assignment eh2720

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assignment eh2720

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Background

The Earned Value Management (EVM) is a method that enables forecasting a project outcome

and it is based on how a project has already progressed up to a certain point. It is performed and

updated by the project manager and used as a decision support by both the project manager and

the project sponsor.

In order to make it easier to use the method, one should already in the planning session divide

planned activities (Planned Value in EVM) over the calendar depending on the update frequency.

If you plan to update every week, distribute over weeks. If you plan to update monthly, distribute

over months.

Prerequisites

The information that is required to perform the EVM method is available in your project plan

(A1):

- The list of activities (e.g. lectures, interview with PM, etc.).

- The planned cost for the activities (project budget) distributed over time

Method

The EVM method is summarized in the following steps:

1. Construct the EVM table with the required information (i.e. Planned Value (PV), Actual

Cost (AC), Earned Value (EV)) with respect to the activities (e.g. lectures, interview with

PM, etc.) and the update frequency (e.g. weeks). Then:

a. Input the PV according to the project budget, i.e. distribute the cost for the activities

during the project lifetime.

b. Quantify the Budget At Completion (BAC).

2. Update the EVM table (i.e. AC, EV) with the up to date information on the performed

activities. Hint: If the activity is completed set the EV according to PV. If not, estimate the value you

earned this far to an appropriate level under PV e.g. 50% of PV.

3. Calculate the Estimate at completion (EAC).

4. Plot the AC and EV up to the current point in time and the PV for the entire project

lifetime. Additionally, include the EAC at project end.

The terms and formulas can be found at the end of the document.

For further info see the following example.

EH2720/EH2070

2018-08-31

© Department of Network and Systems Engineering

KTH p. 2 (4)

EVM example

Assume that you are appointed as a project manager and you and your team are requested to

implement a project. This project has three activities: Activity A (e.g. attend lecture #1), activity B

(e.g. contact a project manager) and activity C (e.g. write an article). Before the project begins, you

estimate that each activity will take 100 hours to complete and that cost per hour is SEK 300. The

total cost can therefore be calculated at SEK 300 * 100 h = SEK 30K per activity. The total

project budget is SEK 90K. Prior to project start, the project can be summarized according to

Table 1.

nn/nn/nn : Planned Value (PV)/Earned Value (EV)/Actual Cost (AC) nn/nn/nn : Planned Value (PV)/Earned Value (EV)/Actual Cost (AC)

Activity Activity

A not started (e.g. attend lecture #1) 30/0/0 A Ready (e.g. attend lecture #1) 30/30/30

B not started (e.g. contact a PM) 30/0/0 B not started (e.g. contact a PM) 30/0/0

C not started (e.g. write an article) 30/0/0 C not started (e.g. write an article) 30/0/0

Week 1 Week 2 Week 3 Week 1 Week 2 Week 3

Planned Value (PV) 30 30 30 Planned Value (PV) 30 30 30

Accumulated PV Accumulated PV 30

Earned Value (EV) Earned Value (EV) 30

Accumulated EV Accumulated EV 30

Actual Cost (AC) Actual Cost (AC) 30

Accumulated AC Accumulated AC 30

Timeline Timeline

When the project begins, everything goes according to plan. Activity A is completed after 100

hours of work, which corresponds to a cost of SEK 30K. The project can now be represented

according to Table 2.

However, problems arise with Activity B. By the time the week 2 draws to a close, a total of SEK

47K has been spent. The value of the completed work is still SEK 30K. Activity B was essentially

completed in time, but at greater expense and effort. See Table 3.

Activity

A Ready (e.g. attend lecture #1) 30/30/30

B Ready (e.g. contact a PM) 30/30/47

C not started (e.g. write an article) 30/0/0

Week 1 Week 2 Week 3

Planned Value (PV) 30 30 30

Accumulated PV 30 60

Earned Value (EV) 30 30

Accumulated EV 30 60

Actual Cost (AC) 30 47

Accumulated AC 30 77

Timeline

EH2720/EH2070

2018-08-31

© Department of Network and Systems Engineering

KTH p. 3 (4)

Now your supervisor, who owns the project, is wondering how the project is going and what cost

you estimate the entire project will amount to when complete. One way to produce an estimate

of the end results is to apply Earned Value Management. This utilizes data from previously

demonstrated trends to calculate a forecast for the future. A few important terms and formulas

that can be used are presented below.

Calculations

Assume now that we are going to try to make an estimate of the final cost for the project using

Earned Value Management.

The budgeted cost for the entire project is SEK 90K (BAC).

The actual cost up to this point in the project is SEK 30K + 47K = SEK 77K.

The earned value of the completed work is SEK 30K + 30K = SEK 60K.

The formula EAC = BAC / CPI together with CPI = EV / AC means that EAC = BAC * AC /

EV, and therefore EAC = SEK 90K * SEK 77K / SEK 60K = SEK 116K.

By using Earned Value Management, we can therefore estimate that the project will have a cost

overrun of SEK 26K if current trends continue.

Activity Prognosis

A Ready (e.g. attend lecture #1) 30/30/30

B Ready (e.g. contact a PM) 30/30/47

C not started (e.g. write an article) 30/30/39

Week 1 Week 2 Week 3

Planned Value (PV) 30 30 30

Accumulated PV 30 60 90

Earned Value (EV) 30 30 30

Accumulated EV 30 60 90

Actual Cost (AC) 30 47 39

Accumulated AC 30 77 116

Timeline

Table 4. Forecast for how the project will progress during Week 3, based on the results of Week 1

and Week 2.

Note that this example is simplified, and that is it important to point out that ALL activities must

be tracked with routine follow-up reviews at discrete points in time, such as once per time

resolution (e.g. week). It is at these times that estimates are made and trends are studied. It is the

trends that are the essential points, not the individual measurements. A single measurement does

not reveal a trend. Earned Value Management is most appropriate when a project with multiple

activities is reviewed through routine follow-up.

EH2720/EH2070

2018-08-31

© Department of Network and Systems Engineering

KTH p. 4 (4)

EVM Graph

Cost EVM

140

116

100

90

80 77 PV

60 60 EV

AC

40

30

20

0

Week 1 Week 2 Week 3 Time

- Earned Value (EV). The budgeted cost for the completed work.

- Actual Cost (AC) What the completed work during this period actually cost.

- Planned Value (PV) Budgeted cost for planned work at a certain time.

- Budget At Completion (BAC) The total project budget for the entire project.

- Cost Performance Index (CPI = EV / AC) Cost effectiveness.

- Estimate at completion (EAC = BAC / CPI).

More information

www.wikipedia.org Excellent and comprehensive introduction to the term Earned Value.

www.apm.org.UK Association for Project Management has an Earned Value

Management interest group. Several interesting presentations are

available for download here:

www.evm.nasa.gov NASA describes its way of working with Earned Value Management.

EH2720/EH2070

2018-08-31

© Department of Network and Systems Engineering

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