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MScPM Budgeting and Planning with Risk

Week 2 Earned Value Analysis (EVA)


2010

Overview Earned Value Analysis (EVA)


Definition:
Earned Value Analysis (EVA) is a project management technique that objectively tracks physical accomplishment of work

Uses of EVA:
EVA technique used to track the progress and status of a project and forecast the likely future performance of the Project. EVA technique integrates the scope, the schedule, and the cost of a project. EVA technique answers numerous questions to the stakeholders in a project related to the performance of the project. EVA technique can be used to show past performance of the project, current performance of the project and predict the future performance of the project by use of statistical techniques. Good planning coupled with effective use of the EVA technique will reduce a large amount of issues arising out of schedule and cost overruns.
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Functions of EVA
EVA calculates cost, scheduling, and scope measurements to determine productivity and performance indices (as well as schedule and budget variances). Thereby, it provides a COMBINED view of all three areas: time, schedule, performance. Primary functions of EVA are the following:
Determine and document the cause of the variance Determine the impact of the variance Determine whether corrective action should be implemented

Bottom line is that EVA determines the variance in a given project and provides direction whether corrective action should be implemented

Primary Elements of EVA


Planned Value (PV) (referred to as Budgeted Cost of Work Scheduled (BCWS))

Planned Value (PV) or BCWS is the total cost of the work scheduled /Planned as of a reporting date. Calculated: PV or BCWS = Hourly Rate * Total Hours Planned or Scheduled Actual Cost (AC) or ACWP is the total cost taken to complete the work as of a reporting date and tracks costs as they are actually incurred on the project. Calculated: AC or ACWP = Hourly Rate * Total Hours Spent
Earned Value (EV) or BCWP is the total cost of the work completed/performed as of a reporting date. This looks at the work that was performed (for which you paid actual money) and reports what the original budget was for this work. If the project is on time and on budget, then this should equal the BCWS. Calculated as: EV or BCWP = Baselined Cost * % Complete Actual

Actual Cost (AC) (referred to as Actual Cost of Work Performed (ACWP)).

Earned Value (EV) (referred to as Budgeted Cost of Work Performed (BCWP))

Key Point: All the three elements are captured on a regular basis as of a reporting date
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Key Points to Remember Regarding EVA


PV is the approved budget assigned to be completed during a given time period

AC is the money that has actually been expended to date for completed work
EV is the value of work completed to date compared to the budget

Key EVA Elements Presented Graphically

PV is the approved budget assigned to be completed during a given time period EV is the value of work completed to date compared to the budget AC is the money that has actually been expended to date for completed work
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Other Elements of EVA Overall Status


% Completed Planned
% Completed Planned is defined as the percentage of work which was planned to be completed by the reporting date. Calculated: % Completed Planned = PV / BAC

% Completed Actual
% Completed Actual is defined as the percentage of work which was actually completed by the reporting date. Calculated: % Completed Actual = AC / EAC

Other Elements of EVA Cost Variance


Cost Variance (CV)
Cost Variance (CV) indicates how much over or under budget the project is. Calculated:
Cost Variance (CV) = Earned Value (EV) - Actual Cost (AC) OR Cost Variance (CV) = BCWP - ACWP

The formula mentioned above gives the variance in terms of cost which will indicate how less or more cost has been to complete the work as of date. Remember the following:
Positive Cost Variance Indicates the project is under budget Negative Cost Variance Indicates the project is over budget

Cost Variance %
Cost Variance % indicates how much over or under budget the project is in terms of percentage Calculated:
CV % = Cost Variance (CV) / Earned Value (EV) CV % = CV / BCWP

Remember the following:


Positive Variance % indicates % under Budget Negative Variance % indicates % over Budget
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Other Elements of EVA Cost Performance Indicators


Cost Performance Indicator (CPI)
Cost Performance Indicator is an index showing the efficiency of the utilization of the resources on the project Calculated:
CPI = Earned Value (EV) /Actual Cost (AC) OR CPI = BCWP / ACWP

Remember the following:


CPI value above 1 indicates efficiency in utilizing the resources allocated to the project is good. CPI value below 1 indicates efficiency in utilizing the resources allocated to the project is not good.

To Complete Cost Performance Indicator (TCPI)

To Complete Cost Performance Indicator is an index showing the efficiency at which the resources on the project should be utilized for remainder of project Calculated:
TCPI = ( Total Budget - EV ) / ( Total Budget - AC ) OR TCPI = ( Total Budget - BCWP ) / ( Total Budget - ACWP )

Remember the following:


TCPI value above 1 indicates utilization of the project team for the remainder of the project can be stringent TCPI value below 1 indicates utilization of the project team for the remainder of the Project should be
lenient

.
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Other Elements of EVA Schedule Variance Parameters


Schedule Variance:
Calculated:
Schedule Variance (SV) = Earned Value (EV) - Planned Value (PV) OR Schedule Variance (SV) = BCWP BCWS

Remember the following:


Positive Schedule Variance Indicates we are ahead of schedule Negative Schedule Variance Indicates we are behind of schedule

Schedule Variance %
Schedule Variance % indicates how much ahead or behind schedule the project is in terms of percentage. Calculated:
SV % = Schedule Variance (SV) / Planned Value (PV) SV % = SV / BCWS

Remember the following:


Positive Variance % indicates % ahead of schedule. Negative Variance % indicates % behind of schedule.

