Monitoring Project Performance with Earned

Value Management

Prepared by: Yves Tyrone R. Rosales

 Earned Value Management
Earned Value Management (EVM), formerly called
Earned Value Analysis (EVA) is a technique that helps
determine your project’s schedule status and cost
status from your resource expenditures alone. EVM is
particularly useful for identifying potential problems on
larger projects.
With EVM, you determine:
• Cost variance
• Schedule variance
• Estimate at completion
 Cost variance
The difference between what you planned to spend by
a certain date and what you really spent that
represents a true cost savings or a loss.
 Schedule variance
The difference between what you planned to spend by
a certain date and what you really spent that’s due to
being ahead of or behind schedule.
 Estimate at completion
The total amount you’ll spend to perform this task if
your present spending pattern continues to the end of
the task.
 Definition of Terms
• Planned Value (PV) is the approved budget to complete a particular Work
Breakdown Structure (WBS) element, also referred to as the Budgeted
Cost of Work Scheduled (BCWS).
• Actual Cost (AC) is the total costs actually incurred for work done during a
specified time period on a particular WBS element, also referred to as the
Actual Cost of Work Performed (ACWP).
• Earned Value (EV) is the approved budget for work done during a specified
period for a particular WBS element, also referred to as the Budgeted Cost
of Work Performed (BCWP).
 Cost Variance and Schedule Variance
Cost and schedule variances are defined mathematically as
follows:
Cost variance (CV) = EV – AC
Schedule variance (SV) = EV – PV

You can determine the cost variance percentage (CVP) and the
schedule variance percentage (SVP) using the following
formulas:
CVP = CV ÷ EV x 100
SVP = SV ÷ PV x 100
Table 19-1 illustrates that a positive variance indicates something desirable (that is,
you’re either under budget or ahead of schedule) and a negative variance indicates
something undesirable (you’re either over budget or behind schedule)
 Estimate at Completion
To determine the Estimate at Completion (EAC), your
estimate of the total expenditures for completing a WBS
element based on the expenditure history to date as
follows:

Estimate at Completion (EAC) = AC ÷ EV x total budget

 Sample Problem
In a road opening project, there are 84 trees that are needed to be cleared.
This activity has a 30 Calendar Days duration with a budget of Php 8,400 per
tree. You plan to at least clear 3 trees per day. The total budget for the
clearing is Php 705,600. During the first 20 days you cleared 64 trees and
spend a total of 604,300. Determine the following:
1. The planned value, earned value, and actual costs at the 20th Day
2. Determine your cost and schedule performance during 20th Day
3. The cost variance and schedule variance percentages
4. The estimate at completion
Planned value, Earned value, and Actual costs
PV = 3 trees/day x 20 days x Php 8,400/tree
PV = Php504,000
AC = Php 604,300
EV = 64 trees x Php 8,400/tree
EV = Php 537, 600
Cost and Schedule Variance
Cost variance (CV) = EV – AC
CV = Php 537,600 – Php 604,300
CV = - Php 66,700
Schedule variance (SV) = EV – PV
SV = Php 537,600 – Php 504,000
SV = Php 33,600
Cost and Schedule Variance Percentage
CVP = CV ÷ EV x 100
CVP = (-Php 66,700 ÷ Php 537,600) x 100%
CVP = -12.41%
SVP = SV ÷ PV x 100
SVP = (Php 33,600 ÷ Php 537,600) x 100%
SVP = 6.25%
 Estimate at Completion
Estimate at Completion (EAC) = AC ÷ EV x total budget
EAC = (Php 604,300 ÷ Php 537,600) x Php 705,600
EAC = Php 793,143.75
 Interpretation
CVP = -12.41% (Over Budget)
SVP = 6.25% (Ahead of Schedule)
Since CVP is negative we can say the
work done must have over spent the
budget but on the contrary SVP is
positive which give us ahead of Estimate at Completion (EAC) = AC ÷ EV x total
scheduled time. budget
EAC = (Php 604,300 ÷ Php 537,600) x Php
Q: Why does this happen? 705,600
A: There are factors that are needed EAC = Php 793,143.75
to be considered when doing one If your work continues in the same fashion for
activity. Overworked may have the remainder of your project it will result to
damaged the equipment or tools used over spending which we doesn’t want
that leads to additional cost in repair.
 Determining the Reasons for Observed variances

Possible reasons for positive or negative cost variances:

• Your project requires more or less work to complete a task
than you originally planned
• The people performing the work are more or less productive
than planned.
• The actual unit costs of labor or materials are more or less
than planned.
• Actual organization indirect rates are higher or lower than
you originally planned.
 Determining the Reasons for Observed variances

Possible reasons for positive or negative schedule variances:

• Work is running ahead of or behind schedule.
• The project requires more or less work than you
originally planned.
• People performing the work are more or less productive
than planned.
 CALCULATING EARNED VALUE
The key to a meaningful EVM analysis lies in the accuracy of
your estimates of EV. To determine EV, you must estimate:
• How much of a task you’ve completed to date
• How much of the task’s total budget you planned to
spend for the amount of work you’ve achieved
 Approaches to Estimate EV
Percent-complete method
EV is the product of the fraction representing activity-
completion and the total activity budget.

This method is potentially the most accurate if you correctly

determine the fraction of the activity you have completed.
However, because that estimate depends on your subjective
judgment, this approach is also most vulnerable to errors or
purposeful manipulation.
 Approaches to Estimate EV
Milestone Method
EV is zero until you complete the activity, and it’s 100 percent of the total
activity budget after you complete it.

The milestone method is the most conservative and the least accurate. You
expect to spend some money while you’re working on the task.

However, this method doesn’t allow you to declare EV greater than $0 until
you’ve completed the entire activity. Therefore, you’ll always appear over
budget while you perform the activity.
 Approaches to Estimate EV
50/50 method
EV is zero before you start the activity, 50 percent of the total
activity budget after you start it, and 100 percent of the activity
budget after you finish the activity.

The 50/50 method is a closer approximation to reality than the

mile- stone method because you can declare an EV greater than
$0 while you perform the task. However, this approximation can
inadvertently mask overspending.
Approaches to Estimate EV
Sample Problem