earned value management - the basics

8/6/2019 Earned Value Management - The Basics

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Earned Value Management

The Basics



EVA Learning Outcomes

• Describe EVM

• Explain advantages and disadvantages of

EVM• Perform earned value calculation and

interpret earned value data



Earned Value Management

Defined

Earned Value Management (EVM) is a project control process based on a

structured approach to planning, cost collection and performance

measurement. It facilitates the integration of project scope, time and cost

objectives and the establishment of a baseline plan for performance

measurement.

The purpose of measuring earned value is to provide information in order to

determine:

• what has been achieved of the planned work

• what it has cost to achieve the planned work

• whether the work achieved is costing more or less than was planned

• whether the project is ahead of behind the planned schedule



Advantages and Disadvantages of

EVM

Advantages Disadvantages

Variance analysis – shows current status interms of cost and schedule

Time consuming and requires experiencedeffort to measure and analyse performance.

Forecasting – enables predictions of cost atcompletion and completion date

Forecasts depend on reliable measurementsthat can be difficult to achieve for some costtypes

Efficiency – provides performance indicesidentifying areas under of ever performing andrequiring corrective action

Past performance is not necessarily anindication of future performance

Estimating accuracy – provides feedback of actual performance against baseline estimates

Does not take into account risks anduncertainties

Provides triggers for escalating problems andhighlighting successes

Requires a compatible cost collection system



Earned Value Elements• Planned Value (PV) – Value of work planned to be done at a particular point in time.

• Earned Value (EV) – Value (volume) of Work Achieved – Physical Progress• Actual Cost (AC) –Recorded Cost of work performed

By integrating three

measurements - EV, AC &

TIME : Key performanceindicators are produced to

evaluate the health of the

project.

COST

TIME

AC PV

EV



EV Management Terms

• Budget at Completion – Total budget for the work to be carried out

• Original Duration – planned overall duration

• Planned Value – Budgeted Cost of the Work Scheduled (BCWS)

• Data Date – reference point used to measure and evaluate the current status aka Time

Now

• Actual Cost – Cumulative cost incurred at the Data Date. Also called the Actual Costof Work Performed (ACWP)

• Earned Value – Value of planned work done at Data Date. Also called the Budgeted

Cost of Work Performed (BCWP)

• Estimated Cost at Completion (EAC) – The predicted outturn in cost terms

Memorise these – all schedulers must know it!



EV Management Terms

CO

ST

TIMEEV

Actual

Cost

Budget at

Completion

Estimated Cost atCompletion

Forecast Cost

Overrun

Forecast Time

Overrun

PV

Forecast

SVCV

Data

Date

OD Forecast

Duration



Earned Value Principles

The principles of Earned Value Analysis can be illustrated through a simple

example as shown.

The project objectives are to lay a new pipeline. The work has been broken

down into two areas: Ground Works and Pipe Works. Ground works has

been completed. The are tow work packages in Pipe Works. The first, ‘Buy

Pipe’ has been completed and the pipe has been deliver to site. The other work package ‘Lay Pipe’ has been in progress for two weeks.

Key objectives and parameters for the work package are:

Estimated cost for laying pipe = £100 per meter

Length to be laid = 1000 metersThus, Total Budget = £100k

Duration for WP = 8weeks

Quality = no leaks



Earned Value Measurement

After two weeks (Time Now aka Data Date) the work package manager reviews the

progress

The manager is expecting 25% of the work to be completed at Data Date. This is based

on the estimated spend over two weeks. Since the budget for all of the work is

£100k, the value for 25% of the work is £25k assuming a linear rate of spend for

simplicity.

At Data Date the manager also check the account and finds that £30k has been charged

to the work package (actual cost). However, also at Data Date, the manager checks

the surveyor's report which shows that 20% has been achieved.

2 wk 4 wk 6 wk 8 wk

Check points

EV at Data Date

= % Compl x budget

= 20% x £100k

= £20k

Actual Cost (AC) at Data Date = £30k

Planned Value (PV) at Data Date = £25k



Earned Value Analysis

The manager can now complete the analysis.

The first task is to calculate the SV. This will indicate how much the project is off-spec in terms of time.

SV = EV – PV

= £20k - £25k

= -£5k

The next task is to calculate the cost variance. This will show how much the project is off target interms of cost.

CV = EV – AC

= £20k - £30k

= -£10k

From above calculation we can see that the project is behind schedule and overspending. Further

analysis will provide predictions of the time and cost.

Ev

PvAc

Cost Schedule

EV = £20k

PV = £25kAC = £30k



Performance Indicators

The performance indices are calculated as follows:

SPI = EV/PV = 20/25 = 0.8

CPI = EV/AC = 20/30 = 0.67

Thus,

Forecast Duration = OD/SPI = 8/0.8 = 10weeks

EAC = BAC/CPI = 100/0.67 = £150k

Ev

PvAc

Cost Schedule

EV = £20k

PV = £25kAC = £30k



What does this look like graphically?

COST

( 1 0 0 0

’ s )

WeeksEV

Budget at

Completion

Estimated Cost atCompletion

Forecast Cost

Overrun

Forecast Time

Overrun

PV

Forecast

SVCV

2 8 10

20

25

30

150

100

AC

D r a w

i n b y h a

n d



Exercise 1

A project has a budget o £200k and a completion date of 12 months. The progress for the first four months is shown in the table below

All values are in £k

Month 1 Month 2 Month 3 Month 4

PV 40 85 80 110

AC 30 70 95 115

EV 35 55 75 95

1. Calculate the forecast duration and the estimate at completion (EAC) for this project based on this information.

2. Explain how the cost efficiency has changed of the first four months

3. What will the EAC be if the CPI changes to 0.9 for all remaining work?



Exercise 1 – Student Handout

COST

( 1 0 0 0

’ s )

Months



Exercise 1 - Answers

Month CPI

1 1.17

2 0.79

3 0.79

4 0.83

1. At Month 4 (latest Data Date):

SPI = EV/PV = 95/110 = 0.86

Forecast Duration = OD/SPI = 12/0.86 = 13.95 = 14months

CPI = EV/AC = 95/115 = 0.83

EAC = BAC/CPI = 200/0.83 = £241k

2. Cost efficiency can be represented by CPI

1

C

P I

Months

1 32 4



Exercise 1 – Answers (Continued)2. Cost efficiency was excellent for Month 1 because CPI>1

CPI for Month 2 dropped below desired levels with CPI<1

Month 3’s CPI was still poor (CPI<1) with no change from the previous monthMonth 4 shows a slight improvement, however the CPI indicates that th is project will overspend.

3. EAC = BAC/CPI = 200/0.9 = £222k

earned value management - the basics

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