project control – earned value management

Project Control – Earned Value Management

Earned Value Management is a methodology used to measure and communicate the real physical progress of a project taking into

account the work complete, the time taken and the costs incurred to complete that work.

Earned Value helps evaluate and control project risk by measuring project progress

in monetary terms.

Jan 2011 Slide 2 of 37 Project Control - Earned Value Management System, By Prof. Nadpurohit

By taking a snapshot of the project and calculating the Earned Value metrics we can

compare the planned with the actual and make a subjective assessment of the project

progress.

By extrapolating the curves and further calculation we can also estimate the costs to

project completion and the probable completion date.


Steps in Setting up an Earned value Management system

Define the scope of the works. Set up a Work Breakdown Structure (WBS). Develop a Project Master Schedule showing

when every Work Package will be carried out. Allocate budget costs to each Work Package

(the lowest level of WBS). Establish a practical way of measuring the

actual work completed. Set, in concrete, the performance

measurement baseline.


Budgeted Cost for Work Scheduled (BCWS) – the budgets for all activities planned to be completed.

The BCWS curve is derived from the Work Breakdown Structure, the project budget and the Project Master Schedule. The cost of each Work Package is calculated and the cumulative cost of completed Works Packages is shown based on the planned completion dates shown in the Master Schedule.


Actual Cost of Work Performed (ACWP) – the real costs of the work charged against the completed activities.

The ACWP curve is found by actual measurement of the work completed. Actual costs recorded from invoices and workmen's time sheets. This appears a daunting task but it can be very simple with sufficient planning and organizing.


Budgeted Cost of Work Performed (BCWP) –the planned costs of the work allocated to the completed activities. This is the Earned Value.

The BCWP is calculated from the measured work complete and the budgeted costs for that work.Earned Value = Percentage project complete X Project Budget


Variances

Schedule and cost variances can both be calculated in monetary terms from the data needed to produce 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


Schedule Variance (SV)• Indicates the deviation between the work

content performed and the work content scheduled for the control period


Cost Variance (CV)• A positive CV indicates a lower actual cost

than budgeted for the control period, while a negative CV indicates a cost overrun


Performance IndicesSchedule Performance Index and Cost Performance Index give indications of the health of the project. Is the project on time, in budget or what?

Schedule Performance Index is a ratio of Earned Value and the planned value of completed works. SPI = BCWP / BCWS SPI < 1 is not good

Cost Performance Index is a ratio of Earned Value and the actual costs of completed works. CPI = BCWP / ACWP CPI < 1 is not good


Schedule Performance Index (SPI)

• Defined as the ratio BCWP/BCWS

• A value close to 1 indicates an activity that is on schedule

• Values greater than 1 suggest the activity is ahead of schedule

• Values less than 1 indicate a schedule overrun


Cost Performance Index (CPI)• Defined as the ratio BCWP/ACWP

• A value close to 1 indicates an activity that is on budget

• Values greater than 1 suggest the activity is below budget

• Values less than 1 indicate a budget overrun


Rules of Thumb for EVA Numbers

• Negative numbers for cost and schedule variance indicate problems in those areas. The project is costing more than planned or taking longer than planned

• CPI and SPI less than 1 indicate problems


Two Additional Formulas

• What will be the final cost of the project if status quo is maintained? Estimated cost at completion (EAC) EAC = the original cost estimate for the project, called the

Budget-at-Completion (BAC), divided by the Cost Performance Index

EAC = (BAC / CPI)

• What is the estimated time to complete the project if status quo is maintained? Estimated time to completion (ETC) ETC = the original time estimate for the project divided by

Schedule performance index (SPI) ETC = (original time estimate / SPI)


Critical Ratio•(Actual Progress/Scheduled Progress) X (Budgeted Costs/Actual Costs)•This critical ratio is a good measure of the general health of a project as it combines both schedule and cost in that a poor performance in one is compensated by a good performance in the other. A critical ratio greater than 1 is good, less than one is bad. Furthermore the project manager should also set control limits on the various critical ratios. If the ratios are outside the limits then corrective action is necessary.


