Introduction
Welcome to a parallel project training APM project management qualification (APM PMQ) podcast based on the APM body of knowledge seventh edition. You should be using this in conjunction with our elearning podcasts, and potentially a tutor led course. For more information, please visit www.parallelprojecttraining.com
Paul
Hello, welcome to this Parallel Project Training podcast. Today we’re looking at our favourite topic – earned value.
John
Yes, hello, Paul – love earned value.
Paul
This is quite a big change in earned value for this syllabus. But anyway, let’s go through the assessment criteria. Explain why project managers should use earned value, interpret and value data including variances and performance indices, expand the benefits of interpreting and value and expand the role of contingency planning and projects. So we’re not doing any, we don’t have to do the sums of calculating Earned Value anymore.
John
No, no. I mean, basically there is this new form of torture called interpret interpret. Yeah, so they give you a diagram and go or give you some numbers and you have to figure out what’s going on. Yeah. You have to sort of synthesise, and you have to you have to look at those numbers and kind of read into them what could be going wrong on a particular project?
Paul
What you do quite often in a project environment Anyway, you go to a progress meeting. And someone hands a report to you as you go in the door.
John
Yeah, but I mean, if you got it if you’ve got a CPI of point eight, yes. I mean, interpret that. What does that mean? Well, that means that we’re overspending on costs, we’re really efficient. But that could be the result of billions of different reasons, you know, so I’m not, you know, we can go through few of them. But there might be many reasons why that’s happening. Yeah. So there’s not a definitive kind of List of these. But the essence of it is, is that you’re working out some sort of, if you figure out your own value, right, that’s what
Paul
Explain why a project manager should use earned value. Let’s do that first
John
Okay, well, the principle is that you can’t tell how well your project is doing simply by comparing what you’ve spent with what you thought you were going to spend. So you need another measure. So you need a third axis on your graph. So the curve on your graph, which is progress, progress is calculated. So the third the third act, the third curve is earned value. And that’s calculated by taking the budget completion, multiply it by the percentage complete. Yes. So if you’ve got a war that’s worth three grand, and you’re two thirds of the way through, you’ve got 2000 pounds worth of earned value, putting it very crudely. So you plot those figures, you plot how much you spent, how much Earned Value you’ve got, and you compare the actual span of the plan costs with your own value, and that gives you indices and indexes and variances. It works on the basis that the only really good answer is your own budget, and you’ve delivered stuff according to the budget. So if there are no variances on earned value or actual costs, so that’s the principle. So the consequence of that is that any deviation is bad. Yeah, even if it’s positive,
yes.
Paul
Is that we’re not necessarily good.
John
It’s difference is a deviation. Yes,
so that a deviation positive or negative is not in itself a good thing. However, I thought would be finishing early is probably better than finishing it. No, no, I don’t know. I don’t agree with you. I don’t I have a real problem. I
Paul
remember the slowdown that
John
yes, if you will. Okay, so let’s, let’s think about that. Then I’ve got two people on site. One’s building the roof and one’s building the walls. I mean, how old? Yeah, all right. I don’t want the bridge deck delivered before the piers for the whole project, but I don’t want the top of the rocket finished before the bottom of the rocket, because I don’t know where to put it.
Paul
Yeah. Okay. So at
John
each level, and also don’t forget, you’re spending money early. So there’s this rush to burn money. Yeah. Where’s the actual fact it smooths out your
Paul
cash flow? I mean, generally, people will say that if it’s if the whole
John
planning the whole planning cycle is predicated on starting as soon as you can, yes. Which is not always a great idea.
Paul
So let’s go back a little bit and talk about these measures that we do. So there’s basically two sets of measures of variances honour. So when a variance what we do is look at what our earned value is, we compare it to what we should have spent our actual cost. And what we plan to spend our planned planned cost as planned costs, what we should have spent actual costs what was actually spend, so we end up with cost variance, and we end up with a schedule variance, and those should be zero. So basically, we’ve spent what we expected and we’ve delivered what we expected and then the A set of measures our performance indices, and now we do exactly the same. But we compare earned value to the actual cost and earned value to the planned cost, but we do as a ratio. So they were looking for the measures to be one to one means one plan. greater than one means were ahead of plan or delivering more efficiently, less than one means we’re behind plan or delivering less efficient. So we were just talking about is, ideally you want to be on plan, in terms of delivery. And in terms of
John
progress. I mean, I think the other thing is that, you know, you see people coming up, I’ve got a CPI of naught point seven or 1.7. Okay, and they’re going “really clever aren’t I really good”? Quick? So 170% efficient? Yeah, you’re gonna ask a few questions. Yeah, Don’t forget you see if you’re if you fit that means you got to finish early. Yes. And under budget? Yes. Well, the business of the time, no snow, the business has set aside all that money to pay for your project. Okay. So they have no, they have to spend it elsewhere. Yes, yes. Yes. So your business has held back all that money in New York coming in? Why?
