Earned Value Management

At the root of earned value management are three fundamental values calculated for each task:

• The budgeted cost of tasks as scheduled in the project plan, based on the costs of resources assigned to those tasks, plus any fixed costs associated with the tasks. Called "the budgeted cost of work scheduled" or “Planned Value”, BCWS is the baseline cost up to the status date you choose. For example, the total planned budget for a 4-day task is €100 and it starts on a Monday. If the status date is set to the following Wednesday, the BCWS is €75. For Earned Value to work, you MUST have set your project baseline.

• The actual cost required to complete all or some portion of the tasks, up to the status date. This is the actual cost of work performed (ACWP) or just “Actual Cost”. For example, if the 4-day task actually incurs a total cost of €35 during each of the first 2 days, the ACWP for this period is €70 (but the BCWS is still €75). Do not forget that project costs are resources. Resources must be allocated to the tasks and all resources must have a standard rate.

• The value of the work performed by the status date, measured in currency. This is literally the value earned by the work performed and is called the budgeted cost of work performed (BCWP) or simply “Earned Value”. For example, if after 2 days 60% percent of the work on a task has been completed, you might expect to have spent 60 percent of the total task budget, or €60.

Earned value analysis is always specific to a status date you choose. You may select the current date, a date in the past, or a date in the future. Most of the time, you'll set the status date to the date you last updated project progress. For example, if the current day is Tuesday, 25th of August 09, but the project was last updated with progress on Sunday 23rd of August 09, you'd set the status date to Sunday, 30th of August 09.

Here is one example of how to analyze project performance with earned value analysis. Let's say a task has a budgeted cost (BCWS) of €100, and by the status date it is 40 percent complete. The earned value (BCWP) is €40, but the scheduled value (BCWS) at the status date is €50. This tells you that the task is behind schedule—less value has been earned than was planned. Let's also say that the task's actual cost (ACWP) at the status date is €60, perhaps because a more expensive resource was assigned to the task. This tells you that the task is also over budget—more cost has been incurred than was planned. You can see how powerful such an analysis can be. The earlier in a project's life cycle you identify such discrepancies between ACWP, BCWP and BCWS, the sooner you can take steps to remedy the problem.

One common way of visualizing the key values of earned value analysis is to use a chart.

After work on the project has begun, a chart of the key values of earned value analysis may look like this:

The status date determines the values Project calculates.

The actual cost (ACWP) of this project is less than the budgeted cost.

The earned value (BCWP) reflects the true value of the work performed. In this case, the value of the work performed is greater than the amount spent to perform that work.

• Actual cost of work performed (ACWP) shows actual costs incurred for work already performed by a resource on a task, up to the project status date or today's date. Normally Project correlates actual costs with actual work. Only if you enter actual costs independent of actual work or change resource pay rates will actual cost be out of step with scheduled cost.

• Budget at completion (BAC) shows an estimate of the total project cost.

• Budgeted cost of work performed (BCWP) shows how much of the budget should have been spent given the actual duration of the task. BCWP is also referred to as "earned value." Note that Project calculates BCWP at the task level differently than it does at the assignment level. For best results, use the task-level BCWP values, which are the values Project rolls up to summary task and the project summary task BCWP values. This value is calculated for each individual task but analyzed at an aggregate level (typically at the project level).

• Budgeted cost of work scheduled (BCWS) shows how much of the budget should have been spent in view of the baseline cost of the task, assignment, or resource. BCWS is calculated as the cumulative timephased baseline costs up to the status date or today's date. (Budgeted cost values are stored in the baseline fields, or if you've saved multiple baselines, in fields Baseline1 through Baseline10.)

• Cost variance (CV) shows the difference between the budgeted cost of work performed (BCWP) on a task and its actual cost (actual cost of work performed or ACWP). If the CV is positive, the cost is currently under the budgeted (or baseline) amount; if the CV is negative, the task is currently over budget.

• Schedule variance (SV) shows the difference between the budgeted cost of work performed (BCWP) and the budgeted cost of work scheduled (BCWS). If the SV is positive, the project is ahead of schedule in cost terms; if the SV is negative, the project is behind schedule in cost terms.

• Variance at completion (VAC) shows the difference between the budget at completion (BAC) and the estimate at completion (EAC). In Project, the EAC is the Total Cost field and the BAC is the Baseline Cost field from the associated baseline.

• Cost performance index (CPI) is the ratio of budgeted, or baseline, costs of work performed to actual costs of work performed (BCWP/ACWP).

• Cumulative cost performance index (CPI) is the sum of the BCWP for all tasks divided by the sum of the actual costs of work performed (ACWP) for all tasks. Cumulative CPI is often used to predict whether a project will go over budget and by how much.

