Earned Value

Analysis

© 2001 David Galley 1

Project Management in the dark…

 Project
• planned duration: 12 mons
• total budget: £100K
•.
 Status
• time elapsed: 6 mons
• spend so far: £64K
•.
 How far are we?
• 50%? 64%?
 How are we doing?
Project Mgt in the dark
• It tells you how much you’ve
spent and compares it to the
budget.
£
l • Does it give an accurate picture
c tua
a
t of where you are on the project?
e
dg
bu • NO! It doesn’t tell you if...
– you’re ahead or behind
schedule
– you’re over or underspent
– you’ve spent money on the

time right thing

– you’re getting value for money
– your problems are over or only
just begun
What’s missing?
- knowing how much has been
accomplished
£
a l
tu
ac • Accomplishment is
g et (planned) work that has
d
bu been carried out
n t ) successfully.
e EV
h m ( • The budgeted cost of that
l s
i lue
p a work quantifies the
m V
cc o ed accomplishment.
a rn
Ea • This is called ‘earned
or
time value’
A bit more light…

 Project
• planned duration: 12 mons
• total budget: £100K
• produce 20 units
 Status
• time elapsed: 6 mons
• spend so far: £64K
• units produced: 8 complete, 2 partial
 How far along are we?
• 50%? 64%? >40%?
 How are we doing?
Another Example Project

 Plans to spend $100K in each of first 4 weeks

(baseline budget, as per documented plan)
plan
 Actuals, at end of week 4 show: $325K spent
• BCWS = $400K ($100K x 4)
• ACWP = $325K

 What conclusions can you draw?

 Under budget?

 Is project on schedule?

6
Let’s Take A Look Under The
Hood

7
 Earned Value Management tells you...

Where it’s Drill down

Know where you
going right through the
and where it’s data to where
are in terms of Where you the problem is
accomplishment going wrong
as well as how
really are!
much you’ve
spent
EVM

Know the final cost How much When to ask

and delivery date it’s really Informed
the tough decision making
going to cost questions
 Basic definitions – answer three basic
Q’s
 How much work  Budgeted Cost for Work
should be done? Scheduled (BCWS)
• plan
• schedule
• budget

 Budgeted Cost for Work

Performed (BCWP)
 How much work is
• accomplishment
done? • Earned Value (EV)

 Actual Cost of Work

Performed (ACWP)
 How much did it cost? • actuals
© 2001 David Galley 10
Variance

le
£ • CV (Cost Variance)

u
ed
l
a – BCWP - ACWP
tu

h
sc
ac

– earned value - actual

CV cost
SV – CV=EV-AC
• SV (Schedule Variance)
e d
r n – BCWP - BCWS
ea – earned value - planned
time value
– SV=EV-PV
Translating schedule variance into
lead/lag
• Months ahead or behind
SV
( B C WS) =
h edul e
sc aver. monthly BCWS
SV

• or graphically
P)
d ( BC W • draw horizontal
earne
through current
BCWP until it
months behind intersects BCWS
• length approximates
lead/lag
 Variance Trend Curves

positive
variance
• Plot cost variance and
schedule variance
zero over time.
• Watch which way the
lines go...
– positive is good
– negative is bad
schedule variance

negative
variance
cost variance
 Percent Variance Trend Charts

+10%
• CV%
+0%

-10%
– (BCWP - ACWP)/BCWP
-20% – CV/earned value
CV%
• SV%
+10%
– (BCWP - BCWS)/BCWS
+0%

-10%
– SV/planned value
-20%
SV%
• VAC% = VAC/BAC
 Performance Indices
• CPI (Cost Performance
Index)
1.1
– BCWP/ACWP
1.0
– earned/actual
0.9

0.8
– the one to use…

CPI
• SPI (Schedule
1.1
Performance Index)
1.0
– BCWP/BCWS
0.9
– earned/planned
0.8
SPI – of diminishing value
as project
progresses… tends to
1
 More definitions
– answering Q’s about the total
job
 What was the total job  Budget At Completion (BAC)
supposed to cost?

 What do we now expect

will be needed to finish  Estimate To Completion (ETC)
the job?
 Estimate At Completion (EAC)
 What do we now expect • EAC = ACWP + ETC
the total job to cost? • often referred to as Latest
Revised Estimate (LRE)
 How much do we now
 VAC (Variance At Completion)
expect to eventually
underspend/overspend? • VAC = BAC - EAC
Forecasting – variations on the basic
EAC
 iEAC = ACWP + FF (BAC - BCWP)

 Selection of FF is based upon:

• cause of the variance
• technical risk
• schedule deviations
• trends
• judgement
 Sample Independent EACs based on:
• FF = 1
• FF = 1 / CPI
• FF = 1 / (0.8 CPI + 0.2 SPI)
• FF = 1 / CPI * SPI
Organisation criteria

1. Establish Work Breakdown Structure (WBS)

2. Establish Organisation Breakdown Structure

(OBS)

3. Integrate planning, scheduling, budgeting, work

authorisation and cost accum. with WBS & OBS

4. Identify people responsible for controlling

overheads

5. Cost & schedule performance measurement by

WBS/OBS
Organisational Breakdown Structure
(OBS)

ABC project
Director
[Link]

Bus. Consult. IT Dev. E-Comms Transforma Support

Develop. Services Group Limited Limited Group
[Link] [Link] [Link] [Link] [Link] [Link]

Design Test Programming QA

Team Team Team Team
[Link] [Link] [Link] [Link]
 WBS – product orientated example

ABC
project

Project Transition Central Shop

Charter documentation facility systems

Reqt. Bus. Promotion Training Comms Shop Shop

Server LAN
Spec. Case material courseware box LANs terminals
Responsibility Allocation Matrix (RAM)
Organization Breakdown Structure (OBS) Work Breakdown Structure (WBS)

1 2 3 4 5 6 7 8
F
E
D

Control Account (CA)

C
B
A
Control Accounts

 Intersection of WBS and OBS

• WBS element
• Control Account Mgr (CAM)

 Key control point

• Schedule, time-phased budget (BCWS)
• Actual cost accumulation (ACWP)
• Earned value determination (BCWP)
• Variance analysis (cost& schedule)
• Corrective action
• Estimate At Completion (EAC)
 Planning, Scheduling+Budgeting
criteria
6. Schedule (sequence, interdependencies)

7. Identify products, milestones, goals to measure progress

8. Time-phased budget at Control Account (CA) level

9. CA budget = Sum WP budgets

10. Overhead budgets.. Overhead pools

11. Identify Management Reserve (MR) and Undistributed

Budget (UB)
Accounting considerations criteria

12. Record direct costs

13. Each CA child of a single WB

14. Each CA child of a single OBS

15. Record all indirect costs

16. Identify unit costs, equiv. unit costs or lot

costs
Analysis & Mgt Reporting criteria

17. Identify signif. differences in schedule/cost

performance, provide reasons

18. Summarise data & variances through the

WBS/OBS…

19. Implement managerial action resulting from EV

info.

20. Develop revised EAC… compare with PMB…

funding…
Rules to Aid in Estimating
Percent Completion
 50-50 rule: Allocate 50% at start of task, 50% at end
 0-100 percent rule: Allocate 100% at end of task.
Highly conservative. EV will always lag PV.

 Critical input use rule: Assigns task progress

according to the amount of a critical input that
has been used.
— Eg. Cubic meters of cement used for
foundation, hours of skilled labor used

 Proportionality rule: Uses time or cost as the

critical input.
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