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Earned Value Management Print
Earned Value Management is a methodology used to measure and communicate the real physical progress of a project taking into account the work complete, the time taken and the costs incurred to complete that work. Earned Value helps evaluate and control project risk by measuring project progress in monetary terms.

We spend time and materials in completing a task. If we are efficient we complete the task with time to spare and with minimum wasted materials. If we are inefficient we take longer and waste materials.

We also plan how we will accomplish the task. How long it will take, the resources we need and the estimated costs.

By taking a snap-shot of the project and calculating the Earned Value metrics we can compare the planned with the actual and make a subjective assessment of the project progress.

By extrapolating the curves and further calculation we can also estimate the costs to project completion and the probable completion date.

The basics of Earned Value can best be shown on the ubiquitous 'S-Curve'.

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The S-curve in its simplest form is a graph showing how project budget is planned to be spent over time.
We can complicate the graph by showing the actual costs of doing the work over the same period.
And also on the same graph we can show how the value of the product of the project increases over the same period.

The three curves on the graph represent:

  • Budgeted Cost for Work Scheduled (BCWS) - the budgets for all activities planned to be completed.

  • Actual Cost of Work Performed (ACWP) - the real costs of the work charged against the completed activities.

  • Budgeted Cost of Work Performed (BCWP) - the planned costs of the work allocated to the completed activities. This is the Earned Value.

The BCWS curve is derived from the Work Breakdown Structure, the project budget and the Project Master Schedule. The cost of each Work Package is calculated and the cumulative cost of completed Works Packages is shown based on the planned completion dates shown in the Master Schedule.

The ACWP curve is found by actual measurement of the work completed. Actual costs recorded from invoices and workmen's time sheets. This appears a daunting task but it can be very simple with sufficient planning and organising.

The BCWP is calculated from the measured work complete and the budgeted costs for that work.
Earned Value = Percentage project complete X Project Budget

Variances

Schedule and cost variances can both be calculated in monetary terms from the data needed to produce the S-curves.

Schedule variance is the difference between the Earned Value and the planned budget.
SV = BCWP - BCWS

Cost Variance is the difference between the Earned Value and the actual costs of the works.
CV = BCWP - ACWP

Performance Indices

Schedule Performance Index and Cost Performance Index give indications of the health of the project. Is the project on time, in budget or what?

Schedule Performance Index is a ratio of Earned Value and the planned value of completed works. A SPI < 1 is not good
SPI = BCWP / BCWS

Cost Performance Index is a ratio of Earned Value and the actual costs of completed works. A CPI < 1 is not good
CPI = BCWP / ACWP

Estimate At Completion

The EAC gives an idea of the final costs of a project. It takes into account the original budget (BAC), the Earned Value and the Cost Performance Index of the already completed works.
EAC = ACWP + ((BAC - BCWP)/CPI)

 

 



 
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