Earned Value Analysis

Earned Value Analysis

Earned Value Analysis commonly referred to as EVA is a technique used for work schedule control and project cost control. Controlling schedule is an important project management task in which the actual progress of the ongoing project activities are compared with the schedule baseline to determine whether the project is ahead of the planned schedule or behind. Thus, based on the deviation obtained appropriate corrective measures may be taken and the changes to the baseline can be managed. Similarly, cost control can also be done. The basic premise of earned value analysis is the value of the piece of work which is equal to the amount of funds that has been budgeted to complete it. EVA is an effective tool for monitoring the performance of the project. It involves the process of determining whether the project is ahead of or behind schedule and on, under, or over budget.

 

Terms Used in Earned Value Analysis


1. Planned Value (PV):
Planned Value is also commonly known as Budgeted Cost of Work Schedule (BCWS). It refers to the budget that has been approved for the work scheduled to be completed within a specific date.


2. Earned Value (EV):

Earned Value is also commonly known as Budgeted Cost of Work Performed (BCWP). It generally refers to the actual work that has been completed by the specified date.


3. Actual Cost (AC):

Actual Cost is also commonly known as the Actual Cost of Work Performed (ACWP). It refers to the actual total costs incurred for the work completed within the specified date.


4. Cost Variance (CV):

Cost variance is related to the budget of the project. Cost variance is the difference between the actual cost and the expected cost. Cost Variance is calculated by taking the difference of the Earned Value and the Actual Cost.


5. Schedule Variance (SV):

Schedule variance related to the scheduled time for the project. Schedule variance is the measurement of deviation of consumed time from the scheduled time. Scheduled Variance is calculated by taking the difference between Earned Value and Planned Value.


6. Schedule Performance Index (SPI):

Schedule Performance Index is the ratio of the approved budget for the work actually performed to the approved budget for the work previously planned. It is also commonly known as the project’s schedule efficiency. The SPI is an indicator of the relative amount the project is ahead of or behind schedule.


7. Cost Performance Index (CPI):

Cost Performance Index is the ratio of the approved budget for work performed to the budget that was actually spent for the completion of the work. It is also commonly known as the project’s cost efficiency. The CPI is an indicator of the relative amount of work completed compared to the amount paid for it.


8. Estimate at Completion (EAC):

The estimate at completion refers to the estimate of the total cost of the task.


9. Estimate to Complete (ETC):

The estimate to complete refers to the number of funds required to complete all the work remaining to be completed. Mathematical Formulas Used are:

 Schedule Variance (SV)= Budgeted Cost of Work Performed (BCWP)- Budgeted Cost of Work Scheduled (BCWS)

 Cost Variance (CV)= Budgeted Cost of Work Performed (BCWP)-Actual Cost of Work Performed (ACWP)

 Schedule Performance Index (SPI)= Budgeted Cost of Work Performed (BCWP)/ Budgeted Cost of Work Scheduled (BCWS)

Cost Performance Index (CPI) = Budgeted Cost of Work Performed (BCWP)/ Actual Cost of Work Performed (ACWP)

 

Solved Numerical Example of Earned Value Analysis

Q. A project is undertaken where the work has to be completed within 60 days with a budget of Rs. 20,000. The cost breakdown per month is Rs. 10,000.
The work scheduled in each month is half of the total work to be completed. According to the progress reports, at the end of the first month, only 25% of the total work has been completed and 50% of the total budget has been spent. Also, for the completion of 25% work, the actual cost incurred is 50% of the total budgeted cost.

Solution,

Given that,

25% work completion, the actual cost incurred= 50% of the total budgeted cost
= 50% of the total budget
= 50% of Rs. 20,000
= Rs. 10,000

Now,
the rate of performance can be expressed as the percentage of the ratio of work actually completed to the work planned to be completed i.e.

Rate of Performance = (25/50) * 100= 50%

The rate of performance thus indicates that only 50% i.e. half of the total work scheduled to be completed by the end of the first month has actually been completed.

Now,
the Earned value (EV) can be obtained as,

Earned Value (EV)= Rate of Performance * Planned Value
= 50% of 10,000
= Rs. 5,000

This indicates that the total actual cost which incurred is Rs. 10,000 but according to the plan it should have been only Rs. 5000.

Now, the cost variance (CV) is calculated as,

Cost Variance (CV)= BCWP-ACWP
= 5,000-10,000
= -5,000 i.e. the project is over budget.

Also, the cost performance index (CPI) is given by,

 cost performance index (CPI) = BCWP/ACWP
= 5,000/10,000
= ½ i.e. the project is over budget since CPI<1.

Similarly,

Schedule Variance (SV) = BCWP-BCWS
= 5,000-10,000
= -5,000 i.e. project is behind schedule.

Schedule Performance Index (SPI) = BCWP/BCWS
= 5,000/10,000
= ½ i.e. the project is behind schedule

Now, the estimate at completion is calculated as,

EAC  =  Planned value of the whole project/ CPI
= 20,000 / (1/2)
= Rs. 40,000

This obtained value of the estimate at completion indicates that the project which was planned to be completed with a total budget of Rs. 20,000 now will be completed at a total cost of Rs. 40,000 if the rate of performance is the same. Similarly, the estimated time for completion is calculated as,

Estimated Time to Complete = Original time planned / Schedule Performance Index
= 60 days / (1 / 2)
= 120 days
= 4 months
Thus, this indicates that the project which was scheduled to be completed in 60
days will be now completed in 120 days if the work progress is the same.

 

 

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