Earned value is a powerful technique to measure project performance by combining cost and timing into a single set of measures. It operates by comparing actual results with a baseline and its basic premise is that completing the project according to the baseline guarantees success. The method is a significant improvement over the traditional method of comparing spend with budget because it ensures that the money spent in the project has earned value towards its completion.
Project supports earned value though a number of fields. A baseline has to be created for the calculations to work properly. The following variables are used and the required data is either entered or calculated.
Budget at completion. This is the baseline budget of the activities being tracked with earned value. This field is calculated by adding the cost of work (labour costs) and fixed costs (other expenses)
BCWS Budget cost of the work scheduled (also known as Planned Value). This is the time-phased budget of the project according to the baseline. It is the planned path to success and is calculated internally according to the schedule of tasks and allocated resources.
ACWP Actual cost of the work performed (also known as Actual Cost). This is the time-phased cost incurred to-date and it can be calculated based on predefined rates but it is best to enter actual values as reported by the financial tracking system. Project needs to be set to either calculate or accept an external entry in the Calculations tab of the Options menu
BCWP Budget cost of the work performed (also known as Earned Value)
This is the measure of progress against the plan, and represents the value achieved by the work completed to-date. BCWP is calculated as % work complete multiplied by BAC for resources or % complete multiplied by BAC for tasks. A better way is to use Physical % complete which is selected in the Calculations tab of the Options menu
CV Cost variance calculated as the difference between BCWP and ACWP
If CV is negative it means that the project is over-spending in order to achieve the planned results. If CV is positive it means the opposite.
SV Schedule variance. It is calculated as the difference between BCW\!P and BCWS
If SV is negative it means that the project is behind schedule. A positive SV means that the project is achieving its results ahead of schedule. It important to notice that schedule performance refers to the timing of costs, not the time taken by tasks.
CPI Cost performance Index is calculated as BCWP divided by ACWP
A value greater than one means that the project is below budget, and a value of less than one means that the project is over budget, therefore is under-performing
SPI Schedule performance Index is calculated as BCWP divided by BCWS
A value of less than one means that the project is falling behind schedule, and a value greater than one means that he project is performing ahead of schedule
Estimate at completion is a calculated value that uses the measured performance to predict the likely final cost of the project
If the observed performance is poor then chances are that the project will finish over-budget, and EAC predicts by how much.
Earned Value is a powerful analysis tool that can be easily implemented in Project. The critical step is to set the right parameters and capture data in a consistent manner. On the next article we will look at strategies for capturing the data.