LightBytes – APM Budgets, Cost, and Earned Value Management

Welcome to another episode of ByteSize Project Management. I’m George, your host from Training ByteSize, a family-run provider with a deep passion for project management. In today’s podcast, we’ll be diving into the key topics of budgeting, cost control, and earned value management, all guided by our lead APM trainer, Callum Downing. With years of experience in project management, Callum brings a wealth of knowledge and practical insights, helping you understand how to manage costs and track progress effectively. Whether you’re preparing for your Project Management Qualification (PMQ) or just want to enhance your project management skills, this episode is packed with valuable information.

Hi, you’re listening to ByteSize Project Management, a podcast about all things project, program and IT service management. As always, I’m George and I work for Training ByteSize, a family-run training provider with a passion for project management. Our podcasts will bring you top tips such as how to pass your next accredited exam through to unique industry insights and conversations with industry experts.

Please let me introduce you to our lead APM trainer, Callum Downing. He’s going to be taking you through the areas of budget, cost and earn value management this afternoon. Callum has a wealth of pragmatic experience in project management and has a fantastic way of bringing the guidance and methods to life, which helps with the retention of the information.

Callum, over to you. Thanks so much, Jim. Brilliant.

Cheers mate. Hi, I’m Callum. I teach project management stuff like APM and so PFQ and PMQ.

My background is in defense, so I worked with MOD for many years and I’ll be the one. If you come on a course with us, it’s quite likely it will be with me. So today, I want to talk through earn value management, budgeting and cost controls.

We’ll leave it at earn value management towards the end, I think. I just want to start off with budgeting. This is all going to be fairly high level, I suppose.

For PFQ, it will be high level if you’re going to do this stuff. In fact, actually, on PFQ, they’re not going to ask you anything about budgets at all. PMQ, they will do, but you’ll need a bit more than this for that.

This is very much introductory. I think everyone’s real questions probably going to linger with earned value management to answer you, so we’ll see how we go with that one. So I’ll get through this and I’ll make sure we have time to have some questions for earned value management at the end.

So budgeting, in a nutshell, it’s creating a budget. So a cost for the project. You want to work out how much does this project going to cost us overall?

And the start of the project is probably going to be based on previous projects, expert advice, and maybe getting quotes from people, possibly. A number of different places for budgets, the original kind of overall budget will kind of come from. But the reality is we can’t just expect that to stay the same.

We can’t just leave it and go, right, there’s the budget, that’s going to be 100 grand, and there we go done. It’s liable as we get more information that we’ll need to adjust that to accommodate the information we gather, which is what we’ll be doing in the planning phases of our project is to look at our budget and try and work it out using better estimates. Now, the budget overall will often be based on resources.

So we’ll have, we’ll develop a timeline, we’ll develop a cost breakdown structure where we work out how much each task costs individually if we want to go that level of detail, as well as when we’ll need resources on a timeline, which will indicate to us when those costs will need to be spent or when those payments will need to be made. And we do as cumulative totals, cumulative being you add the previous day on to the last day and so on and so forth. So yes, there was five pounds worth of work, today was 10 pounds worth of work, that’s a cumulative total of 15 pounds overall.

And that gives us this S curve that’s at the bottom of this slide here, in that we have like a, the red line represents the budget. So how much we plan to spend, which is going to line up with our schedule, with our breakdown structures. And then as we develop the project, as we go into the actual delivery of the project, we’ll be wanting to track the actual payments against those plan payments.

So how are the actuals performing against the plan? And that gives us that plan and gives us a point of comparison, we can then see how the actuals performing against the plan. And in this instance, if you look at the green line there, which represents the actuals, the gray dotted vertical line there shows where we currently are.

It means we are, indicates currently that we’re overspending. So we can also use these graphs and a lot of budgeting is about making predictions. So looking at where we currently are versus where we plan to be and then saying, right, where are we going to go if we continue like this?

So we’re looking at trend analysis and things like that. So the idea of looking at where we’ve been, so gathering historical data and then projecting it forward. Which is why, if you did attend the previous one, re-estimating throughout the project is so important because we’re gathering more and more information as we develop the project through monitoring our budgets.

So there are kind of three components to a budget. One of them may not apply to every project. It may not even apply to every business.

But certainly the first main component of a budget is something called the base cost estimate. Now, the way I think of this is, this is our known scope. This is everything we have quantified and understood when we’ve done our scoping stuff using our breakdown structures, these hierarchical diagrams that break our project into its component pieces.

So let’s be looking at things like how much people cost, how much it costs to house them or put them in an office or whatever, consumable materials, so how much the materials cost, expenses, capital items, so key equipment we need. And then the other two. So that bit there is kind of your, how much we need for the project as it were.

