1. Calculate Schedule and Cost Variances with Earned Value Analysis
Intermediate Cost Analysis
and Management
11.3

2. How Can We Better Manage Large, Complex, Non Repetitive Projects?

3. Terminal Learning Objective
Action: Calculate Schedule and Cost Variances with Earned Value Analysis
Condition: You are training to become an ACE with access to ICAM course handouts, readings, spreadsheet tools, and awareness of Operational Environment (OE) variables and actors
Standard: With at least 80% accuracy:
Describe theory of Earned Value Analysis
Explain the concept of schedule and cost variances in context of Earned Value Analysis
Prepare AAR reconciliation using Earned Value Analysis

4. Introduction In subsequent lessons we will be dealing with
Organization based control
Role based control
Output based control
Here we would like to start with a simpler concept
Project management and control
The question is “how can we perform better in completing tasks or projects?”

5. Definition of Project Projects are
Discrete tasks rather than continuous operations
Often one-time or infrequent rather than repeated
Frequently complex, ambiguous, or pioneering
Tasks that require a significant length of time

6. Risk The nature of projects results in a high degree of risk
There are two types of risk:
Risk that the project will not be completed in the timeframe expected: schedule variance
Risk that the project will not be completed within the budget allotted: cost variance

7. Consider the Possibilities at any Given Point During the Project
Being right on schedule and at the expected cost is perfect (but rarely happens)
Possibilities Matrix
schedule
Ahead Of
Right On
Behind
cost
More than Expected
As Expected
Perfect
Less than Expected

8. Consider the Possibilities at any Given Point During the Project (Cont
Being ahead of or on schedule and at or less than expected cost is a good thing
Possibilities Matrix
schedule
Ahead Of
Right On
Behind
cost
More than Expected
As Expected
Great!
Less than Expected
Terrific!!

9. Consider the Possibilities at any Given Point During the Project (Cont
Being behind or on schedule and at or more than expected cost is not a good thing
Possibilities Matrix
schedule
Ahead Of
Right On
Behind
cost
More than Expected
Not Good!
Terrible!!
As Expected
Less than Expected

10. Consider the Possibilities at any Given Point During the Project (Cont
Can’t really tell if this is good news or bad without further analysis
Possibilities Matrix
schedule
Ahead Of
Right On
Behind
cost
More than Expected ??
As Expected
Less than Expected

11. Consider the Possibilities at any Given Point During the Project (Cont
Possibilities Matrix
schedule
Ahead Of
Right On
Behind
cost
More than Expected ??
Not Good!
Terrible!!
As Expected
Great!
Perfect
Less than Expected
Terrific!!

12. Earned Value Analysis
Earned value management (EVM) provides an common set of metrics for measuring both
Schedule variance and
Cost Variance
EVM combined with AAR offers a template for cost management and control of projects

13. Earned Value Analysis (Cont.)
There are many resources available for more in depth study of Earned Value Analysis/Management
See the Earned Value Management website:
Follow links to Defense Acquisition University training programs
Familiarize yourself with the wealth of additional material and number of courses available within the DoD community

14. Requirements for Success
The four requirements for successful cost management and control remain the same
Leadership: actively engaged in understanding and improving performance
Cost staff: supporting leadership with analysis, insight, and advice
Process: the AAR where accountable subordinates explain costs and schedules and ways to improve both
Measurement: schedule and cost variances as provided by the EVA

15. What Does Earned Value Mean?
Since there are risks to both cost and schedule some method is needed to link the two
Earned value measures what has been accomplished in terms of planned (budgeted) cost
In this sense it is similar to the flexible forecast we used previously in analyzing volume variance
Just like in the flexible forecast we will use the original planning factors to evaluate (in dollar terms) how much more or less work has been done

16. LSA #1 Check on Learning
Q1. What are some of the characteristics of projects that may pose management challenges?
A1.
Q2. What are the two categories of risk related to projects?
A2.
Q1. What are some of the characteristics of projects that may pose management challenges?
A1. They are frequently one-time or pioneering, with no institutionalized processes. They are also often ambiguous, where expected outcomes may evolve as the project progresses.
Q2. What are the two categories of risk related to projects?
A2. Risk that the project will not be completed on budget (Cost variance) and risk that the project will not be completed on time (Schedule variance.)

