Earned Value Management

Dr. Parul R Patel

Professor
Civil Engineering Department
Nirma University
 What is Earned Value Analysis?

➢Earned Value Analysis (EVA) is a method that

allows the project manager to measure the amount
of work actually performed on a project beyond the
basic review of cost and schedule reports.
 Project Managers - What to Know?

 Is the project on schedule?

 Is the project on budget?
 Simple project analysis tools can answer these questions using time and
cost tracking

Earned value asks and answers more important questions:

 How much of the budget “should have been” spent at this point in the
project?
 How much “value” has the work on the project “earned” so far?
➢EVA provides a method that permits the project to be
measured by progress achieved.
➢The project manager forecast project’s total cost and date of
completion, based on trend analysis or application of the
project’s “burn rate”.
➢“Earned value” is defined as the “Budgeted Cost of Worked
Performed” or BCWP.
➢This BCWP enables the project manager to compute
performance indices or burn rates for cost and schedule
performance,
➢which provides information on how well the project is doing
or performing relative to its original plans.
➢project manager use indices to forecast how the project will
do in the future, assuming the burn rates will not fluctuate,
which often times is a large assumption.
Earned Value Analysis

Is a powerful tool for measurement and reporting:

• It integrates scope, cost and schedule measures to help the

Project team evaluate the Project’s performance

• It enables the Project manager to know the % of completed

work and the value of the completed work

• It is a quantitative technique for assessing and predicting

Project progress
•Earned Value Management Systems allow the
project manager to answer the following
three questions

•Where have we been?

•Where are we now?
•Where are we going?
 For EVM - Following information is required

• the budget (or planned) value of work scheduled

• the actual value of work completed
• the “earned value” of the physical work completed

• Earned Value takes these three data sources and is

able to compare the budgeted value of work
scheduled with the “earned value of physical work
completed” and the actual value of work
completed.
 Planned Value
• Planned Value describes how far along project work is supposed to be
at any given point in the project schedule and cost estimate.

• Cost and Schedule baseline refers to the physical work scheduled and
the approved budget to accomplish the scheduled work.

• They result in an important value: Planned Value (PV).

• PV can be looked at in two ways: cumulative and current.

• Cumulative PV is the sum of the approved budget for activities

scheduled to be performed to date.

• Current PV is the approved budget for activities scheduled to be

performed during a given period. This period could represent days,
weeks, months, etc.
• Planned Value (PV), also known as Budgeted Cost of Work Scheduled
(BCWS), can be defined as:

1. Define Scope: What you are tasked to do (Scope Statement)

2. Assign Scope: Breakdown scope into manageable parts (WBS)

3. Schedule Scope: Time-phased, logic driven with critical path

(Project Schedule)

4. Budget Scope: develop cost (budget) for all approved scope

(Performance Measurement Baseline)

5. Baseline: Snap-shot in time, frozen. What performance

measurement will be based upon.
Actual Costs – Actual cost of work performed
(ACWP)
• Actual Cost (AC), also called actual expenditures, is the
cost incurred for executing work on a project. This
figure tells you what you have spent and, as with
Planned Value, can be looked at in terms of cumulative
and current.

• Cumulative AC is the sum of the actual cost for activities

performed to date. Current AC is the actual costs of
activities performed during a given period. This period
could represent days, weeks, months, etc.

• AC is also called Actual Cost of Work Performed

(ACWP).
 Earned Value
• To report the accomplishments of the project, you must apply Earned
Value (EV) to the figures and calculations in the project.
• EV is the quantification of the “worth” of the work done to date. In
other words, EV tells you, in physical terms, what the project has
accomplished.
• As with PV and AC, EV can be presented in a Cumulative and Current
fashion.
• Cumulative EV is the sum of the budget for the activities accomplished
to date.
• Current EV is the sum of the budget for the activities accomplished in
a given period.
• Earned Value is also called Budgeted Cost of Work Performed (BCWP).
• Planned Value (PV) is determined by the cost and schedule baseline.
Actual Cost (AC) is determined by the actual cost incurred on the
project. Earned Value (EV) tells you, in physical terms, what the project
accomplished.
Variance Analysis

• PMI’s PMBOK® Guide defines a variance as “a quantifiable deviation,

departure, or divergence away from a known baseline or expected
value
 BCWS (Budgeted cost of work scheduled):
1. How much work should be done by now?
2. Contains the cumulative time phased baseline costs up to the
status date or today’s date.

 ACWP(Actual cost of work performed):

1. Actual cost incurred on the task.
2. How much did we actually spend till status date.
3. Cumulative sum of the actual cost incurred on a task as of status
date.

