.

Let’s name this model EVM[t] to differentiate from the model EVM[w] that is proposed in this document. If you are already familiarized with EVM, just skip following title and go to the next one.

EVM[t] basics

Earned Value Management is founded in the use of three variables: Planned Value (PV), Actual Cost (AC) and Earned Value (EV). The first two concepts are easy to understand. The last variable is a good measure of progress.

PV is also known as Budgeted Cost of Work Scheduled (BCWS). The curve obtained of the accumulated planned cost (PV) is also known as "Baseline" and is the reference for the cost performance for the whole project.

AC is also known as Actual Cost of Work Performed (ACWP). The Actual Cost (AC) is clearly associated with work, because the units of cost that are measured by AC are those generated by tasks that have been worked. In other words, when a unit of work has been done, AC adds the real cost for that unit of work.

EV is also known as Budgeted Cost of Work Performed (BCWP). When a unit of work has been done, EV adds the same value that was planned for that unit of work, no matter how much was the cost of finishing that unit of work.

A project's Cost Variance (CV) is simply the difference between the Earned Value (EV) and the Actual Cost (AC). The value is positive if the budgeted cost of the work performed is greater than the actual cost of the work performed. In other words, CV is positive whether a project is under the budget.

A project's Schedule Variance (SV) is simply the difference between the Earned Value (EV) and the Planned Value (PV). The value is positive if the budgeted cost of the work performed is greater than the budgeted cost of the work scheduled. In other words, SV is positive whether a project is ahead of schedule.

The Earned Value Analysis mainly observes SV in order to know the speed of the project. It also observes CV in order to know if the project is on budget. There are many other index and concepts, but these are the basics.

EV[t], AC[t], PV[t], CV[t] and SV[t] are functions of the time. They are measured in units of economic value ($). Mathematically, the domain of them is time and the range is economic value ($).

EVM[w] fundamentals

Let’s talk about “services” instead of “projects”, because in frequency domain could be more appropriate. Let’s use “w” to represent frequency, even though w is the common representation to frequency measured in radians, not in hertz. In this case is not important. “w” will be our representation of frequency, no matter the measurement unit of frequency.

Different from EVM[t], the variables of EVM[w] are non accumulated variables. The reason is clear. If any of these variables is defined as the accumulated amplitude of the concept, then this variable would has an infinite value, because services are continuous by definition. More precisely, let’s define EV’[t] in the following way:

Let’s define analogically AC’[t], PV’[t]. The interpretation is very simple: these are the non accumulated variables. In a discrete model, these are the increments in each measurement period.

Let’s define EV’[w], AC’[w], PV’[w] as new functions of the frequency. They will be measured in units of economic value ($) as the homonymous variables of EVM[t]. Mathematically, the domain of them will be frequency (w) and the range will be economic value ($).

A shortcut can be used to precisely define these functions. If you are not familiarized with Fourier Transform, ignore the following formula and go directly to the next definitions. Lets define EV’[w] as follows:

Let’s define analogically AC’[w], PV’[w].

Even though EVM[w] is not a model based on time, it’s clear that the model describes a physic situation that could be modified. EVM[w] describes past, present and future states of a service as we could know them. Nevertheless, EVM[w] analysis could make recommendable to do changes to the service.

PV’[w] will be known as Budgeted Cost of Planned Goal (BCPG). The curve obtained from the planned cost (PV’[w]) will be known as "Frequency Distribution of Value" and will be the reference for the cost performance for the whole service.

AC’[w] will be known as Actual Cost of Recurrent Achievement (ACRA). The Actual Cost (AC’[w]) is clearly associated with work, because the units of cost that are measured by AC are those generated by recurrent services that have been worked. In other words, if a level is recurrently achieved, AC’ will be the real cost for that achieved level, even though is not the planned level.

EV’[w] will be known as Budgeted Cost of Recurrent Achievement (BCRA). If a level of service is recurrently achieved, EV’ will be the cost that was planned to achieve that level of service, no matter how much is the recurrent real cost to achieve that level of service.

