Evaluacin y Gerencia de Proyectos 11/06/2008

Earned Value, Clear and Simple

Tammo T. Wilkens, Los Angeles County Metropolitan Transportation Authority
(Currently with Primavera Systems, Inc.)
April 1, 1999

Introduction

The term Earned Value is gaining in popularity around project management circles as if it is some wonderful new concept
to be embraced. Yet, it has been in use since the 1960s when the Department of Defense adopted it as a standard method of
measuring project performance. The concept was actually developed as early as the 1800s when it became desirable to
measure performance on the factory floor. Today, it is both embraced and shunned, often in response to prior experience or
stories told in the hallway. The opponents will generally cite the cost and effort to make it work, and the limited benefit
derived from its implementation. The proponents will cite the cost savings to the project overall, the improved analysis,
communication and control derived from its implementation. No doubt, the two camps have vastly different experiences to
formulate their perceptions.

This paper will explore the three major questions regarding this topic: What, Why and How? The purpose is to allay any
fears the reader might have about applying this useful project management tool and to point the way to making it work. It is
expected that the reader will gain a thorough understanding of the concept as well as a recipe for implementing Earned Value
on his/her project.

What Is Earned Value?

When we speak of Earned Value, we generally are speaking of a methodology. While Earned Value is just one element of
this methodology, it is the key element. The simplest way to think of Earned Value is to equate it with physical progress. As
the name implies, it is something that is gained through some effort. In project management, this value is earned as activities
are completed

Consequently, Earned Value is also a measure of progress. As we shall see later, there is a direct relationship between
Earned Value and per cent complete. The attributes of Earned Value are threefold. First, it is a uniform unit of measure for
total project progress or for any sub-element of the project. Second, it is a consistent method for analysis of project progress
and performance. Third, it is a basis for cost performance analysis of a project.

If set up properly, Earned Value provides a uniform unit of measure for reporting progress of a project. The traditional units
that are used include workhours and dollars. For labor intensive efforts, workhours are often considered adequate In such
instances, the financial details of the remaining project cost are controlled by the accounting system. These costs include
subcontractors, overheads and other direct costs. When the entire project cost is to be controlled from the project control
system, then it is more effective to use dollars as the unit of measure for Earned Value. Since each labor hour has a price,
dollars can be used to control labor as well. However, when using dollars, additional factors enter into the performance
evaluation. This includes salary rate differences, escalation, overhead adjustments and differences, for example. Consider
the effect if the plan calls for Tom, Dick and Harriet to do the work, but the actual work is performed by Lucy, Bill and
Mary, who have different salaries. The dollar measure will include the effect of the salaries. For project financial control,
this is good information. However, for project performance control, this information muddies up the waters.

Earned Value also is a consistent method for analysis of project performance. Suppose you ask the bricklayers and the
carpenters how theyre doing. You are likely to get different answers, influenced not only by how they are actually doing,
but also by how they calculate their plan and their progress. As we shall see below in the discussion of How, using Earned
Value establishes a particular method for determining what the plan to date is and what the progress actually achieved is.

Earned Value provides the basis for cost performance analysis. If you want to know whats happening to the cost of your
project BEFORE it is completed, you need to know what the planned cost at any time was and also what the cost of the
completed work is. Referring to Figure 1, should this project manager be happy or concerned? It seems that the actual costs
are considerably below the planned cost. This appears to be good news. However, unless you look at the planned cost of the
completed work, you dont really know if this is good news or not. That is exactly the missing information that Earned Value
provides.

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IS THIS ANY GOOD?

PLANNED COST
COST (WH)

COST TO DATE

TIME

CSTF1_8.DWG

FIGURE 1 - TRADITIONAL COST ANALYSIS

In order to understand Earned Value thoroughly, we must become familiar with all the elements of the Earned Value method.
Figure 2 provides an overview of these elements. While many people shy away from the acronyms used to label the
elements, they quite accurately describe the elements. The project management practitioner should be familiar with the
alphabet soup. In this paper, we will use both the formal acronyms and more familiar terms to describe the elements.

PERFORMANCE MEASUREMENT DATA ELEMENTS

BAC EAC

BCWS PROJECTION OF COST

VARIANCE AT COMPLETION

TARGET SCHEDULE
PROJECTION OF
SCHEDULE DELAY
AT COMPLETION
FTG

CURRENT SCHEDULE
COST (WH)

TO-DATE
SCHEDULE FCST
VARIANCE
TO-DATE LEGEND
COST VARIANCE

ACWP BCWS = BUDGETED COST OF WORK SCHEDULED

BCWP = BUDGETED COST OF WORK PERFORMED
ACWP = ACTUAL COST OF WORK PERFORMED
FCST = FORECAST OF REMAINING WORK
BAC = BUDGET AT COMPLETION
BCWP EAC = ESTIMATE AT COMPLETION
DATA DATE FTG = ESTIMATE TO GO

TIME

CSTF1_8.DWG

FIGURE 2 - EARNED VALUE ELEMENTS

The BCWS is the Budgeted Cost of Work Scheduled. Quite literally, it represents the budgets of the activities that are
planned or scheduled to be completed. In the discussion of how to apply Earned Value, we shall see how this is developed
and why the BCWS curve has the traditional S-curve shape.

The ACWP is the Actual Cost of Work Performed. Again, quite literally, it represents the actual cost charged against the
activities that were completed. Later we shall see how we deal with activities that are in progress but not yet completed.

