How to make earned value work on your project

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CONFERENCE PAPER ǀ Quality Management, Benefits in
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Realization, Cost Management, Technical Skills ǀ 23 October 2012
Lukas, Joseph A.
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Lukas, J. A. (2012). How to make earned value work on your project. Paper presented at PMI® Global Congress 2012—North
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Abstract
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Earned value analysis (EVA) appears to be a compelling technique to use on projects to better understand and manage
Store performance. Companies embracing earned value prepare procedures and may provide some basic training. Project managers are
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told to start using earned value, with the management expectation that project results will soon improve. Usually about a year
# later reality sets in. No improvement is achieved, project management costs are up, and people are complaining about all of the
‘extra paperwork.’

The company then either decides to drop the use of earned value or brings in a consultant to help figure out what corrective actions
should be taken to get earned value ‘back on track.’ The presenter has been the consultant for companies, and this paper will cover
the top ten items that must be present on any project for the use of earned value to be successful. Suggested actions that should be
applied to ensure the project can easily and successfully use earned value will also be covered.

This paper will first provide a quick review of earned value terminology and formulas. Key metrics to monitor when using earned
value analysis will be discussed. The top ten items needed on projects when implementing earned value will be covered in detail. By
the end of this paper, hopefully, you will realize this paper really isn't just about using earned value analysis, but really covers the
more important topic of having a complete and integrated project plan in place, which is a cornerstone before using earned value
management.

Introduction and Background

So, how is your project going? This is a question project managers are frequently asked by management and the customer. One
technique often used by project managers is to plot the plan spend curve and the actual cost expenditures curve as shown in Exhibit
1 below. The curve looks good, but what can you tell about the health of this project based on this graph? Is the project team
accomplishing the planned work and doing it for less money? Or is the team behind schedule? The point is: this curve does not
provide sufficient information to communicate how the project is going!

Exhibit 1 – What can you tell about the health of this project based on the cost curve?

This paper will explain the terminology, formulas, and key metrics to monitor when using earned value analysis. In addition, the
different techniques commonly used to evaluate progress will be described, along with the top ten items needed on projects when
implementing earned value.

EVA Terminology and Calculations

Let's start out by clarifying the terminology associated with earned value, because many people incorrectly use the terms below
interchangeably, and they are distinct. The terms are (Lukas, 2008, p.1):

Earned Value Analysis (EVA) — a quantitative project management technique for evaluating project performance and predicting
final project results, based on comparing the progress and budget of work packages to planned work and actual costs.
 Earned Value Management (EVM) — a project management methodology for objectively measuring project performance using
an integrated schedule and budget based on the project WBS.
Earned Value Management System (EVMS) — the process, procedures, tools, and templates used by an organization to do
earned value management.

The point is that you can do earned value analysis calculations on any project, but unless you have complete earned value
management in use on your project, it will be extremely unlikely to obtain correct results. In order to easily use EVM, your
organization really needs to have an earned value management system in place.
Earned Value Definitions
Earned value analysis uses three key pieces of project information: the planned value, actual cost, and earned value, which are
shown in Exhibit 2 below. The first two terms are not new, they are the plan spend curve and the actual cost expenditures curve
many project teams have been using for years.

Exhibit 2 – Typical Graph Showing PV, EV, and AC.

Planned Value (PV) is the budgeted cost for the work scheduled to be done. This is the portion of the project budget planned to be
spent at any given point in time. This is also known as the budgeted cost of work scheduled (BCWS).

Actual Costs (AC) is simply the money spent for the work accomplished. This is also known as the actual cost of work performed
(ACWP).

Earned Value (EV) is the percent of the total budget actually completed at a point in time. This is also known as the budgeted cost of
work performed (BCWP). EV is calculated by multiplying the budget for an activity or work package by the percentage progress:

EV = % complete x budget
For example, if a Work Package is the installation of 500 new computers in an office, and 350 computers are installed, the Work
Package progress is 70% complete (350/500). If the budget for this Work Package is US$200,000, the earned value is US$140,000
(0.70 x $200,000).

An effective method to show the relationship between PV, EV, and AC is shown in Exhibit 3 below.

Exhibit 3 – Relationship of Earned Value Terms.

Earned Value Calculations
With the terms PV, EV, and AC defined, along with how to determine progress, some key calculations can easily be done, which
provide important information on how the project is doing. The formulas for earned value calculations are:

• Cost Variance: CV = EV – AC • Cost Performance Index: CPI = EV/AC

 • Schedule Variance: SV = EV – PV • Schedule Performance Index: SPI = EV/PV

A CPI value of 0.83 implies that for every project dollar spent, only US$0.83 in earned value was accomplished. A CPI of less than
one and a negative CV indicates project cost performance is below the plan.

A SPI value of 1.05 implies that for every dollar of work the project had planned to accomplish at this point in time, US$1.05 worth of
work was actually done. A SPI greater than one and a positive SV indicates more work has been accomplished than was planned.
Note how this is worded, since a SPI > 1.0 does not necessarily mean you are ahead of schedule! You can accomplish more work
than planned by working on non-critical path Work Packages. You need to look at the critical path to determine whether you are
ahead, on or behind schedule.

Exhibit 4 shows the Planned Value, Actual Cost, and Earned Value for a project. Note that when the planned spend curve is
compared to the actual spent, it shows a variance of +US$15. An uneducated observer is likely to conclude the project team is
accomplishing the planned work and doing it for less money.

Exhibit 4 – Earned Value Analysis shows this project is in trouble!

However, analyzing the project using earned value gives a different picture. Reading from the graph shows a cost variance of -US$5
and a schedule variance of -US$20. The project team has accomplished (“earned”) $US30. However, at this point in time, the
schedule plan was to accomplish US$50 of work. Therefore, the project team is US$20 behind in schedule work. In addition, the
actual cost for the work accomplished was US$35 and the budget for the work accomplished was only US$30. This means the
project team has overspent for the work done. The bottom line Earned Value Analysis clearly demonstrates this project is in trouble!

Progressing Techniques
On projects, determining realistic progress for Work Packages (WP) can be difficult, but is essential for ensuring the earned value
analysis is accurate and meaningful.

So, how much work was accomplished? This is a common question project managers ask team members. Too often, progress is
reported in a qualitative manner. One frequent expression is: “I'm almost complete” or “I'm 90% done.” After weeks of hearing that
same progress report, the project manager begins to suspect that just maybe the person responsible for the Work Package really
doesn't know how much progress has been made.

Quantitative techniques are obviously much better than qualitative (subjective) techniques for measuring project progress. One thing
to keep in mind when measuring project progress is that it's an estimate! Many people spend too much time trying to generate a very
exact number, especially when using quantitative techniques. The key is to make it ‘fit for use.’ Don't spend exorbitant amounts of
time determining exact numbers on a small Work Package. Focus your efforts on the larger value Work Packages. Remember that
measuring progress is an estimate, and that the inherent errors on each Work Package will tend to cancel out as you roll up the
progress numbers to the project level.

Since the types of Work Packages on a project vary, no single progress reporting method is suitable. The seven most common
methods for reporting project progress are described below (Lukas, 2002, pp 2–3).

Quantitative progressing techniques are:

Units completed — tasks that involve repeated production of easily measured pieces of work, when each piece requires
approximately the same level of effort.
Incremental milestones — Work Packages (WP) that can easily be divided into a series of tasks handled in sequence. The
work is divided into separate, measurable tasks, and completing each task is considered achieving an ‘incremental milestone.’
Progress is earned only when reaching each milestone.
Start-finish — used with low value and/or short duration activities without readily definable intermediate milestones. Either no or
some limited progress is ‘earned’ when the activity is started, and 100% progress is earned at the completion of the activity.
Qualitative (subjective) progressing techniques are:

Level of effort (LOE) — used when it's very difficult to measure what work was accomplished for the budget spent. My preferred
approach with LOE assumes the progress is equal to the actual costs divided by the budget. For example, if the project
manager's budget on a project is US$20,000, and US$10,000 has been charged to the project, then the progress is calculated as
50%. However, some publications use a different approach and set the EV = PV.
Individual judgment — used for complex work not easily measured by other methods. Even though this is subjective, getting
multiple opinions on the work accomplished by knowledgeable team members helps establish a reasonable estimate on
progress.

Two other progressing techniques commonly used are listed below. They can be either quantitative and/or qualitative, depending on
how they are used. The techniques are:

Combination techniques — good for complex work occurring over a long time period and use two or more of the other
progressing techniques. An example would be installing a building foundation. The excavation progress would be units
completed (cubic yards of earth removed), the formwork incremental milestones, and pouring the concrete start-finish
(0%/100%).
Apportioned relationship — has a direct intrinsic performance relationship to another discrete Work Package, which is called
the ‘measurement base.’ For determining progress, the apportioned Work Package progress is the same value as the
measurement base Work Package.

Forecasting Using Earned Value

SPI: A Barometer on Schedule Performance
Exhibit 5 shows a useful graph, which is a plot of the project SPI versus time. A SPI greater than 1.0 implies the team is
accomplishing more work than planned, and a SPI less than 1.0 indicates the team is accomplishing less work than planned. You
need to be careful when using SPI, because you really can't determine the project health without knowing how the team is doing
against the critical path in the project schedule. A team can achieve an SPI > 1.0 by working on non-critical path activities. Therefore,
it is possible to have an SPI > 1.0 and be behind schedule! You need to look at the project float to determine the complete schedule
performance for the project.

Exhibit 5 – Plotting SPI is a good schedule performance metric.

Exhibit 5 is from an actual project (Lukas, 2003, p. 7), and like many projects, the SPI for the first few reporting periods is less than
1.0, since the team is in start-up mode and project activities are just being started. A SPI of less than 1.0 can happen early in the
project when start-finish progressing is being used for many of the Work Packages. However, if the SPI does not move toward 1.0
after the first few reporting periods, it is an indication of possible schedule problems and therefore probably time to start taking
corrective action.
Using CPI To Determine Final Project Cost
The Cost Performance Index is an excellent indicator of the cost efficiency for completed work. One main use of CPI is forecasting
the final project cost. Before listing the common formulas used, a few terms need to be defined (PMI, 2008, p.184):

Estimate to Complete (ETC) - the expected additional cost needed to complete the project.
Estimate at Completion (EAC) - The expected total cost of the project when the defined scope of work is completed.
Budget at Completion (BAC) - The total approved budget when the scope of the project is completed (including any project
contingencies).

Most techniques for forecasting EAC include some adjustment of the original cost estimate based on project performance to date.
The three common formulas are:

EAC1 = AC + (BAC - EV). This formula is called the ‘mathematical’ or ‘overrun to date’ formula in some textbooks. However,
using the term ‘overrun to date’ is misleading because the project could be under on costs and ahead of schedule. This formula
assumes the plan will be met for the remaining work (CPI = 1.0), and yields the most optimistic EAC when a project is not doing
well.
EAC2 = BAC/CPI. This formula is called the ‘cumulative CPI’ in some textbook and assumes the entire project will be done at the
same cost performance (current CPI does not change).
 EAC3 = AC + ((BAC - EV) / (CPI x SPI)) or BAC/(CPI x SPI). This formula considers both cost and schedule impact on the EAC,
and usually yields the most pessimistic EAC for a project not doing well. Note that these two calculations are not equivalent!
From my experience, the ‘simplified’ formula works as well or better on many projects.

