1. Earned Value Management
Earned Value Management (EVM) is a project management control tool which integrates scope of work with both cost and schedule. The EVM method is an industry standard measure of project performance and includes Earned Value Analysis (EVA) and Earned Schedule (ES).

2. Consider a Project Major Construction Plan costs: $1bln
Project Duration: 30 months (Jan2012-June2014)
Today is 1Jan2013, and we have actual costs and progress for all of 2012
Note: “Actual” costs on slides is defined as “Value of Work Done”
Approximate costs:
Indirects 25% -Flat throughout project
Engineering 10% -Mostly complete in first year
Procurement 30% -Procurement for JIT (three months before construction)
Construction 35% -Ramp up first 6 months, peak, ramp down last 6 months

3. Time versus Cost Plan Billions
$1.20
$1.00
$0.80
$0.60
This is the standard “S” Curve seen for most projects. Costs pick up slowly in the beginning of the project as manpower ramps up, and the focus is on planning, and engineering. At the end, costs dwindle during manpower draw-down.
$0.40
$0.20 $ -
Jan - 12
Apr - 12
Jul - 12
Oct - 12
Jan - 13
Apr - 13
Jul - 13
Oct - 13
Jan - 14
Apr - 14

4. Time versus Progress Plan
100%
90%
80%
70%
60%
50%
40%
Progress curves are also “S” shaped since progress algorithms tend to favor construction progress and quantity installation, but progress slows down quite a bit as work fronts reduce at the end of the project
30%
20%
10% 0%
Jan - 12
Apr - 12
Jul - 12
Oct - 12
Jan - 13
Apr - 13
Jul - 13
Oct - 13
Jan - 14
Apr - 14

5. Progress Versus Cost Plan
Billions
Plan
Actual
$1.20
$1.00
$0.80 AC
$0.60 EV
Now if we put costs and progress on the same graph, we are able to consider the project in terms of Price/Volume where the volume is each percent completed, and the cost per percent is price. This breakout opens a world of analysis.
Graphing actual cost along with Plan cost on the progress/cost curve allows us to take a look at how the project is performing in a price/volume split.
On the horizontal axis, we get actual Progress, but more importantly the vertical line gives us a comparison benchmark for plan cost at progress earned.
The intersection of this vertical line at the plan gives us the Earned Value which is the planned cost of the work performed.
$0.40
$0.20 $ - AP 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%

6. Plan, Actual, and Earned Values
Billions
Plan Value
Actual Value
Earned Value
$1.20
$1.00
$0.80
$0.60 CV
Back to the cost S curve since cost over time is probably the most visible and discussed KPI.
We graph actual cost by month on this curve. Since this is a project, we are trying to find a way to link cost, progress and time.
Which is why we also graph the earned value on this curve. At this point, we have the first deliverable for the Project Cost Procedure: Earned Value Management, but what does it mean?
Cost Variance is the difference between Earned Value and Actual Cost. In this case, we can say that the Cost Variance for this project is about $150mln. Meaning that we have already paid $150mln more for the progress we have achieved than we thought we would. A very important thing to note about cost variance is that it is usually considered unrecoverable.
Another feature of this graph is the ability to figure out approximately how far behind the project is in time. As in the previous slide, if we consider the intersection of the earned value against the plan, and drop a vertical line to the x-axis, we can see the Earned Schedule which looks to be about November.
Compared against Actual Time, end of December, the project looks to be about 1.25 months behind schedule which is the Schedule Variance.
Another way to consider Schedule Variance is in terms of dollars. If we compare Earned Value against Plan value at this time, then we can say how far behind the project is in terms of cost. In this case, the project seems to be about $65mln behind in cost, which makes sense because at this point we plan to spend about $40mln/month, and we are a little over a month behind. An important thing to note about Schedule Variance is that eventually this will go to zero since at 100% completion, earned value is equal to plan value. SV
$0.40
$0.20 ES AT $ -
Jan - 12
Apr - 12
Jul - 12
Oct - 12
SV(t)
Jan - 13
Apr - 13
Jul - 13
Oct - 13
Jan - 14
Apr - 14

7. Major Indices
The second deliverable of Earned Value Management is Index analysis.
Cost Performance Index is Earned Value Divided by Actual Value. The benchmark, by definition, is 1 since if the project was on plan, Earned Value would be Equal to Plan Value.
Schedule Performance Index is Earned Value divided by Plan value. This is why we put schedule variance in terms of dollars on the last slide. By converting from progress to time to dollars, we are able to have a common index to compare the project.
Also, this allows us to calculate the critical ratio which is SPIxCPI. However, I would say that this ratio is mislabeled since it very difficult to tell how important that ratio is, or what it means, without breaking it into components. Also, it is not part of the deliverable for EVM.

8. Schedule Performance Index (time-based)
The final deliverable of EVM is SPI(t) which is Earned Schedule/Actual time. In this case, it is a question of how many months of progress are earned each month where earning one month of progress is the plan. It is important to note that going back to the S curve, this could have very different meanings at very different times. In the beginning of the project, very little progress is planned, so an SPI of 1 may only mean that the very little progress planned was achieved. Similarly, at the end of a project, especially if the project is behind, the plan premise may be that the project will get very few percentage points of progress, but the project may be fully staffed to make up for lost time.

