Earned Value

Earned value (EV):

• Earned value is the budgeted amount for the
work actually completed on the schedule
activity or WBS component.
 What is Earned value
• Earned value (EV) The physical work
accomplished plus the authorized budget for
this work.
 
• EV Earned value for a task is simply the
percent complete times its original budget.
 
 What is Earned Value
• EV is the percent of the original budget that
has been earned by actual work completed.

• The older acronym for Earned Value was

BCWP—budgeted cost of the work performed
 What EV indicates

• Earned value shows how much of the budget

and time should have been spent, with regard
to the amount of work done so far.
 Earned Value technique involves
• The earned value technique involves
developing key values for each schedule
activity, work package
 Planned value (PV) & Budgeted cost at
completion (BAC)
• Planned value (PV):
Planned value is the budgeted cost for the
work scheduled to be completed on an
activity or WBS component.

• Budgeted cost at completion (BAC): This

represents the total budget for a project.
 Actual cost (AC)
• Actual cost is the total cost incurred in
accomplishing the work on the schedule
activity or WBS component.
• The PV, EV, and AC values are used in
combination to provide performance
measures of whether or not work is being
accomplished as planned at any given point in
time

• The most commonly used measures are cost

variance (CV) and schedule variance (SV).
 Cost variance (CV):
• Cost variance equals earned value (EV) minus
actual cost (AC).

• The cost variance at the end of the project will

be the difference between the budget at
completion (BAC) and the actual amount spent.

• Formula: CV=EV- AC
 Schedule variance (SV)
• SV equals earned value (EV) minus planned
value (PV).
• Schedule variance will ultimately equal zero
when the project is completed because all of
the planned values will have been earned.
• Formula: SV=EV-PV
 Cost variance (CV) & Schedule variance (SV) is used in efficiency
indicators

• These two values, the CV and SV, can be

converted to efficiency indicators to reflect the
cost and schedule performance of any project.

• Cost performance index (CPI)

• Schedule performance index (SPI):
 What CPI Indicates
Cost performance index (CPI)
Indicates
Over budget vs. Under budget

A CPI value less than 1.0 indicates a cost overrun of

the estimates.

A CPI value greater than 1.0 indicates a cost under

run of the estimates
• The CPI is the most commonly used cost-
efficiency indicator
Formula: CPI = EV/AC
 SPI is used in
• The SPI is used, in addition to the schedule
status, to predict the completion date and is
sometimes used in conjunction with the CPI to
forecast the project completion estimates
• Formula: SPI = EV/PV
 What SPI Indicates
• Indicates
• Ahead of schedule vs. Behind schedule

A SPI value less than 1.0 indicates a cost Behind

schedule of the estimates.

A SPI value greater than 1.0 indicates Ahead of

schedule of the estimates
 Exercise…Earned Value

• Assume that we are halfway through a year-

long project that has a total budget of 100 crs.
The amount budgeted through this 6-month
mark is 55 crs. The Actual Cost through this 6-
month mark is 45 crs and 50% of project work
got completed.
 Estimated at Completion (EAC)

• EAC is a forecast of how much the total

project will cost to complete the work.

• Estimated at Completion (EAC) = (Total Project

Budget) / CPI
 Calculate the followings

• Schedule Variance (SV)

• Schedule Performance Index (SPI)
• Cost Variance (CV)
• Cost Performance Index (CPI)
• Estimated at Completion (EAC)
• Planned Value (PV) = Rs.55 Crs

• Actual Cost (AC) = Rs45 crs

• Earned Value (EV) = (100 * 0.5) = Rs 50crs

•  
• Schedule Variance (SV) = EV – PV = 50 cr – 55 cr = -5 crs (bad because < 0)

• Schedule Performance Index (SPI) = EV / PV = 50 cr / 55 cr = 0.91 (bad because < 1)

•  
• Cost Variance (CV) = EV – AC = 50 crs – 45cr = 5 cr (good because > 0)
•  
• Cost Performance Index (CPI) = EV / AC = 50 cr / 45 cr= 1.11 (good because > 1)

• Estimated at Completion (EAC) = (Total Project Budget) / CPI = 100cr / 1.11 = 90 cr

