Earned Value Management

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 Earned Value Management

 What is it?
 Where did it come from?
 What’s so special about it?
 How do you do it?
 What is an EVMS?

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 Earned Value Management
What is it ?
 A systematic approach to the integration and measurement of
cost, schedule, and technical (scope) accomplishments on a
project.
 Provides the ability to examine detailed schedule information,
critical program and technical milestones, and cost data.

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 Earned Value Management

Where did it come from?

1960s – DoD adopted Cost/Schedule Control Systems Criteria
(C/SCSC) as an objective measure of progress.
1970s – Continued use in DoD as a means to offset
cost/schedule risk in cost-pus contracts.
High-tech, newly-developed weaponry
Arms race induced critical schedule needs

1990s – Policy moved Earned Value into all Federal agencies

OMB Circular A-11
NASA Policy Directive 9501.3
DOE Order 413.3

2003 – OMB began enforcement in all civilian agencies.

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 Earned Value Management
Why do we care?
 Projects over budget and behind schedule*
 53% of IT projects finish over budget and behind schedule
 52% finish at 189% of their initial budget
 18% are simply never completed
 Consistent performance measures allow comparison
across the portfolio
 Statistically proven performance projections
 Performance at a project’s 25% completion point will remain
steady throughout the project’s lifecycle.
 It’s now an OMB requirement.

*Source: Standish Group’s Chaos Chronicles 2004 5

 Earned Value Management

What’s so special about it?

 Fundamental difference with traditional management is
the data used for analysis.
 Budget vs Actuals
 Earned Value Analysis

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 Earned Value Management

Traditional Management Approach:

2500000

2000000

1500000
Actuals Budget
$1,041,000
1000000 Actuals
Budget $1,000,000
500000

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 Earned Value Management

EVM Integrates cost, schedule, and scope.

Establishes an Integrated Project Baseline
 What is to be done? (scope)
 When will activities be completed? (schedule)
 What will it cost (and when) when to complete those
activities?

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 Earned Value Management

Based on something called Earned Value.

A concept that task activities earn value as work
progresses
 A data point that expresses the value of work
accomplished

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 Earned Value

The concept that task activities “earn value” as work

progresses.

 The value earned is the budgeted cost of the activity

completed to date.

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 Earned Value

A data point that expresses the value of work

accomplished

 What is the dollar value of what you have gotten

done to date?

 Does not address the money spent in getting there.

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 Earned Value Management

So how do we do this stuff?

EVM depends on three data points
 Planned Value (PV)
 Earned Value (EV)
 Actual Cost (AC)

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 Planned Value
Data source is the Integrated Project Baseline

How much did you expect to have done at point X ?

Expressed in dollars (PV)
How much do you expect to have done at completion ?
Budget at Completion (BAC)

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 Planned Value

$2,500,000

$2,000,000 BAC $2,000,000

$1,500,000
Planned Value
$1,000,000

$500,000

$0

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 Planned Value

$2,500,000

$2,000,000 $2,000,000

$1,500,000
Planned Value
$1,000,000

$500,000
PV = $1,000,000
$0
May

May
Nov

Nov
Mar

Mar
Jan
Jul

Jul
Jan

Sep

Sep

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 Actual Cost
Data source is the Earned Value Management System

The dollar amount actually spent to date.

Has no relationship to work accomplished.

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 Actual Cost

$2,500,000
AC = $1,041,000
$2,000,000

$1,500,000
Planned Value
Actual Cost
$1,000,000

$500,000
PV = $1,000,000
$0
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 Earned Value
Data source is the Earned Value Management System

 The dollar value of actual accomplishments to date.

 Does not address the money spent in getting there.

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 Earned Value

$2,500,000

$2,000,000 $2,000,000
PV = $1,000,000
$1,500,000
Planned Value
Earned Value
$1,000,000

$500,000
EV = $851,000
$0
May

May
Nov

Nov
Mar

Mar
Jan

Jul
Jul

Jan
Sep

Sep

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 Integrated Performance Report

 Compares the amount of work completed with what was

scheduled and budgeted, to determine if cost (AC), schedule
(PV), and work accomplished (EV) are progressing as planned.

 By integrating these three measurements, it provides

consistent, numerical indicators with which we can evaluate and
compare projects.

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 Integrated Performance Report

2,500,000

2,000,000
AC = $1,040,979
1,500,000 Planned Value
Actual Cost
1,000,000 Earned Value
PV = $1,000,000

500,000
EV = $851,000
0 May
May

Nov
Mar

Nov

Mar
Jan

Sep

Sep
Jul

Jul
Jan

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 Integrated Performance Report
These three data points allow us to:

 Calculate variances in cost and schedule performance.

 Calculate performance indices that allow direct comparison to

other projects’ performance.

 Analyze trends in project performance.

 Formulate predictions as to how well the project will perform in

the future.

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 Calculating Variances

Cost Variance
 A comparison of the budgeted cost of work performed
with actual cost.
 A negative variance means the project is over budget.

CV = EV – AC
CV = 851,000 – 1,041,000
CV = - $190,000

Note that this is not “budget vs actuals.”

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 Calculating Variances

Schedule Variance
 A comparison of amount of work performed to what was
scheduled to be performed.
 A negative variance means the project is behind schedule.

SV = EV – PV
SV = 851,000 – 1,000,000
SV = - $149,000

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 Calculating Performance Indices

 Cost Performance Index

 A ratio of the budgeted cost of work performed to the actual
cost.
 An index less than 1.00 means the project is over budget.

CPI = EV / AC
CPI = 851,000 / 1,041,000
CPI = 0.817

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 Calculating Performance Indices

 Schedule Performance Index SPI=EV/PV

 A ratio of the amount of work performed to what was
scheduled to be performed.
 An index of less than 1.00 means the project is behind
schedule.

SPI = EV / PV
SPI = 851,000 / 1,000,000
SPI = 0.851

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 Cost Performance
Cost Variance (EV-AC)
2,500,000 $851K - $1041K = -$190K
AC = $1,040,979 CPI (EV/AC) = 0.8175
PV = $1,000,000
2,000,000
EV = $851,000

1,500,000 Planned Value

Actual Cost
1,000,000 Earned Value

500,000

May
May

Nov
Mar

Mar
Nov
Sep

Sep
Jul
Jan

Jan
Jul

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 Schedule Performance
Schedule Variance (EV-PV)
$851K - $1,000K = - $149K
2,500,000
PV = $1,000,000 SPI (EV/PV) = 0.851
AC = $1,040,979
2,000,000
EV = $851,000

1,500,000 Planned Value

Actual Cost
1,000,000 Earned Value

500,000 And look at this:

$ - 149K = 1 Month Slippage
0
Nov

Nov
Jan

Jan
Jul

Jul
Mar

Mar
Sep

Sep
May

May

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 Predicting Future Performance

Estimate to Complete (ETC)

 How much will we have to spend (after today) to complete?
 Total budget less what we’ve earned to date. (With some
assumptions).
 Performance to date has been anomalous
 Cost Performance to date will continue
 Both Cost and Schedule Performance to date will
continue

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 Predicting Future Performance

Estimate to Complete (ETC)

 Performance to date has been anomalous:
ETC = BAC – EV = $1,149,000

 Cost Performance to date will continue:

BAC - EV
ETC = = $1,405,504
CPI

 Both Cost and Schedule Performance to date will continue:

BAC - EV
ETC = CPI * SPI = $1,651,574

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 Predicting Future Performance

Estimate at Completion (EAC)

 How much will we have spent when we’re actually done?
 Again, based on the same assumptions as ETC.

EAC = AC + (BAC-EV) = $2,190,000

BAC - EV
EAC = AC + CPI = $2,446,505

BAC - EV
EAC = AC + CPI * SPI = $2,691,856

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 Predicting Future Performance

To-Complete Performance Index (TCPI)

 How well do we have to perform to get back on track?
 Again, based on the same assumptions as ETC.

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TCPIC = CPI = 1.22

1
TCPIS = SPI = 1.17

1
TCPICS = CPI * SPI = 1.437

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 Earned Value Management

And if everything goes perfectly:

2,500,000

2,000,000 $2,000,000

1,500,000 AC = $1,000,000
PV = $1,000,000
1,000,000 EV = $1,000,000 Planned Value
Actual Cost
500,000
Earned Value

0
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