Lecture 13

EARNED VALUE MANAGEMENT

Instructor
Hamza Ejaz
 Learning Objectives
• Variance analysis
• Principles of performance analysis based on
earned value
• Forecasting
• Cost Reporting
• Budgeting for transcontinental projects

2
Which Factor do you use for
Performance measurement?

Time

Cost

Progress
 Terminologies
Stands for Old Terminology

BAC Budget At Completion -

PV Planned Value Budgeted Cost of Work

Schedule (BCWS)
AC Actual Cost Actual Cost of Work
(cash already spent) Performed (ACWP)
EV Earned Value Budgeted Cost of Work
Performed (BCWP)
 An EXAMPLE
Project = 10 rooms
Duration = 10 months
Budget = Rs.1,000,000

Assumptions:
1. Each room will be completed one
by one.
2. Each room will cost Rs.100,000.
3. Each room will take 1 month to
complete.
Suppose five months have passed. The team has spent Rs.600,000 and only 4
rooms have been completed.

• What is the PV?

500,000
• What is AC?
600,000
• What is the EV?
400,000

What is the health of this project????

PERFORMANCE MEASUREMENT
VARIANCES
SV = EV - PV
(Schedule Variance) (Earned Value) (Planned Value)

= 400,000-500,000 = -100,000
CV = EV - AC
(Cost Variance) (Earned Value) (Actual Cost)

= 400,000-600,000 = -200,000
-ve is bad
0 is according to plan
+ve is better than planned
 PERFORMANCE
MEASUREMENT INDEX
• Schedule performance Index
<1 is behind schedule
SPI = EV / PV =1 is according to plan
>1 is ahead of schedule
=400,000/500,000 = 0.8

• Cost Performance Index

CPI = EV / AC <1 is over budget
=1 is according to plan
>1 is under budget
=400,000/600,000 = 0.66
 FORECAST
EAC = AC + ETC (estimate to complete)

 Where:
 EAC = Estimate at completion (expected total cost of
completing a project)
 ETC = estimate to complete (Estimate cost of completing the
remaining work OR cash required to complete remaining work)
 Methods to calculate ETC

CONDITIONS WERE BAD BUT NOW UNDER CONTROL

ETC = BAC – EV (work remaining)
ETC = 1,000,000 -400,000
ETC = 600,000
EAC = AC +ETC = 1,200,000

Atypical (past problems were an anomaly, now they are resolved)

 Methods to calculate ETC
CONDITIONS WILL REMAIN THE SAME using CPI only

•ETC = (BAC – EV)/CPI Typical (Past

•ETC = 600,000/0.66 problems are a
•ETC = 900,000 reality and they will
•EAC = AC +ETC = 1,500,000 remain)
shortcut
•EAC = BAC/CPI = 1,500,000 (Approx)

CONDITIONS WILL REMAIN THE SAME using CPI & SPI

ETC = (BAC – EV)/(CPI *SPI)
ETC = 600,000/(0.66 * 0.8)
ETC = 1,136,363.63
EAC = AC +ETC = 1,736,363.63
 Variance at
Completion
VAC= BAC-EAC

EXAMPLE

Typical VAC = 1,000,000-1,500,000 = -500,000

Atypical VAC = 1,000,000-1,200,000=-200,000

 Suppose the Sponsor is not willing to pay more

Do the remaining job with the remaining funds

Remaining Job = BAC – EV
Remaining Funds = BAC - AC

Improve your performance from CPI=0.66 to better

TO COMPLETE PERFORMANCE INDEX

TCPI = (BAC –EV) / (BAC – AC)
=600,000/ 400,000 =1.5
Earned Value Analysis (Cheat Sheet)
Budgeting for Transcontinental Projects

• International Laws
• Local Tax Laws
• Customs Authorities & Regulations
• Transfer Pricing
• Currency Management
 Transfer Pricing
Transfer pricing is the setting of the price for
goods and services sold between controlled (or
related) legal entities within an enterprise. For
example, if a subsidiary company sells goods to
a parent company, the cost of those goods paid
by the parent to the subsidiary is the transfer
price.
Questions?
 Practice Question
SUPARCO has initiated a Project for the Calculate the following:
construction of a Weather Satellite consisting of 1. Schedule & Cost Variance
20 individual modules for weather and 2. EAC (Typical & Atypical –
topographic surveys & monitoring. Each using CPI only)
module cost is estimated at PKR 200,000 with a 3. TCPI
project duration of 20 months with one module
targeted to completed within 01 month. At the
end of 15 months, only 12 modules have been
completed at a cost of 3 million.
SV= EV-PV
CV=EV-AC
SPI=EV/PV
CPI=EV/AC
EAC= AC+ETC
ETC= (BAC-EV) or (BAC-EV)/CPI
TCPI = (BAC-EV)/(BAC-AC)
 Answers
• BAC = $ 4000,000
• PV = $ 3000,000
• AC = $ 300,000
• EV = $ 2,400,000
• SV = $ 2,400,000 – $ 3,000,000 = ($ 600,000)
• CV = $ 2,400,000 - $ 3,000,000 = ($ 600,000)
• CPI = $ 2,400,000/ $ 3,000,000 = 0.8

• ATYPICAL EAC = $ 4,600,000

• TYPICAL EAC = $ 5,000,000
• TCPI = 1.6
 Practice Question 2
The total budgeted cost of your project is $150,000 and to date
you have spent $110,000. You do an Earned Value Analysis and
find that the CPI & SPI as of now are 0.909 & 0.8, respectively,
and the earned value is $ 100,000.
1. What would be your forecast for total project cost at this
stage if variances were typical? Estimate at Completion?
2. What would be your forecast for total project costs at this
stage if variance were atypical? Estimate at Completion?
 Answers
1. TYPICAL EAC = $ 165,000
2. ATYPICAL EAC = $ 160,000
 Practice Question 3
Halfway through a project, you calculate that the Actual Cost of Work
Performed to date as $ 25,000. The budgeted cost of work performed is $
20,000, and the budget at completion is $ 40,000. If you expect future
variances to be similar to the current variances, what would be the Estimate
at Completion?
 Answers
EAC = $ 50,000
 Practice Question 4
You are managing an eight-month project for one of your high-
profile clients. The project has a budget of $ 800,000, specifically
$ 100,000 per month. At the end of the third month, you are
30% complete and have expended $ 200,000 of your budget.
What is your CV?
 Answers
CV = $ 40,000
 Practice Question 5
You are managing a project to construct a building for your
client. The planned project schedule is 2 years, and the total
budget for the project is $10,000,000. At the end of eight
months, you find that the Cost Performance is 0.87. What is the
revised estimate?
 Answers
EAC = $ 11,494,252.87