And then contingency, which I might mention again if you’re coming on to one later on this afternoon on risk management, contingency is money set aside for risk. So what I’ve referred to as the known unknowns. So if we’re doing a project outside in Britain this time of year, then I’d say it’s a fairly easy predictable risk that it’s going to range.

So we’d have to say, well, that’s a risk we can predict. Let’s plan for it. So contingency is the money we set aside to, as we go through the project, give us the advantage with the risk to allow us to manage risk proactively because any response we have to risk is certainly a project probably going to cost us money to do.

We’re going to have to buy a gazebo to work on that if we know it’s, if we know, for example, we’re doing the project this time of year in Britain, because it’s going to rain. It’s probably going to rain. May not because risk is not guaranteed, but having contingency means we’re not going to start dipping into money we’ve set aside to pay for people for materials for equipment.

It’s purely ring-fenced for risk, that contingency budget, the known unknowns, predictable risk. Now most projects, if you’ve ever watched these like Holmes under the Hammer, you’ll have heard them talking about that. If you’ve ever watched any of those DIY shows, you’ll often hear them all those relocation shows.

You’ll often hear them talking about, I set aside £5,000 just in case there’s more mould than I thought, or there’s more damp. That’s what contingency is for. They’re doing it to make sure they have money set aside just in case.

Now management reserve, though, is for things called what I prefer to as unknown unknowns. These are really unlikely to happen. So their risks are incredibly unlikely that would be massively impactful if they did happen.

It’s like your emergency fund, as it were. Now you typically will, manager, won’t really be able to access that management reserve. There’s more for people senior to the project managed to use, maybe to deal with urgent changes that are needed, or to deal with major business change or something like that that wasn’t expected, or a severe situation like an issue, something, a major problem that’s happened that’s all going to happen, that needs some money.

Again, we don’t want to dip into our base cost estimate, our known scope costs to pay for things that have gone wrong. Because then we’re going to have to cut stuff out, which we don’t want to do. But reserve, though, is not always applied to a project.

Sometimes projects don’t have it. Sometimes it’s held centrally in a business, but either way, it’s a pot of money on top of the contingency that’s purely there just in case. It’s for the very unexpected, the emergency cash, as it were.

So when we’re doing our cost control, so this is as we’re managing the budget throughout the project as it develops, we’ve got a few key things to make sure we know and monitoring. So the actual costs are the payments we’ve actually made. So we’ve been invoiced and we’ve paid it.

The money’s left my bank account or our bank account and gone into the Pueblo Bapin. This is historical costs, effectively. We’ve paid these.

Accrued costs are where, for example, work’s been done. You can see the work’s been done, or there’s evidence of the work being done, but there’s no formal invoice been received. It might be the invoices in a backlog or something.

So it might be you look out in your garden, you can see half a patio has been built by the person you’ve hired to build a patio, but they haven’t invoiced for it yet. It’s accrued. You know you owe the money for that work done, but you haven’t had that formal invoice yet to say you need to.

But you know you owe it, so you’re going to have to keep it to one side. It’s not, you can’t just spend it because you can see the work’s been done, which means you’re going to have to spend some money on it. But it’s a future payment for historic work.

Accrued costs are legally agreed. So when I was younger, for example, I used to live in a flat which I had a 12-month rent agreement on. So I legally agreed that I would pay £500 a month, let’s say, for 12 months.

I’m committed to paying that. I used to travel a lot. I still travel a lot for work.

Back then I used to travel a lot when I was in a Moodoo. I used to go to sitepress for work and things like that. So I was away for a few weeks at a time.

My rent, I had to keep paying it. Even though I wasn’t using the flat, I had to still pay it. If I’d left the flat, then I’d be having to pay an early leaving.

Because I’ve committed to spending a year worth of rent in that flat. So mobile phone contracts are the same. If you’ve ever had a mobile phone contract, you’ve committed to it for 24 months, let’s say.

If you throw your phone away or you smash a phone or whatever, you can’t get out of that contract. You’re committed to paying that £24 a month or £25 a month, whatever it is you’ve agreed with your phone provider every month, until the contract is over. So we can also have that in our projects.

We’ve legally agreed to pay it. Even though it hasn’t been paid yet, we contract we have to pay it. So it’s a future payment that we know we’re going to have to pay.

Very useful for predicting though, because we know we’re going to be paying it. So it’s good for forecasting that one. And then estimates complete.

This is our planned costs. These are what we think we’re going to spend. So this might be something that will be based on our resources.

This will be based on our schedule, milestones, those key events in our project will be basing our estimate to complete on, which will show us our cost profile, our payment profile predictions effectively, these. And as we go through the project, we want to re-estimate as we go. So based on the three above, so actual cost, accrued cost and the committed costs, we look at that or compare those to our estimate to complete, so our planned costs, and that will help us do what’s called forecasting.

