using earned value analysis

Professional Development Learning Event – 27 March 2007

1

Using Earned Value Analysis

http://www.acoste.org.uk/


2

Why Do I Need It ?

What Is It ?

How Do I Do It?

Earned Value



3

Today’s Situation

Need for accurate and consistent status information

Numerous complex (and interrelated) projects Projects with many WBS activities

Virtual offices

Diverse technology platforms



4

There’s Room For Improvement

70% of projects are:• Over budget• Behind schedule

52% of all projects finish at 189% of their initial budget

And some, after huge investments of time and money, are simply never complete

Source:The Standish Group



5

Earned Value Analysis (EVA)

• “Earned Value Analysis” is:• an industry standard way to:

•measure a project’s progress where direct measures cannot be used

•Predict future performance, and•provide schedule and budget variances

along the way

• By integrating three measurements, it provides consistent, numerical indicators with which you can evaluate and compare projects.



6

EVA – the three elements

It compares the PLANNED amount of work with what has actually been COMPLETED, to determine if Cost , Schedule, and Work accomplished are progressing as planned.

Work is “Earned” or credited as it is completed.



7

Earned Value is needed because...

Provides an “Early Warning” signal for prompt corrective action.

Bad news does not age well.

Still time to recover

Timely request for additional funds



8

Earned Value Management EVolution

1959 US DoD began looking at Milestone Charts and Rate of Expenditure Curves. 1963-64 Earned Value concept begins with the ‘Minuteman’ & ‘Titan III’ rocket programmes. 1966 USAF - Cost/Schedule Planning & Control Specification (C/SPCS). 1967 US DoD - Cost/Schedule Control Systems Criteria (CSCS2). 1972 US DoD - Issued the Joint Implementation Guide (JIG). (revisions were to follow 1976, 1980, 1987 and 1996). 1972 NASA 1975 US Dept of Environment (DoE) 1982 US National Security Agency 1989 Australian DoD 1990 Canadian DoD 1992 National Oceanic & Atmospheric Administration (NOAA) 1994 Federal Bureau of Investigation (FBI), Inland Revenue Service (IRS) 1996 JIG replaced by Earned Value Management Implementation Guide (EVMIG) (revised 1997) Present World wide implementations…….USA, Europe, Canada, Australia, Japan



9

Traditional Plan vs. Actual view

• Is there a performance problem? Is it a good or bad position?

0

20

40

60

80

100

J F M A M J J A S O N D

£k

Budget

Actual



10

Terminology

• BCWS - Budgeted Cost of Work Scheduled

• ACWP - Actual Cost of Work Performed

• BCWP - Budgeted Cost of Work Performed



11

Earned Value Definitions

• BCWS: “Budgeted Cost of Work Scheduled”

• The planned earned value to be performed by the milestone date.



12

Earned Value Definitions (cont.)

• ACWP: “Actual Cost of Work Performed”

• Actual Cost to date.



13

Earned Value Definitions (cont.)

BCWP: Budgeted Cost of Work Performed

The actual earned value i.e. the value of the work performed based on its planned value



14

• Establish the activities (milestones)

• Calculate a budget for each activity (milestone). What is the cost of completing the activity?

• Ideally one activity (milestone) per reporting period

• In a table, record the cumulative budget for each milestone and draw the graph

How to construct the baseline (BCWS) (planned earned value)



15

How to construct the baseline (BCWS)

1 2 3 4 5 6 7 8 9 10Produce a book

Chapter 1 BCWS 10Chapter 2 BCWS 10Chapter 3 BCWS 10Chapter 4 BCWS 10Chapter 5 BCWS 10Chapter 6 BCWS 10Chapter 7 BCWS 10Chapter 8 BCWS 10Chapter 9 BCWS 10Chapter 10 BCWS 10

TOTAL BCWS 10 20 30 40 50 60 70 80 90 100

BCWS

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10

BCWS



16

How to score the Earned Value (BCWP) (actual earned value)

• When an activity (milestone) is achieved, the Earned Value (EV) is scored equal to its planned value

• It has nothing to do with how much you get paid

• The EV is scored in the period in which it was completed



17

How to score the EV (BCWP)

1 2 3 4 5 6 7 8 9 10Produce a book

Chapter 1 BCWS 10BCWP 10







Chapter 8 BCWS 10BCWP



TOTAL BCWS 10 20 30 40 50 60 70 80 90 100TOTAL BCWP 10 10 20 20 30 70

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10

BCWS

BCWP



18

How to record Actual Cost (ACWP)

• Actual cost of doing the work

• This may be recorded for each activity (milestone). This is the ideal situation, but you may only have information relating to actual cost for the entire project. This is also acceptable

• You may be accumulating an actual cost in a period prior to the activity is delivered.



