Calculate Schedule and Cost

Variances with Earned Value Analysis

© Dale R. Geiger 2011 1

How Can We Better Manage Large,
Complex, Non Repetitive Projects?

© Dale R. Geiger 2011 2

 Terminal Learning Objective
• Task: Calculate Schedule and Cost Variances with
Earned Value Analysis
• Condition: You are training to become an ACE with
access to ICAM course handouts, readings, and
spreadsheet tools and awareness of Operational
Environment (OE)/Contemporary Operational
Environment (COE) variables and actors.
• Standard: with at least 80% accuracy:
• Describe theory of Earned Value Analysis
• Explain the concept of schedule and cost variances in
context of Earned Value Analysis
• Prepare AAR reconciliation using Earned Value Analysis

© Dale R. Geiger 2011 3

 Introduction
• In subsequent lessons we will be dealing with
• Organization based control
• Role based control
• Output based control
• Here we would like to start with a simpler
concept
• Project management and control
• The question is “how can we perform better in
completing tasks or projects?”
© Dale R. Geiger 2011 4
 Definition of Project
• Projects are
• Discrete tasks rather than continuous operations
• Often one-time or infrequent rather than repeated
• Frequently complex, ambiguous, or pioneering
• Tasks that require a significant length of time

© Dale R. Geiger 2011 5

 Risk
• The nature of projects results in a high degree
of risk
• There are two types of risk:
• Risk that the project will not be completed in the
timeframe expected: schedule variance
• Risk that the project will not be completed within
the budget allotted: cost variance

© Dale R. Geiger 2011 6

Consider the Possibilities at any Given
Point During the Project

schedule
Possibilities Matrix
Ahead Of Right On Behind

More than Expected

cost As Expected Perfect
Less than Expected
• Being right on schedule and at the expected cost is
perfect (but rarely happens)

© Dale R. Geiger 2011 7

Consider the Possibilities at any Given
Point During the Project

schedule
Possibilities Matrix
Ahead Of Right On Behind

More than Expected

cost As Expected Great!
Less than Expected Terrific!! Great!

• Being ahead of or on schedule and at or less than

expected cost is a good thing

© Dale R. Geiger 2011 8

Consider the Possibilities at any Given
Point During the Project

schedule
Possibilities Matrix
Ahead Of Right On Behind

More than Expected Not Good! Terrible!!

cost As Expected Not Good!
Less than Expected

• Being behind or on schedule and at or more than

expected cost is not a good thing

© Dale R. Geiger 2011 9

Consider the Possibilities at any Given
Point During the Project

schedule
Possibilities Matrix
Ahead Of Right On Behind

More than Expected ??

cost As Expected
Less than Expected ??

• Can’t really tell if this is good news or bad without

further analysis

© Dale R. Geiger 2011 10

Consider the Possibilities at any Given
Point During the Project

schedule
Possibilities Matrix
Ahead Of Right On Behind

More than Expected ?? Not Good! Terrible!!

cost As Expected Great! Perfect Not Good!
Less than Expected Terrific!! Great! ??

© Dale R. Geiger 2011 11

 Earned Value Analysis
• Earned value management (EVM) provides an
common set of metrics for measuring both
• Schedule variance and
• Cost Variance
• EVM combined with AAR offers a template for
cost management and control of projects

© Dale R. Geiger 2011 12

 Earned Value Analysis
• There are many resources available for more
in depth study of Earned Value
Analysis/Management
• See the Earned Value Management website:
www.acq.osd.mil/pm
• Follow links to Defense Acquisition University
training programs
• Familiarize yourself with the wealth of additional
material and number of courses available within
the DoD community
© Dale R. Geiger 2011 13
 Requirements for Success
• The four requirements for successful cost
management and control remain the same
• Leadership: actively engaged in understanding and
improving performance
• Cost staff: supporting leadership with analysis, insight,
and advice
• Process: the AAR where accountable subordinates
explain costs and schedules and ways to improve both
• Measurement: schedule and cost variances as
provided by the EVA
© Dale R. Geiger 2011 14
 What Does Earned Value Mean?
• Since there are risks to both cost and schedule
some method is needed to link the two
• Earned value measures what has been
accomplished in terms of planned (budgeted)
cost
• In this sense it is similar to the flexible forecast we
used previously in analyzing volume variance
• Just like in the flexible forecast we will use the original
planning factors to evaluate (in dollar terms) how
much more or less work has been done

© Dale R. Geiger 2011 15

 Learning Check
• What are some of the characteristics of
projects that may pose management
challenges?
• What are the two categories of risk related to
projects?

© Dale R. Geiger 2011 16

 Starting Point: The Plan (Budget)
• Just as in analyzing volume and performance
variance we must start with an expectation
• This is the plan or budget
• The plan or budget must define two of the
following three variables in the equation:
cost = output x cost per output
• Some measure of output (like units)
• A measure of cost per output
• The total cost
• Furthermore, the plan defines these variables for
all time periods or milestones within the project
© Dale R. Geiger 2011 17
One Difference: Non-Linearity Possible
• Volume variance recognizes that cost fits the
equation
• Cost = variable cost per unit x units + fixed cost
• Resulting in a linear relationship in plotting $
versus units
• Earned value analysis planning is likely to be
non-linear
• This is to say that cost and effort will not increase
at a constant rate when plotting $ versus time

© Dale R. Geiger 2011 18

Comparing Flexible Forecast to Project
Budget

time

© Dale R. Geiger 2011 19

Comparing Flexible Forecast to Project
Budget

units

© Dale R. Geiger 2011 20

Essential Vocabulary of EVM Variables
• BCWS Budgeted Cost for Work Scheduled
• How much work should be done?
• BCWP Budgeted Cost for Work Performed
• How much should it cost for the work actually done?
• ACWPActual
ACWP Cost of Work Performed
• How much did the work done actually cost?
• BAC Budget at Completion
• What was the total project supposed to cost?
• EAC Estimate at Completion
• What do we now expect the project to cost?

© Dale R. Geiger 2011 21

 Tying Terminology to Graph

$
BCWS
ACWP

time

• Suppose that halfway through the project

• ACWP is lower than expected “at that time”
• BCWP is higher than expected “at that time”
• What does this mean????? (Terrific!!: we are ahead of
schedule and under cost)
© Dale R. Geiger 2011 22
 Tying Terminology to Graph
BCWP

$
BCWS
ACWP

time

• Suppose that halfway through the project

• ACWP is lower than expected “at that time”
• BCWP is higher than expected “at that time”
• What does this mean????? (Terrific!!: we are ahead of
schedule and under cost)
© Dale R. Geiger 2011 23
 Tying Terminology to Graph
BCWP

$
BCWS
ACWP

time

• Suppose that halfway through the project

• ACWP is lower than expected “at that time”
• BCWP is higher than expected “at that time”
• What does this mean????? (Terrific!!: we are ahead of
schedule and under cost)
© Dale R. Geiger 2011 24
 Tying Terminology to Graph
BCWP
BAC

EAC
$
BCWS
ACWP

time

• Suppose that halfway through the project

• ACWP is lower than expected “at that time”
• BCWP is higher than expected “at that time”
• What does this mean????? (Terrific!!: we are ahead of
schedule and under cost)
© Dale R. Geiger 2011 25
 Schedule Variance Logic Differs
From Cost Variance
• In calculating cost volume variance we looked at increased units resulting
in more cost
• More cost is (unfavorable) by definition in cost variance analysis
Volume
Plan Flexible Fcst
Variance
Units sold 100 130 30
Variable cost 500 650 (150)

• In calculating schedule variance we look at this situation quite differently

• Even though cost is higher the logic here is that we are ahead of the spending
schedule and therefore this is a favorable schedule variance
Schedule
Plan BCWP
Variance
Units produced 100 130 30
Cost 500© Dale R. Geiger650
2011 150 26
 Here’s Why: We’re Looking at Two
Different Dimensions
Cost Variance looks at the Y axis Schedule variance looks at the X axis

$ $

time time
• Any point above the BCWS is over • Any point left of the BCWS is ahead
cost: unfavorable of spending schedule in the time
dimension: favorable
• Any point below is favorable
• Any point right is unfavorable
© Dale R. Geiger 2011 27
 EVM Variance Template
• Here you can see some of the similarities to other variance
analyses
• BCWP is calculated using the budgeted cost per and the actual units
• Cost variance is favorable since ACWP is less than BCWP
Schedule Cost
BCWS BCWP ACWP
Variance Variance
Units Produced 100 130 130
Cost per Unit 5 5 4
Cost at a Point in 500 150 650 130 520
Time
• And differences:
• Note that the sum of variance is no longer meaningful
• Note that schedule variance is favorable when BCWP exceeds BCWS

© Dale R. Geiger 2011 28

 EVM Variance Summary
• Schedule Variance = BCWP – BCWS
• Logic: Increased cost of work performed means that
more schedule has been completed: a favorable
schedule variance
• Decreased cost of work performed means that less
schedule has been completed: an (unfavorable)
schedule variance
• Cost Variance = BCWP – ACWP
• Logic: Like a typical cost variance less actual cost than
budgeted is a favorable variance
• More actual cost than budgeted is an (unfavorable)
variance
© Dale R. Geiger 2011 29
 Calculating EAC: Estimate at
Completion
• One other very useful metric to calculate is
the estimated cost at completion
• There are numerous ways to estimate this
• Detailed re-forecast of remaining costs – may be
costly
• Management guess – may be optimistic
• Projection from results to date – assumes that we
will finish remaining work with the same level of
efficiency or inefficiency
© Dale R. Geiger 2011 30
 Calculating EAC: Estimate at
Completion
• Consider the previous example
• The ratio of ACWP to BCWP is 80%
Schedule Cost
BCWS BCWP ACWP
Variance Variance
Units Produced 100 130 130
Cost per Unit 5 5 4
Cost at a Point in 500 150 650 130 520
Time

• If we complete the project at this efficiency then EAC

will be 80% of BAC
• If BAC was 1000 then we would estimate completion
at 800
© Dale R. Geiger 2011 31
 Learning Check
• What information does the comparison of
BCWP to BCWS give?
• What can be said about the project if ACWP is
greater than BCWS?

© Dale R. Geiger 2011 32

 The Project Management AAR
• Uses EVM metrics as part of the measurement
input
• Expects accountable subordinates to understand and
explain the variance
• Seeks continuous improvement in both cost and
schedule
• There are many application opportunities for
project management AARs
• Acquisitions, research and development,
experimentations, building and construction, BRAC,
ARFORGEN, etc., etc.
© Dale R. Geiger 2011 33
 Classroom Exercise
• You’ve decided to apply project management
techniques to the project of getting an MBA
• You plan on taking one course this semester, two
courses a semester for eight semesters and one
course the last semester with each costing $2000
• You successfully completed the first semester’s
course which cost $2000
• Task: Determine your budget at completion (BAC),
schedule variance, cost variance, and estimate at
completion (EAC)after the first semester

© Dale R. Geiger 2011 34

 Budget at Completion: BAC
semester courses cost per bcws cum
1 1 2000 2000 2000 $

2 2 2000 4000 6000

3 2 2000 4000 10000
4 2 2000 4000 14000
5 2 2000 4000 18000
6 2 2000 4000 22000
7 2 2000 4000 26000 X axis = semesters

8 2 2000 4000 30000

9 2 2000 4000 34000
10 1 2000 2000 36000 BAC

© Dale R. Geiger 2011 35

 Schedule and Cost Variances
Estimate at Completion (EAC)
• We are on schedule and at cost expected: perfect

Schedule Cost
BCWS BCWP ACWP
Variance Variance
Courses Taken – 1st Semester 1
Cost per Unit – 1st Semester 2000
Cost after 1st Semester 2000 --

• Cost Estimated At Completion (EAC) will be

unchanged from the BAC since ACWP is same as
BCWP
© Dale R. Geiger 2011 36
 Schedule and Cost Variances
Estimate at Completion (EAC)
• We are on schedule and at cost expected: perfect

Schedule Cost
BCWS BCWP ACWP
Variance Variance
Courses Taken – 1st Semester 1 1
Cost per Unit – 1st Semester 2000 2000
Cost after 1st Semester 2000 -- -- 2000

• Cost Estimated At Completion (EAC) will be

unchanged from the BAC since ACWP is same as
BCWP
© Dale R. Geiger 2011 37
 Schedule and Cost Variances
Estimate at Completion (EAC)
• We are on schedule and at cost expected: perfect

Schedule Cost
BCWS BCWP ACWP
Variance Variance
Courses Taken – 1st Semester 1 1 1
Cost per Unit – 1st Semester 2000 2000 2000
Cost after 1st Semester 2000 -- 2000 -- 2000

• Cost Estimated At Completion (EAC) will be

unchanged from the BAC since ACWP is same as
BCWP
© Dale R. Geiger 2011 38
 Schedule and Cost Variances
Estimate at Completion (EAC)
• We are on schedule and at cost expected: perfect

• Cost Estimated At Completion (EAC) will be

unchanged from the BAC since ACWP is same as
BCWP
© Dale R. Geiger 2011 39
 Schedule and Cost Variances
Estimate at Completion (EAC)
• We are on schedule and at cost expected: perfect

• Cost Estimated At Completion (EAC) will be

unchanged from the BAC since ACWP is same as
BCWP
© Dale R. Geiger 2011 40
 Schedule and Cost Variances
Estimate at Completion (EAC)
• We are on schedule and at cost expected: perfect

Schedule Cost
BCWS BCWP ACWP
Variance Variance
Courses Taken – 1st Semester 1 1 1
Cost per Unit – 1st Semester 2000 2000 2000
Cost after 1st Semester 2000 -- 2000 -- 2000

• Cost Estimated At Completion (EAC) will be

unchanged from the BAC since ACWP is same as
BCWP
© Dale R. Geiger 2011 41
Classroom Exercise – 2 Semester nd

© Dale R. Geiger 2011 42

 2 Semester Results
nd

• We are now behind schedule and over cost: terrible!!

Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 1st Semester 2000 -- 2000 -- 2000

Courses Taken – 2nd Semester 2

Cost per Unit – 2nd Semester 2000
Cost of 2nd Semester 4000

Cost after 2nd Semester 6000

• ACWP is 105% of BCWP so EAC can be projected at 105% of

BAC: (1.05)36K = 37.8K
© Dale R. Geiger 2011 43
 2 Semester Results
nd

• We are now behind schedule and over cost: terrible!!

Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 1st Semester 2000 -- 2000 -- 2000

Courses Taken – 2nd Semester 2 1

Cost per Unit – 2nd Semester 2000 2200
Cost of 2nd Semester 4000 2200

Cost after 2nd Semester 6000 4200

• ACWP is 105% of BCWP so EAC can be projected at 105% of

BAC: (1.05)36K = 37.8K
© Dale R. Geiger 2011 44
 2 Semester Results
nd

• We are now behind schedule and over cost: terrible!!

Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 1st Semester 2000 -- 2000 -- 2000

Courses Taken – 2nd Semester 2 1 1

Cost per Unit – 2nd Semester 2000 2000 2200
Cost of 2nd Semester 4000 2000 2200

Cost after 2nd Semester 6000 4000 4200

• ACWP is 105% of BCWP so EAC can be projected at 105% of

BAC: (1.05)36K = 37.8K
© Dale R. Geiger 2011 45
 2 Semester Results
nd

• We are now behind schedule and over cost: terrible!!

• ACWP is 105% of BCWP so EAC can be projected at 105% of

BAC: (1.05)36K = 37.8K
© Dale R. Geiger 2011 46
 2 Semester Results
nd

• We are now behind schedule and over cost: terrible!!

• ACWP is 105% of BCWP so EAC can be projected at 105% of

BAC: (1.05)36K = 37.8K
© Dale R. Geiger 2011 47
 2 Semester Results
nd

• We are now behind schedule and over cost: terrible!!

Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 1st Semester 2000 -- 2000 -- 2000

Courses Taken – 2nd Semester 2 1 1

Cost per Unit – 2nd Semester 2000 2000 2200
Cost of 2nd Semester 4000 (2000) 2000 (200) 2200

Cost after 2nd Semester 6000 (2000) 4000 (200) 4200

• ACWP is 105% of BCWP so EAC can be projected at 105% of

BAC: (1.05)36K = 37.8K
© Dale R. Geiger 2011 48
Classroom Exercise – 3 Semester rd

© Dale R. Geiger 2011 49

 3 Semester Results
rd

• We are now back on schedule but over cost: not

good!
Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 2nd Semester 6000 (2000) 4000 (200) 4200

Courses Taken – 3rd Semester 2

Cost per Unit – 3rd Semester 2000
Cost of 3rd Semester 4000

Cost after 3rd Semester 10000

• ACWP is 114% of BCWP so EAC can be projected at 105% of

BAC: (1.14)36K = 41.0K © Dale R. Geiger 2011 50
 3 Semester Results
rd

• We are now back on schedule but over cost: not

good!
Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 2nd Semester 6000 (2000) 4000 (200) 4200

Courses Taken – 3rd Semester 2 3

Cost per Unit – 3rd Semester 2000 2400
Cost of 3rd Semester 4000 7200

Cost after 3rd Semester 10000 11400

• ACWP is 114% of BCWP so EAC can be projected at 105% of

BAC: (1.14)36K = 41.0K © Dale R. Geiger 2011 51
 3 Semester Results
rd

• We are now back on schedule but over cost: not

good!
Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 2nd Semester 6000 (2000) 4000 (200) 4200

Courses Taken – 3rd Semester 2 3 3

Cost per Unit – 3rd Semester 2000 2000 2400
Cost of 3rd Semester 4000 6000 7200

Cost after 3rd Semester 10000 10000 11400

• ACWP is 114% of BCWP so EAC can be projected at 105% of

BAC: (1.14)36K = 41.0K © Dale R. Geiger 2011 52
 3 Semester Results
rd

• We are now back on schedule but over cost: not

good!

© Dale R. Geiger 2011 53

 3 Semester Results
rd

• We are now back on schedule but over cost:

not good!

© Dale R. Geiger 2011 54

 3 Semester Results
rd

• We are now back on schedule but over cost: not

good!
Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 2nd Semester 6000 (2000) 4000 (200) 4200

Courses Taken – 3rd Semester 2 3 3

Cost per Unit – 3rd Semester 2000 2000 2400
Cost of 3rd Semester 4000 2000 6000 (1200) 7200

Cost after 3rd Semester 10000 -- 10000 (1400) 11400

• ACWP is 114% of BCWP so EAC can be projected at 114% of

BAC: (1.14)36K = 41.0K © Dale R. Geiger 2011 55
Individual Exercise: 4 Semester th

© Dale R. Geiger 2011 56

 4th Semester Results
• We are now back on schedule but over cost: not
good!
Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 3nd Semester

Courses Taken – 4th Semester

Cost per Unit – 4th Semester
Cost of 4th Semester

Cost after 4th Semester

• ACWP is 114% of BCWP so EAC can be projected at 114% of

BAC: (1.14)36K = 41.0K © Dale R. Geiger 2011 57
 4th Semester Results
• We are now ahead of schedule but over cost: not
good!
Schedule Cost
BCWS BCWP ACWP
Variance Variance
Cost after 3nd Semester 10000 -- 10000 (1400) 11400

Courses Taken – 4th Semester 2 3 3

Cost per Unit – 4th Semester 2000 2000 2600
Cost of 4th Semester 4000 2000 6000 (1800) 7800

Cost after 4th Semester 14000 2000 16000 (3200) 19200

• ACWP is 120% of BCWP so EAC can be projected at 120% of

BAC: (1.20)36K = 43.2K © Dale R. Geiger 2011 58
MBA Project Graph after 4th Semester

BAC

$ BCWS

Semesters

© Dale R. Geiger 2011 59

MBA Project Graph after 4th Semester

EAC

BAC
ACWP

$ BCWS

BCWP

Semesters

© Dale R. Geiger 2011 60

 Conclusions
• Projects offer many important opportunities for
cost management and control
• The requirements for success are identical to
other cost management and control effort
• The major difference is that project management
requires attention to both
• Schedule variance
• Cost variance
• Another difference is that AARs might be
scheduled at logical project milestones rather
than fixed time intervals
© Dale R. Geiger 2011 61
 Teacher’s Note

cost reconciliation continuous improvement

BCWS 14000 transfer

ACWP 19200 apply for scholarship
variance (5200) grade papers as part time job
petition to avoid courses
cost variance (3200) accelerate to avoid tuition hikes
extra course taken (2000) don’t drop any courses

acwp/bcwp 120% This is like a performance variance

bac 36000
eac 43200
This is like a volume variance

© Dale R. Geiger 2011 62

 Teacher’s Note: MBA Exercise
schedule cost
bcws variance bcwp variance acwp
units completed 1 1 1
1st semester cost per unit 2000 2000 2000
cost at point in time 2000 0 2000 0 2000

units completed 2 1 1
2nd semester cost per unit 2000 2000 2200
cost at point in time 4000 (2000) 2000 (200) 2200

units completed 2 3 3
3rd semester cost per unit 2000 2000 2400
cost at point in time 4000 2000 6000 (1200) 7200

units completed 2 3 3
4th semester cost per unit 2000 2000 2600
cost at point in time 4000 2000 6000 (1800) 7800

14000 2000 16000 (3200) 19200

© Dale R. Geiger 2011 63