1. Earned Value - What is it
Simply, it is a project monitoring and measurement system that:
establishes a clear relationship between planned accomplishments and actual accomplishments
reinforces and rewards good planning practices

2. Earned Value - What is it?
Basic concepts of Earned Value Management (EVM)
Each task in a project earns value as planned work is completed
For example (perhaps), if you were paid on this basis, you would earn $$ at key milestones based on the value of what you have completed (earned value)
Earned value can be compared to actual cost and budgeted cost to determine variance and predict future performance

3. Earned Value - What is it?
The budgeted cost (e.g., dollars, person-hours, person-days, etc.) in terms of your baseline plan/budget of the work performed up to a specified point in time
Also known as Budgeted Cost of Work Performed (BCWP)
Each task in the Work Breakdown Structure (WBS) is assigned a BCWP based on its individual cost.
Project BCWP is total of BCWP for all tasks required to complete the project

4. Earned Value Components
Planned Value (a.k.a. BCWS)
How much work (person-hours) you planned to have accomplished at a given point in time
Actual Cost (a.k.a. ACWP)
How much work (person-hours) you have actually spent at a given point in time
Earned Value (a.k.a. BCWP)
The value (person-hours) in terms of your base budget of what you have accomplished at a given point in time (or, % complete X Planned Value)

5. Earned Value: Example On Day X:
Today 18 8 14
On Day X:
PLANNED VALUE (Budgeted cost of the work scheduled, BCWS) =
= 50
EARNED VALUE (Budgeted cost of the work performed, BCWP) =
= 40
ACTUAL COST (of the work performed , ACWP) =
45 (from your project tracking - not evident in above chart)

6. Earned Value: Example Cost (Person-Hours) Time (Date)
Actual Cost: what you have actually spent to this point in time.
Today
Budgeted (Planned) Spending
Planned Value: what your plan called for sending on the tasks planned to be completed by this date.
Cost (Person-Hours)
Actual Spending
Earned Value
Earned Value: value (cost) of what you have accomplished to date, per the base plan.
Time (Date)

7. Earned Value: Example Over Budget Cost (Person-Hours) Behind Schedule
Today
Over Budget
Budgeted (Planned) Spending
Behind Schedule
Cost (Person-Hours)
Actual Spending
Earned Value
Time (Date)

8. Variance Any schedule or cost deviation from a specific plan.
Used within an organization to verify the budget and schedule for a project
Frequently used as a key component of plan reviews and performance measurement

9. Variance Must compare scheduling and budget variance at the same time
Schedule variance: deviations from work planned – not a measure of changes in cost
Cost variance: deviations from the budget – not a measure of work scheduled vs. work completed
Example: applying more $$/people to a task may maintain the schedule, but it adds to cost… schedule on track… over budget on expenses (cost)

10. Performance Indices Cost Performance Index Schedule Performance Index
CPI = BCWP/ACWP
Schedule Performance Index
SPI = BCWP/BCWS
Analysis
CPI > 1.0  exceptional performance
CPI < 1.0  poor performance
Similar for SPI

11. Quiz
The EV measurement of work you planned to have accomplished at a given point in time :
BCWP
ACSP
BCWS
ACWS
True or False: At any point in time, the SPI tells you exactly how far ahead or behind schedule you are on your project.
TRUE
FALSE

12. Quiz If BCWP is 20 pm and ACWP is 15 pm, CPI:
.75
1.33
1.0
If BCWP is 27 pm BCWS is 25 pm, you are probably:
On schedule
Ahead of schedule
Behind schedule
None of the above

13. Earned Value & Variance: Example18 8 14
On Day X:
PLANNED VALUE (BCWS) = = 50
EARNED VALUE (BCWP) = = 40
ACTUAL COST (ACWP) = 45 (from your project tracking)
Therefore:
Schedule Variance = BCWP – BCWS = = -10 (behind schedule)
Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan (a B-, at best)
Cost Variance = BCWP - ACWP = = -5
Cost Performance Index = 40/45 = .89, or you’re getting an 89¢ return on every $1.00 (or, person-hour) spent on this project

14. Primary Measurement Methods
Measurable efforts
Discrete increments of work with definable schedule and tangible results (i.e., real tasks with a deliverable)
Level of effort
Work that is not discernable in discrete, measurable tasks (e.g., project management, training)

15. Determining % Complete – When?
Allocate based on time spent – but what if you spend more time than allocated?
Allocate 50% at start of task, 50% at end
But only for small, discrete tasks
Allocate 100% at start of task
Allocate 100% at end of task
Best solution if you keep tasks very small
Allocate value at Critical Milestones
Good solution when using with contract work
Others?
Our approach

16. Another Example Project
Plans to spend $100K in each of first 4 weeks (baseline budget, per documented plan)
Actuals, at end of week 4 show: $325K spent
BCWS = $400K ($100K x 4)
ACWP = $325K
What conclusions can you draw?
Under budget?
Is project on schedule?

17. Another Example Project
Suppose BCWP is $300K
How is this determined?
What conclusions now?
SV = BCWP – BCWS
SV = $300k - $400K = -$100K
Behind schedule, but what does the $100K in variance really mean?
CV = BCWP – ACWP = $300K - $325K
Over budget by $25K

18. Earned Value Management
How can you use this information?
Careful analysis of variance and trends
Resetting schedule or budget, when appropriate
Variance Analysis Questions
What is the problem causing the variance?
What is the impact on time, cost and performance?
What is the impact on other efforts, if any?
What corrective action is planned or under way?
What are the expected results of the corrective action?

19. Earned Value Management
Extraordinary variance or alarming trends may be cause for reset or cancellation of a project, but where do you draw the line?
How much variance to allow depends on a number of factors:
Life-cycle phase
Length of life-cycle phase
Length of project
Type of estimate
Accuracy of estimate

20. Variance Projection

21. Performance Index Trends

22. Ideal Performance Index

23. Closing Thoughts: Management Reserve
The padding always added to a project for unexpected costs that are within project scope
Not an allowance for changes to scope
Not part of the cost estimate
Added by upper management, not the project manager.

24. Closing Thoughts: Government Requirements
U.S. government contract cost tracking often must include:
BCWS
BCWP
ACWP
Estimated cost at completion
Budgeted cost at completion
Cost and schedule variances with explanations
Traceability

25. Summary
Cost, in the form of Earned Value or BCWP, can be used to analyze progress of a project
Using Earned Value data to make critical project decisions must be based on careful analysis of data, variances and trends