earned value analysis

Earned Value Analysis

Cost Planning Cost Control

Cost Reporting


€1 €1 €1 €1 €1

the original plan

BAC = Budget At Completion = €5

progress at milestone 1:

€1.50

€2.50

Only 2 tasks; both overspent.We had planned to do €3 of work, but only ‘earned’ €2.Unfortunately it cost us €4 to do it.We can use the power of EVA to forecast the future…

EV = €2


If you, in the role of project manager, convince your customer that the project will cost xxx, and you also cost each task or major milestone along the way, then in the customer’s mind each task or milestone will be worth what you said.

So if you are so poor at controlling the project that a task has cost you twice the original estimate why should the customer pay for your incompetence?

This is the essence of EVA; you will only earn what the customer sees as the value of task. Many large organisations pay their contractors in this way

Earned Value Analysis – Jargon - 1

EV is Earned Value

PV is Planned Value

AC is Actual Cost

EV = €2

PV = €3AC = €4

Earned Value means the total value of the tasks we have actually completed by this timePlanned Value means the total value of the tasks we had meant to complete by this timeActual Cost means the total cost we have incurred getting to this point in time

From the original estimates

So What? – 1

EV is less than AC

AC is less than EV

PV is less than EV

PV is less than AC

IF:… We have spent more than we have earned

We have earned more than we have spent

We have earned more than we had planned

We have spent more than we had planned

The Graphs

time

costPV

AC

EV

The Actual Cost is running ahead of the Planned Value, therefore the project is over budget

The Earned Value is running behind Planned Value, therefore the project is behind schedule

This poor performance could have been identified here…


CV is Cost Variance; CV = EV - AC CV = 2 - 4 = -2

SV is Schedule Variance; SV = EV - PV

SV = 2 - 3 = -1

We can look at variance:

A negative variance is BAD…


CPI is Cost Performance Index; CPI = EV/AC CPI = 2/4 = 0.5

EAC is Estimate At Completion; EAC = BAC/CPI

EAC = 5/0.5 = 10

We can extrapolate from the current position:….

Warning: may be a naive assumption:…

Everything we do seems to cost us twice what we had planned:…

So What? - 2


EAC = 5/0.5 = 10

This is only true if all future tasks overrun at the same rate as now. If we think we have fixed the problems behind the current cost overrun then a better EAC formula is:…

EAC = AC + Remaining PVEAC = AC + (BAC-EV)

EAC = 4 +(5-2) = 7

This is a much smaller EAC, but remember our premise…



EAC = 5/0.5 = 10

The EAC is obviously a really important figure in the overall cost control for the project, but there is another figure that many people will want to know:…

ETC is Estimate to Complete, meaning how much more money will it take to finish this project. ETC is easy to compute.

ETC = EAC - AC ETC = 10 – 4 = 6


EV = €2 PV = €3

AC = €4

CPI = 2/4 = 0.5

SPI is Schedule Performance Index; SPI = EV/PV

SPI = 2/3 = 0.66

More extrapolation, albeit slightly more risky. We know that every task we have finished seems to be taking longer than planned, so maybe we can infer that all future tasks will overrun their schedule by a similar amount. This means we can calculate a Schedule Performance Index, as follows:

So if the original duration was 5, the new duration could be:OD/SPI = 5/0.66 = 7.6


EVA can be a powerful tool for forecasting outturnit requires accurate estimating as well as controlIt assumes future cost performance will be similar to current

1.01.11.2

0.9

0.8 Lower Control Limit

Upper Control Limit

Classroom Practice - 1

All figures are cumulative

month PV AC EV

1 1000 1000 1000

2 2000 2500 2000

3 3000 4000 3000

4 7000 8000 6000

5 12000

6 14000

7 18000

8 20000

1. What is the CPI at the end of month 4

2. What is the SPI at the end of month 4

3. What is the EAC at the end of month 4

4. What is the ETC at the end of month 4

Classroom Practice - 2

All figures are cumulative

month PV AC EV

1 1000 1000 1000

2 2000 2500 2000

3 3000 4000 3000

4 7000 8000 6000

5 12000

6 14000

7 18000

8 20000

1. What is the CV at the end of month 4

2. What is the SV at the end of month 4

3. If all the work completed in Month 4 fails quality testing, and has to be reworked in Month 5, meaning that none of Month 5’s tasks can be completed:3a. What is the EV at the end of month 5

3b. What is the AC at the end of month 5

3c. What is the CPI at the end of month 5

earned value analysis

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