17. LSA #1 Summary
We discussed the need to identify risk by measuring the time and cost of a project. The Earned Value Management (EVM) module creates a format to assist senior leaders in decision making.

18. Starting Point: The Plan (Budget)
Just as in analyzing volume and performance variance we must start with an expectation
This is the plan or budget
The plan or budget must define two of the following three variables in the equation: cost = output x cost per output
Some measure of output (like units)
A measure of cost per output
The total cost
Furthermore, the plan defines these variables for all time periods or milestones within the project

19. One Difference: Non-Linearity Possible
Volume variance recognizes that cost fits the equation
Cost = variable cost per unit x units + fixed cost
Resulting in a linear relationship in plotting $ versus units
Earned value analysis planning is likely to be non-linear
This is to say that cost and effort will not increase at a constant rate when plotting $ versus time

20. Comparing Flexible Forecast to Project Budget$ $
units
time

21. Comparing Flexible Forecast to Project Budget (Cont.)$ $
units
time

22. Essential Vocabulary of EVM Variables
BCWS Budgeted Cost for Work Scheduled
How much work should be done?
BCWP Budgeted Cost for Work Performed
How much should it cost for the work actually done?
ACWP Actual Cost of Work Performed
How much did the work done actually cost?
BAC Budget at Completion
What was the total project supposed to cost?
EAC Estimate at Completion
What do we now expect the project to cost?

23. Tying Terminology to Graph
Suppose that halfway through the project
ACWP is lower than expected “at that time”
BCWP is higher than expected “at that time”
What does this mean????? (Terrific!!: we are ahead of schedule and under cost) $
BCWS
ACWP
time

24. Tying Terminology to Graph
BCWP
Suppose that halfway through the project
ACWP is lower than expected “at that time”
BCWP is higher than expected “at that time”
What does this mean????? (Terrific!!: we are ahead of schedule and under cost) $
BCWS
ACWP
time

25. Tying Terminology to Graph
BCWP
Suppose that halfway through the project
ACWP is lower than expected “at that time”
BCWP is higher than expected “at that time”
What does this mean????? (Terrific!!: we are ahead of schedule and under cost) $
BCWS
ACWP
time

26. Tying Terminology to Graph
BCWP
BAC
Suppose that halfway through the project
ACWP is lower than expected “at that time”
BCWP is higher than expected “at that time”
What does this mean????? (Terrific!!: we are ahead of schedule and under cost)
EAC $
BCWS
ACWP
time

27. Schedule Variance Logic Differs From Cost Variance
In calculating cost volume variance we looked at increased units resulting in more cost
More cost is (unfavorable) by definition in cost variance analysis
In calculating schedule variance we look at this situation quite differently
Even though cost is higher the logic here is that we are ahead of the spending schedule and therefore this is a favorable schedule variance
Plan
Flexible Fcst
Volume Variance
Units sold
100
130 30
Variable cost
500
650
(150)
Plan
BCWP
Schedule Variance
Units produced
100
130 30
Cost
500
650
150
© Dale R. Geiger 2011

28. Here’s Why: We’re Looking at Two Different Dimensions
Cost Variance looks at the Y axis
Schedule variance looks at the X axis
Any point left of the BCWS is ahead of spending schedule in the time dimension: favorable
Any point right is unfavorable
Any point above the BCWS is over cost: unfavorable
Any point below is favorable $ $
time
time

29. EVM Variance Template
Here you can see some of the similarities to other variance analyses
BCWP is calculated using the budgeted cost per and the actual units
Cost variance is favorable since ACWP is less than BCWP
And differences:
Note that the sum of variance is no longer meaningful
Note that schedule variance is favorable when BCWP exceeds BCWS
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Units Produced
100
130
Cost per Unit 5 4
Cost at a Point in Time
500
150
650
520

30. EVM Variance Summary Schedule Variance = BCWP – BCWS
Logic: Increased cost of work performed means that more schedule has been completed: a favorable schedule variance
Decreased cost of work performed means that less schedule has been completed: an (unfavorable) schedule variance
Cost Variance = BCWP – ACWP
Logic: Like a typical cost variance less actual cost than budgeted is a favorable variance
More actual cost than budgeted is an (unfavorable) variance

31. Calculating EAC: Estimate at Completion
One other very useful metric to calculate is the estimated cost at completion
There are numerous ways to estimate this
Detailed re-forecast of remaining costs – may be costly
Management guess – may be optimistic
Projection from results to date – assumes that we will finish remaining work with the same level of efficiency or inefficiency

