Applying Earned Value analysis to your project

March 5, 2008

You may have heard that earned value analysis is complicated. But aside from the many acronyms, its not. And it can help you answer questions like, Is there enough money left in the budget? and, Will we finish on time?Want to know more about how Project handles earned value analysis? Read on.

What is earned value analysis?

At the root of earned value analysis are three fundamental values calculated for each task (task: An activity that has a beginning and an end. Project plans are made up of tasks.):

The budgeted cost of tasks as scheduled in the project plan, based on the costs of resources (resources: The people, equipment, and material that are used to complete tasks in a project.) assigned to those tasks, plus any fixed costs (fixed cost: A set cost for a task that remains constant regardless of the task duration or the work performed by a resource.) associated with the tasks. Called the budgeted cost of work scheduled, BCWS (BCWS: The earned value field that shows how much of the budget should have been spent, in view of the baseline cost of the task, assignment, or resource. BCWS is calculated as the cumulative timephased baseline costs up to the status date or todays date.) is the baseline cost (baseline cost: The original project, resource, and assignment cost as shown in the baseline plan. The baseline cost is a snapshot of the cost at the time when the baseline plan was saved.) up to the status date (status date: A date that you set [rather than the current date] for reporting the time, cost, or performance condition of a project.) you choose. For example, the total planned budget for a 4-day task is $100 and it starts on a Monday. If the status date is set to the following Wednesday, the BCWS is $75. The actual cost (actual cost: The cost that has actually been incurred to date for a task, resource, or assignment. For example, if the only resource assigned to a task gets paid $20 per hour and has worked for two hours, the actual cost to date for the task is $40.) required to complete all or some portion of the tasks, up to the status date. This is the actual cost of work (work: For tasks, the total labor required to complete a task. For assignments, the amount of work to which a resource is assigned. For resources, the total amount of work to which

a resource is assigned for all tasks. Work is different from task duration.) performed (ACWP). For example, if the 4-day task actually incurs a total cost of $35 during each of the first 2 days, the ACWP for this period is $70 (but the BCWS is still $75). The value of the work performed by the status date, measured in currency. This is literally the value earned by the work performed and is called the budgeted cost of work performed (BCWP). For example, if after 2 days 60% percent of the work on a task has been completed, you might expect to have spent 60 percent of the total task budget, or $60.

With me, so far? Lets go on.Earned value analysis is always specific to a status date you choose. You may select the current date, a date in the past, or a date in the future. Most of the time, youll set the status date to the date you last updated project progress. For example, if the current day is Tuesday, 9/12, but the project was last updated with progress on Friday, 9/8, youd set the status date to Friday, 9/8.Here is one example of how to analyze project performance with earned value analysis. Lets say a task has a budgeted cost (BCWS) of $100, and by the status date it is 40 percent complete. The earned value (BCWP) is $40, but the scheduled value (BCWS) at the status date is $50. This tells you that the task is behind schedule less value has been earned than was planned. Lets also say that the tasks actual cost (ACWP) at the status date is $60, perhaps because a more expensive resource was assigned to the task. This tells you that the task is also over budgetmore cost has been incurred than was planned. You can see how powerful such an analysis can be. The earlier in a projects life cycle you identify such discrepancies between ACWP, BCWP and BCWS, the sooner you can take steps to remedy the problem.One common way of visualizing the key values of earned value analysis is to use a chart. Start with a simple chart showing a steady accumulation of cost over the lifetime of a project:The vertical y-axis shows the projected cumulative cost for a project.The horizontal x-axis shows time.The planned budget for this project shows a steady expenditure over the lifetime of the project. This line represents the cumulative baseline cost.After work on the project has begun, a chart of the key values of earned value analysis may look like this:The status date determines the values Project calculates.The actual cost (ACWP) of this project has exceeded the budgeted cost.The earned value (BCWP) reflects the true value of the work performed. In this case, the value of the work performed is less than the amount spent to perform that work.

What else does earned value measure?

