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Chapter 14: Using Earned Value Management in Software Projects 285 question: What did we say would be the value of the work that the team completed as of this particular date? Actual cost (AC): Actual cost refers to how much the project work actually costs as of a certain date. It answers the question: How much have we spent on this debacle I mean project anyway? Actual cost includes the indirect costs of the project as well as the direct costs of the project if you considered these in your project planning process. The direct costs include all monies spent directly for your software project. For example, wages for resources assigned to work only on your software project are direct costs. Indirect costs refer to monies spent on resources or other items that may be shared among several projects, such as overhead. Subtract the AC from the PV (or the PV from the AC). The difference between these numbers tells you how much over or under budget you are. Earned value (EV): EV provides you with a measure of your project s progress as of a certain date. EV answers the question: What is the value of this project work as of this particular date or particular point in the schedule? To determine your project s EV, combine all the costs budgeted for work that your team has accomplished at this point. The formula for figuring the EV is total budget multiplied by the percentage of work complete. For example, if you have completed 50 percent of a $300 project, your EV is $150. You can plot these values (PV, AC, EV) on a spreadsheet so that you can easily see (and show stakeholders) the variances. If all the lines on the graph line up on top of each other, you don t have a variance the work is progressing exactly as you said it would, and you re up for the Supreme Project Manager of the Universe award, the envy of all the other project managers who now grovel at your feet and constantly seek your advice on estimating costs. Table 14-2 gives you a quick understanding of how these formulas work. Table 14-2 Earned Value Formulas Term Meaning Planned value (PV) Planned percentage complete the amount Budgeted at Completion (BAC) Actual cost (AC) Indirect costs + Direct costs + All other costs from your original project plan Earned value (EV) Actual percentage complete the amount Budgeted at Completion (BAC)
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284 Part IV: Controlling Your Software Project into it. Your project should create value to your stakeholders, and throughout the project you should periodically evaluate the value of your project. Discovering the Earned Value Management Formulas In this section you discover the meaning of each of these EVM terms, as well as how to calculate the formulas. Please keep in mind that there are many other terms and formulas related to EVM; we just focus on the most basic ones. If you re looking form more information about EVM, check out A Practical Guide to Earned Value Project Management by Charles I. Budd and Charlene S. Budd (Management Concepts). Memorizing formulas when you understand what they mean is better than memorizing them in a void. After you understand the main concepts, you will be better off. For our example, say your imaginary company has been contracted to create a software program that can be used in vehicles to alert drivers to oncoming radar. In fact, the software can automatically bring the car down to the correct speed limit. The program can be positioned to preconfigured settings to recognize whether the driver should be driving the city speed limit or the highway speed limit. You have budgeted $120,000 for the cost of the project and you are in the third month of the 12-month project. You ve done a great job on all your project planning, communication planning, scope management, and schedules, and you ve won awards for your risk management plan; now, it s time to report the status of the costs and schedule for the project to your sponsor and stakeholders. Just keep in mind that you are comparing planned results to actual results. During the project planning process, you determined what you expected the costs and schedule to be at particular points in time, and now you are figuring out whether your cost and schedule plans were accurate. The following is an explanation of some of the basic earned value terminology: Planned value (PV): Planned value refers to how much you planned for particular activities to cost during a certain stretch of time. You created these estimates when you started your project planning. Planned value is the cost for activities that you expected you and your team would have completed as of a particular time period, and it answers the
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Chapter 14: Using Earned Value Management in Software Projects 283 If you studied or read a version of the Guide to the Project Management Body of Knowledge (PMBOK) that was published prior to the year 2000, you may have seen different terms for these formulas. Since 2000, the PMBOK has updated its terminology, as you can see in Table 14-1. Table 14-1 Earned Value Terms, Then and Now This Is the Current Formula This Is the Old-School Formula Planned value (PV) Budgeted Cost of Work Scheduled (BCWS) Actual cost (AC) Actual Cost of Work Performed (ACWP) Earned value (EV) Budgeted Cost of Work Performed (BCWP) Calculating EV doesn t solve all your project s problems. This analysis won t solve all of your cost and scheduling issues and it won t take a disastrous project and turn it into a gold-standard project. It is simply a way of measuring your project s performance at a certain point in time; you can use the results of the earned value analysis to find the root cause of your cost or schedule variances so that you can decide if these need corrective action. Determining a project s worth Many project managers say that a project is worth nothing until it creates something; a software project takes on value when it adds value to your stakeholders. Well, that s only partially true. Your project is always worth something. From the first second you invest time and money in your project, it has value because of that investment. Even if your project fails, its worth can be determined by other factors: How much the team and other future teams learn from the mistakes made or opportunities that arose: (Information about lessons learned documentation is available in Chapter 17.) How much you can use the code in future projects: You may be able to take parts of the code that did not work in this project and pour them into another software project, thus saving time and resources on the new project. How much you can make by selling the salvageable parts of your project: You can take the parts of the code that didn t work, sell them to another organization, and then use that money to fund more viable software projects at your own firm. But when discussing worth or value of a software project, in this instance we are talking about the value you get from a project compared to what you put
