demystifying earned value analysis

Presented by Tim PyronPresented by Tim PyronAuthor:  Que’s Author:  Que’s Special Edition Using Microsoft Project 2002Special Edition Using Microsoft Project 2002 Que’s Que’s Special Edition Using Microsoft Project 2000Special Edition Using Microsoft Project 2000             SAMS Teach Yourself Microsoft Project 2000 in 24 Hours           SAMS Teach Yourself Microsoft Project 2000 in 24 Hours

Editor:    Editor:    Woody's Project WatchWoody's Project Watch (www.woodyswatch.com) Phone: (210)822-0839 Email: Phone: (210)822-0839 Email: tpyron@txdirect.net

Demystifying Demystifying Earned Value AnalysisEarned Value Analysis

Kansas City MPUG Chapter Kansas City MPUG Chapter

June 18, 2002June 18, 2002

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OverviewOverview

• Understanding Earned Value AnalysisUnderstanding Earned Value Analysis

• Understanding the EV metricsUnderstanding the EV metrics

• Project’s Earned Value calculationsProject’s Earned Value calculations

• Graphing Earned Value metrics in ExcelGraphing Earned Value metrics in Excel

• ConclusionConclusion

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What is Earned Value AnalysisWhat is Earned Value Analysis

• EVA is the tool used by those who EVA is the tool used by those who practice Earned Value Managementpractice Earned Value Management

• EVA provides early warning signals of EVA provides early warning signals of troubletrouble

• EVA provides a basis for revising the EVA provides a basis for revising the plan (and maybe the goals) in order to plan (and maybe the goals) in order to get back on trackget back on track

• EVA provides a basis for estimating EVA provides a basis for estimating final costs and the project finish date.final costs and the project finish date.

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What’s wrong with using Variances?What’s wrong with using Variances?

• Each variance shows a different aspect of Each variance shows a different aspect of progress in its own units; and comparing progress in its own units; and comparing dollars and time makes it difficult to assess dollars and time makes it difficult to assess your net positionyour net position

• EVA measures everything in dollarsEVA measures everything in dollars

• Variances don’t show if productivity is at the Variances don’t show if productivity is at the levels you plannedlevels you planned

• EVA measures productivity up through the EVA measures productivity up through the status datestatus date

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Figure 1 (Simple Cost Variance)Figure 1 (Simple Cost Variance)

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History of Earned Value AnalysisHistory of Earned Value Analysis

• Started with defense contractsStarted with defense contracts

• Originally used to justify staged Originally used to justify staged payments for projects in progresspayments for projects in progress

• Now widespread in private sector alsoNow widespread in private sector also

• Is becoming a world-wide standardIs becoming a world-wide standard

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Example: Using variancesExample: Using variances

Baseline duration is 1 Year (Jan – Dec)Baseline duration is 1 Year (Jan – Dec)

Baseline cost is $1,000,000Baseline cost is $1,000,000

Baseline work is scheduled to be 50% complete as of June 30Baseline work is scheduled to be 50% complete as of June 30

Baseline cost through June 30 is $500,000Baseline cost through June 30 is $500,000

Actuals on June 30: 60% of work is completedActuals on June 30: 60% of work is completed Actual Cost is $550,000 Actual Cost is $550,000 Cost is $1,050,000 Cost is $1,050,000 *Cost = Remaining Cost + Actual Cost*Cost = Remaining Cost + Actual Cost

$ 50,000$ 50,000

????

What is the Cost Variance?What is the Cost Variance?

Does that mean the project will go over budget?Does that mean the project will go over budget?That there’s not enough in the budget to finish the project?That there’s not enough in the budget to finish the project?