Uses of Earned value• Earned Value is based on the idea that the value of the product

of the project increases as tasks are completed. And therefore the Earned Value is a measure of the real progress of the project.

• Earned Value provides a standard means of objectively measuring work accomplished by integrating cost, schedule and technical performance into one set of metrics so that effective comparisons can be made.

• Earned Value can be used to communicate the progress of the works. This is historical information, "water under the bridge", you can't do anything about it.

• The more relevant use to the proactive project manager is to measure variances and define trends. Actions can then be taken to reduce the unwanted variances and the wayward trends.


Table 6-7. Earned Value Formulas

Term Formula Earned Value Budgeted Cost of Work Performed (BCWP) =

budgeted cost of task X % complete Cost Variance CV=BCWP-ACWP (actual cost of work performed) Schedule Variance SV=BCWP-BCWS (budgeted cost of work

scheduled) Cost Performance Index CPI=BCWP/ACWP Schedule Performance Index SPI = BCWP/BCWS


Table 6-6. Earned Value Calculations for One Activity After Week One

Activity Week 1 Week 2 Total % Complete after Week 1

EarnedValue after Week 1

(BCWP) Purchase web server 10,000 0 10,000 75% 7,500 Weekly Plan (BCWS) 10,000 0 10,000 Weekly Actual (ACWP) 15,000 5,000 20,000 Cost Variance (CV) -7,500 Schedule Variance (SV) -2,500 Cost Performance Index (CPI)

50%

Schedule Performance Index (SPI)

75%


Figure 6-2. Earned Value Calculations for a One-Year Project After Five Months


In the Figure above• Budget at Completion = BAC = original budget at the

planned completion date• Time at Completion = TAC = original completion time• In the figure above, `100,000 in month 12• Estimate at completion = EAC = BAC/CPI• Estimate at completion = `100,000/.83 = `120,455• Estimated time to complete = ETAC = TAC/SPI• Estimated time to complete = 12/.96 = 12.55 mos.


Updating cost estimates• BAC = Budget at completion = total budget

of the project activities based on the original project plan

• Assuming the original budget (the BAC) was `200,000 and the CPI is 1.12, what is EAC?

• EAC = BAC / CPI = `200,000 / 1.12

• `178,571


Updating schedule estimates

• TAC = Time at completion = total time required to complete the schedule

• ETAC = Estimated (revised) time to complete

• Assuming the TAC was 12 months what is the ETAC?

• ETAC = TAC / SPI = 12 / .77• 15.6 months• Project will be delayed almost 4 monthsJan 2011 Slide 24 of 37 Project Control - Earned Value Management System,

By Prof. Nadpurohit

Updating, Cont’d• WR = Work Remaining = budgeted cost of

the work not yet accomplished by the end of the reporting period

• WR = BAC - BCWP• ETC = updated estimate of the cost of

work remaining = COST(WR)• EAC = updated estimate of the total

project cost = ACWP + ETC


Figure 6-3. Earned Value Chart for Project After Five Months

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1 2 3 4 5 6 7 8 9 10 11 12

Month

$

BCWS or Cumulative Plan ACWP or Cumulative Actual BCWP or Cumulative EV

BCWS

ACWP

BWCP

BAC

EAC


Using Software to Assist in Cost Management

• Spreadsheets are a common tool for resource planning, cost estimating, cost budgeting, and cost control

• Many companies use more sophisticated and centralized financial applications software for cost information

• Project management software has many cost-related features


Using MS Project for Execution & Control

• First, make certain your project plan is complete and final

• Second, save it as a baseline

• Begin entering actual information – Actual costs– Percentage complete


Tracking: MS Project will track—

• Task start dates

• Task finish dates

• Task duration

• Task cost work

• Percentage of task that is complete


Getting Earned Value Data Visible

• You can go to view and replace the entry table with the Earned Value table

• Or, you can enter the earned value columns into your existing table through the Insert Column facility.– The columns are BCWP, BCWS, ACWP, CV,

SC, SPI, CPI, etc.You can also request the Tracking Gantt Chart

off the LHS side of MS Project


Entering actual start & Finish dates for a task

• On the view bar, click Gantt chart

• In the task name field select the task to update

• On the Tools menu, point to tracking and click Update Tasks

• Under Actual, type the dates in the Start and Finish boxes


Indicating progress on a task as a percentage

• In the task name field of the Gantt Chart

• Double click—this brings up the task information sheet

• Select the general tab

• In the percentage complete box type a whole number between 0 and 100


Entering actual costs for a resource assignment

• On the Tools menu, click options, then click the calculation tab

• Clear the Actual costs are always calculated by MS Project check box

• Click OK• On the view bar, click Task usage• On the view menu, point to the Table, and click Tracking• Drag the divider bar to the right to view the Activity Cost field• In the activity cost field, type the actual cost for the

assignment for which you want to update costs


a) Define “earned value”. Explain how the variances and indices used in ‘earned value analysis’ are effective for project control.

b) The following information is available at end of day 40 of a new plant erection project. Determine if the project is under control based on Earned Value evaluation system, and if not, what is the likely extent of cost and time over-runs at completion.

Activity

Immediate Predecessor

s

Duration

Total Budget for

activity Rs. ‘000

Actual costTill Date Rs. ‘000

Actual % Completio

nTill date

A - 10 300 250 100

B A 8 400 450 100

C A 12 350 380 100

D C 0 0 0 0

E B, D 18 405 400 70

F E 16 450 -- 0


a) The progress observed at the end of the Seventh day from the beginning on a 12 day duration project is as given in the following table. The actual cost incurred till date is reported to be Rs. 3,100. Draw a Gantt chart for the project and find the project performance on the basis of Cost and Schedule Performance Indices. (Assume the activity costs are incurred uniformly over its duration.)

ACTIVITY IMMEDIATE PREDECESSORS

ESTIMATED DURATION

IN DAYS

BUDGETED COST OF

ACTIVITY

ACTUAL % COMPLETION AT END OF DAY 7

A - 3 600 100 %

B - 1 200 100 %

C A 4 800 75 %

D B 4 700 100 %

E B 5 500 95 %

F D 2 200 80 %

G E 3 500 50 %

H C 4 400 0 %

I F 2 600 0 %

J G 3 300 0 %


a) A project comprising of 10 activities with total expected duration of 35 weeks was reviewed on completion of 20 weeks after start. The physical progress of various activities as assessed and actual costs incurred till date are compared with expected progress and budgeted figures as under:

ACTIVITY % COMPLETION COST IN RS. LACS

SCHEDULED ACTUAL BUDGETED TOTAL ACTUAL TILL DATE

1 100 100 10.0 12.0

2 100 100 12.0 12.5

3 70 60 18.0 12.0

4 55 50 25.0 13.0

5 30 25 20.0 6.0

6 10 0 15.0 0.0

7 0 0 10.0 0.0

8 0 0 8.5 0.0

9 0 0 6.5 0.0

10 0 0 5.0 0.0

TOTAL 130.0 55.5

If the costs are incurred linearly in proportion to activity completion, find out the I)Budgeted Cost of Work Scheduled (BCWS)II)Budgeted Cost of Work Performed (BCWP)III)Cost VarianceIV)Cost Performance Index (CPI)Schedule Performance Index (SPI) Jan 2011 Slide 36 of 37 Project Control - Earned Value Management System,

By Prof. Nadpurohit

Why Earned Value Analysis??• You can’t tell what your true cost variance

is because you don’t know where you are relative to schedule– Suppose you are behind schedule but also

you have spent less than what the schedule has called for. Are you really under budget?


Cost Control

• Project cost control includes– monitoring cost performance– ensuring that only appropriate project

changes are included in a revised cost baseline

– informing project stakeholders of authorized changes to the project that will affect costs

• Earned value analysis is an important tool for cost control


project control – earned value management

Documents

earned value metrics

control project risk

nadpurohitproject control

project completion

project progress

actual work

work package

project master schedule