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The BCWP is the Budgeted Cost of Work Performed. This is the traditional Earned Value that we speak of. It represents the
planned or schedule cost of the activities that are completed. The distinction between the BCWS and the BCWP is that the
former represents the budget of the activities that were planed to becompleted and the latter represents the budget of the
activities that actually were completed.

These are the three major components of Earned Value. At any point in time, we have the planned work, the actual work and
the cost of the actual work. This allows us to make the full analysis of our project progress and performance. Some of the
other, related terms shown in Figure 2, include the Budget At Completion (BAC), the Estimate At Completion (EAC), the
Schedule Variance (SV) and the Cost Variance (CV). We will learn more about these in the discussion on how to apply
Earned Value.

Why Use Earned Value?

Before we consider the mechanics of Earned Value, let us examine the reasons for using it. After all, it does cost something
to put it into operation. And, to do it right, it requires some effort on the part of the project team. If we review the discussion
above on what Earned Value is, we have the main reasons for using it. Recall that Earned Value is a uniform unit of
measure, a consistent methodology and a basis for cost performance analysis.

You might ask Whats so great about a uniform unit of measure? Suppose that you are the project manager of a software
development project. Youre part way through your project and you wonder how things are. First, you want to know what
per cent complete the project is. At a summary level, lets say that the project includes conceptual design, program
specification, coding, documentation, user manual production, and debugging. Further, lets say that conceptual design and
program specification are complete, coding and documentation are in process, manual production and debugging havent
started yet. So, how complete is the project? Weve completed two out of six parts and are in process with two more. Does
that mean we are 50% complete? Maybe, but, we dont know. What is each part worth? Does writing one line of program
specification equal one line of code and they, in turn, equal one line in the documentation? How is one to equate the various
parts?

Now suppose we determine that conceptual design is expected to take 200 wokhours, program specification writing 300
hours, coding 600 hours, documentation 100 hours, user manual 400 hours and debugging 500 hours. These labor budgets
can easily be used as a weighting factor in establishing the worth of the various parts. That is exactly what Earned Value
does. Since conceptual design and spec writing are done, we have earned 500 hours of value. For the in-process activities,
we need to decide how we will earn the value. More on earning rules later. For now lets just say we are one quarter done
with the coding and 10% with the documentation. We could then claim 150 hours for the coding and 10 hours for the
documentation. The total earnings are then 660 hours. So, how complete is the project? Using Earned Value methodology,
we would determine that the project is 31.4% complete (660 earned hours divided by 2100 hours of total project budget).
Earned Value has allowed us to combine the progress of vastly different work efforts. The same thing works with any kind
of project. Earned Value lets us combine cubic yards of concrete with square feet of forms, tons of rebar, feet of pipe, feet of
conduit and cabling, etc. If were in the banking business, Earned Value allows us to combine product development with
market research, systems design, marketing and product introduction. In Hollywood, we can combine writing the screenplay
with scouting for locations, set production, filming, editing, and marketing. By now you probably get the idea that Earned
Value can be employed whenever your project involves defined tasks.

So much for a uniform unit of measure. What does consistent methodology do for me? Remember the bricklayers and
carpenters? If you ask the carpenters how they are doing, you might get an answer such as: Were doing fine, weve
already used half the lumber you sent us at the beginning of the project. Well have the rest used up by next week. The
bricklayer might say: Were doing great. Ninety per cent of the budgeted labor hours are spent, therefore were 90%
complete. Both parties might be correct, but what can you as the project manager do with that information? You can pass it
along, but chances are that your management is not interested in the nitty gritty details, they want summary information.
Using Earned Value, the bricklayers and the carpenters would measure the total quantities of bricks and lumber installed and
compare that against the budgeted quantities to determine the per cent complete. Similarly, they would compare the installed
quantities against the quantities planned to be installed up this point in time to determine if they are ahead or behind schedule.
You can see that Earned Value has provided a method that both the bricklayers and the carpenters can use to report progress.

Now let us consider the third reason. Using Earned Value enhances the cost performance analysis of a project. Traditional
cost analysis centers around the actual cost of the work that was completed. Therefor, much progress has been done to

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collect the actual costs through the time charge and accounting systems that exist on practically all projects. What Earned
Value brings to the process is a measure of the amount of work that has been done in a unit of measure that is consistent and
comparable with costs. In other words, it allows us to compare apples and apples by using the same unit of measure for
physical progress as for cost. Now we can more meaningfully assess whether the costs spent to date in Figure 1 are higher or
lower than was planned.

How Do We Use Earned Value?

At this point we come to the practical part of actually seeing how Earned Value is applied on any project. There are 5 steps
in setting up the Earned Value system on a project, and 4 steps in using it. These steps are described generically but they are
the same for all projects. Each of these steps will be discussed in detail. To set up the Earned Value system:

1. Establish the Work Breakdown Structure (WBS) to divide the project into manageable portions.
2. Identify the activities to be scheduled that represent the entire project.
3. Allocate the costs to be expended on each activity.
4. Schedule the activities over time.
5. Tabulate, plot and analyze the data to confirm that the plan is acceptable.

To use the information generated by the Earned Value calculations:

6. Update the schedule by reporting activity progress.

7. Enter the actual costs on the activities.
8. Execute the Earned Value calculations, print and plot the reports and charts.
9. Analyze the data and write the performance narrative.

