PMO Team

Earned Value Management System is a very useful tools to determine the Schedule and Cost performance of the project where the Project Director and PMO Team Members can utilize to determine the right course of action required to put the programme & portfolio back on track and complete as per the original Budget at Completion (BAC).

Based on the output of the earned value analysis, the schedule compression technique such as Fast Tracking and Crashing can be implemented to efficiently address the project requirements.

Earned Value Management

Earned Value Management

EVM Terminology Description Formula Example Analysis / Interpretation
Budgeted At Completion (BAC) Sum of overall project budgeted cost. Sum of total budgeted cost for the project based on the established Work Breakdown Structure (WBS).
Planned Value (aka Budgeted Cost of Work Scheduled) (PV or BCWS) How much work should have been completed at a point in time based on the plan. Derived by measuring planned work completed at a point in time. PV = Planned % Complete x BAC Given: PV % = 20% BAC = 10,000. Example: PV = 20% X 10,000 = 2000
Earned Value (aka Budgeted Cost of Work Performed) (EV or BCWP) How much work was actually completed during a given period of time. Derived by measuring actual work completed at a point in the schedule. EV = Actual % Complete x BAC Given: EV % = 15%. BAC = 10,000. Example: EV = 15% X 10,000 = 1500
Actual Cost (aka Actual Cost of Work Performed) (AC or ACWP) The money spent on the project during a given period of time. Sum of the costs for the given period of time. Sum of the actual costs for the given period of time.
Cost Variance (CV) The difference between what the project expected to spend and what was actually spent. CV = EV-AC Given: EV = 150. AC = 180. Example: CV = 150 – 180 = -30 The project is spent more than what is budgeted to be spent. The project is Over Budget
Schedule Variance (SV) The difference between what the project planned to complete and what has been completed for the given period of time. SV = EV-PV Given: EV = 150. PV = 200. Example: SV = 150 – 200 = -50   Schedule performance is less than what is planned to be completed. The project is Behind Schedule.
Cost Performance Index (CPI) The rate at which the project performance is meeting cost expectations during a given period of time. CPI = EV ÷ AC Given: EV = 150. AC =180. Example: CPI = 150 ÷ 180 = .83 The actual cost is higher than the budgeted cost. The project is Over Budget.

1 = Within Budget,                               < 1 = Over Budget,                            >1 = Less than the Budget

Cumulative CPI (CPI^c) The rate at which the projects performance is meeting cost expectations from the beginning up to a point in time. CPI^c is also used to forecast the projects costs at completion. CPI^c = EV^c ÷ AC^c Given: EV^c = 1,500. AC^c =1,800. Example: CPI^c = 1,500 ÷ 1,800 = .83   The cumulative actual cost is higher than the cumulative budgeted cost. The project is Over Budget.

1 = Within Budget,                             < 1 = Over Budget,                              >1 = Less than the Budget

Schedule Performance Index (SPI) The rate at which the project performance is meeting schedule expectations up to a point in time. SPI = EV ÷ PV Given: EV = 150. PV = 200. Example: SV = 150 ÷ 200 = .75 The schedule performance is lower than the planned performance. The project is Behind Schedule.

1 = Within Schedule,

< 1 = Behind Schedule,                    > 1 = Ahead of Schedule

Estimate at Completion (EAC) Projecting the total cost at completion based on project performance up to a point in time. EAC = BAC ÷ CPI^c Given:  BAC = 10,000; CPI^c = .83. Example: EAC = 10,000 ÷ .83 = 12,048   The project will be spending more than the total budgeted cost at completion (BAC). The project requires additional budget of 2,048 based on the current cumulative cost performance. Additional budget requires Change Order and approval from the Change Control Board prior to implementation.
Estimate to Completion (ETC) Projecting how much more will be spent on the project based on past performance. ETC = EAC – AC Given: EAC=12,048. AC = 1,800. Example: ETC = 12,048 – 1,800 = 10,248     The project still requires 10,248 to be complete all remaining scope of works based on the current cost performance.
Variance at Completion (VAC) The difference between what was budgeted and what will actually be spent. VAC = BAC – EAC Given: BAC = 10,000  EAC = 12,048. Example: VAC = 12,048 – 10,000 = +2,048 The project will be over budget of +2,048 at the end of the project based on the current cost performance.
To-Complete Performance Index (TCPIc) Performance that must be achieved in order to meet project financial or schedule goals. TCPIc = (BAC – EV) ÷ (BAC – AC) Given:  BAC = 10,000 EV = 1,500. Example: TCPIc = (10,000 – 1,500) ÷ (10,000 – 1,800) = 1.04 The project needs to perform at least 1.04% of the current performance to complete the project scope of works within the initial Budgeted Cost.

 

It is very important for the PMO Team Members lead by the Project Director to understand and how to properly interpret the meaning of the each output and formula of the earned value analysis implementation. Wrong interpretation of the output of the earned value analysis may lead to implementation of wrong project decision which may lead to a more disaster outcome of the programme & portfolio.

Reference:

PMI Practice Standard of Earned Value Management

ANSI-EIA 748 Earned Value Management System

I’m a Certified Project Management Professional (PMP), Certified Planning Engineer (CPE), PMI Scheduling Professional (PMI-SP), Certified Project Risk Professional (PRP) and Certified in Cost Engineering with eighteen years (18) of extensive and progressive experience (Saudi Arabia & Qatar) in Project Management and Project Control domain which includes Planning, Scheduling, Cost Controlling, Cost Monitoring, and Project Administration. Before joining SNC-Lavalin Arabia, I worked as Scheduling Engineer and Lead QA Internal Auditor with Zuhair Fayez Partnership Consultants, a consulting company engaged in Architecture Design, Engineering, Project Management, Information Technology, and Construction Supervision delivering projects located in all main cities of Saudi Arabia where the Head Quarter is located in Jeddah. Before that I also worked with ABV Rock Group Company (General Contracting Company) for Saudi Strategic Storage Project – SSSP under SAUDI ARAMCO as Project Planner & Cost Controller from construction phase until final handover of the site to SAUDI ARAMCO.