Earned value analysis is a sequence of calculations that help determine whether or not a project is on track with regards to its budget, schedule and work completed. These calculations can take place at any time during a project.
There are three main areas of a project that must be Planned, Monitored & Controlled.
Monitoring a project is a continuous process, whereby the project manager keeps a check on the projects progress, its metrics and any connected tasks. This ensures that major goals, with regards to an end date, finances, and quality is met. Monitoring is carried out by collecting any and all relevant data, recording this information and if needed reporting information that may be worrisome and may move the project in a direction away from its goals (Fontein, 2021).
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Planning, monitoring and controlling work cycle includes, the following:
- Time
- Resources
- Work specifications
A project manager must be able to identify the components of the project to be controlled. The Work Break down Structure will help to identify exactly which elements of time, cost and performance need to be controlled.
The control system is important as its objective is to take action on any troublesome information.
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Employees working on the project are relied upon to provide the project manager with information regarding the progress of the project or any potential delays.
An Earned Value Chart (EVC) is represented as a graph and it indicates performance measures, relating to budgets, schedules and work completed and any variances (Haughey, 2021). Below is an example of an EVC:
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It is important to understand the performance of the project, throughout the duration of the project. A process called Earned Value Analysis can be implemented to achieve this. This process begins with a baseline budget.
What is a baseline budget?
A baseline budget is the projected cost of the project. A cost is assigned to every task and summery task, this is the Budgeted Cost of the Work Scheduled (BCWS).
The BCWS can be calculated as follows:
When calculating the BCWS , calculate how much each activity is going to cost, over the number of weeks that the project will be operating for. Then the cost’s are added up. For example, if five activities from week one to five, cost €10 000, then 5 weeks x €10 000 = €50 000. This figure is now the total expenditure for that period of time. The total expenditures are added together to create a running total. This running total is the Cumulative BCWS per period. This procedure is repeated, until the BCWS has been calculated for the entire project.
The BCWS that has been calculated per each work period, must now be plotted on a graph, against Time. Time is represented on the X axis of the graph and the BCWS is represented on the Y axis of the graph.
The image below depicts a BCWS (in blue) plotted on a graph.
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BCWP stands for Budgeted Cost of Work Performed (BCWP) and this term is interchangeable with Earned Value. It is the value of work that has been achieved at any point during a project.
To calculate the BCWP, the total expenditure per time period of the project is multiplied by the percentage that the project has been completed. For example, if the total expenditure of a time period is €10 000 and the percentage completed is 85%, then 10 x .85 = 8.5. 8.5 is the Cumulative BCWP. This calculation is repeated for every time period and each cumulative BCWP is added onto the next to create a running total of BCWP’s.
These figures can now be plotted on the same graph that the BCWS has been plotted against and the difference between the two lines indicates any variance in schedule.
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ACWP stands for Actual Cost of Work Performed (ACWP) and relates to the amount of money that has been spent on the project to date. Cost Variance (CV) is calculated by comparing the ACWP with the BCWP.
For example: €200 (BCWP) - €100 (ACWP) = €100 (CV)
€100 is a positive figure and indicates that you are within budget, at that particular point in the project. A negative figure means that too much money has been spent, at that point in time.
After all of the figures for every time period has been calculated, it can be plotted on the same graph as the BCWS and BCWP has been plotted.
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Schedule Variance (SV) is represented on the Earned Value Graph by the vertical line, between the BCWS and the BCWP.
Time Variance (TV) is represented on the Earned Value Graph by the horizontal line, between the BCWS and the BCWP.
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The following are formulas for the Earned Value Indices:
1 - BCWP - ACWP = CV
2 - BCWP - BCWS = SV
3 - STWP (schedule time of work performed) - ATWP = TV
4 - BCWP ÷ ACWP = Cost Performance Index (CPI) (this is represented as a ratio)
5 - BCWP ÷BCWS = Schedule Performance Index (SPI) (this is represented as a ratio)
Fiona, easy to read through and follow. Best wishes. Caroline.