How to use Earned Value Management using MSProject 2007

PART I – INITIAL SET-UP – CALENDARS, TASKS AND MILESTONESAs project managers, we all are aware of Earned Value Management to help control costs. The PMBOK has a good fundamental description in Earned Value. Using this concept to track a real time project is extremely useful and gives an instant feel about the performance of the project. Earned Value Management can be effectively used with the help of MS Project 2007.
In this article, I have used the Earned Value concepts in tracking a project using MS Project 2007 (Professional edition).Before I start, let me clarify certain assumptions.
The project I considered is a software development project that I took from the MS Project templates and then modified it by changing the timings, constraints, Costs etc to help better visualise the Earned Value concepts.
This article can be used especially by MS Project 2007 beginners or even professionals who don’t get the chance to load resources/costs into their projects due to organisation policies or constraints.
However, this is not an article to explain how to use MS Project; but, if I came across any useful pointers and tips, I have added them as we move along.

1) CALENDARS
Standard Calendar – is of duration from 9 to 6 PM with Monday to Friday as working days. Saturdays and Sundays are holidays. (This can be set-up from Tools – Change Working Time).

Project Calendar – is of duration from 9 to 6 PM with Monday to Friday as working days. Saturday and Sundays are holidays. This has an exception of 5 PM to 6 PM every Friday of non-working hours where all teams are engaged in taking backups and thereby, technical tasks cannot be executed. (This can be easily set-up from the Project Guide Feature or from Tools -> Change Working Time)

PART II – INITIAL SET-UP – RESOURCES4 – RESOURCESAn important area in the initial planning phase is how to allocate resources across the project.

MATERIAL RESOURCES — are items that are consumed while working on a project. Material resources use materials such as gasoline or wood — as opposed to time. When you assign a material resource to a task, you specify the amount of the material resource that you intend to use in units that are appropriate for the material resource.

WORK RESOURCES — are people or equipment that consumes time when working on a task.

GENERIC RESOURCES — resources (as defined by you) that aren’t specific people, equipment, or materials, but rather descriptions of the skills that you need for a task when you don’t know what specific resources are available

COST RESOURCE – Using a cost resource, you can add a fixed cost to a task without making the cost depend on work performed. If one or more tasks in your project require that you rent a storage unit during part of the project, you can set up the storage unit as a cost resource that you can assign to tasks during the appropriate periods to account for the cost of the storage unit as part of the task. Or, suppose that a resource needs to fly from Salt Lake City to Chicago to complete a task; you can set up the airline tickets as a cost resource and add them to the task.

You also can set-up a budget resource. Budget resources give you the opportunity to specify how work or costs will be allocated during the project. Suppose, for example, that you want to budget for the cost of a storage unit required during the life of your project. You would create a resource for the storage unit, setting its type as Cost, and then check the Budget check box on the General tab of the Resource Information dialog box to make it a budget resource.

If you set up a cost resource as a budget resource, you can use it to budget for your project.MS Project doesn’t allow you to enter any cost information for a budget resource on the Resource Sheet. To assign a value to the budget resource, you first assign it to the project summary task — and Project won’t let you assign a value as you assign the budget resource. Then, you supply a value by adding the Budget Cost field to the table in the Task Usage view or the Resource Usage view.Here, I have set-up 15 PCs for the project team and 2 laptops for the project manager and analyst as budget resources.

