Earned Value Management:
Examples
1
Introduction
• The concept of earned value means that any use of resources
should return something of value to those who provide the
resources.
• Earned Value Management Systems (EVMS) is a way of
measuring both efficiency and effectiveness in the use of
resources for some particular purpose.
• The concept and process of EVM came about through the
desires of managers to more accurately predict future
project results while working toward organizational
objectives and goals.
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Introduction
• The application of EVM to a project is a means of gathering
additional intelligence on how well the project resources
are being utilized.
• EVMS is a project performance measurement
system that integrates cost and schedule
aspects.
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Background
• EVMS is indirectly related to technical performance in that
satisfactorily completed work packages represent
technical performance achievement.
• Completed work packages are the basic building blocks
for the cost-schedule measurement and performance
reporting.
• EVMS has also been called earned value analysis (EVA).
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EVM Capability
• EVM provides a means of representing cost-schedule progress
through schedule achievement and expenditures.
• EVM supports both the project manager and the performing
contractor because it:
Provides early identification of adverse trends and
potential problems.
Provides an accurate picture of contract status with
regard to cost, schedule, and technical performance.
Establishes the baseline for corrective actions.
Supports the cost and schedule goals of the customer,
project manager, and performing contractor.
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EVM Capability
• Benefits of EVMS (Christensen, 1998):
All authorized work must be defined using a WBS (work
breakdown structure).
Consistent reporting is established.
Proven early cost management is essential.
All work must be scheduled and traceable to a master
program level.
Management attention is directed to critical problems.
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Essential Features of EVM
1. A project plan that identifies the activities to be
accomplished.
2. A valuation of each activity work:
In the case of a project that generates revenue, this is called
Planned Value (PV) of the activity.
In the case where a project is evaluated based on cost, this is
called Budgeted Cost of Work Scheduled (BCWS) for the
activity.
3. Predefined earning or costing rules (metrics) to
quantify the accomplishment of work, called Earned
Value (EV) or Budgeted Cost of Work Performed
(BCWP).
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Example 1: Earned Value Management
At time “X”, Activity A is
100% complete (budgeted
cost was $18K).
At time “X”, Activity B is
80% complete (budgeted cost
was $10K).
At time “X”, Activity C is
70% complete (budgeted cost
was $20K). 80% of this
activity should be complete by
now.
At time “X”, Activity D is 0%
complete (budgeted cost was
$40K). 15% of this activity
should be complete by now.
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Example 1: Budgeted Cost of Work
Scheduled (BCWS or Planned Value)
• Activity A – 100% of $18K = $18K
• Activity B – 100% of $10K = $10K
• Activity C – 80% of $20K = $16K
• Activity D – 15% of $40K = $6K
• BCWS = $18K + $10K + $16K + $6K = $50K
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Example 1: Budgeted Cost of Work Performed (BCWP
or Earned Value)
• Activity A – 100% of $18K = $18K
• Activity B – 80% of $10K = $8K
• Activity C – 70% of $20K = $14K
• Activity D – 0% of $40K = $0K
• BCWP = $18K + $8K + $14K + $0K = $40K
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Example 1: Performance Measures
Actual cost of
$45K obtained
from accounting
records
For performance indices:
PI < 1 means costs are higher than planned
PI = 1 means costs are exactly as planned
PI > 1 means costs are lower than planned 4-11
EVM: Example 2
• The Plan:
Making 40 cookies per batch
5 batches per hour or 200 cookies per hour
The Plan or Schedule: 5 hours to make 1,000
cookies
Budgeted cost per cookie - $0.05
Total budget (Budget at Completion - BAC) =
1,000 x $0.05 = $50.00
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EVM: Example 2
• Analysis after 1 hour of operation:
150 edible cookies (some were burnt, some fell to the
floor, some were eaten)
Actual costs of ingredients after 1 hour (AC) = $9.00
BCWS or Planned Value (PV) = 200x$0.05 = $10.00
BCWP or Earned Value (EV) = 150x$0.05 = $7.50
AC = $9.00
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EVM: Example 2
• Analysis after 1 hour of operation: Schedule
Variance (SV) and Cost Variance (CV)
SV = BCWP – BCWS = $7.50-$10.00 = -$2.50 (behind
schedule)
CV = BCWP – AC =$7.50-$9.00 = $1.50 (over budget)
SPI = BCWP/BCWS = 0.75 (we are running at 75% of
planned schedule)
CPI = BCWP/AC = 0.83 (we are running about 17%
over budget)
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Forecasting the Schedule and Budget
• EAC – Estimate at Completion = BAC/CPI =
$50.00/0.83 = $60.00
• VAC – Variance at Completion = BAC – EAC =
$50.00 - $60.00 = - $10.00 (over budget)
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Our Catch Up Plan
• We want to finish this cookie project with a
$50.00 budget.
