What we have discussed to this point is the traditional and most robust form of earned value. Whenever the resources are available to apply the method, it should be done because it focuses on the
accomplishments that lead to project value being delivered as promised. However, the collection and reporting of actual cost is often impractical, thereby rendering the quantitative measures unobtainable. In that event, there is an alternative, though less robust, earned value method named "time-centric earned value," [12] first described to the industry in the author's presentation [13] with James R. Sumara to the PMI® National Symposium in 1997.
Time-Centric Principles
The main idea behind the time-centric earned value system is to set a PMB based on planned work package starts and finishes over the course of the project. Time-centric earned value is very close to the concept of "work units" or "standard units of work" as a measure of accomplishment rather than a specific dollarized WBS cost account. Instead of a standard unit of work, however, time-centric earned value focuses on a completed task, with unknown actual cost, as the unit of value in the project.
Although a dollar value is not assigned to each work package start or finish, the total collection of starts and finishes, if executed completely, does represent the total scope (and value) of the project. The total scope of the project does have a dollar planned value (budget).
The historical reporting for purposes of determining variances remains a component of the time-centric system. Instead of earning a dollar value, what is earned is a start or a finish. The PMB is a set of planned starts and planned finishes. Therefore, there is a variance that can be defined thus:
Variance (start) = Earned starts - Planned starts Variance (finish) = Earned finishes - Planned finishes
All the rules we have discussed about what constitutes a claim of credit apply. The definitions of start and finish used in the traditional method to gate the expenses for purposes of calculating the variances to the earned and planned value still apply, but apply to whether a task start can be claimed and not
whether actual cost is to be applied. So too do the ideas of rebaselining, calculating the ETC, and the EAC still apply, but apply to the idea of finishing the project on a time basis and not a cost basis.
Time-centric indexes can also be defined and calculated:
Figure 6-5 provides an illustration of a project wherein the PMB has 20 starts in the first three periods.
We see in this figure that the project team has indeed started 20 tasks, but the starts are at a different pace than planned. We can calculate a variance for each period:
Figure 6-5: Time-Centric Project Start Example.
At the end of four periods, the project is caught up on starts. The project manager can also forecast how soon the project will attain all the starts planned in the PMB using the performance indexes. Table 6-6 provides the start performance metrics. Similarly, we see in Figure 6-6 the finish performance for the example project. Variances similar to the start variances can be calculated; indexes can also be calculated as was done for the project starts. Table 6-7 provides those calculations.
Task start performance index (TSPI) = (Earned starts)/(Planned starts) Task finish performance index (TFPI) = (Earned finishes)/(Planned finishes)
Start variance1 = 3 - 5 = -2 starts Start variance2 = 9 - 10 = -1 start Start variance3 = 6 - 5 = 1 start Start variance4 = 2 - 0 = 2 starts Σ (All variances) = 0 start
Table 6-6: Start Performance Project Example Planned Starts
Adjusted remaining starts = 17/0.6 = 28 Forecast schedule remaining = 2 months
Remaining =
Adjusted remaining starts = 8/0.8 = 10 Forecast schedule remaining = 1 month
* 10/8 = 1.25 months
Adjusted remaining starts = 2/0.9 = 2.2 Forecast schedule remaining = 0 months
* 2.2/2 = 0 months (no remaining
Adjusted remaining starts = 0/1 = 0 Forecast schedule remaining = 0/0 = indefinite
[*]See related figure for a graphical presentation of this example.
Table 6-7: Finish Performance Project Example Planned
Index Forecasted Finish Month 4: 3
Adjusted remaining finishes = 17/1 = 17
Figure 6-6: Time-Centric Project Finish Example.
Forecasting with the Time-Centric System
Just like in the traditional earned value system, forecasts can be made using the same formula as we developed for the forecast in that system:
l Forecast = Actual performance + Remaining performance/Index
For example, in the first period the actual starts are 3, the remaining performance for the project is 17, and the index is 0.6. The forecast is therefore:
where 31.3 = "equivalent" starts.
Adjusted remaining finishes = 4/0.8 = 5
Adjusted remaining finishes = 0/1 = 0 Forecast schedule remaining = 0/0 = indefinite
[*]See related figure for a graphical presentation of this example.
First period index = 3/5 = 0.6 Actual starts = 3
Forecast = 3 + 17/0.6 = 3 + 28.3 = 31.3 starts
How should the project manager interpret the forecast given above? The equivalent starts represent the length of the project as though the PMB were 31.3 starts rather than 20. In other words, based on the performance in the first period, the project is forecasted to be 11.3/20 = 56.5% longer in schedule than the PMB. Fortunately, by the second period the trend line turns more favorable:
where 22 = "equivalent" starts.
As with the traditional earned value system, the most valuable contribution of the calculations is to stimulate the project team to take action necessary to deliver the value to the project sponsor as defined on the project balance sheet and specified in the project charter. Whether or not the time-centric or traditional system is used, the calculations should have the same effect and provide the requisite catalyst to correct whatever is not working well in the project.
[12]The original work on "time-centric earned value" was done by the author and colleague James Sumara while working with the Lanier Worldwide business unit of Harris Corporation in the mid-1990s.
