Earned Value Management

1. Learn to Lead Projects More Effectively

2. PREAMBLE
 Lets assume that you gave a Rs. 80,000/- contract for some repair
work in your house. The job was to be completed in 15 days and
involved major repairs in one of the toilets. Repair needs were
mutually agreed.
 After 15 days, the monitoring reveals that all has not gone well.
There have been problems in locating various water pipes in the
bathroom.
 The contractor billed Rs. 85,000/- for the work done in 15 days.
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3. Your comments on the situation…??
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4. On the other hand, a closer inspection reveals that only
3/4th of the job is complete
So what you can find out from this?
and more importantly…
what can you do about it?
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5. Concept of earned value tells us that after 15 days, using earned
value vocabulary, the situation is as under:
Budgeted Cost of Work Scheduled EVM Summary
(BCWS) or Planned Value (PV) Description Value
= Rs. 80,000/- BCWS or PV 80,000
ACWP or AC 85,000
Actual Cost of Work Performed (ACWP)
BCWP or EV 60,000
or Actual Cost (AC)
= Rs. 85,000/-
Budgeted Cost of Work Performed
(BCWP) or Earned Value (EV)
= 75% of 80,000 = 0.75 x 80,000 = Rs.
60,000/-
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7. COST VARIANCE
This is the algebraic difference between Earned Value of the work performed and
the Actual Cost of the work performed. In this case:
 Cost Variance (CV):
CV = BCWP – ACWP
(EV) – (AC)
= Rs. 60,000 – Rs. 85,000
= (-) Rs. 25,000
Negative value indicating cost
overruns
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8. REMEMBER..!
 In a typical spend plan analysis, physical progress is
seldom taken into account when analyzing cost
performance.
 Instead, a project’s actual costs are simply
compared to planned costs often with misleading
results.
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9.  Cost variance of (-) Rs. 25,000/- means that we are
required to pay Rs. 85,000/- for Rs. 60,000/- worth
of work. For the work we have got done, we have
overspent Rs. 25,000/-
 Note that ‘cost variance’ is being assessed “against
the value of the work that has been completed”.
 Any negative cost variance figure suggests over
spending and positive cost variance indicates cost
savings.
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10. SCHEDULE VARIANCE
This is the algebraic difference between Earned Value of the work performed and
the Budgeted Value of the work planned. In this case:
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11. SCHEDULE VARIANCE
You find anything odd about the
measurement of schedule variance..?
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12. SCHEDULE VARIANCE
Schedule variance is being measured in
monetary units – not time units
 A positive value for schedule variance represents work ahead of
schedule
 A negative value indicates behind schedule or schedule slippage
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13. VARIANCE ANALYSIS
 These variances not only tell the project manager about the true,
rather than the apparent state of the project, they also………
 Highlight the area requiring greater focus
 In this case, the larger CV (42% of the EV) as compared to SV (33%
of EV) tells us that we need to look more at the cost overrun
aspect
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14. SCHEDULE PERFORMANCE INDEX (SPI)
 The portion of a job achieved is indicated by SPI
 We planned to accomplish Rs. 80,000/- of work, but only did Rs.
60,000/- worth of work, thus we are behind planned schedule by
Rs. 20,000/- of work. In this case:
SPI = BCWP = EV = 60,000 = 0.75
BCWS PV 80,000
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15. SCHEDULE PERFORMANCE INDEX (SPI)
 The index also shows that 75 paisas worth of work has been
accomplished for each rupee worth of scheduled work
 Given this performance, the job will be completed in:
15 = 20 days
20
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16. COST PERFORMANCE INDEX (CPI)
 The “burn rate” at which we are spending money (it can also be
interpreted as an efficiency rate) is called the Cost Performance
Index
 CPI is computed as:
CPI = BCWP = EV = 60,000 = 0.705
ACWP AC 85,000
 CPI of 0.705 means that for each rupee being spent, the project is
achieving 70.5 paisas of value
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17. COST PROJECTION
 The estimate of final project cost is called the “Estimate At Completion”
(EAC) – a forecast value expressed in either rupees and/or hours, to
represent the projected final costs of a project when all work is
completed:
EAC = BAC
CPI
BAC = Budget At Completion, which is the sum of all authorized budgets
allocated to a project. It is synonymous with earned value term
“Performance Measurement Baseline”
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18. ESTIMATE AT COMPLETION
 In this case, EAC comes out to be:
EAC = 80,000 = Rs. 113,475.17
0.705
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19. How would you explain the significance
of EAC, SPI and CPI we have calculated?