TCPI = (BAC-BCWP)/(BAC-AC)
TCPI = (50-7.50)/(50.00-9.00) = 42.50/41.00 =
1.036.
• TCPI: To-Complete-Performance-Index
• We must perform at 103.6% of the originally
planned performance in order to maintain the
budget goal.
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EVM: Example 3
• A work package were expected to cost $1,500 to
complete the package.
• The package was originally scheduled to have
been finished today.
• At this point, however, we have actually
expended $1,350 and we estimate that we have
completed two-thirds of the work.
• Please evaluate the cost and schedule variances.
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EVM: Example 3
• Cost Variance (CV) = BCWP – AC = $1,500(2/3) –
1,350 = -$350
• Schedule Variance (SV) = BCWP – BCWS =
$1,500(2/3) – 1,500 = -$500
• CPI = BCWP/AC = $1,500(2/3)/1,350 = 0.74
• SPI = BCWP/BCWS = $1,500(2/3)/1,500 = 0.67
• Conclusion: We are spending at a higher level than
our budget plan indicates, and given what we have
spent, we are not as far along as we should be (i.e.,
we have not completed as much as we should have).
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EVM: Example 3
• Cost-Schedule Index (CSI) = (CPI)(SPI) = (0.74)
(0.67) = 0.49.
• CSI < 1 is indicative of a problem.
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EVM: Example 4
• Project Status as of today (Day 7)
Activity Predecessor Duration Budget Actual %
(days) ($S) Cost ($) Complete
A None 3 600 680 100
B A 2 300 270 100
C A 5 800 80
D B 4 400 25
E C 2 400 0
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Example 4: earned value in Day 7
Activity Duration ES EF 0 1 2 3 4 5 6 7 8 9 10
A 3 0 3
B 2 3 5
C 5 3 8
D 4 5 9
E 2 8 10
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Example 4: Status in Day 7
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Example 4: Status in Day 7
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WBS with Allocated Budget
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Example 5: Packaging Machine Project
ES = 0 EF = 4 ES = 4 EF = 10 ES = 10
Design (4) Build (6) Install & Test (2)
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Example 5: Developing the Cumulative Budgeted
Cost (CBC)
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Example 5: Developing the Cumulative Budgeted Cost (CBC)
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Example 5: Determining the Cumulative Actual
Cost (CAC)
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Example 5: CBC and CAC
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Determining the Value of Work Performed
• Determining the earned value involves
collecting data on the percent complete for
each work package and then converting this
percentage to a dollar amount by multiplying
BAC (total budgeted cost) of the work
package by the percent complete.
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Example 5: Cumulative Earned Value (CEV)
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Example 5: CBC, CAC, CEV
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Example 5: Project Status as of Week 8
• $64,000 was budgeted through the end of
week 8 to perform all the work scheduled to
be performed during the first 8 weeks.
• $68,000 was actually expended by the end of
week 8
• $54,000 was the earned value of work
actually performed by the end of week 8
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Example 5: Project Status as of Week 8
• Another way to approach the situation is to
analyze progress in terms of percentages of the
total budgeted cost of $100,000 for the project:
64% of the total budget for the project was to have
been spent to perform all the work scheduled to be
performed during the first 8 weeks
68% of the total budget was actually expended by
the end of week 8
54% of the total project work was actually
performed by the end of week 8.
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Example 5: Project Status as of Week 8
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Example 5: Cost Performance Index
• The ratio indicates that for every $1.00
actually expended, only $0.79 of earned value
was received.
• When CPI goes below 1.00, corrective action
should be taken.
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Example 5: Cost variance
• CV value indicates that the value of the work
performed through week 8 is $14,000 less
than the amount actually expended.
• It is another indication that the work
performed is not keeping pace with the actual
cost.
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Example 5: Cost Forecasting
• As of week 8, the project has a cost efficiency or CPI of
0.79, and if the remainder of the project continues to
be performed at this same efficiency rate, then the
entire project will actually cost $126,582.
• If this forecast is correct, there will be an overrun of
$26,582 beyond the total budgeted cost for the project
of $100,000.
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