Earned Value Techniques for Project Cost Control

Dr. Robert Monson University of St. Thomas

Earned Value Concepts

Earned Value (EV) is a cost management technique where the value of completed work is compared to actual costs and the scheduled costs Earned Value is expressed in terms of $s, so that completed work can be compared to actual costs and spend plans

Copyright 2001 R.J.Monson

Earned Value Calculations

EV is calculated by multiplying an estimate of the task percent complete by the total estimated cost for that task Example
5 week long task costing $10,000 Task reported as 37% complete Value of work completed => .37*10,000 = $3,700

Copyright 2001 R.J.Monson

Why use Earned Value?

Consider a project where you are running at $90,000 or 90% of spend plan. In traditional reporting you would consider yourself under budget If the earned value of that work is $80,000, and the spend plan says $90,000, you would realize you are over budget as well as behind schedule
Copyright 2001 R.J.Monson

Example
Task 1
Budget of $10,000 Estimated to be 40% complete We have spent $5,000 based on accounting We thought we would spend $3,000 by this date

What is the status of this task?

Overrun (Because EV is $4,000 vs. $5,000) Ahead of Schedule (Because EV is $4,000 vs. $3,000)

Copyright 2001 R.J.Monson

Metrics for Cost Control

Cost Variance
CV = BCWP ACWP = EV ACWP Difference between work completed and actual costs This is where you are on the tasks vs. $s chart

Schedule Variance
SV = BCWP BCWS = EV BCWS Difference between work completed and work scheduled This is your monetary burn rate

Copyright 2001 R.J.Monson

Metrics for Cost Control

Cost Variance Index
CV% = CV/BCWP Ratio of work completed to $s spent

Schedule Variance Index

SV% = SV/BCWS Ratio of work completed to work planned

Copyright 2001 R.J.Monson

How do we normally evaluate projects?

Tasks

Time
Copyright 2001 R.J.Monson

Evaluating Status
37% Complete

Tasks

Time
Copyright 2001 R.J.Monson

Budget Status

Time

Copyright 2001 R.J.Monson

Project Evaluation
We cant really define whether we are on Specification Our Gannt chart doesnt really tell us whether we are on Schedule We need to know the Budget curve to define if we are spending at the correct rate Therefore:
We typically are considering the wrong variables!

Copyright 2001 R.J.Monson

Project Evaluation
We have to discover what we are really interested in
Whether the work is getting done close to estimate Whether the work is progressing as planned Do we think we can finish on Spec, Schedule and Budget

Copyright 2001 R.J.Monson

Task Evaluations

Tasks

$
Copyright 2001 R.J.Monson

Task Evaluations

Tasks

$
Copyright 2001 R.J.Monson

Task Evaluations

Tasks

$
Copyright 2001 R.J.Monson

Budget Evaluations

Time

Copyright 2001 R.J.Monson

Consider some examples

We must look at both pieces of information in conjunction to get the whole picture We need to know if we are:
Getting the work done for the right price Getting the work done on schedule

From this information we define status

Copyright 2001 R.J.Monson

Tasks

$
Time
Copyright 2001 R.J.Monson

Tasks

$
Time
Copyright 2001 R.J.Monson

Tasks

$
Time
Copyright 2001 R.J.Monson

Project Evaluation
Consider the Earned Value of Tasks
To define if the work is truly getting completed

Consider the Cost Variance

Are we getting the work done for the money estimated?

Consider the Schedule Variance

Are we spending at the appropriate rate to stay on schedule?

Copyright 2001 R.J.Monson