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Other Elements of EVA Schedule Indicators


Schedule Performance Indicator (SPI)
Schedule Performance Indicator is an index showing the efficiency of the time utilized on the project Calculated:
SPI = Earned Value (EV) /Planned Value (PV) OR SPI = BCWP / BCWS

Remember:
SPI value above 1 indicates project team is very efficient in utilizing the time allocated to the project SPI value below 1 indicates project team is less efficient in utilizing the time allocated to the project

To Complete Schedule Performance Indicator (TSPI)


To Complete Schedule Performance Indicator is an index showing the efficiency at which the remaining time on the project should be utilized. Calculated:
TSPI = ( Total Budget - EV ) / ( Total Budget - PV ) OR TSPI = ( Total Budget - BCWP ) / ( Total Budget - BCWS )

Remember the following:


TSPI value above 1 indicates project team can be lenient in utilizing the remaining time allocated to the project. TSPI value below 1 indicates project team needs to work harder in utilizing the remaining 11 time allocated to the project.

Other Elements of EVA Budget Indicators


Budget At Completion (BAC)
Budget At Completion (BAC) is the total budget allocated to the project. Budget At Completion (BAC) is generally plotted over time (like periods (e.g., Monthly, Weekly, etc.). BAC is used to compute the Estimate At Completion ( EAC ). BAC is also used to compute the TCPI and TSPI. Calculated using the following formula:
BAC = Baselined Effort-hours * Hourly Rate

Estimate To Complete (ETC)


Estimate To Complete (ETC) is the estimated cost required to complete the remainder of the project. This parameter is calculated and applied when the past estimating assumptions become invalid and a need for fresh estimates arises.

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Other Elements of EVA Budget Indicators


Estimate At Completion (EAC)
Estimate At Completion (EAC) is the estimated cost of the project at the end of the project. There are three methods to calculate EAC:
Variances are Typical - This method is used when the variances at the current stage are typical and are not expected to occur in the future. Past Estimating Assumptions are not valid - This method is used when the past estimating assumptions are not valid and fresh estimates are applied to the project. Variances will be present in the future - This method is used when the assumption is that the current variances will be continue to be present in the future.

The formula for calculation of the three methods are as given below:
AC + ( BAC -EV ) AC + ETC ( Estimate to complete ) AC + ( BAC- EV ) / CPI

Variance At Completion (VAC)


Variance At completion (VAC) is the variance on the total budget at the end of the project. This is the difference between what the project was originally expected (baselined) to cost, versus what the it is now expected to cost. Calculated using the following formula
VAC = BAC - EAC
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Other Elements of EVA Work Completion Indicators


% Completed Planned
The percentage of work which was planned to be completed by the Reporting Date. Calculated:
% Completed Planned = PV / BAC

% Completed Actual
The percentage of work which was actually completed by the Reporting Date Calculated:
% Completed Actual = AC / EAC

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Memorize these formulas

Performance Measurements Performance Indices

Forecasting Remaining Work

Estimate at Completion

Project Variance

Cost variance Schedule Variance Cost performance index Cumulative cost performance index Schedule performance index Most accurate estimate Typical variances achieved Non-typical variances achieved Flawed estimates to date Typical variances achieved Non-typical variances achieved Overall variance analysis

CV = EV - AC SV = EV - PV CPI = EV / AC CPIc = EVc / ACc SPI = EV / PV Manually calculated ETC = (BAC - EVc) / CPIc ETC = (BAC - EVc) EAC = ACc + ETC (manual) EAC = ACc + ((BAC - EVc) / CPIc) EAC = ACc + (BAC - EVc) VAC = BAC - EAC

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EVA Example
Example Calculation
Assume a project that has exactly one task. The task was baselined at 8 hours, but 11 hours have been spent and the estimate to complete is 1 additional hour. The task was to have been completed already. Assume an hourly rate of $100 per hour.

PV or BCWS = Hourly Rate * Total Hours Planned or Scheduled


Therefore, in this case, PV = $800 ($100 * 8 hours)

AC or ACWP = Hourly Rate * Total Hours Spent


In this case, AC = $1100 ($100 * 11 hours)

EV or BCWP = Baselined Cost * % Complete Actual


In this case, EV = $734 (baseline of $800 * 91.7% complete) (see % Complete Actual (below) to get the 91.7% )

BAC = Baselined Effort-hours * Hourly Rate


In this case, BAC = $800 (8 hours * $100)

EAC = AC + ETC
EAC = $1200 (1100 + 100)
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EVA Example (Continued)


VAC = BAC - EAC
VAC = -$400 ($800 - $1200)

% Completed Planned = PV / BAC


% Complete Planned = 100% ($800 PV / $800 BAC)

% Completed Actual = AC / EAC


% Complete Actual = 91.7% ($1100 AC / $1200 EAC)

SV = Earned Value (EV) - Planned Value (PV)


SV = -$100 ($700 EV - $800 PV)

SPI = Earned Value (EV) /Planned Value (PV)


SPI = 0.88 ($700 EV / $800 PV)

CV = Earned Value (EV) - Actual Cost (AC)


CV = -$400 ($700 EV - $1100 AC) indicating a cost overrun

CPI = Earned Value (EV) /Actual Cost (AC)


CPI = 0.64 ($700 EV / $1100 AC) indicating over budget
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