Module 5: Earned Value Management

This module, we will discuss Gantt Charts, Critical Path Methods,

use of automation tools, as well as many other topics relating to
time management.

Think about how you use to manage time in your personal life, what causes you to successfully
manage your time? Do you use any tricks or tools? Do you often mismanage your time? If so, what
things cause these delays or setbacks?
 Module 3
Learning Objectives How have the past 4 Modules combined so
• Define and describe the difference far to add to your overall understanding of
between planned value, earned Project Management when it comes to
scope, time and cost management?
value and actual cost
• Calculate earned value Describe
cost and schedule performance
indices
• Develop techniques for cost and
schedule analysis
• Develop techniques for forecasting
In last module we discussed:
• Cost Estimating
• The types of estimates and their
accuracies
• The difference between top down
and bottoms up estimates
• How to make parametric estimates
Calculate Budget Baselines
Module 3
Monitoring Our Project
Where are we? Next Step: Resource Loading Curves
The project baseline has been created • Cost Resource Curve
• Based on the Budget Estimate
Project Scope Statement • Favored by PM’s who are
responsible for the total cost of
Work the project
Breakdown
Project • Planned cost vs time
Structure
Schedule • Man-hour Resource Curve
• Based on man-hour estimate
• Favored by PM’s who are only
Project Cost Baseline asked to manage the direct
hours expended
• Planned hours vs time
What’s the difference between the Cost Resource Curve and the Actual vs Plan Curve?

Earned Value Management (EVM) is an approach

that combines the scope, schedule and cost
baseline into a project performance and progress
measurement tool.

The key element of EVM is an agreed method to

measure the “physical” progress of each WBS
Work Package.

Project Management Institute, A Guide to the Project Management Body of Knowledge

(PMBOK R Guide) – 5th edition, Project Management Institute Inc., 2013, Page 217
Module 3
Calculating Earned Value 1
Earned Value Management

1 2 3
Set up the Select the level of
Determine the
WBS/Baseline management
method for
Estimate by WBS control
calculating Earned
work package - appropriate for
Value
Done your project

Level of Management Control

The appropriate level of control (Control Account Plan) is typically
based on the following considerations:
1. Defined scope definition with clear boundaries for each package
2. Package activities grouped in one WBS area
3. Each package should have a single owner
4. Each package should be a manageable size

How do we make these decisions?

• For small projects, there may be one single Control Account

• For large projects, there may be many

• Each Control Account should be treated like a mini project or

project segment. It will have its own status and progress

Your notes:
 Module 3
Calculating Earned Value 1 Continued
The basic approach to Earned Value is:
1. Estimate a percent complete for each WBS Work Package
2. Multiply the percent complete x the value of the Work Package
to calculate the “Earned Value” for that package
3. Sum up the Work Package Earned Values to calculate the Earned
Value of the Control Account and ultimately the Project

There are six common methods for estimating percent complete in a Work Package.

% Complete Subjective measure based on Good for small projects where there is a lot
experience of experience on what it will take to
complete
Fixed Formula Fixed % based on completing fixed Good for recurring packages where the
activities in package formula is developed over time

Weighted Values are assigned to intermediate Good when you must “prove” the
Milestones milestones in each package. progress; takes a lot of planning and effort

% Complete with Combine % complete with weighted More complex than milestones, but more
Milestone Gates milestones to take up partial credit accurate
for milestone
Earned Standards Uses established metrics to give Good for piece work or repetitive work
credit for partial work such where units can be estimated

Equivalent Units The value for the package is earned Requires a detailed bottoms up estimate
when it is complete and small work packages/units

$30,000.00
$25,000.00
Total Cost

$20,000.00
Period 1 2 3
$15,000.00 $ $ $
Total Cumulative Plan Cost 1,480.00 4,640.00 7,245.00
$10,000.00
$ $ $
$5,000.00 Total Cumulative Actual Cost 1,440.00 3,530.00 5,230.00
$ $ $
$- Total Earned Value 1,209.00 2,611.00 4,574.50
1 2 3 4 5 6 7 8 9
Period