Contract Work Breakdown Structure

Contract
~

Engine Training
~

Functional Fan Compressor Turbine

Organization
~

Breakdown
Structure Fan Full Minor Dual Spool

~ Assembly Fan Rig Fan Rig Compressor

~
Testing

~ Case Assy Rotor Assy Stator Assy

~

Mech Cost Cost Cost

Engineering
Company

Design Account Account Account

Design

Analyt. Cost Cost

Design Account Account
Docum.

Activities
Mfg.

Draft/ Cost Cost Cost

Check Account Account Account
~ ~ ~

FIGURE 3 - WORK BREAKDOWN STRUCTURE

Step 1: Establish the WBS The WBS is the roadmap for analyzing the project progress and performance. It
provides a multi-level structure for analyzing the project at varying degrees of detail. A properly defined WBS also provides
that each element of the structure at each level is the responsibility of an individual who has management authority over that
element and all the elements that roll up into that element. Furthermore, the WBS must contain the full scope of the project.
Otherwise, the information generated will not represent the total project. The WBS is generally a hierarchical structure in

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which each lower level element rolls into one and only one element at the level above it. The bottom level of the WBS
should be the activities of the project. Figure 3 illustrates this. The key here is that each element has a responsible individual
identified with it and each element represents a part of the project that someone or more people are interested in monitoring.

While this personal responsibility might bring to mind an Organizational Breakdown Structure (OBS), the WBS should not
be confused with an OBS. Either structure can function as the framework for analyzing the project performance. However,
an OBS is generally employed in a matrix organization where the functional management of the organization wants to
analyze the performance of their functional unit on the project. The WBS is organized along the component lines of the
project. For example, the project team member who is responsible for the Fan Assembly in Figure 3, has components (cost
accounts and activities) in several engineering disciplines within the OBS. On the other hand, the Mechanical Design
Manager in the OBS is interested in all the mechanical elements of all project components.

Step 2: Identify The Activities The second step is to identify the activities of the project. The WBS provides
the framework for identifying the project components. As illustrated in Figure 3, each activity should be assigned to one
element in the WBS. The completion of this step will produce the project schedule of activities, typically in a CPM network.

Step 3: Allocate The Costs The third step is to identify and allocate the costs to be expended for each
activity. Since an activity represents a finite effort within the project, it has a duration of time and it requires the expenditure
of some resources. The practitioner needs to decide whether to use labor resources only, such as work hours, or to use dollars
and load all project costs into the schedule. The allocation of resources (costs) requires a choice of the degree of detail with
which one will allocate the resources. These options include linear spread across the duration of the activity or use of a curve
to approximate the expected expenditure during the activitys execution. These curves have an unlimited variety of shapes,
the most common ones being symmetrical bell shape, front loaded triangle, back loaded triangle, equal triangle, lump sum at
the beginning or end of the activity. However, detailed discussion of the application of resource curves is beyond the scope
of this paper.

Step 4: Schedule The Activities The fourth step is to calculate the schedule of the activities. This step generally
provides the spread of the resources over the entire time duration of the project. It generates the traditional S-curve of the
project plan or baseline,also called the BCWS Curve.

COST/SCHEDULE INTEGRATION

DATA
DATA DATE
DATE 1000

START FINISH
BUD. = 1000 TASK 1
0 2 4 6 8 10
2 4 6 8
0 10

BUD. = 200 ACT 11 200

0 4

0 2 4 6 8 10
500

BUD. = 500 ACT 12

3 7

0 2 4 6 8 10

300
BUD. = 300 ACT 13
6 10

0 2 4 6 8 10
SCHEDULE
RESOURCES

CSTF1_5.DWG

FIGURE 4 - RESOURCE LOADING THE ACTIVITIES

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Step 5: Tabulate, Plot and Analyze The final step is to tabulate and plot the information that was loaded and then to
analyze this information. The purpose is to assure that the allocation of resources is properly planned. This includes analysis
of individual resources to see if the maximum requirement during any time period is available. It also includes review of
cash flows, if dollars are entered, to see if the financing plan for the project supports the schedule. Third, it provides a review
to see that all project resources and costs that are budgeted are entered into the program. Of course, correction of any
anomalies discovered during this step is implied to be a part of this step. Figure 4 represents a very simple illustration of this
process. It also illustrates with this very simple example, that the result is the traditional S-curve.

Once these five steps are completed, the project team will have the basis for conducting periodic analysis of the project
progress and performance. That process is explained in the next four steps.

Step 6: Update the Schedule The first step in the periodic process is to update the schedule with the period
progress. This is generally done whether Earned Value is used or not. The project schedule activities are reported as started,
completed or with a remaining duration, as appropriate. The per cent complete of unfinished activities should also be
reported. Here is where the practitioner should avoid subjectivity. For physical work it may be easy to determine the per
cent complete. If 1000 cubic yards of concrete are planned to be poured and 300 yards have been done to date, then the
activity is 30% complete. For efforts that are not so easily measured, special earning rules might have to be employed. Full
discussion of earning rules is also beyond the scope of this paper. Two examples are presented to illustrate the point. One
common rule is to report per cent complete according to completed milestones within the activity. For example, if the
activity is the creation of a design drawing, progress might be reported as follows: 10% when the preliminary research and
background study are completed, 20% when the drawing draft is completed and passed on to drafting, 40% when the first
draft is printed, 50% when the first draft is reviewed, 60% when the second draft is completed, 75% when the client review is
completed, 90% when the final draft is completed and 100% when the drawing is issued for construction. The key in
defining this kind of rule is that each milestone is discrete, and its achievement is easily recognized by such evidence as
transmittal memos.

