Measuring Project Performance: Earned Value Analysis

 

Measuring Performance: Earned Value Analysis

 

Planned value (PV) is the planned cost of work scheduled to be done in a given time period. The amount of PV is determined by totaling the cost estimates for the activities scheduled to be completed in the time period. Planned value answers the question ‘‘What did we think would happen by this date and how much did we think it would cost?’’

 

Earned value (EV) is the planned cost of work actually performed in a given time period. This is a measure of the dollar value of the work actually performed. The amount of EV is determined by totaling the cost estimates for the activities that were actually completed in the time period. Earned value answers the question ‘‘What really happened up to this point and how much did we think it was going to cost?’’

 

Actual cost (AC) is the cost incurred to complete the work that was actually performed in a given time period. The amount of AC is determined by totaling the expenditures for the work performed in a given time period. It should include only the types of costs included in the budget. For example, if indirect costs were not included in the budget, they should not be included in AC calculations. Actual cost answers the question ‘‘What really happened up to this point and how much did it cost?’’

 

Schedule variance (SV = EV - PV).

This calculation measures the difference between the planned and the actual work completed. A positive result means the project is ahead of schedule; a negative result means the project is behind schedule.

  

Cost variance (CV = EV - AC).

It measures the difference between the planned (budgeted) cost and the actual cost of work completed. A positive result means the project is under budget; a negative result means the project is over budget.

 

Schedule performance index (SPI = EV/PV).

This ratio is a measure of efficiency in the schedule. A value less than 1 means the project has accomplished less than what was planned and is behind schedule; a value greater than 1 means the project is ahead of schedule. Analyzing the SPI several times during the project provides an indication of how the project is performing compared to the project plan. This index may also be used to forecast the project completion date.

 

Cost performance index (CPI = EV/AC).

This ratio is a measure of cost efficiency (how efficiently dollars are being spent). A value less than 1 means the work is costing more than planned; a value greater than 1 means the work is being produced for less than planned. For example, a CPI of 0.67 means that for each $1.00 spent on the project, we produce $0.67 worth of value. Analyzing the CPI several times during the project provides an indication of the project’s direction concerning costs.

 

Budget at completion (BAC) is the estimated total cost of the project when completed. It is calculated by totaling the cost of all activities outlined on the work breakdown structure.

 

Estimate to complete (ETC = (BAC - EV)/CPI).

This is the expected additional cost needed to complete the project. This estimate shows the expected additional cost needed to finish the project, including adjustments to the BAC based on project performance to date.

 

Estimate at completion (EAC = AC + ETC).

This is the expected total cost of the project when completed. This estimate includes adjustments to the BAC based on performance to date.

 

 

PV: Planed Value

EV: Earned Value

AC: Actual Cost

SV: Schedule variance

CV: Cost Variance

SPI: Schedule Performance Index

CPI: Cost Performance Index

BAC: Budget At Completion

ETC: Estimate To Complete

EAC: Estimate At Completion