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You may have heard that earned value analysis is complicated. But aside from the many acronyms, it's not. And it can help you answer questions like, "Is there enough money left in the budget?" and, "Will we finish on time?"
Want to know more about how Project handles earned value analysis? Read on.
What is earned value analysis?
What else does earned value measure?
How do I interpret earned value?
How does % complete versus physical % complete affect earned value?
Which earned value quantities can I show or calculate in Project?
Where in Project do I see earned value data?
What is earned value analysis?
At the root of earned value analysis are three fundamental values calculated for each task (task: An activity that has a beginning and an end. Project plans are made up of tasks.):
The budgeted cost of tasks as scheduled in the project plan, based on the costs of resources (resources: The people, equipment, and material that are used to complete tasks in a project.) assigned to those tasks, plus any fixed costs (fixed cost: A set cost for a task that remains constant regardless of the task duration or the work performed by a resource.) associated with the tasks. Called "the budgeted cost of work scheduled," BCWS (BCWS: The earned value field that shows how much of the budget should have been spent, in view of the baseline cost of the task, assignment, or resource. BCWS is calculated as the cumulative timephased baseline costs up to the status date or today's date.) is the baseline cost (baseline cost: The original project, resource, and assignment cost as shown in the baseline plan. The baseline cost is a snapshot of the cost at the time when the baseline plan was saved.) up to the status date (status date: A date that you set [rather than the current date] for reporting the time, cost, or performance condition of a project.) you choose. For example, the total planned budget for a 4-day task is $100 and it starts on a Monday. If the status date is set to the following Wednesday, the BCWS is $75. The actual cost (actual cost: The cost that has actually been incurred to date for a task, resource, or assignment. For example, if the only resource assigned to a task gets paid $20 per hour and has worked for two hours, the actual cost to date for the task is $40.) required to complete all or some portion of the tasks, up to the status date. This is the actual cost of work (work: For tasks, the total labor required to complete a task. For assignments, the amount of work to which a resource is assigned. For resources, the total amount of work to which a resource is assigned for all tasks. Work is different from task duration.) performed (ACWP). For example, if the 4-day task actually incurs a total cost of $35 during each of the first 2 days, the ACWP for this period is $ (but the BCWS is still $75). The value of the work performed by the status date, measured in currency. This is literally the value earned by the work performed and is called the budgeted cost of work performed (BCWP). For example, if after 2 days 60% percent of the work on a task has been completed, you might expect to have spent 60 percent of the total
With me, so far? Let's go on.
Earned value analysis is always specific to a status date you choose. You may select the current date, a date in the past, or a date in the future. Most of the time, you'll set the status date to the date you last updated project progress. For example, if the current day is Tuesday, 9/12, but the project was last updated with progress on Friday, 9/8, you'd set the status date to Friday, 9/8.
Here is one example of how to analyze project performance with earned value analysis. Let's say a task has a budgeted cost (BCWS) of $100, and by the status date it is 40 percent complete. The earned value (BCWP) is $40, but the scheduled value (BCWS) at the status date is $50. This tells you that the task is behind schedule—less value has been earned than was planned. Let's also say that the task's actual cost (ACWP) at the status date is $60, perhaps because a more expensive resource was assigned to the task. This tells you that the task is also over budget—more cost has been incurred than was planned. You can see how powerful such an analysis can be. The earlier in a project's life cycle you identify such discrepancies between ACWP, BCWP and BCWS, the sooner you can take steps to remedy the problem.
One common way of visualizing the key values of earned value analysis is to use a chart. Start with a simple chart showing a steady accumulation of cost over the lifetime of a project:
The vertical y-axis shows the projected cumulative cost for a project.
The horizontal x-axis shows time.
The planned budget for this project shows a steady expenditure over the lifetime of the project. This line represents the cumulative baseline cost.
After work on the project has begun, a chart of the key values of earned value analysis may look like this:
task budget, or $60.
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A positive variance indicates that the project is ahead of schedule or under budget. Positive variances might enable you to reallocate money and resources from tasks or projects with positive variances to tasks or projects with negative variances.
Ratios, such as the cost performance index (CPI) and the schedule performance index (SPI), can be greater than 1 or less than 1:
A negative variance indicates that the project is behind schedule or over budget and you need to take action. If a task or project has a negative CV, you might have to increase your budget or accept reduced profit margins.
A value that's greater than 1 indicates that the project is ahead of schedule or under budget.
How does % complete versus physical % complete affect
earned value?
You can specify whether Project should use each task's percent complete (percent complete: A field that you use to enter or display how much of a task has been completed. This value is expressed as the percentage of the task duration that has been completed.) value or physical percent complete value for earned value calculations related to BCWP. (Remember, other values are calculated from BCWP, so your decision affects the entire earned value analysis.)
A value that's less than 1 indicates that you're behind schedule or over budget. For example, an SPI of 1. means that you've taken only 67 percent of the planned time to complete a portion of a task in a given time period, and a CPI of 0.8 means that you've spent 25 percent more time on a task than was planned.