Although the traditional earned value system was well known and practiced at Harris, the Lanier Worldwide business unit did not have the mechanisms for complete collection of the actual cost of the labor employed for internal projects. Time-centric earned value was developed for the Lanier
Worldwide project office to fill the need for an earned value reporting tool.
[13]Goodpasture, John C. and Sumara, James R., Earned Value — The Next Generation — A Practical Application for Commercial Projects, PMI '97 Seminars and Symposium Proceedings, Project
Management Institute, Newtown Square, PA, 1997.
Summary of Important Points
Table 6-8 provides the highlights of this chapter.
Cumulative index = 12/15 = 0.8 Cumulative starts = 12
Forecast = 12 + 8/0.8 = 22 starts
Table 6-8: Summary of Important Points Point of
Discussion
Summary of Ideas Presented The expense
(P&L) statement
l The two measures of budget and actual expenditures taken together as one pair of financial metrics do not provide a measure of value obtained and delivered for the actual expenditures.
l The P&L expense statement is one of the three most important financial statements that the controller will provide to the project manager.
l The other two financial statements useful to project managers are the cash flow
statement and the balance sheet.
l The WBS can also serve as an important financial document, connecting as it does to the chart of accounts.
l Many expenses of the company are present whether or not there is a project;
expenses such as these are called "indirect" or "overhead" expenses.
l Expenses can also be categorized as fixed or variable. Fixed expenses are not subject to the volume of work being done. Variable expenses track the workload:
more work, more expense.
l There is one more way to show costs on the expense statement: record and manage to standard costs rather than actual costs. Simply put, standard costs are average costs.
Lean thinking l Lean thinking applied to project cost management has many potential benefits. If the cost to initiate the batch work could be made negligible, whether painting or writing software, project managers would plan the project exclusively around the requirements for deliverables and not around the deliverables as influenced by the requirements of the process itself.
Managing with three-point estimates
l The P&L statement is deterministic. The P&L statement is a cproduct of the business accounting department. The P&L is not based on statistics.
l When doing the cost estimates leading up to the summarized project cost, three-point estimates and distributions should be applied to the WBS.
l The ultimate cost summarization at the "top" of the WBS will be Normal regardless of the distributions applied within the WBS.
Earned value concept
l The earned value concept is about focusing on accomplishment, called earnings or performance, and the variance between the dollar value of those
accomplishments and the dollar cost of those accomplishments.
l The variance of "accomplishment less cost < $0" is always reported as an unfavorable status.
l Earned value also provides a means to forecast performance. The history
measures by and large involve variances. Forecasts require performance indexes.
l Three measures are needed to construct an earned value system of performance evaluation: (1) Planned value (PV): PV is the dollar value planned and assigned to the work or the deliverable in the WBS. (2) Actual cost (AC): The actual cost is the cost of performance to accomplish the work or provide the deliverable on the WBS. (3) Earned value (EV): Earned value is a measure of the project value actually obtained by the work package effort.
l $Schedule variance = $Value variance = EV - PV.
l Cost variance = EV - AC.
References
1. Womack, James P. and Jones, Daniel T., Lean Thinking, Simon & Schuster, New York, 1996, Introduction, pp. 15–28.
2. Fleming, Quentin W. and Koppelman, Joel M., Earned Value Project Management, Second Edition, Project Management Institute, Newtown Square, PA, 2000, chap. 3, pp. 25–33.
3. Under Secretary of Defense (Acquisition), DoDI 5000.1 The Defense Acquisition System,
Department of Defense, Washington, D.C., 1989; and its predecessor instruction: DoD Comptroller, DoDI 7000.2 Performance Measurement for Selected Acquisitions, Department of Defense,
Washington, D.C., 1967.
4. Kemps, Robert R., Project Management Measurement, Humphrey's and Associates, Inc., Mission Viejo, CA, 1992, chap. 16, pp. 97–107.
5. Fleming, Quentin W. and Koppelman, Joel M., Appendix I, pp. 157–181 and Appendix II, pp. 183–
188.
6. Goodpasture, John C. and Sumara, James R., Earned Value — The Next Generation — A Practical Application for Commercial Projects, PMI '97 Seminars and Symposium Proceedings, Project
Management Institute, Newtown Square, PA, 1997.
Dollar-sizing the cost accounts
l The larger the account, the greater is the pessimistic-optimistic distance and the greater is the amount at stake in dollars.
l Rolling wave planning simply means that the detail down to the cost account is done in "waves" or stages when the project activities, facilities, tools, staffing, risks, and approach become more known.
Time-centric earned value
l The main idea behind the time-centric earned value system is to set a PMB based on planned work package starts and finishes over the course of the project.
l The total collection of starts and finishes, if executed completely, does represent the total scope of the project.
l Instead of earning a dollar value, what is earned is a start or a finish. The PMB is a set of planned starts and planned finishes.
l As with the traditional earned value system, the most valuable contribution of the calculations is to stimulate the project team to take action necessary to deliver the value to the project sponsor as defined on the project balance sheet and specified in the project charter.
Chapter 7: Quantitative Time Management
There is no "undo" button for oceans of time.
Tom Pike
Rethink, Retool, Results, 1999