• Cost Control: Tools and Techniques
• Forecasting: Forecasting includes making estimates or
predictions of conditions in the project's future based
on information and knowledge available at the time of
the forecast
• Project Performance Reviews: Performance reviews
compare cost performance over time, schedule
activities or work packages overrunning and under
running budget (planned value), milestones due, and
milestones met
• Project Management Software: Project management
software, such as computerized spreadsheets, is
often used to monitor PV versus AC, and to forecast
the effects of changes or variances.
• Variance Management: The cost management plan
describes how cost variances will be managed, for
example, having different responses to major or
minor problems. The amount of variance tends to
decrease as more work is accomplished.
Forecasting Cost at the end of
the Project completion
 What is Forecasting in Project Management

As the project progresses, the project

team may develop a forecast for the
Estimate At Completion ( EAC) that
may differ from the Budget At
Completion (BAC) based on the
project performance
 Forecasting Indicates

• Forecasting on a project allows us to get an

idea of what the future performance and
progress of the project might look like.
 There are 3 major techniques used for forecasting in Project
Management :

• Estimate at completion (EAC)

• Estimate to Complete (ETC)
• To Complete Performance Index (TCPI)
 EAC - Estimate At Completion -
• Estimate at completion technique allows you
to forecast the value of the project to
complete.
 EAC - Estimate At Completion
• The amount of money you will have to spend
to finish the project

• Putting it another way, it tells you the amount

of money the project will cost you to complete
it.

• This is also called Latest Revised estimate.

 If Budgeted At Completion (BAC) is no longer viable then Consider
forecasting the EAC

• If it become obvious that BAC is no longer

viable then Consider forecasting the EAC
based on one of the following options:
 There are 4 different formulas used to calculate the EAC.
Choose the one depending upon the project is performing

• 1) EAC = BAC/CPI

• (Project will continue with the same performance as before)

• 2) EAC = AC+(BAC-EV)
• (If current cost variances will not continue for the entire project)

• 3) EAC=AC + ETC (bottom up estimate to complete)

• (Cost rework for the balance work to be performed)

• 4) EAC= AC+(BAC- EV) /CPI x SPI

• (Over-budget, behind schedule when you wanted to complete the project on
time)
 1. EAC = BAC / CPI

• We use the BAC formula when the project will

continue with the same performance as
before.

• So basically, your future performance and past

performance will be the same.
 1. EAC = BAC / CPI

• The project will continue at the same

performance till the end, the CPI will remain
the same for the project.

• If additional information is not provided

assume that variances are typical for
calculating earned value/ EAC
 2. EAC=AC+(BAC-EV)

• If current cost variances will not continue for

the entire project and the remaining work is
expected to be performed at the planned rate.

This method is used when, there is some

unexpected incident happened and the cost
raise.
 2. EAC=AC+(BAC-EV)
• However, since this was an isolated incident, it
is not expected to occur in the future and the
project is expected to continue with the same
performance as before.
 2. EAC=AC+(BAC-EV)
• •A situation like this happens when unforeseen circumstances
occur e.g costs elevated for a little while but then everything
goes back to normal and you can expect the project to continue
as before with the planned cost estimate.

• This is why this formula includes the Actual Cost of the work
done until now plus the cost for the remaining work.

 
• Money Spent to Date + Budgeted Cost for the Remaining Work
 3. EAC=AC+ ETC

• If the original plan is no longer valid (due to

assumptions we made), we will have to create
a new estimate for the remaining work,
(referred to as Estimate to Complete) and then
take into account what has already been spent
on the project.
 3. EAC=AC+ ETC
• Cost rework for the balance work to be performed.

• Here is a need to go to the activity level, Work

package level and find the cost of each activity
and sum them to get the total cost of the
remaining work.

• This process is also called bottom up estimate to

complete
4. EAC = AC + (BAC - EV)/(CPI x SPI):
• We use this formula/ method

• When it was found that there is over-budget,

behind schedule when you wanted to
complete the project on time
What is Estimate to Complete (ETC)
• New estimate for the remaining work, referred to as
Estimate to Complete.

• There are two methods to calculate the Estimate to

Complete:

• 1) Bottom-up Cost Estimation: There is no formula for

the bottom-up cost estimation technique.

• 2) ETC = Estimate at Completion - Actual Cost

 To Complete Performance Index (TCPl)

• This is the calculated projection of cost

performance that must be achieved on the
remaining work to meet the specified target
(either BAC or EAC).
 To Complete Performance Index (TCPl)

• It is the ratio of work remaining to the funds

remaining.

• TCPI= work remaining (BAC - EV)/Funds remaining

(BAC-AC) or

• TCPI = work remaining (BAC-EV)/funds remaining

(EAC-AC)) if there is an approved EAC.
•  
 To Complete Performance Index (TCPl)

• If TCPI> 1 then there is more work to be done

than funds available.

