Earned Value Management (EVM) in Microsoft Project 2007

Did you try to implement EVM in Microsoft Project? If so, this article might give you some tips and tricks.

I will not define EVM now. For more information please see : http://en.wikipedia.org/wiki/Earned_value_management, http://evm.nasa.gov/

Problem:
We have a project. And, that means that we went through all the mandatory steps: have a project charter, have a well defined WBS (work breakdown structure) , identified workpackages, activities, network, resources, schedule. Then, we know the principles of EVM. There are many articles about what EVM is and how it works. EVM requires identifying 3 variables: Planned Value (PV), Earned Value (EV), Actual Cost (AC). 

If you manage your schedule and budgets using Excel then you will find a way to implement EVM. Question left is can we use MS Project?

Solution:
If we look in MS Project it seems that there is enough support for EVM. However,… try to use it and you will see the problems.

MS Project assumptions and constraints:
1. EVM 3 dimensions in MS Project retained their older names:
       - Planned Value(PV) = Budgeted Cost of Work Scheduled (BCWS ):
            o Sum of all scheduled activities duration
       - Earned Value (EV) = Budgeted Cost of Work Performed (BCWP):
              o Percentage complete of work
                    – It could be “Physical % Complete”
                    – Or “% Complete” of the scheduled duration
       - Actual Cost (AC) = Actual Cost of Work Performed (ACWP)

2. There is already a field in MS Project called Actual Cost which is different than ACWP, the actual cost we want to use for EVM. EVM dimensions are cumulative. ACWP is cumulative, where Actual Cost not!

3. The measure of BCWS, BCWP and ACWP is currency! We cannot directly use then milestone weight or other way of defining EV or PV.

4. MS Project likes to recalculate… and we don’t always like how is doing it. See this article: http://www.mpug.com/News/Pages/ThreeRulesforaHappyLifewithProject2007.aspx

5. MS Project can export the EVM data in predefined Excel template (see in the menu Report / Visual Reports / “Earned Value over Time Report”).

There are different ways to deal with these constraints. Most of them involve calculating EVM in Excel. Here are the steps in using MS Project to calculate EVM:

1. Configure Earned Value

2. Configure Actual Cost calculation. This will give possibility to manually add the actual cost

3. Select Summary view and then insert the following fields

4. Check the project information. Status date is the date used by EVM to calculate (for example, for PV will represent the sum of activities duration until the status date.

5. Define your activities in MS Project

6. Define the resources in Resource sheet. Assign cost to resources. Assign the resources to activities

7. Ensure that precedence relations, overall schedule is complete
8. Set the baseline. The baseline will be used for PV calculation
9. During project status update
              a. Add the costs in the Actual Cost EVM field

              b. if EVM calculations are needed you have to set the status day for which EVM will be calculated

10. If you wish the chart to show the S curve of PV use as Status Date the end date of the project.

11. Export the data in Excel
- go to menu Report / Visual Reports / “Earned Value over Time Report”

- and the result:

Notes:
Actual Cost information could come from a timesheet system (for work cost) plus eventually other cost measuring tools. By default MS Project (as mentioned in constraints) uses currency as measure for cost.

If you wish to record the cost in duration you will have to apply a trick:
- Use cost 1 (euro, usd,..) for resource cost
- In the EVM fields consider the amount as being measured in duration units (hours?)

Using analytical skills

I remember that I was always afraid of the impact that emotions could have towards the decisions I take. It is so normal to think about this. I hear many times people saying: ah, it is simple, you just have to put the emotions aside. Can you do it? And if so, how?

I guess everyone has his own way. Some of us could just play the role of a machine and ignore emotions, and others use machines to help them be objective. What is important is to be aware of the subjective influence.

There are many methods and academic discussions about this subject. What I would like to bring forward is my experience with a less known analytical method but extremely efficient developed by Kepner-Tregoe.

Some years ago, working as support specialist in Philips we had a course organized by Kepner-Tregoe (Let’s call this KT). The course subject was Problem Solving. You know, at the beginning everyone was skeptic. Actually, there were some that even after the training they were still believing that were tricks. The results of using KT thinking framework were just unbelievable for some of us. Think about: you are a product specialist in telecommunications and suddenly you solve a problem in a machine that produces  donuts. I can still hear colleagues saying: it is just faith… in reality is not like this etc.

You don’t need to have a special training to understand that using some basic logic principles you could solve difficult problems. But you will need a framework. You could build it yourself in years of trial and error or academic papers or use an existing one with an already track record and results.

Ah… frameworks. Methodologies… How many of us didn’t hear ITIL, Prince2, PMBOK, Zachman, etc etc. They are all great. The only issue is that in time they were becoming heavier and heavier, and time consuming to use them. It requires time to master them, and the proper use is the basis of today’s progress in project management, service management or systems architecture. But, I love to talk about simpler ones, and with immediate effect like KT. For example, it will be great to follow some Yoga principles 80 years and then be able to levitate but is much easier to enjoy the amazing effects of a simple position that will  make you feel the power of your mind.

It is so that I see the KT methodology. A simple but powerful tool that helps you put aside the emotions (not ignore them, just put them aside and understand them!) and see with objectivity the concerns.

How? 

Ok, now I should use a little bit terminology. The methodology is called “Kepner Tregoe Resolve” and covers four major aspects:

• Situation Appraisal
  • Identify concerns, set priority

• Problem Analysis
  • Find the cause of the problem (a positive or negative deviation)

• Decision Analysis
  • Make the right choice, balance benefit an risks

• Potential Problem/Opportunities Analysis
  • Risk analysis, protect and enhance the plan

 I would quote the quintessence of this methodology:
“Success in process depends on using a systematic approach and asking questions effectively”

 From all these methods, the ones I use often are Situation Appraisal and Potential Problem Analysis. Situation Appraisal is the basic of most of the meetings I have, and indeed is the one that brings the solution to the separation of emotions and objectivity. 

Situation Appraisal process, via a set of questions helps you to:

• Identify the concerns
  • What are the issues? What bother us?

• Clarify the concerns
  • What do you mean by? Explain the concern

• Understand the seriousness and urgency
  • What is the impact?
  • Which concern is the most serious?

• Determine the next steps
  • Do we identify problems to be solved?
  • Do we identify decisions to be taken?
  • Do we have to further investigate?

 Does it work? I will add a new post with an example.

Until then, here is the oficial website of KT where you can find more information about this method:
http://www.kepner-tregoe.com/TheKTWay/OurProcesses.cfm

A weekend in Berlin, March 13-15 2009

A weekend in Berlin

What does Berlin mean for us? I have to be honest and recognize that I even didn’t know that the western side of Berlin was just an isolated territory… As my good friend Doru said, in the past in Romania you couldn’t know or find any map of Berlin, or mention about that. And still, thanks to the fall of Berlin wall I can enjoy now and write this blog. It marked the starting of the new age for the people of Eastern Europe.

Last weekend, my best friend Ronald came with the idea to go and visit Berlin. Friday afternoon, luggage ready and we left to Berlin. By car. Long way, but nothing to complain about. Luggage? Right, I forgot to mention… we carried with us clothes and shoes dedicated to long walks.

Berlin. In a few words:

• Impressive public transportation system (I was pleased by the extent of their U-Bahn network).
• Germans put a lot of effort in reconstruct the city. A balanced mixture of old and modern buildings. Spacious areas.
• Excellent food! I love the cocktail bars too!
• Huge shopping centres (I miss those in Holland)
• And, The Wall, or what is left of it. Impressive the idea of transforming it in a red line that crosses the roads, a line that remembers the bloody past of that city.

The hidden face of a corporate

As an employee, as many others, I remember easily criticizing or questioning company strategy we were working for or just a company that we were just observing. In my 13 years of work experience I had the luck to go from the simple worker to executive manager. The experience was amazing and brought many answers.

Some time ago I had in my hands a paper written by Jensen and Meckling, about company theory. It was first time when I read a theory about the systems that make a company. The paper in itself was very acadmical. But, again, the conclusion was very inciting and I was thinking to share it with you.

Questions:
- Why executives have higher salaries and very nice packages (perks)? (A sensitive issue nowadays)
- Why sometimes we see considerable differences in valuating projects? As a result then we can see unexpected changes in the company strategy
- Why the goals of parties that form a company are different? (YES, they are!)

The answers will be in the chapters that will follow.

1. The Theory of the firm. Agency Theory
2. Separation of ownership and control
3. International differences
4. Industry specific differences?
5. Is there a relation between corporate governance and stock performance?

Utility Function
We all do what we do because we have our own goals, we have a specific way to see the world around us. In a simplified mathematical way this is called Utility Function. (Thanks to Erik van Dijk, and my professor from Leuven Piet Sercu; they pushed me to see this equation).

Agency Theory
A firm, in the eyes of the economists, is a “black box” operated so as to maximize the present value and steered to achieve the objectives of the participants in the company. Agency theory states that the participants are bound to the company by contracts. Who are the participants? Company owners, management, employees, suppliers, creditors, society. All the participants in the company have their own “utility function”. What is happening is that trying to maximize their own utility function the participants enter in conflictual situations: different goals, objectives. Corporate governance appeared as a set of rules that have to bring these conflictual objectives into equilibrium so as to yield a positive result.

Why is called “Agency Theory”? As mentioned before, an agency relationship is defined as contract under which one or more persons (the principal) engage another person (the agent) to perform some services on their behalf. If both parties of this relationship are “utility maximizers” there is a good reason to believe that the agent will not always act in the interest of the principal. (Jensen and Meckling, The Theory of the Firm: Managerial Behavior, Agency Cost and Ownership Structure, Michael C. Jensen, William H. Meckling, Journal of Financial Economics, October 1976, No.4).

• An example of “the principal”? The company owner(s). Which are the owner’s goals? Higher value for the company! (shares to value more)
• An example of an “agent “? The company CEO! Does the CEO have a different goal than the owners (at least)? They are managers of someone else’s money, not their own. They will follow the actions that will improve their own welfare.

Interesting is that even calculation of Net Present Value (NPV) to value projects is differently made by the shareholders versus the executive managers, or by the executive managers versus lower level managers. Why? I would be glad if you will bring your answers to this question .  Also just take the news paper and browse the business pages. You will see how Agency Theory can explain many of those articles.

Note: This article is a synthesis of one of my school homework.