Earned Value Management

1. Earned Value Management A Tutorial by TigerLearning

2. Contents • What is Earned Value Management(EVM)? • Why do we use EVM? • Basic values / terms used in EVM • Importance of WBS in EVM • Formulae used in EVM • Illustrative Example • Forecasting using EVM • Illustrative Example • Getting on Track using EVM • Illustrative Example TigerLearning

3. What is Earned Value Management (EVM)? The Three Values are: Planned Value (PV) Earned Value (EV) Actual Cost (AC) Earned Value Management(EVM) is a project management technique which measures the progress of a project by combining technical performance, schedule performance, and cost performance. EVM compares PLANNED work to COMPLETED work to determine if work accomplished, cost, and schedule are progressing as planned. Earned Value uses three data values, which are computed each work period you wish to use. We use the term “analysis date” to refer to the date when the three values are analysed. Thus if we measure these values monthly, an analysis date of June 30 would include all values from project inception until the end of June. TigerLearning

4. Why do we use EVM? • Where are we on the project? • How to predict future project performance? • What do we do to get the project on track? EVM technique integrates the Scope, Schedule and Cost. Good Planning coupled with effective use of the EVM Technique will reduce a large amount of issues arising out of Schedule and Cost Overruns. EVM technique answers a lot of questions to the stakeholders in a project related to the performance of the project: EVM technique can be used to show past performance of the project, current Performance of the Project and predict the future performance of the project by use of Statistical techniques. TigerLearning

5. It answers the question “how much have we actually spent?” Basic values / terms used in EVM • It answers the question “how much work has actually been completed?” • It answers the question “how much did we plan to spend as of this date?” • Another form of this question is “how much work should have been completed by this date?” AC (Actual Cost) : is what it actually cost to accomplish all the work completed as of the analysis date. This is usually determined using the organization’s accounting system, or can often be obtained by multiplying the number of people and resources by the number of hours or days or weeks worked or used. This is also known as Actual Cost of Work Performed (ACWP). PV (Planned Value) : This is the total budgeted cost up to the analysis date. PV can be computed from the project’s plans, as shown in the example below, or it can be approximated by multiplying the total budget by the fraction of total project duration at the analysis date. Thus, for example, if the project budget is $3000 and 20% of the project’s time has elapsed, the approximate PV is $600. This is also known as Budgeted Cost of Work Scheduled (BCWS). EV (Earned Value) : This is the cost originally budgeted to accomplish the work that has been completed as of the analysis date. This is also known as Budgeted Cost of Work Performed (BCWP). TigerLearning

6. Importance of WBS in EVM • Project PV is total of PV for all tasks required to complete the project. • PV = BAC X planned % complete • Project EV is total of EV for all tasks required to complete the project. • EV = BAC Xactual % complete All the three basic values (i.e. EV, PV and AC) can be derived from the Work Break Down Structure (WBS) by associating the costs to each of the tasks.These values can be easily extracted from Project Management Software like Microsoft Project. Each task in the Work Breakdown Structure (WBS) is assigned an EVbased on its individual cost. Similarly each task in the Work Breakdown Structure (WBS) is assigned a PVbased on its individual cost. TigerLearning

7. Formulae used in EVM • If it is 0, you are right on schedule. If it is negative, you are behind schedule. If it is positive, you area ahead of schedule. • If it is 1, you are right on schedule. If it is less than 1, you are behind schedule. If it is greater than 1, you are ahead of schedule. • If it is 0, you are right on budget. If it is negative, you are over budget. If it is positive, you area under budget. • If it is 1, you are right on budget. If it is less than 1, you are over budget. If it is greater than 1, you are under budget. Four measures can be computed from the basic values described earlier: Schedule Variance (SV) = EV - PV Schedule Performance Index (SPI) = EV / PV Cost Variance (CV) = EV - AC Cost Performance Index (CPI) = EV / AC TigerLearning

