“PMP® Exam Prep” Earned Value Management Test Notes - Ravikumar Ravikumar Kalose N, PMP® ProPM Academy PMP(R) course

Control Costs – Earned Value Management Earned Value Management (EVM) – Is an Project Management methodology to determine project performance at any given point of time and forecast project’s future performance. EVM Integrates project triple constraints (scope, cost, schedule) to determine project progress and performance EVM uses three key measurement components Planned Value (PV) – denotes the authorized budget to be expended for an activity, work package, or to the project at a given point, sometimes referred to as the “Budget At Completion (BAC)” (the total PV at the end of the project) Earned Value (EV) – The value of work performed expressed in terms of the authorized budget Actual Cost (AC) – Cost incurred or expended for the work performed at a given point "PMP® Exam Prep" course ProPM Academy – © 2013

Earned Value - Illustration Activities $600 0% $0 E $5000 D 20% $2000 C $800 50%, $600 $2000 B 75% $2500 PV= $4900 EV= $3400 $500 A 100%, $600 AC= $5700 1 2 3 4 5 6 7 Time (in Weeks) 

Earned Value (EV) Earned Value Characteristics An objective method to measure value of the actual work completed at a given point of time in the project life cycle. EV measurements helps to determine if a project is on track EV is an indicator of current project performance Provides early warnings and trends on any cost, schedule over runs Earned Value Characteristics Earned value indicates how much of “value” you have “earned” on the project at any given point of time. (Ex: end of 3rd month, I have spent $0.5M but my earned value is $0.35M) Helps determine variance against Planned Value (PV). "PMP® Exam Prep" course ProPM Academy – © 2013

Graphical Analysis Earned Value key components – Graphical representation Source: PMBOK 4, Page 183 "PMP® Exam Prep" course ProPM Academy – © 2013

Performance Measurements Earned Value – Key Components PV = Planned % complete X BAC EV = Actual % complete X BAC AC = Cumulative money spent till date Performance Reviews Variances Analysis Schedule Variance (SV) = EV – PV Cost Variance (CV) = EV – AC Variance At Complete (VAC) = BAC – EAC Performance Indicators Schedule Performance Index (SPI) = EV / PV Cost Performance Index (CPI) = EV / AC "PMP® Exam Prep" course ProPM Academy – © 2013

Forecasting…. Forecasting – Based on the information on performance indicators, a forecast (Estimate To Complete - ETC, Estimate at Complete - EAC) can be arrived. Provides an early warning for the project team if EAC is not within tolerance limits Three methods to compute EAC are as below EAC = AC + BAC – EV EAC = BAC / cumulative CPI EAC = AC + ((BAC – EV) / cumulative CPI X cumulative SPI )) Also the forecasting of schedule can be derived using Revised Schedule: Project Planned Total Duration X SPI "PMP® Exam Prep" course ProPM Academy – © 2013

Forecasting… Trend Analysis To-Complete-Performance-Index - Indicates required project performance to meet specified goal such as BAC or EAC TCPI = work remaining / funds remaining TCPI = (BAC- EV) / (BAC - AC) TCPI = (BAC – EV) / (EAC – AC) Trend Analysis Graphical representation of trends of project performance "PMP® Exam Prep" course ProPM Academy – © 2013

EVM - Example Let us consider the following example to understand the concepts better. An ERP implementation project for ABC company is estimated to cost $500,000 with an estimated duration of 40 weeks. At the end of 10 weeks the project is 20% complete with $150,000 being already spent on the project. BAC =500,000, AC = 150,000, PV = 10/40*500,000 = 125,000 EV = 20/100*500,000 = 100,000 "PMP® Exam Prep" course ProPM Academy – © 2013

Variance and Performance Analysis BAC = 500,000 PV = 125,000 EV = 100,000 AC = 150,000 Metric Formula Value Analysis CV EV-AC -50,000 This indicates $50,000 has already been additionally spent in excess of the project worth of work up-to this point SV EV-PV -25000 The negative value indicates the project is lagging behind its planned schedule. CPI EV/AC 0.67 A value less than 1 indicates over utilization of funds against the actual work. In this case the project is earning $0.67 worth value for every $ spent, not a good sign. SPI EV/PV 0.80 A value less than 1 indicates that the project is behind planned schedule and progress has only been at 80% . "PMP® Exam Prep" course ProPM Academy – © 2013

Graphical Analysis CV SV "PMP® Exam Prep" course ProPM Academy – © 2013

Budget Forecast Analysis BAC = 500,000 PV = 125,000 EV = 100,000 AC = 150,000 CV = -50,000 SV = -25,000 CPI = 0.67 SPI = 0.80 Metric Formula Value Analysis EAC BAC/CPI 746,268.65 The revised estimates now for project completion based on current performance is $746,268.65 as against planned $500,000. ETC EAC-AC 596,268.65 The project would now require additionally $596,268.65 to complete from this point onwards VAC BAC-EAC -246,268.65 There is an additional $246,268.65 required to complete the project compared to original estimates TCPI (BAC-EV)/(BAC-AC) (WORK LEFT TO DO)/ MONEY REMAINING) 1.14 The project need to now perform at an performance of 1.14 times in order to stay within the estimated budget "PMP® Exam Prep" course ProPM Academy – © 2013

Terminologies Terminology Description Formula Budget At Completion (BAC) The original estimated (planned) project Cost None Planned Value (PV) Indicates amount of work which “SHOULD have been completed” or “Authorized work for completion” as per plan at any point PV=Planned % complete X BAC Earned Value (EV) Actual work that is accomplished at any point EV= Actual % complete X BAC Actual Cost (AC) The actual money spent at any point of time AC= Cumulative money spent till date Cost Variance (CV) The difference between how much was actually Earned and how much was actually spent CV=EV-AC Schedule Variance (SV) The difference between planned schedule Vs Actual Schedule SV = EV-PV "PMP® Exam Prep" course ProPM Academy – © 2013

Terminologies (2) Terminology Description Formula Cost Performance Index (CPI) Indicates the project performance for every $ spent CPI = EV / AC Schedule Performance Index (SPI) Indicate actual schedule progress of the against the planned schedule SPI = EV / PV Estimate At Completion (EAC) The revised project Budget for completion based on current performance indicators EAC = BAC / Cumulative CPI Estimate To Complete (ETC) How much more (cost) would be needed to complete the project based on current performance indicators ETC = EAC – AC Variance At Completion (VAC) The difference between the budgeted cost and revised estimates based on current performance indicators VAC = BAC – EAC To-Complete Performance Index (TCPI) Project Performance required to be achieved in order to stay within the original budget using the remaining funds TCPI = (BAC-EV) / (BAC-AC) "PMP® Exam Prep" course ProPM Academy – © 2013

Points to Remember… Variance Value (SV, CV, VAC) : If Negative, it is below planned performance, If Positive, it is above planned performance If Zero, it is exactly meeting the planned performance Performance Index (CPI, SPI): If the Value is less than 1, it is below planned performance If the Value is more than 1, it is above planned performance If the Value is equal to 1, it is exactly meeting the planned performance TCPI: If the Value is Less than 1, it is above planned performance If the Value is more than 1, it is below planned performance If the Value is Equal to 1, it is exactly meeting the planned performance "PMP® Exam Prep" course ProPM Academy – © 2013

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