19

How to record Actual Cost (ACWP)1 2 3 4 5 6 7 8 9 10

Produce a bookChapter 1 BCWS 10

ACWP 8BCWP 10

Chapter 2 BCWS 10ACWP 2 5BCWP 10

Chapter 3 BCWS 10ACWP 1 5 4BCWP 10

Chapter 4 BCWS 10ACWP 2 3 2BCWP 10

Chapter 5 BCWS 10ACWP 5 5BCWP 10

Chapter 6 BCWS 10ACWP 8BCWP 10

Chapter 7 BCWS 10ACWP 9BCWP 10

Chapter 8 BCWS 10ACWPBCWP



TOTAL BCWS 10 20 30 40 50 60 70 80 90 100TOTAL ACWP 8 10 16 23 35 59TOTAL BCWP 10 10 20 20 30 70

0

10

20

30

40

50

60

70

80

90

100

1 2 3 4 5 6 7 8 9 10

BCWS

ACWP

BCWP



20

Earned Value (BCWP)

Actual Costs (ACWP)

PlannedCosts(BCWS)

Budget At Completion (BAC)

Time

£

Today

Graphical representation of project progress



21

Exercise

Describe the status of each project using EV terminology

10 minutes



22

6 examples

Today

£

Time

BCWS

BCWP

ACWP

1.

As at today, the value of the work that has been completed is greater than plan, therefore we are ahead of schedule. The actual cost of work is less than plan and also less than the BCWP. Therefore we have been doing the work very much cheaper than plan.

Today

£

Time

BCWS

ACWP

BCWP

2.

As at today, the value of the work is less than planned, therefore we are behind schedule. The actual cost of work is greater than plan and also greater than the BCWP. Therefore we have been doing the work considerably more costly than planned.



23

6 examples

Today

£

Time

BCWS

BCWP

ACWP

3. 4.

Today

£

Time

BCWS

ACWP

BCWP

As at today, the value of the work is greater than planned value, therefore we are ahead of schedule. The actual cost of work is greater than plan but less than the BCWP. Therefore despite having spent more money than plan, on the work we have completed, we are doing it cheaper than the plan.

As at today, the value of the work is greater than planned value, therefore we are ahead of schedule. The actual cost of work is greater than plan and also greater than the the BCWP. Therefore as well as spending more money than planned, we are overspent on the work that we have completed.



24

6 examples

Today

£

Time

BCWS

BCWP

ACWP

5. 6.

Today

£

Time

BCWS

ACWP

BCWP

As at today, the value of the work is less than planned value, therefore we are behind schedule. The actual cost of work is less than plan and also less than the BCWP. Therefore as well as being under the planned expenditure, we are also doing the work cheaper than the plan

As at today, the value of the work is less than planned value, therefore we are behind schedule. The actual cost of work is less than plan but is greater than the BCWP. Therefore despite having spent less than the plan, on the work that we have done we are overspending



25

Some Derived Metrics

SV: Schedule Variance (BCWP - BCWS) A comparison of the amount of work

performed to what was planned to be performed.

A negative variance means the project is behind schedule

CV: Cost Variance (BCWP - ACWP) A comparison of the budgeted cost of work

performed with actual cost. A negative variance means the project is over

budget.



26

SPI: Schedule Performance IndexSPI = BCWP / BCWS

SPI < 1 means project is behind schedule

CPI: Cost Performance IndexCPI = BCWP/ACWP

CPI < 1 means project is over budget

Some More Derived Metrics



27

Cost indices and variances

• Cost Performance Index (CPI) = BCWP ACWP

• Cost Variance (CV) = BCWP - ACWP

• Cost Variance % (CV%) = CV x 100 BCWP

Schedule indices and variances• Schedule Variance (SV) = BCWP - BCWS

• Schedule Performance Index (SPI) = BCWP BCWS

• Schedule Variance % (SV%) = SV x 100 BCWS



28

ScheduleVariance (£)

Earned Value (BCWP)

Actual Costs (ACWP)

PlannedCosts(BCWS)


CostVariance (£)

Time

£

Scheduleslippage(time)

Today




29

Making Projections

Once a project is 10% complete, theoverrun at completion will not be lessthan the current overrun.

Once a project is 20% complete,the CPI does not vary from its currentvalue by more than 10%.

The CPI and SPI are statistically accurate indicators of final cost results.