A service's Cost Variance (CV) will be simply the difference between the Earned Value (EV’[w]) and the Actual Cost (AC’[w]). The value will be positive if the budgeted cost of the recurrent work is greater than the actual cost of the recurrent work. In other words, CV[w] will be positive whether a service is under the budget, for the work planned to be done with frequency w.

A Service Level Agreement Variance (LV) will be simply the difference between the Earned Value (EV’[w]) and the Planned Value (PV’[w]). The value will be positive if the Budgeted Cost of Recurrent Achievement is greater than the Budgeted Cost of Planned Goal. In other words, for the work planned to be done with a given frequency w, LV[w] will be zero if the service is achieving goals and less than zero if not.

EVM[w] will be useful to observe LV[w] in order to know the achievement of the Service Level Agreement (SLA). It will be useful to observe CV[w] in order to know if the service is on budget.

Example

In the following table you could see the data of an example. A discrete model is used to facilitate the understanding. Let the red squares be the actual cost of each recurrent work. Suppose that we normally achieve (green) the goals of the first Service Level Agreement (SLA), we are progressing (green) in the second SLA excepting with the weekly and monthly goals (blue). With the third SLA only the weekly goals are recurrently achieved (green). The goals of the fourth and fifth SLA are recurrently achieved (green).

It's possible to see the last example drawn in the following curves. Hourly the service is going according to plan. Daily, the goals of the plan are achieved but the actual cost is recurrently over the budget. Weekly, the goals are not achieved but the cost is what was planned for that level of achievement. Monthly, the situation is worst, the goals are not achieved and even the cost is greater than what was planned for the levels achieved. Yearly, we save money but the goals are not achieved.

There is no apparent reason to not increase weekly efforts in order to achieve weekly goals, because the cost of those efforts are giving the expected results (CV[week] = 0 & LV[week] < 0). Normally, the goals of the year depend on the goals of the months and so on. It’s preferable to analyze the effects of a weekly increment of efforts before deciding to increment other efforts, but apparently there are money each year (CV[year] > 0) that can be used for that.

Concluding Remarks

EVM[t] could be considered ineffective in activities that do not ordinarily contain temporal work to create a unique result (projects). A good analogy can be done to use EVM project’s technique in ongoing operations or services. An Earned Value Management technique in Frequency Domain (EVM[w]) has been defined using Fourier Transform to prove this possibility. Non accumulated variables are needed to do so. An example has shown that homologous indexes can offer interesting information to obtain conclusions about how to manage a continuous service.

Risk Management at the Fukushima Daiichi Nuclear Plant

2011-04-17T14:08:00.000-07:00

I have read that there is a common approach to start developing a Risk Management Plan in nuclear plant projects, which is a Probabilistic Risk Assessment (PRA). Investigating, I found that a PRA identifies and evaluates what experts think are the most important risks. Sophisticated methods as Markov Chains and Bayesians Inferences are useful to make a precise probabilistic analysis. This quantitative analysis is founded on a good identification stage. What if the experts identify a poor percentage of risk sources?. What have we learned about risk identification at 9/11?. We make a good manage of known risks but sometimes a poor manage of unknown risks.

I have heard that nuclear power plant design strategy for preventing accidents and mitigating their potential effects is "defense in depth". It means that if something fails, there is a back-up system to limit the harm done, if this back-up system also fail, there is another back-up system for it, and so on. It's what we are seeing in the Fukushima Dai-ichi power plant. We haven’t seen a full meltdown yet, but we have known about the discharge of over 10,000 metric tons of low-level radioactive water into the ocean, what in risk management is called a secondary risk.

