Project Management Institute

The earned value concept

taking step two - plan and schedule the project

Concerns of Project Managers

PM TUTORIAL

Quentin W. Fleming and Joel M. Koppelman, Primavera Systems, Inc., Bala Cynwyd, Pennsylvania

UNDERSTANDING THE PROJECT

In our earlier article on earned value we specified as Step 1 the process of scoping the total project effort.l With use of a generally accepted technique called the Work Breakdown Structure (WBS), we suggested that the project manager precisely define exactly what work was to be performed. The WBS is the vehicle that allows for the integration of multiple project functions, most notably the cost and scheduling functions.

We refer to the WBS as a generally accepted technique, because while some industries have enthusiastically embraced the WBS concept as a project management tool, other industries have not. The construction industry, for example, is a trade which frequently relies on other formats to define projects; perhaps most notable is the use of Construction Specification Institute (CSI) codes often used in lieu of a WBS.

Of equal importance, by having a clear understanding of what scope of work the project team has agreed to do, they define the outer limits of the effort they have agreed to do, and also what they have not agreed to do. Project managers and their teams must be cognizant of the full scope (and limitations) of the projects they set out to accomplish.

It is now time to take the second logical step in the process of implementing a project that employs the earned value concept: we must now plan and then schedule our project. The process employing earned value is no different than the implementation effort necessary for any project.

PLANNING THE PROJECT

Perhaps a good way to start a discussion on planning is to borrow a quote from Rudyard Kipling, a man who knew nothing about project management…or did he? A century ago this Englishman who was born in India gave us these profound words, which nicely define the project planning process:

I keep six honest serving men (they taught me all 1 knew); their names are WHAT and WHY and WHEN and How and WHERE and WHO.

Any project manager who could enlist the support of these six honest serving men would be well on the way to defining a viable project plan.

Just what is the project planning process? It all depends on whom you ask. One of the best descriptions of this process was given to us nearly two decades ago by a founding PMI member, a PMI Fellow, and a certified PMI? We can think of no better description of the effort. He defines the project planning process as a ten-step activity as follows:

  1. Define the project scope and identify specific tasks with the use of a WBS.
  2. Assign responsibility for performance of each of these specific tasks.
  3. Identify the interfaces between tasks.
  4. Identify the key project milestones.
  5. Prepare the master schedule.
  6. Prepare the top budget.
  7. Prepare detail task schedules.
  8. Prepare detail task budgets.
  9. Integrate the task schedules and budgets with the project master schedule and top budget.
  10. Set up the project files.2

Now what does all this mean? Well, to us it suggests that the project planning process is iterative, getting progressively more definitive with each iteration. The process works best when the full team is involved, including the owner or customer. The resulting plan will identify specific individuals who will be held accountable for the performance of each project task.

We particularly like the focus on item 10, the setting up of project files. All too often this mundane work is overlooked…until the claims process begins and a team of people must then set out to sift through project documents attempting to make some order out of the chaos.

The one added step we would like to see specifically addressed in the above listing (and we do not) is that of risk management. This effort is of vital importance to the project planning process.

Risk management begins with an assessment of the potential risks as envisioned by the project team, who will often use the framework of the WBS to analyze their risks. After the project risks have been identified, they are then quantified and a risk mitigation plan will begin to form. Risk mitigation will have an impact on both project resources and added tasks to the project's logic networks.

SCHEDULING THE PROJECT

There is probably no more common ground for agreement among project managers than on the need for and the benefits to be gained from scheduling a project. All projects need a schedule system to support their plans. And there is further agreement that one of the best ways to manage one's plan is to measure performance regularly.

In 1967, when the formal 35 Cost/ Schedule Control Systems Criteria (C/SCSC) were issued implementing earned value, three of the criteria specifically dealt with the need to have a formal scheduling system in place to support the process.

These three C/SCS Criteria are:

3. b. (1) Schedule the authorized work in a manner which describes the sequence of work and identifies the significant task inter-dependencies required to meet the development, production and delivery requirements of the contract.
3. b. (2) Identify physical products, milestones, technical performance goals, or other indicators that will be used to measure output.
3. d. (2) Identify significant differences on a monthly basis between planned and actual schedule accomplishments, and the reasons for them.3

Question: Are these three criteria unique to an earned value approach? Absolutely not. These three criteria lay down fundamental principles that would apply to any project, anywhere in the world.

Since these criteria were issued, certain interpretations have been made of what type of scheduling system is required from projects in order to support the concept. It is interesting to note that the requirements for a scheduling system to support earned value can be reduced down to three broad requirements.

First, the project must formally issue a top-level schedule carrying the title of the “master schedule.” This schedule must be the exclusive domain of the project manager, and issued under the direction of that individual. On a small project there may only be a single schedule, which would still be titled the “master schedule.” But as projects increase in size and complexity, the necessity of having a top schedule to specify the outer time parameters for the full project team to follow is of utmost importance. All intermediate and detailed project schedules would by definition be subordinate to the project manager's master schedule. This requirement is displayed as item 1 in the upper left corner of Figure 1.