• Budgeted Cost of Work Performed (BCWP

CV(Cost Variance):

Difference between BCWP and ACWP.

CV = BCWP - ACWP = CV = EV – AC

A negative variance indicates a cost overrun condition, positive variance

is favorable to the Project.
SV(Schedule Variance):

Difference between BCWP and BCWS.

SV = BCWP - BCWS = SV = EV – PV

• A negative variance indicates a schedule overrun condition,

positive variance is favorable to the Project
CPI (Cost performance index):

1. Ratio of budgeted cost of work performed to the actual cost

of work performed .
CPI=BCWP/ACWP
2. If it is less than 1 then this is an over budget condition.
SPI(Schedule performance index):

Ratio of the budgeted cost of work performed to the budgeted cost of

work performed scheduled.

CPI=BCWP/BCWS

If it is less than 1 the project is behind scheduled condition

Estimate at Completion (EAC)

• The Estimate at Completion (EAC) is the actual cost

to date plus an objective estimate of costs for
remaining authorized work.

• The objective in preparing an EAC is to provide an

accurate projection of cost at the completion of the
project.
Budget at Completion (BAC)

•The Budget at Completion (BAC) is the sum

of all budgets allocated to a project scope.

•The Project BAC must always equal the

Project Total PV.

•If they are not equal, your earned value

calculations and analysis will be inaccurate.
 Item Questions

Planned Value (PV) How much work should be done?

Earned Value (EV) How much work was done?

Actual Cost (AC) How much did the work cost?

Budget at What is the total job budgeted to cost?

Completion (BAC)
Estimate at What do we expect the total job to cost?
Completion (EAC)
 Estimate At Completion
• The EAC is the best estimate of the total cost at the completion of
the project.
• The EAC is a periodic evaluation of the project status, usually on a
monthly basis or when a significant change happens to the project.
• EACs are developed with varying degrees of detail and supporting
documents.
• A comprehensive EAC is usually prepared annually or if there are
any major changes in the project.
• The EAC should be reviewed on a monthly basis by the Control
Account Manager (CAM) or those responsible.
• The EAC is developed for projects as well as Control Accounts and
Work Packages.
• There are multiple ways to develop an EAC. The technique selected
is based upon the dollar value of the project, the risk, accounting
system available and the accuracy of the estimates.
five basic ground rules for effective Earned Value
Management

1. Organize the project team and the scope of work, using a work breakdown
structure. Each task should have a single WBS number and organizational code.

2. Schedule the tasks in a logical manner so that lower level schedule elements
support subsequent elements and the top level milestones.

3. Allocate the total budget resources to time-phased control accounts.

4. Establish objective means for measuring work accomplishment. Budget should

be earned in the same way that it was planned.

5. Control the project by analyzing cost and performance variances, assessing

final costs, developing corrective actions, and controlling changes to the
integrated baseline.
• EAC is expressed as budget at completion divided by the
current CPI of the project.
• EAC = BAC/CPI

• The above presented formulas are the foundation to

performing Earned Value Analysis and utilizing an Earned
Value Management System.
 EVM Trend Analysis: Cumulative
At Complete
Time Now Risk Variance

Prog
Budget
Management Reserve

ACWP
Resources

(Actual Schedule Slip

Cost)

Cost BCWS
400 Variance (Planned
Value)
BCWP Schedule
(Earned Variance
300
Value)

200

100

Time
▲
J F M A M J J A
Approx. Time Variance
EVM Trend Analysis:
Cost/Schedule Variances
$ Favorable
Management
Reserve
Consumption
Schedule
0 Variance at
Completion
$ Unfavorable

Cost Variance
at Completion

Time Schedule Slip

Cost Variance ---

Schedule Variance
Management Reserve
A Simple but Edible Example

It’s the holidays, it’s cookie baking time!

 EVMS of our Holiday Cookie Baking Process
 Our “Plan”
1. 40 cookies per batch
2. 5 batches per hour (200 cookies per hour)
3. Schedule:5 hours to make 1000 cookies
4. Budgeted cost per cookie: 5/-
5. Total Budget: 5000/-

 Analysis after 1 hour of baking we have made

1. 150 edible cookies - some were burnt, some hit the floor, the kids ate
some, and fed some to the dog
2. Actual cost of the ingredients after 1 hour (ACWP) = 900/-
 Simple EVMS
BCWS = 200 * 5 =1000/-
BCWP = 150 *5 = 750/-
ACWP = 900/-
 Schedule variance

SV= BCWP- BCWS = 750-1000 = - 250 (we are behind

schedule)

• Cost Variance
CV= BCWP- ACWP= 750 – 900 = -150 (we are
over budget)
SPI (Schedule performance index):

