Earned Value Management

The Basics

EVA Learning Outcomes

Describe EVM Explain advantages and disadvantages of EVM Perform earned value calculation and interpret earned value data

Earned Value Management Defined

Earned Value Management (EVM) is a project control process based on a structured approach to planning, cost collection and performance measurement. It facilitates the integration of project scope, time and cost objectives and the establishment of a baseline plan for performance measurement. The purpose of measuring earned value is to provide information in order to determine: what has been achieved of the planned work what it has cost to achieve the planned work whether the work achieved is costing more or less than was planned whether the project is ahead of behind the planned schedule

Advantages and Disadvantages of EVM

Advantages
Variance analysis shows current status in terms of cost and schedule Forecasting enables predictions of cost at completion and completion date

Disadvantages
Time consuming and requires experienced effort to measure and analyse performance. Forecasts depend on reliable measurements that can be difficult to achieve for some cost types

Efficiency provides performance indices Past performance is not necessarily an identifying areas under of ever performing and indication of future performance requiring corrective action Estimating accuracy provides feedback of Does not take into account risks and actual performance against baseline estimates uncertainties Provides triggers for escalating problems and Requires a compatible cost collection system highlighting successes

Earned Value Elements

Planned Value (PV) Value of work planned to be done at a particular point in time. Earned Value (EV) Value (volume) of Work Achieved Physical Progress Actual Cost (AC) Recorded Cost of work performed

AC

PV EV

By integrating three measurements - EV, AC & TIME : Key performance indicators are produced to evaluate the health of the project.

COST

TIME

EV Management Terms
Budget at Completion Total budget for the work to be carried out Original Duration planned overall duration Planned Value Budgeted Cost of the Work Scheduled (BCWS) Data Date reference point used to measure and evaluate the current status aka Time Now Actual Cost Cumulative cost incurred at the Data Date. Also called the Actual Cost of Work Performed (ACWP) Earned Value Value of planned work done at Data Date. Also called the Budgeted Cost of Work Performed (BCWP) Estimated Cost at Completion (EAC) The predicted outturn in cost terms

Memorise these all schedulers must know it!

EV Management Terms
COST
Forecast Time Overrun Estimated Cost at Completion Forecast Forecast Cost Overrun

Budget at Completion

PV

Actual Cost CV Data Date SV

OD

Forecast Duration

TIME

EV

Formulae
EV=%Complete x Budget SV=EV-PV CV=EV-AC SPI= CPI= EAC= FD= EV PV EV AC BAC CPI OD SPI ; if <1 = behind, ; if <1 = overspent,
if >1 = ahead of schedule

Ev Cost Ac Pv Schedule

if >1 = under budget

Earned Value Principles

The principles of Earned Value Analysis can be illustrated through a simple example as shown. The project objectives are to lay a new pipeline. The work has been broken down into two areas: Ground Works and Pipe Works. Ground works has been completed. The are tow work packages in Pipe Works. The first, Buy Pipe has been completed and the pipe has been deliver to site. The other work package Lay Pipe has been in progress for two weeks. Key objectives and parameters for the work package are:
Estimated cost for laying pipe Length to be laid Thus, Total Budget Duration for WP Quality = 100 per meter = 1000 meters = 100k = 8weeks = no leaks

Earned Value Measurement

Planned Value (PV) at Data Date = 25k Check points 4 wk 6 wk 2 wk 8 wk

EV at Data Date = % Compl x budget = 20% x 100k = 20k

Actual Cost (AC) at Data Date = 30k

After two weeks (Time Now aka Data Date) the work package manager reviews the progress The manager is expecting 25% of the work to be completed at Data Date. This is based on the estimated spend over two weeks. Since the budget for all of the work is 100k, the value for 25% of the work is 25k assuming a linear rate of spend for simplicity. At Data Date the manager also check the account and finds that 30k has been charged to the work package (actual cost). However, also at Data Date, the manager checks the surveyor's report which shows that 20% has been achieved.

Earned Value Analysis

EV = 20k Ev Cost Ac AC = 30k Pv PV = 25k Schedule

The manager can now complete the analysis. The first task is to calculate the SV. This will indicate how much the project is off-spec in terms of time. SV = EV PV = 20k - 25k = -5k The next task is to calculate the cost variance. This will show how much the project is off target in terms of cost. CV = EV AC = 20k - 30k = -10k From above calculation we can see that the project is behind schedule and overspending. Further analysis will provide predictions of the time and cost.

Performance Indicators
EV = 20k Ev Cost Ac AC = 30k Pv PV = 25k Schedule

The performance indices are calculated as follows: SPI = EV/PV = 20/25 = 0.8 CPI = EV/AC = 20/30 = 0.67 Thus, Forecast Duration = OD/SPI = 8/0.8 = 10weeks EAC = BAC/CPI = 100/0.67 = 150k

What does this look like graphically?

Forecast Time Overrun Estimated Cost at 150 Completion Forecast Forecast Cost Overrun

100

Budget at Completion

COST (1000s)

ha nd

30 25 20

AC CV

Dr a

in

by

PV

SV

2 EV

10

Weeks

Exercise 1
A project has a budget o 200k and a completion date of 12 months. The progress for the first four months is shown in the table below All values are in k

Month 1 PV AC EV
1. 2. 3.

Month 2 85 70 55

Month 3 80 95 75

Month 4 110 115 95

40 30 35

Calculate the forecast duration and the estimate at completion (EAC) for this project based on this information. Explain how the cost efficiency has changed of the first four months What will the EAC be if the CPI changes to 0.9 for all remaining work?

Exercise 1 Student Handout

COST (1000s)

Months

Exercise 1 - Answers
1. At Month 4 (latest Data Date): SPI = EV/PV = 95/110 = 0.86 Forecast Duration = OD/SPI = 12/0.86 = 13.95 = 14months CPI = EV/AC = 95/115 = 0.83 EAC = BAC/CPI = 200/0.83 = 241k Cost efficiency can be represented by CPI 2.

Month 1 2 3 4

CPI 1.17 0.79 0.79 0.83

1 2 3 4 1

CPI

Months

Exercise 1 Answers (Continued)

2. Cost efficiency was excellent for Month 1 because CPI>1 CPI for Month 2 dropped below desired levels with CPI<1 Month 3s CPI was still poor (CPI<1) with no change from the previous month Month 4 shows a slight improvement, however the CPI indicates that this project will overspend. EAC = BAC/CPI = 200/0.9 = 222k 3.

Exercise 1
260 220 200 180

COST (1000s)

160 140 120 100 80 60 40 20 1 2 3 4 5 6

1 2 3 Months 4 1

CPI

10

11

12

13

14

14

240

241

Months