Today’s Lesson

Earned Value Management

 What is Earned Value Management?
 Earned Value Management (EVM) is a project
management system that combines schedule
performance and cost performance to answer
the question, “What did we get for the money
we spent?”
 Basic concepts of EVM:
 All project steps “earn”
value as work is
completed.
 The Earned Value (EV)
can then be compared to
actual costs and planned
costs to determine project
performance and predict
future performance
trends.
 Physical progress is
measured in dollars, so
schedule performance and
cost performance can be
analyzed in the same
terms.
 What are the benefits of using Earned
Value Management?
 In a typical spend plan analysis, physical
progress is not taken into account when
analyzing cost performance. Instead, a
project’s actual costs to date are simply
compared to planned costs, often with
misleading results.
 Example:

 A task has a
planned value
(PV) of $1000, and
actual costs (AC)
of $1000.
 It appears this task
has perfect cost
performance, and
is in good shape to
finish on-budget
(Figure 1).
Figure 1
 Example: (contd.)
 However, if physical
progress is taken into
account, the results
may differ.
 In Figure 2, the project
has spent $1000 in
actual costs, but is
behind schedule and
has only achieved
$750 of Earned Value.
 This is called a cost
overrun, and this
project would have a
Cost Variance (CV) of
-$250.

Figure 2
 Example: (contd.)
 From this example, we can see that EVM
expands on the two-dimensional analysis–
“Has this project spent more or less money
than planned?”– by adding the third
dimension– “What did we get for the money
we spent?”
 Building Blocks of Earned Value
Analysis
 In addition to more accurate project status
assessment, EVM makes it easy for a project
manager to analyze both schedule and cost
performance in a variety of ways. Using a
limited set of basic task information, it is
possible not only to determine how a project
has been performing, but to predict future
performance trends as well.
 Basis for Earned Value Analysis:
 Budget at Completion (BAC) = Overall
approved budget for a task.
 Actual Costs (AC) = Total amount spent on a
task up to the current date.
 Percent Complete = Task progress, related as
either EV/BAC, or simply physical progress
shown by the fill of the task bar.
 Once these three measurements have been established, the
following calculations can be performed:
 Earned Value (EV) = BAC x Percent Complete. The

budgeted cost of completed work as of the current date.

 Planned Value (PV) = The point along the time-phased

budget that crosses the current date. Shows the budgeted

cost of scheduled work as of the current date.
View detailed EVM data in actual dollars as
part of a presentation schedule...
 ...or use an
easy-to-read
DataGraph
for at-a-
glance visual
analysis of
project
trends
 Performance Indices and Variance
 Once Earned Value and Planned Value are
known, they can then be used to determine
schedule and cost variance, and calculate
performance efficiency.
 Variance Calculations:
 Schedule Variance (SV) = Earned Value –
Planned Value. The difference between what
was planned to be completed and what has
actually been completed as of the current date.
 Cost Variance (CV) = Earned Value – Actual
Costs. The difference between the work that
has been accomplished (in dollars) and how
much was spent to accomplish it.
In the graph below, the project shown has a negative Schedule
Variance, because it has “earned” less value than was planned, as
of the current date. However, it has a positive Cost Variance,

because the Earned Value is greater than the Actual Costs accrued:
 Performance Indices:
 Schedule Performance Index (SPI) = Earned
Value / Planned Value. Schedule variance related as a
ratio instead of a dollar amount. A ratio less than 1.0
indicates that work is being completed slower than
planned.
 Cost Performance Index (CPI) = Earned Value /
Actual Costs. Cost variance related as a ratio instead
of a dollar amount. A ratio less than 1.0 indicates that
the value of the work that has been accomplished is
less than the amount of money spent.
In the schedule below, Project A has a CPI greater than 1.00.
This shows us that the project has been earning value faster
than it has been accruing costs:

 However, Project A also has a SPI value that is less than 1.00.
Although Actual Costs are low, Task 1 is behind schedule, so
the project has not earned as much value as was planned.
Forecasting Future Performance Trends
 The Schedule Performance and Cost Performance
Indices not only monitor current project performance,
they can also be used to predict future performance
trends.
 To-Complete Performance Index (TCPI) = (BAC-EV) /
(BAC-AC). Indicates the CPI required throughout the
remainder of the project to stay within the stated budget.
 Estimate at Completion (EAC) = AC + ((BAC-EV)/CPI).
A forecast of total costs that will be accrued by project
completion based on past cost performance trends.
 Variance at Completion (VAC) = EAC – BAC. The
difference between the new Estimate at Completion and the
original Budget at Completion.
 Getting Started with Earned Value
Management
 Identify and Organize all Allocate the Budget and
Project Steps Schedule Tasks

