Earned Value Analysis by Miles M. Hamby, PhD Copyright©2014 Miles M Earned Value Analysis by Miles M. Hamby, PhD Copyright©2014 Miles M. Hamby 1

Why do it? 70% of projects are over budget or behind schedule 52% of all projects finish at 189% of their initial budget Some are never completed Source:The Standish Group 2

What is EVA? Compares the planned amount of work with what has actually been completed, to determine if cost , schedule, and work accomplished are progressing as planned. Activities “earn value” as they are completed. The value earned is the WBS budgeted cost of the activity completed to date. 3

What is EVA (cont’d) Measures scope, time project performance Integrates cost, time, scope Can be used to forecast future performance and project completion date Integrates scope, cost and schedule measures. It compares actual results to planned result. Calculations are based on three key measures: Planned value, Actual cost, Earned value. 4

EVA is Required GPRA; 1993 FASA, Title V; 1994 Clinger-Cohen Act; 1996 OMB (Circular A-11, Part 7) "Agencies must use a performance based acquisition management system, based on ANSI/EIA Standard 748, to measure achievement of the cost, schedule, and performance goals.” 5

Earned Value Technique Used to establish the performance measurement baseline (PMB). Measures project performance against project baseline Quantifies project variance Forecasts future performance 6

Primary Reference Data PV – Planned Value (budgeted cost of work scheduled (BCWS)) - Planned cost of the total amount of work scheduled to be performed by the milestone date. AC – Actual Cost (of work performed (ACWP)) - Cost incurred to accomplish the work that has been done to date. EV – Earned Value (Budgeted cost of work actually performed (BCWP)) - The planned (not actual) cost to complete the work that has been done. % Complete – Percentage an activity is actually complete at a given point (eg, Milestone) 7

OLD (still on MSProject) Old and New Terms OLD (still on MSProject) NEW BCWS - Budgeted Cost of Work Scheduled PV - Planned Value – Cost of work scheduled to a milestone BCWP - Budgeted Cost of Work Performed EV - Earned Value – budgeted cost of work actually performed to that date ACWP - Actual Cost of Work Performed AC - Actual Cost – actual cost of work actually performed to that date 8

Derived Metrics SV: Schedule Variance (EV-PV) A comparison of amount of work performed during a given period of time to what was scheduled to be performed. A negative variance means the project is behind schedule CV: Cost Variance (PV-AC) A comparison of the budgeted cost of work performed with actual cost. A negative variance means the project is over budget. 9

Derived Metrics (Cont’d) SPI: Schedule Performance Index = EV/PV SPI<1 means project is behind schedule CPI: Cost Performance Index = EV/AC CPI<1 means project is over budget CSI: Cost Schedule Index = CPI x SPI The less CSI is than 1.0, the less likely the project will recover 10

Metrics Formulae EV Earned Value EV = PV * % Complete CV Cost Variance CV = PV - AC SV Schedule Variance SV = EV - PV CPI Cost Performance Index CPI = EV / AC SPI Schedule Performance Index SPI = EV / PV EAC Estimate At Completion EAC = BAC* / CPI ETC Estimate To Completion ETC = EAC - AC VAC Variance At Completion VAC = BAC* - EAC *Budgeted Actual Cost 11

Meaning of Metrics If, then, and The project is AC > EV CV < 0 CPI < 1 Over Budget AC = EV CV = 0 CPI = 1 On Budget AC < EV CV > 0 CPI > 1 Under Budget AC – Actual Value EV – Earned Value CV – Cost Variance CPI – Cost Performance Index 12

EVA - Example Your team has a project to build a new picket fence. Each side of the fence is scheduled to take one day to build and is budgeted for $1,000 per side. Total budget (Planned Value) is $4,000. ETC – 4 days Each side is one activity and is planned to be completed one after the other, that is, the second side cannot begin until the first side is complete. EVA is planned to be taken at each Milestone (MS). Each MS is planned to coincide with the planned (scheduled) completion date.

EV = PV * % completion at the MS Example assuming no change in planned costs EV = PV * % completion at the MS Project EV at MS4 = $3,800 SV = EV – PV = -$200 “Behind Schedule” PVAct = $1,000 PVCum = $1,000 EV = $1K*1 PVAct = $1,000 PVCum = $2,000 EV = $1K + $1K*.5 PVAct= $1,000 PVCum = $3,000 EV = $2K + $1K*1 MS0 MS1 MS2 MS3 MS4 PVAct = $1,000 PVCum = $4,000 EV = $3K + .8*$1K 80% 100% 50% All 100% (caught up) Completion Status of Activity at MS

EV = PV * % completion at the MS Same example with cost increases EV = PV * % completion at the MS Project EV = $3,800 SV = PV – EV = -$200 CV = EV – AC = -$5 00 “Behind Schedule” & “Over budget” PVAct = $1,000 PVCum = $1,000 AC = $1,000 EV = $1K*1 PVAct = $1,000 PVCum = $2,000 ACCum = $1,700 EV = $1K + $1K*.5 SV=-$500, CV=-$200 PVAct= $1,000 PVCum = $3,000 ACCum = $3,500 EV = $2K + $1K*1 SV=$0, CV=-$500 MS0 MS1 MS2 MS3 MS4 PVAct = $1,000 PVCum = $4,000 ACCum = $4,300 EV = $3K + $1K*.8 SV=-$200, CV=$500 80% 100% 50% All 100% (caught up) Completion Status of Activity at MS

EVA Analysis Chart (on Excel) 16

Given: 4 Milestones (MS), PV $1,000 at end of each MS EVA Example (cont’d) Given: 4 Milestones (MS), PV $1,000 at end of each MS Item Calculation Result Interpretation PV (Planned Value) = 1,000 + 1,000 + 1000 MS1 MS2 MS3  $3,000 We should have done $3,000 worth of work at this MS EV (Earned Value) Complete, complete, 50% = 1,000 + 1,000 + 500 $2,500 We have actually completed $2,500 worth of work at this MS AC (Actual Cost) = 1,000 + 1,200 + 600 $2,800 We have actually spent $2,800 at this MS BAC (Budgeted AC) = 1,000 + 1,000 + 1,000 + 4,000  $4,000 Our entire project budget is $4,000 CV (Cost Variance) = EV – AC = 2,500 – 2,800 - $300 We are over budget by $300 at this MS CPI (Cost Performance Ind.) = EV/AC = 2,500 / 2,800  .893 We have only earned 89.3% of the planned value of the project at this MS SV (Schedule Var.) = EV – PV = 2,500 – 3,000  -$500  We are behind schedule (unspecified time) SPI (Schedule Performance Ind.) = 2,500 / 3,000   .833 We have only performed 83% of the planned schedule as of this MS  EAC (Estimated AC) = BAC/CPI = 4,000 / .893   $4,479 We currently estimate that the total project will cost $4,479. ETC (Estimated Time to Completion) = EAC – AC = 4,479 – 2,800   $1,679  We need to spend $1,679 to finish the project. VAC (Var. of AC) = BAC – EAC =4,000 – 4,479  -$479 We currently expected to be $479 over the budget when the project is completed.  17

Making Projections Once a project is 10% complete, overrun at completion will not be less than the current overrun. Once a project is 20% complete, CPI does not vary from its current value by more than 10%. CPI and SPI are statistically accurate indicators of final cost results. Source: Defense Acquisition University 18

Shortcomings of EVA Quantifying/measuring work progress can be difficult. Time required for data measurement, input, and manipulation can be considerable. 19

Earned Value Analysis 20

EVA - Example Your team has a project to build a new fence. Each side of the fence is scheduled to take one day to build and is budgeted for $1,000 per side. The sides are planned to be completed one after the other. Today is the end of Day 3. Using the project status chart below, develop a detailed EV analysis. Plot your EVA. Activity Day 1 Day 2 Day3 Day 4 Status at the end of Day 3 Side 1 AS _________ AF   Completed, spent $1,000 Side 2 AS ____ ---- PF ____ AF Half Completed, spent $1,200 Side 3 PS ---AS__PF---- Half done, spent $ 600 Side 4 PS -------PF Not yet started At end of Day PV = $1,000 AC = $1,000 EV = $1,000 CV = $0 AC = $1,200 EV = $500 CV = Work Status: AS - Actual Start, AF - Actual Finish, PS - Planned Start, and PF - Planned Finish 21