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Example: Using EVAExample: Using EVA

Baseline duration is 1 Year (Jan – Dec)Baseline duration is 1 Year (Jan – Dec)

Baseline cost is $1,000,000Baseline cost is $1,000,000

Baseline work is scheduled to be 50% complete as of June 30Baseline work is scheduled to be 50% complete as of June 30

Baseline cost through June 30 is $500,000Baseline cost through June 30 is $500,000

Actuals on June 30: 60% of work is completedActuals on June 30: 60% of work is completed Actual Cost is $550,000 Actual Cost is $550,000 Cost is $1,050,000 Cost is $1,050,000 *Cost = Remaining Cost + Actual Cost*Cost = Remaining Cost + Actual Cost

$500,000$500,000

$600,000$600,000

How much was How much was plannedplanned to be earned? to be earned?

How much of that value has been How much of that value has been earnedearned by June 30 by June 30??

$550,000$550,000What did it What did it actually costactually cost ? ?

$1,000,000$1,000,000What is the planned value of this project?What is the planned value of this project?

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Planned Value (PV)Planned Value (PV)

• PV is that part of the project/task’s PV is that part of the project/task’s value we plan to be completed up value we plan to be completed up through the through the status datestatus date..

• PMBOK formerly called PV thePMBOK formerly called PV theBBudgeted udgeted CCost of ost of WWork ork SScheduled orcheduled orBCWSBCWS..

• Total Baseline Cost called BACTotal Baseline Cost called BAC(Budgeted at Completion)(Budgeted at Completion)

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Earned Value (EV)Earned Value (EV)

• EV is the planned value of the EV is the planned value of the completed portion of the project/taskcompleted portion of the project/task

• EV = % Work Complete * Baseline CostEV = % Work Complete * Baseline Cost Note that % Work Complete uses Note that % Work Complete uses currently currently scheduledscheduled work – not baseline work. Example: work – not baseline work. Example: Baseline Work = 10h Actual Work = 5 h Baseline Work = 10h Actual Work = 5 h Scheduled Work = 15h % Work Complete = 33% Scheduled Work = 15h % Work Complete = 33%

BAC = $1,000 Earned Value = $333BAC = $1,000 Earned Value = $333

• PMBOK formerly called EV thePMBOK formerly called EV theBBudgeted udgeted CCost of ost of WWork ork PPerformed or erformed or BCWPBCWP

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Actual Costs (AC)Actual Costs (AC)

• AC is the actual cost of work that was AC is the actual cost of work that was completed as of the status datecompleted as of the status date

• PMBOK formerly called this thePMBOK formerly called this theAActual ctual CCost of ost of WWork ork PPerformed orerformed orACWP.ACWP.

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Prerequisites for using EVAPrerequisites for using EVA

• Work and cost must be distributed over time Work and cost must be distributed over time (Microsoft Project’s timephased data)(Microsoft Project’s timephased data)

• The must capture the baselineThe must capture the baseline

• You must define a Status Date for assessing You must define a Status Date for assessing performance (Project, Project Information)performance (Project, Project Information)

• You must track actual start and finish dates, You must track actual start and finish dates, work, and costs; and you must reschedule work, and costs; and you must reschedule work not completed on time and work that is work not completed on time and work that is completed ahead of schedule. completed ahead of schedule.

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The Sample TaskThe Sample Task

Task 1 Task 1

• Duration = 4 days Duration = 4 days

• Abe is assigned 100% to the taskAbe is assigned 100% to the task

• Abe's standard rate is $1/hr. Abe's standard rate is $1/hr.

• Figure 1 illustrates the task and Abe's Figure 1 illustrates the task and Abe's assignment before any actual work is assignment before any actual work is recorded. recorded.

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Figure 2 (Before actuals)Figure 2 (Before actuals)

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Figure 3 (Task is 50% Complete)Figure 3 (Task is 50% Complete)

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Planned Value and Earned Value Planned Value and Earned Value • Are equal if everything goes as plannedAre equal if everything goes as planned

• Both use Baseline Cost for different amounts Both use Baseline Cost for different amounts of work (planned vs actual) of work (planned vs actual)

• Any difference is due to the amount of work Any difference is due to the amount of work completed by the status datecompleted by the status date

• Differences can arise when (for example): Differences can arise when (for example): • Estimated work changes after the baseline was Estimated work changes after the baseline was

capturedcaptured• Overtime is used but not scheduled (or vice versa)Overtime is used but not scheduled (or vice versa)• Resources are diverted to higher priority tasks or Resources are diverted to higher priority tasks or

projects.projects.

