| Earned Value Management - Page 3 |
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Page 3 of 3 We now look at some basic examples to illustrate how Earned Value is used to assess the 'health' of a project. In all examples, as in real life, we are taking a 'snapshot' of the project at a single point in time The baseline in the following table shows the planned progress of tasks for the reporting period, usually from the start of the project up until the 'snapshot' is taken.
Example 1
Comparing the measured (actual) spend with the baseline planned spend is of very little use without some indication of the amount of work done. Task A is underspending by 2; Are we saving money, or behind schedule. On the other hand, Task B is overspent by 1; are we overbudget or ahead of schedule. While task G hasn't even started yet; at a guess behind schedule. Reports to management are usually at a high level, they see an underspend of 21%, congratulate the PM and divert some of the management reserve! Example 2
The earned value compared with the actual cost of doing the work necessary to acheive that earned value, provides a measure between planned and actual costs. The difference is called Cost Variance. If the cost variance is negative, more money was spent doing the work than was planned. In the example, the earned value of the work complete was 75 but the actual cost of doing th work was 79, a cost variance of -4 or -4/75 = -5.3% Example 3
Planned value compared with earned value measures the volume of the work planned against the work completed. The difference is called Scedule Variance. If the schedule variance is negative, the work is late. in the example the schedule variance is -25 or -25/100= -25% Variance analysis and trend projection are two important tools used by the project manager to control projects. Using earned value techniques the project manager can monitor both schedule and cost variances as well as predict trends using Cost Performance Index and the Schedule Performance Index. The astute project manager will also calculate a set of Critical ratios at a selected level of the Work Breakdown Structure. (Actual Progress/Scheduled Progress) X (Budgeted Costs/Actual Costs) This critical ratio is a good measure of the general health of a project as it combines both schedule and cost in that a poor performance in one is compensated by a good performance in the other. A critical ratio greater than 1 is good, less than one is bad. furthermore the project manager should also set control limits on the various critical ratios. If the ratios are outside the limits then corrective action is necessary.
Jeb Riordan (c) 2000  Comments (0)
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