9. What do you know about this project?
Cost Variance
Schedule Variance
EV (Earned Value)
Cumulative Cost
AC (Actual Cost)
PV (Planned Value)
Even though current costs are above plan (which may be a cashflow concern); this project is on course to finish under budget and ahead of schedule.
Actual costs are above the planned value, but the earned value is higher, therefore the cost Variance is good, and probably a bankable savings.
Earned Value is also above Planned value, so the project is ahead of schedule. 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Duration
Cost Variance is favorable, project is on course to finish under budget.
Schedule Variance is favorable, project is on course to finish ahead of schedule.

10. What do you know about this project?
Schedule Variance
Cost Variance
EV (Earned Value)
Cumulative Cost
AC (Actual Cost)
PV (Planned Value) 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Currently under-spending planned rate, however, this project is on course to finish under budget and ahead of schedule.
Actual costs are above the planned value, but the earned value is higher, therefore the cost Variance is good, and probably a bankable savings.
Earned Value is also above Planned value, so the project is ahead of schedule.
Duration
Cost Variance is favorable, project is on course to finish under budget.
Schedule Variance is favorable, project is on course to finish ahead of schedule.

11. What do you know about this project?
Cost Variance
Schedule Variance
EV (Earned Value) SV
Cumulative Cost
AC (Actual Cost)
PV (Planned Value) 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Duration
Cost Variance is unfavorable, project is on course to finish over budget.
Schedule Variance is favorable, project is on course to finish ahead of schedule.

12. What do you know about this project?
EV (Earned Value)
Cumulative Cost
AC (Actual Cost)
Schedule Variance
PV (Planned Value)
Cost Variance
Paying less per percent of progress, but the project is behind schedule. 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Duration
Cost Variance is favorable.
Schedule Variance is unfavorable.

13. What do you know about this project?
EV (Earned Value)
Cumulative Cost
AC (Actual Cost)
Schedule Variance
PV (Planned Value)
Cost Variance
This is a time where some project people would argue that they are coming in under costs, but this graph should be a big red flag. 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Duration
Cost Variance is unfavorable.
Schedule Variance is unfavorable.

14. What do you know about this project?
EV (Earned Value)
Cost Variance
Cumulative Cost
AC (Actual Cost)
Schedule Variance
PV (Planned Value)
This project is bad on all counts, and everyone probably knows it. 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Duration
Cost Variance is unfavorable.
Schedule Variance is unfavorable.

15. The Part Project Managers Dislike
Forecasting

16. Note: Could also use cSPI in same way. Plan Duration: 30mos
Billions
Plan
Actual
Forecast
$1.40
Cumulative CPI:
.39/.54=0.72
PFC=Plan/cCPI
PFC=1bln/.72
PFC=$1.4bln
$1.20
$1.00
$0.80
$0.60
Cost Variance: ~$150mln
$0.40
Let us return to the powerful progress versus cost graph.
We can quickly see that our cost variance at 27% is about $150mln.
However, just placing a line $150mln above the plan line simply dismisses the past problems achieving plan.
Instead, we can take a look at the cumulative CPI, and draw that line which is probably a better predictor of continued performance against plan.
This analysis shows that unless the project does something to reduce the cost per percent, the project will cost approx $1.4bln at the end (40% overrun).
Use of Schedule Performance Index.
Note: Could also use cSPI in same way.
Plan Duration: 30mos
PD=Plan/cSPI
PD=30/.82
PD=36.5months
$0.20 $ - 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%

17. At Risk Forecasting
Probabilistic forecast

18. Considerations
Based on coherent plan (can be either optimistic or pessimistic)
Multiple projects by same planning group could have SPI/CPI analysis confirm trends of that group (e.g. refinery project group tends to be conservative on cost, but aggressive on schedule)
Size of project and relative magnitude of components (especially engineering/construction split)
Project Managers experienced enough to understand EVM also understand limitations and ways to explain away negative results
Grouping projects for a program, or maybe just select large projects
Focused on the Define/Execute phase

19. Reference Sheet
Planned Value (PV) or Budgeted Cost of Work Scheduled (BCWS) is the cumulative value expected to have been expended, at a point in time, for work expected to have been completed.
 Actual Cost (AC) or Actual Cost of Work Performed (ACWP) is the cumulative cost incurred for the work accomplished in a given period.
 Earned Value (EV) or Budgeted Cost of Work Performed (BCWP) is a value derived from the percentage of work complete at a point in time expressed as that percentage of the approved budget assigned to the work.
 Cost Variance (CV) is the difference, at a given point in time, between the value of work actually accomplished and the actual costs incurred. CV = EV - AC
 Schedule Variance (SV) is the difference, at a given point in time, between the value of work actually accomplished and the value of work planned to have been completed. SV = EV - PV
 Cost Performance Index (CPI ) is the cost efficiency ratio representing the relationship between the earned value accomplished against actual cost of the work performed. CPI = EV / AC
 Schedule Performance Index (SPI) is the schedule efficiency ratio representing the relationship between the earned value accomplished against the planned value. SPI = EV / PV
 Critical Ratio (CR) or Cost Schedule Index (CSI) is indicator that combines CPI and SPI to assess the overall status of cost and schedule. CR = CPI x SPI
 Actual Time (AT) is the elapsed time of an activity or project from start to the date of measurement.
 Earned Schedule (ES) is the planned duration derived from the baseline schedule for the Earned Value of an activity or project according to the baseline schedule. (Nb. Acronym “ES” should not be confused with Early Start).
 Schedule Variance (time) SV(t) is the difference between the Planned Time of Earned Value and the Actual Time of Earned Value. SV(t) = ES - AT
 Schedule Performance Index (time) SPI(t) is the schedule efficiency ratio representing the relationship between Actual Time of Earned Value and the Planned Time of Earned Value. SPI(t) = ES / AT