PMD 913

Project Progress and Cost Control

Module 4: Earned Value Management

Arab Academy for Science, Technology & Maritime Transport

Graduate School of Business
Prof. Hesham Bassioni
PhD, ME, MBA, PMP

April 2015
 Introduction

Earned Value Analysis (EVA) or Earned Value
Management (EVM) is a project management
technique for measuring project progress in an
objective manner.

EVM has the ability to combine measurements of
scope, schedule, and cost in a single integrated
system.

EVM provides an early warning system for project
performance.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4-2
 Scaling EVM to Fit Project
Situation

As project risk increases

in terms of its significance
and uncertainty, the rigor
of EVM also increases.

EVM rigor is scaled in

terms of frequency and
detail (granularity) to fit
the project risk

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4-3
 Earned Value Analysis Procedure

The EVA procedure includes evaluating the
following:
 Project Values/Data: Planned Value (PV), Earned Value
(EV), Actual Cost (AC) and Budget at Completion (BAC).
 Variances: Cost Variance (CV) and Schedule Variance (SV).
 Performance Indices: Cost Performance Index (CPI) and
Schedule Performance Index (SPI).
 Forecasting: Estimate Cost to Complete (ETC), Cost
Estimate at Completion (EAC), and Time Estimate at
Completion (EACT). Other useful forecasts are: Cost
Variance at Completion (VAC), and To Complete Cost
Performance Index (TCPI).

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4-4
 Planned Value

The Planned Value (PV) describes how far along the
project work is supposed to be at any given point in
time of the project.

A numeric reflection of the budgeted work that is
scheduled to be performed, and is therefore also
termed as Budgeted Cost of Work Scheduled
(BCWS).

Can be charted showing the cumulative resources /
costs budgeted over the project schedule – i.e. the
cost baseline.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4-5
 Earned Value

The Earned Value (EV) is a snapshot of work
progress at a given point over the project’s time.

Reflects the amount of work that has actually been
accomplished to date / at a given point in time,
expressed as the planned value of work.

Also termed as the Budgeted Cost of Work
Performed (BCWP).

Establishes a comparison basis holding the actual
work performed constant.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4-6
 Actual Cost

The Actual Cost (AC) is an indication of the actual

level of resources / costs that have been expended
to achieve the actual work performed to date / or at
a given point in time.

Also termed as the Actual Cost of Work Performed

(ACWP).

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4-7
 Variances

Cost Variance
 Shows whether the project is over or under budget.
 CV = EV – AC
 +ve value indicates under budget, -ve value indicates over
budget, and a neutral value indicates on budget.

Schedule Variance
 Shows whether the project is ahead or behind schedule. It
actually measures the work performed by the project in
terms of monies, and not exactly the schedule.
 SV = EV – PV
 +ve value indicates ahead of schedule, -ve value indicates
behind schedule, and a neutral value indicates on schedule.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4-8
 Performance Indices

Cost Performance Index
 Indicates how efficiently the project is using its resources.
 CPI = EV/AC
 A value >1 indicates good cost efficiency performance, and
a value <1 indicates bad cost efficiency performance.

Schedule Performance Index
 Indicates how efficiently the project is using its time.
 SPI = EV/PV
 A value >1 indicates good schedule efficiency performance,
and a value <1 indicates bad schedule efficiency
performance.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4-9
 Interpretation of Basic EVM
Measures

Performance Schedule
Measures SV>0 & SPI>1 SV=0 & SPI=1 SV<0 & SPI<1
Ahead of
CV>0 & Schedule
On Schedule Behind Schedule
CPI>1 Under Budget Under Budget
Under Budget
Ahead of
CV=0 & On Schedule Behind Schedule
Cost CPI=1
Schedule
On Budget On Budget
On Budget
Ahead of
CV<0 & Schedule
On Schedule Behind Schedule
CPI<1 Over Budget Over Budget
Over Budget

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 10
 Forecasting

Cost Forecasting
 Cost Estimate at Completion (EAC) projects the final cost
of the project.
 EAC = AC + ETC
 The Cost Estimate to Complete (ETC) can be calculated in
different methods, depending on the expected behavior of
cost in the remainder of the project.
 The most accurate measurement of ETC is by analyzing
the remaining work using recalculations of the original
cost estimate based on the updated data and forecasts
available to date (at the data date) – assumes atypical
performance to continue and termed as Management ETC.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 11
 Forecasting

Cost Forecasting
 Other methods of calculating ETC are based on manner
future performance is assumed to behave, as follows:
- Typical performance (past perf. expected to continue):
ETC = (BAC – EV) / CPI
- Future cost the same as last three periods (i, j, k):
ETC = (BAC – EV) / { (EVi + EVj + EVk) / (ACi + ACj + ACk) }
- Future cost influenced by past schedule performance:
ETC = (BAC – EV) / (CPI x SPI)
- Future cost influenced by both indices in some proportion:
ETC = (BAC – EV) / (0.8 CPI x 0.2 SPI)

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 12
 Forecasting

Cost Forecasting
 Variance at Completion (VAC) indicates whether the project is
expected to finish under or over budget:
VAC = BAC – EAC
 To Complete Cost Performance Index (TCPI) determines the
efficiency the project needs to achieve on the remaining work to
achieve a specified endpoint such as BAC:
TCPI = (BAC – EV) / (BAC – AC)

Schedule Forecasting
 Time Estimate at Completion (EACT) provides a rough estimate
when the project will be completed
EACT = Planned Project Duration / SPI
 EACT can provide differing results from schedule updating???

