EARNED VALUE

MANAGEMENT
 EARNED VALUE MANAGEMENT

 Is the best project control technique for early detection of

performance variances.
 The technique was developed nearly 40 years ago for the
United States government to better manage contract
payments to vendors.
 Ever since, it has grown in popularity and acceptance across
many industries, and now is regarded as the preferred
project control technique by PMI.
 However, it has not been accepted as standard practice in all
industries, and it is usually a technique found in
organizations or industries that are relatively mature in their
management processes.
 EARNED VALUE MANAGEMENT

 Assess cost performance and schedule performance together

 The main value of EVM is that it allows you to measure and track both
schedule and cost performance together. Evaluating project performance
on just one of these indicators does not always give you the true picture
and does not allow you to detect variances as early.
 Each work package has a planned value
 The planned value of any work package is the budgeted cost of the work
scheduled to complete the work package. The important point here:
Estimate the cost of each work package in your schedule. Also, this means
that the project as a whole has a baseline schedule and budget.
 At any point, the project has an "earned" value
 The earned value of a project is the budgeted cost of the work actually
completed. In other words, how many work packages (or partial work
packages) have been completed at this time? The value is expressed in
budgeted cost terms, not actual costs. This allows you to perform cost
analysis by comparing budgeted versus actual costs for the work
completed.
 INTRODUCTION TO EARNED
VALUE SYSTEM (EVS)
 The EVS is used to monitor the progress of work and
compare accomplished work with planned work.

 There are several factors in the earned value report that

needs to be known in order to use it effectively.

 The factors are the:

 Budgeted cost of work scheduled (BCWS)
 Budgeted cost of work performed (BCWP)
 Actual cost of work performed (ACWP)
 These three elements form the basis for the earned value
reporting system.
 EQUIVALENT TERMS

 Budgeted cost of work scheduled (BCWS)=Planned Value (PV)

 Budgeted cost of work performed (BCWP)=Earned Value (EV)

 Actual cost of work performed (ACWP)= Actual Cost (AC)

 EARNED VALUE MANAGEMENT

 EVM takes the planned value (PV), or what you planned to

do at an estimated cost, and compares it against the
estimated cost of the work performed (EV) and against the
actual cost of work performed (AC), or what actually got
done.
 These metrics provides information about whether the
project tasks are taking longer than they should (schedule
variance, or SV), or whether they are actually requiring more
work effort to complete (cost variance, or CV).
 In addition, the estimate-at-completion metric (EAC) helps
you forecast final project performance and determine if any
corrective action needs to take place.
 Budgeted cost of work scheduled
(BCWS)

 Is the amount of money that was

planned, or budgeted, at each time
period in the project.
 It is determined by cost loading the
CPM diagram to determine the
distribution of cost in accordance with
the project plan.
 The S-curve for a project represents
the BCWS.
 Actual cost of work performed (ACWP)

 The ACWP is the actual amount of

money that has been spent at any
point in time during the project.
 It is determined from accounting
records or the responsible party that
keeps records of actual expenditure
of money.
 Budgeted cost of work performed
(BCWP)

 The BCWP is the amount of money

earned based on the work that has
been completed.
 It is determined by multiplying the
percent completed by the budgeted
amount for the work.
What could you conclude
from the figure below?
 Project tracking
without EVM
 Figure 1 shows the cumulative budget for this project as a function
of time (the blue line, labeled PV). It also shows the cumulative
actual cost of the project (red line) through week 8.
 To those unfamiliar with EVM, it might appear that this project was
over budget through week 4 and then under budget from week 6
through week 8.
 However, what is missing from this chart is any understanding of
how much work has been accomplished during the project.
 If the project was actually completed at week 8, then the project
would actually be well under budget and well ahead of schedule.
 If, on the other hand, the project is only 10% complete at week 8,
the project is significantly over budget and behind schedule. A
method is needed to measure technical performance objectively
and quantitatively, and that is what EVM accomplishes.
 Project tracking with EVM
 Figure 2 shows the EV curve (in green) along with the PV
curve from Figure 1.
 The chart indicates that technical performance (i.e.,
progress) started more rapidly than planned, but slowed
significantly and fell behind schedule at week 7 and 8.
 This chart illustrates the schedule performance aspect of
EVM.
 Project tracking with EVM
 Figure 3 shows the same EV curve (green) with the actual
cost data from Figure 1 (in red).
 It can be seen that the project was actually under budget,
relative to the amount of work accomplished, since the start
of the project.
 This is a much better conclusion than might be derived from
Figure 1.
 Project tracking with EVM
 Figure 4 shows all three curves together – which is a typical
EVM line chart.
 The best way to read these three-line charts is to identify the
EV curve first, then compare it to PV (for schedule
performance) and AC (for cost performance).
 It can be seen from this illustration that a true
understanding of cost performance and schedule
performance relies first on measuring technical performance
objectively. This is the foundational principle of EVM.
 Question
 Suppose a project is in progress and as of today the planned
expenditures for the project were to have been $500,000.
Suppose also that there were five tasks and the tasks had
budgets of $30,000, $100,000, $250,000, $100,000, and
$20,000, respectively. The actual cost of each of the tasks
that were worked on was $11,000, $120,000, $230,000,
$105,000, and $20,000. Tasks 1, 2, 3, and 4 are complete.