Percent complete may be calculated by Project or entered directly by you, depending on how you track actual work.
Here's a simple example of how the two values may differ: a project of building a stone wall that consists of 100 stones stacked 5 high. The first row of 20 stones can be laid in 20 minutes, but the second row would take 25 minutes because you have to lift the stones up one row higher, so it takes a little longer. The third row would take 30 minutes, the fourth 35 minutes, and the last row would take 40 minutes to lay—150 minutes total. After laying the first three rows, the project could be said to be 60 percent physically complete (you laid 60 of 100 stones). However, you only spent 75 of 150 minutes; so in terms of duration, the job is only 50 percent complete.
Depending on how you get paid for the work—how the value is earned (by the stone or by the hour)—you may choose the percent complete value or the physical percent complete value to properly reflect this in the earned value analysis.
Which earned value quantities can I show or calculate in
Project?
With Project, you can show:
Physical percent complete is always entered directly by you. Use physical percent complete when percent complete would not be an accurate measure of real work performed or remaining.
Actual cost of work performed (ACWP) (ACWP: Shows actual costs incurred for work already performed by a resource on a task, up to the project status date or today's date.) shows actual costs incurred for work already
performed by a resource on a task, up to the project status date or today's date. Normally Project correlates actual costs with actual work. Only if you enter actual costs independent of actual work or change resource pay rates (pay rate: Resource cost per hour. Project includes two types of pay rates: standard rates and overtime rates.) will actual cost be out of step with scheduled cost.
Budget at completion (BAC) (BAC: An estimate of the total project cost.) shows an estimate of the total project cost.
Budgeted cost of work performed (BCWP) (BCWP: The earned value field that indicates how much of the task's budget should have been spent, given the actual duration of the task. Note that Project calculates BCWP at the task level differently than at the assignment level.) shows how much of the budget should have been spent given the actual duration of the task. BCWP is also referred to as "earned value." Note that Project calculates BCWP at the task level differently than it does at the assignment level. For best results, use the task-level BCWP values, which are the values Project rolls up to summary task (summary task: A task that is made up of subtasks and summarizes those subtasks. Use outlining to create summary tasks. Project automatically determines summary task information [such as duration and cost] by using information from the subtasks.) and the project summary task (project summary task: A task that summarizes the duration, work, and costs of all tasks in a project. The project summary task appears at the top of the project, its ID number is 0, and it presents the project's timeline from start to finish.) BCWP values. This value is calculated for each individual task but analyzed at an aggregate level (typically at the project level).
Budgeted cost of work scheduled (BCWS) (BCWS: The earned value field that shows how much of the budget should have been spent, in view of the baseline cost of the task, assignment, or resource. BCWS is calculated as the cumulative timephased baseline costs up to the status date or today's date.) shows how much of the budget should have been spent in view of the baseline cost of the task, assignment, or resource. BCWS is calculated as the cumulative timephased baseline costs up to the status date or today's date. (Budgeted cost values are stored in the baseline fields, or if you've saved multiple baselines, in fields Baseline1 through Baseline10.)
Cost variance (CV) (CV: The difference between the budgeted cost of work performed [BCWP] on a task and the actual cost of work performed [ACWP]. If the CV is positive, the cost is currently under the budgeted amount; if the CV is negative, the task is currently over budget.) shows the difference between the budgeted cost of work performed (BCWP) on a task and its actual cost (actual cost of work performed or ACWP). If the CV is positive, the cost is currently under the budgeted (or baseline) amount; if the CV is negative, the task is currently over budget.
Schedule variance (SV) (SV: The difference between the budgeted cost of work performed [BCWP] and the budgeted cost of work scheduled [BCWS]. This is calculated as follows: SV = Budgeted Cost of Work Performed
- Budgeted Cost of Work Scheduled.) shows the difference between the budgeted cost of work performed (BCWP) and the budgeted cost of work scheduled (BCWS). If the SV is positive, the project is ahead of schedule in cost terms; if the SV is negative, the project is behind schedule in cost terms.
Variance at completion (VAC) (VAC: The earned value field that shows the difference between the budget at completion [BAC] and the estimate at completion [EAC]. In Project, the EAC is the Total Cost field, and the BAC is the Baseline Cost field.) shows the difference between the budget at completion (BAC) and the estimate at completion (EAC). In Project, the EAC is the Total Cost field and the BAC is the Baseline Cost field from the associated baseline.
Cost performance index (CPI) (CPI: Ratio of budgeted costs of work performed to actual costs of work performed [BCWP/ACWP]. The cumulative CPI [sum of the BCWP for all tasks divided by the sum of the ACWP for all tasks] can be used to predict whether a project will go over budget.) is the ratio of budgeted, or baseline, costs of work performed to actual costs of work performed (BCWP/ACWP).