I don’t want to be a strong critic of efforts that are beyond my capabilities. I hope this could end well for that people. Probably, nobody can do more than Tokyo Electric Power Co (Tepco) in current circumstances. But what we can do is to learn. Even more important than a good quantitative analysis in a PRA is the Risks Identification Stage. We are using experience and imagination to face this problem. I propose to create models, algebras and discover what is not obvious. Computer science could help us to explore possibilities with inference engines or can help us in solving big equations. We don’t have better tools to deal with what we don’t know. Using experiences is not a solution when we are working with so many new technologies and new possibilities.

Earned Value Measurement Techniques / Methods

2011-04-09T16:09:00.000-07:00

In my opinion, there is a natural tendency of humans to change the progress measurement criteria during the execution. Normally, the change increases the importance of what we have done and decreases the importance of what we have to do. This behavior generates a very common consequence in the projects performance, that is, we dedicate 80% of time finishing the last 20% of the project. A Key Practice of Earned Value Management is selecting the technique of measurement of Earned Value during project planning and avoid doing that after the project planning. This simple rule helps a lot in avoiding the 80/20 problem.

A second Key Practice related with Earned Value Measurement is to select an appropriate method according with the type of effort. It’s possible to assign different methods to different activities, depending on the nature of the work. There are discrete methods, apportioned methods and LOE (Level Of Effort) methods. Key attributes of work are: the duration and the tangibility of product. The following are a few and probably the most known methods.

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Fixed Formula

The most common measurement method is the 50/50 formula. The first number, from left to right, is the percent of progress that is accredited when the activity has started, regardless how much of the progress has actually been accomplished. The second number is the remaining percent progress that is accredited when the activity has been finished. Other common rules are 25/75 and 0/100. The beauty of this method is that it is very easy to measure and very objective.

Weighted Milestone

This technique divides the work into a finite number of pieces and assigns a weight to each piece. It’s common to use percents and the sum of weights is 100%. The weight is the percent of progress that is accredited when the piece is accomplished. It’s important that each piece is related to an observable milestone.

Percent Complete

This technique accredits a percent of progress according to a predefined rule that is directly related to an observable characteristic of the work. Let’s take the example of the construction of a wall planned to have a height of 100. The Percent Complete Method could consist in accredit a percent of progress equal to the accomplished height of the wall.

Apportioned Effort

This technique accredits a percent of progress according to the progress of other unit of work. The most common application is the Project Management. If we divide the scope of the project in two Work Packages: 1) Project Execution and 2) Project Management, then we would accredit the progress of the Project Management according with the progress of the Project Execution. In this example, we say that the method is Apportioned To Project Execution.

Level of Effort

This technique divides the Total Planned Value in a unit of Planned Value to each measurement period. The Planned Value is automatically accredited at the end of the period. It’s impossible to have a Schedule Variance with this method, but it is possible to have a Cost Variance. This method is used when it’s almost impossible to have a good measurement of tangible outcomes or when there is not plan for those outcomes.

Earned Value Management Systems ANSI/EIA-748-B-2007 compared with PMI Practice Standard for EVM

2011-04-02T16:59:00.000-07:00

There are two good sources to learn about Earned Value Management Systems (EVMS), both of which are very useful when considering the implementation of EVMS. The first is a book of the Project Management Institute titled "Practice Standard for EARNED VALUE MANAGEMENT" published by Project Management Institute, Inc. in 2005. The second is the ANSI/EIA-748-B-2007 about Earned Value Management Systems. It's not easy to choose between both authorities in the field. I'm going to say a few important things about both sources so that you can make a decision.

The PMI Practice Standard is clearer, more practical and it has images and formulas that you can use in a simple way. The EIA-748-B is a good text without formulas nor images. Both are short and easy to read. The PMI Practice Standard is oriented to Project Management and the EIA-748-B is oriented to Program Management (http://www.earned-value.com/2009/04/author.html) . With a few differences, both are useful for the overseeing of projects.

The PMI Practice Standard has chapters dedicated to Performance Analysis and Forecasting while the EIA-748-B is more dedicated to the basics. Both propose Key Practices. While the PMI Practice Standard presents the CPI and SPI, the EIA-748-B only presents the concepts of Variations. The fault of PMI Practice Standard is the proposal of using the SPI defined in an old way that today is recognized as a bad index (http://www.earned-value.com/2011/03/spi-is-not-good-index-at-project-finish.html).

