CSE Senior Design I

Earned Value Management

Instructor: Manfred Huber

Partially adapted from Mike O’Dell. Some slides in this presentation were
originally developed by Mr. Tom Rethard.
4 Earned Value - What is it?
 Simply, it is a project monitoring and
measurement system that:
1. establishes a clear relationship between
planned accomplishments and actual
accomplishments
2. reinforces and rewards good planning practices

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4 Earned Value - What is it?
 Basic concepts of Earned Value
Management (EVM)
 Each task in a project earns value as planned
work is completed
For example (perhaps), if you were paid on this basis,
you would earn $$ at key milestones based on the
value of what you have completed (earned value)
 Earned value can be compared to actual cost
and budgeted cost to determine variance and
predict future performance

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4 Earned Value - What is it?
 The budgeted cost (e.g., dollars, person-hours,
person-days, etc.) in terms of your baseline
plan/budget of the work performed up to a specified
point in time
 Also known as Budgeted Cost of Work Performed
(BCWP)
BCWP
 Each task in the Work Breakdown Structure (WBS)
is assigned a BCWP based on its individual cost.
 Project BCWP is total of BCWP for all tasks required to
complete the project

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4 Earned Value Components
 Planned Value (a.k.a. BCWS)
BCWS
 How much work (person-hours) you planned to have
accomplished at a given point in time (this is from the
WBS in your plan)
 Actual Cost (a.k.a. ACWP)
ACWP
 How much work (person-hours) you have actually spent
at a given point in time
 Earned Value (a.k.a. BCWP)
BCWP
 The value (person-hours) in terms of your base budget of
what you have accomplished at a given point in time (or,
% complete X Planned Value)

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4 Earned Value: Example
Today

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On Day X:
 PLANNED VALUE (Budgeted cost of the work scheduled, BCWS) =
18 + 10 + 16 + 6 = 50
 EARNED VALUE (Budgeted cost of the work performed, BCWP) =
18 + 8 + 14 + 0 = 40
 ACTUAL COST (of the work performed , ACWP) =
55 (from your project tracking - not evident in above chart)

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4 Earned Value: Example
Actual Cost:
Cost what you Today
d ing
n
have actually spent to
S pe
)
this point in time.
n ed
P lan
e d(
Cost (Person-Hours)

et
u dg
B
Planned Value: Value what your
plan called for sending on
the tasks planned to be
completed by this date.
ing
e nd
a lue
l Sp e dV Earned Value:
Value value
a r n
c tu Ea (cost) of what you have
A
accomplished to date, per
the base plan.

Time (Date)

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4 Earned Value: Example
Today
d ing
n
S pe
)
n ed
Over P lan
Budget e d(
Cost (Person-Hours)

et
u dg
B

ing
e nd
a lue Behind
l Sp e dV
a r n Schedule
c tu Ea
A

Time (Date)

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4 Variance
 Any schedule or cost deviation from a
specific plan.
 Used within an organization to verify the
budget and schedule for a project
 Frequently used as a key component of
plan reviews and performance
measurement

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4 Variance
 Must compare scheduling and budget
variance at the same time
 Schedule variance:
variance deviations from work
planned – not a measure of changes in cost
 Cost variance:
variance deviations from the
budget – not a measure of work scheduled vs.
work completed
Example: applying more $$/people to a task may
maintain the schedule, but it adds to cost… schedule
on track… over budget on expenses (cost)

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4 Performance Indices
 Cost Performance Index
 CPI = BCWP/ACWP
 Schedule Performance Index
 SPI = BCWP/BCWS
 Analysis
 CPI > 1.0  exceptional performance
 CPI < 1.0  poor performance
 Similar for SPI

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4 Earned Value & Variance: Example
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On Day X:
 PLANNED VALUE (BCWS) = 18 + 10 + 16 + 6 = 50
 EARNED VALUE (BCWP) = 18 + 8 + 14 + 0 = 40
 ACTUAL COST (ACWP) = 55 (from your project tracking)
Therefore:
 Schedule Variance = BCWP – BCWS = 40 - 50 = -10 (behind schedule)
 Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan (a B-, at best)
 Cost Variance = BCWP - ACWP = 40 - 55 = -15
 Cost Performance Index = 40/55 = .73, or you’re getting an 73¢ return on every $1.00
(or, person-hour) spent on this project

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4 Primary Measurement Methods
 Measurable efforts
 Discrete increments of work with definable
schedule and tangible results (i.e., real tasks with
a deliverable)
 Level of effort
 Work that is not discernable in discrete,
discrete
measurable tasks (e.g., project management,
training)

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4 Determining % Complete – When?
 Allocate based on time spent – but what if you
spend more time than allocated?
 Allocate 50% at start of task, 50% at end
 But only for small, discrete tasks
 Allocate 100% at start of task
 Allocate 100% at end of task Our approach
 Best solution if you keep tasks very small
 Allocate value at Critical Milestones
 Good solution when using with contract work
 Others?

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4 Another Example Project
 Plans to spend $100K in each of first 4 weeks
(baseline budget, per documented plan)
plan
 Actuals, at end of week 4 show: $325K spent
 BCWS = $400K ($100K x 4)
 ACWP = $325K
 What conclusions can you draw?
 Under budget?
 Is project on schedule?

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4 Another Example Project
 Suppose BCWP is $300K
 How is this determined?
 What conclusions now?
 SV = BCWP – BCWS
 SV = $300k - $400K = -$100K
Behind schedule,
schedule but what does the $100K in variance
really mean?
 CV = BCWP – ACWP = $300K - $325K
Over budget by $25K

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4 Earned Value Management
 How can you use this information?
 Careful analysis of variance and trends
 Resetting schedule or budget, when appropriate
 Variance Analysis Questions
 What is the problem causing the variance?
 What is the impact on time, cost and performance?
 What is the impact on other efforts, if any?
 What corrective action is planned or under way?
 What are the expected results of the corrective action?

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4 Earned Value Management
 Extraordinary variance or alarming trends may be
cause for reset or cancellation of a project, but
where do you draw the line?
 How much variance to allow depends on a
number of factors:
 Life-cycle phase
 Length of life-cycle phase
 Length of project
 Type of estimate
 Accuracy of estimate

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4 Variance Projection

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4 Performance Index Trends

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4 Ideal Performance Index

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4 Closing Thoughts: Management
Reserve
 The padding always added to a project for
unexpected costs that are within project
scope
 Not an allowance for changes to scope
 Not part of the cost estimate
 Added by upper management, not the project
manager.

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4 Closing Thoughts: Government
Requirements
 U.S. government contract cost tracking often must
include:
 BCWS
 BCWP
 ACWP
 Estimated cost at completion
 Budgeted cost at completion
 Cost and schedule variances with explanations
 Traceability

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4 Summary
 Cost, in the form of Earned Value or BCWP,
can be used to analyze progress of a project
 Using Earned Value data to make critical
project decisions must be based on careful
analysis of data, variances and trends

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