Earned Value Analysis

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If you use earned value analysis, then you show variance and trends at the same time, and it is especially powerful if displayed graphically. Earned value analysis is one of the best ways to pro performance reporting, and PMI emphasizes it as the primary performance reporting methodolo project management.

There are many terms and formulas you need to learn to be able to describe and use earned va analysis.

Planned value (PV, also known as BCWS) Budgeted cost of work scheduled. This is what mo us understand as our budget. It is the estimated cost of what you thought it would take to get the or project done. This may be reported on the task itself or for the entire project.

Actual cost (AC, also known as ACWP) Actual cost of work performed. This is what most of u of as actuals. It is the cost incurred up to a particular point in time of the project. You capture this labor performed, and include expenses if they have been applied. Again, you can report this on t task or project level.

Earned value (EV, also known as BCWP) This is the value of a task or project applied at a pa time. The work accomplished is worth something even if it is not completely done. Note that you to initially establish how you are going to measure earned value. Some organizations decide wo does not have a value until it is 20 or 50 percent done and it would have an earned value of zero it is at least 20 percent or 50 percent done. Some have decided it needs to be 100 percent done before value can be applied.

The following formulas are what you will use to calculate variances and forecast completions us planned value, actual cost, and earned value.

Cost variance (CV) This formula tells you if costs are higher or lower than budgeted. The formi CV = EV - AC. For instance, if the earned value for the documentation project is $1,605 (the out and some writing have some earned value as of the status date), and the actual costs are $2,12 the status date, the CV is <$515>. If the cost variance is a negative number (as shown with the a brackets <>), the project is over budget. If it is a positive number, the project is under budget. Ze right on target.

Schedule variance (SV) This formula tells us if the project schedule is behind or ahead of its estimate. The formula is SV = EV - PV. For instance if the earned value for the documentation | is $1,605, and the planned value is $1,550, the SV is $55. If the schedule variance is a negative number, the project is behind schedule. If it is a positive number, the project is ahead of schedul Zero is right on target.

There are some basic truths about looking at these variances in concert:

■ If CV is positive and SV is positive, the project is under budget and ahead of schedule.

■ If CV is negative and SV is negative, the project costs are over budget and the schedule is slipping.

■ If CV is positive and SV is negative, some project tasks may not have started or they've star but not enough resources have been assigned to them.

■ If CV is negative and SV is positive, then extra money may have been spent to shorten (cras schedule.

Performance index (CPI and SPI) The cost performance index formula is CPI = EV ■ AC. If thi; calculation comes out higher than 1, your cost performance is great. If it is less than 1, your cost performance is poor. If it is zero you are on target. This is a ratio that can tell you how well you a doing. Using the documentation project (EV = 1,605 and AC = 2,120), CPI = 1,605 ■ 2,120 = .76 performance index is.76 (less than 1) and indicates that we have a cost overrun. You could take original budget calculation (in this case, $8,800) and divide it by .76, and the forecasted budget i $11,579.

The formula for schedule performance index is SPI = EV + PV. If this calculation comes out high than 1, your schedule performance is great. If it is less than 1, your schedule performance is po< is zero you are on target. Again, using the documentation project (EV = 1,605 and PV = 1,550), 1,605 + 1,550 = 1.04. Our performance index is showing 1.04, which means we are about .04 da ahead of schedule at the point of time for this measurement. You can use this to show trends ov time each time you take this measurement.

Figure 6.3 shows an earned value chart taken for our documentation project, showing various e value calculations.

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Figure 6.3: Earned value chart

Note You will also see the terms estimate at completion (EAC), budgeted at completion (BA variance at completion (VAC), and estimate to completion (ETC), which you should le but which will not be covered in this exercise.

One of the best ways to show earned value variances and trends is to use a cumulative cost cur illustrated in Figure 6.4, and continue to measure it over the life of your project. Depending on hi long your project is, you might measure it weekly, biweekly, or monthly.

Schedule Variance

Figure 6.4: Cumulative cost curve

Cost

Variance

Time

Figure 6.4: Cumulative cost curve

Once you take these measurements and report them, you may discuss how you are taking corn action with the team. The executive team may also help you take some kind of corrective action still need help. For instance, with the documentation project, the review team might ask you to r the scope of the documentation to help reduce the budget and time to complete the work.

Note Recommended Reading: Chapter 9, pp. 343-350, PMP Project Management Profess Study Guide.

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