Exhibit 6 shows the relationship of BAC, ETC, and EAC. Note that the project cost contingency is not spread as part of the Planned
Value curve. Contingency is a provision in the project plan (extra cost and time) to mitigate the typical (but undefined) unplanned
events that happen on projects — to cover ‘known unknowns.’ When calculating the ETC and EAC, some thought should be given
as to whether an adjustment is needed for the remaining contingency.

Exhibit 6 – Displaying ETC, EAC, and BAC on the EV graph.

To Complete Performance Index
Another useful evaluation tool is the ‘To Complete Performance Index’ (TCPI), which provides a forecast of the required
performance level, expressed as the CPI, which must be achieved on the remaining work in order to meet the project financial goal.
The TCPI calculation can look at either the current authorized budget or the current estimate-at-completion.

TCPI provides a “sanity check” for the project manager on whether the required CPI for the rest of the project is realistically
obtainable. Of the two formulas, looking at the CPI required to complete the project based on the estimate-at-completion is probably
more meaningful. The two TCPI formulas are (PMI, 2008, p.185):

Exhibit 7 – TCPI Formulas Based on BAC and EAC.

Research has shown the cumulative CPI will stabilize as&early&as the 20% completion point of the project, and “researchers found
the cumulative CPI does not change by more than 10% once a contract is 20% complete; in most cases, the cumulative CPI only
worsens as a contract proceeds to completion” (Christensen, 1994, p.19). This may be too pessimistic, but once 30% completion is
reached, it's reasonable to expect the CPI won't change by more than 10% unless the project is stopped and re-planned. For
example, if the project CPI is 0.80 at 30% completion, the best you can expect is a final CPI of 0.88, which means your budget will
overrun by at least 13.6% (1/0.88).

Making Earned Value Work

There are many project maturity models in use today and many use a five-level format, where level 1 is chaos, level 2 is some
rudimentary project management techniques in use, but inconsistently across projects, and level 3 is having a process and
procedures in use across all projects. If your organization is not at least at maturity level 3, you should not attempt implementing
earned value across the organization. Here is an analogy. If you are just learning to dive, you would dive off a board close to the
water surface to learn the basics. If you're new to diving, you would not start with the 10-meter diving height unless you are looking
to fail! The same applies to the use of earned value analysis. If you don't have a project organization with a maturity level of 3 or
higher, trying to apply EVA will only lead to failure.

Listed below are the top ten items needed on projects when implementing earned value:

1. Project Requirements
2. Work Breakdown Structure
3. Change Management Process
4. Integrated Project Plan
5. Correct Schedule and Budget
 6. Schedule and Budget Contingency
7. Contingency Management
8. Cost Collection System
9. Accurate Reported Progress
10. Management Support
1 – Project Requirements
A project is undertaken to deal with a specific opportunity or problem. Therefore, every project has a specific objective such as ‘meet
new Environmental Protection Agency (EPA) air emission standards.’ Requirements define the project product — what will be
created and used by the client as a result of doing the project.

Unfortunately, all too often a client starts a project, and engages a project team who immediately starts working with the client to
define the scope of the project. For example, a client may hire a project team to install a water spray scrubber to meet EPA emission
rules, and the project team immediately jumps into action and starts the design of equipment, structural supports, and ductwork
without stepping back to ask the more pertinent question of whether the equipment will really solve the problem. In this case, the
problem is reducing specific air emissions and the customer already picked the ‘how’ (the water spray scrubber), which may not
meet the real need because requirements, including types of contaminants and final concentration levels, were not defined.

Not having project requirements can be a delicate issue and you obviously have to be sensitive in how you broach this subject with
the client. As Exhibit 8 shows, without requirements, the link to developing a quality WBS is broken. In order to help ensure a
successful project, the project team must work with and support the client in documenting the project requirements. Some people
may object to this, believing that the role of the project team is to deliver the requirements as defined by the client. But keep in mind
that nobody looks good on a bad project, and that's the probable outcome if the project proceeds without documented requirements.

Exhibit 8 – Requirements describe ‘what’ is needed.

In some cases, the client may have some partial requirements and issues a request for proposal (RFP) so the project team can
deliver the product the client wants. However, in many cases, clients do not have project experience, or are too busy with other work
assignments to take time to fully develop requirements. The client may also list the ‘how’ instead of the ‘what’ in the RFP. For
example, stating a 1,000 square foot (SF) cafeteria is needed is a ‘how,’ and instead should have stated the ‘what’ of needing a
cafeteria for a peak of 100 people. The danger here is that the project team may deliver the functionality, cost, and schedule and still
have an unhappy client, who now has a product that really isn't what they need. A 1,000 SF cafeteria probably won't suffice for 100
people and most likely will not meet local occupancy codes. So, who do you think will get blamed? The project team has to invest the
time to work with the client to ensure the requirements are completely captured and accurately reflect what is needed to meet the
project objectives.
2 – Work Breakdown Structure
The WBS is the key project plan document. As shown in Exhibit 9, without a complete WBS, the schedule and budget will not
accurately reflect what it will take to successfully complete the project. A good technique when responding to a RFP is including in
the proposal scope of services the project WBS. Unfortunately, most often what you see is a long narrative on what the service
provider will do for the client. A narrative that provides a detailed description of what will be done can be useful, but it's even more
important to include the WBS!

Exhibit 9 – The WBS is the cornerstone for a complete project plan.

