## Earned Value Analysis

How can we tell if a project is proceeding according to plan? If we are employing critical path scheduling techniques (CPM), diminishing float or slack is an indication of schedule slippage. However, with its focus on the critical path activities, this doesn't always reveal how badly the entire scope of work is falling behind. It also doesn't measure the actual costs against the amount of work that has been accomplished. The bottom line is that monitoring float or slack is not an adequate device for evaluating project performance.

A better way is the earned value analysis technique (EVA). EVA can even be used in the absence of a critical path schedule, but it works best in conjunction with the CPM. To use EVA, there should be a list of the work to be performed, a weight factor for each item on the list, and a planned schedule of accomplishment. When we use a CPM, these items become a natural part of the process. The weight factor can be the budget in either cost or labor-hours. This budget is expressed as the budget at completion (BAC). When the work is scheduled, we can generate the budgeted cost of work scheduled (BCWS), which is the planned effort at any point in time.

In order to track status and performance, we need to periodically provide two pieces of information for each work item. The first is the item percent complete (%C). By multiplying the %C times the BAC, we can compute the budgeted cost of work performed (BCWP). This is the earned value. I prefer to call it the earned value of the work performed. By comparing the value of the work performed (BCWP) to the value of the work that we had planned to accomplish (BCWS), we can calculate the schedule variance (SV) at any point in time. If we had planned to do 50 percent of the work item and accomplished only 20 percent, then we can clearly tell that the item is behind. By using the budget values in the calculation, we are able to roll up the SV to any level of the work breakdown structure (WBS). By dividing the BCWP by the BCWS, we produce the schedule performance index (SPI). In this example, the SPI would indicate that we are making only 40 percent of the progress that we had planned. (The acronyms used here are the traditional terms for EVA. A simplified set of terms is gaining popularity and is introduced in Chapter 3.6.)

To repeat, the first progress data item is BCWP (based on the %C). The second progress item is actual cost for work performed (ACWP). With these two data items (synchronized time-wise), we can evaluate cost performance. To generate a cost variance (CV), we compare what we have spent (the ACWP) to the budget for the work that we actually accomplished (BCWP). This is an important improvement over older accounting methods. Before we had earned value data, it was common to compare actual costs to planned costs. But this can produce a misleading story when the progress has not kept up with the plan. In the example, if we had actually spent 30 percent of the budget to accomplish 20 percent of the defined work, we are really overspent by 50 percent. By dividing the BCWP by the ACWP, we produce the schedule performance index (SPI).

For a more detailed discussion on EVA techniques, see Chapter 3.6. It's really much more straightforward than it sounds.