So as we go through the project, we want to constantly forecast the future based on what we’ve currently done. Actual cost being historic payments, accrued cost being payments we know we owe money for, that the work’s been done for, we haven’t formally received the invoice though. But we can say, well, that’s going to have to be paid at some point.

So let’s look at whether payment is currently planned on our schedule. And committed costs will make any planned costs into legal costs. We have to pay them.

So we want to use this as we go through the project, we want to constantly review this and constantly adjust our forecast because estimates change as our project changes. Projects always change, it’s inevitable. Projects change.

You need to adjust your forecasting based on that. And these four things here will help to create a forecast, a robust forecast for you. So this is kind of a way to view it, I suppose, is that the actual costs are historic, accrued costs are historic goods received, but the payment is still in the future.

And then committed costs and estimate to complete our future costs, with committed costs being those legally agreed future costs. So you have to pay them. Estimate to complete being purely planned, which means we could change them if we need to, to adjust our new plans.

So this is the cumulative bit I mentioned. So we want to show you this as cumulative because it’ll give us an idea of how much we spent overall at any given point in the project. And the last payment, the file payment will show us effectively the total overall spend on the project.

And we like an S curve because it’s going to show those cumulative totals and it shows you kind of the rate of spend throughout a project. But it also allows us to compare actuals against very clearly. It’s a very visual way to express the budget.

And it also allows you to monitor trends and project those trends out again, visually against your graph. So you’ll often, if you look for budgets, you’ll often see some kind of S curve and it will usually be an S curve. It’s a very rare project as a straight line.

It’s usually you spend a bit of money as the project kind of ramps into this main, the main bulk of work, it will start spending more money as it draws to a close, you’ll start finding the payments start petering out. So it’s very common CNS curve with budgets. But effectively that’s what budgeting is all about.

It’s about looking at the schedule, working out when we want to make payments against that schedule, which again will probably be fairly self-explanatory because you often be negotiated with contractors with that. And they’ll say when they want paying, usually when tasks are done and things like that. But major milestones might indicate when you want to pay it, when people want to be paid, when cash gets released, et cetera.

And then you use these four techniques there to monitor costs as they develop, when they become actuals, when they become crude, when costs become committed, when you agree illegal costs with a contractor or whatever, you have to pay it. And then your plans as they develop is your estimate to complete. But that’s budgeting.

Very quick whiz through. But any questions on budgeting at all for me? Nothing’s popped up in the chat, but you’re welcome to put your hand up and unmute if you’d like to.

No? Okay, I’ll crack on then. So this is the bit I think a lot of people are probably here for, maybe, just to guess.

Earned value management. Now in a couple of things, because I imagine some of you are probably, I know some of you messaged me earlier on in one of the earlier, in the earlier webinar. This might be part of your journey, as it were, to go on to get the PMQ.

It might be the start of your journey, just dipping in to see where things are going. PFQ, so the foundation, the Fundamentals Qualification, will not ask you to do Earned Value Management. There’ll be no mention of it at all in there, really.

PMQ, they can do. One thing I’ll stress, though, is they will not ask you to do any maths in the PMQ exam. So in any of the APMs exams, there is no maths required.

So you don’t need to be, you’re welcome to bring a calculator, people do, but you don’t need one. In fact, I’d almost discourage people to bring a calculator from those exams because it gives them, people will be more inclined to use it to try it. And then I know, as a person who struggles with maths a little bit, I would then try and confuse myself trying to work out something that doesn’t need to be worked out.

So EVM, Earned Value Management, is not a mathematical question in the exam. The PMQ will ask you things like what are the advantages of it, what’s the interpretation, so how do you use the interpretation of the data? So it will present you data, which you’ll then have to show an understanding of how it works or what the data tells you.

So is the project behind schedule? Is it on schedule? Is it over budget, under budget, on budget?

It’ll ask you to work that out and then say what you do about it, but they will not ever ask you to calculate Earned Value Management. So a colleague I used to work with, a friend of mine, gave me this really nice analogy which I use on PMQ. So apologies if you hear this again when you come on PMQ with me, but it’s a really good way to think about Earned Value Management is thinking of it as a sat nav for your project.

So if you imagine most of you have used sat nav, whether you have a car or not, you’d probably use Google Maps at some point to find something. So when you type a destination to Google Maps or Waze or into your sat nav on a car, it will give you an estimated ton of arrival. It’ll give you a route and an estimated ton of arrival.

So effectively in a project, that’s our S-curve. That’s the plan we’ve just talked about in the budgeting side of things. It’s what’s the route we’re going on, what we plan to do, and then what’s the overall time scale or budget for this project.

And then that’s our estimated ton of arrival if it’s a sat nav. And you can do that if you so if I’m intending to go to London on Sunday, let’s say, then I will type into my sat nav London and it will tell me how long it’s going to take. I could do that now and it’ll tell me how long it’s going to take together based on the current situation.

