Intro to Earned Value Analysis – Part 1

We got to measure the progress of the project and report it to upper management along with controlling it.  Project might seem progressing well, tasks completing on time and we are spending money for that.  Earned Value Analysis (EVA) gives us an integrated view of cost and schedule performance.  Lets go over some basic definitions in this post.

There are three basic things that we need from project plan – Earned Value (EV), Planned Value (PV) and Actual Cost (AC).

EV  – Budgeted value (in $ or hours) of work performed a.k.a.  BCWP
AC– Actual value (in $ or hours)  of work performed a.k.a. ACWP
PV– Budgeted value (in $ or hours) of work scheduled or planned a.k.a. BCWS

These three key values enable us to calculate Cost Variance (CV) and Schedule Variance (SV).  This variance gives us info on if we are on track.

Cost Variance CV = EV-AC
(i.e. budgeted cost of work performed minus actual cost of work performed).
Positive variance means we are below budget and Negative variance means over budget.

Schedule Variance SV = EV-PV
(i.e. budgeted cost of work performed minus actual cost of work scheduled).
Positive variance means we are ahead of schedule and Negative variance means behind schedule.

Positive variance (in $ or hours) is usually considered good.  But when we have to compare progress of multiple projects, CV or SV of one project won’t make any sense when compared with other projects because they could be of different size in terms of budget and schedule.  To overcome this issue of comparing different projects regardless of their sizes, indexes are used.   Instead of subtracting, we divide the same numbers.

Cost Performance Index  CPI = EV / AC

Schedule Performance Index SPI = EV / PV

If CPI  is 1.0, we can say we are on track with respect ot cost; if CPI > 1, we can say we are under budget plus better cost performance.  If CPI<1.0, we are over budget and need attention.

If SPI  is 1.0, we can say we are on track with respect ot schedule; if SPI > 1, we can say we are ahead of schedule plus better schedule performance.  If SPI<1.0, we are behind schedule and need attention.

If CV or SV is negative or CPI or SPI is less than 1.0, I would monitor the trend of CV and SV for over couple of weeks to see the trend and then take some action.  If CPI or SPI is greater than 1.5, we still need to evaluate why is it so?

We use EVA by plotting project schedule on x-axis and cumulative (weekly or monthly) budgeted spend plan according to base-lined data from project plan. 

We need to remember one thing, Garbage in, garbage out.  If project is poorly planned, EVA can not come to aid.

Thanks for reading and let me know what you think, any suggestions for improvements and corrections are truly welcome.