EVM Basics

I would like to start my foray into EVM by doing some definitions and basic formulas. I'll give my paraphrased descriptions as to what's what and why.

No formulas today, just the 3 core inputs necessary to do all the EVM calculations we'll get to later.


PV - Planned Value AKA BCWS - Budgeted Cost of Work Scheduled

• This is a time-specific estimate only. What was planned to be spent at this time if the schedule was perfect?

EV - Earned Value AKA BCWP - Budgeted Cost of Work Performed

• This is a task-specific estimate only. What was planned to be spent on tasks actually completed right now?

AC - Actual Cost AKA ACWP - Actual Cost of Work Performed

• This is reality. What did you actually spend? Make sure the method for auditing cost matches up with how you made the original plans (did you include indirect costs, or just direct, etc?)

Go Back: Itchy for Earned Value
Next up: EVM Variances and Indexes

Management Dilemmas - Part Two

I've made a very little amount of headway on the book I'm reading now, Management Dilemmas: The Theory of Constraints Approach to Problem Identification and Solutions. Time has been tight with work, school, and family but I'm trudging through slowly.


The case studies continued in the chapters I've read since the first post about this book. One concerns a situation with a purchasing manager who is trying to deal with a complete product change that has an uncertain implementation date. There are constraints around how much can/should be ordered, and the premiums required for smaller batches. The problem here is to not fall short of materials for production of the old product, and at the same time not have a huge amount of waste after the change, because all the existing materials will be obsolete when the change occurs. Upper management is incenting conflicting actions, and traditionally the purchasing manager has to try and 'balance' them. I like the TOC approach.

Another chapter goes into a scenario where a company founder split his company into profit centers in order to incent his managers to perform. The case study analyzes the situation and some of the resulting problems that have come to light over a period of two years. The plants have fixed transfer costs built into their outputs when they are provided to the other plants, and again this is a question of whether or not the right things are being incented, in the right way. The TOC solution presented resolves the conflict and acheives the founder's original vision.

I will do another post on this book when I've completed it. Cheers!

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Management Dilemmas - Part One

I'm about half way through the book I'm reading now, Management Dilemmas: The Theory of Constraints Approach to Problem Identification and Solutions. It was difficult to get into it at first, perhaps because the author made an appropriate introductory section going into the conceptual aspects of the TOC thinking processes, the Throughput world versus the Cost world, etc. which I've already read extensively about. Overall, good content in the beginning but a little slow and university textbook-like reading.

Then it gets good.

The author continues with several case studies to highlight various management problems in different industries, and very different causes and circumstances. In the first section a case study is used too, but plays a minor role in the content. These later chapters dive into the scenarios presented and I'm finding myself quite engaged with them. It's as if you are playing the part of a consultant, and need to correctly diagnose the core problems that are causing the evident symptoms. It's like detective work and I'm working through my own TOC diagrams to practice after I read the case, and see if I come up with the answer the author does. My diagnoses have been similar thus far.

The case studies so far have included problems in a hotel, office supply company, a high-end desk lamp manufacturer, the Army's Central Communications Laboratory, and a hospital. It's been great for showing examples of using TOC to solve problems in this eclectic mix of situations, and giving me practice at the TOC concepts. I hope as I internalize more about TOC, CCPM, and EVM I will be better suited to figure out the CCEVM solution.

I will do another post on this book when I've completed it. Cheers!

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Critical Chain Earned Value Management (CCEVM)

I had a discussion tonight with my great friend Chad that got my brain spinning again about Critical Chain and EVM. My notes are not available right now for me to reference, but I wanted to throw out some of the major concepts and challenges I've run into thus far.

First, the question is why bother? Well, I really believe in Critical Chain and TOC concepts, but I think there's too much entrenched thinking out there for it to be adopted by any organizations other than those who are very innovative and have a culture that embraces positive change. For instance, I've heard that most government contracts require EVM reporting, and many private organizations also require it. That kills a lot of possible change to CCPM right there.

I believe that most CCPM enthusiasts are trying to introduce it as necessitating the discard of existing paradigms completely and immediately. (EVM for example) Such a dramatic shift is next to impossible for any organization with a critical mass of bureaucracy, and subsequent lack of innovative capacity. I suggest that a more gradual shift for these entities is the appropriate course of action. I'm not saying it can't be done the other way, I know of several examples where it seems to me the entity was very bureaucratic, but since I don't have personal experience with those companies/agencies I can only speculate.

My goal is to figure out a way to use CCPM to run a project while still using EVM metrics in a useful way, without having to go back and re-baseline the schedule using a traditional critical path approach. Some software packages do exactly this, but I would argue the results of this EVM analysis are not linked to the way the project is managed. The pitfall here is that if traditional EVM is the reporting framework the project is measured on, it will become the driver of how the project is managed. My problem with that is that a project team can work on non-critical tasks when they really should be focusing on critical chain tasks instead, just so they can meet their EVM numbers and pretend they are on schedule. This directly conflicts with the whole concept of CCPM.

So, some rough requirements off the top of my head:
1. Use CCPM methods to schedule and manage the project
2. Modify CCPM methods to incorporate cost buffer management.
3. Use CCPM cost and schedule buffer utilization to formulate meaningful metrics for schedule and cost performance that are EVM in language and intent, and tied directly to Critical Path performance.
4. Ensure CCEVM reporting is useful not only for external project stakeholders, but also adds clear value for the project manager and team. It's crucial that CCEVM makes sense for all parties.
5. CCEVM must be formulated in such a way that organizations who require EVM on projects are able to accept CCEVM metrics after a reasonable evaluation effort.

Some of the paths I can already see:
1. I've created some formulas to calculate feeder and project buffer sizes for schedule and cost based on some specific new information that will be required from the risk management phase.
2. I can see how adding some more statistical information to the CCEVM metrics will help make the data more useful, showing how the aggregate uncertainty decreases as a project progresses.
3. Modification of the traditional CCPM fever chart analysis to incorporate the aggregate uncertainty for various stages throughout a project.

Last but not least, I need to figure out a way to do all this without creating analysis paralysis and having to hire someone extra just to sort all this out!!!

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Critical Chain EVM?

A while back I sent in a question to The Project Management Podcast and Controlling Chaos regarding how Critical Chain scheduling and Earned Value Management had ever been used together. Cornelius brought on Allan Elder in Episode 57 of the PM Podcast and addressed the question, however the answer was as I suspected, and I wasn't happy with it. Basically using them together is really just keeping a different set of books, one to manage the project (CC buffer management) and one to report the project to external stakeholders who want to see EVM metrics.

I've started throwing some ideas down on paper regarding how the methodology I like (Critical Chain) can be used in a more streamlined way with earned value. I've got a lot of research left to do on both in order to get something somewhat coherent, but I think I've got the basic concept down and I've even got some formulas already. It's basically a way to use the Critical Chain buffer utilization to directly yield EVM metrics without having to go back and re-baseline the schedule in the traditional Critical Path format. From what I understand the software packages that do this conversion go about it that way. I really don't know if those outputs are useful or not however. A Critical Chain project is run in a fundamentally different way than a traditional critical path project, and if you don't take those differences into account the EVM outputs won't be very useful.

My goal is to provide a method to calculate real-time EVM metrics in a way that is useful to both external stakeholders and the project team. EVM is so entrenched, and one of the major reasons (in my opinion) that Critical Chain meets with resistance is because EVM doesn't make any sense with it. Automatically, you're left with a huge percentage of projects that can't use Critical Chain.

As I research and come up with new ideas, I'll keep this blog updated.

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