The PMI Practice Standard defines five (5) different Earned Value Measurement Techniques while the EIA-748-B only presents three (3). The EIA-748-B takes care of changes in deeper way, expressing points of view about Retroactive Changes and Internal Replanning.

I think that the EIA-748-B could be used as a more flexible standard in order to allow evolution and the work between different organizations. The Program orientation is something good for project overseeing and PMOs. The PMI Practice Standard could be a good guide for Project Management and a more precise definition to automate the processes or to create a software.

As a conclusion, both sources are useful. My recomendation is that you use the EIA-748-B as the standard and create a more precise and practical guide based on the PMI Practice Standard.

Stakeholder Management: Learned Lessons from BP Oil Spill

2011-03-27T15:09:00.000-07:00

In the last post of earned-value.com (http://www.earned-value.com/2011/03/john-nashs-theory-applied-to-project.html), I have suggested that behavior of stakeholders explains the failure of a big number of projects and I have explained this from the perspective of Nash's Theory. I have decided to show an example in order to support that thesis in this post. The story of the Deepwater Horizon Oil Spill is well known by the majority of people. Let me use it.

There were at least three important stakeholders involved in this project: the BP administration, the employees of BP and Society at large. After the oil spill, it is clear to each one that the disaster could have been avoided and that the result wasn't good business for anybody. What have we painfully learned about stakeholder management and Nash's equilibrium?.

The project failed. The risk management was poor, the contingency plans were outdated and the costs have been enormous for everybody. The administration of BP tried to take on more that they should have, with a big risk of earning less than they could have. From the perspective of the employees of BP, I'm sure that many of them were victims but in certain ways they were victims of ambition and obedience of a few. There is no excuse to be part of a project team that is putting Society in that kind of risk. From the perspective of Society, BP has been feeding the monster of oil consumption. Society has been trying to take on more than they should, with a big risk of earning less than they could.

If the manager of this project had decided to invest more efforts in risk management, BP would have invested more money in mitigation and contingency plans. If the BP administration had focused on the long term earnings, they would not have risked so many lives and the ecosystem. Furthermore, they would have earned more money than they finally did. If Society had developed alternative energy sources, we could have avoided the extraction of oil from deepwater.

Learned Lesson: Each project has an equilibrium between stakeholders. If a stakeholder wants to break the deal and breaks it unilaterally, he/she will risk earning less than he/she would earn without breaking the deal.

John Nash's theory applied to Project Management

2011-03-20T15:12:00.000-07:00

There is an unexplored area related with Project Management that could be seen from the perspective of John Nash's theory. Any Project Manager with any experience knows how difficult it is to deal with the stakeholders of a project. This knowledge area is commonly named "Stakeholders Management". I don't have statistics about it but I'm pretty sure that the behavior of stakeholders explains the failure of a big number of projects. John Nash has told us why this happens and how we can develop a model to predict it.

First of all, we need to understand that a project is a conflict. Period. More than defining a project as something that can have a conflict, we can see a project as a conflict by itself. Let's remember that a conflict could be defined as a situation where two or more persons, or groups of persons, have interests perceived like opposites. The majority of projects are just like this. It starts at the moment when somebody pays and somebody receives payment. Who doesn't want a bigger payment?. Who doesn't want a bigger scope?. That's all, a project is a conflict.

A conflict is named "a game" for mathematicians. Nash's Equilibrium of a game is an agreement that nobody can break discretionally without losing. That means, if somebody wants to break the deal and breaks it unilaterally, he/she will risk earning less than he/she would earn without breaking the deal (See the Prisoner's Dilemma http://en.wikipedia.org/wiki/Prisoner's_dilemma). Nash said that every finite game has at least one Nash's Equilibrium.

