1. Introduction To Earned Value November 14, 2002

2. Definition Earned Value is a method for measuring project performance. It compares the amount of work that was planned with what was actually accomplished to determine if cost and schedule performance is as planned. (PMBOK) In other words, its a way of determining for the money we spent, are we on budget and on schedule? EV is in Monetary terms $$$

3. The Basics BCWS –Budgeted Cost of Work Scheduled BCWP (also referred to as Earned Value) –Budgeted Cost of Work Performed ACWP –Actual Cost of Work Performed

4. BCWS Budget applied to tasks in a schedule Example –Task X Start Date 1/1/01 End date 2/28/01 Duration = 2 months –Task Y Start Date 2/1/01 End Date 2/28/01 Duration = 1 month –Task Z Start Date 3/1/01 End Date 3/31/01 Duration = 1 month

5. BCWS If resources were applied to each task and the cost of those resource worked out to : –Task X $100Task Y $100Task Z $100 –Then assuming an even distribution over the duration of the task, the budget would be : IncrementalTask(s)Cumulative –Jan $50 X$50 –Feb $150 X,Y$200 –Mar $100 Z$300

7. BCWP BCWP is how much work was accomplished Example: –At the end of January, we find that we are 25% complete with Task X BCWP for Task X =.25*$100=$25 –Task Y & Z have not started (and not scheduled to start), Therefore 0% complete – Incremental BCWP for Jan = $25 –Cumulative BCWP for end of Jan = $25

8. BCWP At the end of February, we find that we are 75% complete with Task X –BCWP for Task X =.75*$100=$75 BCWP for Feb for Task X = $75-$25 = $50 At end of February, Task Y is complete. –BCWP for Task Y = $100 At end of February, Task Z is 25% complete. –BCWP for Task Z =.25*$100=$25 Incremental BCWP for Feb = $175 ($50+100+$25) Cumulative BCWP for end of Feb = $200

10. BCWP For end of February, the overall project is on schedule –Task X: BCWS = $100, BCWP = $75 –Task Y: BCWS = $100, BCWP = $100 –Task Z: BCWS = $0, BCWP = $25 Schedule Variance = BCWP - BCWS –Negative Schedule variance indicates behind schedule –Positive Schedule Variance indicates ahead of schedule

11. Schedule Variance For end of February, the overall project is on schedule, but the individual tasks are: Task X: BCWS = $100, BCWP = $75 $75 - $100 = -$25 BEHIND SCHEDULE Task Y: BCWS = $100, BCWP = $100 $100 - $100 = $0 ON SCHEDULE Task Z: BCWS = $0, BCWP = $25 $25 - $0 = +$25AHEAD OF SCHEDULE

12. Percent Complete Engineering Estimate Based on quantitative means such as number of programs coded 0 / 100 rule : receive 100% when task is complete 20 / 80 rule : receive 20% when you start a task, the other 80% when you complete 50 / 50 rule: 50% complete when you start an activity, the other 50% when you complete

13. ACWP ACWP is the actual cost spent to accomplish work –Labor $ (Salaries, Benefits, Overhead) –Other Direct Costs (Software costs, Hardware costs, Maintenance fees, License fees, Supplies) Example –At end of January, Task X has accumulated costs of $50

14. ACWP At end of February –Task X has accumulated costs of $150 –Task Y has accumulated costs of $150 –Task Z has accumulated costs of $10 –TOTAL ACWP = $310 (end of Feb.)

16. ACWP Overall, through the end of February, the project is over cost for the work that has been performed. –BCWP = $200 –ACWP = $310 Cost Variance = BCWP - ACWP –Negative Cost Variance indicates you spent more than you performed in $ –Positive Cost Variance indicates you spent less than you performed in $

17. Cost Variance At end of February –Task X BCWP = $75, ACWP = $150 –Task Y BCWP = $100, ACWP = $150 –Task Z BCWP = $25, ACWP = $10 –TOTAL BCWP = $200, ACWP = $310

18. Cost Variance At end of February –Task X BCWP = $75, ACWP = $150 CV = -$75, Over Cost –Task Y BCWP = $100, ACWP = $150 CV = -$50, Over Cost –Task Z BCWP = $25, ACWP = $10 CV = $15, Under Cost –Overall Project BCWP = $200, ACWP = $310 CV = -$110, Over Cost

19. Indexes Schedule Performance Index –BCWP / BCWS –Greater than 1 indicates ahead of schedule –Less than 1 indicates behind schedule –Examples: SPI =.75, means for $1 of work scheduled, you only performed $.75 of work. SPI = 1.25, means for $1 of work scheduled, you performed $1.25 of work.

20. Indexes Cost Performance Index –BCWP / ACWP –Greater than 1 indicates under cost –Less than 1 indicates over cost –Examples: CPI = 1.35, means for every $1 spent, you performed $1.35 of work CPI =.5, means for every $1 spent, you accomplished $.50 of work

21. Indexes End of January –BCWS = $50, BCWP = $25, ACWP = $50 –SPI = $25/$50 =.50 Behind Schedule –CPI = $25/$50 =.50 Over Budget End of February –BCWS = $200, BCWP = $200, ACWP = $310 –SPI = $200/$200 = 1 On Schedule –CPI = $200/$310 =.65 Over Budget

22. Indexes Typically don’t calculate these at Task level –How do you divide a number by zero when you perform work before it is scheduled? CPI can be used to project costs at completion.

23. Budget At Completion Total value of incremental BCWS. Should be total budget for project as allocated to the tasks to complete the project. If not all budget allocated to tasks, it is usually unallocated or held in reserve. It is however, still considered to be part of the budget at completion. This varies by application area.

24. Estimate At Completion Total cost to be incurred based on actual dollars spent to date + estimate to complete (ETC) (Latest Revised Estimate (LRE) = Estimate at Completion (EAC)) Calculation 1 °EAC = ACWP + (Remaining BCWS /CPI) °EAC = $310 + ( $400/.65) = $925 –Compare to BAC of $600. This infers that we will continue to work at same efficiency we’ve incurred to date.

25. Estimate At Completion Calculation 2 °EAC = BAC+CV °EAC = $600+$110 = $710 °This infers that we will work to plan from this point forward

26. Estimate to Complete Cost of remaining work –Formula based (BCWS/CPI) Beware of formulas using one or two data points –Engineering estimate SWAG Bottoms-Up detailed estimate –Straight remaining budget

28. Variance at Completion Difference between BAC and EAC –BAC - EAC = VAC –Positive is Good –Negative is bad

29. Earned Value Analysis Charts or reports are used to identify trends so that corrective action can occur –Project level or group of significant like tasks. –Cost/Schedule Status Report (C/SSR)or Cost Performance Report (CPR) Establishing parameters (% or $) on variances help management not overreact to natural aberrations. Project Manager wants to be able to explain unfavorable variances and actions taken to correct.

30. Corrective Actions? Schedule slippage for a specific task on the critical path or for the project as a whole. Cost overrun on a specific task on the critical path of for the project as a whole. Insufficient or inadequate resources Changes in scope that affect project cost or schedule Quality problems resulting in excessive rework Material shortages from suppliers Changes in customer or user requirements

31. Summary BCWS : Budgeted Cost of Work Scheduled BCWP : Budgeted Cost of Work Performed ACWP: Actual Cost of Work Performed SV: Schedule Variance: BCWP - BCWS –Negative is Bad, Positive is good CV: Cost Variance: BCWP - ACWP –Negative is bad, positive is good SPI: Schedule Performance Index: BCWP/BCWS –Greater than 1 is good, Less than 1 is bad

32. Summary CPI: Cost Performance Index: BCWP/ACWP –Greater than 1 is good, Less than 1 is bad BAC: Budget at Completion EAC (LRE): Estimate at Completion / Latest Revised Estimate VAC: variance at Completion: BAC - EAC –Negative is bad, positive is good ETC: Estimate To Complete