The other issue that can occur is when the project manager prepares a WBS, and the team really doesn't see the value and provides
at best minimal cooperation. The project manager must ‘talk up’ the value of using the WBS and make it clear this will be the
foundation document for the project. Otherwise, the WBS won't be maintained and quickly becomes obsolete.
In addition, the WBS should be checked against the requirements to ensure requirements are not missed. One method to avoid this
is using a WBS dictionary and including a field that lists the requirements covered by each WBS element. The work breakdown
structure (WBS) should also be checked to see if it includes deliverables that do not relate back to the requirements. If this occurs,
the items may not be needed and should be considered for deletion.
3 – Change Management Process
There can be several issues here, the most serious not having a change management process in use for the project. Change
management must be addressed in the project plan, and includes the procedure for handling scope and variance changes, the forms
to record and evaluate change requests, the review and approval process for changes, and the process to ensure changes are
incorporated into the current plan so the earned value calculations remain relevant.

The second potential problem area can be changes that occur but are not recognized. The issue can be design team members who
decide to add scope items to ‘improve’ the final product and don't realize there will be added cost and/or time incurred during
execution. The best way to catch this is for the project manager to get out and talk to team members to hear what's going on and
identify where ‘extras’ might be creeping into project scope.

The change management process should be used to allocate contingencies and reserves to project Work Packages. When a
change is approved, the budgets for the affected Work Packages are changed:

Current Work Package Budget = Original Budget + Approved Changes

With the computer software available today, making changes to the PV spending curve is very easy. When a change is approved,
the plan has changed and the PV spending curve should be modified.
4 – Integrated Project Plan
Once your WBS is established, the project schedule can be prepared. One frequent problem is the project team creating schedule
tasks that do not relate back to the WBS. The project schedule should have tasks corresponding to each WBS Work Package.
However, there can be a few exceptions to this rule. For example, it may not make sense showing a schedule task for ongoing
project administrative functions, such as safety inspector.

The project estimate is also prepared once the WBS is established. By definition, the Work Package level is where work is
authorized, performance monitored, and costs collected. The project estimate should have for each Work Package a statement of
work (what's expected) plus an authorized budget. It's also important to have performance responsibility for each Work Package
assigned to just one individual. This makes the obtaining of status information much easier for the project manager.

By preparing the project schedule and estimate that matches back to the WBS, you have created a project plan that gives you cost
and schedule integration! The next step is to measure how much progress has been accomplished on your project. Once the
progress is determined, you will be able to easily perform earned value analysis on your project.
5 – Correct Schedule and Budget
The author reviews schedules for clients on a frequent basis, and frequently the schedule is incorrect. Common mistakes include
breaks in the schedule logic, improper relationships, and misuse of constraints. Budget and estimating errors can also happen for
numerous reasons, including miscommunication, quantity errors, or use of incorrect rates. The key here is having a quality control
process in place, which should include review of project plan deliverables such as the schedule and estimate by experienced project
personnel. Mistakes happen, so it's important to have a process in place to catch as many mistakes as possible before the project
plan is finalized.
6 – Schedule and Budget Contingency
Most projects include a cost contingency, which is defined as an allowance for ‘known unknowns’ such as rework, estimating
uncertainty, unforeseen events, or problems. When you prepare your planned value (PV) spending curve you really don't know when
(or if) you will spend the contingencies. Therefore, the PV spending curve for the project should reflect the project sub-total without
contingencies or other allowances such as inflation. One good method for showing available project contingencies is drawing a
horizontal line for the approved project budget on the cost versus time graph. The difference between this line and the PV spending
curve at project completion is the remaining cost contingencies (refer back to Exhibit 6).

How many people preparing a schedule include a schedule contingency? The recommendation is to include a task called “Project
Contingency” just before the project complete milestone, as shown in Exhibit 10 below.
Exhibit 10 – Use of a Schedule Contingency Task.

A main reason for having a schedule contingency is to buffer changes to the completion date (Lukas, 2007, p. 3). When a schedule
is updated, the completion date will probably change based on actual progress. However, project customers can find it frustrating
when the project team gives them a new completion date every time the schedule is updated. A better approach is to adjust the
project contingency task duration up or down based on actual progress, which will result in the project completion date staying
constant. With this approach, the project completion date is only changed when the project team deems it appropriate.
7 – Contingency Management
Another good tool to use with change management is the contingency drawdown curve, shown in Exhibit 11 below.

Exhibit 11 – The Contingency Drawdown Curve is an effective control tool.

This gives an indication regarding how much cost and schedule contingency remains on the project (Lukas, 2003). In the example
shown, extrapolating the schedule and cost contingency indicates the project will use up all of the schedule contingency well before
completing the project, but the cost contingency probably will not be completely used based on performance to date.
8 – Cost Collection System
Earned value will not work unless you can obtain accurate actual costs for your project. Companies with multiple cost systems in use
make cost collection and reporting extremely difficult. A limitation of cost systems is that they only show actual costs for invoices
received and/or paid. Any work that is contracted and any purchased items will typically have invoices that lag by a month or more
from when the work was actually done. Therefore, using information from your cost system for earned value calculations can be very
misleading! To get around this problem, use an “adjusted actual cost” column for reporting actual costs (AC). Adjusted actual cost
uses the actual cost from your cost system, plus your estimate for outstanding invoices for work accomplished, which are called
accruals. The project plan should include the procedure for reporting costs. This includes the frequency of reporting costs and how
‘adjusted actual’ costs will be determined and reported.
9 – Accurate Reported Progress
Earned value is considered a ‘quantitative technique’ for evaluating project performance. However, it really hinges on how progress
is reported. Earlier in this paper the various progressing techniques were described. Earned Value works best when the progressing
techniques are quantitative, such as units completed or incremental milestones. One important gauge is to look at how much of the
project is using the level of effort (LOE) progressing technique. If LOE is 10% or more of the total budget, there is a good chance you
really are not getting an accurate measurement of the project progress.

