Earned Value Analysis

Abstract

In order to measure performance in terms of cost, time and work progress, the Earned Value Analysis (EVA) is introduced as a suitable method, offering quantitative analysis techniques as well as objective performance indicators. Besides giving an overview of the method itself and the steps, which must be followed in order to carry out an EVA, the requirements on both structural and methodological level are presented and the key benefits are outlined. In addition to its’ primary area of application as a tool within project controlling, the extended usability of the method in other key functions of a company is shown. All technical contents are being demonstrated based on illustrative examples.

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Definition

The Earned Value Analysis is defined as a quantitative technique of performance measurement, using estimates of both work progress and related cost to determine the overall efficiency of a respective activity, work package or project. In order to do so, it compares the scope of the project, the schedule of work and the work undertaken in order to determine the status, the likely completion and the out-turn cost of the observed object.

The basic values, which are used in this calculation are the following:

The Planned Cost (PC) are the budgeted cost of the work, which must be completed according to a specified schedule. It is therefore also referred to as the Budgeted Cost of Work Scheduled (BCWS) or as Planned Value (PV) and includes all labour, material, and other cost which is related to specific working steps.

The Actual Cost (AC) describe the cost of the work which has already been accomplished and can also be called the Actual Cost of Work Performed (ACWP)

The Earned Value (EV), also called the Budgeted Cost of Work Performed (BCWP) is an indicator for the value of the work accomplished. It can be determined by calculating the percentage of the total budget which is actually completed at that specific point of time:

Hallo

$EV = Total Budget x Work Progress$

These values then serve to calculate additional indicators, which describe how the actual values deviate from the planned values and thus provide important information on how the project is doing:

The Cost Variance (CV) is the algebraic difference between the earned value and the actual cost:

$CV = EV - AC$

A positive value indicates a favourable condition. A negative value indicates an unfavourable condition. The cost variance may be expressed as a value for a specific period or as a cumulative value to date.

The Schedule Variance (SV) is a metric for the schedule performance derived from EV metrics and, as the algebraic difference between earned value and planned value, indicates if the progress is on schedule.

The Schedule Performance Index (SPI) is the ratio of the EV divided by the PV (usually expressed as a percentage)

$SPI = EV/PV$

Kedi and Hongping (2010) provide an interpretation for the SPI and recommended actions (s. Table 1)

Requirements

In order to successfully execute an Earned Value Analysis, the following systematic preconditions and requirements must be fulfilled.

Time-based schedule The measurement of progress is made on the basis of a work schedule, which must be defined and agreed, including a clear timeline and an estimation of

Work Breakdown Structure All tasks and their specific scope must be defined seperately in the form of a work breakdown structure. This is necessary to control the progress of individual activities, as well as for an exact allocation of cost.

Cost Assessment A cost collection system including an appropriate association of cost estimates, which can then be cumulated in order to obtain the the actual cost, as well as the cost for given time periods, e.g. per week/month

Progress measurement An objective, consistent, quantitative method of assessing progress

Responsibility/ authority matrix

Monitoring and review process of all variables in order to identify changes

‘Implementing Best Practice in Hospital Project Management Utilising EVPM methodology’, Raf Dua (1999):

Key Benefits

Uniform measure (time or money) and therefore allows us to make simple measurements in complex situations (Ruby, 2000)

Comparability of progress in different areas of work on a consistent basis

Risk mitigation and management

Facilitates decision making and performance improvement Provides clear KPIs: - SPI (How good are doing against the plan?) - CPI (Are we efficient?)

Limitations

SPI > 1.0 does not necessarily mean you are ahead of schedule You can accomplish more work than planned by working on non-critical path work packages. You need to look at project float to determine whether you are ahead, on or behind schedule. (Lukas 2008)