Earned Value Management for Absolute Beginners
By Mike Griffiths
Let’s imagine our project is to build a wall around a garden.
For simplicity, let’s assume 4 equal sides and a budget of $200 per side. Our schedule is one side per day so we should finish in 4 days with a cost of $800.
Here is how the project progresses:
Day 1 Progress: Front wall completed and the budget of $200 spent – perfect!
Day 2 Progress: Side 1 started, but the foundations had to go deeper than expected using more materials so the side was not quite completed and the spend was $220
Day 3 Progress: Side 1 was finished, only half of the back wall was built, but the team left early and only spent $140 that day
So are we ahead or behind? How much over/under budget are we?
This is the type of thing that happens on real projects, some things go fine; other things go slower than anticipated and before long you need to determine, on balance, how much ahead or behind from the original plan you are.
Just from common sense we can tell we are behind, by the end of day 3 we should have finished 3 sides not 2.5.
Spend wise, we can make some estimates too; we have achieved 2.5 out of 4 sides which is 62.5% (2.5 / 4 *100 = 62.5) of the overall project. We have spent $200 + $220 + $140 = $560 of the $800 which is 70% (560/800 *100 = 70) of the budget. Having spent 70% of your budget and only achieved 62.5% of your budgetted progress indicates you are spending faster than anticipated.
Congratulations you now understand the basics of Earned Value!
Earned Value has some unique terminology that throws off lots of people, but none of it is too complicated, here are the terms:
Earned Value Terms
|PV||Planned Value||Estimated value of the work planned to be done|
|EV||Earned Value||Estimated value of the work actually accomplished|
|AC||Actual Costs||Actual Costs Incurred|
|BAC||Budget At Completion||Amount budgeted for total project|
|EAC||Estimate At Completion||Currently expected total for project|
|ETC||Estimate To Complete||How much more to finish|
|VAC||Variance At Completion||How much over/under we expect to be|
Using the above terms, we get the following values for our example above (at the end of day 3):
|Term||Name||Meaning||Day 3 values|
|PV||Planned Value||Estimated value of the work planned to be done||$600|
|EV||Earned Value||Estimated value of the work actually accomplished||$200+$200+$100=$500|
|AC||Actual Costs||Actual Costs Incurred||$200+$200+$140=$540|
|BAC||Budget At Completion||Amount budgeted for total project||$800|
|EAC||Estimate At Completion||Currently expected total for project||?|
|ETC||Estimate To Complete||How much more to finish||?|
|VAC||Variance At Completion||How much over/under we expect to be||?|
To fill in the remaining fields we need some formulae, again don’t be put off by the terminology, it is really quite easy:
Earned Value Forumlae
|Cost Variance||CV = EV – AC||-ve = over budget, +ve = under budget|
|Schedule Variance||SV = EV – PV||-ve = behind schedule, +ve = ahead of schedule|
|Cost Performance Index||CPI = EV / AC||I am getting “x” cents out every $|
|Schedule Performance Index||SPI = EV / PV||I am progressing at “x”% originally planned|
|Estimate At Completion||EAC = BAC / CPI||As of now, how much do we expect the total project to cost|
|Estimate To Complete||ETC = EAC – AC||How much more to finish|
|Variance At Completion||VAC = BAC – EAC||How much over/under we expect to be|
The first two values (Cost Variance and Schedule Variance) are measures of how much ahead or behind cost and schedule we are. Just remember negative values here are negative signs for the project, it means we are over budget or behind schedule.
The next two values (Cost Performance Index and Schedule Performance Index) are factors where the value 1 means on budget or schedule, anything below 1 means behind, anything above 1 means ahead.
So plugging in our numbers we get:
|Name||Formula||Meaning and Value|
|Cost Variance||CV = EV – AC||$500 – $560 = -$60 (we are over budget)|
|Schedule Variance||SV = EV – PV||$500 – $600 = -$100 (we are behind schedule)|
|Cost Performance Index||CPI = EV / AC||$500 / $560 = 0.89 (I am getting 89 cents out of every $)|
|Schedule Performance Index||SPI = EV / PV||$500 / $600 = 0.83 (I am progressing at 83% of the rate originally planned)|
|Estimate At Completion||EAC = BAC / CPI||$800 / 0.89 = $900 (The total is now likely to be $900)|
|Estimate To Complete||ETC = EAC – AC||$900 – $560 = $340 (From now I will likely spend $340)|
|Variance At Completion||VAC = BAC – EAC||$800 – $900 = -$100 (We expect to be $100 over budget)|
So we can estimate that at this rate it is more likely to cost $900 rather than the $800 budget and given we are only progressing at 83% of the rate we first estimated, this will now take 4.8 days to finish (original 4 days / 0.83 rate of progress = 4.82).
That is it, no quantum mechanics necessary. Negative Variance figures are generally bad as are performance indexes below 1. There are other formulae, and alternative formulae that can be used in certain circumstances, but these are the basics.
All of these numbers were available to us in our initial common sense assessment of progress. Having completed only 2.5 sides instead of 3 by the end of day 3 gives us the 2.5/3 = 0.83 Schedule Performance Index (SPI) we calculated. Likewise spending $560 and only building $500 worth of original plan work is our 500/600 = 0.89 Cost Performance Index (CPI)
Download Earned Value Management Cheat Sheet Courtesy of Mike Griffiths – Leading Answers
Mike Griffiths is an independent consultant specializing in effective project management. Mike was involved in the creation of DSDM in 1994 and has been using agile methods (Scrum, FDD, XP, DSDM) for the last 13 years. He serves on the board of the Agile Alliance and the Agile Project Leadership Network (APLN). He maintains a leadership and agile project management blog at http://www.LeadingAnswers.com