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 13
 Measuring Work Effort Progress

The following guidelines are recommended by the PMI Practice

Standard for Earned Value (2005) for the selection of Earned
Value Measurement Technique or Work Effort Progress
Measurement Method:

Duration of Work Effort

Product
of Work 1-2 Measurement >2 Measurement
Periods Periods
Weighted Milestone
Tangible Fixed Formula
Percent Complete
Level of Effort
Intangible
Apportioned Effort

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 14
 Example

Perform an EVA on the following project after 4 weeks, if
a typical week has 5 working days. Use the duration
method to calculate activity progress.
Activity Activity Description Dependency Planned Actual Actual Remaining Planned Actual Costs
Code Duration Start Finish Duration Costs (EGP) (EGP)
A Mobilization --- 3 0 3 0 1,400 1,500
B Surveying A 4 3 7 0 2,700 2,200
C Excavation B 3 7 12 0 3,500 4,000
D Formwork C 5 12 17 0 6,000 8,000
E Pour concrete D 5 17 --- 2 4,700 3,200
F Excavate trench D 10 15 --- 5 12,600 6,300
G Strip forms E 2 --- --- 2 2,100 ---
H Lay pipes F 15 --- --- 15 11,250 ---
I Inspection G, H 1 --- --- 1 750 ---
J Remove equipment H 2 --- --- 2 1,400 ---
K Backfill trench H 6 --- --- 6 3,600 ---
50,000 25,200

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 15
 EVM Performance Measures

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 16
 EVM and Project Management

Project Management Question EVM Performance Measure

How are we doing time-wise? Schedule Analysis & Forecasting
- Is the project ahead or behind schedule? - Schedule Variance (SV)
- How efficiently is the project using time? - Schedule Performance Index (SPI)
- When is work likely to be finished? - Time Estimate at Completion (EACT)

How are we doing cost-wise? Cost Analysis & Forecasting

- Is the project under or over budget? - Cost Variance (CV)
- How efficiently are resources being used? - Cost Performance Index (CPI)

- What will the remaining work cost? - Estimate to Complete (ETC)

- What is the likely cost of the project? - Estimate at Completion (EAC)

- Will the project be under or over budget? - Variance at Completion (VAC)

- How efficiently must the remaining
- To Complete Performance Index (TCPI)
resources be used?

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 17
 Monitoring Performance

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 18
 Management By Exception

EVM supports practicing “Management by Exception”
on projects.

This can greatly contribute to the efficiency and
effectiveness of project management.

Management by exception allows the project team
to focus on project execution and invoke control
actions when and where they are needed.

Performance thresholds or limits can be established
in EVM to support management by exception, such
as considering a CV of ± 10% or CPI to be 1 ± 0.1
to be acceptable.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 19
 Management By Exception

EVM starts at lower levels of the WBS, where
management by exception can also start.

Trends can be useful and complement thresholds to
predict potential performance problems, such as
using CV percentage or CPI over time.

When performance problems are found or
anticipated at the project level EVM, managers can
“drill down” to the lower levels to investigate what
lies behind the problem.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 20
 Time-Based Schedule Measures

SV and SPI do not actually represent schedule
performance, but more represent scope
performance in terms of the work accomplished
represented by monies.

Problems using SV and SPI !!!

Time-based schedule measures can be used to give
more accurate schedule results

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 21
 Use of Key EVM Practices

EVM practices are interdependent and can be
implemented in two basic steps:
1. Establishing the Performance Measurement Baseline.
• Decompose work scope to manageable level – where EVM
will start its implementation.
• Assign clear management responsibilities – WBS tied to the
OBS to set control account responsibility.
• Selection of a suitable progress measurement technique for
each task – Objective measurement favored over subjective,
task durations to be within measurement period.
• Develop time-based budget for project – setting the
performance measurement baseline in terms of the PV.
• Maintain integrity of baseline throughout the project –
baseline has to be realistic and durable.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 22
 Use of Key EVM Practices
2. Measuring and Analyzing Performance against the Baseline.
• Record resource usage and actual data – rigor level of EVM
depends on the level cost is measured, and other common
denominators can be used such as labor hours or material
quantities.
• Objective measurement of physical work progress, as
possible.
• Credit earned value according to progress measurement
method.
• Analyze and forecast cost and schedule performance –
regularity and intensity of analysis consistent with project
management needs and project risk, use of management by
exception and performance thresholds.
• Reporting of performance problems and corrective /
preventive actions – review and coordination meetings.

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 23
 Project Control in Practice

Some of the issues that could be encountered when
applying project control in practice are:
 Resistance to change
 Reporting labor hours
 Gathering project information
 Cost accounting system
 Maintaining project baselines
 Project coordination meetings
 Process management

PMD 913 Project Progress & Cost Control

Prof. Hesham Bassioni
Module 4: Earned Value Management 4 - 24