32. Calculating EAC: Estimate at Completion
Consider the previous example
The ratio of ACWP to BCWP is 80%
If we complete the project at this efficiency then EAC will be 80% of BAC
If BAC was 1000 then we would estimate completion at 800
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Units Produced
100
130
Cost per Unit 5 4
Cost at a Point in Time
500
150
650
520

33. LSA #2 Check on Learning
Q1. What information does the comparison of BCWP to BCWS give?
A1.
Q2. What can be said about the project if ACWP is greater than BCWS?
A2.
Q1. What information does the comparison of BCWP to BCWS give?
A1. This gives the schedule variance. It compares the actual work completed to the plan in terms of budgeted or planned cost.
Q2. What can be said about the project if ACWP is greater than BCWS?
A2. This comparison gives the cost variance. If the Actual cost of work performed is greater than the budgeted cost of work scheduled, that represents an UNFAVORABLE cost variance.

34. LSA #2 Summary
We identified EVM terminology and applied those terms to graphs. We were also able to use this data to identify variances of both time and cost. By using the EVM variance summary, running estimates are then updated with the latest information for management.

35. The Project Management AAR
Uses EVM metrics as part of the measurement input
Expects accountable subordinates to understand and explain the variance
Seeks continuous improvement in both cost and schedule
There are many application opportunities for project management AARs
Acquisitions, research and development, experimentations, building and construction, BRAC, ARFORGEN, etc., etc.

36. Classroom Exercise
You’ve decided to apply project management techniques to the project of getting an MBA
You plan on taking one course this semester, two courses a semester for eight semesters and one course the last semester with each costing $2000
You successfully completed the first semester’s course which cost $2000
Task: Determine your budget at completion (BAC), schedule variance, cost variance, and estimate at completion (EAC)after the first semester

37. Budget at Completion: BAC
semester
courses
cost per
bcws
cum 1
2000 2
4000
6000 3
10000 4
14000 5
18000 6
22000 7
26000 8
30000 9
34000 10
36000 $
X axis = semesters
BAC

38. Schedule and Cost Variances Estimate at Completion (EAC)
We are on schedule and at cost expected: perfect
Cost Estimated At Completion (EAC) will be unchanged from the BAC since ACWP is same as BCWP
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Courses Taken – 1st Semester 1
Cost per Unit – 1st Semester
2000
Cost after 1st Semester --

39. Schedule and Cost Variances Estimate at Completion (EAC)
We are on schedule and at cost expected: perfect
Cost Estimated At Completion (EAC) will be unchanged from the BAC since ACWP is same as BCWP
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Courses Taken – 1st Semester 1
Cost per Unit – 1st Semester
2000
Cost after 1st Semester --

40. Schedule and Cost Variances Estimate at Completion (EAC)
We are on schedule and at cost expected: perfect
Cost Estimated At Completion (EAC) will be unchanged from the BAC since ACWP is same as BCWP
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Courses Taken – 1st Semester 1
Cost per Unit – 1st Semester
2000
Cost after 1st Semester --

41. Schedule and Cost Variances Estimate at Completion (EAC)
We are on schedule and at cost expected: perfect
Cost Estimated At Completion (EAC) will be unchanged from the BAC since ACWP is same as BCWP
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Courses Taken – 1st Semester 1
Cost per Unit – 1st Semester
2000
Cost after 1st Semester --

42. Schedule and Cost Variances Estimate at Completion (EAC)
We are on schedule and at cost expected: perfect
Cost Estimated At Completion (EAC) will be unchanged from the BAC since ACWP is same as BCWP
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Courses Taken – 1st Semester 1
Cost per Unit – 1st Semester
2000
Cost after 1st Semester --

43. Schedule and Cost Variances Estimate at Completion (EAC)
We are on schedule and at cost expected: perfect
Cost Estimated At Completion (EAC) will be unchanged from the BAC since ACWP is same as BCWP
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Courses Taken – 1st Semester 1
Cost per Unit – 1st Semester
2000
Cost after 1st Semester --