Using qualitative techniques for reporting project progress also allows for team bias to creep into the reported progress. Reporting
progress that is behind plan brings unwanted attention to a person as being a ‘problem.’ The obvious easier approach is to make
sure your reported progress is on or ahead of plan. However, this may just postpone the inevitable negative news if you really are
behind plan.
10 – Management Support
The final item needed to make earned value work is management support for the process and not having management pressure to
influence the reported results. Management may have various reasons for wanting to influence what is reported. It can be company
targets for the quarter that ‘must’ be met related to project incentives, or just the normal human behavior of trying to avoid ‘bad news’
in the hope the problem performance can be reversed.

Earned Value Standards

In 1967, using earlier work by the U.S Air Force, the Department of Defense (DOD) issued the Cost/Schedule Control System
Criteria (C/SCSC), which imposed 35 criteria on a contractor's management control system for cost or incentive contracts. The
C/SCSC is often referred to as earned value, but EV is only one of the many techniques embodied in the criteria.
In 1995, the National Defense Industrial Association (NDIA) started rewrite of the criteria to make it more compatible with the needs
of private industry. The result was the American National Standard Institute-Electronic Industries Association ANSI/EIA 748 standard.
The NDIA subcommittee received approval from ANSI and the standard was issued in June 1998. The DOD accepted the ANSI/EIA
748 standard for application to all DOD projects in August 1999.

Reading this standard will provide you with a better understanding of implementing earned value on projects. The ANSI Standard
748 covers earned value management system (EVMS) criteria and contains 32 criteria in five groups as listed below.

Group 1: Organization (5)

Group 2: Planning, Scheduling and Budgeting (10)
Group 3: Accounting Considerations (6)
Group 4: Analysis (6)
Group 5: Revisions (5)

Conclusion
Earned value is the most effective technique for providing information on project performance. It communicates scope, schedule,
and cost status information to project stakeholders. The most common reason given for not using Earned Value Analysis is “I haven't
got the time.” So here's the good news: if you have prepared your project plan properly, Earned value analysis takes essentially no
additional effort! The key is having complete requirements and a good project plan, which includes the work breakdown structure
(WBS) to fully document scope and a schedule and cost estimate that are integrated into the WBS. Having these in place means you
are using earned value management! On the flip side, if your project does not have these items in place, doing earned value analysis
will give you inaccurate and misleading results and won't be worth the time and effort.

Properly used, earned value is a flexible process that provides timely information on the project's health. Effective use of earned
value concepts can provide a competitive edge in successfully delivering projects. Give it a try on your next project!

References
Christensen, D. S. (1994). Using Performance Indices to Evaluate the Estimate at Completion. The&Journal&of&Cost&Analysis,
Society&of&Cost&Estimating&and&Analysis, p. 19.

Lukas, J. (2008). Earned&Value&Analysis:&Why&it&Doesn't&Work, AACEi Annual Meeting, Toronto, Canada.

Lukas, J. (2007). Is&Your&Schedule&Correct?&Common&Scheduling&Mistakes&and&How&to&Avoid&Them, PMI® Global Congress

2007—North America, Atlanta, Georgia.

Lukas, J. (2003). Introducing Earned Value Analysis into an Existing Project, Inside Project Management, ElementK&Journals.

Lukas, J. (2002). Making Dependable Project Process Measurements, Inside Project Management, ElementK&Journals.

Lukas, J. (2002). Take Control of your Project with Earned Value Analysis, Inside Project Management, ElementK&Journals,&April
2002.

Lukas, J. (2002). Tips for Effectively Using EVA Regarding Contingencies and Actual Costs, Inside Project Management, ElementK
Journals.

Project Management Institute. (2008). A&guide&to&the&project&management&body&of&knowledge&(PMBOK®&guide) — Fourth

edition. Newtown Square, PA: Author.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly
prohibited. For permission to reproduce this material, please contact PMI or any listed author.
© 2012, Joseph Lukas
Originally published as a part of the 2012 PMI Global Congress Proceedings—Vancouver, Canada

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and Koppelman, 2006 as cited in Abdul-Rahman et al., 2011). Effective control of project
progress is very important for later successful delivery of construction project (Hegazy, 2002
as cited in Turkan et al., 2013). No matter how good a project design is, if there is no regular
and timely control during project execution, it is impossible to evaluate project progress and
effectiveness of the plan (Cleland and Ireland, 2007 as cited in De Marco and Narbaev, 2013).
Feedback enables project managers to identify issues in early stage and make the necessary
adjustments, which is crucial to later project success.
The traditional way of project control involves comparing the planned and realized
values, which does not always have to be an accurate project performance indicator. If the
project takes place according to the schedule, it does not have to mean that the project costs
are within the planned budget. In order to establish a comprehensive project performance
control, all volume, time and cost indicators need to be integrated and calculated as
interdependent sizes (Katić and Duspara, 2014).
The process, which is believed to be effective in this area, is called Earned Value
Analysis (EVA). Unlike traditional project monitoring, this method integrates three types of
data: planned costs - value of execution - actual costs, and provides a much better analytical
basis for performance evaluation of the project (Radujković et al., 2012). According to
Fleming and Koppelman (2002) EVA is the best indicator of the project's future results,
where it is possible to predict cost and/or time deviations by using project trend data in the
early stages of construction (as cited in Abdul-Rahman et al., 2011). The EVA method uses S-
curves as a tool for integrated time and cost management of project. The S-curve, clearly and
accurately represents the state of the cost within the schedule of the project.
The aim of this paper is to show how the mentioned S-curves are used in the EVA
method.
2. S-curve
The S-curve represents the cumulative growth of the selected variable or amount of work
over a given time period. The name was given because of similarity to the letter "S" (less
work is done and less money is accumulated in the earlier and later stages of the project than
in the mid-stage of the project). S-curves are widely applied in project management and it is
interesting that the records about their application date back to 90 years ago, more precisely,
they date from 1928 (Martyniak, 2002 as cited in Czarnigowska et al., 2011).
In project management, S-curves are used to graphically display cumulative progress of
work, expressed in units of costs, labor of hours, percentage of progress, etc., in relation to
time (PMI, 2008, Narbaev and De Marco, 2014). With regard to the topic of work, the S-
 Tijanić and Car-Pušić / OTMC2017 Conference