Total Cumulative Plan Cost Total Cumulative Actual Cost

Total Earned Value
Module 3
Calculating Earned Value 2
Schedule Indices
Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)
If the Schedule Variance is negative, then we are behind plan.
If the Schedule Variance is positive, then we are ahead of plan.
Schedule Performance Index (SPI) = EV/PV
If the SPI is less than 1.0, then we are behind plan
If the SPI is greater than 1.0, then we are ahead of plan
One thing to watch out for when using schedule indices – while they are
accurate relative to plan – if the activities that are behind are not on the
critical path, then the overall schedule may not be behind.

The indices are a guideline to tell use if and where to look for issues.

Cost Indices
Cost Variance (CV) = Earned Value (EV) – Actual Costs (AC)
If the CV is positive, then the project is running under budget
If the CV is negative, then the project is running over budget
Cost Performance Index (CPI) = EV/AC
If the CPI is greater than 1.0, then the project is running under budget
If the CPI is less than 1.0, then the project is running over budget.
Notes:

Project Management Institute, A Guide to the Project Management Body of Knowledge

(PMBOK R Guide) – 5th edition, Project Management Institute Inc., 2013, Page 218-219
 Module 3
Calculating Earned Value 2 Continued
Our Example Your Notes:

•SP = EV – PV = 4574.50 – 7245 = - 2670.50

•SPI = EV/PV = 4574.50/7245 = 0.63

• CP = EV – AC = 4574.50 – 5230 = -655.50

•CPI = EV/AC = 4574.50/5230 = 0.87

$30,000.00

$25,000.00

$20,000.00
Total Cost

$15,000.00

$10,000.00

$5,000.00

$-
1 2 3 4 5 6 7 8 9
Period

Total Cumulative Plan Cost Total Cumulative Actual Cost Total Earned Value

Period 1 2 3
$ $ $
Total Cumulative Plan Cost 1,480.00 4,640.00 7,245.00
$ $ $
Total Cumulative Actual Cost 1,440.00 3,530.00 5,230.00
$ $ $
Total Earned Value 1,209.00 2,611.00 4,574.50

7
 Module 3
Creating a Forecast
If your project has a significant variation What’s the Iron Triangle? Sketch it below.
either positive or negative relative to cost
or schedule, it is your duty to forecast the
impact and inform the Project Sponsor.

The longer you wait to recognize an issue,

the harder it will be to impact the outcome.

Three options to forecast what the cost or schedule will be at the end of the Project.

Complete a detail Perform a bottoms up estimate on the Time consuming and

estimate to complete remaining work considering the risk requires more work
events and performance
Assume the remaining Add the budget value of the Quick and easy. May be
work will be done at the remaining work to the actual costs to optimistic as assumes any
budget rate the date to estimate a new issues are gone.
completion value,
Assume the remaining Divide the remaining work budget be Quick and easy. May be
work will be done at the the Performance Index to estimate pessimistic as assume no
current performance. the remaining work and add to actual learning curve on project.
costs to date

Other Options to Help Understanding

•Calculate Performance Indices by smaller units to pin point the problem area.
•Plot the SPI and CPI by area as a function of time. The trends will give insight on
a learning curve or if the problem has been addressed.
•Review scope to understand if there has been undocumented changes – change
orders to the budget will impact the performance indices.
•Review the critical path to see how the work is progressing

Project Management Institute, A Guide to the Project Management Body of Knowledge

(PMBOK R Guide) – 5th edition, Project Management Institute Inc., 2013, Page 160. Figure 6-11
Module 3 Conclusion
Modules objectives:

q Define and describe the difference between

planned value, earned value and actual cost
q Calculate earned value Describe cost and
schedule performance indices
q Develop techniques for cost and schedule
analysis
q Develop techniques for forecasting

Module Assignments:
❑Peer Review: Calculate Earned Value Assignment
❑Discussion: Kaz and Tom weekly conclusion
❑Quiz: End of Module 5 Quiz

Summarize this Module and jot down how you will personally use this material: