Project Control – Earned

Value Management
 Earned Value Management is a methodology
used to measure and communicate the real
physical progress of a project taking into
account the work complete, the time taken and
the costs incurred to complete that work.

Earned Value helps evaluate and control

project risk by measuring project progress
in monetary terms.

Jan 2011 Project Control - Earned Value Management System, Slide 2 of 37

By Prof. Nadpurohit
 By taking a snapshot of the project and
calculating the Earned Value metrics we can
compare the planned with the actual and make
a subjective assessment of the project
progress.

By extrapolating the curves and further

calculation we can also estimate the costs to
project completion and the probable
completion date.

Jan 2011 Project Control - Earned Value Management System, Slide 3 of 37

By Prof. Nadpurohit
 Steps in Setting up an Earned
value Management system
• Define the scope of the works.
• Set up a Work Breakdown Structure (WBS).
• Develop a Project Master Schedule showing
when every Work Package will be carried out.
• Allocate budget costs to each Work Package
(the lowest level of WBS).
• Establish a practical way of measuring the
actual work completed.
• Set, in concrete, the performance
measurement baseline.
Jan 2011 Project Control - Earned Value Management System, Slide 4 of 37
By Prof. Nadpurohit
Jan 2011 Project Control - Earned Value Management System, Slide 5 of 37
By Prof. Nadpurohit
Budgeted Cost for Work Scheduled (BCWS) –
the budgets for all activities planned to be
completed.

The BCWS curve is derived from the Work

Breakdown Structure, the project budget and the
Project Master Schedule. The cost of each Work
Package is calculated and the cumulative cost of
completed Works Packages is shown based on the
planned completion dates shown in the Master
Schedule.

Jan 2011 Project Control - Earned Value Management System, Slide 6 of 37

By Prof. Nadpurohit
Actual Cost of Work Performed (ACWP) –
the real costs of the work charged against the
completed activities.

The ACWP curve is found by actual measurement

of the work completed. Actual costs recorded from
invoices and workmen's time sheets. This appears
a daunting task but it can be very simple with
sufficient planning and organizing.

Jan 2011 Project Control - Earned Value Management System, Slide 7 of 37

By Prof. Nadpurohit
Budgeted Cost of Work Performed (BCWP) –
the planned costs of the work allocated to the
completed activities. This is the Earned Value.

The BCWP is calculated from the measured work

complete and the budgeted costs for that work.
Earned Value = Percentage project complete X
Project Budget

Jan 2011 Project Control - Earned Value Management System, Slide 8 of 37

By Prof. Nadpurohit
 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

Jan 2011 Project Control - Earned Value Management System, Slide 9 of 37

By Prof. Nadpurohit
 Schedule Variance (SV)
• Indicates the deviation between the work
content performed and the work content
scheduled for the control period

Jan 2011 Project Control - Earned Value Management System, Slide 10 of 37

By Prof. Nadpurohit
 Cost Variance (CV)
• A positive CV indicates a lower actual cost
than budgeted for the control period, while
a negative CV indicates a cost overrun

Jan 2011 Project Control - Earned Value Management System, Slide 11 of 37

By Prof. Nadpurohit
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 CPI < 1 is not good

Jan 2011 Project Control - Earned Value Management System, Slide 12 of 37

By Prof. Nadpurohit
 Schedule Performance Index
(SPI)
• Defined as the ratio BCWP/BCWS
• A value close to 1 indicates an activity
that is on schedule
• Values greater than 1 suggest the
activity is ahead of schedule
• Values less than 1 indicate a schedule
overrun

Jan 2011 Project Control - Earned Value Management System, Slide 13 of 37

By Prof. Nadpurohit
 Cost Performance Index (CPI)
• Defined as the ratio BCWP/ACWP
• A value close to 1 indicates an activity
that is on budget
• Values greater than 1 suggest the
activity is below budget
• Values less than 1 indicate a budget
overrun

Jan 2011 Project Control - Earned Value Management System, Slide 14 of 37

By Prof. Nadpurohit
 Rules of Thumb for EVA
Numbers
• Negative numbers for cost and schedule
variance indicate problems in those areas.
The project is costing more than planned
or taking longer than planned
• CPI and SPI less than 1 indicate problems

Jan 2011 Project Control - Earned Value Management System, Slide 15 of 37

By Prof. Nadpurohit
 Two Additional Formulas
• What will be the final cost of the project if status
quo is maintained?
➢ Estimated cost at completion (EAC)
➢ EAC = the original cost estimate for the project, called the
Budget-at-Completion (BAC), divided by the Cost Performance
Index
EAC = (BAC / CPI)

• What is the estimated time to complete the

project if status quo is maintained?
➢ Estimated time to completion (ETC)
➢ ETC = the original time estimate for the project divided by
Schedule performance index (SPI)
ETC = (original time estimate / SPI)
Jan 2011 Project Control - Earned Value Management System, Slide 16 of 37
By Prof. Nadpurohit
 Critical Ratio
•(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.

