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EARNED VALUE (EV) TECHNIQUE

Introduction
The Malaysians Auditor General 2008 report suggests the
cost overruns significantly affect the viability of construction
projects in Malaysia.
The clients and the contractors suffer great financial loss
and it causes disputes which turn down the overall project
progress.
For example, the audit report revealed that delay in project
completion of Electrified Double Track Project between
Rawang and Ipoh resulted in a cost overrun of RM 1.43
billion [1].
A delay in carrying out the project activities causes
deviation from the approved time and cost baselines.

Electrified Double Tracking Rawang


Ipoh and SentulBatu Caves
The project was built by UEM Edgenta
Project Brief
180-kilometre railway line between Rawang
and Ipoh, which will facilitate plans for an
extension of KTMBs commuter services up
to Tanjung Malim; and the 7.5 kilometre
railway line between Sentul and Batu Caves.

The traditional method of project cost monitoring


is based on simple parameters using two data
sources that is the budget (or planned) spending
and the actual spending.
The comparison of budget versus actual spending
merely tells what was planned to be spent versus
what was actually spent at any given time.
Besides, it does not relate any current
performance
trend
to
forecast
future
performance.

Project Cost Monitoring


1) S-Curve
The basic element in EV technique
S-Curve examine the progress of the project and
forecast expenditure
During the budgeting process, all these costs are sum
up to develop a cost baseline.
A cost baseline is defined as a cumulative time-phased
budget that will be used to measure and monitor the
current and future project cost performance.
It is graphically represented in the form of S-curve and
it is an important cost monitoring tool.

2) Earned Value Analysis


As a tool facilitating project progress control
which integrates cost, schedule and technical
performance.
It is used for determining a projects status (is it
behind or ahead of schedule? is it over or under
budget?) and the scale of current variances from
the plan.
It allows a project manager to make inferences on
the final effect of the project in terms of cost or
duration.

Terms
1. BCWS (Budgeted Cost of Works Scheduled)
the baseline for the analysis, cumulated planned costs related to time of their
incurrence;
- The value of work done that should have been done at a given point in time.
2. BCWP (Budgeted Cost of Work Performed )
a measure of physical progress of works expressed by cumulated planned cost of
works actually done related to time, it is also called Earned Value (like the method
it is used by);
- The value of the work done at a point in time.
3. ACWP (Actual Cost of Work Performed)
cumulated amount payable for works done related to time;
- The actual cost of the work done
4. BAC (Budget at Completion)
total planned cost of the whole project, it equals BCWS at the planned finish;
5. T planned duration of the project.
6. EVA (Earned Value Analysis)
- Compares the value of work done with the value of work that should

7. Schedule Variance (SV)


- The value of the work done minus the value of the
work that should be done
= (BCWP-BCWS)
- A negative number implies that work is
BEHIND SCHEDULE
8. Cost Variance (CV)
- The budgeted cost of the work done to date minus
the actual cost of the work done to date
= (BCWP- ACWP)
- A negative number implies a current
BUDGET OVERRUN

9. Cost Performance Index (CPI)


- Compares the planned and actual value of
works done
- If value less than 1, it indicates that the
project has consumed MORE MONEY than
PLAN,
- If greater than 1, there have been SAVINGS
CPI = BCWP / ACWP

10. Schedule Performance Index (SPI)


- Compares the planned cost of works done
with planned cost of works planned
- If less than 1, it indicates a DELAY
SPI = BCWP/BCWS

Work Example
A project has an original budget of RM
600,000 and after the first 4 months of a 12
months planned project time, the schedule
costs, actual costs and earned values are as
follows
M1

M2

M3

M4

Schedule
Cost

32,000

60,000

150,000

240,000

Actual Cost

35,000

70,000

160,000

250,000

Earned Value
(BCWP)

30,000

50,000

140,000

230,000

Questions
1)
2)
3)
4)
5)
6)

Draw the three curves, Schedule, Actual and Earned Value


Calculate the Cost Variance for month 4
Calculate the Schedule Variance for month 4
Calculate the CPI for month 4
Calculate the SPI for month 4
Justify on the project status based

Solutions
Answer 1

2. Cost variance for M4


= EV- Actual
= 230,000 250,000
= - 20,000
3. Schedule variance for M4
= EV- Schedule
= 230,000 240,000
= -10,000
4. Cost Performance Index (CPI) for M4
= EV/ Actual
= 230,000/ 250,000
= 0.92
5. Schedule Performance Index (SPI) for M4
= EV/Schedule
= 230,000/ 240,000
= 0.96

6. Project Status
- Cost and time
- In term of cost , CPI if greater than 1, there have
been SAVINGS . However the value obtained <
than 1 (0.92) COST OVERRUN
- In term of time, SPI if less than 1, it indicates a
DELAY. However the value obtained < than 1
(0.96) - DELAY

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