curve can be precisely defined as a graph of cumulative cash flow over a given period, where
the abscissa shows the time and ordinate shows the costs (Figure 1) (Ostojić-Škomrlj and
Radujković, 2012).

Figure 1. S-curve

The S-curve is obtained through the planning process in several steps which include
creation of project work breakdown structure, cost estimate and Gantt chart. When
constructing the curve by points, time intervals are applied to the horizontal axis and the
associated cost value, counted from the beginning to this very moment, to the vertical one
(Tijanić et al., 2016).
The S-curve showing the relationship "costs - time" has several types (Figure 2).
• Baseline S-curve – Prior to project commencement, the schedule represents the
proposed allocation of the resources and the time needed to complete the project.
This schedule is referred to as the baseline schedule and from this schedule, a
baseline S-curve is generated. This S-curve reflects the planned progress of the
project. If the project requirements change prior to commencement (e.g. change of
scope, delayed start) the baseline schedule then requires changes in accordance
with the new terms.
• Target S-curve – After the project commencement, it is usually necessary to
modify the baseline schedule. Changes are continually made to the schedule, and
such schedule reflects the actual progress of the project to date. From this
schedule, a target S-curve can be generated. In ideal conditions, the target S-curve
will meet the baseline S-curve at the end of the project (on time, on budget) or
finish below and to the left of the baseline S-curve (early, under budget). In
reality, it is not uncommon for the target S-curve to finish above and to the right
of the baseline S-curve (late, over budget).
• Actual S-curve - The work schedule is updated on a regular basis throughout the
project. These updates include an insight into the percentage of execution of each
task. Using this information, an actual S-curve can be generated. This S-curve
reflects the actual progress of the project to date of observation, and can be
compared with the baseline and target S-curves to determine how the project is
progressing. At the end of the project, the actual S-curve will meet the target S-
curve (Garland, 2009).
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Figure 2. Different types of S-curves (Garland, 2009)

The shape of the S-curve can provide significant information about the nature of the
project. Curves that start with a high inclination and then align can point to "front loading",
which could be projects that require little or no planning time, repair of disaster damage, or
they could indicate a schedule that has been accelerated since beginning. S-curves that start
out with a lower pitch and then go steep to the end could indicate a large planning or design
time in the beginning and a reduced construction time (Goodman, 2010). For larger projects,
the curve usually has a slight pitch at the beginning (the allocation of staff and materials is
limited at the beginning of the project). During the middle period, the slope of the curve is
increasing because of the higher activity and generally the higher cost growth rate.
Large number of authors who have studied S-curves application can be listed.
Boussabaine (1982) dealt with the analysis of the cash flow in projects, Miskawi (1989)
developed the S-curve equation for project control, Radujković and Izetbegović (1999)
studied the selection of functional connections while conducting the research on S-curve trend
(as cited in Tijanić et al., 2016). Standardized curves were studied by Balkau (1979),
Bromilow (1978), Drake (1978), Hudson (1978), Tucker and Rahilly (1988), Singh and Phua
(1984), Kenley and Wilson (1986), Kaka and Price (1991) (as cited in Ostojić-Škomrlj and
Radujković, 2012), and according to them Ostojić-Škomrlj developed an S-curve prediction
model in early construction project stages (Ostojić-Škomrlj and Radujković, 2012), and so on.
S-curves are a very useful tool for effective project control and taking corrective
measures when the actual performance differs from the planned one. However, in the
interpretation of the S-curve, it is necessary to go with the level of precautionary. Interpreting
them with no regard to the relationships between project tasks and reasons for deviations may
lead to wrong decisions. In spite of this, S-curves do not lose on popularity in project
management, and one of their most common applications is in the EVA method – a method
designed to provide reliable measures of project performance and to allow the project
manager to make inferences on the final effect of the project (PMI, 2005, Czarnigowska et al.,
2011). The EVA method involves displaying three types of data, so we differentiate three
different types of S-curves: curve of planned project cost, curve of actual project cost and
curve of project earned value. This type of view can be very effective for a quick overview of
overall task performance, account control, or project status. It is possible to identify potential
project budget overruns, possible risks and errors that could affect the project's performance.
 Tijanić and Car-Pušić / OTMC2017 Conference

