Earned Value Analysis

Earned Value Analysis

1. Indicators

2. RIRO (evidenced based program)

3. Earned value

   • The budgeted cost of the work completed at a particular point on the programme. Also known as Budgeted Cost of Work Performed (BCWP)

4. Actual cost

   • Actual (committed) expenditure at a particular point on the programme. Known as the 'actual cost of work performed' (ACWP)

5. Planned value

   • What ought to have been spent (committed) at a particular point in the programme. More formally the 'budgeted cost of work scheduled' (BCWS)

6. Definition

   • EVA is a widely used cost and schedule control system. It is also known as a 'cost/ schedule control system' and 'baseline performance measurement' (BMP). The basic principle of EVA is to compare the value of actual work completed (known as the earned value) against planned progress and actual expenditure. The technique requires the PM to schedule and budget project work using a time-phased plan and monitor progress against this plan.
   • Earned Value analysis is a method of performance measurement. Earned Value is a program management technique that uses “work in progress” to indicate what will happen to work in the future. Earned Value is an enhancement over traditional accounting progress measures. Traditional methods focus on planned accomplishment (expenditure) and actual costs. Earned Value goes one step further and examines actual accomplishment. This gives managers greater insight into potential risk areas. With clearer picture, managers can create risk mitigation plans based on actual cost, schedule and technical progress of the work. It is an “early warning” program/project management tool that enables managers to identify and control problems before they become insurmountable. It allows projects to be managed better – on time, on budget. Earned Value Management System is not a specific system or tool set, but rather, a set of guidelines that guide a company’s management control system.

7. The S Curve Terms

   • Cost Variance (CV) – The difference between the planned cost of work performed (BCWP) and actual cost incurred for the work (ACWP). This is the actual dollar value by which a project is either overrunning or underrunning its estimated cost.
   • Schedule Variance (SV) – The difference between the work actually performed (BCWP) and the work scheduled (BCWS). The schedule variance is calculated in terms of the difference in value between the amount of work that should have been completed in a given time period and the work actually completed.
   • Difference between planned value and earned value (time) = time slippage (time behind)
   • The critical variance is what has been spent at a particular point in time compared to what was planned to be spent
   • Budget At Completion (BAC) – The sum of all the budgets allocated to a program. In addition to the PMB, there generally is an amount of management reserve, which is a portion of the total program budget not allocated to specific work packages and withheld for management control processes. The BAC consists of the PMB plus all management reserve.
   • Performance Measurement Baseline (PMB) – The sum of all work packages Budgeted Cost of Work Scheduled (BCWS) for each time period, calculated for the
   • Cost Performance Index (CPI) – The ratio of cost of work performed (BCWP) to actual cost (ACWP). CPI of 1.0 implies that the actual cost matches to the estimated cost. CPI greater than 1.0 indicates work is accomplished for less cost than what was planned or budgeted. CPI less than 1.0 indicates the project is facing cost overrun.
   • Schedule Performance Index (SPI) – The ratio of work accomplished (BCWP) versus work planned (BCWS), for a specific time period. SPI indicates the rate at which the project is progressing
   • Estimate At Completion (EAC) – It is a forecast of most likely total project costs based on project performance and risk quantification. At the start of the project BAC
   • Estimate To Complete (ETC) – The difference between Estimate At Completion (EAC) and the Actual Cost (AC). This is the estimated additional cost to complete the project from any given time.
   • Variance At Completion (VAC) – The difference between Budget At Completion and Estimate At Completion (EAC). This is the value by which the project will be over or under budget.

8. Key points

   • Earned value analysis must be related to the programme
   • It must be based on the same Work Breakdown Structure (WBS)
     • EVA works most effectively when it is compartmentalized, i.e. when the project is broken down into an organized Work Breakdown Structure, or WBS. The WBS is used as the basic building block for the planning of the project. It is a product-oriented division of project tasks that ensures the entire Scope of Work is captured and allows for the integration of technical, schedule, and cost information. It breaks down all the work scope into appropriate elements for planning, budgeting, scheduling, cost accounting, work authorization, progress measuring, and management control. The two most common WBS systems are the Construction Specifications Institute (CSI) format, and the Uniformat. Often at the preliminary stages of design the Uniformat lends a better understanding of the cost centers, and at final bid level of documents often the CSI format is used. The indirect costs of design, oversight, and management must be included in the WBS to reflect the full budget.

9. Causes of budget overruns

   • Poor estimation (potentially due to poor project definition)
   • Poor design management
   • Changes in the brief (changing requirements, to take advantage of an opportunity)
   • Inappropriate use of construction contract (transfer of risk)
   • Errors (design, contractual, omission)
   • An accepted risk event occurring
   • Unexpected regulatory restraint

10. From these three quantities we can determine our total program budget as well as make a determination of schedule and cost performance and provide an estimated cost of the project at its completion.

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