A second common rule that is quite effective when the project has several thousand activities is to use the 50-50 rule. In this
rule, each activity is considered 50% complete when its start date is reported and it is 100% complete when the activity finish
date is reported. Reporting progress provides the basis for the Earned Value calculations

Step 7: Enter The Actual Costs The second step in the periodic process is to enter the actual costs into the
schedule. This information comes from the time sheets and invoices to the project. Whether the data is entered manually or
electronically is a matter of choice, depending on the degree of integration between the companys financial accounting
system and the project control systems. In any case, it is necessary to determine which costs are to be allocated to which
activity. By proper integration of the financial and project accounting systems, this process is facilitated to the point of total
automation. However, human analysis of the actual data is recommended to assure that improper data doesnt inadvertantly
enter the system.

Step 8: Calculate, Print And Plot The next step in the periodic process is to calculate the Earned Value and to
print reports and plot charts for analysis. The Earned Value is simply the per cent complete of an activity times its budget.
This provides the key value in the Earned Value process. Other calculations include the schedule and cost variances,
performance indices, estimates at completion and per cent complete of the upper elements of the WBS. Referring to Figure 2
will aid in understanding the following calculation discussion.

Schedule Variance (SV) is the Earned Value minus the planned budget for the completed work (BCWP-BCWS.

Cost Variance (CV) is the Earned Value minus the actual cost (BCWP-ACWP.

Performance indices are merely ratio expressions of the SV and CV. The Schedule Performance Index (SPI) is the Earned
Value divided by the planned value (BCWP/BCWS).

The Cost Performance Index (CPI) is the Earned Value divided by the actual cost (BCWP/ACWP).

The Estimate At Completion (EAC) is a number of great interest each update cycle. It indicates where the project cost is
heading. Calculating a new EAC is one of the great benefits of Earned Value. However, the actual formula to use for this
calculation is a matter of much discussion. For the purpose of this paper, we will look at the basic impact of cost
performance on the EAC. The intent is to show that Earned Value is a key forecasting tool for managing a project. Referring

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to Figure 5, let us assume a project is having some trouble meeting its cost goals. At the data date, the actual cost is greater
than the planned cost for the completed work (ACWP > BCWP). If performance continues at the same trend, we can easily
see that at completion the actual cost (EAC) far exceeds the budget (BAC). The simplest formula for arriving at the EAC at
the time of the data date is:
(BAC-BCWP)
EAC = + ACWP
CPI
This formula determines the unfinished or unearned work (BAC BCWP) and divides it by the CPI. To that is added the
sunk cost, or the cost of the completed work (ACWP). From this we can see that poor cost performance. a CPI less than 1,
would result in an EAC that is greater than the BAC. More complex formulas are used which factor the CPI to give it more
or less influence on the EAC.

EAC AS A FUNCTION OF CPI

EAC
DATA
DATE

BAC
COST (WH)

EAC = ACWP + (BAC-BCWP) / CPI

BCWS
ACWP

BCWP CPI = BCWP / ACWP

TIME

FIGURE 5 - FORECASTING THE ESTIMATE AT COMPLETION

One more calculation is noteworthy since it is specifically made possible by the use of Earned Value. That is the per cent
complete at the upper levels of the WBS. While progress is typically recorded at the activity level of detail (the bottom of the
WBS), those responsible for the project at higher levels of the WBS want to know the same kind of information as the
activity managers. The process involves rolling up the data through the WBS. Budgets and actual costs are easy to roll up;
simply add the values of the lower elements to get the value of the parent element. However, how does one roll up per cent
complete? The answer is, of course, Earned Value. Since Earned Value is directly related to per cent complete, one can
simply add the Earned Value of the lower elements to get the value of the parent element. Then, one can use this information
at the upper levels to back calculate the per cent complete of the upper elements. Just as Earned Value equals the BAC times
the per cent complete at the lower levels, so does per cent complete equal BAC divided by Earned Value for any element in
the WBS.

Step 9: Analyze and Report. The final step in the Earned Value process is to analyze the data and the report
the result of that analysis. The scope of this paper does not allow detailed discussion of the analysis process. However, from
the above, the reader can recognize the significance of the various calculations discussed above. How he or she interprets
that information is left to his or her common sense.

Conclusion

With the above presentation, we have explored the What, Why and How of Earned Value. We have seen that Earned Value
is a tool for improving the performance analysis of a project, by: providing a uniform unit of measure for project progress,
enforcing a consistent method for analysis and providing a basis for cost performance analysis of the project. The reason for

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 Software Engineering Technology
Evaluacin y Gerencia de Proyectos 11/06/2008

Start With Simple Earned Value

On All Your Projects
Quentin W. Fleming and Joel M. Koppelman
Primavera Systems, Inc.
When one hears the term Earned Value Management (EVM), there is a tendency to immediately think of the American
National Standards Institute/Electronic Industries Alliance (ANSI/EIA)-748-1998 required by many government agen-
cies and private contractors. We take exception to this formal definition of EVM. While the ANSI/EIA-748 Standard
does require full compliance with 32 precise criteria, and will result in EVM, we suggest that a simple form of EVM can
be gained by implementing just 10 of these formal criteria on all projects even software projects.

