EARNED VALUE MANAGEMENT (EVM)

Introduction EVM is a project management technique which measures the progress of a project by combining technical performance, schedule performance, and cost performance. Work Accomplished Schedule Budget

Introduction EVM compares PLANNED work to COMPLETED work to determine if work accomplished, cost, and schedule are progressing as planned. The amount of work actually completed and resources actually consumed at a certain point in a project TO The amount of work planned (budgeted) to be completed and resources planned to be consumed at that same point in the project

Key Definitions Budgeted Cost of Work Scheduled (BCWS) The cost of the work scheduled or planned to be completed in a certain time period per the plan This is also called the PLANNED VALUE. Budgeted Cost of Work Performed (BCWP) The budgeted cost of the work done up to a defined point in the project. This is called the EARNED VALUE. Actual Cost of Work Performed (ACWP) The actual cost of work up to a defined point in the project

Variance Formulas Schedule Variance: SV = BCWP - BCWS Schedule Performance Index: SPI = BCWP / BCWS Cost Variance: CV = BCWP - ACWP Cost Performance Index: CPI = BCWP / ACWP

Results SV, CV = 0 Project On Budget and Schedule SV, CV < 0 Over Budget and Behind Schedule SV, CV > 0 Under Budget and Ahead of Schedule CPI, SPI = 1 Project On Budget and Schedule CPI, SPI < 1 Over Budget and Behind Schedule CPI, SPI > 1 Under Budget and Ahead of Schedule

Example Project description We are supposed to build 10 units of equipment We are supposed to complete the project within 6 weeks We estimated that 600 man-hours to complete all the units It costs us $10/hour to build the equipment

Example We are supposed to build 1.67 units each week Each unit costs $600 We will spend $1,000 each week

Example Project status: Week 3 4 units of equipment completed 400 man-hours spent How are we doing? Are we ahead or behind schedule? Are we under or over budget? Results: Accomplished Work: 4/10 = %40 complete Schedule: 3/6 = %50 over Budget: 400/600 = %67 spent

Example BCWS=(600 man-hours*$10/hour)*(3/6 weeks) = $3000 BCWP=(600 man-hours*$10/hour)*(4/10 units) = $2400 ACWP=400 man-hours*$10/hour = $4000 The price of the job that we have done is only $2400 Schedule: in 3 weeks, the price of the job that we should have done was $3000 Cost: We spent much more; we spent $4000 SV = BCWP – BCWS = $2400 - $3000 = -$600 SV is negative; we are behind schedule CV = BCWP – ACWP = $2400 - $4000 = -$1600 CV is negative; we are over budget

Example SPI = BCWP / BCWS = $2400 / $3000 = 0.8 SPI is less than 1; we are behind schedule CPI = BCWP / ACWP = $2400 / $4000 = 0.6 CPI is less than 1; we are over budget

PROJECT PERFORMANCE PREDICTIONS Earned Value analysis results are used to predict the future performance of the project NOTE: There are various names in the literature. Budget At Completion (BAC) = The total budget (PV or BCWS) at the end of the project. If a project has Management Reserve (MR), it is typically added to the BAC. Amount expended to date (AC) Estimated cost To Complete (ETC) ETC = (BAC – EV) / CPI Estimated cost At Completion (EAC) EAC = ATC + AC