Why Earned Value?

You are halfway through a project and you know how much work is finished and how
much money you spend. How do you know whether you have completed the work which
was supposed to be done for the money you spend? Earned value calculations will
provide you the necessary tools for these.

Let me explain this with a simple example.

You are in the third week of a 5 week project. You were planning to spend $100 per
week. Each week you were planning to complete 20% work. At the end of 3rd week, you
found that only 40% of the work is completed and you have spent $400.
Now let us look at the earned value terms.
Your Planned Value (PV) = $300 (3 weeks $100 each)
Your Actual Cost (AC) = $400 (You know how much money you spent)
Your Earned Value = Budgeted Cost of Work Performed. In this case your budgeted cost
for completing 40% of the work was $200.
So your Earned Value (EV) = $200.

Now let us look at the Schedule Variance, Cost Variance, Cost Performance Index and
Schedule Performance Index.
Schedule Variance (SV) = EV-PV = 200 - 300 = -100
Cost Variance (CV) = EV-AC = 200 - 400 = -200
Schedule Performance Index = EV/PV = 200/300 = 0.67
Cost Performance Index = EV/AC = 200/400 = 0.5
-ve SV indicates schedule overrun and -ve CV indicates Overspend.
Similarly SPI less than 1 indicates schedule overrun and CPI less than 1 indicates Cost
overrun.
Posted by ANN at 2:33 AM 0 comments

Monday, December 31, 2007

Earned Value Analysis :Cost Variance

Earned Value Analysis is a Cost Control Tool/Technique. For a project manager Earned
Value gives an idea on what you have achieved for the amount of money you spent. The
main calculations in EV techniques are

1. Cost Variance : Compares Cost with budget

Cost Variance = Earned Value - Actual Cost

CV = EV - AC

If your Earned Value = 1000 and your Actual Cost is 900, your Cost Variance is 100. In
this case CV is a positive number and you are running with in the budget or spending less
than what you have budgeted. Instead of 900, if your actual cost is 1100, your Cost
Variance is -100. In this case you have to be careful and check your spending against
plan.