Earned value

CSE Senior Design ICSE Senior Design I
Earned Value ManagementEarned Value Management
Some slides in this presentation were originally developed by Mr. Tom
Rethard, and most have been further enhanced and modified by Mr. Mike
O’Dell for use in the CSE Senior Design class.
Instructor: Mike O’DellInstructor: Mike O’Dell

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Earned Value - What is it?Earned Value - What is it?
Simply, it is a project monitoring and
measurement system that:
1. establishes a clear relationship between
plannedplanned accomplishments and actualactual
accomplishments
2.2. reinforcesreinforces and rewards good planninggood planning
practices

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Basic concepts of Earned Value
Management (EVM)
 Each task in a project earns value as plannedplanned
workwork is completed
For example (perhaps), if you were paid on this
basis, you would earnearn $$ at key milestones based on
the value of what you have completed (earned value)
 Earned value can be compared to actual cost
and budgeted cost to determine variance and
predict future performance

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 The budgeted costbudgeted cost (e.g., dollars, person-hours,
person-days, etc.) in terms of your baselinebaseline
plan/budgetplan/budget of the work performed up to a
specified point in time
 Also known as Budgeted Cost of Work Performed
(BCWPBCWP)
 Each task in the Work Breakdown Structure
(WBS) is assigned a BCWP based on its individual
cost.
 Project BCWP is total of BCWP for all tasks required
to complete the project

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Earned Value ComponentsEarned Value Components
 Planned Value (a.k.a. BCWSBCWS)
 How much work (person-hours) you planned to have
accomplished at a given point in time (this is from the
WBS in your plan)
 Actual Cost (a.k.a. ACWPACWP)
 How much work (person-hours) you have actually spent
at a given point in time
 Earned Value (a.k.a. BCWPBCWP)
 The value (person-hours) in terms of your base budget
of what you have accomplished at a given point in time
(or, % complete X Planned Value)

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Earned Value: ExampleEarned Value: Example
On Day X:
 PLANNED VALUEPLANNED VALUE (Budgeted cost of the work scheduled, BCWS) =
18 + 10 + 16 + 6 = 50
 EARNED VALUEEARNED VALUE (Budgeted cost of the work performed, BCWP) =
18 + 8 + 14 + 0 = 40
 ACTUAL COSTACTUAL COST (of the work performed , ACWP) =
45 (from your project tracking - not evident in above chart)
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Today

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Earned Value: ExampleEarned Value: ExampleCost(Person-Hours)
Time (Date)
Planned ValuePlanned Value: what your
plan called for sending on
the tasks planned to be
completed by this date.
Today
Earned ValueEarned Value: value
(cost) of what you have
accomplished to date, per
the base plan.
Actual CostActual Cost: what you
have actually spent to
this point in time.
Budgeted (Planned) Spending
Actual Spending
Actual Spending
Earned Value
Earned Value

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Earned Value: ExampleEarned Value: ExampleCost(Person-Hours)
Time (Date)
Today
Actual Spending
Actual Spending
Earned Value
Earned Value
BehindBehind
ScheduleSchedule
OverOver
BudgetBudget

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VarianceVariance
Any schedule or cost deviationschedule or cost deviation from a
specific plan.
Used within an organization to verify the
budget and schedule for a project
Frequently used as a key component of
plan reviews and performanceplan reviews and performance
measurementmeasurement

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VarianceVariance
Must compare scheduling and budget
variance at the same time
 Schedule varianceSchedule variance: deviations from work
planned – not a measure of changes in cost
 Cost varianceCost variance: deviations from the
budget – not a measure of work scheduled vs.
work completed
Example: applying more $$/people to a task may
maintain the schedule, but it adds to cost…
schedule on track… over budget on expenses (cost)

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Performance IndicesPerformance Indices
Cost Performance Index
 CPICPI = BCWP/ACWP
Schedule Performance Index
 SPISPI = BCWP/BCWS
Analysis
 CPI > 1.0  exceptional performance
 CPI < 1.0  poor performance
 Similar for SPI

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QuizQuiz
 The EV measurement of work you planned to have
accomplished at a given point in time :
a. BCWP
b. ACSP
c. BCWS
d. ACWS
 True or False: At any point in time, the SPI tells
you exactly how far ahead or behind schedule
you are on your project.
a. TRUE
b. FALSE