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282 Part IV: Controlling Your Software Project When you perform EV analysis on your project, you assign a number to the progress of your cost and your schedule. As you put value into your project, you should be getting value back from your project. Analyzing your earned value enables you to determine the difference (if any) between how much value you planned to add to your project and how much value you are actually adding to your project. During the communication planning phase of your project, you should create plans that define how your performance measurements are reported and how often you need to create and distribute that information. For a project lasting several years, you may have designated in your communication plan that you will prepare quarterly performance measurement reports. For a project lasting less than a year, it makes more sense to distribute this information monthly. Using EVM, you put these plans into action by reporting the status of your project as of a particular point in time. Always communicate your progress to appropriate stakeholders. You don t necessarily have to report findings to all stakeholders. Understanding what earned value is (and isn t) Earned value is a means of measuring your performance on a project by evaluating the status of your project costs and schedule. You can also perform EV analysis on other areas of your project, but in this chapter we focus on the two big ones. When you use EV analysis, you compare where you are with where you planned to be, with an eye on taking corrective action, if necessary, to realign costs and schedule. Discovering the other pieces of the EV formula To complete this analysis, you need to calculate a few formulas. Don t be scared; these are very simple computations. If you can add and subtract, you can perform EV calculations. Here are the primary terms and formulas you need to understand: Planned value (PV) Actual cost (AC) Earned value (EV)
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Chapter 14 Using Earned Value Management in Software Projects In This Chapter Defining earned value and other whimsical terms Calculating formulas for earned value management Determining if you are over- or underbudget Determining if you are behind or ahead of schedule Pulling it all together Deciding what to do with this information You never want to lose track of the notion that you must measure your performance throughout the duration of your software project. Even if everything appears to be rosy, the project team is having fun, your stakehold ers adore you, and your sponsor is turning cartwheels in the hall, you still need to measure performance so you can quantify whether or not your pro ject is progressing as expected. When you measure a project s performance, you give yourself the opportunity to proactively eliminate molehills before they become mountains by figuring out where the moles are hiding. Defining Earned Value Management Earned value management (EVM) is a way of measuring your performance (and the performance of your project team) at any given date or point in the schedule. As your project progresses, you should take the opportunity to analyze costs, the schedule, and other issues (in this chapter we just focus on costs and schedule). You use the EVM measurements to compare your projected progress with your actual progress on a certain date. You use EVM to answer the question, What is the value of the work that you and your team have completed as of today or as of some other particular date?
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280 Part IV: Controlling Your Software Project
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Chapter 13: Managing Changes to the Software Project 279 Your EV indicates the work that was really completed during a particular period. To determine your SV, you subtract your PV from your EV (SV = EV PV). This difference is how much you vary in where you are in the schedule compared with where you expected to be for the same time period. After you know your schedule variance, you can start taking the necessary steps to get the project schedule back to where it needs to be. Again, after you determine that you have a schedule variance, and you ve gone through the correct processes to get the necessary approvals to implement the changes, you should follow your scrupulous and carefully defined communication plan that you documented during your planning phase. Follow your communication plan to communicate with the appropriate stakeholders regarding the schedule variances and corrective action. Knowing why you should expect changes No matter how diligently you gathered stake-plans and change control. In software projects, holder requirements and how detailed your pro-changes can mushroom into expensive, timeject plan is, you will, at some point(s) in your munching beasts, but with the proper planning, software project, experience a need for project change control processes, and expectation set- changes. Changes are to be expected; that s why ting, you can manage the changes. you have risk management and communication
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278 Part IV: Controlling Your Software Project What are the implications for the system testing if we do implement this change request? In other words, when you implement a change to your software project, you not only have to test that particular code, but you need to test other areas of your application that may be affected. Also, you need to extend the schedule in order to accomplish all the testing. If we implement this particular change, what other areas of the actual project will we be affecting? Consider each of those areas to determine whether you need to change the project schedule. Are there other changes in the project that I can implement in order to reduce the impact of this particular change? For example, if you move forward with this change, you can prevent schedule delays by adding a programmer to a portion of the project. Is there enough positive impact in implementing this change that can counteract the negative implications? For example, maybe you add three weeks to your schedule, but the actual change will increase the value of the product. Forecasting schedule variances In Chapter 14 we discuss Schedule Performance Index (SPI), which is used to trend the performance of your project and allows you to forecast how efficient your project is operating. Determining your SPI permits you to forecast schedule variances. We don t want to ruin your fun in reading Chapter 14, so we won t go into painstaking detail on SPI and trend analysis, but we do want to whet your appetite. Forecasting schedule variances enables you to look ahead to determine whether you re on schedule. Having this knowledge provides you with an opportunity to show your creative talents and start defining corrective action to bring the project schedule back in line with your plan. In a previous portion of this chapter we showed you how to calculate your earned value, actual costs, and cost variance to determine whether your actual costs were in line with your plan. There are some similar formulas to use for forecasting schedule variances. Here they are: If you know your planned value (PV) and you know your earned value (EV), then you can calculate your schedule variance (SV). Your PV indicates, for a particular period, how much work was supposed to be completed.