In addition to measuring BCWS, ACWP, and BCWP, earned value analysis measures:

Cost variance (CV) (CV: The difference between the budgeted cost of work performed [BCWP] on a task and the actual cost of work performed [ACWP]. If the CV is positive, the cost is currently under the budgeted amount; if the CV is negative, the task is currently over budget.)the difference between a tasks estimated cost and its actual cost (the formula CV = BCWP ACWP). Take our earlier example where the total planned budget for a 4-day task is $100 and it starts on a Monday. When the status date is set to the following Wednesday, the BCWS is $75, the ACWP for this period is $70, and the BCWP is $60. In that case, the tasks CV is -$10. Schedule variance (SV) (SV: The difference between the budgeted cost of work performed [BCWP] and the budgeted cost of work scheduled [BCWS]. This is calculated as follows: SV = Budgeted Cost of Work Performed Budgeted Cost of Work Scheduled.)the difference between the current progress and the scheduled progress of a task, in terms of cost (the formula SV = BCWP BCWS). In the example above, the tasks SV is -$15. The cost performance index (CPI) (CPI: Ratio of budgeted costs of work performed to actual costs of work performed [BCWP/ACWP]. The cumulative CPI [sum of the BCWP for all tasks divided by the sum of the ACWP for all tasks] can be used to predict whether a project will go over budget.)the ratio of budgeted costs to actual costs (the formula CPI = BCWP / ACWP). In the example above, the tasks CPI is about .86, or 86 percent. The schedule performance index (SPI) (SPI: The ratio of the budgeted cost of work performed [BCWP] to the budgeted cost of work scheduled (BCWS), which is often used to estimate the project completion date. This is calculated as follows: SPI = BCWP/BCWS.) the ratio of work performed to work scheduled (the formula SPI = BCWP / BCWS). In the example above, the tasks SPI is .80, or 80 percent. The to complete performance index (TCPI) (TCPI: The ratio of the work remaining to be done to funds remaining to be spent, as of the status date [BAC - BCWP]/[BAC - ACWP]. A TCPI value greater than one indicates a need for increased performance; less than one indicates performance can decrease.)the ratio of the work remaining to be done to funds remaining to be spent as of the status date, or budget at completion (the formula TCPI = [BAC - BCWP] / [BAC ACWP]).

How do I interpret earned value?

Earned value indicators that are variances or ratios can help you determine if there is enough money left in the budget and if the project will finish on

time.Variances (variance: The difference between baseline and scheduled task or resource information, they usually occur when you set a baseline plan and begin entering actual information into your schedule. Variances can occur in work, costs, and schedule.), such as a cost variance (CV), can be either positive or negative:

A positive variance indicates that the project is ahead of schedule or under budget. Positive variances might enable you to reallocate money and resources from tasks or projects with positive variances to tasks or projects with negative variances. A negative variance indicates that the project is behind schedule or over budget and you need to take action. If a task or project has a negative CV, you might have to increase your budget or accept reduced profit margins.

Ratios, such as the cost performance index (CPI) and the schedule performance index (SPI), can be greater than 1 or less than 1:

A value thats greater than 1 indicates that the project is ahead of schedule or under budget. A value thats less than 1 indicates that youre behind schedule or over budget. For example, an SPI of 1.5 means that youve taken only 67 percent of the planned time to complete a portion of a task in a given time period, and a CPI of 0.8 means that youve spent 25 percent more time on a task than was planned.

How does % complete versus physical % complete affect earned value?

You can specify whether Project should use each tasks percent complete (percent complete: A field that you use to enter or display how much of a task has been completed. This value is expressed as the percentage of the task duration that has been completed.) value or physical percent complete value for earned value calculations related to BCWP. (Remember, other values are calculated from BCWP, so your decision affects the entire earned value analysis.)

Percent complete may be calculated by Project or entered directly by you, depending on how you track actual work.

Physical percent complete is always entered directly by you. Use physical percent complete when percent complete would not be an accurate measure of real work performed or remaining.

Heres a simple example of how the two values may differ: a project of building a stone wall that consists of 100 stones stacked 5 high. The first row of 20 stones can be laid in 20 minutes, but the second row would take 25 minutes because you have to lift the stones up one row higher, so it takes a little longer. The third row would take 30 minutes, the fourth 35 minutes, and the last row would take 40 minutes to lay150 minutes total. After laying the first three rows, the project could be said to be 60 percent physically complete (you laid 60 of 100 stones). However, you only spent 75 of 150 minutes; so in terms of duration, the job is only 50 percent complete.Depending on how you get paid for the workhow the value is earned (by the stone or by the hour)you may choose the percent complete value or the physical percent complete value to properly reflect this in the earned value analysis.

Which earned value quantities can I show or calculate in Project?

With Project, you can show:

Actual cost of work performed (ACWP) (ACWP: Shows actual costs incurred for work already performed by a resource on a task, up to the project status date or todays date.) shows actual costs incurred for work already performed by a resource on a task, up to the project status date or todays date. Normally Project correlates actual costs with actual work. Only if you enter actual costs independent of actual work or change resource pay rates (pay rate: Resource cost per hour. Project includes two types of pay rates: standard rates and overtime rates.) will actual cost be out of step with scheduled cost. Budget at completion (BAC) (BAC: An estimate of the total project cost.) shows an estimate of the total project cost. Budgeted cost of work performed (BCWP) (BCWP: The earned value field that indicates how much of the tasks budget should have been spent, given the actual duration of the task. Note that Project calculates BCWP at the task level differently than at the assignment level.) shows how much of the budget should have been spent given the actual duration of the task. BCWP is also referred to as earned value. Note that Project calculates BCWP at the task level differently than it does at the assignment level. For best results, use the tasklevel BCWP values, which are the values Project rolls up to summary

task (summary task: A task that is made up of subtasks and summarizes those subtasks. Use outlining to create summary tasks. Project automatically determines summary task information [such as duration and cost] by using information from the subtasks.) and the project summary task (project summary task: A task that summarizes the duration, work, and costs of all tasks in a project. The project summary task appears at the top of the project, its ID number is 0, and it presents the projects timeline from start to finish.) BCWP values. This value is calculated for each individual task but analyzed at an aggregate level (typically at the project level). Budgeted cost of work scheduled (BCWS) (BCWS: The earned value field that shows how much of the budget should have been spent, in view of the baseline cost of the task, assignment, or resource. BCWS is calculated as the cumulative timephased baseline costs up to the status date or todays date.) shows how much of the budget should have been spent in view of the baseline cost of the task, assignment, or resource. BCWS is calculated as the cumulative timephased baseline costs up to the status date or todays date. (Budgeted cost values are stored in the baseline fields, or if youve saved multiple baselines, in fields Baseline1 through Baseline10.) Cost variance (CV) (CV: The difference between the budgeted cost of work performed [BCWP] on a task and the actual cost of work performed [ACWP]. If the CV is positive, the cost is currently under the budgeted amount; if the CV is negative, the task is currently over budget.) shows the difference between the budgeted cost of work performed (BCWP) on a task and its actual cost (actual cost of work performed or ACWP). If the CV is positive, the cost is currently under the budgeted (or baseline) amount; if the CV is negative, the task is currently over budget. Schedule variance (SV) (SV: The difference between the budgeted cost of work performed [BCWP] and the budgeted cost of work scheduled [BCWS]. This is calculated as follows: SV = Budgeted Cost of Work Performed Budgeted Cost of Work Scheduled.) shows the difference between the budgeted cost of work performed (BCWP) and the budgeted cost of work scheduled (BCWS). If the SV is positive, the project is ahead of schedule in cost terms; if the SV is negative, the project is behind schedule in cost terms. Variance at completion (VAC) (VAC: The earned value field that shows the difference between the budget at completion [BAC] and the estimate at completion [EAC]. In Project, the EAC is the Total Cost field, and the BAC is the Baseline Cost field.) shows the difference between the budget at completion (BAC) and the estimate at completion (EAC). In Project, the EAC is the Total Cost field and the BAC is the Baseline Cost field from the associated baseline.

Cost performance index (CPI) (CPI: Ratio of budgeted costs of work performed to actual costs of work performed [BCWP/ACWP]. The cumulative CPI [sum of the BCWP for all tasks divided by the sum of the ACWP for all tasks] can be used to predict whether a project will go over budget.) is the ratio of budgeted, or baseline, costs of work performed to actual costs of work performed (BCWP/ACWP). Cumulative cost performance index (CPI) (CPI: In earned value, the sum of all the budgeted costs of work performed [BCWP] for all tasks divided by the sum of all the actual costs of work performed [ACWP]. CPI is often used to predict whether a project will go over budget, and by how much.) is the sum of the BCWP for all tasks divided by the sum of the actual costs of work performed (ACWP) for all tasks. Cumulative CPI is often used to predict whether a project will go over budget and by how much. Schedule performance index (SPI) (SPI: The ratio of the budgeted cost of work performed [BCWP] to the budgeted cost of work scheduled (BCWS), which is often used to estimate the project completion date. This is calculated as follows: SPI = BCWP/BCWS.) is the ratio of work performed to work scheduled (BCWP/BCWS). SPI is often used to estimate the project completion date. Estimate at completion (EAC) (EAC: The expected total cost of a task or project, based on performance as of the status date. EAC is calculated as follows: EAC = ACWP + (BAC-BCWP)/CPI.) is the expected total cost of a task or project, based on performance as of the status date. EAC is also called forecast at completion, and is calculated like this: EAC = ACWP + (BAC BCWP) / CPI. To complete performance index (TCPI) (TCPI: The ratio of the work remaining to be done to funds remaining to be spent, as of the status date [BAC - BCWP]/[BAC - ACWP]. A TCPI value greater than one indicates a need for increased performance; less than one indicates performance can decrease.) is the ratio of remaining available budget to be spent to the remaining scheduled cost as of the status date. TCPI is calculated like this: TCPI = (BAC BCWP) / (BAC ACWP). A TCPI value greater than 1 indicates good projected performance for remaining work; less than 1 indicates poor projected performance.

Where in Project do I see earned value data?

You can see earned value information in any sheet view by applying the Earned Value table or the Earned Value Cost Indicators table.

The Earned Value table shows you BCWS, BCWP, ACWP, SV, CV, EAC, BAC, and VAC. Use this table to see consolidated earned value information, including the key variance fields. Use EAC, BAC, and VAC

to evaluate the difference between your scheduled and budgeted costs. Compare CV, which shows the difference between your budgeted and actual cost of work, with SV, which shows the difference between the budgeted cost of work and the actual cost of work. The Earned Value Cost Indicators table shows you BCWS, BCWP, CV, CV%, CPI, BAC, EAC, VAC, and TCPI. Use this table to analyze cost variances. Check the CPI and TCPI to see how the project is progressing against its budget and how the rate of work compares with the expected rate. If CPI is less than 1, you are getting less work per dollar than planned. The TCPI tells you how much of an increase in performance youll need on the remaining tasks in order to keep within budget.

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Can fed-friendly software modules help agencies meet the EVM mandate?
March 4, 2008 Can fed-friendly software modules help agencies meet the EVM mandate? Possibly but experts recommend that they also apply an enterprise strategy to monitoring earned value. OMB put forward EVM requirements three years ago and finalized acquisition regulations for their use in mid-2006 (almost a year after the deadline requiring that agencies apply EVM to IT projects). A chief issue for many agencies is integration, says Rob Spanswick, a Microsoft solutions manager. Because agencies began applying EVM on a case-by-case basis when OMBs mandate first took effect, the result for many has been a hodgepodge of systems rather than an enterprise EVM approach, he says.As agencies start to become more experienced in their use of EVM, Spanswick says, youre starting to see them consolidate around one or two standard systems. This makes their systems more consistent and lets them automate transmission of their earned-value data into various reports, such as their Exhibit 300 business case submissions to OMB. Among the chief challenges is gathering the cost, scheduling and performance data to measure earned value. The EVM process can be extremely complex because information often must be gathered from many programs, applications and systems, and then synthesized. In theory, the data collection process can be done using existing systems, but in reality, gathering and preparing information from systems not originally designed to produce EVM data can be time consuming and confusing, McClure says. The strength of these EVM software packages is they establish standardized terminology, standardized calculations and standardized data collection. But simply forking over cash for software isnt going to lead to project nirvana. Agencies must also establish procedures and controls to monitor a project and keep it on track, Microsofts Spanswick says. EVM requires an up-front investment: People must be trained, processes put in place, EVM tools developed or purchased, and data collected and analyzed. But Richey contends the benefits are worth expending resources on.

As of the second quarter of fiscal 2007, only 13 of the 26 major agencies had fully implemented the provisions of the 2004 memo. Gartner attributes slow adoption to the fact that many agencies started from scratch. Some large agencies had experience with EVM, but most small agencies had none, says David McClure, vice president for government research at Gartner. To some degree, civilian agencies have been playing a catch-up game to understand what EVM is and to get their project managers trained in using it. Full article: http://www.fedtechmagazine.com/article.asp?item_id=351&sv=related

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