I have to keep in mind that is purely a plan. That’s in advance, that’s proactive, I’ve not set off yet. What my sat nav will do though is when I set off, it will continue to track that.

It will look at where I am currently on that journey. So for example, if I’m on my journey to London and it’s saying I’m going to get there in life, if I leave at one o’clock, I’ll get there at three o’clock, let’s say, then it will monitor my progress. If I’m racing ahead or the trains are early or whatever, it’s going to say you’re ahead, you’re further on your journey and I thought you’d be at this point in time.

If I know, for example, I’m going to be half an hour early based on my sat nav, that gives me a few options because a few decisions I can make there. I could either just let it happen and just turn up early, which could be great. But not necessarily, it might be that if I turn up early, I have to sit in a train station half an hour rather than just going straight onto the next train, which is perhaps I don’t want to do that.

But it shows me what the impact of turning up early and I can make decisions on that. So do I slow down my car or do I just sort of chill out somewhere? Do I perhaps, something I genuinely do when I go on longer journeys is if I’ve got spare time, I’ll stop off like a services and have a Burger King or have a sandwich or something, I’ll just stop off and take a bit of a break from driving, which I won’t do if there’s not spare time.

It might be that I identify an opportunity, because actually I’m driving half an hour early, I could perhaps meet up with a friend of mine in London for half an hour, or I could contact them and say, I’m going to be there half an hour earlier, I’d want to be up a bit earlier if it is the reason I’m going to London to meet somebody. So it’s giving me some information, it’s not telling me what to do with it, it’s just saying, here’s your half an hour earlier than you thought you would be, and then it allows me to make some decisions based on that. What could I do with half an hour extra that I didn’t think I’d have?

But the flip side is also true, if my sat-nav is indicating to me that I’m going to be arriving an hour late, for example, so my intention was to arrive at three o’clock, my sat-nav, due to traffic or whatever, is saying you’re going to arrive at four o’clock instead of three, I can then make some other decisions. I could phone ahead and say I’m going to be an hour late and let my stakeholders know that I’m arriving late and then discuss what we’re going to do about it. It could be that if I’m arriving late, the whole purpose of me driving is rendered completely pointless because those people I’m meeting say, well, we can’t, we’re not free after four o’clock, four o’clock, there’s no point.

So I can cancel the meeting, just go home. In which case then, that saves me a load of money, saves them a load of time. So it could be a way to assess whether the project is still viable or not.

It gives us data evidence for that. EVM will provide this, again, we’re not going to go through all the data today, but it gives us loads of data we can then use to provide to our stakeholders and say, look, the data points to the project being massively over budget and massively late, is it worth continuing? And we can make that decision early, or earlier.

It could be that I decide to, something I genuinely do when I drive back from Nantwich, where we’re based actually, so when I live about four hours drive from Nantwich, just under four hours. So when I drive back down to Somerset, I will always stop off at a services, because I know, based on my previous experiences with that journey, it’s four hours with traffic. And my sat nav always accommodates that.

I know if I stop off at services for half an hour or so, then by the time I finish in the services on the Friday evening, the traffic usually died down. I’ll still get back at the same time, but I’ve had a much more relaxed time and that’s evidence for lessons learned then. So UVM provides data, which means evidence for stakeholder communication, but also lessons learned for future projects or for future work.

Allows me to assess the impact of risks as well, potentially. So it allows me to identify risks to my project, saying, what’s caused this then? Why is my journey taking longer?

What’s caused this? It could be that I actually identify a way to overcome this by perhaps driving down the hard shoulder. If I drive down the hard shoulder and bypass all the traffic that’s causing the delay, then I’m adding new risk, which I need to quantify and assess and decide whether it’s actually worth taking that new risk or whether it’s worth risking being late to the meeting I’m going to.

So that allows us to compare and identify risks. It allows me to identify alternatives. So for example, if I’m stuck in traffic, I can pop into my sat nav and alternative route.

It’ll show me alternative way of doing something, show me the impact of doing that as well. So for example, if I stay on the M5, the motorway, I will arrive at four o’clock based on current progress. And if I type into an alternative route to my sat nav, it says you’ll arrive at 345.

I can make the decision and think, well, I was supposed to arrive at 3 o’clock, but 345 is better than four o’clock. Again, there’s a risk in that and that those roads might be more lanes, for example, could be lanes. So it allows me to assess and understand the alternative routes I could take or alternative solutions to the situation.

So earned value management is not a tool that fixes stuff. It doesn’t make stuff go away. It’s a way of identifying and providing raw data that you can then use to provide evidence for decision making.

So advantages of it then, evidence, data, decision making, identifying risks, identifying alternatives, giving in, it allows a more effective communication with stakeholders, allows you to identify opportunities. I used to work with EVM. I used to have to use it on my projects in defense and I actually find it incredibly useful because a key thing I found, and this is a personal thing now, is it helps to highlight poor estimating.