Paul
Jesus nicely under forecasts? Yeah. So from those performance indices, we can then do a forecast. And that forecast sort of projects, our current cost performance and current scheduled performance. And so we can turn around to the business and say, I’m currently a little bit ahead. And I think that I might finish this project a little bit ahead, or I’m currently slightly over budget. forecasts.
John
Nothing wrong with being early a bit under budget, you know, no one’s gonna moan about that. Yeah, or being a bit late. But over budget, it’s not the end of the world. But it’s too late to realise at the end of it,
Paul
so that’s right. That’s a sackable offence
John
to be one to be one month away from the end of them. And then finally, your budget got to be Yeah, it was. Yeah, yeah. That’s, that’s 90% of the way through realises another 90%. ago.
Paul
Yeah, that’s, that’s all for life. So. So that’s the fork. So basically, from these measures, we can we can do some forecasting,
John
but when you interpret the data, they’re either going to give you a graph, I think, I don’t know. I mean, whatever data on it. Yeah, it depends on how exactly. SPI CPI No, you know, given those No, you don’t do the calculation says
Paul
SPI equals and a CPI.
John
So also quite quite what the answer the question is, oh, God only knows,
Paul
because I think you just play it absolutely straight back. So in my SPI is 1.1. Yeah, that means my head of plan, my CPI is naught point eight. That means I’m overspending for what I’ve delivered.
John
That’s not the question they ask you, though. That’s it. They don’t ask you that. They say you’ve got a CPI of naught point eight. Explain what might be going wrong on the project. I’m running late here, though. But that’s so why
Paul
I don’t have enough data to answer that question. So yes, that’d be running late for a number of reasons.
John
Yeah. Well, but that’s what it says in the sample paper.
Paul
Okay, well,
John
okay. So again, some of the people that are listed exactly the people that listen to this need to understand how to answer that. Okay, well,
Paul
I’d say, I could be running late for a number of reasons scope, because
John
I might not be able to get resources this way. So may have, it’s a comparison between the CPI and SPI as well. So you look at both of them together. Okay. Because just saying I’m late, because you can’t really tell much from that and help with that. Actually, yeah. Because there isn’t, there are things that you can deduce from the relationship between the CPI and the CPI. So if you’re, if you’re spending too much, but you’re late, you’re probably inefficient, yes. Which means that the people are working odd and spending a lot of money. They’re not getting anywhere. Yes. So you might find that there’s lot of rework or incoming materials, not very good. scope is poorly controlled. But conversely, if you’re early, so I were what was the last one over budget and late, you can be under budget and early. Right. So what that means is really that you’re, you’re very efficient, you could probably afford to slow down a little bit if you needed to. Or, you know, you might want to re estimate the project, because you’re kind of you’re kind of doing too well,
Paul
on the most common one I’ve seen is you really liked. We’re not spending enough.
John
Yes, that’s right.
Paul
So the team you have is been efficient, because they’re delivering more value than cashing in. But you just haven’t got enough result.
John
enough resources. So there are
Paul
some, it’s, you could say this is indicative of that sort of situation, you know, yeah. And I suspect we’ll do it.
John
We’ll do in the course as well there. Yeah. I mean, if you if you read if you read our material, there are some parts. Project one, two and four. Yeah, there’s there’s four examples. There’s, there’s four main examples of the interpretation. But yeah, when you say the question is, it’s a bit you know, without the data, it’s very difficult to be definitive. So you have to realise or more generic answers I can see that will develop over time. Well, yeah, once once the examiners work out what he
Paul
earned value and values measure those three things, the planned cost, that what we’ve actually spent and our progress in terms of earned value then comparing them and you can compare them as variances differences or distractions from they can forecast what your end is going to be. And you can do some sort of arm waving indicative interpretation or waving of mostly around how efficient your resources you know, are you put in is, is the I put enough money in to get the progress you want or is more money going in the progress you’ve achieved? Brilliant. Excellent. Okay, John.
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