 What are the BCWS, ACWP, and BCWP (PV, AC, and EV)?
 Answer
 BCWS is $500,000.
 ACWP is $486,000.
 BCWP is $480,000.
 From these figures we can see that the accomplishments of the project as
of today are somewhat less than what was planned for. This is the
difference between the earned value and the planned value to date. The
planned value is the BCWS and the earned value is the BCWP. This means
that we are $20,000 behind schedule.
 We can also see that the actual cost is $14,000 less than the planned
expenditures to date. This means that we are somewhat under budget.
Unfortunately we are $14,000 under budget but also $20,000 behind
schedule. If we add the $20,000 of work that should have been completed
but was not, we find ourselves projecting a $6,000 over budget condition. It
could be that things are actually worse than they appear at first glance. If
the performance to date continues, the amount over budget will probably
be even higher at the end of the project. This is usually considered a bad
situation.
 Variances & Indices
Variances:
 CV = BCWP – ACWP (Cost variance=Earned-Actual)
 SV = BCWP – BCWS (Schedule variance=Earned-Planned)

Indices:
 CPI=(BCWP/ ACWP)
Cost Performance Index=(Earned/ Actual)
Cost variance related as a ratio instead of a dollar amount.
A ratio less than 1.0 indicates that the value of the work that has
been accomplished is less than the amount of money spent.

 SPI=(BCWP/ BCWS)
Schedule Performance Index=(Earned/Planned)
Schedule variance related as a ratio instead of a dollar
amount.
A ratio less than 1.0 indicates that work is being completed
 Variances & Indices
 Ratios are used in the earned value system to predict the
cost to complete a project.
 The CPI is used to predict the magnitude of a possible cost
overrun or under run. It adjusts the budget based on past
performance.
 The SPI is used to predict the magnitude of a possible time
advance or delay. It adjusts the schedule based on past
performance.
 In the schedule below, Project A has a CPI greater than 1.00. This
shows us that the project has been earning value faster than it has
been accruing costs.
 However, Project A also has a SPI value that is less than 1.00.
Although Actual Costs are low, Task 1 is behind schedule, so the
project has not earned as much value as was planned.
 Forecasting

 BAC=Original project estimate (Budget at completion)

 ETC=[(BAC-BCWP)/CPI] Estimate to complete

 EAC=(ACWP + ETC) Estimate at completion

 EXAMPLE 1 (Q)
 Provide an earned value analysis to evaluate the progress of
the sewer and water lines project. The original budget is
RM147, 500 and the project is scheduled to be completed in
94 working days. A status report after 10 working days into
the project includes the following information:
 Activity 10, 100% complete as scheduled, actual cost=RM1, 500
 Activity 20, 100% complete as scheduled, actual cost=RM2, 200
 Activity 30, 100% complete as scheduled, actual cost=RM4, 000
 BCWP=RM7, 600
 ACWP=RM7, 700
 BCWS=RM7, 600
 BAC=RM147, 500
 The BCWS and BCWP shown above are the same values as shown on
the tenth working day because activity 10, 20 and 30 were all
completed according to the original planned schedule.
 EXAMPLE 1 (A)

 Cost and schedule deviations:

 Cost variance, CV=BCWP-ACWP
= RM7, 600-RM7, 700
= -RM 100

A negative value of CV represents a cost

overrun. Based on the status report the actual
cost is greater than earned by RM 100.
 EXAMPLE 1 (A)
 Schedule variance, SV =BCWP-BCWS
= RM7, 600-RM7, 600
=0

Since the SV is zero, the project is progressing as

planned. The project is not ahead of or behind the
planned schedule.
 EXAMPLE 1 (A)
 Cost and schedule performance:
 Cost Performance Index, CPI=(BCWP/ACWP)
= (RM7, 600/RM7, 700)
= 0.987
The CPI is less than 1.0, which indicates a poor cost
performance. The earned value is less than the actual
costs.

 Schedule Performance Index, SPI=(BCWP/ BCWS)

= (RM7, 600/ RM7, 600)
= 1.0
The SPI equals to 1.0, which indicates the schedule
performance is progressing precisely as planned.
 EXAMPLE 1 (A)
 Forecasting cost at completion
 Estimate to complete, ETC=[(BAC-BCWP)/ CPI]
= [(147, 500-7, 600)/0.987]
= RM141, 743
Based on the analysis of the statues report, the remaining
cost to complete the project is RM141, 743.

 Estimate at completion, EAC=ACWP + ETC

= 7, 700 + 141, 743
= RM 149, 443
Based on the analysis of the status report, the estimated
cost of the project at completion is RM149, 443, which is
RM1, 943 over the original budget of RM147, 500.