So because it’s using data based on current situation, it may not be that our project is going wrong. It may be that our initial estimates need to be challenged because so many times, I imagine some of you may be able to relate to this, projects get signed off using optimistic estimates to get them through the door. This provides evidence to say, actually, maybe it’s the original estimate that was a problem and the project is actually running fine.

So it’s that data that this is providing. Again, a very useful tool can be, but it needs to be planned for. You can’t just halfway through a project deployment.

So this is EVM for the last half. It won’t work like that. You need to plan it into your project and build it in early on for it to work properly.

So this is a table showing this to an extent. So we’ve got a project with a planned budget completion. So there is some acronyms in earned value management.

I will just say that most of them, if you ever doing this exam, PMQ, they will usually write nearly all of them out in full. So they will very rarely expect you to know an acronym off by heart. There’s one or two you will need to know, but they’re not displayed on this page.

All the ones on this page, as far as I’m aware, and certainly in my, when I’ve looked at the questions in the past, they’ve all been written out in full. So budget completion is the total planned budget by the end of this project. So the project’s total duration is three months.

Budget completion is $1,500. The plan cost is all the planned budget or planned value. Depends who you speak to, what they get called.

All interchangeable terms, though, planned cost is the more typical, I would say. Though I have seen it called planned budget in the exam, incidentally. This is how much we plan spent.

So this is the bit from earlier on where you have that cumulative S curve based on what we think we want to do. And then we add detail to it as we get started with committed costs and stuff like that. But initially it will be a planned cost.

What to be planned to do. So at month one, we plan to spend 500 pounds. The end of month two, we plan to spend 1,000.

And then at month three, another, sorry, another 1,500, sorry, another 500 pounds to be that full 1,500 quid budget completion. The actual cost then shows how much we’ve actually spent on the project. In this instance, the green dotted line is showing me that I’ve actually spent 700 pounds.

So if you ignore the blue dotted line for a second, the actual cost is below the planned cost. So I plan to spend 1,000 pounds at month two. I’ve actually spent 700 pounds.

Now if we ignore the earned value bit for a moment, that might appear, well, could actually indicate a couple of different things. When I show these graphs to people or versions of these graphs, some people say that’s under the budget. Some people say that’s behind.

Some people say there’s going to be a large payment at the end. The problem with it is without the earned value bit, that just doesn’t really tell us a lot. It just simply says we’ve not spent what we expected to spend, which means it’s not going to plan.

It looks like it’s under spending, but that’s not necessarily the case. The earned value bit then. Now this is the bit that I want to be careful with.

Let me know. So pop in the chat if you’re still a bit iffy with this because it can be a little tricky. Earn value is how much I planned to get as expressed as money.

So I’ve done a video on this and I’m going to use exactly this because it’s down here actually. So if you go hunting on YouTube, I’ve done a YouTube video on this. I do play guitar.

So here’s one of my guitars. This is my favorite guitarist one. There’s a guitar.

I bought this for 1500 pounds. I’ve had it for about 20 years. So it’s 1500 quick guitar there.

If I bought a guitar for 1500 pounds, that’s what it’s worth to me. That’s the value of it. There’s a lot of sentimental value in that guitar in particular, but I’m not measuring that in earned value management.

I’m measuring progress of the project. It’s looking at how long is this project going to take to complete against what I planned it to take? How much more money is it going to cost versus what I planned it to cost?

So earned value management is only interested in time and money. It’s not interested in sentimental stuff. It’s not interested in benefits afterwards.

It’s purely saying in terms of money and time, how is the project doing? That’s it. So in terms of money, I bought the guitar for 1500 quid.

Therefore, it’s worth 1500 quid to me and money. If I, when I bought it, if I saw the same guitar advertised for 2000 pounds the following week, the value of the guitar to me would be 1500 quid. Because that’s what I paid for it.

It doesn’t matter that it’s being sold for more money somewhere else. I bought it 1500 quid. Therefore, that’s what it’s worth to me.

And this extends to this term planned as well. If I’m planning to spend 1500 pounds on something, so this is a patio, this wall on the slides. I’m planning to spend 1500 quid on a patio.

I haven’t bought it yet. I haven’t spent the money yet. I’m purely planning to spend that money based on how much I think they’re asking the cost from my scoping and everything.

I think I’m going to spend 1500 quid on this patio. So when I finish this patio in three months time, I expect to get 1500 quids worth patio. So I am planning to receive 1500 pounds worth patio as a value.

A month two, I’m planning to spend 1000 pounds on this patio. Therefore, because I’m planning to spend 1000 pounds on it, I expect to have gotten by a month two 1000 pounds worth of patio. I’ve actually spent 700 pounds on this 1000 pounds for this point in time.

I expected to spend 1000 pounds and get 1000 pounds worth of patio. I’ve spent 700 pounds actually. However, the earned value, again, where you’ve got this from, not talking about today.