8. Illustrative example There are many ways to measure “cost”. We could measure actual money spent. However it is common in a work environment to measure cost in terms of labour - that is in work hours or work days spent. Thus the budget for a project could be $30,000 or it could be 300 labour hours, and the amount spent so far could be $4,500 or it might be 45 labour hours. We will solve an example using Dollars. TigerLearning

9. Illustrative example • Project description • We are supposed to build 10 units of equipment • We are supposed to complete the project within 6 weeks • We estimated that 600 man-hours to complete all the units • It costs us $10/hour to build the equipment • We are supposed to build 2 units each week. • Each unit costs $600. • We will spend $1,200 each week. • Project status: • Week 3 • 4 units of equipment completed • 400 man-hours spent TigerLearning

10. Illustrative example • SV = BCWP – BCWS = $2400 - $3000 = -$600 • SV is negative; we are behind schedule • SPI = BCWP / BCWS = $2400 / $3000 = 0.8 • SPI is less than 1; we are behind schedule • CV = BCWP – ACWP = $2400 - $4000 = -$1600 • CV is negative; we are over budget • CPI = BCWP / ACWP = $2400 / $4000 = 0.6 • CPI is less than 1; we are over budget • The price of the job that we have done is only $2400 • Schedule: in 3 weeks, the price of the job that we should have done was $3000 • Cost: We spent much more; we spent $4000 • How are we doing? • Are we ahead or behind schedule? • Are we under or over budget? • Results: • Accomplished Work: 4/10 = %40 complete • Schedule: 3/6 = %50 over • Budget: 400/600 = %67 spent • PV = (600 man-hours*$10/hour)*(3/6 weeks) = $3000 • EV = (600 man-hours*$10/hour)*(4/10 units) = $2400 • AC = 400 man-hours*$10/hour = $4000 TigerLearning

11. EAC = AC + (BAC - EV) Forecasting using EVM • EAC = AC + ETC • Additional terms used in forecasting: • Budget At Completion (BAC) = Total Original Budgeted Cost. This is the same as PV at completion • Estimate To Complete (ETC) = ETC is the estimate to complete the remaining work of the project. • ETC = EAC – AC • Estimate At Completion (EAC) = your estimate of the amount of money you will spend on the project. There are three methods of calculation of the EAC. • Variances are typical – This method is used when the variances at the current stage are typical and are not expected to occur in the future. • Past Estimating Assumptions are not valid – This method is used when the past estimating assumptions are not valid and fresh estimates are applied to the project. • Variances will be present in the future – This method is used when the assumption is that the current variances will continue to be present in the future. • Variance At Completion (VAC) = Forecast of final cost variance • VAC = BAC - EAC • EAC = AC + (BAC - EV) / CPI TigerLearning

12. Illustrative example Four measures can be computed from the basic values described earlier: Schedule Variance (SV) = EV - PV Schedule Performance Index (SPI) = EV / PV Cost Variance (CV) = EV - AC Cost Performance Index (CPI) = EV / AC TigerLearning

13. TCPI = (BAC – EV) / (EAC – AC) Getting on Track using EVM • TCPI = (BAC – EV) /(BAC - AC) Once we report project performance, the next question is on what needs to be done to maintain or improve the current performance basis whether we are on track or behind schedule. Can we meet the desired schedule and budget despite the fact that we are running behind? The index computed to help determine this is To-Complete Performance Index (TCPI ). The “To-Complete” performance index is an indication of how we must perform for the duration of the project in order to meet our desired cost goal. If TCPI is greater than 1, we must perform better than planned in order to meet the goal; and if less than 1 we can get by with performing under our plan. If we have cannot meet our budget (BAC), then we calculate TCPI using EAC (which is the revised budget) else we use the BAC. TigerLearning

14. Illustrative example Four measures can be computed from the basic values described earlier: Schedule Variance (SV) = EV - PV Schedule Performance Index (SPI) = EV / PV Cost Variance (CV) = EV - AC Cost Performance Index (CPI) = EV / AC TigerLearning

15. Questions TigerLearning