SPI = BCWP/BCWS = 0.75(we are running at

75% of planned schedule.
CPI (Cost performance index):
CPI = BCWP/ACWP = 0.833 (we are running
about 17% over budget.
• EAC = BAC/CPI= 5000/0.833 = 6024/-

• VAC = BAC – EAC = 5000 – 6024 = 1024 (over)

• SAC = 5 hours/SPI = 5/0.75 = 6.67 hours

It will take 6.67 hours and 6024/- to make 1,000 edible cookies if the
productivity of this cookie project doesn’t improve.
 Can we catch up??
• TCPI: To Complete Performance Index

• The numerator (Budget at completion-BCWP) is how much work is left .

• The dominator (EAC- ACWP) is how much we have left to spend.

• If EAC = IEAC, then TCPI=CPI

“ If we don’t change our performance, IEAC is the correct estimate

of the final cost “.
Example of EVM

Brick Making Company

 EVMS for Brick Making Process
 “Plan”
1. 1000 bricks per batch
2. 8 batches in 30 days (500 bricks in a batch)
3. Schedule: 15 days to make 2000 bricks
4. Budgeted cost per brick : Rs. 5 per brick
5.Total Budget: Rs. 20,000/-

 Analysis after 15 days

1. 1800 bricks - some were burnt (after 4 batches)
2. Actual cost of the brick making after 15 days (ACWP) = 9500
 Simple EVMS

BCWS = 2000* 5 = 10,000

BCWP=1800 bricks * 5/brick = 9000
ACWP = 9500

 Cost and Schedule variance

SV= BCWP – BCWS = 9000-10000 = -1000(we are behind schedule)

CV =BCWP – ACWP = 9000 -9500 = 500 (we are over budget)
SPI = BCWP/BCWS = 0. 90 (we are running at 90 % of planned schedule.

CPI = BCWP/ACWP = 0.947 (we are running about 5.3% over budget.
• IEAC=BAC/CPI=10000/0.947 = 10559.66 = 10560

• VAC = BAC- IEAC= 10000- 10560 = - 560 (over cost)

• ISAC = 15 days/SPI = 15/0.9 = 16.67 days

It will take 16.67 and 10560 to make 4000 bricks if the productivity of
this brick making project doesn’t improve.
 Can we catch up??
• TCPI: ”To Complete Performance Index”

• The numerator (Budget at completion-BCWP) is how much work is left .

• The dominator(EAC-ACWP) is how much we have left to spend.

• If EAC=IEAC, then TCPI=CPI

“ If we don’t change our performance, IEAC is the correct estimate
of the final cost “.
• We want to finish this little baking exercise with a $50.00 budget.
TCPI=(Budget-BCWP)/(EAC-ACWP)
TCPI=(50.00-7.50)/(50.00-9.00)=42.50/41.060=1.036

• We must perform at 103.6% of the originally planned performance in

order to maintain the budget goal.
10 Criteria for Successful
EVMS
 Define authorized work elements
 Identify project organizational structure
 Provide integrated planning, scheduling, budgeting, work
authorization, and cost accumulation processes
 Schedule the authorized work in a sequential manner that
identifies the significant task dependencies
 Identify physical products and organizations
 Establish and maintain time–phased budget baseline
 Record direct costs consistently in a formal manner
 Periodically generate project metrics
 Develop revised cost estimates–at–completion based on
performance to date.
 Incorporate authorized changes in a timely manner
 Benefits of EVMS
1. Itis a single management control system to provide reliable and
consistent data on project performance.
2. It integrates work, schedule, and cost using a work breakdown structure.
3. The associated database of completed projects is useful for comparative
analysis.
4. The cumulative cost performance index (CPI) provides an early warning
signal.
5. The schedule performance index provides an early warning signal.
6. The CPI is a predictor for the final cost of the project.
7. It uses an index–based method to forecast the final cost of the project.
8. The “to-complete” performance index allows evaluation of the forecasted
final cost.
9. The periodic (e.g., weekly or monthly) CPI is a benchmark.
10.The management by exception principle can reduce information
overload.
Case study

Length: 38.000 Km.

Original Time Period: 730 days

Revised Time Period: 730 days

Original Completion Date: 18-01-2005

Revised Completion Date: 18-01-2005

Liquidated Damages: Rs. 2.97 Lakhs per day of delay

Estimated Sectional Value: Rs. 499.28 millions

17 December 2022
 Base line plan : S curve.
BASELINE PLAN : SECTION II

500.00
450.00
400.00
COST IN mills.

