by E.HAMMAM ELMAHI
When we plan the project, we focus on the main three constrains which create the baselines. We start by collecting the requirement, and the quality of data here is very critical for calcifying the scope of work, the main output here is the scope baseline. Based on the scope, we manage the time and cost, as they are vital to the customer, then we end up having the delivery date and the total cost of work. In agile we have many ways to assess the scope of work, time, and cost, while keeping the change acceptable all the time.
When the execution starts, we must follow up the work to ensure completing the work on time and within the schedule. One of the performance tracking ways is Earned value analysis. Understanding Earned value is an important skill for project managers, because this tool helps in decision-making and compliance with the baselines. This essay will explain the earn value analysis with an example, we do not have to memorize the equations if we get the concepts.
Earned Value Analysis Example:
Assume that we have a project to fence a building, with walls on four sides, each side will take one day of work and will cost us 100 USD and develop a schedule for work as follow.
| Side (1) | Side (2) | side (3) | Side (4) | 4 sides | |
| time | Monday | Tuesday | Wednesday | Thursday | 4 days |
| Costs | 100 | 100 | 100 | 100 | 400 USD |
You received a status report informing you that, we are on Tuesday and only one side is finished with a cost of 400 USD.
Question: what is the budget, planned value, earned value, actual cost and are we behind or ahead of schedule and cost?
Answer:
A- Budget at Completion (BAC) – is how much we budget for the total project from the start; it is simply the total cost to complete project’s tasks or the total planned value for the project also known as budget at completion (BAC). In this example it is the costs of the four sides so:
BAC = 400 USD
B- Planned value (PV) – It is the amount of budget that we allocate or arranged for specific scheduled work.
let us ask a simple question, by the end of Tuesday, how much work did we plan to complete?
The answer is obvious, we plan to complete 2 sides, and we allocate a certain budget for it, that will give us our planned value which is 200 USD
PV= 2 side = 200 USD
C- Earned value (EV) – It is the budget of authorized work that has been completed, here is another question, how much (work) side completed? okay, based on the status reports which reveal that (we are on Tuesday and only one side is finished and by 400 USD.), we have only completed one side, and that is our earned value
EV= 1 side = 100 USD
D- Actual cost (AC) It is the total cost incurred in accomplishing the work that the EV measured, to make it easy, how much do we spend on the one side that we have completed? From the status report, we have spent 400 USD
PV = 400 USD
E- Schedule variance (SV) – the question now, based on the status report are we behind or ahead of schedule? So, unfortunately, we have only completed one side on Tuesday, while we were supposed to finish 2 sides, and that means that we are behind the schedule with one side. Which will cost 100 USD
SV= EV- PV = 100 – 200 = – 100
Schedule variance (SV) – It is used to measure the amount by which the project is ahead or behind the planned delivery date, at a certain time in the project. To calculate the SV we can just deduct the earned value from the planned cost.
F- Cost variance (CV) – to understand whether, are we over or under the budget? To answer that let us check the status report and the table one more time, we finished only one side and that cost us 400 USD while the budget allocated is only 100 USD. So, we spent 300 USD more than what we planned, and that is the cost variance.
CV = EV-AC= 100-400 = -300
Cost variance is the amount of budget depletion or remnant at a certain point in time, it is equal to the earned value (EV) minus the actual cost (AC).
Take away.
Earned value analysis is an important tool for performance measurement, the general idea is to calculate the variance from the baseline, whether it is a cost or time. In PMP we just have to focus on cost and schedule variances as the main, however, we have to understand the Cost performance index CPI = EV/AC and the Schedule performance index SPI = EV/PV. if CPI is less than 1.0 indicates less work was completed than was planned, also less than 1.0 indicates a cost overrun for work completed