Are material and equipment costs included in PV, CV, SV?

The Air Force’s $10,000 toilet cover - The Washington Post

Earned Value Cost Report

Air force toilet cover

ACWP 10,000 $

BCWP 10,000 $

BCWS 10,000 $

Hides much information - makes sense when you want to hide cost details

No wonder inefficient government bureaucracies love it!

Useless for future estimates, it is dumb!

Unit Cost Report

Air force toilet cover

Quantity Installed 1 ea

Budget Unit Cost 10,000 $ per unit

Actual Unit Cost 10,000 $ per unit

Actual Unit Cost 10,000 $ per unit

Detailed cost information is transparent

No wonder efficient private contractors love it!

Work units are what make cost report of value.

This is the information we need for future estimates.

Of all cost control systems EV is the DUMBEST

Perhaps it should be labeled DV for Dumb Value

DCWP 10,000 $

DCWP 10,000 $

DCWS 10,000 $

Definitively it is DUMB!

EVM may tell you the purchase was within budget but not how dumb the purchase was.

EVM is activity based budgeting at less than 50%, not only time component is deficient but also the cost component. Because it misses to account for volumes of work it cannot be used to predict cost performance of future similar activities. The shorter the activities the less useful it is. By the time EV is reported the individual activities are finished. The information comes to be too little too late.

In the field our managers and site supervisors do not use EVM jargon but unit costing and unit production reports.

No instructions are provided, no instructions are required and still they provide more information than EVM! Any supervisor with no training can understand them.

Patrick,

please explain to us your statement: "Unfortunately most of the answers below are from people who's knowledge of Earned Value is based on the simplistic approach embedded in most scheduling tools and are simply wrong".

What exactly is wrong in the posts "below". What undesired simplification did you find in most scheduling tools?

Earned Value Method as a tool for project control

Many organizations worldwide adopted Earned Value as a standard management tool (e.g. US Department of Defense [13], an Australian standard [14]). It is described in practically all management handbooks and incorporated into management software. However, if to be implemented, the method should be used according to its purpose: it is not a tool for forecasting; instead, it facilitates progress monitoring, determination of project status (on time? to budget?), identification of potentially negative occurrences and a rough estimate of their combined effect on the project’s outcome. If the project is to be managed consciously, these occurrences should be then investigated into by means of more accurate methods.

SDPM Approach

Earned Value Analysis is another method that is used for estimating program/project performance. But this method shall be used very carefully and only in combination with other methods because:

• The real situation may be distorted.
• Project managers are motivated to do expensive jobs ASAP and cheap jobs ALAP.
• It does not consider if activities that were performed were critical or not.
• It does not consider project risks.

As if not enough:

• Modern EVM is very dependent on a schedule timeline or baseline that in most cases is continuously changing. Comparing actual conditions with an obsolete baseline does not make much sense.  Variance against a continuously changing baseline does not make much sense.
• Variance against a continuously changing budget does not make much sense.
• EVM jargon is not well understood by those in the field, it is an obstruction to good communication. In the field they do not talk ACWP, BCWP, BCWS, cv, cv%, SV, sv%, CPI, CPI%, SPI, SPI% and the like; they mostly talk about work quantities, resources and production rates.
• Requiring EVM for firm-fixed-price (FFP) contracts and subcontracts of any dollar value is discouraged by the US Department of Defense, the father of the creature, as well as many other agencies.
  • SUBPART 234.2  EARNED VALUE MANAGEMENT SYSTEM

    (iv)  For firm-fixed-price contracts and subcontracts of any dollar value - (A)  The application of earned value management is discouraged ….

  • DEPARTMENT OF DEFENSE EARNED VALUE MANAGEMENT IMPLEMENTATION GUIDE (EVMIG) - DOD EVMIG-01-18-2019.pdf

    2.2.2.5 Exclusions for Firm Fixed Price (FFP) Contract Type

    The application of EVM on FFP contracts and agreements is discouraged, regardless of dollar value.

• Managing a schedule without considering float is a flawed approach, EVM does not consider float therefore it is flawed.

Unfortunately most of the answers below are from people who's knowledge of Earned Value is based on the simplistic approach embedded in most scheduling tools and are simply wrong. 

If you are asking about Earned Value Management, the only requirement is the Planned Value (which generates Earned Value) and the Actual Costs are planned and accumulated on the same basis. Depending on the project, hours of effort may be an appropriate metric, or labour costs, or full costs. The decisions on which option is best are part of the overall project planning processes.  For more on this and links to a range of resources (some free), see: https://mosaicprojects.com.au/PMKI-SCH-040.php 

To keep it simple we limit our WBS dictionaries to only two even when our software provides for an unlimited number. Usually we use a Deliverable-oriented WBS dictionary based on delivery work packages, sometimes called a Product Breakdown Structure (PBS), and use a second WBS dictionary based on Responsibility Managers. Deliverable-oriented WBS structures are the preferred type according to PMI's definition. We use both structures as there is no such thing as a single best WBS structure.

  Usually we only use two WBS Structures.

  This allow us to report EV using either WBS Structure.

Rarely do we use EV as many of us believe it is of no much value, in any case a distraction.

Monetary value (dollar amount) is the most common unit of measure in earned value analysis. It is also possible, however, to use other units of measure such as labor hours, square footage, and cubic meters of concrete for calculation purposes.

Reference: PMBOK ® Guide, 4th Ed., pages 270-271

I agree with Vladimir Liberzon - Expensive materials and equipment can distort understanding of the real status of project performance if purchased earlier or later than expected. That is why in many cases we prefer to apply Earned Value analysis to the cost of labor.

In other cases when disclosing costs are not available or desirable to disclose the use of man-hours can be your best option. This is common in pharmaceutical jobs.

At home many successful contractors are family owned business spanning several generations of constructors and engineers. Still I do not recall a single site discussion centered on EVM parameters, most discussions were about crew assignments, resource hours and their production capacity.  If you are to use EV I suggest you keep it simple and keep focus on your resources by applying EV to resource hours.

 

Yes, you are correct. It also depends how you define the resources in the activities. If all cost are defined on each activities such as material, labor and equipment then all of these have PV, SV, & CV and part of EV. 

Expensive materials and equipment can distort understanding of the real status of project performance if purchased earlier or later than expected. That is why in many cases we prefer to apply Earned Value analysis to the cost of labor.

All cost belong to the project are included on EVM.

Ex:

1) Prelims

2) Expenses

3) Indirect Cost

4) Direct Cost

5) Material Cost

6) Tools, Plant and Equipments

7) Hired Cost

8) Sub-Contractor Cost

9) Etc..etc..

All of these are breakdown on your CBS (Cost Breakdown Structure) per WBS.