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20. ESTIMATE AT COMPLETION
 Estimate at completion (EAC) allows to forecast the total project
costs on the basis of efficiency with which work performance is
achieved
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21. SUMMARY
 How much you planned to have accomplished by now (in Rs. or
hours)  PV
 How much you actually spent by now (in Rs. or hours)  AC
 The value in terms of your baseline budget of the work
accomplished by now (in Rs. or hours)  EV
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22. INTERPRETATION OF EFFICIENCY INDICES
Cost Index Schedule
(CPI) Value (SPI)
Under Cost > 1.00 Ahead of schedule
On Cost = 1.00 On schedule
Over Cost < 1.00 Behind schedule
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23. PLANNING FOR EARNED VALUE PROJECT
MANAGEMENT
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24. CASE STUDY
 Project estimate Rs. 1.5M to produce 10 units in-house
 Project team came to this budget after a careful study of the
product and preparation of project documents
 Project time: 18 months
 First project report: 3 months
 EVPM be employed on this project
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25. CASE STUDY
In a presentation made to the CEO and management board:
 Budget was revised to Rs. 1.0M
 Time was reduced to 12 months
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26. 1st QUARTERLY PROJECT STATUS REPORT
A brief summary indicated the following results:
 3 of the ten units had been scheduled for completion at the
three-month point, but only two accomplished, thus the team
was behind its planned schedule
 It had forecast expenditures of Rs 300,000 and had committed Rs
300,000, so the team was right on schedule with its funding
profile. Any optimistic person could easily paint a positive picture
of the project
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27. INFERENCE FROM PROJECT STATUS
“ We are right on our cost spending plan, a little behind
schedule perhaps, but we are doing well”….
would be the positive spin
put on these results by most practitioners
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28. EVPM EMPLOYMENT
 Remember the CEO had specifically asked that EVPM be employed
on this project. That requirement adds a slightly different
orientation to project performance data
 EVPM requires a detailed bottom-up performance plan, and a
“three-dimensional” measurement against the baseline plan
 EVPM also requires a periodic forecast of the final expected
results, based on actual performance
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29. EVPM EMPLOYMENT
 In order to employ EV, there must be plan in place that will allow
for continuous measurement of actual performance. This may
sound difficult, but it is not.
 Earned Value simply requires a focus on the completed physical or
intellectual work, together with management’s authorized budget
for the completed work. We call this the “Earned Value”.
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30. EVPM EMPLOYMENT
In order to employ EV concept, a project must measure three dimensions of
performance:
The first dimension is called the planned value (also called the Budgeted Cost of
the Work Scheduled – BCWS). To determine planned value (PV), the project must
ascertain:
• How much physical or intellectual work has been scheduled to be completed
as of a point in time
• Management’s authorized budget for this authorized work
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31. NOTE
EV requires a baseline master project schedule;
or stated another way…
without a master project schedule, one cannot employ
Earned Value
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32. EVPM EMPLOYMENT
 In this case, the master schedule had specified three units to be
completed as of the first quarter, and each unit had a budgeted
value of Rs. 100,000 per unit
 Thus, the project team could determine that the planned value
for the first three months of the project was Rs. 300,000
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33. EVPM EMPLOYMENT
Next, project team members will need to measure the second dimension called
“earned value” for the same reporting period. To measure EV they will need to
determine:
How much of the authorized work they actually accomplished
The amount of management’s original budget for the accomplished work
Their actual performance results; they completed two units each with a value of
Rs. 100,000, for a total earned value of Rs. 200,000/-
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34. EVPM EMPLOYMENT
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35. EVPM EMPLOYMENT
 Prior to introduction of EV methods, project managers were used to measuring
the performance of their projects by reference to Gantt charts and Critical Path
Analysis for the scheduling aspect, and any difference between the planned
expenditure and the actual costs to see how the money was going
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36. EVPM EMPLOYMENT
 From a time dating back to the 1950s, it was realized that this was not a very
satisfactory way of managing projects as there was always the problem of
reconciling these two different measures of project progress i.e. time and cost
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37. EVPM EMPLOYMENT
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38. EVPM EMPLOYMENT
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39. EVPM EMPLOYMENT
 In this case, team members planned to accomplish Rs. 300,000/- of work but
only did Rs. 200,000/-; thus, they are behind their planned baseline schedule
by Rs. 100,000/-. Not so bad until they realize that they only accomplished, 67
paisas worth for each planned rupee
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40. EVPM EMPLOYMENT
 Team members spent Rs. 300,000/- in actual costs to accomplish only Rs.
200,000/- in earned value. Not so good when they realize that for each rupee,
they spent, they got only 67 paisas of earned value. Thus, this project is behind
its planned baseline schedule, and overrunning costs.
 The negative schedule variance is serious, but the negative cost variance may
be non-recoverable
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41. EVPM EMPLOYMENT
 This project at the end of the first quarter is performing at only 67% of its
planned schedule, and 67% of cost performance. Stated another way, it is
overrunning its costs by 50%.
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42. NOTE
Although only at 25% completion point, by monitoring
these three dimensions of earned value data, the project is
forecasting a significant final overrun of costs
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43. DECISIONS AFTER 1st PROGRESS REVIEW
Description Action
Project budget revised to Rs. 1.5M
Time schedule remained at 12 months
Getting project back on
Main performance objective
schedule
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44. FINAL RESULTS
 Project completed with all technical requirements on time within 12 months
schedule.
 Final actual costs Rs 2.0M.
 The new product worked exactly as required.
 The management picked up early signals at 25% completion point of cost
overruns and provided necessary funds by cancelling two projects of lesser
importance
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45. NOTE
Executives who do not employee EV or do not rely on
performance data often find themselves over-
committed in their project portfolios, sometimes
experiencing catastrophic results
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