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Chapter 13: Managing Changes to the Software Project 277 and value, and document their acceptance or denial. This doesn t have to be something fancy or technical; it just has to be a process that works for your project. Performance measurement methods: Use these to produce your schedule variance and Schedule Performance Index (SPI), which you can find out more about in Chapter 14. The bottom line is that these numbers, your schedule variance and SPI, will tell you how big of a deal a particular change really is and will help you determine if you need to take corrective action. Variance analysis: Use this to determine whether where you planned to be in the schedule is the same as where you really are in the schedule. This will also help you in determine what (if any) corrective action to take. This is not an exhaustive list of all the tools and techniques that could possibly help you in managing schedule variances and controlling your schedule. This is just a list to get you started and point you in the direction of knowing that there are ways to monitor your schedule; you need to decide which methods are right for your project. Estimating impact of change on the project schedule When a stakeholder submits a change request using the change control system that you defined and communicated, you will need to determine the impact of the potential change. The requested change may impact the project costs, schedule, and/or scope, but for the benefit of this section we are just focusing on the impact to the project schedule. Instead of providing some fancy-schmancy formulas (although we do love formulas, especially the fancy-schmancy kind), we re just going to go over some practical advice based on our experience as project managers. When someone submits a change request, you would be wise to discuss each change with a change control board or some other body so that you can gain insight from others as to what impact this change could have. There may be others involved in the discussion with the CCB who can offer some wisdom as to other areas this change could affect. As you go through the proposed change requests, you may want to ask yourself (or the CCB) some of the following questions: What happens to the project if we don t implement this change? For example, if you don t implement the change, and something you need won t function, this change could have a higher priority than other changes.
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276 Part IV: Controlling Your Software Project would go like a dream, but you re here with us in the real world and sometimes stuff happens. Maybe you did all the right things during your schedule development, but let s just say that something has gone amiss and your schedule is no longer on track. Don t panic. There are steps you can take to manage project time variances. Because you re already here and you re already reading this, we may as well tell you what those steps are. Before you manage your project time variances, you would of course need to determine that you actually have a project time variance. As part of the controlling processes, you will be monitoring your project schedule and determining if where you are now is where you said you would be when you created your schedule. The schedule controlling processes are concerned with Using the project schedule as an input to compare your actual results with your plan Using your performance reports (part of your communication plan) as an input to compare where you are in the schedule with where you planned to be in the schedule Looking at your approved change requests to determine whether the changes that have been approved and implemented have impacted your timeline Reviewing the schedule management plan to specify how you will track and monitor changes to the schedule You will use all these criteria above as inputs to monitor and control your software project schedule and manage the variances. There are also useful tools and techniques to use in monitoring your schedule. One of these tools is a project management information system (PMIS). There are many good ones on the market, but we re most familiar with Microsoft Project. You can find out more about this software by reading Microsoft Project 2003 For Dummies by Nancy Stevenson (Wiley). PMIS is only as good as the information it s fed and will never replace an effective project manager. Don t expect the PMIS to manage and control your schedule for you just as you would not expect a hammer to build a house for you; it s only a tool. Some of the other tools you might use to manage and monitor schedule variances include the following: Schedule change control system: Devise a system (spreadsheet, database whatever works for you and your particular project) where you can receive schedule change requests, assess their impact
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