Project

Management
Earned Value Management

EARNED VALUE MANAGEMENT:

A technique used to integrate the projects scope, schedule and resources to measure and report
project performance from initiation to closeout. The basic premise of earned value management
(EVM) is that the value of a piece of work is equal to the amount of funds budgeted to complete it.
As part of EVM, you use the following information to assess your schedule and cost performance
throughout your project.
A method for integrating scope, schedule and resources so as to measure project performance. It
compares the amount of work that was planned with what was actually earned and what was
actually spent to determine if cost and schedule performance are as planned.

Earned Value Components:

Earned value:
This is also referred to as budgeted cost of work performed (BCWP). It is the total cost of the work
completed/ performed of a reporting date.
Planned value:
This is also referred to as budgeted cost of work schedule (BCWS). Planned value or BCWS is the
total cost of the work scheduled or planned as of a reporting date.
The total planned value for the project is also known as budget at completion.
Actual cost:
It is also referred to as actual cost of work performed (ACWP). Actual cost is the total cost taken to
complete the work as of a reporting date.

Variance:
Any schedule or cost deviation from a specific plan is called variance.
Used within an organization to verify the budget and schedule for a project
Frequently used as a key component of plan reviews and performance measurement.
COST VARIANCE :
Indicates how much over or under budget the project is CV = EV EC
This formula gives variance in terms of cost which will indicate how less or more cost has been to
complete as of date
CV > 1 ; project is under budget
CV < 1 ; project is over budget
COST VARIANCE PERCENTAGE :
Indicates how much over or under budget the project is in terms of %
CV % = CV / EV
CPI :
This is an index showing the efficiency of the utilization of the resources on the project. Can be
calculated by
CPI = EV/AC
This formula gives efficiency of utilization of resources allocated to the project
CPI > 1 efficiency in utilizing the resource allocated to the project is good
CPI < 1 efficiency in utilizing the resource allocated to the project is not good
TCPI :
To complete cost performance indicator is an index showing the efficiency at which the resources on
the project should be utilized for the remaining of the project.
TCPI = total budget EV / total budget AC
This formula gives the efficiency at which the project team should be utilized for the remainder of
the project
TCPI > 1 utilization of project team for remainder of the project can be stringent
TCPI < 1 utilization of project team for remainder of the project can be linient
SCHEDULE VARIENCE :

Schedule variance indicates how much ahead or behind the schedule a project is
Formula, SV = EV PV
Formula gives variance in terms of cost which will indicate how much cost of the work is yet to be
completed as per schedule or how much cost of work has been completed over and above the
schedule cost.
+ SV ahead of schedule
-SV behind of schedule
Percentage schedule variance : it indicates how much ahead or behind schedule the project is in
terms of percentage
SV% = SV/PV
+ % ahead of schedule
- % behind of schedule
Schedule performance indicator (SPI) :
It is an index showing the efficiency of time utilized on the project
SPI = EV/PV
Above 1 efficient in utilizing time allocated on the project
Negative is less efficient
TSPI to complete schedule performance indicator
It is an index showing efficiency at which the remaining time on the project should be utilized
TSPI = total budget EV / total budget PV

FORCASTING:
As the project progresses, the project team can develop a forecast for the estimate at completion
(EAC) that may differ from the budget at completion (BAC) based on the project performance. If it
becomes obvious that the BAC is no longer viable, the project manager should develop a forecasted
EAC.
EAC forecast for ETC work performed at the budgeted rate
This EAC method accepts the actual project performance to date as represented by the actual costs,
and predicts that all future ETC work will be accomplished at the budgeted rate. When actual
performance is unfavourable, the assumption that future performance will improve should be
accepted only when supported by project risk analysis. Equation: EAC = AC + BAC EV.
EAC forecast for ETC work performed at the present CPI.
This method assumes what the project has experienced to date can be expected to continue in the
future. The ETC work is assumed to be performed at the same cumulative cost performance index
(CPI) as that incurred by the project to date. Equation: EAC = BAC / cumulative CPI.

