- Problem Definition
Many, of not all, projects are started with an allocated budget and as usual with projects, not all things get done on time. That situation causes the usual question, “Is there enough money left in the budget?” and, “Will we finish on time?” Earned value management is one of the best tools to help you answer these questions.
- Feasible options Identification
For earned value analysis are three fundamental values calculated for each task (task: An activity that has a beginning and an end. Project plans are made up of tasks.):
- The budgeted cost of tasks as scheduled in the project plan, based on the costs of resources (resources: The people, equipment, and material that are used to complete tasks in a project.) assigned to those tasks, plus any fixed costs (fixed cost: A set cost for a task that remains constant regardless of the task duration or the work performed by a resource.) associated with the tasks. Called “the budgeted cost of work scheduled,” BCWS (BCWS: The earned value field that shows how much of the budget should have been spent, in view of the baseline cost of the task, assignment, or resource. BCWS is calculated as the cumulative timephased baseline costs up to the status date or today’s date.) is the baseline cost (baseline cost: The original project, resource, and assignment cost as shown in the baseline plan. The baseline cost is a snapshot of the cost at the time when the baseline plan was saved.) up to the status date (status date: A date that you set [rather than the current date] for reporting the time, cost, or performance condition of a project.) you choose. For example, the total planned budget for a 4-day task is $100 and it starts on a Monday. If the status date is set to the following Wednesday, the BCWS is $75.
- The actual cost (actual cost: The cost that has actually been incurred to date for a task, resource, or assignment. For example, if the only resource assigned to a task gets paid $20 per hour and has worked for two hours, the actual cost to date for the task is $40.) required to complete all or some portion of the tasks, up to the status date. This is the actual cost of work (work: For tasks, the total labor required to complete a task. For assignments, the amount of work to which a resource is assigned. For resources, the total amount of work to which a resource is assigned for all tasks. Work is different from task duration.) performed (ACWP). For example, if the 4-day task actually incurs a total cost of $35 during each of the first 2 days, the ACWP for this period is $70 (but the BCWS is still $75).
- The value of the work performed by the status date, measured in currency. This is literally the value earned by the work performed and is called the budgeted cost of work performed (BCWP). For example, if after 2 days 60% percent of the work on a task has been completed, you might expect to have spent 60 percent of the total task budget, or $60.
- Development of the outcome for the alternative
When the earned value analysis is done, the outcomes are (as illustrated in the figure below):
- On-schedule and on-budget
- Over-schedule and over-budget
- Behind-schedule and behind-budget
- On-schedule and behind-budget
- Behind-schedule and on-budget
- Selection of acceptable criteria
The acceptable status for a project to be at is either to be On-schedule and on-budget or On-schedule and behind-budget without compromising on quality.
- Analysis and Comparison of the Alternatives
Earned value analysis is always specific to a status date you choose. You may select the current date or a date in the past. Most of the time, you’ll set the status date to the date you last updated project progress. For example, if the current day is Saturday, 26th Jul 2014, but the project was last updated with progress on Wednesday, 23rd Jul 2014, you’d set the status date to Wednesday 23rd Jul 2014.
Here is one example of how to analyze project performance with earned value analysis. Let’s say a task has a budgeted cost (BCWS) of $100, and by the status date it is 40 percent complete. The earned value (BCWP) is $40, but the scheduled value (BCWS) at the status date is $50. This tells you that the task is behind schedule—less value has been earned than was planned. Let’s also say that the task’s actual cost (ACWP) at the status date is $60, perhaps because a more expensive resource was assigned to the task. This tells you that the task is also over budget—more cost has been incurred than was planned. You can see how powerful such an analysis can be. The earlier in a project’s life cycle you identify such discrepancies between ACWP, BCWP and BCWS, the sooner you can take steps to remedy the problem.
- Selection of the preferred option
It is best to manage the project to be on-schedule and on-budget. It can be also behind-budget but with zero compromising on quality.
- Performance Monitoring and the Post Evaluation of Result.
Earned value analysis is powerful as it is obvious above. The earlier in a project’s life cycle you identify such discrepancies between ACWP, BCWP and BCWS, the sooner you can take steps to remedy the problem. Therefore, earned value analysis should be done frequently and take actions to overcome any anticipated troubles.
- Microsoft.com (2014). Applying Earned Value Analysis to your Project. Retrieved on 26th Jul 2014 from http://office.microsoft.com/en-001/project-help/applying-earned-value-analysis-to-your-project-HA001021179.aspx
- Google.com (2014). Earned Value Management. Retrieved on 26th Jul 2014 from https://www.google.com/search?q=earned+value+management&source=lnms&tbm=isch&sa=X&ei=4tHTU6G0DISj4gTeiYAQ&sqi=2&ved=0CAgQ_AUoAw&biw=1280&bih=683#facrc=_&imgdii=_&imgrc=iLT3Khhb3-G5JM%253A%3B7mamlmjYEG0xRM%3Bhttp%253A%252F%252Fwww.tensixconsulting.com%252Fwp-content%252Fuploads%252F2011%252F01%252FEVM-Gold-Card.png%3Bhttp%253A%252F%252Fwww.tensixconsulting.com%252Fconsulting-services%252Fearned-value-services%252F%3B393%3B297
- Paul D. Giammalvo (2014). PMI Certification Perp and Competency Development Course Day 5, Project Controls Using Earned Value.