Earned Value Analysis (EVA)

Every project manager needs to evaluate the triple constraints of scope, time and cost by addressing questions like:

• Is the project performing to budget?
  
• Is the project as per the schedule to deliver all the scope agreed upon.

Typically the project health is addressed in green, amber or red colors.

The problem with addressing the project health in this manner is that, it is subjected to interpretation and influence of an individual as there are no objective measurements. The project can turn from green to red or vice versa at an instant. There is no prior indication to problems.

A more objective way of measuring project health and performance is Earned Value Analysis (EVA). Earned Value Analysis is an objective method to measure project performance in terms of scope, time and cost. EVA combines scope, cost and schedule patterns to inform the project management team in determining the true status of the project.

Earned value analysis is an industry standard way to:

• Measure project’s progress (Time spent)
• Forecast the completion date and final cost (Work Accomplished)
• Project schedule and cost variance if any (Money spent)

Earned value analysis compares the Planned amount of work with what has been actually COMPLETED, to determine if

• Cost
• Schedule
• Work Accomplished

are progressing as planned. Work is earned as it is completed. Thus the name Earned Value; as you can actually assign a value to the project at a particular time.

EVA is required because:

• It gives uniform unit of measure
• Helps monitor project’s progress/status
• Defines different measures of progress for different tasks

EVA provides an early warning so that preventive/corrective actions can be taken.

Earned Value calculates three values for every scheduled activity.

The budget, known as the budget cost of work scheduled (BCWS) in earned value calculations, is that element of the approved estimated cost planned to be spent on the project in a given period of time. This is the actual planned budget (PV)

The actual cost, known as the actual cost of work performed (ACWP), is the total of direct and indirect costs incurred in performing work during a given period. This is the actual cost (AC).

The earned value, also known as the budget cost of work performed (BCWP) is a percentage of the total budget equal to the percentage of work actually performed. This is the Earned Value (EV)

These three values are used in combination to provide indications as to whether or not work is being performed as planned.

Formulas

Cost Variance (CV) = BCWP-ACWP
Schedule Variance (SV) = BCWP-BCWS
Cost Performance Index (CPI) = BCWP/ACWP
Schedule Performance Index (SPI) = BCWP/BCWS

Or

Schedule Variance = EV–PV
Schedule Performance Index = EV/PV
Cost Variance = EV-AC
Cost Performance Index = EV/AC

Objective metrics indicate the project is behind schedule and over budget.
On-target projects have an SPI and CPI of 1 or greater.

Once the variances are determined, further metrics can be determined to forecast to see if the project continues at the current performance, what would be the true cost of the project – Estimate At Complete (EAC)

EAC stands for Estimate at Completion and in the case of project will total costs incurred to date and expected costs for incomplete tasks to give a projected final figure for a project. If a task is in progress and is over-budget the calculation assumes that the final cost of the task will exceed the budget cost by the same margin. This assumption implies that things will neither improve nor deteriorate further. EAC is calculated as follows.

Estimate At Complete (EAC) = Budget At Completion (BAC) / CPI
Or
EAC = ACWP+ {BAC-BCWP}/CPI
i.e.,
EAC = AC + (BAC-EC)/CPI

Where,
BAC stands for Budget at Completion, the estimated total cost of the project when it is completed.

Example to demonstrate the calculation of EV metrics

A software project is scheduled for 6 weeks at $18,000. At the end of 4 weeks, the project is 50% complete and actual cost of the project is $8,000.

Calculation:
Planned Value (PV) or BCWS = $12,000 [ @ $3,000 for each week for 4 weeks of work]
Earned Value (EV) or BCWP = $ 9,000 [50% completion of work]
Actual Cost (AC) or ACWP = $ 10,000

SV = EV – PV = $9,000 – $12,000 = -$3,500
SPI = EV/PV = $9,000/$12,000 = 0.75
CV = EV – AC = $9,000 – $8,000 = $1,000
CPI = EV/AC = $9,000/$8,000 = 1.125

Here, since SPI is lesser than 1, the project has schedule over run. Since CPI is greater than 1, there is no cost over run.

EAC = BAC / CPI
EAC = $18,000/1.125
= $16,000

Therefore, at the end of the project, the total project cost if continued at the same stage will be $16,000.

Summary

Using EV metrics, project health and performance can be reported accurately and monitored on continuous basis. It helps in analyzing the over runs and act accordingly to control the over runs.

By assigning SPI and CPI ranges to Green, Amber and Red colors, the project health can be reported objectively.