SC 431

Lecture No. 11
Project Progress and Cost Control using Earned Value Analysis
 Objective
• Key project performance indicators include:
time, cost, quality and scope;
• At any one time, the “health” of the project can
be measured.
• Earned value analysis is a tool for measuring the
performance (or health) of the project with
regard to time and cost.
• It provides answers to the questions:
– How far behind or ahead of schedule is the project?
– How far above or below the budget is the project?
 Definition
• Earned value analysis is a project management
tool that is used to measure project progress.
• It compares the actual work completed at any
time to the original budget and schedule.
• It forecasts the final budget and schedule and
analyzes the path to get there.
• It provides the essential early warning signal that
the project progress is not well.
 Earned Value Analysis (EVA)
• EVA is a project performance measurement
technique that integrates scope, time, and cost
data
• Given a baseline (original plan plus approved
changes), one can determine how well the
project is meeting its goals
• Actual data and information must be must be
entered and analysed periodically to use EVA.

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 Traditional vs Earned value management

• Differences in data available for traditional vs

earned value management;
• Traditional method compares what was
budgeted (planned) vs what was actually
spent;

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Typical Project S curve - Budget
Traditional Cost Management

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Earned Value Management

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 Earned Value Analysis Terms
• Planned Value or Budgeted cost of work scheduled
(BCWS), also called the BUDGET, is that portion of
the approved total cost estimate planned to be spent
on an activity during a given period.
• Actual cost of work performed (ACWP), also called
ACTUAL COST, are the total direct and indirect costs
incurred in accomplishing work on an activity during
a given period
• Budgeted cost of work performed (BCWP), also
called EARNED VALUE, is the percentage of work
actually completed multiplied by the planned cost (or
BCWS)

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 Planned Value (BCWS)
• Planned Value describes how far along project
work is supposed to be at any given point in the
project schedule and cost estimate.
• Cost and Schedule baseline refers to the physical
work scheduled and the approved budget to
accomplish the scheduled work.
• Together, they result in an important value:
Planned Value (PV).
• PV is normally presented as cumulative value;
• PV, also known as Budget Cost of Work
Scheduled (BCWS),
 Actual Cost ( or ACWP)

• Actual Cost (AC), also called actual expenditures, is

the cost incurred for executing work on a project.
• This figure tells you what you have spent and, as with
Planned Value, can be looked at in terms of
cumulative and current.
• Cumulative AC is the sum of the actual cost for
activities performed to date.
• Current AC is the actual costs of activities performed
during a given period.
• This period could represent days, weeks, months, etc.
• AC is also called Actual Cost of Work Performed
(ACWP).
 Earned Value (or BCWP)
• Earned Value (EV) tells you, in physical terms,
what the project has accomplished.
• As with PV and AC, EV can be presented in a
Cumulative and Current fashion.
• Cumulative EV is the sum of the budget for the
activities accomplished to date.
• Current EV is the sum of the budget for the
activities accomplished in a given period.
• Earned Value is also called Budgeted Cost of
Work Performed (BCWP).
 Table 3 Earned Value Formulas
Term Formula

Earned Value Budgeted Cost of Work Performed (BCWP) =

budgeted cost to date X % complete

Cost Variance CV=BCWP-ACWP (actual cost of work

performed)
Schedule Variance SV=BCWP-BCWS (budgeted cost of work
scheduled)
Cost Performance Index CPI=BCWP/ACWP

Schedule Performance SPI = BCWP/BCWS

Index

To estimate what it will cost to complete a project or how

long it will take based on performance to date, divide the
budgeted cost or time by the appropriate index.
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 Example:
• A project manager is implementing a small
project which is planned to take 1 week and at a
budget of 10 Million TZS. One week later, the
project manager has achieved only 75% of the
work and has spent 15 Million TZS.
• What is the earned value?
• Compute the cost and schedule variances.
• Determine the Schedule Performance Index (SPI)
and the Cost Performance Index (CPI).
• What can you conclude on the “health” of this
project with regard to schedule and budget?
Table 1 Earned Value Calculations for One Activity After Week One (in 000 Tzs)
Week 1 Week 2 Total % Earned Value
Activity after Week 1
Complete
after Week (BCWP)
1
Site Establishment 10,000 0 10,000 75% 7,500

Weekly Plan 10,000 0 10,000

Weekly Actual 15,000 5,000 20,000

Cost Variance -7,500

(CV=BCWP-ACWP)
Schedule Variance -2,500
(SV=BCWP-BCWS)
Cost Performance 50%
Index
(CPI=BCWP/ACWP)
Schedule 75%
Performance Index
(SPI = BCWP/BCWS) 15
 Rules of Thumb for EVA Numbers
• Negative numbers for cost and schedule
variance indicate problems in those areas.
The project is costing more than planned or
taking longer than planned
• CPI and SPI less than 100% indicate
problems

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Figure 2 Earned Value Calculations for a One-Year
Project After Five Months

Excel file

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Figure 3. Earned Value Chart for Project After Five Months

If BCWP line is below

others, things could be
better!

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 To Complete Schedule Performance Indicator
• To Complete Schedule Performance Indicator
(TSPI) is an index showing the efficiency at
which the remaining time on the project
should be utilized. It can be calculated using
the following formula:
• TSPI = (Total Budget − EV)⁄(Total Budget − PV)
or
• TSPI = (Total Budget − BCWP)⁄(Total Budget −
BCWS)
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• The formula mentioned above gives the efficiency
at which the project team should utilize the
remaining time allocated for the project.
• A TSPI value below 1 indicates the project team
can be lenient in utilizing the remaining time
allocated to the project.
• A TSPI value above 1 indicates the project team
needs to work harder in utilizing the remaining
time allocated to the project.
 To Complete Cost Performance Indicator
• To Complete Cost Performance Indicator (TCPI)
is an index showing the efficiency at which the
resources on the project should be utilized for
the remainder of the project. It can be calculated
using the following formula:
• TCPI = ( Total Budget − EV ) ⁄ ( Total Budget − AC )
or
• TCPI = ( Total Budget − BCWP ) ⁄ ( Total Budget −
ACWP )
• The formula mentioned above gives the
efficiency at which the project team should be
utilized for the remainder of the project.
• A TCPI value above 1 indicates the utilization
of the project team for the remainder of the
project can be stringent.
• A TCPI value below 1 indicates the utilization
of the project team for the remainder of the
project should be lenient.
• The formula mentioned above gives the
efficiency at which the project team should be
utilized for the remainder of the project.
• A TCPI value above 1 indicates the utilization
of the project team for the remainder of the
project can be stringent.
• A TCPI value below 1 indicates the utilization
of the project team for the remainder of the
project should be lenient.
 Exercises

• See tutorial questions.