I n 1965, the U.S. Air Force acquisition

managers defined 35 criteria which they
felt would capture the essence of earned
can be overly prescriptive to most of the
projects in the world, in our opinion. They
are great for major systems, but likely too
Step 1: You must define the scope (objec-

Satisfying this first criterion is where we

tives and deliverables) of the project.

value management (EVM), and also satis-
fy their need to oversee the work that was
being performed for them by private
industry. Two years later, the Department
of Defense (DoD) adopted these same
criteria as their Cost/Schedule Control
Systems Criteria (C/SCSC). These 35
standards were then consistently applied
to all cost type and incentive type con-
tracts for the next three decades.
Then in 1996, after a rewrite of the 35
C/SCSC criteria by private industry, the
DoD accepted the rewriting/rewording of
these criteria under a new title called the
Earned Value Management System
(EVMS). The total number of criteria was
reduced to 32. Gone were the incompre-
hensible terms of Budgeted Cost for
Work Schedule, Budgeted Cost for Work
Performed, and Actual Cost of Work
Performed, etc. In their place were titles
like planned value, earned value, and actu-
al costs. People (even busy executives)
could understand the concept without the
need for special training or a translator
being present.
Private industry in the form of the
National Defense Industrial Association
(NDIA) took the defined criteria concept
one step further. In June 1998, the NDIA
obtained acceptance of the EVMS in the
form of the American National Standards
Institute, termed the ANSI/EIA-748
Standard. The good news in this story is
that there has been a consistent applica-
tion of the earned value criteria concept
applied for more than 40 years. The
earned value criteria have met the test of
time.
The bad news is that these criteria
were originally written for applications to
complex major system acquisitions.
Further bad news is that the original 35
criteria and the reworded 32 criteria
Tcnicas para el Seguimiento y Control de Proyectos
16 CROSSTALK The Journal of Defense Software Engineering
much for most projects. Somehow a way
must be found to capture the important
fundamentals of earned value without
overly prescribing requirements, which
often discourages individuals wanting to
adopt a technique to better manage their
projects. And, as the ANSI/EIA-748
Standard becomes more commonplace,
likely taking the form of a Federal
Acquisition Requirements clause issued in
routine procurements, a way must be
found to scale back the full requirements
to meet the needs of most projects even
small software projects.
Since 1996, the authors have been
advocating a simple form of EVM for all
projects, not just major complex systems
[1]. Their intent is not to take issue with
the full application of all 32 criteria when-
ever the project risks and complexities
warrant full application. However, we
think all projects could benefit from A
methodology for objectively measuring project
performance and progress [2]1. EVM, the fun-
damental principles, should be applied to
any project, of any size, in any industry.
We have studied the formal criteria
concept and have summarized just 10 fun-
damental steps which are necessary to
implement a simple (low-end) form of
EVM on any project. Perhaps it might be
called earned value light or earned value
for the masses.
There are 10 minimum requirements
necessary to employ simple earned value.
This is a good place to start the process. It
will set the foundation for employing
EVM, which can be easily expanded to
satisfy all 32 criteria, should that be
desired sometime in the future.
Each of the following 10 fundamental
steps will also make reference to a specif-
ic EVMS (ANSI/EIA-748 Standard) cri-
terion.
lose many projects, but it is critical to the
earned value method. Certain types of pro-
jects, notably software, often give up at this
point and refuse to go further. Too difficult is
the cry. Management often relinquishes,
and the project defaults to simply compar-
ing their cost expenditures planned costs
versus actual costs. What a shame.
On any project, you must define the
work to be done if for no better reason than
to know where you are at all times and when
you are done. To the extent that you can
based on past experience, you must define
100 percent of the scope of the project.
This is true for any project, but it is particu-
larly critical on any project in which you
intend to measure earned value perfor-
mance.
With earned value, we constantly focus
on the authorized work that has been com-
pleted plus managements official autho-
rized budget for the completed work. We
express the status as being 18 percent
complete, 27 percent complete, 55 percent
complete, and so forth. Point: If we have
not defined what constitutes 100 percent
of the project, how can we ever measure
our point of percentage completion? We
can not.
How does one define a new job when
specific details are often lacking? There are
no absolute answers. But one of the most
useful of all tools available to any project
manager is the Work Breakdown Structure
(WBS). The WBS is to the project manager
what the organization chart is to the execu-
tive. A WBS allows the project manager to
define a new endeavor by laying out all the
assumed work within the framework of the
WBS and then decomposing each element
into measurable work packages.
Additionally, once the WBS is assumed
to constitute a reasonable portrayal of the
new project, the WBS can then be used to
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June 2006

