Earned Value Management For Effective Project Status Reporting
Gerald Riordan asked:
Earned Value analysis helps evaluate and control project risk by measuring project progress in monetary terms.
If you can’t measure it, you can’t control it.
Earned Value Management Systems are used to measure the real progress of projects and takes into account: — The work complete — The time taken to complete that work — The costs incurred to complete that work and compares these factors to: — The original budget — The original schedule.
By taking a snap-shot of the project and looking at the historical performance by calculating the Earned Value metrics we can compare the plan with the actual and make a subjective assessment of the project progress.
Furthermore, by extrapolating the curves of the graphs we can estimate the cost at completion and the probable completion date.
The simple S-curve graph shows how project cost will accrue over time.
We can complicate the graph by showing: — The actual costs of doing the work — How the value of the product of the project increases.
The three curves on the graph represent:
– Budgeted Cost for Work Scheduled (BCWS) - the planned costs for all activities planned to be completed — Actual Cost of Work Performed (ACWP) - the actual costs for all the activities actually completed — Budgeted Cost of Work Performed (BCWP) - the planned costs for all the activities actually completed. This is the Earned Value
The BCWS curve is derived from: — Work Breakdown Structure — Project baseline budget — Project baseline schedule
The ACWP curve is found by: — Actual measurement of the work completed — Actual costs recorded by the project finance controller
The BCWP curve is calculated from: — The measured work completed — The budgeted costs for that work.
Earned Value Calculations
Variances
Schedule and cost variances can be calculated in monetary terms from the S-curves.
Schedule variance is the difference between the Earned Value and the Planned Budget. SV = BCWP - BCWS
Cost Variance is the difference between the Earned Value and the actual costs of the works. CV = BCWP - ACWP
Performance Indices
Schedule Performance Index and Cost Performance Index give indications of the health of the project.
Schedule Performance Index is a ratio of Earned Value and the planned value of completed works. SPI = BCWP / BCWS
A SPI < 1 is not good
Cost Performance Index is a ratio of Earned Value and the actual costs of completed works. CPI = BCWP / ACWP
A CPI < 1 is not good
Estimate at Completion
EAC takes into account the original budget (BAC), the Earned Value and the Cost Performance Index of the already completed works. EAC = ACWP + ((BAC - BCWP)/CPI)
Critical Ratio
Measures the general health of the project and considers: — planned progress versus actual progress — Budget costs versus actual costs
(Actual Progress/Scheduled Progress) X (Budgeted Costs/Actual Costs)
Critical ratio > 1 is good
Using earned value techniques the project manager can monitor both schedule and cost variances and identify trends using Cost Performance Index and the Schedule Performance Index. The proactive project manager will monitor the earned value metrics and take timely actions to reduce the unwanted variances and the wayward trends.
Earned Value analysis helps evaluate and control project risk by measuring project progress in monetary terms.
If you can’t measure it, you can’t control it.
Earned Value Management Systems are used to measure the real progress of projects and takes into account: — The work complete — The time taken to complete that work — The costs incurred to complete that work and compares these factors to: — The original budget — The original schedule.
By taking a snap-shot of the project and looking at the historical performance by calculating the Earned Value metrics we can compare the plan with the actual and make a subjective assessment of the project progress.
Furthermore, by extrapolating the curves of the graphs we can estimate the cost at completion and the probable completion date.
The simple S-curve graph shows how project cost will accrue over time.
We can complicate the graph by showing: — The actual costs of doing the work — How the value of the product of the project increases.
The three curves on the graph represent:
– Budgeted Cost for Work Scheduled (BCWS) - the planned costs for all activities planned to be completed — Actual Cost of Work Performed (ACWP) - the actual costs for all the activities actually completed — Budgeted Cost of Work Performed (BCWP) - the planned costs for all the activities actually completed. This is the Earned Value
The BCWS curve is derived from: — Work Breakdown Structure — Project baseline budget — Project baseline schedule
The ACWP curve is found by: — Actual measurement of the work completed — Actual costs recorded by the project finance controller
The BCWP curve is calculated from: — The measured work completed — The budgeted costs for that work.
Earned Value Calculations
Variances
Schedule and cost variances can be calculated in monetary terms from the S-curves.
Schedule variance is the difference between the Earned Value and the Planned Budget. SV = BCWP - BCWS
Cost Variance is the difference between the Earned Value and the actual costs of the works. CV = BCWP - ACWP
Performance Indices
Schedule Performance Index and Cost Performance Index give indications of the health of the project.
Schedule Performance Index is a ratio of Earned Value and the planned value of completed works. SPI = BCWP / BCWS
A SPI < 1 is not good
Cost Performance Index is a ratio of Earned Value and the actual costs of completed works. CPI = BCWP / ACWP
A CPI < 1 is not good
Estimate at Completion
EAC takes into account the original budget (BAC), the Earned Value and the Cost Performance Index of the already completed works. EAC = ACWP + ((BAC - BCWP)/CPI)
Critical Ratio
Measures the general health of the project and considers: — planned progress versus actual progress — Budget costs versus actual costs
(Actual Progress/Scheduled Progress) X (Budgeted Costs/Actual Costs)
Critical ratio > 1 is good
Using earned value techniques the project manager can monitor both schedule and cost variances and identify trends using Cost Performance Index and the Schedule Performance Index. The proactive project manager will monitor the earned value metrics and take timely actions to reduce the unwanted variances and the wayward trends.