This will be down to speaking to stakeholders, contractors, asking for progressive reports and stuff like that. But my contractors have told me they’ve done 500 pounds worth of my wall. So I’ve received 500 pounds worth of wall at month two.

I should have received 1000 pounds worth of wall at month two. So I should have more wall than I’ve got. So I’ve earned values how much of my product have I received expressed as a monetary number.

So in this instance, I’ve received 500 pounds worth of wall. I should have, based on my plan cost, 1000 pounds worth of wall at month two, which means I’m behind schedule. I’m not getting wall as quickly as I should be, which is telling me that if this continues, then I’m not going to get a finished wall by month three.

It’s going to take longer. It’s going to take a lot longer, actualbitly. I can also use my own value to say how much wall have I got, how much of wall have I earned, 500 pounds worth of wall, and how much have I spent for it?

So I’ve got 500 pounds worth of wall, but I’ve actually spent 700 pounds. So I’ve spent 700 pounds to get 500 pounds of wall. So I’ve overspent.

So this again, where the earned value comes from, it depends entirely on the business you’re working within, the contract you’re working within. It usually is expressed as percentages. So it could be expressed as a percentage complete, which you then need to convert into a monetary number.

But either way, there’ll be some way of tracking what the earned value is as money. Lots of different ways of doing it. But again, that’s not for today.

But this is telling me, this graph is telling me that I’ve earned 500 pounds worth of wall, should have got 1000 pounds at this point in time, therefore I’m behind schedule. And in order to get that 500 pounds worth of wall, I’ve spent 700 pounds. So I’m overspending.

So this project is not going very well at all. So earned value will use graphs or can use graphs to do its calculations. And that’s just, it is simply put comparing where the lines are.

All the lines are lined up. So the actual costs and the earned value are lined up with that plan cost line. Everything would be absolutely splendid.

Everything would be going exactly as expected. But because those lines are split apart, it’s telling me that something’s not going to plan. Even if something’s going better than expected, it’s still not going to plan.

So we need to investigate what’s happened and why. So we can either take advantage of it or resolve it or whatever. But everything should be on that line that’s expected and it’s not in this instance.

So for example, here then, here’s some graphs. Just as an aside, they won’t use graphs in the exam. I want to be careful of going too far into the data minefield that this can end up being.

So first of all, I was sticking with graphs. So I doubt they’ll use graphs in the exam if you are looking at the PMQ. But in reality, if you’re using EVM, you will see graphs with it.

Because it’s usually how we express progress to stakeholders. So in project A’s instance, for example, we’ve got a 10,000 pound budget completion, 10 day project or 10 day project, say days, says on there. So the planned budget is the red line.

The green line is the actual, the earned value is the blue line. So project A is telling me everything’s going better than expected. Because if I compare the blue line with the red line, so that’s my earned value against my planned, I’m getting more value than I expected to get at this point in time.

If I compare my blue line with my green line, which is my actual cost, so I’ve earned more value and spent less money on it. So this project is ahead of schedule and under spending, project A, project B, on the other hand then. The earned value is above both the red and blue green line again.

So if the earned value is above the planned cost line or the budget line and the actual cost line, it’s telling me things are going really well. They’re going better than expected. So again, it’s not going to plan though.

So you investigate what’s cost it, see if I can take advantage of it. See if it, maybe I can release the resource to another project. Maybe I can add some additional scope in.

Maybe I can do things a bit quicker or whatever and cancel the project earlier, finish the project earlier. Whatever, it’s showing me as based on where we currently are. So that is month six, I suppose, or day six.

Things are going better than expected. Whilst with project C, the earned value line is below both the actual cost line and the budget, red budget line. So this is telling me that things are being, are being overspending quite significantly in this instance in project C and with our own schedule.

So graphs are a really good way to show stakeholders how you’re performing using the earned value line. No, it’s not overspending because the earned value is above the actual cost line. So if the earned value is above the actual cost, it means we’re earning value quicker than we’re spending money on it.

So for example, I’ll go with the exact numbers. So the earned value is £8,000. The planned cost is £7,000.

So I’ve spent £7,000, but I’ve got £8,000 worth of product effectively, some underspending. So careful with the way to think of it is that if the earned value line is above any of the lines, it’s doing better than expected in some way. If it’s below either of the other lines, it’s going worse than expected.

That’s a simple way to express it. The budget, the cost side of things always gets a bit confusing with the numbers and everything. Oops.

So there are some calculations in this. Again, I’m not going to go through these. These are some of the terms you might come across.

The two acronyms you’re likely to encounter are CPI and SPI. If you’re doing the PMQ exam, cost performance index and schedule performance index. The calculations are in this slide.

You do not need to know the calculations at all. The performance indices are effectively expressing progress as a decimal. The variances are just indicating quickly if we’re ahead of schedule underspending or whatever.

