Basic Relationships. Earned value analysis (EVA) is a formal procedure for estimating cost and schedule variances during a project and extrapolating these variances to the end of the project. The word variance is interpreted as a deviation or difference in distinction to a mean square error as in the field of statistics.
An overview of the EVA concept can be gleaned from Figure 4.2. Three cumulative cost curves are depicted, each flowing from the project initiation time to the current reporting time. These cost curves are
Current review time
BCWS = Budgeted cost of work scheduled ACWP = Actual cost of work performed BCWP = Budgeted cost of work performed CV = Cost variance = BCWP - ACWP SV = Schedule variance = BCWP - BCWS
Figure 4.2 Earned value analysis (EVA) terminology.
1. Budgeted cost of work scheduled (BCWS)
2. Budgeted cost for work performed (BCWP)
3. Actual cost of work performed (ACWP)
The EVA concept specifically accounts for the degree to which work that has been scheduled has also been accomplished. In that sense, it does more than simply compare budgeted versus actual costs without regard for the extent to which work has been executed. For example, a project can be at month nine of a 10-month period and also have spent 90% of the budget. In that simple sense, both time and cost are tracking until one realizes that perhaps only 50% of the work may have been accomplished. Many a naive Project Manager has been caught in this trap by not considering the work progress in relation to schedule and budget.
By comparing the actual versus budgeted cost of work performed (ACWP vs. BCWP), at each point in time, we have a true measure of the ''cost variance'':
In this context, both budgeted and actual costs are computed on the same basis, namely, the work that has been performed. Therefore, the PM and PC ask the question: How much work has been performed (i.e., which tasks or WBS elements have we actually accomplished) at this point in time? The budgeted cost for these tasks/WBS elements is then calculated (BCWP) and compared against actual expenditures for these same tasks/WBS elements (ACWP). If the BCWP is greater than the ACWP, we have underspent; if the BCWP is less than the ACWP, we have a cost overrun. The definition of cost variance, as shown before, will yield positive numbers if we are underspent and negative values if we have overspent. Thus, a negative cost variance indicates a problem. Figure 4.2 shows a negative value for the cost variance and therefore reveals an issue that must be further investigated.
Perhaps a more difficult concept is the meaning of the discrepancy between budgeted cost of work performed (BCWP) and the budgeted cost for work scheduled (BCWS), both of which are shown in Figure 4.2. The difference between these two is defined as the ''schedule variance'':
Schedule variance (SV) = BCWP - BCWS
Here it is recognized that the work scheduled and the work performed, at each point in time, may be different. As an example, halfway through the project in time, we may have scheduled to finish fifty WBS elements but actually have completed only forty WBS elements. We budgeted $100,000 for the fifty elements and $80,000 for the forty elements. Therefore, the schedule variance is
We note that the schedule variance, for the EVA construct, is measured in dollars, not time. Clearly, at this point, by completing only forty of the fifty planned WBS elements, we are behind schedule. Our actual and planned rate of completing work elements is the same, namely, $2,000 per work element. For some reason, possibly because we did not staff the project as quickly as our plan called for, we are some ten work elements behind. In principle, we are not overrun in cost, but lag in the rate at which we have been able to get the work done. This is basically a schedule issue. Further, this lag in time shows up in the negative value for the schedule variance.
The estimates of BCWP, BCWS, and ACWP also allow us to carry out a linear extrapolation as to the estimated cost at completion (ECAC) and the estimated time at completion (ETAC). This can be found through the following relationships:
where BAC is the original budget at completion, and TAC is the original time to completion. The BAC is either increased or decreased as it is multiplied by ACWP/BCWP. If ACWP is greater than BCWP, then the budget at completion (BAC) is augmented, representing a linear extrapolation of the current cost overrun to the end of the project. It must be recognized that this is only an extrapolation and is not based on a detailed analysis of the reasons for the current overrun condition.
Similarly, the estimated time at completion (ETAC) is determined by multiplying the original time at completion (TAC) by BCWS/BCWP. If BCWS > BCWP, then ETAC will be greater than TAC. This, too, is a linear extrapolation, but in this case in the time dimension. The PM and the PC are urged to look more deeply into schedule and work performance issues and problems before accepting the new ETAC as a fully accurate representation of the project schedule status.
Illustrative Example of an EVA. An example of the results of an EVA can be posed by the following situation:
As a PM, you are at the 18-month point of a 24-month project, with a $400,000 budget. Your original project plan and a review of work performed reveal that BCWS _ $300,000, ACWP _ $310,000, and BCWP _ $280,000. What are your current estimates of the cost variance (CV), schedule variance (SV), cost at completion (ECAC), and time at completion (ETAC)?
This example is depicted in Figure 4.3. From the given data, we calculate the cost and schedule variances as
CV _ BCWP - ACWP _ $280,000 - $310,000 _ -$30,000 SV _ BCWP - BCWS _ $280,000 - $300,000 _ -$20,000
The estimated cost and time at completion are
Thus, the original budget of $400,000 is now reestimated to be $442,857 and
Figure 4.3 Example of earned value analysis (EVA).
Figure 4.3 Example of earned value analysis (EVA).
the new time at completion is estimated to be 25.7 months instead of the original 24 months. The example indicates overruns in both cost and schedule and suggests a more definitive analysis to determine status and what can be done to meet the original budget and schedule.
We note here the earlier comment in this chapter regarding the procedure to reestimate time and cost to complete. The EVA process leads automatically to such estimates, although they are linear extrapolations of the current situation. In the preceding EVA example, these estimates are
Estimated cost to complete = $442,857 - $310,000 = $132,857 Estimated time to complete = 25.7 months - 18 months = 7.7 months
If the EVA indicates the existence of a problem, as does the preceding example, it is suggested that further detailed and project-specific estimates of cost and time to complete be made, leading, we hope, to necessary corrective actions.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.