Succeeding With Best Practices and Methodologies

Project managers look inside the project to determine progress, measure variance, predict outcomes, report status and manage change. Earned Value (EV) is a quantitative technique to measure project performance against the project baseline. Through the use of EV analysis, one can detect and predict problems earlier, evaluate status, and report progress.

There are two Earned Value performance indexes that are of particular value to project managers. First is the Cost Performance Index (CPI). CPI is the ratio of budgeted to actual costs for work performed. One can determine the relationship between estimated and actual costs. Second is the Schedule Performance Index (SPI). SPI is the ratio of work performed to work scheduled. SPI is an efficiency rating for work accomplished up to the time of the measurement.

First lets define some of the terms that are used in earned value analysis and explain what the results mean:

Planned Value (PV) - Answers what is the estimated value of the worked planned to be done.

Earned Value (EV) - Answers what is the estimated value of the worked actually to be done.

Actual Value (EV) - Answers what is the actual cost incurred for the worked accomplished.

Budget at Completion (BAC) - Answers what how much did we budget for the total project.

Estimate at Completion (EAC) - Answers what do we currently estimate the total project to cost.

Estimate to Completion (ETC) - Answers from current point how much more do we estimate it to cost to finish the project.

Variance at Completion (VAC) - Answers how much over or under budget do we estimate to be at the end of the project.

Now lets look at some of the financial calculations and understand what the results mean:

Formula for Cost Variance (CV) is: EV - AV

If the result is a Negative number that means that the project is over budget.

If the result is a Positive number that means that the project is under budget.

Formula for Schedule Variance (SV) is: EV - PV

If the result is a Negative number that means that the project is behind schedule.

If the result is a Positive number that means that the project is ahead of schedule.

Formula for Cost Performance Index (CPI) is: EV/AC

The result answers how much we are getting in turns of a $ worth of work out of every $1 spent. It answers whether the funds are or are not being used efficiently.

If the CPI is greater than one, the project is under budget, which means you are earning more than what you have spent

If the CPI is less than one, the project is over budget, which means you are earning less than what you have spent.

If the CPI is equal to one, earning and spending is equal, which means that the project is proceeding as per the planned spending.

Formula for Schedule Performance Index (SPI) is: EV/PV

The result answerers of how we are progressing at certain percentage of the rate originally planned.

If the SPI is equal to one; the project is on schedule, the completed work is equal to the planned work.

If the SPI is greater than one; the project is ahead of schedule, which means you have completed more work than planned.

If the SPI is less than one, the project is behind schedule, which mean you have completed less work than planned work.

If the SPI is equal to one; the project is on schedule, completed less work than planned work.

There are many formulas for Estimate at Completion (EAC):

The result answers as of now how much do we expect the total project to cost.

We use the following formula: BAC/CPI

If no variance from the BAC have occurred or continue at the same rate of spending

We use the following formula: AC + ETC

When original estimate was flowed. Actual plus a new estimate for remaining work.

We use the following formula: AC + (BAC - EV)

When current variance is thought to be different from the future. Actual to date plus remaining budget to perform.

We use the following formula: AC + (BAC - EV)/CPI

When current variance is through to be similar of the future. Actual to date plus remaining budget modified by performance.

Formula for Estimate to Complete (ETC) is: EAC - AC

The result answers how much more will the project cost.

Formula for Variance at Completion (VAC) is: BAC - EAC

The result answers how much over or under budget will we be at the end of the project.

Now take this knowledge and control your organizations project’s costs.

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