I don’t think they’ll use variances in the exam. If you’re going to do the exam, I think they will very likely use performance indices, the data. Let me just split back to this slide a second.

There’s a couple of things to remember with this. I’m not going to go through variances. I don’t think there’s any value in it.

But the performance indices, there’s a quick win. If you are looking at doing PMQ and you come across an interpret question, which is, look at some data, what does it tell you? In fact, actually, I’ll do one better.

I will show you a sample question. This is very much with the exam in mind now, this one. Let me just dig it up.

This would be an example of an interpret question here. This is Zoom is in the way. It will present it as a table, typically, in the PMQ.

For this instance, if we look at the earned value here, the earned value is £50,000. That’s telling us we’ve earned £50,000 of what? We’ve earned £50,000 of whatever it is we’re producing.

At the top here, we have the total overall budget of £120,000, and the duration is 10 months. At this point in time, we’re at month five, and we’ve earned £50,000 worth of product. But if you look at the actual cost, we’ve spent £40,000.

So we’ve earned £50,000 worth of stuff, but we’ve spent £40,000. We’re not spending as much as we thought we would, and we’ve got more stuff. So we spent £40,000, we’ve earned £50,000 worth of stuff.

But if you look at the planned budget here, we were expecting to have spent £60,000 at this point in time. However, we’ve only earned £50,000 at this point in time. So we’re actually behind schedule.

Now, the bit I wanted to talk and direct you towards, and this is very much with PMQ in mind now, is this bit down here. CPI and SPI. We’re doing everything else, just these two.

If you see a one next to CPI or SPI, it’s telling you everything’s perfect. If you see the number one, it’s saying we’re exactly where we expected to be. That tells us we’re on plan.

That would be with the graph, but all the lines match up. They all line up against each other. That would be one.

If the number is below one, so it’s not point something, so for example, in this instance, the SPI, so schedule performance index is 0.83, that’s telling me it’s not going very well. So if the number is below one, it’s bad news. So 0.83 means behind schedule.

If the number is greater than one, though, such as the CPI here, so which is 1.25, so the cost performance index is 1.25, this is telling me that I am under spending. I am doing better than expected. So the thing to remember with this is one is perfect.

I’ll say why one is perfect, it’s perfect in a second. One is perfect. It’s going exactly as I expected it to be.

Any number below one, so 0. something, is showing me bad news. It’s not going very well.

We’re either overspending or behind schedule. If the number is a greater than one, then we are doing better than expected. We are overperforming.

We are spending less money than we expected to be spending or we’re ahead of schedule. As a project manager, I would prefer it as one, because that shows me that everything is going precisely how I expected it to be. Everything is going to plan.

My predictions were correct, my estimates were correct, my budgeting has been correct, which means that anything I’ve predicted forward is probably good, is probably correct, because it’s based on the same estimates. So it’s going to verify that my plan is effective and it’s going as expected, which I want. If it’s better than expected, that’s brilliant.

We can take advantage of it, but it still means something in my plan wasn’t quite right. So I need to reassess my plan potentially. Obviously, if it’s below one, then that’s bad news.

We’re overspending or behind schedule. We need to try and manage that and adjust things. That’s a very typical example of a question in the exam, by the way.

So interpret the data and then what would you do about it? I’m not going to talk about what you do with this, that’s for the course itself, but that’s what you’re looking for. And if you can get your mind around with an interpret question, if you’re ever looking at you, and this is not even just the exam, if you’re looking at any EVM data presented to you by contractors or in your projects, monitoring systems, whatever, if you see one, it’s perfect.

Everything’s going as expected. If it’s below one, bad news. If it’s above one, better than expected.

It could be good news, doesn’t have to be that, could be bad news too, but better ahead of schedule or underspending if it’s greater than one. So you can look out for stuff like that. The CPI and the SPI generally help projects, certainly most systems we use to monitor EVM.

That’s what we will be looking for as the CPI and SPI. Because we can use those numbers, these 1.25 and 0.83 in this instance, to then compare how we’re performing against the original plan. And the last kind of key thing with the EVM, if I just flip back to the slides for a second, is a key advantage of it is we can use it to make predictions throughout the project.

And it can give us estimates at completion. Is EAC? Estimates at completion.

All right. Don’t get too hung up on acronyms with EVM, by the way. Just mostly for an example, I’ll give you the estimate completion.

So EVM, earned value management is very, very good at forecasting because it’s using really effectively quite simple data to make and extrapolate predictions. You’ll be careful though, because if you’re using the CPI and the SPI, it’s taking a snapshot of where you currently are, which will assume a straight line. So you do want to use it in line with previous EVM data to show, again, like you’d use on a graph, do a graph for is to show trends and see where things are going.