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SV: Earned Value Schedule VarianceSV: Earned Value Schedule Variance

• Equals Earned Value minus Planned Value Equals Earned Value minus Planned Value

• SV = Earned Value – Planned ValueSV = Earned Value – Planned ValueSV = BCWP – BCWSSV = BCWP – BCWSTask1: $16 – $24 = - $8Task1: $16 – $24 = - $8

• Positive SV means more work completed than Positive SV means more work completed than planned. If continued, project may finish earlyplanned. If continued, project may finish early Might be possible to transfer some resources to Might be possible to transfer some resources to

other tasks or projectsother tasks or projects

• Negative SV means work is not being Negative SV means work is not being completed on time. Project might finish late completed on time. Project might finish late PM should determine the cause to avoid missing PM should determine the cause to avoid missing

the finish goal.the finish goal.

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Figure 4 (SV, SV%, SPI)Figure 4 (SV, SV%, SPI)

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SV%: Schedule Variance PercentSV%: Schedule Variance Percent

• Expresses SV as a % of Planned ValueExpresses SV as a % of Planned Value

• SV% = SV / PV SV% = SV / PV = (BCWP – BCWS) / BCWS = (BCWP – BCWS) / BCWS

Task1: ( $16 – $24 )/ $24 = – 33%Task1: ( $16 – $24 )/ $24 = – 33%

That means 33% of planned work was not finishedThat means 33% of planned work was not finished

• SV% is useful when comparing SV between projects SV% is useful when comparing SV between projects of vastly different sizesof vastly different sizes

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SPI: Schedule Performance IndexSPI: Schedule Performance Index

• Most important version of SVMost important version of SV

• Is ratio of Earned Value to Planned ValueIs ratio of Earned Value to Planned Value SPI = EV / PV = BCWP / BCWS SPI = EV / PV = BCWP / BCWS

Task1: $16 / $24 = 0.67Task1: $16 / $24 = 0.67

• SPI < 1.0 is unfavorableSPI < 1.0 is unfavorable SPI = 0.67 means we earned only $0.67 of every $1 SPI = 0.67 means we earned only $0.67 of every $1

we planned to earn this periodwe planned to earn this period

• SPI > 1.0 is favorableSPI > 1.0 is favorable SPI = 1.25 would mean we earned $1.25 for every SPI = 1.25 would mean we earned $1.25 for every

$1 we planned to earn during this period.$1 we planned to earn during this period.

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SPI: Revise Estimated DurationSPI: Revise Estimated Duration

• Use SPI to revise estimated total duration,Use SPI to revise estimated total duration,thus the new estimated finish datethus the new estimated finish date

• Assumes current SPI will continue to end of Assumes current SPI will continue to end of projectproject

• Revised Remaining Duration (Rem.Dur.)Revised Remaining Duration (Rem.Dur.) = Remaining Duration / SPI = Remaining Duration / SPITask 1: = 2d / 0.67 = 3dTask 1: = 2d / 0.67 = 3d

• Finish Date = Status Date + Rem. Duration Finish Date = Status Date + Rem. Duration Task 1: = Day 3 + 3d = Day 6Task 1: = Day 3 + 3d = Day 6

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Earned Value and Actual Costs Earned Value and Actual Costs

• Are equal if everything goes as plannedAre equal if everything goes as planned

• Both use Actual Work, but it’s valued at Both use Actual Work, but it’s valued at different costs (planned vs actual) – any different costs (planned vs actual) – any difference is due to the cost of the workdifference is due to the cost of the work

• Differences can arise when (for example):Differences can arise when (for example):• Unplanned overtime was usedUnplanned overtime was used