FIXED COST – Some tasks are fixed-cost tasks, that is, you know that the cost of a particular task stays the same regardless of the duration of the task or the work performed by any resources on the task.5) RESOURCE USAGEAfter the plan is complete and the resources loaded, you would normally find that resources would be over allocated primarily due to parallel tasks, or sequential tasks with leads/lags. The first thing to do is to check if resources can be re-allocated, or utilised in a different way. I checked for this and found many situations where certain resources were being used simultaneously in various tasks. The resource usage view gives a convenient way of identifying such situations that are not so easily visible.
Next, check if certain tasks can be completed at a comparatively lesser time. Another option is to check for free slack- i.e., free float existing in each task, then to check if it can be done by relatively giving less duration per day.
However, if the budget and customer deadline is stringent, then one will have to opt for resource over time (to a realistic level).
In this project, I have considered a situation where the project deadline is stringent. And that over allocation of resources was inevitable especially during the development phase.
To achieve this, go to the Tracking Gantt Entry table view. Use Windows Split option and opt for Resource Work view.
As you move from one task to another, you can clearly see the resources allocated along with the time duration. You will get the option to put Ovt. Work (Overtime work). I have attached a sample view below for better clarity.

Resource levelling should be the last option since it will move the project schedule date to the right and cause delay in the project completion date.PART III – DEALING WITH BASELINES6) BASELINES

Some projects, particularly shorter ones that run only a few weeks or even a couple of months, may have one baseline set at the outset and may proceed close enough to your estimates that they can run their course against that single baseline. Other projects, especially longer ones, may require you to set several baselines along the way, particularly if the original estimate is so out of line with what has transpired in the project that the original is no longer useful. You can modify the entire baseline if changes are drastic and occur early in the project, or you can modify the base-line estimates only going forward from a particular point in the project.
When we set a baseline, MS Project automatically baselines the Costs involved as the Baseline Budget i.e., Cost Performance Baseline or Performance Measurement Baseline or also referred as Budget at Completion (BAC). Make a note of this as this will be useful in later sections when we discuss Earned Value Management.

Costs can change a baseline, too. For example, what if you save a baseline that is set to fit within a $100,000 budget and, before you start work, cost-cutting measures hit your company and your budget is cut to $75,000? It is wiser to make the changes to your resources and costs, and then reset your baseline before starting the project itself.

Setting interim baselines keeps your projects from varying wildly from your estimates when mitigating circumstances come into play. When you’re ready, you can use the Set Baseline dialog box to save up to 11 baselines and 11 interim plans for your project. Each baseline is a picture of your project at the time that you save it, and each baseline that you set includes information about tasks, resources, and assignments. For tasks, Project saves duration, start and finish dates, work, time phased work, cost, and time phased cost. For resources, Project saves work, time phased work, cost, time phased cost, budget work, time phased budget work, budget cost, and time phased budget cost information with the baseline. For assignments, Project saves start and finish dates, work, time phased work, costs, and time phased costs.

When you save interim plans, Project saves a set of task start and finish dates that you can compare with another interim plan or with a baseline plan, thus helping you to keep an eye on progress or slippage. Saving baselines and interim plans can help you compare current information (found in the start and finish fields) with baseline information (found in the baseline fields). The distinction between baselines and interim plans in Project is the amount and type of information that Project saves.

PART IV- EARNED VALUE CONCEPTS

7) TRACKING

Tracking Gantt view helps to show actual progress vs. projections.

Before we actually start tracking and updating the actual of the project, let us relook at the Earned Value Concepts.

EARNED VALUE CONCEPTS

Budget at Completion (BAC) = Performance Measurement Baseline = Cost Performance Baseline = Project Budget (including Contingency reserves). This excludes Management Reserve which is reserves for unplanned risks/changes. Project Manager can spend the project Budget including the contingency reserve for planned risks/delays. However for spending Management reserves he needs to take specific prior approval from Senior Management.
Planned Value (PV) = Budgeted Cost of Work Scheduled = BCWS = PV/BAC

Earned Value (EV) = Budgeted Cost of Work Performed = BCWP = (% of work complete) x BAC = EV/BAC

Actual Cost (AC) = Actual Cost of Work Performed = ACWP = AC/BAC

Schedule Variance = SV = EV – PV. If > 0, means Ahead of Schedule

Cost Variance = CV = EV – AC. If > 0, means Under Budget

Schedule Performance Index = SPI = EV/PV, If > 1, means Ahead of Schedule

Cost Performance Index = CPI = EV/AC, If > 1, means under budget

Estimate at Completion (EAC) = BAC/CPI = AC + (BAC-EV) = AC + (BAC-EV)/ (CPI x SPI)