44. Classroom Exercise – 2nd Semester
You’ve decided to apply project management techniques to the project of getting an MBA
You plan on taking one course this semester, two courses a semester for eight semesters and one course the last semester with each costing $2000
You only completed one course in the 2nd semester
Tuition went up $200 per course
Determine your schedule variance, cost variance, and estimate at completion after the 2nd semester

45. 2nd Semester Results
We are now behind schedule and over cost: terrible!!
ACWP is 105% of BCWP so EAC can be projected at 105% of BAC: (1.05)36K = 37.8K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 1st Semester
2000 --
Courses Taken – 2nd Semester 2
Cost per Unit – 2nd Semester
Cost of 2nd Semester
4000
Cost after 2nd Semester
6000

46. 2nd Semester Results (Cont.)
We are now behind schedule and over cost: terrible!!
ACWP is 105% of BCWP so EAC can be projected at 105% of BAC: (1.05)36K = 37.8K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 1st Semester
2000 --
Courses Taken – 2nd Semester 2 1
Cost per Unit – 2nd Semester
2200
Cost of 2nd Semester
4000
Cost after 2nd Semester
6000
4200

47. 2nd Semester Results (Cont.)
We are now behind schedule and over cost: terrible!!
ACWP is 105% of BCWP so EAC can be projected at 105% of BAC: (1.05)36K = 37.8K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 1st Semester
2000 --
Courses Taken – 2nd Semester 2 1
Cost per Unit – 2nd Semester
2200
Cost of 2nd Semester
4000
Cost after 2nd Semester
6000
4200

48. 2nd Semester Results (Cont.)
We are now behind schedule and over cost: terrible!!
ACWP is 105% of BCWP so EAC can be projected at 105% of BAC: (1.05)36K = 37.8K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 1st Semester
2000 --
Courses Taken – 2nd Semester 2 1
Cost per Unit – 2nd Semester
2200
Cost of 2nd Semester
4000
(2000)
(200)
Cost after 2nd Semester
6000
4200

49. 2nd Semester Results (Cont.)
We are now behind schedule and over cost: terrible!!
ACWP is 105% of BCWP so EAC can be projected at 105% of BAC: (1.05)36K = 37.8K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 1st Semester
2000 --
Courses Taken – 2nd Semester 2 1
Cost per Unit – 2nd Semester
2200
Cost of 2nd Semester
4000
(2000)
(200)
Cost after 2nd Semester
6000
4200

50. 2nd Semester Results (Cont.)
We are now behind schedule and over cost: terrible!!
ACWP is 105% of BCWP so EAC can be projected at 105% of BAC: (1.05)36K = 37.8K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 1st Semester
2000 --
Courses Taken – 2nd Semester 2 1
Cost per Unit – 2nd Semester
2200
Cost of 2nd Semester
4000
(2000)
(200)
Cost after 2nd Semester
6000
4200

51. Classroom Exercise – 3rd Semester
You’ve decided to apply project management techniques to the project of getting an MBA
You plan on taking one course this semester, two courses a semester for eight semesters and one course the last semester with each costing $2000
You successfully completed three courses in the 3rd semester
Tuition again went up $200 per course
Determine your schedule variance, cost variance, and estimate at completion after the 3rd semester

52. 3rd Semester Results
We are now back on schedule but over cost: not good!
ACWP is 114% of BCWP so EAC can be projected at 105% of BAC: (1.14)36K = 41.0K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 2nd Semester
6000
(2000)
4000
(200)
4200
Courses Taken – 3rd Semester 2
Cost per Unit – 3rd Semester
2000
Cost of 3rd Semester
Cost after 3rd Semester
10000

53. 3rd Semester Results (Cont.)
We are now back on schedule but over cost: not good!
ACWP is 114% of BCWP so EAC can be projected at 105% of BAC: (1.14)36K = 41.0K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 2nd Semester
6000
(2000)
4000
(200)
4200
Courses Taken – 3rd Semester 2 3
Cost per Unit – 3rd Semester
2000
2400
Cost of 3rd Semester
7200
Cost after 3rd Semester
10000
11400

54. 3rd Semester Results (Cont.)
We are now back on schedule but over cost: not good!
ACWP is 114% of BCWP so EAC can be projected at 105% of BAC: (1.14)36K = 41.0K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 2nd Semester
6000
(2000)
4000
(200)
4200
Courses Taken – 3rd Semester 2 3
Cost per Unit – 3rd Semester
2000
2400
Cost of 3rd Semester
7200
Cost after 3rd Semester
10000
11400