The second requirement, as shown with item 2, is that all project schedules must be in concert with the project's master schedule. And, in addition to just being consistent with the master schedule, all of the tasks and events depicted on lower-level project schedules must be relatable to the master schedule; that is, there must be what is called “vertical” traceability up to the requirements specified on the top schedule. Vertical traceability means simply that all members working on a project team must know when the project manager requires their particular task (or event) to begin and to end, as specified on the master schedule. In short: it maybe acceptable to be behind the requirements as specified in the master schedule; that is, for one's task to have a negative float position related to the master schedule. However, it is unacceptable to not know one's float position; that is, to be working independent of or without knowledge of how one's effort relates to the project manager's master schedule.

When there are layers or multiple organizational entities involved on a single project, as shown in Figure 1, where there are three separate entities displayed (customer, contractor, subcontractor), the matter of vertical traceability becomes of utmost importance, and sometimes quite complicated. For example, the buying customer, oftentimes the owner, will specify requirements in the form of a master schedule. Obviously, the next tier down, the contractor's master schedule, must be in concert with the requirements of the customer's master schedule. Thus there must be vertical traceability not only within the contractor's organization, but such vertical linkage must also transcend the organizational relationships going from the top customer, down to the prime contractor, then down to lower subcontractors and so forth.

Figure 1. A “Formal” Scheduling System

A “Formal” Scheduling System

Item 3, the final requirement of scheduling in an earned value environment, is that there be “horizontal” relationships established between all dependent project tasks. Simply put, and as shown in Figure 1, the design must be available before materials can be purchased, and the materials must be available before the project item can be built. Which tasks restrain the performance of other tasks must be identified.

Interestingly, the originators of the C/SCS Criteria requirements carefully avoided imposing any specific requirements for scheduling techniques, rather they have taken the approach of merely specifying broad criteria. Most particularly they have avoided specifying the use of the critical path method (CPM). And yet, we know of no better way to focus on “horizontal” task relationships, particularly on a complex project, than with use of CPM scheduling.

NEW GOVERNMENT INITIATIVES

Two recent initiatives in governmental requirements are worth noting, since they both impose rather specific scheduling requirements on private contractors.

For example, the United States Department of Energy, when it issued its new Project Control System (PCS) guidelines in late 1992, specified critical path method scheduling as a required technique.4 CPM networks are established as an integral part of all DOE projects.

Also of note, when the Canadian Government released its new management control system guidelines for private contractors to follow in 1993, it specified the use of CPM scheduling. These Canadian guidelines are tailored after the United States C/SCSC, but clearly require that earned value be used in conjunction with CPM network scheduling.5

IN CONCLUSION

In a project that employs the earned value cost management concept, the project's measurable performance plan, often called the “planned value,” is typically expressed with use of the project's scheduling system. Its actual performance, or its “earned value,” is typically derived by measurement of progress directly from the same scheduling system. Stated in another, more direct way: without a project scheduling system there could be no earned value performance measurement. Scheduling is essential to earned value performance measurement.

The key requirements are quite simple, as shown in Figure 1:

  1. A project “master schedule.”
  2. “Vertical” traceability to all subordinate project schedules, back up to the master schedule.
  3. “Horizontal” traceability for all related and dependent tasks.

A scheduling system is fundamental to project management everywhere. And not coincidentally, scheduling is also needed to employ the earned value cost management concept.

NOTES

1. PMNETwork, vol. VIII, no. 5 (May 1994), p. 22.

2. Archibald, Russell D. Managing High Technology Programs and Projects, (New York: John Wiley & Sons), 1976, pp. 141-179.

3. United States Department of Defense Instruction (DODI) 7000.2, dated December 22, 1967, Performance Measurement for Selected Acquisitions, superseded without change to the criteria by DODI 5000.2, February, 23, 1991, Defense Acquisition Management Policies & Procedures.

4. United States Department of Energy notice DOE 4700.5, dated August 21, 1992, Project Control System Guidelines.

5. Canadian General Standards Board policy 187-GP-1, draft August 1993, Cost/Schedule Performance Management Standard. ❑

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Quentin W. Fleming has been senior staff consultant to Primavera Systems, Inc. since July 1993. He has over three decades of industrial experience, and was with the Northrop Corporation from 1968 until retiring in 1991. While there, he held various domestic and overseas management assignments. He served on a CEO-directed “earned value” corporate review team in 1989-90, and subsequently wrote the corporate policy directive on scheduling.

He has instructed the scope, time and cost management modules of the PMP exam on several occasions. He holds a bachelor's and master's degree in management, and has written six books, including Put Earned Value Into Your Management Control System (1983) and Cost/Schedule Control Systems Criteria—The Management Guide to C/SCSC (1992).

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Joel M. Koppelman is co-founder co-owner and president of Primavera Systems, Inc. He is a registered professional engineer who spent more than a decade in the managing of capital projects in the transportation industry. He earned a bachelor's degree in civil engineering from Drexel University, and an M.B.A. from the Wharton School of the University of Pennsylvania.

He was a vice president at Day & Zimmerman, Inc., where he was responsible for financial consulting assignments. Earlier he operated his own consulting firm, and was with Booz, Allen& Hamilton for five years as a senior consultant responsible for projects.

Mr. Koppelman is a member of several professional societies, he has delivered papers for AACE, APTA, ASCE, CMAA, CFMA, PMA, PMI, and has been a guest lecturer at several universities.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PMNETwork • September 1994

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