To complete Performance Index = TCPI initial = Work remaining/ funds remaining = (BAC-EV)/ (BAC-AC). Higher value means tighter budget. This you can easily infer from the formula itself.
TCPI (later) after revised EAC = Work remaining/ funds remaining = (BAC-EV)/ (EAC-AC). Higher value means tighter budget

PART V- TRACKING

Now let us see how these concepts can be used in MS Project 2007.

You can record actual information for a project by filling in the following fields for each task that tracks the progress of your project:
Actual start date

Actual finish date

Actual duration

Remaining duration

Percentage complete

Note: The fields mentioned above are one possible set of fields that you can use to record actual information; there are other alternatives. For example, some people focus on updating only Actual Work and Remaining Work.

OPTION I – Set Actual Start Date and Actual Duration (If Actual Start Date is not set, MS Project will automatically take Actual Start Date as the Baseline Start Date)

This will automatically calculate the % complete, remaining duration, Actual Cost and remaining cost till then for that task.

If you set an actual duration that is greater than the planned duration, Project assumes that the task is finished but that it took longer than expected to complete. Project adjusts the planned duration to match the actual duration and changes the Percent Complete field to 100% and the Remaining Duration field to 0%.

OROPTION II – Set Percent Complete(If Actual Start Date is not set, MS Project will automatically take Actual Start Date as the Baseline Start Date)

Setting the % complete will automatically calculate the Actual Duration, Remaining duration, Actual Cost and remaining cost till then for that task.

OPTION III – Set Actual Work and Remaining WorkSometimes, you must schedule tasks based on the availability of certain resources. In these cases, tracking progress on a task is easiest if you update the Actual work completed. Updating this value also updates the work that each resource is performing.
Use the Tracking Table view to enter information into the Act. Work (Actual Work) column, but start in the Task Usage view so that you can enter actual work performed for specific resources. Choose View -> Task Usage, right-click the Select All button, and choose Tracking from the short-cut menu that appears. Then, update the Act. Work column.

EARNED VALUE

The various views available in MS Project for viewing Earned Value Measurements are:1) Earned Value

PART VII – APPRECIATING EARNED VALUEREPORTINGMS Project 2007 has a Visual Report feature to show a graphical trend of PV, EV and AC, including Cumulative Actual Cost.

In fact, the visual reports can be exported to Excel or Visio. Excel reports have associated Pivot charts. The default charts can be changed as per your convenience by adding/removing any of the fields in pivot OR by modifying the trend lines, look and feel of the charts.

You can show the actual progress made so far day wise, while the tasks yet to start can be shown in a weekly scale and can be expanded as you actually reach there.

To appreciate the EVM better, I have discussed a couple of cases.

For this, let us look at the EVM values. Go to Tools -> Tracking -> Update Project. Update work as complete through 6-Sep-10.

While tracking the project till 6-Sep-10, it seems to have started on an optimistic note.

Here, the task Secure Cost resources was completed prior to the completion date and the next task conduct needs analysis also started earlier. Hence the Earned Value is higher. Also, the Actual Cost is lower than the scheduled budget. So, the SV and CV are greater than zero and SPI and CPI are greater than one.

Now, go to the ‘Earned Value’ view. The Scheduled Variance (SV) is greater than zero, but the value has reduced compared to the last week. The Cost Variance (CV) has now become negative.This clearly shows that the project is ahead of schedule but over budget.

To re-plot the S – Curve showing Planned Value, Earned Value, Actual Cost and Cumulative Cost based on Actual Cost, go to Reports -> Visual Reports.

Redraw the pivots as per your convenience. I have pivoted the PV, EV, AC and Cumulative Cost against the dates, where the 1st 12 days of the project has been plotted against each day while the rest has been calculated against weeks.