EVM – Earned Value management of Project

Actual cost:

Total cost of the project at a given date, it’s the cost incurred by the project for the work done.

Ex: so far the project as spent 55,000 USD, what is the actual cos? 

AC = 55,000 USD

Planned Value:

Planned cost of the project at a given date. Planned value is calculated before any project, which will be considered as a baseline. It’s an approved or authorized budget for a project. The total planned value of the project is known as Budget at Completion (BAC).

PV = (Planned % complete) * BAC

Ex: Project duration is 12 months, project total cost is 100,000 USD, time elapsed is 6 months and project completion is 50%  as per schedule. What is the planned value?

PV =  50% * 100,000 = 50,000 USD

Earned value:

Actual value of the work completed at a given date. Simply put it’s the value generated by your project, to the amount spent till date.

EV = % Completion * BAC

Ex: Project duration is 12 months, project total cost is 100,000 USD, time elapsed is 6 months and project completion is 60% when reviewed. What is the earned value?

EV = 60% * 100,000 = 60,000 USD

Earned value management status chart, which explain the status of project

evm

 

3 basic elements explained above, will helps us calculate following variances and performance indexes:

  • Schedule variance and schedule performance index
  • Cost variance and cost performance index

Schedule variance

is a difference between Earned value and Actual cost. This will help us identify if the project is ahead, behind or on schedule.

SV = EV – AC

  • If the value is positive, then the project is ahead of schedule
  • If the value if negative, then the project is behind schedule
  • If the value is 0, then the project is on schedule

Schedule performance index

is the ratio between Earned value and planned value. This will help us identify the efficiency of the project schedule.

SPI = EV / PV

  • If the value is > 1 then it means more work is been completed than planned. i.e. Project is ahead of schedule
  • If the value is <1 then it means less work is been completed than planned. i.e Project is behind schedule
  • If the value is =1 then it means work is been completed as per plan. i.e. project is as per schedule

Ex: Project duration is 12 months, project total cost is 100,000 USD, time elapsed is 6 months and 40,000 USD has been spent. Project completion is 60% when reviewed. What is schedule variance and schedule performance index?

AC = 40,000,

PV = 50% *100,000 = 50,000  time elapsed 6 months, so 50%

EV = 60% * 100,000 = 60,000  actual project completion is 60%

SV = 60,000 – 40,000 = 20,000 USD   Value is positive, so the project is ahead of the schedule

SPI = 60,000/50,000 = 1.2   Value is >1, so the project is ahead of the schedule

Cost Variance

is difference between Earned value and Actual cost. This will help us identify if the project is ahead, behind or on budget.

CV = EV – AC

  • If the value is positive, then the project is under budget
  • If the value if negative, then the project is over budget
  • If the value is 0, then the project is on budget

Cost performance index

is the ratio between Earned value and Actual cost. This will help us identify efficiency of the cost utilized by the project.

CPI = EV/AC

  • If the value is > 1 that means project is earning more than amount spent. i.e. Project is under budget
  • If the value is <1 that means project is earning less than amount spent. i.e Project is over budget
  • If the value is =1 that means projects earning and spending are equal. i.e. project is on budget

Ex: Project duration is 12 months, project total cost is 100,000 USD, time elapsed is 6 months and 40,000 USD has been spent. Project completion is 60% when reviewed. What is schedule variance and schedule performance index?

AC = 40,000,

PV = 50% *100,000 = 50,000  time elapsed 6 months, so 50%

EV = 60% * 100,000 = 60,000  actual project completion is 60%

CV = 60,000 – 40,000 = 20,000 USD  Value is positive, so the project is under the budget

CPI = 60,000/20,000 = 3  Value is >1, so the project is under the budget

Forecasting (advance EVM formulas):

Earned value management, also helps us forecast the project status. Forecasting that can be done with the help of EVM:

  • Estimate at completion
  • Variance at completion
  • To complete performance index
Estimate at completion (EAC)

is the total expected budget of the project, based on the current available data. During the project execution, there could be variances to the actual cost of the project. EAC is the forecasting of project budget at completion, considering current project situation.

One can use different methods to calculate the EAC, based on the project scenarios

EAC = BAC/CPI   project performance will be same as past performance i.e CPI remains same through project

EAC = AC + (BAC – EV )  If there is a deviation to budget estimate, due to some unforeseen cost incurrence which most likely will not repeat again

EAC = AC + [(BAC-EV)/(SPI*CPI)] if the project is over budget and behind schedule and the time line is fixed.

EAC = AC + New estimate   if original conditions and assumptions are wrong, the new estimate should be done

Ex : Project duration is 12 months, project total cost is 100,000 USD, time elapsed is 6 months and 40,000 USD has been spent. Project completion is 60% when reviewed. What is schedule variance and schedule performance index?

BAC = 100,000

AC = 40,000

PV = 50% *100,000 = 50,000  time elapsed 6 months, so 50%

EV = 60% * 100,000 = 60,000  actual project completion is 60%

CPI = 60,000/40,000 = 1.5  Value is >1, so the project is under the budget

EAC = 100,000/1.5 = 66666.66 USD  if the project continues to progress with CPI = 1.5, then the project total cost would be 66666 USD

Variance at completion (VAC)

forecast the difference between the new estimate at completion (EAC) and original planned value (PV). It helps you to identify how much under budget or over budget will the project at completion.

VAC = BAC – EAC

  • VAC is negative, forecast of the project will be over budget
  • VAC is positive, forecast of the project will be under budget
To complete performance index (TCPI)

is the estimate of the cost performance required to complete the project within budget.  It helps you estimate how fast you have to move to achieve the project target. It’s the ration between budgeted cost of the work remaining and amount remaining (Remaining work/remaining funds).

There are two ways to calculate the TCPI, based on if the project is under or over budget.

TCPI = (BAC-EV)/(BAC-AC)   to be used when the project is required to be finished within BAC, project is under budget

TCPI = (BAC-EV)/(EAC-AC)  to be sued when the project is required to finish within new EAC, project is over budget

Ex: You are working on a project to be completed in 12 months and the BAC of the project is 100,000 USD. 6 months have passed and 40,000 USD has been spent, and 60% of the work has been completed so far. Find TCPI?

BAC = 100,000

AC = 40,000

PV = 50% * 100,000 = 50,000

EV = 60% * 100,000 = 60,000

CPI = 60,000/40,000 = 1.5 – under budget, hence use TCPI = (BAC – EV) / (BAC – AC)

TCPI = (100,000 – 60,000)/(100,000-40,000)=0.66  continue with CPI 1.5, to complete the project

 

Ex: You are working on a project to be completed in 12 months and the BAC of the project is 100,000 USD. 6 months have passed and 60,000 USD has been spent, and 40% of the work has been completed so far. Find TCPI?

BAC = 100,000

AC = 60,000

PV = 50% * 100,000 = 50,000

EV = 40% * 100,000 = 40,000

CPI = 40,000/60,000 = 0.67  – over budget, hence use TCPI = (BAC – EV) / (EAC – AC)

EAC = 100,000/0.67 = 149,253

TCPI = (100,000 – 40,000)/(149,253-60,000)=0.67  continue with CPI 0.67, to complete the project

 

EVM Formauls at glance:

evm_table

 

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