3. Earned Value Analysis

Earned Value Analysis is a tool for measuring project performance by comparing the
planned amount of work with the actual amount of work and actual costs. It is the most
commonly used cost and time control method because it integrates project technical
performance data, time performance data, and cost data within one frame (El-Omari and
Moselhi, 2011, Sumara and Goodpasture, 1996 as cited in Turkan et al., 2013). Based on the
three types of data, it is possible to compare the planned value (PV) of planned work with the
earned value (EV) of the completed work and the actual cost (AC) of the actual work done.
Based on the presentation of these three data, deviations in costs that affect the time schedule
can be identified, and vice versa, the project lagging behind the time schedule will probably
have increased costs compared to planned costs.
The use of EVA helps the project manager in determining the current project status by
answering questions such as: Is it project on schedule? Is it project on cost? Do the costs
reflect the true accomplishments? What are and how big are variances (Kerby and Counts,
2017)?
As a project management tool, EVA brings a number of advantages. One of the main
advantages is that it is a relatively simple reporting system on project progress that includes
all interested project participants, regardless of their position, ensuring that everyone remains
focused on their individual and global responsibilities to ensure timely delivery of the project.
EVA enables precise metering of project efficiency, and identifies areas where an error can
occur with the emergence of the plan. Based on its use in the project implementation phase,
EVA also provides early warning signs of possible delays and overruns, and it forecasts how
it will affect the eventual completion of the project. EVA helps the project manager by
providing data and reports highlighting the problem areas developed within the actual project
implementation, and people responsible for solving these problems are timely informed. The
project is trying to return to its original goals, if it possible. On the other side, EVA also
shows where the project is above expectations, thus providing information on potential
reserve funds or costs that could help to cover potential future project problems
(https://www.ukessays.com/essays/project-management/earned-value-analysis-
advantagesand.php, accessed 21 April 2017).
The EVA method originally pulls roots from the USA where it has been introduced more
than hundred years ago. It was first used in commercial industrial production plant for the
production cost management. The basic concept of the EVA method was also accepted in the
USA air force, and by 1967, the USA Defense Ministry officially approved the use of the
EVA method in all major procurement systems (Fleming and Kopellman, 1999 as cited in
Dissanayake, 2010). The basic concept of the EVA method has not changed since then
(Christensen, 1999 as cited in Dissanayake, 2010).
EVA research are numerous. Lipke (1999) developed cost and schedule ratios to manage
cost and schedule reserves in projects. Lipke (2003) introduced the earned schedule. Lipke
(2004) developed project cost and time performance probabilities. Lipke et al. (2009)
provided a reliable forecasting method of the final cost and duration to improve the capability
of project managers for making informed decisions. Anbari (2003) enhanced the effectiveness
of earned value implementation (Najafi and Azimi, 2015). Kim et al. (2003) studied the
implementation of earned value in different types of projects and organizations (as cited in
Najafi and Azimi, 2015). Vandevoorde and Vanhoucke (2005) concluded that the best and the
 Tijanić and Car-Pušić / OTMC2017 Conference

most reliable method to estimate time at completion is the earned schedule method (Najafi
and Azimi, 2015). Cioffi (2005) proposed an S-curve to analyze project progress and cost that
can be defined using two basic parameter values, and he concluded that curves with favorable
goodnessof-fit can then be incorporated into EVA (Nai-Chieh et al., 2016). Cioffi (2006) also
proposed a new notation for the earned value analysis to make EVA mathematics more
transparent and flexible (as cited in Najafi and Azimi, 2015). Pajares and López-Paredes
(2011) introduced two new metrics for integrating EVA and project risk management
methodologies: cost control and schedule control indices. These two indices compare the
EVA measures with the maximum values that a project should exhibit if the project was
running under the risk analysis hypothesis (as cited in Najafi and Azimi, 2015). Acebes et al.
(2013) proposed a graphical framework for EVA to integrate the dimensions of project cost
and schedule with risk management (Najafi and Azimi, 2015). Czempik (2014) applies EV
management to control construction projects (Najafi and Azimi, 2015). Recently, new studies
have been published that deal with other aspects of EV management.
It is important to note that EV management alone does not solve problems, but it helps to
identify it before it reaches its full potential. By applying the EVA method on a monthly
basis, meeting project goals (on time, on budget) is no longer unimaginable. With proper
planning and efficient management tools, project managers are better informed about the state
of the project, and can make appropriate project management decisions (Kerby and Counts,
2017).

3.1 S-curve within the EVA method

Using the S-curve, it is possible to show the planned state, the current state and the
prognosis of the future state of the project, and it is gladly used to control the cost of the
project using the EVA method which compares the progress of the project based on actual
costs at the time of observation (Čulo, 2010).
The idea of the earned value is the preparation of the baseline plan to measure the actual
progress of the project. The baseline schedule is the budgeted cost of work scheduled
(BCWS), that is, S-curve of planned costs in planned time of the project (Figure 3).

Figure 3. S-curve of planned costs of the project (Anbari, 2003)

The BCWS curve represents the cumulative flow of planned cost of project, that is,
approved budget for project completion. BCWS is the baseline cost schedule and serves as a
 Tijanić and Car-Pušić / OTMC2017 Conference

basis for comparison with other types of costs. At the end of execution time, the BCWS value
is equal to the total planned cost of the entire project, that is, budget at completion (BAC).
When the project starts, the task of the manager is to regularly monitor the actual
progress and costs, so two more S-curves were designed (PMI, 2005, Czarnigowska et al.,
2011).
• ACWP – Actual cost of work performed. It represents cumulative actual costs
incurred on the project to the point of observation. Based on this curve from a
certain point of observation, the costs for the remaining time of the project can be
estimated (FCST), and total costs at project completion (EAC) (Figure 4).

Figure 4. S-curves of planned and actual project costs (Anbari, 2003)

• BCWP – Budgeted cost of work performed. It represents the amount budgeted for
performing the work that was accomplished by given point in time (Anbari,
2003). BCWP for a specific task is obtained as a product of the planned cost and
percentage of completion of that task.
BCWS, ACWP and BCWP are expressed in units of costs or in hours or days of work.
BCWS, ACWP and BCWP can be calculated for any element of the work to determine its
progress (Figure 5).