take the next critical steps in the project
Evaluacin y Gerencia de Proyectos
planning process, including make-or-buy
analysis, risk assessment, scheduling, esti-
mating, and ultimately the authorization of
budgets to proceed.
(Reference: EVM Criterion No. 1 [2]:
Define the authorized work elements for the pro-
gram. A WBS tailored for effective internal man-
agement control is commonly used in this process.)
Step 2: You must determine who will per-
form the defined work, including the
It is important to a project to decide who
identification of all critical procurements.
will perform the defined work.
Experienced workers generally work better
and faster than inexperienced people, but
they also cost more. Often, using an expe-
rienced work force is a good investment.
However, sometimes the projects own
organization may have no experience in
developing a critical new technology, and
the project must procure the effort from
another company. These choices are called
make or buy decisions, and selecting those
items that must be purchased for the pro-
ject is an essential extension of the scope
definition process.
Why is it important to identify the
work which must be procured outside?
Because project procurements (versus in-
house work) create non-forgiving legal
arrangements. Formal contracts must be
executed. If you commit to buy something
that is not what you need, or the require-
ments must be changed, such changes will
be accommodated, but at a price. Sellers
love to have changes in scope. Each
change gives them an opportunity to get
well from a competitive bid. The earlier the
procured work is identified and responsi-
bilities assigned, the better such packages
can be managed by the project.
By contrast, internal budgets can be
executed in a more informal way, and the
fact that everyone is on the same payroll
allows for some margin of slack. But there
is no slack with the procured work.
Procurements must be done properly at
the start or the project will pay a price.
Lastly, whether the project work is
done by the projects own organization or
procured from outside the company, the
measurement and reporting of progress
must take place. Inside or outside, the pro-
ject must be able to continuously measure
the earned value versus the actual cost of
the work being performed.
(Reference: EVM Criterion No. 2: Identify
the program organizational structure including
the major subcontractors responsible for accom-
plishing the authorized work, and define the
organizational elements in which work will be
planned and controlled.)
Tcnicas para el Seguimiento y Control de Proyectos
June 2006
defined work. The earned value technique
Step 3: You must plan and schedule the
could be thought of as representing noth-
ing more than a good scheduling system,
but with authorized resources (the bud-
gets) embedded into the schedule. The
schedule reflects the authorized scope and
timeframe, and the budget is earned for
work as it is accomplished.
A formal scheduling system is thus nec-
essary to the employment of earned value
because it is the vehicle that describes the
project scope, the planned value, and then
measures the resulting earned value. The
project schedule is vital to earned value
because it reflects the project managers
baseline planned value for everyone to follow.
On more complex projects, there
should be some method used to isolate the
constraints between one task and other
tasks. What work is holding up other work?
Typically to satisfy this requirement, some
The good news in
this story is that there
has been a consistent
application of the
earned value criteria
concept applied for
more than 40 years.
The earned value
criteria have met the
test of time.
form of critical path methodology will
need to be employed. The critical path (and
near critical paths) on a project must be
aggressively managed in conjunction with
negative earned value schedule variances.
A behind-schedule variance indicates
that the project is falling behind its base-
line plan. If any late tasks are also on the
critical path, or they represent high risk
tasks, they must be aggressively managed
to successful completion.
(Reference: EVM Criterion No. 6: Schedule
the authorized work in a manner which describes
the sequence of work and identifies the significant
task interdependencies required to meet the
requirements of the program.)
Step 4: You must estimate the required
gets. Once the project scope has been fully
resources and formally authorize bud-
Start With Simple Earned Value on All Your Projects
defined and subsequently planned and
11/06/2008
scheduled, the next requirement is to esti-
mate the resource requirements (budgets)
for all defined tasks. Some projects follow
the start-up sequence of scope, schedule,
and budget while others follow scope,
budget, and schedule. Software projects,
because they are often driven by the avail-
ability of limited resources will schedule
the project based on available people.
Either way can be correct as long as scope
definition comes first.
Each defined WBS element must have
a resource value estimated to complete all
of the specified work, including changes.
Management will then assess the requested
resources and approve a value in the form
of an authorized budget. Individual WBS
budgets should never contain contingen-
cies or management reserves. Reserves or
contingencies, if they exist, must be isolat-
ed and owned by the project manager.
Remember the rule that planned value
represents two things: the scheduled work,
plus the authorized budget. Earned value also
represents two things: the completed autho-
rized work, and the same authorized bud-
get. Thus, in order to plan and then mea-
sure earned value, one needs to schedule all
defined tasks along with the authorized
budget necessary to complete the tasks.
All authorized budgets must be achiev-
able in order to have a viable project baseline.
(Reference: EVM Criterion No. 9:
Establish budgets for authorized work with iden-
tification of significant cost elements [labor, mate-
rial, etc.] as needed for internal management and
for control of subcontractors.)
Step 5: You must determine the metrics
value. How does one measure the accom-
to convert planned value into earned
plishment of planned value into earned
value? One sets up measurable (verifiable)
metrics within the baseline schedules to
quantify the authorized work, and then
measures the completion of the autho-
rized work. Specific milestones or tasks
with weighted values are measured as they
are physically performed. Remember,
earned value project management is noth-
ing more than managing a project with a
resource-loaded schedule.
Since earned value was first introduced,
various methods have been devised to
measure project performance. However,
the most respected methods use some type
of discrete measurement. Specific mile-
stones representing points in time are
assigned values, which when fully complet-
ed, the assigned budgeted values are then
earned. Also, tasks are assigned values,
which can be measured as they are partial-
ly completed, at which time some value is
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www.stsc.hill.af.mil 17
Software Engineering Technology
assigned to the completed work through
Evaluacin y Gerencia de Proyectos