Jan 2011 Project Control - Earned Value Management System, Slide 17 of 37

By Prof. Nadpurohit
 Uses of Earned value
• 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.

Jan 2011 Project Control - Earned Value Management System, Slide 18 of 37

By Prof. Nadpurohit
 Table 6-7. Earned Value Formulas

Term Formula
Earned Value Budgeted Cost of Work Performed (BCWP) =
budgeted cost of task X % complete
Cost Variance CV=BCWP-ACWP (actual cost of work performed)
Schedule Variance SV=BCWP-BCWS (budgeted cost of work
scheduled)
Cost Performance Index CPI=BCWP/ACWP
Schedule Performance Index SPI = BCWP/BCWS

Jan 2011 Project Control - Earned Value Management System, Slide 19 of 17

By Prof. Nadpurohit
 Table 6-6. Earned Value Calculations
for One Activity After Week One

Activity Week 1 Week 2 Total % Complete EarnedValue

after Week 1 after Week 1
(BCWP)
Purchase web server 10,000 0 10,000 75% 7,500
Weekly Plan (BCWS) 10,000 0 10,000
Weekly Actual (ACWP) 15,000 5,000 20,000
Cost Variance (CV) -7,500
Schedule Variance (SV) -2,500
Cost Performance 50%
Index (CPI)
Schedule Performance 75%
Index (SPI)

Jan 2011 Project Control - Earned Value Management System, Slide 20 of 17

By Prof. Nadpurohit
 Figure 6-2. Earned Value Calculations for a
One-Year Project After Five Months

Jan 2011 Project Control - Earned Value Management System, Slide 21 of 17

By Prof. Nadpurohit
 In the Figure above
• Budget at Completion = BAC = original budget at
the planned completion date
• Time at Completion = TAC = original completion
time
• In the figure above, `100,000 in month 12
• Estimate at completion = EAC = BAC/CPI
• Estimate at completion = `100,000/.83 =
`120,455
• Estimated time to complete = ETAC = TAC/SPI
• Estimated time to complete = 12/.96 = 12.55
mos.
Jan 2011 Project Control - Earned Value Management System, Slide 22 of 37
By Prof. Nadpurohit
 Updating cost estimates
• BAC = Budget at completion = total budget
of the project activities based on the
original project plan
• Assuming the original budget (the BAC)
was `200,000 and the CPI is 1.12, what is
EAC?
• EAC = BAC / CPI = `200,000 / 1.12
• `178,571
Jan 2011 Project Control - Earned Value Management System, Slide 23 of 37
By Prof. Nadpurohit
 Updating schedule estimates
• TAC = Time at completion = total time
required to complete the schedule
• ETAC = Estimated (revised) time to
complete
• Assuming the TAC was 12 months what is
the ETAC?
• ETAC = TAC / SPI = 12 / .77
• 15.6 months
• Project will be delayed almost 4 months
Jan 2011 Project Control - Earned Value Management System, Slide 24 of 37
By Prof. Nadpurohit
 Updating, Cont’d
• WR = Work Remaining = budgeted cost of
the work not yet accomplished by the end
of the reporting period
• WR = BAC - BCWP
• ETC = updated estimate of the cost of
work remaining = COST(WR)
• EAC = updated estimate of the total
project cost = ACWP + ETC

Jan 2011 Project Control - Earned Value Management System, Slide 25 of 37

By Prof. Nadpurohit
 Figure 6-3. Earned Value Chart
for Project After Five Months
EAC
100,000 BAC

90,000

80,000

70,000

60,000 BCWS
50,000
$

ACWP
40,000

30,000
BWCP
20,000

10,000

-
1 2 3 4 5 6 7 8 9 10 11 12
Month

BCWS or Cumulative Plan ACWP or Cumulative Actual BCWP or Cumulative EV

Jan 2011 Project Control - Earned Value Management System, Slide 26 of 17

By Prof. Nadpurohit
Using Software to Assist in Cost
Management
• Spreadsheets are a common tool for
resource planning, cost estimating, cost
budgeting, and cost control
• Many companies use more sophisticated
and centralized financial applications
software for cost information
• Project management software has many
cost-related features

Jan 2011 Project Control - Earned Value Management System, Slide 27 of 37

By Prof. Nadpurohit
 Using MS Project for Execution
& Control
• First, make certain your project plan is
complete and final
• Second, save it as a baseline
• Begin entering actual information
– Actual costs
– Percentage complete

Jan 2011 Project Control - Earned Value Management System, Slide 28 of 37

By Prof. Nadpurohit
 Tracking: MS Project will
track—
• Task start dates
• Task finish dates
• Task duration
• Task cost work
• Percentage of task that is complete

Jan 2011 Project Control - Earned Value Management System, Slide 29 of 37

By Prof. Nadpurohit
 Getting Earned Value Data
Visible
• You can go to view and replace the entry
table with the Earned Value table
• Or, you can enter the earned value
columns into your existing table through
the Insert Column facility.
– The columns are BCWP, BCWS, ACWP, CV,
SC, SPI, CPI, etc.
You can also request the Tracking Gantt Chart
off the LHS side of MS Project

Jan 2011 Project Control - Earned Value Management System, Slide 30 of 37

By Prof. Nadpurohit
 Entering actual start & Finish
dates for a task
• On the view bar, click Gantt chart
• In the task name field select the task to
update
• On the Tools menu, point to tracking and
click Update Tasks
• Under Actual, type the dates in the Start
and Finish boxes

Jan 2011 Project Control - Earned Value Management System, Slide 31 of 37

By Prof. Nadpurohit
Indicating progress on a task as
a percentage
• In the task name field of the Gantt Chart
• Double click—this brings up the task
information sheet
• Select the general tab
• In the percentage complete box type a
whole number between 0 and 100

Jan 2011 Project Control - Earned Value Management System, Slide 32 of 37

By Prof. Nadpurohit
 Entering actual costs for a
resource assignment
• On the Tools menu, click options, then click the
calculation tab
• Clear the Actual costs are always calculated by
MS Project check box
• Click OK
• On the view bar, click Task usage
• On the view menu, point to the Table, and click
Tracking
• Drag the divider bar to the right to view the Activity
Cost field
• In the activity cost field, type the actual cost for the
assignment for
Jan 2011
which you want to update costs
Project Control - Earned Value Management System, Slide 33 of 37
By Prof. Nadpurohit
 a) Define “earned value”. Explain how the variances and indices used in ‘earned
value analysis’ are effective for project control.

b) The following information is available at end of day 40 of a new plant erection

project. Determine if the project is under control based on Earned Value
evaluation system, and if not, what is the likely extent of cost and time over-runs
at completion.

Activity Immediate Duration Total Budget Actual cost Actual %

Predecessors for activity Till Date Completion
Rs. ‘000 Rs. ‘000 Till date
A - 10 300 250 100
B A 8 400 450 100
C A 12 350 380 100
D C 0 0 0 0
E B, D 18 405 400 70
F E 16 450 -- 0

Jan 2011 Project Control - Earned Value Management System, Slide 34 of 37

By Prof. Nadpurohit
 a) The progress observed at the end of the Seventh day from the beginning on a 12 day
duration project is as given in the following table. The actual cost incurred till date is
reported to be Rs. 3,100.
Draw a Gantt chart for the project and find the project performance on the basis of Cost
and Schedule Performance Indices.
(Assume the activity costs are incurred uniformly over its duration.)

ACTIVITY IMMEDIATE ESTIMATED BUDGETED ACTUAL

PREDECESSORS DURATION COST OF % COMPLETION
IN DAYS ACTIVITY AT END OF DAY 7
A - 3 600 100 %
B - 1 200 100 %
C A 4 800 75 %
D B 4 700 100 %
E B 5 500 95 %
F D 2 200 80 %
G E 3 500 50 %
H C 4 400 0%
I F 2 600 0%
J G 3 300 0%
Jan 2011 Project Control - Earned Value Management System, Slide 35 of 37
By Prof. Nadpurohit
 a) A project comprising of 10 activities with total expected duration of 35 weeks was reviewed
on completion of 20 weeks after start. The physical progress of various activities as assessed
and actual costs incurred till date are compared with expected progress and budgeted figures
as under:
ACTIVITY % COMPLETION COST IN RS. LACS
SCHEDULED ACTUAL BUDGETED TOTAL ACTUAL TILL DATE
1 100 100 10.0 12.0
2 100 100 12.0 12.5
3 70 60 18.0 12.0
4 55 50 25.0 13.0
5 30 25 20.0 6.0
6 10 0 15.0 0.0
7 0 0 10.0 0.0
8 0 0 8.5 0.0
9 0 0 6.5 0.0
10 0 0 5.0 0.0
TOTAL 130.0 55.5

If the costs are incurred linearly in proportion to activity completion, find out the
I)Budgeted Cost of Work Scheduled (BCWS)
II)Budgeted Cost of Work Performed (BCWP)
III)Cost Variance
IV)Cost Performance Index (CPI)
Schedule Performance Index (SPI)
Jan 2011 Project Control - Earned Value Management System, Slide 36 of 37
By Prof. Nadpurohit
Jan 2011 Project Control - Earned Value Management System, Slide 37 of 37
By Prof. Nadpurohit
 Why Earned Value Analysis??
• You can’t tell what your true cost variance
is because you don’t know where you are
relative to schedule
– Suppose you are behind schedule but also
you have spent less than what the schedule
has called for. Are you really under budget?

Jan 2011 Project Control - Earned Value Management System, Slide 38 of 37

By Prof. Nadpurohit
 Cost Control
• Project cost control includes
– monitoring cost performance
– ensuring that only appropriate project
changes are included in a revised cost
baseline
– informing project stakeholders of authorized
changes to the project that will affect costs
• Earned value analysis is an important tool
for cost control
Jan 2011 Project Control - Earned Value Management System, Slide 39 of 37
By Prof. Nadpurohit