First, identify all tasks that Each activity in the project

need to be accomplished and should have a planned Budget-at-
organize the tasks into sub- Completion (BAC). All
groups (1). Breaking down subsequent earned value
activities into the smallest calculations will be based on this
possible steps makes it easier amount (2). In addition to the
to pinpoint schedule and cost BAC, each task should also have
a specific duration (3), which
performance problems.
provides the basis for monitoring
actual costs and physical
progress.
 Update Task Status and Enter Actual
Costs
 As the project progresses, percent complete for
unfinished tasks should be updated and
monitored (4). Earned Value (EV) is
determined by relating this physical progress
to the BAC. Along with task status and budget,
it is necessary to maintain actual costs accrued
for each task in order to calculate cost
performance (5).
 Use the Data to Make Informed
Decisions
 Now that all tasks have been scheduled, and
the BAC, EV, Percent Complete, and AC are
known, further analysis can be performed,
including schedule and cost variances,
performance efficiency, and estimates-at-
completion.
 Question
 Suppose a project is in progress and as of today the planned
expenditures for the project were to have been $500,000.
Suppose also that there were five tasks and the tasks had
budgets of $30,000, $100,000, $250,000, $100,000, and
$20,000, respectively. The actual cost of each of the tasks that
were worked on was $11,000, $120,000, $230,000, $105,000,
and $20,000. Tasks 1, 2, 3, and 4 are complete.

 What are the BCWS, ACWP, and BCWP (PV, AC, and EV)?
 Answer
 BCWS is $500,000.
 ACWP is $486,000.
 BCWP is $480,000.
 From these figures we can see that the accomplishments of the
project as of today are somewhat less than what was planned for.
This is the difference between the earned value and the planned
value to date. The planned value is the BCWS and the earned value
is the BCWP. This means that we are $20,000 behind schedule.
 We can also see that the actual cost is $14,000 less than the planned
expenditures to date. This means that we are somewhat under
budget. Unfortunately we are $14,000 under budget but also
$20,000 behind schedule. If we add the $20,000 of work that should
have been completed but was not, we find ourselves projecting a
$6,000 over budget condition. It could be that things are actually
worse than they appear at first glance. If the performance to date
continues, the amount over budget will probably be even higher at
the end of the project. This is usually considered a bad
 EXAMPLE 1 (Q)
 Provide an earned value analysis to evaluate the progress of the
sewer and water lines project. The original budget is RM147, 500
and the project is scheduled to be completed in 94 working days. A
status report after 10 working days into the project includes the
following information:
 Activity 10, 100% complete as scheduled, actual cost=RM1, 500

 Activity 20, 100% complete as scheduled, actual cost=RM2, 200

 Activity 30, 100% complete as scheduled, actual cost=RM4, 000

 BCWP=RM7, 600

 ACWP=RM7, 700

 BCWS=RM7, 600

 BAC=RM147, 500

 The BCWS and BCWP shown above are the same values as

shown on the tenth working day because activity 10, 20 and 30

were all completed according to the original planned schedule.
 EXAMPLE 1 (A)

 Cost and schedule deviations:

 Cost variance, CV=BCWP-ACWP
= RM7, 600-RM7,
700
= -RM 100

A negative value of CV represents a cost overrun.

Based on the status report the actual cost is greater
than earned by RM 100.
 EXAMPLE 1 (A)

 Schedule variance, SV =BCWP-BCWS

= RM7, 600-
RM7, 600
=0

Since the SV is zero, the project is progressing as

planned. The project is not ahead of or behind the
planned schedule.
 EXAMPLE 1 (A)

 Cost and schedule performance:

 Cost Performance Index, CPI=(BCWP/ACWP)
= (RM7, 600/RM7,
700)
= 0.987
The CPI is less than 1.0, which indicates a poor cost
performance. The earned value is less than the actual costs.

 Schedule Performance Index, SPI=(BCWP/ BCWS)

= (RM7, 600/ RM7, 600)
= 1.0
The SPI equals to 1.0, which indicates the schedule
performance is progressing precisely as planned.
 EXAMPLE 1 (A)
 Forecasting cost at completion
 Estimate to complete, ETC=[(BAC-BCWP)/ CPI]

= [(147, 500-7, 600)/0.987]

= RM141, 743
Based on the analysis of the statues report, the remaining cost
to complete the project is RM141, 743.

 Estimate at completion, EAC=ACWP + ETC

= 7, 700 + 141, 743
= RM 149, 443
Based on the analysis of the status report, the estimated cost
of the project at completion is RM149, 443, which is RM1,
943 over the original budget of RM147, 500.