Earned Value Analysis

Earned value analysis is a method of performance measurement. Many

project managers manage their project performance by comparing
planned to actual results. With this method, one could easily be on time
but overspend according to the plan.
A better method is earned value because it integrates cost, schedule and
scope and can be used to forecast future performance and project
completion dates. It is an “early warning” program/project management
tool that enables managers to identify and control problems before they
become insurmountable
It allows projects to be managed better – on time, on budget.

Earned Value analysis is a method of performance measurement.

Earned Value is a program management technique that uses “work in
progress” to indicate what will happen to work in the future.
Earned Value is an enhancement over traditional accounting progress
measures.
Traditional methods focus on planned accomplishment (expenditure) and
actual costs.
Earned Value goes one step further and examines actual accomplishment.
This gives managers greater insight into potential risk areas.
 The managers can create risk mitigation plans based on actual cost, schedule and
technical progress of the work.
Earned Value Management System is not a specific system or tool set, but rather, a
set of guidelines that guide a company’s management control system.
The earned value system indicates to the project manager the costs of work
performed to a certain point, as well as the amount of work already done in the case.
The earned value of an activity from a project is the cost that the estimator
associated with that activity when defined the project budget. Another name of this
value more explicit is budgeted cost for work performed (BCWP). He has the same
meaning as the earned value. The budgeted cost for work performed at any time in
the project can be calculated summing the individual value of each work that makes
up the project, taking into account the fractional completion of each activity.

BCWP= 100 x 50% + 200 x 50% + 50 x 25% =50 + 100 +12,5 = 162, 5 thousans $
 As the project progresses, the actual cost of work performed (ACWP) can monitor collecting
data on costs incurred for labor and materials used in the project. These costs should be the
same basis as that used for estimating BCWP.
ACWP value can be compared with that of the BCWP as shown in Figure bellow.

The cost variance (CV) is a value that must be constantly updated throughout the project, and it
represents the difference between BCWP and ACWP:

CV=BCWP-ACWP
In the example shown in the Figure above, the value of CV is negative because the actual costs
exceed the estimated costs. At the end of the project, BCWP will reach the end of the agreed
estimated cost of the project, the project budget (PB-project budget) and the ACWP value will
represent the total costs recorded in the project. The negative values ​of CV mean a cost overrun.
A positive value of the CV indicates that the savings realized to what was originally estimated in
the budget.
The total estimated cost to completion depends on how the manager interprets the cost of the
works still to be done.
1. A way of interpretation is that the works which aren’t still executed will be achieved within the
budgeted values ​as initial estimates. In this case, the total estimated cost at completion ECAC, will
result:
ECAC = PB- CV hypothesis I

2. Conform to a more realistic interpretation, the remaining works will be executed with the same
costs reported for the works completed by that time. In this case, the total estimated cost at
completion will be given by the expression:
ECAC = PB X ( ACWP / BCWP ) hypothesis II

The report BCWP/ACWP is called cost-performance index, or CPI. In the early stages of the
project, when the percentage of works completed is small, the cost- performance index may not be
a very reliable on the cost to the rest of the project, because it is based on insufficient data, so it
may be more sensible to apply the hypothesis I, up to the execution of more than 30% of the works
. Later, it may be more appropriate to use the hypothesis II. When the project is nearing 100%
completion, the two estimates tend to coincide, so no matter what assumption is adopted.
Another frequently requested monthly reports of costs is the estimated cost to complete (CTC) .
This is the estimated cost of the works you have done. As the cost until the time is ACWP, the
relationship between the cost to complete and the total estimated cost at completion is:
CTC = ECAC - ACWP
CTC is the relevant cost in a decision to continue or not a project. This is because the costs
represent money already spent, but CTC indicates that what is still going to spend. The decision to
cancel a project is when the CTC value is greater than the likely benefits that would be achieved if
the project would continue.
 In order to compare the achievements with the plan, is needed another term to indicate the
planned achievements: budgeted cost of work scheduled ( BCWS ).
The BCWS is the planned cumulative achievements while BCWP represents an accumulation of
work done.
Although both BCWS and BCWP is expressed in money, which actually measure with these
terms is the amount of work or achievements.
BCWS is the sum of planned work and BCWP is the sum of the work performed.
The graph of BCWS reported in time can be traced to the beginning of the project, as soon as
they were estimated the costs of all activities and develop a work schedule indicating when each
task should be executed.
Adding the spending rates of all activities of the week, we can estimate the overall rate of
expenditure for the entire project, from the start to finish plan.
These weekly or monthly rates of the planned works can be assembled to give a value of
achievement cumulative scheduled.
The estimated costs of work scheduled ( BCWS ) can be represented as in Figure bellow.
To calculate BCWS is necessary to know:
-the estimated costs of all activities, which can be obtained from tables of estimates;
- the data at which these activities are scheduled to be executed, which are obtained from the work
schedule and may be the moment when those activities were assigned a scheduled start time,
which need not necessarily to be the same as the early start time;
- the expenditure profile of each activity during its performance is an indicator which is known as
the expenditure rate is assumed constant throughout each activity.
It is possible, from considerations relating to planning, to calculate two extreme curves of BCWS,
one at the earlier start times and one at the latest start time, as shown in Figure bellow.

The deviations from the work program are denoted by SV-schedule variance. By comparison of the
works listed in the plan with the executed effectively works, it can get the size of the difference
between achievements and expectations. The term used in the system of earned value is the
schedule variance, which measures the work performed compared to the plan expressed in
financial terms, not in time:
SV = BCWP-BCWS
SV measured how much had progressed the works compared with the planned works: a positive
value of SV means a plan brought forward and a negative one means a lagging behind. SV value
measures how much work was done by a certain time, compared to what was scheduled to
perform, it does not directly indicate how advanced or behind the project is to the plan, calculated in
units of time.
Figure bellow presents the gap between BCWS and BCWP.

The plan-performance index (SPI) indicates whether the project is proceeding faster than plan (SPI
> 1), or when the project is lagging behind (SPI <1).
SPI = BCWP/BCWS
As the project nears completion, the BCWP value is approaching that of BCWS value, and the SPI
value tends ultimately to 1, regardless of how long the project.
To determine the estimated completion date (EDC) is necessary to consider two alternative
interpretations:
1
 1.First, if assuming that all remaining works will be completed at the rate indicated by the work
schedule, then EDC -estimated completion date will be:
EDC = ECD0 + / - gap
2. Second, if assuming that the schedule working for the future works falling into the same delay as
the works done up to that point, then EDC estimated completion date is obtained by multiplying the
initial date with the exceeded factor :
EDC = ECD0 x exceeded factor
exceeded factor = BCWS / BCWP
The table bellow presents the terms used in the earned value method