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Everything boils down to an understanding of Earned Value versus Planned Value, and that Earned Value does *not* mean Actual Cost.
Let's pretend you have an 80 hour project over two weeks (10 business days), with a resource rate of $50/hr. For the sake of simplicity, I won't break down into tasks. The Planned Value of this project as a whole is $4,000.
Now the project kicks off to execution and 3 days later, the resource have reported spending a total of 20 hours. Up to this point, the value that has been delivered by the resource (or EARNED VALUE) is $1,000 (20 hrs x $50/hr)
BUT! We expected that the resource would have delivered 24 hours of effort on Day 3, so our PLANNED VALUE up to this point is $1,200 (24 hrs x $50/hr). So what is our Schedule Variance?
SV= EV - PV = $1,000 - $1,2000 = ($200)
And SPI?
SPI = EV/PV = 0.833
Our project is progressing along, but it's a tad behind schedule.
BUT! EVM has a critical component that I think a lot of documentation and articles miss or gloss over: % Complete. In the same example as above, on day 3 of an 80 hour project the resource logged 20 hours of effort.***They claimed that task is 50% complete*** when the plan was expecting the task to only be 30% complete! (3days passed/10 total days planned) So clearly the project is progressing faster than what the SPI and SV would have us believe without this consideration. Let's go to the math...
The earned value is $2,000: *not* $1,000 because the resource reporting completing 50% of a $4,000 Planned Value.
SV = $2,000 - $1,200 = $800
SPI = $2,000/$1,200 = 1.67
Now.... Cost Performance Metrics with 50% complete on $4,000 total Planned Value, and 20 hours of logged actual effort.
CV = EV - AC = $2,000 - $1,000 = $1,000
CPI = EV/AC = 2.0
Notice in Cost Performance Metrics that the calendar schedule (or Planned Value to date) isn't part of the equation.
How to report this:
You tell the sponsor or whomever that this project is progressing very well. It is ahead of schedule and under budget. You can extrapolate data to tell them how many days the schedule is being shortened or even provide a ROI To Date.
TCPI and ETC formulas are heavily influenced by the concepts of EV, PV, and the comparison of Schedule and Cost metrics. I'm running out of time to review them with an example, but hopefully you understand EVM better now.
NOTE: If you're using Microsoft Project, you need to understand the difference between "% Complete" and "Physical % Complete". The difference is in how you manage and report on your portfolio.
