Earned Value Management
Basic Concepts
Monitoring the performance of a project involves tracking scope, schedule, and cost. Project managers must analyze the relationship between the project costs compared to the physical work being accomplished, not just one or the other.
Earned Value Management (EVM) is a more accurate approach because it:
Integrates cost, time, and work completed
Can be used to forecast future project performance, allowing project managers to make necessary adjustments early on
Why Should I Use Earned Value Management (EVM)?
Monitor planned vs. actual
work performed
only
Project may be progressing on schedule, but be over/under budget
Monitor planned vs. actual
costs
only
Project may be progressing on budget but behind/ahead of schedule
Limitations of traditional planned vs. actual results comparison
EVM measures scope, cost, and schedule in an integrated
system
Fundamentals of EVM
Steps
for implementing EVM:
Define the work
(WBS, mutually-exclusive elements)
Assign a value to each activity (planned value)
Define “earning rules” for each activity (. 0/100 rule, 50/50
rule, etc.)
Implement
project plan and measure progress
EVM requires:
Project plan with work to be accomplished
Valuation of planned work
Pre-defined “earning rules” to quantify the accomplishment of work
The
“earning rules” component is very important. Before you measure project performance, you need to determine how you are going to measure work that has been completed. For example, will you use a 0/100 rule, where any work towards the activity is not counted until the activity is complete? Or will you use percentages of work that has been completed towards an activity? How will you quantify the way work is considered “accomplished?”
In the scenario in this training, we keep it very simple, and only count work towards the activity when it is completed.
EVM measures project performance against a cost baseline
Integrates project scope, cost, and schedule to measure project performance and progress
Basic Measurements - Planned Value, Earned Value, and Actual Cost
EVM
These are the 3 basic
measurements for starting to calculate EVM (they lay the foundation for the rest).
The BCWS, BCWP, and ACWP are other ways of thinking about each one (these terms are also used in EVM)
PV for entire project is also called “budget at completion (BAC).” Participants will need to know this for the next calculations.
*****Important to explain: All EVM calculations are measured at any particular point in a project, not just at the beginning or end.
EVM Scenario
Scenario:
Your team
is helping a client plan and facilitate an executive-level stakeholders meeting.
The team has
10
days
to complete
10
activities
at a cost of
$1,000
per day (1 activity planned per day).
After
6
days
, you only have
4
activities
completed and have spent
$5,000
.
At
this point in the project, w
hat is the PV, EV, and AC for this project?
PV
= $10,000 (BAC) x 60% (6/10 of work planned) = $6,000 (or think: 6 activities were planned to be completed at this point; the budget for these 6 activities is $6,000)
EV
= $10,000 (BAC) x 40% (4/10 of work completed) = $4,000 (or think:
4
activities have been completed; the budget for these
4
activities is
$4,000
)
AC
= $5
,000
(actual cost of the work performed, as stated by the scenario)
Planned Value (PV) – the value of work planned to be done = BAC x planned % complete
Earned Value (EV) – the value of work actually completed = BAC x actual % complete
Actual Cost (AC) – the actual cost of work completed
How does this information help measure project performance?
Read
through scenario and make sure everyone understands it.
Point out definitions at the top of the page.
IMPORTANT: We are operating under a scenario where 1 activity is completed per day to simplify the scenario. However, this is obviously not how most projects work. When calculating PV and EV in typical situations, you have already determined how you are going to measure work that has been accomplished or that was planned to be accomplished. The easiest way to calculate is to put that work into a percentage, however you have chosen to measure it. That is, what percentage of the work was planned or has been completed (which will typically NOT be based on 1 activity per day).
As you calculate the PV, EV, and AC – write down the answers on a flip chart so you can use them for the next few exercises.
******Before clicking! Determine the PV together as a class. Planned value after 6 days is $6,000. You planned to spend $6,000 after 6 days on the project.
******Before clicking! Determine EV together as a class. Earned value is only $4,000 because you have performed 4 activities, and the budget for 4 activities is $4,000.
******Before clicking! Determine AC together as a class. Actual cost is the actual cost that you have spent at this point (it comes straight from the scenario). The scenario states that you have spent $5,000 at this point.
Question
in the bottom box: these three basic elements will be used to calculate how the project is performing and predict how the project will perform from now on. The next few slides will show variance, performance indexes, and forecasting.
Monitor
variances from
the approved baseline
and performance metrics using
the measurements below
Variance and Performance Metrics
EVM
The
measurements determine if you are ahead/behind schedule (CV), ahead/behind budget (SV), the efficiency of the work you are doing (CPI), and the rate at which the project is progressing (SPI).
EVM Scenario
Scenario:
Your team
is helping a client plan and facilitate an executive-level stakeholders meeting
. The team has
10
days
to complete
10
activities
at a cost of
$1,000
per day (1 activity planned per day).
After
6
days
, you only have
4
activities
completed and have spent
$5,000
.
At this point in the project, what is the CV, SV, CPI, and SPI for this project?
CV =
$4,000 - $5,000 = -$1,000 (project is OVER budget)
SV =
$4,000 - $6,000 = -$2,000 (project is BEHIND schedule)
CPI =
4,000 / 5,000 = (we are getting $ worth of work out of every $ spent)
SPI =
4,000 / 6,000 = (project is progressing at 67% of the planned rate)
Cost Variance (CV) = EV - AC
Schedule Variance (SV) = EV - PV
Cost Performance Index (CPI) = EV / AC
Schedule Performance Index (SPI) = EV / PV
This is the same scenario as the previous
.
Re-r
ead
through scenario to refresh everyone.
Point out definitions at the top of the page.
Write down answers on the flip chart (under PV, EV, and AC) as you calculate them as a class so you can use them for the next activity.
******Before clicking! Determine the CV together as a class (use EV and AC from flip chart)
******Before clicking! Determine SV together as a class (use EV and PV from flip chart)
******Before clicking! Determine CPI together as a class (use EV and AC from flip chart)
******Before clicking! Determine SPI together as a class (use EV and PV from flip chart)
NOTE: CPI and SPI are typically not expressed in dollar amounts. Explain to clients that 1 is the target, anything below 1 is not efficient, anything above 1 is good.
NOTE: Cost Variance
– point out that the project is $1000 OVER budget, even though it is the 6
th
day and you have only spent $5,000. If you did not use Earned Value (EV), you would be reporting that you are UNDER budget for where you are in the timeline. But since you are factoring in the actual amount of work completed (rather than the planned amount of work completed), you will see that the project is actually OVER budget.
Forecasting involves estimating the project’s future based on information and knowledge available at the time of the
forecast
Forecasting
EVM
Forecasting measures the future of the project – how far do we have left to go?
NOTE! There are 3 ways
to calculate EAC. For this training, we will be using the first one. Remember: BAC = Budget at Completion (what is the total budget for this project).
EVM Scenario
Scenario:
Your team
is helping a client plan and facilitate an executive-level stakeholders meeting
. The team has
10
days
to complete
10
activities
at a cost of
$1,000
per day (1 activity planned per day).
After
6
days
, you only have
4
activities
completed and have spent
$5,000
.
1. If the current performance trends continue, how much will the project cost at completion?
EAC =
$10,000 / $.80 = $12,500 (total amount the project will cost at completion)
How much more will the project cost?
ETC =
$12,500 - $5,000 = $7,500 (project will cost $7,500 more from this point forward)
Will the project be over or under budget? By how much?
VAC =
$10,000 - $12,500 = -$2,500 (project will be $2,500 OVER budget at completion)
What level of cost performance must be maintained if you want to meet the BAC goal?
TPCI =
(10,000 - 4,000) / (10,000 - 5,000) = 6,000 / 5,000 = (your CPI must increase from to if you want to meet the BAC goal)
Estimate AT Completion (EAC) (if current cost performance continues) = BAC / CPI
Estimate TO Complete (ETC) = EAC
–
AC
Variance AT Completion (VAC) = BAC
–
EAC
To Complete Performance Index (TCPI) =
EAC goal: (BAC
–
EV) / (EAC
–
AC)
OR
BAC goal: (BAC
–
EV) / (BAC
–
AC)
This is the same scenario as the previous
.
Re-r
ead
through scenario to refresh everyone.
Point out definitions at the top of the page.
******Before clicking! Review and determine Budget at Completion (BAC) and write it on the flip chart. You discussed Budget at Completion (BAC) when you introduced Planned Value a few slides ago. This calculation must be done in order to do the rest of the calculations on this slide. The budget at completion is the total budget for the whole project. In this scenario, the BAC = $10,000 because you are supposed to spend $1,000 per day for 10 days. Write it down on the flip chart.
******Before clicking! Determine EAC together as a class (use BAC and CPI from flip chart)
******Before clicking! Determine ETC together as a class (use EAC from previous answer and AC from flip chart)
******Before clicking! Determine VAC together as a class (use BAC from flip chart and EAC from answer 1.)
This graph is often useful for project managers and clients because it illustrates how efficiently you are using time (SPI) and resources (CPI).
CPI and SPI Line Graph
Target
SPI = Schedule
CPI = Budget
Target = = Perfect
Above = Good
Below = Inefficient
Anything
below 1 is not using time or cost efficiently, and the project manager should revisit the budget.
Summary of EVM Measurements
