Earned Value

Earned Value Analysis, also known as Budgeted Cost ol Work Performed, is recommended by a number of agencies including the US and Australian departments of defence. It is also recommended in BS 6079.

Earned Value Analysis has gained in popularity in recent years and may be seen as a refinement of the cost monitoring discussed in the previous section. Earned Value Analysis is based on assigning a 'value' to each task or work package (as identified in the WBS) based on the original expenditure forecasts. T he assigned value is the original budgeted cost for the item and is known as the Ixiseline budget or budgeted cost of work scheduled (BCWS). A task that has not started is assigned the value zero and when it has been completed, it. and hence the project, is credited with the value of the task. The total value credited to a project at any point is known as the earned value or budgeted cost of work performed (BCWP) and this can be represented as a value or as a percentage of the BCWS.

Revised total cost

Original total cost

Revised total cost

Original total cost

Figure 9.10 The cumulative expenditure chart can also show revised estimates of cost and completion date.

Time (weeks)

Figure 9.10 The cumulative expenditure chart can also show revised estimates of cost and completion date.

Project costs augmented by project monitoring can be used to generate forecasts of future costs.

Where tasks have been started but are not yet complete, some consistent method of assigning an earned value must be applied. Common methods in software projects are:

• the 0/100 technique Where a task is assigned a value of zero until such time that it is completed when it is given a value of I00*£ of the budgeted value;

• the 50/50 tcchniquc Where a task is assigned a value of 50^ of its value as soon as it is started and then given a value of l(X)ri once it is complete;

• the milestone tcchniquc Where a task is given a value based on the achievement of milestones that have been assigned values as part of the original budget plan.

Of these, we prefer the 0/KX) technique. The 50/50 technique can give a false sense of security by over-valuing the reporting of activity starts. The milestone technique might be appropriate for activities with a long duration estimate but. in such cases, it is belter to break that activity into a number of smaller ones.

The baseline budget

The first stage in setting up an earned value analysis is to create the Itaseline budget. The baseline budget is based on the project plan and shows the forecast growth in earned value through time, liamed value may be measured in monetary values but. in the case of staff-intensive projects such as software development, it is common to measure earned value in person-hours or workdays. Amanda's haseline budget, based on the schedule shown in Figure 8.7, is shown in Table 9.2 and diagramniatically in Figure 9.11. Notice that she has based her baseline budget on workdays and is using the (VI00 technique for crediting earned value to the project.

Table 9.2 Amanda's baseline budget calculation

Task

Budgeted workdays

Scheduled completion

Cumulative workxtays

cumulative earned value

Specify overall system

34

34

34

14.35

Specify module B Specify module D

15 15

49 i 49 J

| 64

27.00

Specify module A

20

54

84

35.44

Check specifications

2

56

86

36.28

Design module D

4

60

90

37.97

Design module A

7

63

97

40.93

Design module B

6

66

103

43.46

Check module C spec-

1

70

104

43.88

Specify module C

25

74

129

54.43

Design module C

4

79

133

56.12

Code & lest module D

25

85

158

66.67

Code & test module A

30

93

188

79.32

Code & test module B

28

94 i

| 231

97.47

Code & test module C

15

94 J

System integration

6

100

237

100.00

Amanda's project is not expected to be credited with any earned value until day 34, when the activity specify overall system is to be completed. This activity was forecast to consume 34 person-days and it will therefore be credited with 34 person-days earned value when it has been completed. The other steps in the baseline budget chart coincide with the scheduled completion dates of other activities.

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