Earned Value Management 101 – An EVM Example

Earned Value Management 101 – An EVM Example (#2 in the series Earned Value Management 101)
By Josh Nankivel

I have been doing a lot of brushing up on EVM lately, and am ready to dig in again. Since I am already very familiar with the theory behind Critical Chain and buffer management, I am going to focus on EVM for awhile and then try to meld Simple EVM in the terms described by Joel Koppleman and Quentin Flemming to Critical Chain.
-Josh Nankivel

Finding PV, EV, and AC

You are the project manager working on building the first prototype of a new whiz-bang gadget. You are about 2 months into the project, which was projected to be 10 months long in the beginning, with a budget of $2,000,000 USD.

Let’s take a look at your project with EVM with the goal of making a forecast as to when the project will be done and what the total cost will be.

To start with, you take a look at your project schedule. You count the tasks that should have been done at this time, which comes to 25. Add up the total budgeted cost for those 25 work packages, and you get $450,000 USD. What is your PV, or BCWS?

PV = $450,000 USD.

Now, you see that you are actually finished with only 23 work packages. (Personally, I wouldn’t give any earned value unless a task is fully finished) Add up the total budgeted cost for those 23 work packages you actually did, and you get $420,000 USD. What is your EV, or BCWP?

EV = $420,000 USD.

Finally, add up the actual cost for those 23 work packages you actually did, and you get $415,000 USD. What is your AC, or ACWP?

AC = $415,000 USD.

Finding CV, SV, CPI, and SPI

Next, you need to find your CV, SV, CPI, and SPI.

From part 1:
PV = $450,000 USD
EV = $420,000 USD
AC = $415,000 USD

Just plug in the numbers

CV = EV – AC
CV = $420,000 USD – $415,000 USD = $5,000 USD

CPI = EV / AC
CPI = $420,000 USD / $415,000 USD = 1.01

SV = EV – PV
CV = $420,000 USD – $450,000 USD = -$30,000 USD

SPI = EV / PV
CV = $420,000 USD – $450,000 USD = 0.93

Forecasting ETC and EAC

From above:

PV = $450,000 USD
EV = $420,000 USD
AC = $415,000 USD
BAC = $2,000,000 USD
CV = $5,000 USD
CPI = 1.01
SV = -$30,000 USD
SPI = 0.93

We’ll use the formula for ETC for typical variance, meaning that we expect progress to continue the way it has in the past.

ETC = (BAC – EV) / CPI
ETC = ($2,000,000 USD – $420,000 USD) / 1.01
ETC = $1,564,356 USD

Now for the final cost estimate based on our EVM metrics:

EAC = AC + ETC
EAC = $415,000 USD + $1,564,356 USD = $1,979,356 USD

So according to our EVM forecast, this project should come in around $20,000 under budget.

For schedule however, I think I would use the SPI and SV merely as extra information when controlling the schedule. My first focus would be the critical path, and an SPI lower than 1 would tell me that perhaps I need to start looking at other tasks as well, before they become risks to the flow of the critical path. I’m sure you could take your 10 months and divide it by 0.93 to get around 10.75 months as your projected TAC (Time At Completion, did I just make that up?), but I wouldn’t use that as a reliable estimate of completion time. I’m sure there are more advanced EVM metrics geared towards schedule control. If they don’t take the critical path into consideration though, they are treating all tasks as equal, which they are not in terms of schedule.

Josh Nankivel is the Vice Chair of Special Projects for the Students of Project Management SIG of PMI, and a project management student/enthusiast. His website is http://www.pmstudent.com.