350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00

May-04
Nov-03

Dec-03

Jan-04

Feb-04

Mar-04

Jun-04

Nov-04

Dec-04

Jan-05
Oct-03

Jul-04

Oct-04
Sep-03

Sep-04
Aug-03

Aug-04
Apr-04
Au Se No De Fe Ma Au Se No De
Oct- Jan- Mar- Apr- Jun- Jul- Oct- Jan-
g- p- v- c- b- y- g- p- v- c-
03 04 04 04 04 04 04 05
03 03 03 03 04 04 04 04 04 04

Total (Rs in Million) 0.82 2.235.98 13.027.2 44.766.4 101.142.186.221.249.270.299.338.386.436.465.

MONTHS
17 December 2022

Total (Rs in Million)

Data for time now – Dec’03.

17 December 2022
Planned Vs. Actual cash flow
ACTUAL Vs. PROJECTED CASHFLOW

600.00
COST IN mills.

500.00
400.00

300.00
200.00

100.00
0.00
Au Se O No De J Fe Ma Ap Ma J Jul- Au Se O No De J
g- p- ct- v- c- an- b- r- r- y- un- 04 g- p- ct- v- c- an-
03 03 03 03 03 04 04 04 04 04 04 04 04 04 04 04 05

Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan-
03 03 03 03 03 04 04 04 04 04 04 04 04 04 04 04 04 05

PROJECT CASHFLOW 8.23 14.0 37.4 70.5 142. 174. 217. 350. 413. 435. 355. 275. 211. 290. 386. 480. 500. 290.
ACTUAL CASH FLOW 0.32 1.28 3.07 7.39 16.3

MONTHS

PROJECT CASHFLOW ACTUAL CASH FLOW

17 December 2022
Project progress
PLANNED Vs. ACTUAL PROGRESS

6.00

5.00
% PROGRESS

4.00

3.00

2.00

1.00

0.00
Aug-03 Sep-03 Oct-03 Nov-03 Dec-03

Aug-03 Sep-03 Oct-03 Nov-03 Dec-03

PLANNED 0.16 0.45 1.20 2.61 5.46

ACTUAL 0.053 0.158 0.501 1.204 2.754

MONTHS

17 December 2022
PLANNED ACTUAL
 EARNED VALUE GRAPH

Earned
500.00
value graph
450.00
400.00
350.00
COST IN mill.

300.00
250.00
200.00
150.00
100.00
50.00
0.00
Nov-03

Nov-04
Jan-04

Jun-04

Jan-05
Jul-04
Aug-03

Sep-03

Dec-03

Feb-04

Apr-04

Aug-04

Sep-04

Dec-04
May-04
Oct-03

Mar-04

Oct-04
Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan-
03 03 03 03 03 04 04 04 04 04 04 04 04 04 04 04 04 05

BCWS 0.82 2.23 5.98 13.0427.2844.70 66.42101.5142.8 186.3221.9249.5270.6 299.7338.3386.4436.5 465.6

ACWP 0.32 1.28 3.07 7.39 16.3
BCWP 0.25 0.74 2.33 5.61 12.8
MONTHS
17 December 2022
BCWS ACWP BCWP
Earned value calculation

• Time now – December ’03.

• % completion – 2.75
• BAC – 465.65 mills.
• EAC – 592.42 mills.
• Project overrun – 126.76 mills.

17 December 2022
Earned value table

17 December 2022
Earned value graph

EARNED VALUE GRAPH

700

600

500
COST IN mill.

400

300

200

100

0 TIME
Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05
NOW-1
BCWS 0.82314 2.23126 5.97815 13.0362 27.2826 44.6983 66.4195 101.511 142.837 186.366 221.96 249.502 270.688 299.747 338.382 386.473 436.55 465.647
ACWP 0.32 1.28 3.07 7.39 16.31 31.94 47.57 63.21 78.83 109.68 140.53 173.38 219.61 251.69 276.32 321.65 361.85 412.87 469.54 498.54 539.78 562.81 592.41
BCWP 0.24694 0.73631 2.33148 5.60557 12.8228 27.18 41.54 54.52 72.84 91.18 109.48 142.13 169.35 192.87 219.63 261.36 302.69 336.12 361.23 395.32 413.64 435.98 465.65

MONTHS

BCWS ACWP BCWP

17 December 2022
Earned value – A project controlling tool

17 December 2022
PROJECT ANALYSIS

CV = -28.57million

• CPI = ACWP (153.15)/BCWP (125.03)

= 1.24

3. EAC = CPI * BAC = 1.23*887.85

= Rs. 1107 mill.

• Final budget over run is 219million.

17 December 2022
• Ref. https://www.pmi.org/learning/library/earned-value-management-
systems-analysis-8026