Value Management and

Value Analysis
By
Joseph Kampumure
Consultant-UMI
E-mail: kampumure@gmail.com
Tel: +256-782-86381

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Objectives of the Session
By the end of the session, participants should be able to;
• Critic the Traditional financial planning Tools(TFPT) in
Projects.
• Carry out Earned value variance analysis.
• Estimate completion cost of a project.
• Discuss the benefits and challenges in using Earned Value
Analysis to a project Manager and project owner.

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Introduction
• Project Clients are not interested in your day-to-day activities; they
are only interested in the status and progress of the project because it
helps them visualize the money spent on the project and the money
earned from the project.
• In projects, planned (budgeted) expenditure and actual expenditure
are unable to relate the work completed to the amount of money
spent on it.
• Earned Value Management (EVM) aka Earned Value Analysis (EVA)
bridges the gap.

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Traditional financial planning
Tools(TFPT) in Projects: Irrelevances.
1. TFPT are tied to annual budgeting cycles not project
schedules.
2. TFPT assume the business will be in the mode of continuous
operation ; projects often don't operate like that.
3. The tracking cycle used in financial systems is based upon
calendar events (such as end of month, end of quarter, or
end of year). The significant project reporting points are the
project milestones; which seldom precisely align with
financial calendar dates.
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Traditional Financial Planning
Tools(TFPT) in Projects: Irrelevances(Ctd)
4. The financial control system assumes that the project is
always on schedule.
So any over-spending or under-spending during a time
period is a true over-run or under-run on the project
respectively.
Projects are seldom precisely on schedule, and over-
spending in one month may be the result of activities being
accelerated and not an indicator of final project over-run.
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 So how does Earned Value Management
(EVM) / Earned Value Analysis (EVA) bridge
the gap?

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The Earned Value Analysis (EVA)
technique considers:
• The project context for the planned and actual expenditures and
integrates the project scope, schedule, and resource characteristics
into a comprehensive set of measurements.
• The temporary and intermittent nature of project work by scheduling
the expenditures based upon the project plan, including the spikes
and valleys in resources requirements.
• How much money has been spent on the project in relation to how
much project work has been accomplished. This takes into
consideration all that has happened on the project such as schedule
delays or acceleration.

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The Earned Value Analysis (EVA)
technique considers:
• The variances that have occurred and can be separated into
those due to timing, either ahead or behind schedule;
and
those due to miss-estimating the work;
true under-runs or over-runs.
• Finally, the indices and variances generated by the Earned
Value technique will aid the project management team in
forecasting the financial conditions at project completion.

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Sources of Data for Earned Value Analysis
1. The planned project expenditures (Planned Value) from
project start until the present time.
This is established at the time the project was initially
planned and represents the original intent of the project
team.
It is developed by summing up all of the project task
estimates and time-phasing them based upon the project
schedule.

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Sources of Data for Earned Value Analysis
2. The actual project expenditures (Actual Cost) as of
the present time.
This is collected by the business financial cost
accounting systems.
These are all the costs associated with the work that
has been completed on the project thus far.

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Sources of Data for Earned Value Analysis
3. The actual project progress (Earned Value) which is the originally
planned expenditures for the work that has been accomplished up to
this time.
This is determined by the tasks that are completed or the progress
made on the tasks that are underway.
The values for each task are based upon the originally estimated
values for the task.
When the task is completed, the estimated value represents the
value earned by completing the work on the project task - regardless
of how much that work actually cost.
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 EARNED VALUE CONCEPTS/ACRONYMS
NEW SYLE OLD STYLE MEANING
Originally planned cost of the work that
Budgeted Cost of should have been done by this time
PV Planned Value BCWS
Work Schedule

Actual cost expended on the project or on

Actual Cost of the task up-to this point in time
AC Actual Cost ACWP
Work Performed
Project Manager’s estimate of the amount
Budgeted Cost of originally budgeted for the work
EV Earned Value BCWP
Work Performed performed.
Project Manager’s estimate of the cost of the
Estimate to Estimate to remaining work on the project or task
ETC ETC
completion completion
Project Manager’s estimate of what the final
Estimate at Estimate at cost of the project or task will be.
EAC EAC
completion completion

Scheduled Scheduled Budgeted value of the work that is ahead or

SV SV behind schedule
Variance Variance
The difference between the actual cost and
CV Cost Variance CV Cost Variance budgeted cost of the work that is finished.

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Earned Value Analysis (EVA)
• EVA provides excellent insight into project variances.
• Through EVA a project manager can understand how
schedule variances are impacting cost variances and
vice versa.
• Without EVA, the project manager may struggle to
explain why the expenditures were other than
expected.

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Earned Value Variance Analysis

(a) Cost Variance (CV)

CV = EV – AC
Where : EV-Earned Value and AC-Actual Cost
In EVA, a negative CV is an over-run and a positive CV is an under-run.
CV measures “How close am I to what I thought it would cost do the work I have
accomplished as compared to what it actually cost to do the work that is
accomplished." (Flexing costs).
Example:
Suppose we planned to complete an activity using 10 bags of cement, each at Ugx
28,000 but instead the activity is completed using 12 bags of cement, each at Ugx
30,000. What would be the EV, AC and CV?

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Earned Value Variance Analysis
(b) Scheduled Variance (SV)
• SV measures the VALUE of the work that is ahead or behind schedule, not
the number of days or weeks.
• SV = EV – PV
Where : EV-Earned Value and PV-Planned Value
• Since EV and PV are only considering the work using the originally
estimated value of the work, the errors due to cost variance are removed
and variances are due only to timing.
• A negative SV is a behind-schedule condition and a positive SV is an
ahead-of-schedule condition.
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Earned Value Variance Analysis
(c) Forecasting Using Earned Value
Indices can provide trends and that can estimate the final project cost.
Schedule Performance Index (SPI) and the Cost Performance Index (CPI).
(i) The Schedule Performance Index, SPI.
• SPI = EV / PV
• When SPI is greater than 1, then more work than scheduled is done and
the project is accelerating.
• When SPI than 1, we are doing less work than scheduled and the project
is being delayed.

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Earned Value Variance Analysis
(c)Forecasting Using Earned Value
(ii)The Cost Performance Index, CPI.
• CPI = EV / AC
• When CPI is greater than 1, then we are completing the work
for less than the estimate and the project is under-running.
• When the CPI is less than 1, then the cost to complete the
work was greater than the initial estimate, or value, of the
work. In this case we are over-running.
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• The frequently asked Question in project
management is,
"How much will this project really cost to
complete it?"

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Estimate at completion (EAC)
• EAC takes into consideration the current business conditions and the
relevant project experience to date.
• It includes all of the money spent so far on the project and an estimate of
what must still be spent to complete the project work.
So,
EAC = AC + ETC
Where
AC-Actual cost expended on the project or on the task up-to this point in time
ETC- Estimate to Completion

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 Factors that influence
Estimate at completion (EAC)
1. Relevant project experience e.g.
The Schedule Performance Index, SPI
The Cost Performance Index, CPI.

2. Current business conditions e.g.

The level of corruption.
The work ethic of laborers.
The social-political environment like commission of inquiry,
political disagreement, etc.
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Application
DPPM Technical Services was contracted by UNRA to tarmac
the 50km Mukono-Katosi Road. The project was planned to
take 5 years at a unit cost of US $ 4,000,000 per km. The
contract between UNRA and DPPM Technical Services was
signed on 30th December 2009 and the work was to begin on
1st January 2011. By the end of the 2014 the DPPM Technical
Services had actually completed 36km of the road at a cost of
US $ 170,000,000.

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Required:

(i) What is the Planned Value of the project as at the end of 2015?
(ii) What is the Earned Value of the project by the end of 2014?
(iii) Compute the Project Cost Variance as at the end of 2014.
(iv) Compute the Project Schedule Variance of the project as at the
end of 2014.
(v) If implementation of the project continues at this rate, when do
you expect the project to be completed and at what cost?
Solution in class

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Exercise 1
• Max Consultants Limited got a contract to develop a Pension Management
Software for the Uganda Ministry of Public Service. The need for that software
became necessary after the recent discovery of the massive malpractice in the
Pension Department.
• The project for the development of the software is planned to be complete in
12 months at a cost of Ugx 300,000,000.
• After four months of project implementation, the performance of the
consultants was evaluated by Ms. Adogo, the Project Manager at Public Service
Ministry. The evaluation revealed that by the end of the four months, the
project was 60% complete at a cost of Shs. 200,000,000.
• Required:
Determine whether the project is on-time and on-budget as at the end of the
four months.
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Exercise 2
• DPPM Construction Limited won a contract to construct the NSSF Regional
Headquarters in Mbale. The contract price is Shs. 1,800,000,000. The
project is to be completed in 18 months. After two months, the
construction company has completed 10% of the project at a cost of Shs.
200,000,000.
• You work for DPPM Construction Limited and you have been designated as
the Project Manager of this project. The Directors of the construction
company would want to know whether the project is on schedule and
whether the implementation is within the budget.
• Required:
Using Earned Value Management Techniques advise the Directors of DPPM
Construction Limited on the implementation progress of the project.
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 Earned value management and cost
control
• Earned Value Management is a very powerful
tool for project evaluation and monitoring, and
cost control.
• Project Cost Control is the process of influencing
factors that create variances.

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Project Cost Control includes:

• Ensuring changes are agreed upon.

• Managing changes when they occur.
• Assure potential cost overruns do not exceed authorized funding.
• Monitor cost performance and understand variances.
• Recording all appropriate changes against the cost baseline.
• Preventing incorrect, inappropriate, or unapproved changes.
• Inform stakeholders of approved changes.
• Acting to bring overruns within limits

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Group Activity

a)Discuss the benefits of earned value

analysis to a project Manager and the
owner of a project.
b)What are the challenges faces in using
earned value analysis by a project manger.
Suggest mitigations.
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The End

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