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QuizQuiz
 If BCWP is 20 pm and ACWP is 15 pm, CPI:
a. .75
b. 1.33
c. 1.0
d. 0
 If BCWP is 27 pm BCWS is 25 pm, you are
probably:
a. On schedule
b. Ahead of schedule
c. Behind schedule
d. None of the above

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Earned Value & Variance: ExampleEarned Value & Variance: Example
On Day X:
 PLANNED VALUE (BCWS) = 18 + 10 + 16 + 6 = 50
 EARNED VALUE (BCWP) = 18 + 8 + 14 + 0 = 40
 ACTUAL COST (ACWP) = 45 (from your project tracking)
Therefore:
 Schedule VarianceSchedule Variance = BCWP – BCWS = 40 - 50 = -10 (behind schedule)
 Schedule Performance IndexSchedule Performance Index = 40 / 50 = 0.8, or 80% of plan (a B-, at best)
 Cost VarianceCost Variance = BCWP - ACWP = 40 - 45 = -5
 Cost Performance IndexCost Performance Index = 40/45 = .89, or you’re getting an 89¢ return on every
$1.00 (or, person-hour) spent on this project
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Primary Measurement MethodsPrimary Measurement Methods
MeasurableMeasurable efforts
 Discrete increments of workDiscrete increments of work with definable
schedule and tangible results (i.e., real tasks
with a deliverable)
Level of effortLevel of effort
 Work that is notnot discernable in discretediscrete,
measurable tasks (e.g., project management,
training)

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Determining % Complete – When?Determining % Complete – When?
 Allocate based on time spent – but what if you
spend more time than allocated?
 Allocate 50% at start of task, 50% at end
 But only for small, discrete taskssmall, discrete tasks
 Allocate 100% at start of task
 Allocate 100% at end of task
 Best solution if you keep tasks very smallkeep tasks very small
 Allocate value at Critical Milestones
 Good solution when using with contract work
 Others?
Our approach

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Another Example ProjectAnother Example Project
 Plans to spend $100K in each of first 4 weeks
(baseline budget, per documented planper documented plan)
 Actuals, at end of week 4 show: $325K spent
 BCWS = $400K ($100K x 4)
 ACWP = $325K
 What conclusions can you draw?
 Under budget?
 Is project on schedule?

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Another Example ProjectAnother Example Project
Suppose BCWP is $300K
 How is this determined?
What conclusions now?
 SV = BCWP – BCWS
 SV = $300k - $400K = --$100K
Behind scheduleBehind schedule, but what does the $100K in
variance really mean?
 CV = BCWP – ACWP = $300K - $325K
Over budgetOver budget by $25K

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 How can you use this information?
 Careful analysis of variance and trends
 Resetting schedule or budget, when appropriate
 Variance Analysis Questions
 What is the problem causing the variance?
 What is the impact on time, cost and performance?
 What is the impact on other efforts, if any?
 What corrective action is planned or under way?
 What are the expected results of the corrective
action?

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 Extraordinary variance or alarming trends may
be cause for reset or cancellation ofreset or cancellation of a project,
but where do you draw the line?
 How much variance to allow depends on a
number of factors:
 Life-cycle phase
 Length of life-cycle phase
 Length of project
 Type of estimate
 Accuracy of estimate

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Variance ProjectionVariance Projection

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Performance Index TrendsPerformance Index Trends

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Ideal Performance IndexIdeal Performance Index

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Closing Thoughts: ManagementClosing Thoughts: Management
ReserveReserve
The padding always added to a project for
unexpected costs that are within project
scope
 Not an allowance for changes to scope
 Not part of the cost estimate
Added by upper management, not the
project manager.

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Closing Thoughts: GovernmentClosing Thoughts: Government
RequirementsRequirements
 U.S. government contract cost tracking often
must include:
 BCWS
 BCWP
 ACWP
 Estimated cost at completion
 Budgeted cost at completion
 Cost and schedule variances with explanations
 Traceability

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SummarySummary
Cost, in the form of Earned Value or
BCWP, can be used to analyze progressanalyze progress of
a project
Using Earned Value data to make critical
project decisions must be based on carefulcareful
analysisanalysis of data, variances and trends

Earned value

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