• Resource cost rates changedResource cost rates changed

• Higher cost resources were substitutedHigher cost resources were substituted

• Earned Value minus Actual Costs is the Earned Value minus Actual Costs is the Earned Value Cost Variance: CV = EV – ACEarned Value Cost Variance: CV = EV – AC

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Figure 5 (substitute more costly resource)Figure 5 (substitute more costly resource)

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Figure 6 (CV, CV%, CPI)Figure 6 (CV, CV%, CPI)

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CV: Earned Value Cost VarianceCV: Earned Value Cost Variance

• CV = Earned Value – Actual CostsCV = Earned Value – Actual Costs

• CV = BCWP – ACWPCV = BCWP – ACWPTask 1: $16 – $20 = – $4Task 1: $16 – $20 = – $4

• Positive CV is favorable: the value of the work Positive CV is favorable: the value of the work was greater than the cost of producing it.was greater than the cost of producing it.

• Negative CV is unfavorable: the value of the Negative CV is unfavorable: the value of the work is less than the cost of producing it.work is less than the cost of producing it.

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CV%: Cost Variance PercentCV%: Cost Variance Percent

• Expresses CV as a % of Earned ValueExpresses CV as a % of Earned Value

• CV% = CV / EV CV% = CV / EV = (BCWP – ACWP) / BCWP = (BCWP – ACWP) / BCWPTask 1: = ( $16 – $20 ) / $16 = - 25%Task 1: = ( $16 – $20 ) / $16 = - 25%That means 25% of planned work was not That means 25% of planned work was not finishedfinished

• CV% is useful when comparing CV between CV% is useful when comparing CV between projects of vastly different sizesprojects of vastly different sizes

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CPI: Cost Performance IndexCPI: Cost Performance Index

• Most important version of CVMost important version of CV

• Is ratio of Earned Value to Actual CostIs ratio of Earned Value to Actual Cost CPI = EV / AC = BCWP / ACWP CPI = EV / AC = BCWP / ACWPTask1: $16 / $ 20 = 0.80Task1: $16 / $ 20 = 0.80

• CPI < 1.0 is unfavorableCPI < 1.0 is unfavorable

If CPI = 0.80 means for every dollar of actual cost If CPI = 0.80 means for every dollar of actual cost we produce work worth only $0.80 we produce work worth only $0.80

• CPI > 1.0 is favorableCPI > 1.0 is favorable

IF CPI = 1.25 it would mean that for every $1 we IF CPI = 1.25 it would mean that for every $1 we actually spent we produced work worth $1.25actually spent we produced work worth $1.25

• Use CPI to calculate if project will go over budget and Use CPI to calculate if project will go over budget and by how much by how much

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Estimate to Complete (ETC)Estimate to Complete (ETC)

• What will it cost to finish the remaining What will it cost to finish the remaining budgeted work (budgeted work (unearned unearned value) assuming value) assuming the current CPI will continue to the end of the the current CPI will continue to the end of the project?project?

• DivideDivide remaining budgeted work by CPIremaining budgeted work by CPI

• Remaining budgeted work = BAC - EVRemaining budgeted work = BAC - EV *BAC is Budgeted At Completion (Baseline Cost)*BAC is Budgeted At Completion (Baseline Cost)

• ETC = (BAC – EV ) / CPIETC = (BAC – EV ) / CPITask 1: ( $32 – $16 ) / 0.80 = $20Task 1: ( $32 – $16 ) / 0.80 = $20

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Estimate at Completion (EAC)Estimate at Completion (EAC)

• A revised total cost at completionA revised total cost at completion

• EAC = AC + ETCEAC = AC + ETCTask 1: $20 + $20 = $40Task 1: $20 + $20 = $40

• Project 2002 now calculates EAC this Project 2002 now calculates EAC this wayway

• The new Earned Value Cost Indicators The new Earned Value Cost Indicators table shows EAC, BAC, and VAC table shows EAC, BAC, and VAC (Vac = Variance at Completion)(Vac = Variance at Completion)

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Figure 7: (BAC, EAC, VAC, TCPI)Figure 7: (BAC, EAC, VAC, TCPI)

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TCPI: To Complete Performance IndexTCPI: To Complete Performance Index

Is there enough left in the budget to complete the project?Is there enough left in the budget to complete the project?

