Basics of Earned Value Analysis

What is Earned Value Analysis?

Earned Value Analysis

Earned Value Analysis (EVA) or Earned Value Management (EVM) is considered to be one of the more difficult concepts for PMP Exam. PMP aspirants are just afraid EVA terms. PMP aspirants dread EVA formulas and calculations associated with them.

Let me be honest here. My first experience with Earned Value Analysis was on similar lines. I did not find the concept intuitive when I started preparing for my PMP exam. Even though my first experience was not a pleasant experience, I persevered. I understood Earned Value Analysis with the help of a small example. One of my friend helped me in the process. After, I understood the topic, Earned Value Analysis seemed like a walk in the park. Since then my opinion about Earned Value Analysis has changed completely.

You need a good teacher to get you started with a new concept.

So,

  • Is Earned Value Analysis as bad as it is made out to be?
  • Why do PMP aspirants find Earned Value Analysis difficult?
  • Is there a easy way to understand Earned Value Analysis?

Earned Value Analysis concept is lot simpler than it is made out to be. I believe the current situation is a combined result of poor teaching and poorly written PMP reference books.

The basic principle of EVA is based on the fact that everyone understand Language of Money. In EVA everything is measured and reported as Money or Monetary Equivalent. The project team determines the equivalence between Scope, Schedule, Cost. From thereon everything is reported as Money. EVA provides a singular view of Schedule and Cost.

Earned Value Analysis (EVA) using an Example

I have written this article to explain EVA using a small example. In another post, I have explained EVA in simple and easy language. You should read both these articles together. Let us consider a small project for building wooden tables to understand EVA.

 

Project Plan

Project Scope Build 80 tables
Project Schedule Estimate 5 Days
Cost Estimate per Table 1000 units of money
Project Cost Estimate 80000 units of money

The above table provides a equivalence between Project Scope, Project Schedule and Project Cost. Following table provides detailed Schedule and Cost Estimates.

 

Day 1 Day 2 Day 3 Day 4 Day 5
Tables Planned to be Built 10 13 17 20 20
Estimated Cost for the Day 10000 13000 17000 20000 20000
Estimated Cumulative Cost 10000 23000 40000 60000 80000

 

Project Tracking

Let us assume that, the project has been started and we are evaluating the progress at the end of Day 3. Following table provides status at the end of Day 3. Two new rows depict the progress of the project.

Day 1 Day 2 Day 3 Day 4 Day 5
Tables Planned to be Built 10 13 17 20 20
Estimated Cost for the Day 10000 13000 17000 20000 20000
Estimated Cumulative Cost 10000 23000 40000 60000 80000
Actual Cost for the Day 8000 12000 16000
Actual Cumulative Cost 8000 20000 36000

 

Is the Project Team making good progress?

Work Scheduled at the end of Day 3 (Cumulative) = Tables that are worth 40000 units of money (Instead of talking about tables, EVA talks about Monetary Value of Work)

Actual Cost at the end of Day 3 (Cumulative) = 36000 units of money

On the face of it, it looks like, Project Team is making good progress. Planned Work was worth 40000 units whereas as Actual Cost is 36000 units.

Hey! Let’s wait a minute. What is the Value of Actual Work? Or, in other words, how many tables were produced at the end of Day 3? So we need a third variable to determine Project Progress. Let us introduce some more data in the above table.

Day 1 Day 2 Day 3 Day 4 Day 5
Tables Planned to be Built 10 13 17 20 20
Estimated Cost for the Day 10000 13000 17000 20000 20000
Estimated Cumulative Cost 10000 23000 40000 60000 80000
Tables Actually Built 8 12 15
Value of Tables Actually Built 8000 12000 15000
Cumulative Value of Tables Actually Built 8000 20000 35000
Actual Cost for the Day 8000 12000 16000
Actual Cumulative Cost 8000 20000 36000

 

Introduction of a new variable changes the whole scenario

Work Scheduled at the end of Day 3 (Cumulative) = Tables that are worth 40000 units of money

Actual Cost at the end of Day 3 (Cumulative) = 36000 units of money

Work Performed = 35 tables or 35000 units of money at Budgeted Cost (Instead of talking about tables, EVA talks about Monetary Value of Work)

Let us re-write these terms again

Budgeted Cost of Work Scheduled (BCWS) = 40000

Budgeted Cost of Work Performed (BCWP) = 35000

Actual Cost of Work Performed (ACWP) = 36000

These are the 3 basic terms/values of EVA. The modern names for these terms are

  • Planned Value (PV) = BCWS
  • Earned Value (EV) = BCWP
  • Actual Cost (AC) = ACWP

 

Project Status

  • The project is Behind Schedule. The Project Team Planned to build 40 tables but they Actually built only 35. Or in EVA parlance we can say Project Team Planned to do Work worth 40000 units but Actually completed the Work worth 35000.
  • The project is Over Budget. The Project Team Actually built 35 tables but Spent 36000 units of money. Or in EVA parlance we can say Project Team Actually completed Work worth 35000 but Actual Cost of Work was 36000 units of Money.

 

Variance Formulas

Schedule Variance (SV) = EV – PV

Cost Variance (SV) = EV – AC

 

Efficiency Formulas

Schedule Performance Index (SPI) = EV/PV

Cost Performance Index (CPI) = EV/AC

 

Calculations

SV = 35000 – 40000 = -4000

CV = 35000 – 36000 = -1000

SPI = 35000 / 40000 = 0.875

CPI = 35000 / 36000 = 0.97

 

Important Points to Remember

  • EV is the first term in all the 4 formulas.
  • Negative variance means Project is behind.
  • Positive variance means Project is ahead.
  • Efficiency less than 1 means Project is behind.
  • Efficiency of greater than 1 means Project is ahead.

Is this all to EVA? No. You can read my other articles on Earned Value Analysis.
I have also compiled a PMP® Formulas Pocket Guide. You can download it free. It is a comprehensive guide to all PMP® Exam formulas.
Praveen Malik, PMP is a certified Project Management Professional (PMP®) with a rich 20+ years of experience. He is a leading Project Management Instructor and Consultant. He regularly conducts Project Management workshops in India & abroad.

3 thoughts on “Basics of Earned Value Analysis

  1. There is a little error here. You considered figures of 3rd day’s work only. But what should be considered is work done till end of day3., ie work completed and cost incurred on day1+day2+day3. In this case ,
    BCWS (PV) = 10+13+17=40 tables; 40000 units of money
    BCWP(EV) = 8+13+15=36 tables; 36000 units of money
    ACWP (AC) = 8+12+16=36000 units of work

    SV = EV-PV = 36-40 = -4 Behind Schedule

    CV = EV-AC = 36-36 = 0 On Budget

Leave a Reply

Your email address will not be published. Required fields are marked *