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Earned Value - What is it?

• Simply, it is a project monitoring and
measurement system that:
1. establishes a clear relationship between planned
accomplishments and actual accomplishments
2. reinforces and rewards good planning practices

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 Earned Value - What is it?
• Basic concepts of Earned Value Management
(EVM)
– Each task in a project earns value as planned work is
completed
• For example (perhaps), if you were paid on this basis, you
would earn $$ at key milestones based on the value of what
you have completed (earned value)
– Earned value can be compared to actual cost and
budgeted cost to determine variance and predict
future performance
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 Earned Value - What is it?
• The budgeted cost (e.g., dollars, person-hours,
person-days, etc.) in terms of your baseline
plan/budget of the work performed up to a specified
point in time
– Also known as Budgeted Cost of Work Performed (BCWP)
• Each task in the Work Breakdown Structure (WBS) is
assigned a BCWP based on its individual cost.
– Project BCWP is total of BCWP for all tasks required to
complete the project

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 Earned Value Components
• Planned Value (a.k.a. BCWS)
– How much work (person-hours) you planned to have
accomplished at a given point in time (this is from the WBS in
your plan)
• Actual Cost (a.k.a. ACWP)
– How much work (person-hours) you have actually spent at a
given point in time
• Earned Value (a.k.a. BCWP)
– The value (person-hours) in terms of your base budget of what
you have accomplished at a given point in time (or, %
complete X Planned Value)
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 Earned Value: Example
Today

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On Day X:
• PLANNED VALUE (Budgeted cost of the work scheduled, BCWS) =
18 + 10 + 16 + 6 = 50
• EARNED VALUE (Budgeted cost of the work performed, BCWP) =
18 + 8 + 14 + 0 = 40
• ACTUAL COST (of the work performed , ACWP) =
45 (from your project tracking - not evident in above chart)

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 Earned Value: Example
Actual Cost: what you Today
have actually spent to this
point in time.
Cost (Person-Hours)

Planned Value: what your

plan called for sending on the
tasks planned to be
completed by this date.

Earned Value: value (cost) of

what you have accomplished
to date, per the base plan.

Time (Date)

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 Earned Value: Example
Today

Over
Budget
Cost (Person-Hours)

Behind
Schedule

Time (Date)

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 Variance
• Any schedule or cost deviation from a specific
plan.
• Used within an organization to verify the
budget and schedule for a project
• Frequently used as a key component of plan
reviews and performance measurement

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 Variance
• Must compare scheduling and budget variance
at the same time
– Schedule variance: deviations from work planned –
not a measure of changes in cost
– Cost variance: deviations from the
budget – not a measure of work scheduled vs. work
completed
• Example: applying more $$/people to a task may maintain
the schedule, but it adds to cost… schedule on track… over
budget on expenses (cost)

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 Performance Indices
• Cost Performance Index
– CPI = BCWP/ACWP
• Schedule Performance Index
– SPI = BCWP/BCWS
• Analysis
– CPI > 1.0  exceptional performance
– CPI < 1.0  poor performance
– Similar for SPI

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Earned Value & Variance: Example
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On Day X:
• PLANNED VALUE (BCWS) = 18 + 10 + 16 + 6 = 50
• EARNED VALUE (BCWP) = 18 + 8 + 14 + 0 = 40
• ACTUAL COST (ACWP) = 45 (from your project tracking)
Therefore:
• Schedule Variance = BCWP – BCWS = 40 - 50 = -10 (behind schedule)
• Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan (a B-, at best)
• Cost Variance = BCWP - ACWP = 40 - 45 = -5
• Cost Performance Index = 40/45 = .89, or you’re getting an 89¢ return on every $1.00 (or,
person-hour) spent on this project
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 Primary Measurement Methods
• Measurable efforts
– Discrete increments of work with definable
schedule and tangible results (i.e., real tasks with
a deliverable)
• Level of effort
– Work that is not discernable in discrete,
measurable tasks (e.g., project management,
training)

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 Determining % Complete – When?
• Allocate based on time spent – but what if you spend
more time than allocated?
• Allocate 50% at start of task, 50% at end
– But only for small, discrete tasks
• Allocate 100% at start of task
• Allocate 100% at end of task Our approach
– Best solution if you keep tasks very small
• Allocate value at Critical Milestones
– Good solution when using with contract work
• Others?

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 Another Example Project
• Plans to spend $100K in each of first 4 weeks
(baseline budget, per documented plan)
• Actuals, at end of week 4 show: $325K spent
– BCWS = $400K ($100K x 4)
– ACWP = $325K
• What conclusions can you draw?
• Under budget?
• Is project on schedule?

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 Another Example Project
• Suppose BCWP is $300K
– How is this determined?
• What conclusions now?
– SV = BCWP – BCWS
– SV = $300k - $400K = -$100K
• Behind schedule, but what does the $100K in variance
really mean?
– CV = BCWP – ACWP = $300K - $325K
• Over budget by $25K

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 Earned Value Management
• How can you use this information?
– Careful analysis of variance and trends
– Resetting schedule or budget, when appropriate
• Variance Analysis Questions
– What is the problem causing the variance?
– What is the impact on time, cost and performance?
– What is the impact on other efforts, if any?
– What corrective action is planned or under way?
– What are the expected results of the corrective action?

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 Earned Value Management
• Extraordinary variance or alarming trends may be
cause for reset or cancellation of a project, but where
do you draw the line?
• How much variance to allow depends on a number of
factors:
– Life-cycle phase
– Length of life-cycle phase
– Length of project
– Type of estimate
– Accuracy of estimate

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 Summary
• Cost, in the form of Earned Value or BCWP,
can be used to analyze progress of a project
• Using Earned Value data to make critical
project decisions must be based on careful
analysis of data, variances and trends

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 Quiz
• If BCWP is 20 pm and ACWP is 15 pm, CPI:
a. .75
b. 1.33
c. 1.0
d. 0
• If BCWP is 27 pm BCWS is 25 pm, you are probably:
a. On schedule
b. Ahead of schedule
c. Behind schedule
d. None of the above

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 Quiz
• The EV measurement of work you planned to have
accomplished at a given point in time :
a. BCWP
b. ACSP
c. BCWS
d. ACWS
• True or False: At any point in time, the SPI tells you
exactly how far ahead or behind schedule you are
on your project.
a. TRUE
b. FALSE
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Given the following information for a one-year project,
answer the following questions. Assume you have actual
and earned value data at the end of the second month.
Recall that PV is the planned value, EV is the earned value,
AC is the actual cost, and BAC is the budget at completion.
PV = $23,000, EV = $20,000 , AC = $25,000 , BAC =
$120,000
a) What is the cost variance, schedule variance,
cost performance index (CPI), and schedule
performance index (SPI) for the project?
b) How is the project progressing? Is it ahead of
schedule or behind schedule? Is it under
budget or over budget?
c) Use the CPI to calculate the estimate at
completion (EAC) for this project.
d) Use the SPI to estimate how long it will take to
finish this project.