Source: Defense Acquisition University



30

• Formula 1 = BAC CPI

Considered to give a minimum EAC

• Formula 2 = BAC CPI x SPI

Provides an EAC that accounts for a schedule change

• Formula 3 = ACWP + BAC – BCWP CPI x

SPIProvides an EAC that accounts for a schedule change, but also takes into account the value of the work done

{ }

Estimate At Completion (EAC)



31

ScheduleVariance (£)

Earned Value (BCWP)

Actual Costs (ACWP)

PlannedCosts(BCWS)


Variance atCompletion

Forecastscheduleslippage

CostVariance (£)

Time

Estimate At Completion (EAC)

Today

£

Scheduleslippage(time)




32

Basic Analysis



33

Exercise

1. Read the worked example

2. Do the Earned Value exercise

1 hour



34

• Activities do not always last for a reporting period (week, month etc)

• Some activities do not deliver anything, e.g. management support, but it still a cost to the project

Now the real world!



35

Activities do not always last for a reporting period – What can be done?

• Use an Earned Value Method of 50/50 • When constructing the BCWS (the plan), you

put 50% of the activity (as a BCWS value) in the period the activity is planned to start and the remaining 50% in the period when the activity is planned to finish.

• The BCWP (Earned Value) is earnt in the same proportions, i.e. 50% when the activity starts and 50% when the activity finishes



36

EV Methods – Internal resource



37

Budget is time-phased based as a Primary Cost Activity (including cost of

in-house labour and material). Use Milestone weightings for each A/P's

BCWS or use Estimates method with % of BCWS for each A/P.

Use Milestone Method for sequential milestones; More likely, use Estimates

method. Claim based on % complete of each line item using cost of parts

received/total parts costs or operation hours complete/total hours X labour costs (or

composite of both)

When invoices are booked/posted for material or services; May need to use Estimated Actuals for false, significant

variances.

PRODUCTION PARTS.

STORES MATERIAL.

RECEIPT / USEAGE EQUIVALENT PARTS COMPLETE INVOICE

IN-HOUSE FABRICATIION / MANUFACTURE

DEVELOPMENT PARTS.

VENDOR-TO-VENDOR MATERIAL.

SUBCONTRACTED SERVICES.

STORES MATERIAL.LOW VALUES SERVICES OR MATERIALS.

MISCELANEOUS MATERIALS.

Actual costs are booked/posted based on verified receiver.

FOREIGN RECEIVER

Budget is planned in A/P that item is scheduled for receipt by vendor.

RECEIPT

BCWP on Receipt. Use 0-100 method based on receipt of goods or completion of

service.FOREIGN RECEIVER / RECEIPT

RECEIPT / USEAGE DEPENDS ON EVM INVOICE / RECEIVER

Budget is time-phased based upon planned receipt or usage.

Level of Effort, Estimates, or Apportioned Effort for low value material & services;

Earned value depends on discrete EVM--Material received as % of total material--or

passage of time (for LOE).

When invoices are booked/posted for material or services, or as charges are booked for computer, travel, or other

charges.

INVOICE / RECEIVER

Budget for each unit or lot multiplied by the number of units or lots scheduled

for shipment each A/P.

UNIT / LOT RECEIPT

Milestone or Estimates (more likely) method based upon number of units / lots or

equivalent units received. Earned value is claimed based upon CAM verification of

receipt.UNIT / LOT RECEIPT

Actual costs are booked/posted when goods are received.

RECEIVER

PROGRESS REPORTPROGRESS

MILESTONE COMPLETION

Milestone or Estimates method, using payment milestone values and/or weightings

as % of total Activity. Earned Value is claimed upon CAM verification of milestone

completion.

PROGRESS REPORT

Actual costs are booked/posted when invoice is received.

Budget for each progress payment is planned in A/P that progress is

scheduled.

Actual costs are booked/posted when invoice is received.

INVOICE / RECEIVER

Budget for each milestone payment is planned in A/P that payment milestone

is scheduled for completion.

Milestone or Estimates method depending on vendor or subcontractor inputs. Value is

claimed based on CAM verification of progress.

PARTIAL SHIPMENTS.

MILESTONE PAYMENTS

PROGRESS PAYMENTS

MULTIPLE UNITS

LINE ITEM ON PO.

(WITH NO PROGRESS / PARTIAL PAYMENTS)

SUBCONTRACTED ITEM.

(UNITS OR LOTS)

Should Occur in the Same Period

SINGLE PAYMENT

RECEIPT / COMPLETION

Budget is planned in A/P that item is scheduled for receipt / completion.

BCWP on Receipt. Use 0-100 method based on receipt of goods or completion of

service.RECEIPT / COMPLETION

Actual costs are booked/posted when goods are received or services are

invoiced.

Use Milestone Method for sequential milestones; More likely, use Estimates

method. Claim based on C/SSR, CPR, or Progress Reports provided by

Subcontractor/Supplier.

INVOICE / RECEIVER

TYPES OF ORDER (EVM) TYPICAL EXAMPLES PLAN AND BUDGET (BCWS)

SINGLE ITEM.

SINGLE SERVICE.

DROP SHIPMENT

EARNED VALUE (BCWP) ACTUAL COSTS (ACWP)

When invoices are booked/posted for material or services; May need to use Estimated Actuals for false, significant

variances.

SERVICES

HIGH VALUE MATERIAL

RECEIPT / USEAGE SUPPLIER EARNED VALUE INVOICE

MAJOR SUBCONTRACTOR OR

LARGE PO.

MAJOR SUBCONTRACTOR Budget is time-phased based upon Vendor or Subcontractor's detailed BCWS (usually summarised to one

Activity). Use Milestone weightings for each A/P's BCWS or use Estimates

method with % of BCWS for each A/P.

0/100

0/100

LOE or Estimates

MS or Estimates

MS or Estimates

MS or Estimates

MS or Estimates

MS or Estimates

EV Methods – Material/vendor



38

Some activities do not deliver anything - What can be done?• Use an Earned Value Method called Level of Effort

• When constructing the BCWS (the plan), spread the activity value evenly throughout the duration

• The BCWP (Earned Value) is earnt in the same proportion to the plan regardless of whether any time has been spent on the activity or not

• BCWP = BCWS therefore SPI = 1.0 and SV = 0 It shows that we are always on schedule for this type of activity



39

EVMS / EVM / EV / EVAEarned Value Management System:• The executive Cost and Schedule system employed• Can be a single system or many that are working together

Earned Value Management:• Active management of a programme using EV processes & EVA

Earned Value Methods:• Metric selected to provide best possible reflection of Schedule performance• Typically: 0-100, 20-80, 50-50, 40-60, Estimates, Milestones, Apportioned, & Level of Effort

Earned Value:• Budgeted Cost of Work Performed…BCWP• Executed tasks within a baseline having been completed in line with exit criteria

Earned Value Analysis:• Variance Analysis of - Current month, Cumulative to Date, and VAC• EAC Analysis in terms of TCPI(EAC) / Independent EACs if warranted



40

Key EVMS Components

• Authorisation

• Planning & Budgeting

• Baseline Change Control

• Analysis

• Reporting



41

Control Account Authorisation CAA:

• Total Allocated Budget (TAB) flow-down to reporting WBS

• Details initial Baseline distribution of Budget

• Provides a narrative (and/or) points to additional documentation detailing deliverables

• Indicates ‘open duration’ of Control Account

• Details specific schedule adherence

• Signed off by both Programme Manager and Control Account Manager

• Usually a one-time event…future budget transactions being dealt with by PCR’s

Authorisation



42

Planning and Budgeting

• Total Planning or Rolling Wave Planning

• Vertical & Horizontal Integration with Milestones, especially if a Critical Path is required

• Resource allocation and management

• Management Reserve (in-scope arisings)

• Undistributed Budget (WBS earmarked budget)

• Earned Value Method (EVM) selection

• TAB = (DB + UB + MR)

• Where (DB+UB+MR) >TAB = Over Target Baseline !



43

Baseline Control• Baseline Change Control is performed

using Programme Change Requests (PCRs)

• Baseline distribution = Contract Budget Base (CBB Log)

• Change Control (‘Rubber Baseline’ mitigation) performed by the usage of PCR’s

• PCR’s authorise both BAC/EAC and ‘pure’ EAC changes

• An understanding of MR v EAC is required !

• PCR’s are signed-off by Programme Managers



44

Analysis • Performance = Current Month, CTD, and Variance at Completion• History = SV, SPI, CV, CPI• Current Management Reserve level & predicted ‘Burn-Down’• Programme flexibility = MR versus VAC delta • Staffing…..Equivalent Heads versus Forecast• Milestones….future forecasted dates versus requirements (Exec,

MWP, Programmatic) • Variance Analysis Reports (VAR’s) and Corrective Actions• Future = TCPI(EAC) and Trending

His

tory



45

Variance Analysis Report (VAR) Thresholds:• Fixed at Baseline• Current month SV & CV• Cumulative SV & CV• VAC

CAM reports:• Cause of variance• Impact to Cost & Schedule• Corrective Actions

VAR’s:• Discussed at MPR’s• Agreed and signed by PM/PL

Corrective Actions:• Reviewed at subsequent MPR’s



46

Reporting



47

Shortcomings of Earned Value

Quantifying / measuring work progress can be difficult.

Time required for data input, data gathering and calculation

It is not the only way to manage a project



48

Summary• Use indicators to manage your project and not to be a goal in

itself. They will drive a behaviour.

• EV data is historical. Use it to predict and influence the future

• Look at Indices and Variances together and observe trends

• Concentrate on the parts of the project that ‘trip’ the variances

• Not all projects are the same, i.e. do not expect the same sort of variances and indices on a technically challenging/risky project compared with more straight forward projects

• For EVA to be effective, it requires a credible baselined plan.



49

Thank you and any questions?


using earned value analysis

Documents