Professional Documents
Culture Documents
The S-curve in its simplest form is a graph showing how project budget is planned to be spent over time.
We can complicate the graph by showing the actual costs of doing the work over the same period.
And also on the same graph we can show how the value of the product of the project increases over the same period.
Page 1 of 5
Variances
Schedule and cost variances can both be calculated in monetary terms from the data needed to produce the S-curves.
Schedule variance is the difference between the Earned Value and the planned budget.
SV = BCWP - BCWS
Cost Variance is the difference between the Earned Value and the actual costs of the works.
CV = BCWP - ACWP
Performance Indices
Schedule Performance Index and Cost Performance Index give indications of the health of the project. Is the project on
time, in budget or what?
Schedule Performance Index is a ratio of Earned Value and the planned value of completed works.
SPI = BCWP / BCWS
SPI < 1 is not good
Cost Performance Index is a ratio of Earned Value and the actual costs of completed works.
CPI = BCWP / ACWP
Estimate At Completion
The EAC gives an idea of the final costs of a project. It takes into account the original budget (BAC), the Earned Value
and the Cost Performance Index of the already completed works.
EAC = ACWP + ((BAC - BCWP)/CPI)
Earned Value is based on the idea that the value of the product of the project increases as tasks are completed. And
therefore the Earned Value is a measure of the real progress of the project.
Earned Value provides a standard means of objectively measuring work accomplished by integrating cost, schedule and
technical performance into one set of metrics so that effective comparisons can be made.
Earned Value can be used to communicate the progress of the works. This is historical information, "water under the
bridge", you can't do anything about it.
The more relevant use to the proactive project manager is to measure variances and define trends. Actions can then be
taken to reduce the unwanted variances and the wayward trends.
Remember, if you can't measure it, you can't control it.
VIVEK DATEY
Page 2 of 5
Page 3 of 5
20 5
Total
10
20 20 10 15 100
Example 1
A
Total
20 5
10 20 20 10 15 100
18 6
10 17 18 10 0
Spend variance
-1 0
79
15 21
Comparing the measured (actual) spend with the baseline planned spend is of very little use without some indication of
the amount of work done.
Task A is underspending by 2; Are we saving money, or behind schedule. On the other hand, Task B is overspent by 1;
are we overbudget or ahead of schedule. While task G hasn't even started yet; at a guess behind schedule. Reports to
management are usually at a high level, they see an underspend of 21%, congratulate the PM and divert some of the
management reserve!
VIVEK DATEY
Page 4 of 5
20 5
15 20 10 0 75
18 6
10 17 18 10 0 79
Cost variance
-1 -5
-2
G Total
0 -4
The earned value compared with the actual cost of doing the work necessary to achieve that earned value, provides a
measure between planned and actual costs. The difference is called Cost Variance. If the cost variance is negative, more
money was spent doing the work than was planned. In the example, the earned value of the work complete was 75 but
the actual cost of doing the work was 79, a cost variance of -4 or -4/75 = -5.3%
Example 3
A
B C
Total
20 5 10 20 20 10 15
100
20 5 5
75
Schedule variance
15 20 10 0
0 -5 -5 0
-15 -25
Planned value compared with earned value measures the volume of the work planned against the work completed. The
difference is called Schedule Variance. If the schedule variance is negative, the work is late. In the example the
schedule variance is -25 or -25/100= -25%
Variance analysis and trend projection are two important tools used by the project manager to control projects. Using
earned value techniques the project manager can monitor both schedule and cost variances as well as predict trends
using Cost Performance Index and the Schedule Performance Index.
The astute project manager will also calculate a set of Critical ratios at a selected level of the Work Breakdown
Structure. One useful ratio combines the schedule progress versus actual progress with the budgeted cost versus the
actual cost.
(Actual Progress/Scheduled Progress) X (Budgeted Costs/Actual Costs)
This critical ratio is a good measure of the general health of a project as it combines both schedule and cost in that a
poor performance in one is compensated by a good performance in the other. A critical ratio greater than 1 is good, less
than one is bad. Furthermore the project manager should also set control limits on the various critical ratios. If the ratios
are outside the limits then corrective action is necessary.
Source: Project Magazine November, December 2000 & January 2001 issues
VIVEK DATEY
Page 5 of 5