But it’s a great way to provide data and evidence for decision making or creating graphs for extrapolating and forecasting. And if someone says, where have you got that from? You can go back.

And ultimately, it allows your decisions to be a bit more effective. It allows your stakeholders to make more effective decisions. Because if you say, for example, we’re behind schedule and overspending, do we continue the project?

Or perhaps if the budget’s more important, then perhaps we can take a bit longer and spend less money then. Or we could perhaps, if the deadline’s important, we can throw money at it, get done quickly. Or if the quality is less important than the time, the budget, let’s cut some corners.

Or if the scope is the problem, then let’s cut some stuff out of scope to save some money and time. So we were building a patio that was going to be this big. Let’s keep the cost and time on control and make the patio a bit smaller and save some money on buying some slabs or some labor or whatever.

So it’s about allowing you to make decisions and providing graphs, data, evidence, predictions that have something behind them. It’s not just a, I don’t know, it’s going to take 20 days longer. It’s going to take 20 days longer based on this estimating, this value data we’ve gathered.

It’s great for reporting. It helps to show progress very clearly to stakeholders. You often find with the real tool, maybe like dashboards and stuff you can use with it to have different levels of data.

So a senior stakeholder might only care about where you got this from very quickly. And you can just say, and it just has a graph in the dashboard. Sometimes for me as a project manager, I want a bit more than that.

So my dash will be a bit more intricate with all the SPIs and everything. So it’s great for communication as well. I’m an advocate for value management.

I think it’s very helpful. I’ve seen the benefit of it in projects. And again, I’ve seen it verify the estimates were very poor.

We used it to challenge some estimates in business cases along a few years ago. I won’t say how long ago. But it allowed me to go back with a group of people and say, all these business cases, these are wrong.

All the budgets in them are completely fudged and made up. They deliberately used very horrendously optimistic estimates to try and get the business cases signed off. And it meant that the projects, whereas they were running, they all looked like they were really behind schedule.

And actually they weren’t. They were actually pretty good. But because someone had taken over optimistic estimates, it took using some data in early management to challenge those estimates.

You’ve got to have the data. Because if you just go back and say the estimate was rubbish, then they’re going to go, how do you know that? EVM provides that or can do.

There is obviously a lot more to it. There’s whole qualifications. You can get an end value management.

I should know because I’ve done one. It is thrilling. But are there any questions on value management at all or budgeting in general?

Anybody? A few minutes left. Yep, absolutely.

Yeah, we will get the recording sent out to everybody. These are recorded. So yeah, you can have access to those.

No trouble. Any other questions or anything for me around value management? Yeah, good to hear.

I mean, that’s kind of what we want to do with these webinars. As I said, there’s more to them. But just to stress that when you read through materials on earn value management in particular, I tend to find that certainly in things like study guides and pre-reading and everything, it can often look quite intimidating.

But really just stressing, if you’re looking to go to PMQ, that’s the reason you’re doing these webinars. Thank you very much. You don’t need to know the maths.

It’s what it is, and we will clarify that a bit more on the courses you do with us, but ultimately why we use it. So why do we do it and how do you interpret the data? So what’s the data?

How do you interpret it? If you can get your head around that CPI and SPI, one is good, less than one is bad, greater than one is better than expected. That will get you a good chunk of the way for an interpret question as well in the exam.

You have to go for it. Cool. Okay.

Well, I mean, there’s no questions then. Then I’ll hand back over to Jim for the last bit of the webinar. Brilliant.

Thank you, Carl. Thank you for your expertise over the last hour. Thank you everyone for your attendance this afternoon.

I think in all of the previous, it was a very good session. Lots of information around earn value management in particular. If you have any questions that you haven’t asked or haven’t been answered, please get in touch with us after the webinar and we’ll try and get around to answering those for you.

Should any of you be looking for the next step in your training journey? You know someone that may benefit from a training course with ourselves? We have a fantastic offer at the moment.

So by any online virtual classroom or blended course with ourselves and receive a second foundation online course for free. The offer includes the APM project fundamentals qualification and also the APM project management qualification. So the PFQ and the PMQ are involved in the offer.

So it’s due to expire on the 31st of January tomorrow. But for you guys, for the attendees of this webinar, we’re actually able to extend the offer until next Friday. So until the 9th of February.

If you want any more information or anything else that you need any help with, my contact details are at the bottom. So yeah, like say Jim Wally, 01270626330 and my email address is jimittrainingbysize.com. So once again all thank you for your attendance.

There’s a lot of effort put into this webinar and to the webinars that have been ran today. So hopefully you all found that particular webinar beneficial. So yeah, thank you very much and have a great day.

Thank you very much everybody. So that’s it for this episode of ByteSize Project Management. We hope you’ll tune in again soon for another edition.

Until then you can find out more about the certifications and training packages we offer on our website, trainingbygthsize.com. Thanks very much for listening and we’ll see you again soon.