Figure 5. S-curves of EVA method (BCWS, ACWP, BCWP) (Anbari, 2003)

 Tijanić and Car-Pušić / OTMC2017 Conference

Once the curves for the planned, actual and earned value are generated, the project
manager can use them to analyze the current state of the project and forecast what the project
will do in the future. Using these three S-curves, the variances and coefficients listed in Table
1 are determined. Based on the variances and the coefficients, it is possible to give an
assessment of the current progress and estimation of the future state of the project.
Table 1. Parameters of EVA method (Prasanth, Raja, 2014)

Parameter Project Management Formula Interpretation

Questions
Positive Negative
Is it project under or
Cost variance (CV) BCWP-ACWP
over budget? Project under Project over
budger budget
Positive Negative
Schedule variance Is it project ahead or
BCWP-BCWS
(SV) behind of schedule? Project ahead of Project behind
schedule of schedule
Cost Performace >1 <1
Are resources used BCWP
Index
efficiently? ACWP Good Poor
(CPI)
performance performance
Schedule
>1 <1
Performance BCWP
Is time used efficiently?
Index BCWS Good Poor
(SPI) performance performance
(BAC / SPI) With the continuation of current
Time Estimate At When is work likely to
trend of performing, the project
Completion (EACt) finish? (BAC / WEEKS) will end up in the resulting week
With the continuation of the
Estimate At What is the project current trend of performing, the
BAC/CPI
Completion (EAC) likely to cost? project will cost as the amount
earned
With the continuation of the
Variance At What project is under or current trend of performing, the
BAC-EAC
Completion (VAC) over budget? project will be under or over the
budget for the amount earned
With the continuation of the
Estimate To What will be the (BAC- current trend of performing, the
Complete (ETC) remaining work cost? BCWP)/CPI rest of the project will cost as the
amount earned

The application of the EVA method is shown in the following example.

The project consists of 5 activities that are planned to last for 20 weeks, and the planned
total costs are 40.5 money units. The project is currently at the end of the 13th week and it is
decided to check its performance, that is, to check how it progresses in relation to the planned
cost and time values. Activity A was performed within the deadline and at planned costs.
With activity B there are problems, it lasted a week more than planned, and its actual costs
were higher than planned. Activity C due to the previous activity begins later and also lasts
for a week longer, as a result of which it has increased costs. Activity D is 2 weeks late and it
 Tijanić and Car-Pušić / OTMC2017 Conference

so far 20% complete. On the day of the project status check it is noticeable that the project
greatly overran the planned deadline of completion and budget.
To obtain S-curves of the EVA method, it is necessary to show the flow of three types of
costs in the Gantt chart (Figure 6), based on which cumulative cost values are obtained. By
using cumulative cost values, the S-curves of EVA method are generated, that is, BCWS,
ACWP, BCWP and FCST curves shown in Figure 7. Using these curves, i.e. cumulative cost
values, the EVA method parameters are calculated. The FCST curve was obtained by
calculating the costs at the end of the project (EAC), and then estimating the cost from the
observation point to the EAC.

Figure 6. Gantt chart showing flow of the planned, actual and earned costs in project
 Tijanić and Car-Pušić / OTMC2017 Conference

Figure 7. S-curves of EVA method for the example shown

From Figure 7 it is apparent that the curve of earned value is below the curve of the
planned value, which indicates that the work was not realized at the planned value. It is also
clear that the curve of earned value is below the actual value curve, which indicates that work
is being carried out at overpayment costs.
The performance indicators of the project presented in Table 2 are calculated according to
the BCWS, ACWP and BCWP flow of costs.
Table 2. Project performance indicators for the example shown

Parameter Value Interpretation

Schedule analysis and forecasting
SV - 4.0 Behind schedule
SPI 0.86 Behind schedule, poor performance
EACt 23.3 Not on schedule
Cost analysis & forecasting
CV -6.3 Over budget
CPI 0.79 Over budget, poor performance
EAC 51.3 Assumption: current performance trends continue
VAC -10.8 Over budget
ETC 20.9 Assumption: current performance trends continue

Based on these results you can see how much the planned budget will overrun and how
much additional funds must be provided to complete the project if no steps are taken to bring
the project into the planned costs and planned time frame.
The project has an unfavorable schedule variance of – 4.0 which means that the project is
behind schedule. The SPI is 0.86 and it is telling that the project is progressing at 86 % of the
rate originally planned. SPI shows the rate at which the project is progressing. The planned
 Tijanić and Car-Pušić / OTMC2017 Conference

completion time of the project is 20 weeks. Here we found that if work continues at the
current rate the project will take 3.3 weeks longer than what was originally planned; as time
estimate for completion is now 23.3 weeks. The project has an unfavorable cost variance of -
6.3 that means the project is over budget. The CPI of 0.79 would tell that the project is
currently running over budget by 21 %. The EAC shows that the expected project costs at
completion are 51.3 money units. Variance at completion shows the variance of the total cost
of the work and expected cost. In this case it amounts to - 10.8, that means at this status date
the project is over budget by 10.8 money units. ETC shows the expected cost required for
finishing all the remaining work, here it is 20.9 and this amount is needed to complete the
work.
4. Conclusion
Project execution monitoring through the EVA method provides an effective approach to
managing costs and time in construction projects. The calculation of EVA parameters allows
examining current and future project costs. With the EVA method, it is possible to monitor
and forecast cash flows and point out the overruns of costs that may occur during the project
cycle. All deviations are best monitored via graphical S-curves. The S-curve shows the flow
of cost in the project duration time. With a graphical view, the curves of planned costs, actual
costs and earned value can be compared. Looking at these three curves, the project manager
can tell in what state is his project currently. Therefore, this approach provides early warning
signs for any deviation from the initial plan and helps the project team determine the strategy
of successful completion of the project.

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