EARNED  VALUE  MANAGEMENT

Project Steps
Earned Value Management is a Cost-based method of assessing and reporting project progress. This financial data, however, should not be used in isolation. Earned Value calculations are recommended to supplement other information. In general, this information only has value when it is tracked over time. Single statistics can be misleading!
  • Earned Value: EV, also known as Budgeted Cost of Work Performed (BCWP).
       The budget cost for the work (plus overheads) that was actually completed in a
       given time period. It is a measure of the work accomplished. Think of it as
       "what you got." Activities may be classed as discrete or level of effort. If
        discrete, no credit is given for completing an activity until it is fully done. (see
        note below: Earned Value Measurement" 
       
  • Planned Value: PV, also known as Budgeted Cost of Work Scheduled (BCWS). The budgeted cost of the work (plus overheads) that was scheduled to be accomplished in a given time period. Think of it as "your Cost Plan for what was supposed to get done".
  • Actual Cost: AC, also known as Actual Cost of Work Performed (ACWP). The actual cost of the work (plus overheads) that was actually completed in a given time period. Think of it as "what you aid." Since payment lags behind invoices and work done, you will need to freeze a moment in time to catch AC, EV, and PV.
​With these 3 metrics we can calculate useful performance measurables.
     1.  Cost Variance (CV): CV =  EV-AC. A negative CV means the project has
          spent more than it should for the work produced. Positive CV means you
          have saved money.
     2.  Schedule Variance (SV): SV = EV-PV. A negative SV means the project is
          behind schedule. Positive SV means you are ahead of schedule.
     3.  Cost Performance Index (CPI): CPI = (EV/AC). CPI represents the cost
          efficiency of work performed. A CPI greater than 1.0 means the project is
          costing less than planned, so far. A CPI less than 1.0 means the project is
          costing more than planned, so far.
     4.  Schedule Performance Index (SPI):  SPI = (EV/PV). CPI represents the time
          efficiency of the work performed. An SPI greater than 1.0 means more work
          is getting completed than planned, so far. An SPI less than 1.0 means less
          work is getting completed than planned, so far.
     5.  Critical Ratio (CR): CR = CPI x SPI.  CR looks at both Cost and Schedule. 
          CR can be expected to range between 0.9 and 1.2 for a healthy project.
Recall: The total budget for the project is called Budget at Completion (BAC)
     6.  Percentage of Work Complete: Based on Cost, the percentage of work
          complete can be calculated by: PC = (EV / BAC) x 100
     7.  Percentage of Money Spent: This is a simple calculation:
          PS = (AC  / BAC) x 100

 When we recall that Total Expected Cost (TEC) is how much we expect the project to have cost, at completion, we can use the above metrics for forecasting it. TEC is sometimes called Estimate at Completion (EAC) and means the same thing.

     8a.  If CPI is expected to continue the same for the remainder of the project,

            then EAC = (BAC/CPI)

     8b.  If future work will be accomplished according to the cost plan,

            then EAC = AC + (BAC-EV)

     8c.  If the future work will not likely be accomplished according to the cost plan,

            then EAC = AC + (bottom up re-estimate of remaining work)

     8d.  If both the CPI and the SPI influence the remaining work,

            then EAC = AC + {(BAC-EV) / (CPI x SPI)}

     9.  You can also forecast the TIME To Complete your project (TTC) as:

           TTC= Planned total duration / SPI 

            This assumes the current SPI will continue to the end of your project.

 

Finally, we can consider the To Complete Performance Index (TCPI). This is the cost performance that must be achieved for one of 2 goals.

     10a.  To complete the project on the cost plan,

             then TCIP = (BAC-EV) / (BAC-AC) 

               Think of it as the remaining work divided by the remaining budget.

  •              (BAC-EV)=(PV for the remaining work).

  •              (BAC-AC)=(the remaining money left in the budget)

             In this case, a TCIP greater than 1.0

             means it will be harder to complete the project staying within the Budget.

     10b.  To complete the project spending no more than the current EAC,

             then TCIP = (BAC-EV) / (EAC-AC)

               Think of it as the remaining work divided by the remaining money to

                reach the current EAC. 

  •               (EAC-AC)=(the remaining money left in the EAC)

            In this case, a TCIP greater than 1.0 means it will be

            harder to complete the project staying within the current Estimate at     

            Completion (which is how much we expect the project to cost, at

            completion.

FINAL NOTES:

These metrics can be plotted against time, on a graph, as your project develops. The figure below illustrates this idea. In this way you can see changes and trends as time goes by, and so improve your monitoring which leads to more effective controlling.

In this example we are currently over budget and behind schedule

(EV)

over budget

behind  schedule

EXAMPLE using EVM 

Let's see an example of using Earned Value Management to enhance your project management monitoring and control. We will start with our Field Report, then answer the questions. Answers are found    HERE. 

Click on any photo to get to a project step

ANSWERS to the above questions are found    HERE. 

ANALYSIS: These points are worth noting.

     1.  All 500 units need to eventually pass the seal test, so there will be

           some re-work required. 

     2.  The failure rate of 1.3% might seem good, but without a Quality                Plan, we do not know what is expected.

     3.  In Question #3, the BCWP (EV) is based on 296 units

           successfully completed, not on 300 units worked on.

     4.  For the 296 units which passed the seal test, we are ahead of

           schedule and under spent.

     5.  In Question #10, the percent of work completed could also be 

            calculated as: 

             PC = (296 successful / 500 total) x 100 = 59.2%

              This works because our project deals with discrete units.

     6.  In Question #12, we should look again at Correcting Scope, and 

            Correcting Quality, for the steps to follow.

DISADVANTAGE of EVM:

    For the most part, except Item 8c above, EVM does not consider Cost

     to Complete which is where you would find the cost of re-work.

      Remember the cost of re-work is often more than the cost to do it

       right the first time! 

Earned Value Measurement

Several methods are available to measure Earned Value, depending upon the work being done.

     a.  Physical Measurement: This is the method used in our example,

           above. We easily counted the number of units successfully

             completed (296 units), and we had a cost per unit ($50).

     b.  Percent Complete: Similar to physical measurement, when

            percent complete can be measured, then:

              EV = PC x BAC

     c.  Weighted Milestones: A weighted value is assigned, in advance,

           to each milestone. For example we might say "Set up" is worth

           5% of the project completion, and "Foundation" is worth

           another 10%. This method is often used for longer projects with

           several work packages.

     d.  Fixed Formula: A specific percentage of the Earned Value is

           assigned, in advance, to the start of an Activity; and the

           remaining percentage is assigned to completion. For example,

           20% is earned when the activity is started, and the remaining 

           80 % is earned when the activity is completed. 

COST BASED or TIME BASED

You see that Earned Value Management is a Cost based system where EV, PV, AC, BAC, TEC are all costs. EVM requires some good estimating at the project beginning.

 

It is possible to develop a Time based system where earned value (EV) would be the planned Time for the Work Completed and planned value PV would be the planned time for the work scheduled. However, this approach is almost never used possibly because we usually put a higher value on Cost than on Time.

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