There are four sets of data generated by EVM projects.
- BAC (budget at completion): Original completion budget for project
- PV (planned value): How much the project was expected to cost at any given time?
- AC (actual cost): What the accountants say was actually spent?
- EV (earned value): What the expected cost was for the work that was completed (the planned value for work completed)?
Having a visual understanding of the relationship between these data is helpful for interpreting the meaning of EVM statistics. In this figure, the various terms are illustrated with respect to three basic cost lines: planned, actual, and earned.
BAC and PV are forecasted numbers representing planned expectations for the project. BAC does not change. PV is predicted for the entire duration of the project and ends with the BAC. Data for AC and EV are collected through project monitoring.
This is all the information that is required to manage EVM projects. From these data, performance statistics are generated.
There are three variance statistics used in EVM performance measurement:
- Variance at Completion (VAC): the difference between the original planned completion cost (BAC) and the latest prediction of completion cost
- Cost Variance (CV): the difference between the expected cost to complete what has been accomplished and what it actually cost (AC)
- Schedule Variance (SV): the difference between what was planned to be completed as of a given date and what was actually completed
There are three index statistics that match up with the three variances:
- To Complete Performance Index (TCPI): an indication of the efficiency rate needed on all remaining work in order to complete the project on budget. A value of more than 1 implies that all remaining tasks will need to come in under budget (on average) in order for the project to meet the BAC.
- Cost Performance Index (CPI): shows how well the project is meeting cost targets. A value of 1 indicates that actual costs are the same as planned (AC=EV) for the work that has been completed. A value over 1 indicates that costs are less than planned. A value of less than 1 implies that costs have been higher than planned.
- Schedule Performance Index (SPI): indicates whether the project is meeting schedule expectations. A value of 1 indicates that the work completed to date is right on schedule. A value of over 1 indicates the project is ahead of schedule. A value of less than 1 implies the project is behind schedule.
Forecasts use performance indices to predict the future. If the project has been doing really well up to this point, what does that imply about the completion cost and schedule? If tasks are, on average, taking half as long as planned, it suggests that the project overall will be completed in half the time.
While EVM techniques are better able to predict completion cost than schedule, both forecasts remain useful tools.
Forty years of empirical evidence from government acquisition projects has shown that as early as 10 to 15 percent into a project, the CPI provides a reasonable forecast of what a project will achieve. What this means is that cost overruns early in a project will not fix themselves by the end of the project. If anything, the overruns will get worse.
The SPI is a less precise tool for forecasting the future. The principle reason is that tasks affecting the SPI are not necessarily on the critical path for a project, and therefore, they may not affect the completion date. If a large number of tasks not on the critical path are completed ahead of schedule, they will make the SPI look good, even though tasks that are on the critical path may be behind schedule. The SPI provides a high-level overview that, when combined with critical path analysis, allows for an effective prediction of the completion schedule.
This information was drawn from Global Knowledge’s Earned Value Management course.
This article was originally published in Global Knowledge’s Business Brief e-newsletter. Global Knowledge delivers comprehensive hands-on project management, business process, and professional skills training. Visit our online Knowledge Center at www.globalknowledge.com/business for free white papers, webinars, and more.
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