• IF TCPI <1 then we should be able to complete

the project without using all the remaining
budget.
 Key performance values

• Cost variance
• Schedule variance
• Cost performance index
• Schedule performance index
• To-complete performance index
• Variance at completion
• Cost forecasts as an output

• Calculated Estimate at Completion

• Bottom-up estimate at completion

 Change Requests

• Once project performance is analyzed, it may

result in the need to make some changes to
the cost baseline or other components of the
project management plan.
 Change Requests

• Change requests may include

• Preventive or corrective actions and are
processed for review and disposition through
the perform integrated change control
process.
• A project has a Total Cost of Rs 200 crs. So far ,
over Rs 50 crs have been spent. However,
around 20% of the work has been completed
till now.

• Find the Estimate at Completion ( EAC )

• A project has a Total Cost of Rs 200 crs. So far ,
over Rs 50 crs have been spent. However, around
20% of the work has been completed till now.

• Find the Estimate at Completion ( EAC )

EAC = BAC/CPI
Budget At Completion (BAC) = Rs 200 crs
CPI (Cost Performance Index ) = ?
CPI (Cost Performance Index ) = ?

Actual Cost (AC)= Rs 50 Crs

Earned Value (EV) = 20% of Rs200= 40 Crs

• CPI = EV / AC
•CPI = Rs40 Crs/Rs 50 Crs
•CPI = 0.8
• Now to calculate EAC
•BAC = Rs200 Crs •CPI = 0.8

•EAC = BAC/CPI

•EAC = Rs200 Crs / 0.8

•EAC = Rs250
• So it means that if the project continues with a CPI of 0.8
till the end, you will have to spend Rs250 Crs to complete
the project.
 EAC = AC+(BAC-EV)
•

• Question:
• You're managing a project which has a total cost of Rs200 Crs.
• An incident occurs during the execution of the project which
requires a lot of money to resolve.
• However, since this was an isolated incident, it is not
expected to occur in the future and the project is expected to
continue with the same performance as before.
• Till now, you have spent Rs110 Crs on the project, and the
value of the work so far completed is Rs90 Crs
• What is the Estimate at Completion ?
• Answer
• As you'll notice, the rise in costs was temporary and the
project can be continued as per the original plan.
• EAC = AC+(BAC-EV)
• Actual Cost (AC) = Rs110 Crs
• Budget at Completion (BAC) = Rs 200 Crs
• Earned Value (EV) = Rs90 Crs
• EAC = 110 + (200- 90)
• = 110 + 110
• EAC = Rs220 Crs
 AC + bottom up estimate to complete

• AC plus bottom up estimate to complete is for

scenarios where the original cost estimates
were flawed and you need to calculate new
cost estimates for the work that remains on
the project.
• In this method, you will individually calculate
the costs for each activity and sum them up to
get the total cost amount of the remaining
work.
• Your project for building a bridge has a budgeted
cost of Rs300 Crs The value of the completed work is
Rs100 Crs and you have spent Rs120 on it. During
the project execution, you notice that your
estimates were flawed and need to calculate the
budget again for the remaining work on the project.
• As you sit down with the project team ,you find out
that it will take Rs 350 Crs to complete the
remaining part of the project. What is the Estimate
at Completion ?
•Budget at Completion (BAC) = Rs300 Crs
•Actual Cost (AC) = Rs 120 Crs
•Earned Value (EV) = Rs100 Crs
•Bottom Up Estimate to Complete = Rs350 Crs
• EAC = AC + Bottom up Estimate to Complete
• = 120+ 350
• = 470 Crs
•Therefore , The EAC will be Rs470 Crs
• Another method of monitoring project progress is milestone
analysis. A milestone is an event or stage of the project that
represents a significant accomplishment on the road to the
project’s completion.
• Completion of a deliverable, an important activity on the
project’s critical path, or even a calendar date can all be
milestones.
• They are reactive control system.
• The tracking Gantt Chart: Future projection of project’s
status and reasons of delay are not known are the
drawbacks of this method.
• Earned Value Management: Unlike previous project tracking
approaches, EVM recognizes that it is necessary to jointly consider the
impact of time, cost, and project performance on any analysis of
current project status.
• Put another way: Any monitoring system that only compares actual
against budget cost numbers ignores the fact that the client is
spending that money to accomplish something -create a project.
Therefore, EVM reintroduces and stresses the importance of analyzing
the time element in the project status updates.
• EVM also allows the project team to make future projections of the
project status based on its current status.
• Earned value, directly links all three project success matrices (cost,
schedule, and performance)