the reporting period.
(Reference: EVM Criterion No. 7: Identify
physical products, milestones, technical performance
goals, or other indicators that will be used to measure
progress.)
Step 6: You must form a performance
measurement baseline and determine the
as Control Account Plans (CAPs). Earned
points of management control referred to
value requires use of an integrated project
baseline. An integrated baseline means that
the defined work must include both the
baseline schedule and the authorized bud-
get. Integration takes place within each of
the specified WBS elements.
Project management must next specify
their points of management focus, referred
to in earned value as CAPs [2]. CAPS are
placed at selected WBS elements and can
best be thought of as sub-projects, project
teams, or subdivisions of the total project.
The sum of the CAPS will constitute the
total project baseline. The actual earned
value performance measurement will take
place within each of the specified CAPs.
Total project performance is simply the
summation of all the detailed CAPs, which
can be placed at any level of the WBS.
On some commercial type contracts, the
total project baseline may sometimes
include such things as indirect costs and
even profits or fees to match the total autho-
rized project commitment. The project
baseline must include whatever executive
management has authorized the project
manager to accomplish.
Most likely, internal company projects
typically do not contain indirect costs or
profits. Many (perhaps most) internal pro-
ject baselines will simply represent the sum
of the defined CAPs, which are often made
up from direct labor hours only. The autho-
rized project baseline constitutes whatever
management has decided it should be.
Note: The referenced EVM criterion
No. 8 contains a lot of words, most of
which are beyond the requirement for sim-
ple earned value applications.
(Reference: EVM Criterion No. 8: Establish
and maintain a time-phased budget baseline, at the
control account level, against which program perfor-
mance can be measured. Initial budgets established
for performance measurement will be based upon
either internal management goals or the external cus-
tomer-negotiated target cost including estimates for
authorized but undefined work. Budget for far-term
efforts may be held in higher-level accounts until an
appropriate time for allocation at the control account
level. On government contracts, if an over-target
baseline is used for performance measurement report-
ing purposes, prior notification must be provided to
the customer.)
Tcnicas para el Seguimiento y Control de Proyectos
18 CROSSTALK The Journal of Defense Software Engineering
Step 7: You must record all direct costs by
project consistently with the authorized
baseline budgets, in accordance with the
This criterion simply requires that project
organizations general books of accounts.
managers be informed as to how much
money they have spent on their projects a
simple requirement that some organizations
find extremely challenging. The reason is
many organizations have been functionally
oriented for so long that they have lost their
ability to focus on individual project perfor-
mance. It is absolutely essential that direct
costs be identified by project as work pro-
gresses.
In order to employ earned value on any
project, the actual costs must be aligned to
the authorized project budgets. Remember
the rule that planned value represents the
authorized work plus budget, which is then
converted into completed work and the
same budget to represent the earned value.
Earned value must then be relatable to the
whether the project
work is done by the
projects own
organization or procured
from outside of the
company the
measurement and
reporting of progress
must take place.
actual costs in order to determine the cost
efficiency factor, called the Cost
Performance Index (CPI). The CPI is likely
the single most important metric for any
project employing earned value.
There is a trend in projects employing
earned value to measure performance on a
weekly basis. We need to understand what
this means, and what it does not mean.
Weekly EVM means the measurement of
internal direct labor hours. On a weekly
basis, the company labor tapes will produce
a planned value, earned value, and actual
hours for internal direct labor hours only.
Direct labor dollars, indirect costs, pur-
chased articles, travel, etc., are generally not
available on a weekly basis. Weekly perfor-
mance measurement takes place on the
internal direct labor hours only.
(Reference: EVM Criterion No. 16: Record
direct costs in a manner consistent with the budgets
in a formal system controlled by the general books of
11/06/2008
account.)
Step 8: You must continuously monitor the
earned value performance to determine
cost and schedule departures from the
baseline plan: both schedule variances
(earned value less the planned value) and
al costs). Projects employing earned value
cost variances (earned value less the actu-
must monitor their cost and schedule results
against the authorized baseline for the dura-
tion of the project. Management will focus
their primary attention on exceptions to the
baseline plan, particularly those that are
greater than previously defined acceptable
tolerances. Earned value is thus a management
by exception concept.
A negative earned value schedule vari-
ance simply means that the value of the
work performed does not match the value
of the work scheduled, that is, the project is
falling behind in its scheduled work plan.
Each behind-schedule task should be
assessed as to its criticality. If the late tasks
are on the critical path, or if the tasks carry
a high risk to the project, then efforts must
be taken to get the late tasks back on sched-
ule. However, additional project resources
should not typically be spent on low-risk
tasks or tasks that have positive critical path
float.
The single most important aspect of
employing earned value is the cost efficien-
cy readings it provides. The difference
between the value of work earned, versus
the costs incurred to accomplish the work
provides the cost efficiency factor. If the
project spends more money than it receives
in value, this reflects an overrun condition.
Overruns are typically non-recoverable.
Overruns expressed as a percentage value
have been found to deteriorate unless the
project takes aggressive actions to mitigate
the condition.
Perhaps of greatest benefit, the earned
value cost efficiency rate has been found to
stabilize from the 20 percent point of a pro-
ject completion. The cost efficiency factor,
CPI, is thus an important metric for any
project manager or portfolio executive to
monitor.
(Reference: EVM Criterion No. 22: At least
on a monthly basis, generate the following informa-
tion at the control account and other levels as neces-
sary for management control using actual cost data
from, or reconcilable with, the accounting system:
1. Comparison of the amount of planned budget
and the amount of budget earned for work
accomplished. This comparison provides the
schedule variance.
2. Comparison of the amount of the budget earned
and the actual (applied where appropriate)
direct costs for the same work. This comparison
10 of 11
June 2006