• (BAC – BCWP) (Budgeted cost of unfinished work) (BAC – BCWP) (Budgeted cost of unfinished work) --------------------- = --------------------------------------------------------------------- = ------------------------------------------------(BAC – ACWP) (Unspent Budget)(BAC – ACWP) (Unspent Budget)

* *where BAC = Baseline Costwhere BAC = Baseline Cost

• Task1: = ($32 - $16) / ($32 - $20) Task1: = ($32 - $16) / ($32 - $20) = 16 / 12 = 1.33 = 16 / 12 = 1.33

• If TCPI > 1: Not enough in the budget to complete the planned If TCPI > 1: Not enough in the budget to complete the planned work. Must increase productivity or reduce scope or quality.work. Must increase productivity or reduce scope or quality.

• If TCPI < 1: Running under budget. Could increase scope or If TCPI < 1: Running under budget. Could increase scope or quality, or can increase contract profitquality, or can increase contract profit

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Summary of EV MetricsSummary of EV MetricsThree core metricsThree core metrics

Planned Value PV (BCWS)Planned Value PV (BCWS)

Earned Value EV (BCWP)Earned Value EV (BCWP)

Actual Costs AC (ACWP)Actual Costs AC (ACWP)

VariancesVariances

Schedule Variance SV = EV-PV; SV% = SV/PVSchedule Variance SV = EV-PV; SV% = SV/PV

Cost Variance CV = EV-AC; CV% = CV/EVCost Variance CV = EV-AC; CV% = CV/EV

Indicators (performance indexes)Indicators (performance indexes)

Schedule Performance Index SPI = EV/PVSchedule Performance Index SPI = EV/PV

Cost Performance Index CPI = EV/ACCost Performance Index CPI = EV/AC

To Complete Performance Index TCPI = (BAC-EV)/(BAC-AC)To Complete Performance Index TCPI = (BAC-EV)/(BAC-AC)

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MS Project’s EV CalculationMS Project’s EV Calculation

For Assignments:For Assignments:EV = % Work Complete * BACEV = % Work Complete * BAC

For Tasks:For Tasks:

1.1. Calculate Actual Duration ( = % Complete * Calculate Actual Duration ( = % Complete * Duration)Duration)

2.2. Sum timephased Baseline Cost for periods Sum timephased Baseline Cost for periods spanned by Actual Durationspanned by Actual Duration

Note: Assignments are not rolled-up to the task. Note: Assignments are not rolled-up to the task. So, Sum of Assignment EV’s <> Task EV So, Sum of Assignment EV’s <> Task EV

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Work around: How to con Project intoWork around: How to con Project into using % Work Complete using % Work Complete

1.1. Work with a backup copy of the project fileWork with a backup copy of the project file

2.2. Choose Tools, Options, Calculation tab: Choose Tools, Options, Calculation tab: Disable Disable Updating task status updates resource statusUpdating task status updates resource status

3.3. Add Add % Complete % Complete and and % Work Complete% Work Complete columns to the Earned Value tablecolumns to the Earned Value table

4.4. Copy Copy % Work Complete% Work Complete column column into into % Complete% Complete column column

* Assignments still don’t roll up to tasks, but …* Assignments still don’t roll up to tasks, but …

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Generating EV GraphsGenerating EV Graphs

• Graphing EV metrics reveals trends Graphing EV metrics reveals trends

over timeover time

• Use Analysis Toolbar:Use Analysis Toolbar:

Analyze Timescaled Data in Excel Analyze Timescaled Data in Excel

• Adjust data and graph formatsAdjust data and graph formats

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Figure 9 Plain EV GraphFigure 9 Plain EV Graph

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Figure 10 BCWS extended to Finish DateFigure 10 BCWS extended to Finish Date

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Figure 11 PV, EV, AC, SV, and CVFigure 11 PV, EV, AC, SV, and CV