Well, I have the intuition to say, and I often do, that the triple restriction (scope, cost, time) is a Nash's Equilibrium of a game formed by the relationship of the stakeholders of a project. Many times the failure of a project starts with the unilateral decision of a stakeholder trying to take more than he can without breaking the "deal". As a result, it is common that the group or society obtain less than they could obtain in Nash's Equilibrium. If a mathematician reads this, please help me develop the model to prove this and increase the probability of success in many future projects.

Practical estimation of Earned Schedule (ES)

2011-03-17T17:26:00.000-07:00

The Earned Schedule (ES) concept is very simple. It's a time magnitude or a time measurement. It's the instant of time in the plan which corresponds to the actual progress. If the project is behind schedule, ES will be the instant (in the past) at which the current progress should have been achieved. If the project is ahead of schedule, ES will be the instant (in the future) at which the current progress was planned to be achieved.

The way of finding the ES instant in time is the following. Find the instant in time distinct to the current instant in time (T) when the Planned Value (PV) was or will be equal to the current Earned Value (EV). Another way to see it is to project the Earned Value (EV) horizontally over the curve Planned Value (PV). It's explained in the following video.

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Unfortunately, finding the Earned Schedule (ES) of a project would ocasionally be a problem because of the discrete nature of the time series. This means that the Planned Value (PV) and the Earned Value (EV) are discrete values. Therefore, PV and EV are not continous curves. For example: let the Planned Value at t1 be equal to 200. Let the Planned Value at t2 be equal to 250. It is possible that there is not an instant t when the Planned Value is exactly 230. In this example, if the Earned Value (EV) is 230, we will not find a pair of time instants t2 and t3 for wich EV(t2) = PV(t3), excepting the origin. The example could be viewed in the following image.

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Theorically the described problem doesn't exist. In theory, PV and EV have the same values or mathematically: they have the same range, because both are formed by the sum of the same increments that came from the same WBS, the same activities and the same measurement methods. Nevertheless, in practice, the measurement of EV and PV often have diferent range with disjointed discrete values. What can we do in this case?. The answer is simple: interpolate.

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Supposing that PV(t1) <= EV(t) and PV(t2) >= EV(t), then we can approximate:

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This is a good and practical approximation to ES that I widely recommend.

SPI is not a good index at the end of a project

2011-03-07T18:13:00.000-08:00

The Schedule Performance Index, SPI = EV / PV, is commonly used as value to monitor how a project achieves the milestones in a timeline. However, this indicator is less effective when a project nears the end. It is clear that when EV is close to PV, the indicator tends to 1, which is the ideal value. Even when a project is completed late, the SPI indicator always ends in 1.

To understand the problem, consider what happens to the analog index Cost Performance Index, CPI = EV / AC. Clearly, when AC passes PV, ie, there is economic loss, then EV will never reaches or passes AC, and then, if a project ends with economic losses, the CPI indicator is always <1, even after completion project.

To solve the problem, the literature suggests to use a value called Earned Schedule ES. It is possible to find adequate information on the use of this indicator in http://www.earnedschedule.com/.

EVM & Ongoing Operations

2009-04-10T19:19:00.000-07:00

The application of EVM to efforts that may be categorized as “non-schedule-based”, i.e., those that do not ordinarily contain temporal work to create an unique result, could be considered ineffective.

“Non-schedule-based” efforts include services composed primarily of Level of Effort (LOE) activity, such as support services or continuous services. This continuity is opposed to the definition of project.

Almost every product of a project has a continuous operation phase after a transition stage. It's clever to divide this cycle in a "project phase" and an "ongoing operations phase" because of the different skills and techniques needed to manage it.

May we extend or add something to EVM to manage programs?. EV, PV, AC, BAC, ETC are part of an algebra created with the purpose of managing projects. It's clear to me that we need to measure non accumulated variables related to accumulated ones, in an integrated framework.

Program

2009-04-10T18:38:00.000-07:00

A program is a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually.