project managment 6 (a)

Earned Value Management 4/3/2011

PMP Prep Course 1

Earned Value Management

Earned Value Analysis

Concepts


“The rabbit wouldn’t have lost the race if someone

informed about its performance time to time…”

From old story of Rabbit & Tortoise


PMP Prep Course 2


WHAT IS EVA?

EVA is basically a methodology to track

1. Project Schedule Performance

2. Project Cost Performance

3. Project Progress


Project Schedule Performance

- to measure project schedule

performance and determine time to

complete project

- i.e. measuring what is completed to date

what is expected to complete


PMP Prep Course 3


Project Cost Performance

- to measure how much is spent against what

is expected to be spent


Benefits of EVA

1. For project managers• Reliable project costs and schedule data for

more effective decision making

• The relationship between cost, schedule and work achieved

• Ability to avoid last-minute “surprises”

• Early identification of potential problems

• Accurate prediction of project costs at completion


PMP Prep Course 4


Benefits of EVA

2. Provide ability to answer ◦ What did we get for money spent

◦ How much will the project cost to complete

◦ When will the project be complete

◦ Which activities are contributing to the cost overrun

◦ Which resources contributing to the schedule slippage


Planned Value (PV)Planned Value (PV). PV tells you what you plan to

do. Planned Value = Physical Work + Approved

BudgetPV, also known as Budgeted Cost of Work

Scheduled (BCWS)PV is categorized as:

Cumulative PV is the sum of the approved budget for activities scheduled to be performed to date.

Current PV is the approved budget for activities scheduled to be performed during a given period.


PMP Prep Course 5

Earned Value AnalysisPV example

We are working on a Client/Server project, and part of the scope is for Software Design. The time frame is 5 months and the budget for this scope is $15,000,

resulting in a budget of $3,000 per month.

What is current and cumulative PV?

Dollars

Client/Server project – Software Design

JAN

3000

FEB

3000

MAR

3000

APR

3000

MAY

3000PV

As on today


The Cumulative PV is the total for the elapsed months:

January – March. The cumulative PV is $9,000.

The Current PV is the budget for the current month,

March, and equals $3,000.

Dollars


JAN

3000

FEB

3000

MAR

3000

APR

3000

MAY

3000PV

As on today


PMP Prep Course 6


Budget at Completion (BAC)

BAC is the sum of all budgets allocated to a

project scope.

◦ BAC can be obtained by work packages

◦ The Project BAC must always equal the Project

Total PV.

◦ If they are not equal, your earned value calculations

and analysis will be inaccurate.


What is the BAC for this project if Software Design is the complete scope of the project?

•Yes, BAC = $15,000. And, in keeping with the previous points about BAC

•The project BAC equals the Project Total PV.

•The Earned Value calculations are correct.

Dollars


JAN

3000

FEB

3000

MAR

3000

APR

3000

MAY

3000PV

As on today


PMP Prep Course 7


Actual Cost (AC)

Actual Cost (AC), also called actual expenditures, is the cost incurred for executing work on a project..

AC is also called Actual Cost of Work Performed (ACWP).

Cumulative AC is the sum of the actual cost for activities performed to date.

Current AC is the actual costs of activities performed during a given period.


Cumulative AC is the sum of the actual cost for activities performed to date, and Current AC is the actual costs of activities performed during a given period.

•The Cumulative AC is the total for the elapsed months: January –

March. The Cumulative AC is $3,800.

•The Current AC is the actual cost for the current month, March,

and equals $1,500.

Dollars


JAN

3000

1100

FEB

3000

1200

MAR

3000

1500

APR

3000

MAY

3000PV

AC

As on today


PMP Prep Course 8


Earned Value (EV)

EV is the quantification of the “worth” of the work done to date.

EV tells us, in physical terms, what the project has accomplished.

Cumulative EV is the sum of the budget for the activities accomplished to date.

Current EV is the sum of the budget for the activities

accomplished in a given period.


Earned Value example

• The Current EV is the sum of the budget for the activities accomplished in the current month, March, and equals $1,200.

• The Cumulative EV is the sum of the budget for the activities accomplished to date: January – March. The cumulative EV is therefore $3,100.

Dollars


JAN

3000

1100

900

FEB

3000

1200

1000

MAR

3000

1500

1200

APR

3000

MAY

3000PV

AC

EV As on today


PMP Prep Course 9


Cum PV = $9,000 Current PV = $3,000 BAC = $15,000

Cum AC = $3,800 Current AC = $1,500

Cum EV = $3,100 Current EV = $1,200

Dollars


JAN

3000

1100

900

FEB

3000

1200

1000

MAR

3000

1500

1200

APR

3000

MAY

3000PV

AC

EV As on today


Actual Cost

(AC)

Earned Value

(EV)

Planned Value

(PV)

Budget At

Completion

(BAC)

As On Date


PMP Prep Course 10

Earned Value Analysis Schedule Variance (SV) = (BCWP – BCWS)

= (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

Cost Variance (CV) = (BCWP – ACWP)

= (EV – AC)◦ A comparison of the budgeted cost of work

performed with actual cost.

◦ A negative variance means the project is over budget.


Schedule Performance Index (SPI)

SPI=BCWP/BCWS = EV/PV

SPI<1 means project is behind schedule

Cost Performance Index (CPI)

CPI= BCWP/ACWP = EV/AC

CPI<1 means project is over budget

Cost Schedule Index (CSI)


PMP Prep Course 11


CSI=CPI x SPI

CSI <1, the project is over budget and behind

schedule

Estimate At Completion (EAC)

EAC = BAC/CPI

Estimate to Complete (ETC)

ETC = EAC – BAC


To-Complete Performance Index (TCPI)

Is calculated projection of cost performance,

must be achieved on the remaining work

That is ratio between remaining work and

funds remaining

TCPI = (BAC-EV)/(BAC-AC)


PMP Prep Course 12


A $10,000 software project is scheduled

for 4 weeks.

At the end of the third week, the project is

50% complete and the actual costs to

date is $9,000

Planned Value (PV) = $7,500

Earned Value (EV) = $5,000

Actual Cost (AC) = $9,000


Schedule Variance= EV – PV = $5,000 – $7,500 = - $2,500

Schedule Performance Index (SPI)= EV/PV = $5,000 / $7,500 = 0.66

Cost Variance= EV – AC = $5,000 - $9,000 = - $4,000

Cost Performance Index (CPI)= EV/AC = $5,000 / $9,000 = 0.55

The metrics indicate the project is behind scheduleand over budget.

On-target projects have an SPI and CPI of 1 or greater


PMP Prep Course 13


If the project continues at the current

performance, what is the true cost of the

project?

Estimate At Complete

= Budget At Complete (BAC) / CPI

= $10,000 / 0.55 = $18,181

At the end of the project, the total project

costs will be $18,181

Earned Value AnalysisFormulas to recap:

SCHEDULE COST

SV = EV – PV

SV = BCWP – BCWS

CV = EV – AC

CV = BCWP – ACWP

SPI = EV / PV

SPE = BCWP / BCWS

CPI = EV / AC

CPI = BCWP / ACWP

CSI = CPI * SPI EAC = BAC / CPI

TCPI = (BAC-EV)/(BAC-AC) ETC = EAC - BAC


PMP Prep Course 14

Questions ?

project managment 6 (a)

Business

value pvplanned value

value analysis cumulative

todayearned value analysis

project bac

earned value calculations

value ev ev

complete project

project scope