55. 3rd Semester Results (Cont.)
We are now back on schedule but over cost: not good!
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 2nd Semester
6000
(2000)
4000
(200)
4200
Courses Taken – 3rd Semester 2 3
Cost per Unit – 3rd Semester
2000
2400
Cost of 3rd Semester
(1200)
7200
Cost after 3rd Semester
10000 --
(1400)
11400

56. 3rd Semester Results (Cont.)
We are now back on schedule but over cost: not good!
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 2nd Semester
6000
(2000)
4000
(200)
4200
Courses Taken – 3rd Semester 2 3
Cost per Unit – 3rd Semester
2000
2400
Cost of 3rd Semester
(1200)
7200
Cost after 3rd Semester
10000 --
(1400)
11400

57. 3rd Semester Results (Cont.)
We are now back on schedule but over cost: not good!
ACWP is 114% of BCWP so EAC can be projected at 114% of BAC: (1.14)36K = 41.0K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 2nd Semester
6000
(2000)
4000
(200)
4200
Courses Taken – 3rd Semester 2 3
Cost per Unit – 3rd Semester
2000
2400
Cost of 3rd Semester
(1200)
7200
Cost after 3rd Semester
10000 --
(1400)
11400

58. Individual Exercise: 4th Semester
You’ve decided to apply project management techniques to the project of getting an MBA
You plan on taking one course this semester, two courses a semester for eight semesters and one course the last semester with each costing $2000
You successfully completed three courses in the 4th semester
Tuition again went up $200 per course
Determine your schedule variance, cost variance, and estimate at completion
Prepare an AAR reconciliation for your Spousal AAR with suggestions for improvement

59. 4th Semester Results
We are now back on schedule but over cost: not good!
ACWP is 114% of BCWP so EAC can be projected at 114% of BAC: (1.14)36K = 41.0K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 3nd Semester
Courses Taken – 4th Semester
Cost per Unit – 4th Semester
Cost of 4th Semester
Cost after 4th Semester

60. 4th Semester Results (Cont.)
We are now ahead of schedule but over cost: not good!
ACWP is 120% of BCWP so EAC can be projected at 120% of BAC: (1.20)36K = 43.2K
BCWS
Schedule Variance
BCWP
Cost Variance
ACWP
Cost after 3nd Semester
10000 --
(1400)
11400
Courses Taken – 4th Semester 2 3
Cost per Unit – 4th Semester
2000
2600
Cost of 4th Semester
4000
6000
(1800)
7800
Cost after 4th Semester
14000
16000
(3200)
19200

61. MBA Project Graph after 4th Semester
BAC
BCWS $
Semesters

62. MBA Project Graph after 4th Semester
EAC
BAC
ACWP
BCWS $
BCWP
Semesters

63. Conclusions
Projects offer many important opportunities for cost management and control
The requirements for success are identical to other cost management and control effort
The major difference is that project management requires attention to both
Schedule variance
Cost variance
Another difference is that AARs might be scheduled at logical project milestones rather than fixed time intervals

64. This is like a performance variance This is like a volume variance
Teacher’s Note
cost reconciliation
continuous improvement
BCWS
14000
transfer
ACWP
19200
apply for scholarship
variance
(5200)
grade papers as part time job
petition to avoid courses
cost variance
(3200)
accelerate to avoid tuition hikes
extra course taken
(2000)
don’t drop any courses
acwp/bcwp
120%
bac
36000
eac
43200
This is like a performance variance
This is like a volume variance

65. Teacher’s Note: MBA Exercise
schedule
cost
bcws
variance
bcwp
acwp
units completed 1
1st semester
cost per unit
2000
cost at point in time 2
2nd semester
2200
4000
(2000)
(200) 3
3rd semester
2400
6000
(1200)
7200
4th semester
2600
(1800)
7800
14000
16000
(3200)
19200

66. TLO Summary
Action: Calculate Schedule and Cost Variances with Earned Value Analysis
Condition: You are training to become an ACE with access to ICAM course handouts, readings, spreadsheet tools, and awareness of Operational Environment (OE) variables and actors
Standard: With at least 80% accuracy:
Describe theory of Earned Value Analysis
Explain the concept of schedule and cost variances in context of Earned Value Analysis
Prepare AAR reconciliation using Earned Value Analysis