• Schedule performance index (SPI) is the ratio of work performed to work scheduled (BCWP/BCWS). SPI is often used to estimate the project completion date.

• Estimate at completion (EAC) is the expected total cost of a task or project, based on performance as of the status date. EAC is also called forecast at completion, and is calculated like this: EAC = ACWP + (BAC - BCWP) / CPI.

• To complete performance index (TCPI) is the ratio of remaining available budget to be spent to the remaining scheduled cost as of the status date. TCPI is calculated like this: TCPI = (BAC - BCWP) / (BAC - ACWP). A TCPI value greater than 1 indicates good projected performance for remaining work; less than 1 indicates poor projected performance.

How does % complete versus physical % complete affect earned value?

You can specify whether Project should use each task's percent value or physical percent complete value for earned value calculations related to BCWP. (Remember, other values are calculated from BCWP, so your decision affects the entire earned value analysis.)

• Percent complete may be calculated by Project or entered directly by you, depending on how you track actual work.

• Physical percent complete is always entered directly by you. Use physical percent complete when percent complete would not be an accurate measure of real work performed or remaining.

Here's a simple example of how the two values may differ: a project of building a stone wall that consists of 100 stones stacked 5 high. The first row of 20 stones can be laid in 20 minutes, but the second row would take 25 minutes because you have to lift the stones up one row higher, so it takes a little longer. The third row would take 30 minutes, the fourth 35 minutes, and the last row would take 40 minutes to lay—150 minutes total. After laying the first three rows, the project could be said to be 60 percent physically complete (you laid 60 of 100 stones). However, you only spent 75 of 150 minutes; so in terms of duration, the job is only 50 percent complete.

This is why we recommend that you set project to use Physical % Complete. We believe that user input provides a more accurate measure of progress.

There are two methods for setting project to use Physical % Complete:

1. For all new tasks. To set the default earned value method for all new tasks, click Options on the Tools menu. Click the Calculation tab, and then click Earned Value. You can also use this dialog box to choose which of the 11 available baselines should be used for earned value calculations.

2. For current tasks. You can also set the earned value method for a task on the Advanced tab in the Task Information dialog box.

How do I apply earned value management to my projects?

To apply earned value management to your projects you must follow two basic steps:

1. Planning. During planning you must guarantee the following:

a. All resources must have a standard rate

b. All elementary tasks have resources assigned

c. All tasks are set to physical % complete

d. The project baseline is set

2. Monitoring and Control. During monitoring and control you must follow these steps:

a. Update status date

b. Report actual work

c. Update Physical % Complete

Where in Project do I see earned value data?

You can see earned value information in any sheet view by applying the Earned Value table or the Earned Value Cost Indicators table. Let’s set up a view with a few earned value fields with graphical indicators to help read the data.

Let’s start by creating a new table:

1. On the View menu, point to Table, and then click More Tables

2. To create a task table, click Task, and then click New.

3. In the Name box, type “EVM”.

4. Select the following fields:

a. WBS

b. Name (align left)

c. Physical % Complete

d. CPI

e. SPI

f. Baseline Cost

g. Baseline Duration

h. ACWP

i. BCWP

j. BCWS

k. CV

l. SV

m. VAC

n. EAC

5. To prevent the first column from scrolling, select the Lock first column check box.

Now let’s create a view to place your table in:

1. On the View menu, click More Views.

2. In the More Views dialog box, click New.

3. In the Define New View dialog box, click Single View, and then click OK.

4. In the View Definition in '' dialog box, in the Name box, enter “EVM View”.

5. In the Screen drop-down list, select Gantt Chart.

6. Select the “EVM” table in the Table drop-down list.

7. In the Group drop-down list, select how you want to group the data. If you do not want a group, select No Group.

8. In the Filter drop-down list select All Tasks.

9. Select the Show in menu check box if you want the view to appear on the View menu.

10. Click OK

You are now ready to start creating your graphical indicators. Lets add two new columns before CPI. To do this you must:

1. Right-click on the CPI column and select Insert Column.

2. In Field Name select Number1 and click OK.

3. Go back to step 1 and add yet another column selecting Number2 this time.

4. Right-click on your new column most to the left and select customize fields.

5. Select Rename and type “CPI Ind.”

6. Click on Formula and type “CPI” (without the quote marks) in the formula window and then click OK

7. Project will come up with a warning message telling you that existing data in the “CPI Ind.” Field will be deleted. Click OK

8. On the Calculation for task and group summary rows section select the radio button Use formula

9. Click on Graphical Indicators

10. Fill in the table in Graphical Indicators window as follows: