EARNED VALUE ANALYSIS A COST REDUCTION TECHNIQUE IN PROJECT MANAGEMENT

MEANING

AN INTEGRATED SYSTEM OF PROJECT MANEGEMENT AND CONTROL

MONITORING THE PROGRESS OF A PROJECT IN TERMS OF COST, SCHEDULE ETC.,

NEED
TRADITIONAL METHODS COMPARED ACTUAL COSTS WITH PLANNED COSTS, IGNORING THE % OF COMPLETION OF PROJECTS PHASE WISE

UTILITY OF EARNED VALUE ANALYSIS (EVA)

CONTROL ON COST OVER-RUN CONTROL ON SCHEDULE OVER-RUN VISIBILITY OF PROGRAMME PERFORMANCE PROVIDES THE LIKELY EXPENDITURE OF PROJECT WITH PRESENT PACE OF PROGRESS PROVIDES THE LIKELY COMPLETION DATE OF PROJECT WITH PRESENT PACE OF PROGRESS

UTILITY OF EVA Contd..

REDUCTION IN RISK FOR TIMELY COMPLETION OF THE PROJECT BY ALLOCATING MORE RESOURCES IDENTIFICATION OF PROJECT TEAMS INEFFICIENCY OR DEFECTIVENESS IN PROJECT PLAN ALLOCATION OF MORE RESOURCES IF COST OVER RUN IS DUE TO UNFORESEEN TECHNICAL CHANGES IN THE PROJECT

UTILITY OF EVA Contd..

IN SUMMARY EVA HELPS TO FIND THE SCHEDULE PERFORMANCE AND COST PERFORMANCE TO KNOW:
WHAT IS OBTAINED FOR THE MONEY SPENT AT GIVEN POINTS OF TIME IN A PROJECT WHILE IT IS IN PROGRESS

METHODOLOGY
PREPARATION OF PRIMARY MEASURES: 1. Budget Cost of Work Scheduled (BCWS): Also known as planned value (PV) of the project. Each project has inputs in terms of human resource, material, overheads, R & D etc. Planned cost of each project - month wise, till the targeted month is prepared

METHODOLOGY Contd..
2. Preparation of Budgeted Cost of Work Performed (BCWP) also known as earned value (EV) At every phase the project collects earned value as the work is in progress, on a pro-rata basis. Eg., if the work completed is 80%, the earned value will be 80% of budgeted value.

METHODOLOGY Contd..
3. Preparation of Actual Cost of Work Performed (ACWP) Also known as Actual Cost (AC) Actual costs of all resources deployed are collected month wise or phase wise, as per requirement

DERIVED MEASURES
The earned value is compared with actual costs and planned costs - up to a phase of completion or month. This comparison will give Cost over-run and Schedule over-run This comparison will also predict the likely future cost at which the project is likely to be completed

DERIVED MEASURES Contd..

1. COST VARIANCE (CV): The difference between the earned value and the actual cost CV = BCWP ACWP OR EV AC

2. SCHEDULE VARIANCE (SV): An indication to show how much a project/programme is ahead or behind schedule: SV = BCWP BCWS OR EV PV

DERIVED MEASURES Contd..

3. COST PERFORMANCE INDEX (CPI): The cost efficiency factor representing the relationship between the actual cost and the earned value. CPI = BCWP / ACWP or EV / AC CPI > 1 = relatively efficient cost factor CPI < 1 = inefficient cost factor

DERIVED MEASURES Contd..

4. SCHEDULE PERFORMANCE INDEX (SPI) : The planned schedule efficiency factor representing the relationship between the earned value and the initial planned schedule SPI = BCWP / BCWS OR EV / PV SPI > 1 = relatively efficient factor SPI < 1 = inefficient factor

DERIVED MEASURES Contd..

5. BUDGET AT COMPLETION (BAC) : Budgeted value for completion of the Project. It can be BAC (Value) or BAC (Time)

6. ESTIMATE COST AT COMPLETION (ECAC): It indicates the likely expenditure when the project is completed when it goes in the same pace of progress ECAC = BAC (VALUE) / CPI

DERIVED MEASURES Contd..

7. ESTIMATED TIME AT COMPLETION (ETC): It indicates the likely time when the project is to be completed with the present pace of Progress ETC = BAC (TIME) / SPI

DERIVED MEASURES Contd..

The performance status of the project is to
be discussed in monthly meetings of the project managers by the top management and corrective actions should be taken

BENEFITS OF EARNED VALUE ANALYSIS

1. ESTIMATION OF DELIVERY DATE 2. PROMOTE ACCOUNTABILITY IN MANAGERS 3. TIMELY INTERVENTION OF MANAGEMENT

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