PERFORMANCE-BASED BUDGETING:
Practice of developing budgets based on the relationship between program funding levels and
expected results from that program. The performance-based budgeting process is a tool that
program administrators can use to manage more cost-efficient and effective budgeting outlays.
PERFORMANCE REVIEW

Performance reviews measure, compare and analyze performance such as actual start an and finish
dates, percent complete and remaining duration for work in progress, compare cost performance
over time & and estimated funds needed to complete work in progress.
Variance analysis: Variance analysis as used in EVM compares actual project performance to planned
or expected performance. Cost and schedule variances are the most frequently analyzed.
Trend analysis : Trend analysis examines project performance over time to determine if performance
is improving or deteriorating.
Earned value performance : Earned value management compares the baseline plan to actual
schedule and cost performance.
SCHEDULE VARIANCE:
With EVM the schedule variance (SV) and schedule performance index (SPI) can be utilized to assess
the magnitude of schedule variance
Schedule performance measurements are used to assess magnitude of variation to the original
schedule baseline.
Variance Analysis:
The total float variance is also an essential planning component to evaluate project time
performance. Important aspects of project schedule control include:

Determining the cause and degree of variance

Deciding on corrective or preventive action

EXAMPLE:

Outputs from Schedule control

Schedule Updates

Corrective Action

Lessons learned

PROJECT COST MANAGEMENT:

Processes involved in estimating, budgeting and controlling costs so that the project can be
completed within the approved budget

Estimate costs

Determine Budget: aggregating estimated costs of individual activities or work packages to

establish a cost baseline

Control cost: monitoring the status of the project and managing changes to the cost baseline

Variance Analysis
Cost performance measurements (CV, CPI) are used to assess the magnitude of variation to the
original cost baseline. Important aspects of project cost control include:

determining the cause and degree of variance relative to the cost performance baseline

deciding whether corrective or preventive action is required.

Control thresholds
Variance threshold to indicate an agreed-upon amount of variation to be allowed before some
action needs to be taken.
Cost Performance Baseline
The cost performance baseline is compared with actual results to determine If a change, corrective
action or preventive action is necessary.

Outputs from Cost control

Revised cost estimates

Budget updates

Corrective Action

Estimate at completion

Project closeout

Lessons learned

EXAMPLE:
Project Plan
Plan for Copies R Us to Produce Objects A
Activity

Start

End

Object A

Jan 1

May 31

Elapsed Time

Number of Copies

Total Cost

5 months

500

100,000

Total

200,000

A quick glance reveals that you budgeted 200 a copy for Object A ( 100,000 / 500 copies)
Suppose its the end of March, and youre three months into the project. Heres what has happened
as of March 31:
Project Status as of March 31
Activity

Start

Elapsed Time

Number of Copies Produced

Total Cost

Object A

Jan 1

3 months

150

45,000

Total

75,000

Your job is to figure out your schedule and cost performances to date and to update your forecast of
the total amount youll spend for both objects. Follow these steps:
1. Determine the planned value (PV), earned value (EV), and actual cost (AC) for Object A
through March 31 as follows:
PV =
200 per object 100 objects per month 3 months = 60,000
EV = 200 per object 150 objects = 30,000
AC = 45,000
2. Determine the schedule variance (SV), cost variance (CV), schedule performance index (SPI),
and cost performance index (CPI) for the production of Object A through March 31 as follows:
SV = EV PV = 30,000 60,000 =
30,000
CV = EV AC = 30,000 45,000 =
15,000
SPI = EV / PV = 30,000 / 60,000 = 0.50
CPI = EV / AC = 30,000 / 45,000 = 0.67
Your analysis reveals that you produced only half of the copies of Object A you thought you
would and that each object cost you 1.5 times the amount you had planned to spend (1 / CPI =
1 / 0.67 = 1.5; also, actual cost per object / planned cost per object = [ 45,000 expended / 150
objects produced] / 200 per object = 300 / 200 = 1.5).
3. Forecast the estimate at completion (EAC) for Object A.
Assume the remaining work is performed at the originally budgeted rate.
EAC = BAC + AC EV =
100,000 +
45,000
30,000 =
115,000

References :
1. Project Management Institute. A Guide to the Project Management Body of Knowledge
(PMBOK Guide) Fourth Edition (2008)
2. Project Management Institute. PMBOK Guide (2000)
3. Applying Earned Value Management to Your Project - For Dummies . 2013. Applying Earned
Value Management to Your Project - For Dummies . [ONLINE] Available at:
http://www.dummies.com/how-to/content/applying-earned-value-management-to-yourproject.html. [Accessed 22 November 2013].