provides the cost variance.)
Evaluacin y Gerencia de Proyectos
Step 9: Using earned value data, you must
forecast the final required costs based on
actual performance and keep manage-
actions if necessary. One of the more ben-
ment apprised so they can take corrective
eficial aspects of earned value is that it pro-
vides the capability to quickly and indepen-
dently forecast the total funds required to
complete a project, commonly referred to as
the estimate at completion. Based on actual
cost and schedule performance against the
baseline plan, a project is able to accurately
estimate the total funds it will require to fin-
ish the job within a finite range of values.
Often, management or customers will
have a preconceived notion of what final
costs should be or what they would like
them to be. If the earned value statistical
forecast of estimated final costs are greater
than the official project managers estimate to
complete the project, someone needs to rec-
oncile these professional differences of
opinion.
Actual performance results on any pro-
ject, good or bad, are in effect sunk costs.
Such costs represent what the project has
actually achieved in performance. Thus any
improvements in performance must come
from the future work tasks that lie ahead
of the projects status date. Earned value
allows the project manager to accurately
quantify the cost and schedule performance
achieved to date. And if the results achieved
to date are less than that desired by manage-
ment, the project can exert a more aggres-
sive posture to influence the future work.
Earned value allows the project to accu-
rately quantify the value of its work it has
achieved. It also allows the project to quan-
tify the value of the future work in order to
stay within the objectives set for the project
by management. Likely, the single most
respected method to forecast the final cost
results is to assume that the project will con-
tinue at its established cost efficiency rate,
CPI; it will get better or worse within a nar-
row, finite range.
(Reference: EVM Criterion No. 27: Develop
revised estimates of cost at completion based on per-
formance to date, commitment values for material,
and estimates of future conditions. Compare this
information with the performance measurement
baseline to identify variances at completion important
to company management and any applicable cus-
tomer reporting requirements including statements of
funding requirements.)
Step 10: You must manage the authorized
scope by approving or rejecting all
changes, and incorporating approved
ly manner. The project performance mea-
changes into the project baseline in a time-
Tcnicas para el Seguimiento y Control de Proyectos
June 2006
surement baseline, initially put into place at
the project start, is only as good as the man-
agement of all proposed new changes to the
baseline for the duration of the project.
Performance baselines quickly become
invalid simply by failing to incorporate
changes into the approved baseline with the
addition or deletion of added work scope.
All new change requests of the project
must be quickly addressed, either by approv-
ing such changes or by rejecting them. All
project managers should have sufficient
authority to say no.
In order for the initial baseline to remain
valid, every change must be controlled.
Maintaining an approved baseline can be as
challenging as the initial definition of the
project scope at the start of the project.
(Reference: EVM Criterion No. 28:
Incorporate authorized changes in a timely manner,
recording the effects of such changes in budgets and
schedules. In the directed effort prior to negotiation of
a change, base such revisions on the amount estimat-
ed and budgeted to the program organizations.)
Summary
Earned value project management is not a
difficult concept to understand or employ.
It is certainly not as complicated a process
as some have made it to be throughout the
years. We have concluded that effective
earned value can be achieved by simply
applying these 10 steps and can be applied
to any project, of any size, in any industry.
Earned value is for the masses.
Again, we are not taking issue with the
EVMS or ANSI-EIA-748 Standard. What
we are suggesting is starting with the
About the Authors
Quentin W. Fleming is
a management consul-
tant specializing in
earned value. He has
been a consultant to the
senior staff at Primavera
Systems, Inc. since 1993. He, along with
Joel M. Koppelman, is co-author of
Earned Value Project Management,
published initially in 1996 by the Project
Management Institute. The third edition
of this book was released in 2005. His
personal Web site is <www.quentinf.
com>
14001 Howland WY
Tustin, CA 92780
Phone: (714) 731-0304
Fax: (714) 731-0304
E-mail: quentinf@comcast.net
Start With Simple Earned Value on All Your Projects
implementation of earned value in a limit-
11/06/2008
ed way, on all projects, by simply taking the
10 simple steps as outlined here.
As you read over these 10 steps, we hope
you come to the conclusion that employing
earned value project management consists
of nothing more than simply following fun-
damental best project management process-
es. As was stated nicely by a gentleman from
the United Kingdom:
Whilst you can practice good project
management without EVM, you can-
not practice EVM effectively without
good project management. [3]
We could not have stated it better.
Note
1. The numbers as shown relate to the
sequence of the listed criteria in both the
EVMS and ANSI-EIA-748 Standard.
References
1. Fleming, Quentin W. and Joel M.
Koppelman. Earned Value Project
Management. 3rd ed. Newtown
Square, PA: Project Management
Institute, 2005.
2. Project Management Institute. A
Guide to the Project Management
Body of Knowledge. 3rd ed. Newtown
Square, PA: Project Management
Institute, 2004.
3. Crowther, Steve. Best of British:
Earned Value Management. British
Association for Project Management
June 1999:13.
Joel M. Koppelman is
the co-founder and Chief
Executive Officer (CEO)
of Primavera Systems,
Inc. He, along with
Quentin W. Fleming, is
co-author of Earned Value Project
Management, published initially in 1996
by the Project Management Institute.
The third edition of this book was
released in 2005. His corporate Web site
is <www.primavera.com>.
Primavera Systems, Inc.
Three Bala Plaza West
Bala Cynwyd, PA 19004
Phone: (610) 667-8600
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