Blog Project Management Earned Value Management – Analysis

Earned Value Management – Analysis

Earned Value Management (EVM) is a methodology that combines scope, schedule, and cost to assess the project performance and progress. It is project management techniques which can be applied to all projects in any industry.EVM develops and monitor 3 key dimensions for each work package and control account: PV, EV and AC.

Acronym Term Description
PV Planned Value Work planned at the starting with respect to time. Example –If total time planned to do the work is 10 months ,then after 5 months the planned value is 50% work
EV Earned Value Value of work actually completed
AC Actual Cost Cost actually spent to complete the work
BAC Budget At Completion Total estimated budget of the project. This Value is fixed and Constant
EAC Estimate At Completion Current Estimate of the total project cost. This value keeps on changing
ETC Estimate To Complete From this point how much more the project would cost to complete
VAC Variance At Completion How much over or under budget the project would be at the time of completion. Difference between actual  Budget and Planned Budget

Acronym Term Description
Cost Variance(CV) EV – AC +ve implies Earned value > Actual cost, project is under budget-ve implies EV<AC ,project is over budget
Scheduled Variance (SV) EV – PV +ve implies Earned value > Planned Value, project is ahead of schedule-ve implies EV<PV ,project is behind the schedule
Cost Performance Index (CPI) EV/AC Greater than 1 implies that project is under budget
Schedule Performance Index (SPI) EV/PV Greater than 1 implies that project is ahead of schedule
ETC EAC – AC How much more project will cost at this point
VAC BAC – EAC How much over or under budget the project would be at the time of completion

To explain the earned value concept more clearly 2 case studies are taken up below

[restrict]
 Case Study I

A project consists of 4 phases Phase I Requirement Gathering, Phase II Design, Phase III Manufacturing and Ph IV Quality Check. Phase I and II to take 1 month each to complete and Phase III and IV to take 2 months each. It is estimated to cost $10,000 per phase (Phase I and II) and to cost $20,000 per phase (Phase III and IV).The phases are completed one after the other. After end of 4TH month, calculate CPI and SPI of the project

Project phases Month1 Month2 Month3 Month4 Month5 Month6 Status at the end of 4th month
Phase I S——–F Complete spent $10,000
Phase II S——– –F Complete spent $11,000
Phase III S———- –PF 75% done, spent $16,000
Phase IV Not started

Solution

Term Calculation Result Explanation
PV $10,000 + $10,000 +$20,000 $40,000 By fourth month we should havedone work worth $40,000
EV $10,000 + $10,000 +$15,000(75% of  20,000=$15,000) $35,000 We have actually accomplishedonly work worth $35,000
AC $10,000 + $11,000 +$16,000 $37,000 We have actually spent $37,000
CV $35,000 –  $37,000 -$2,000 We are over budget by $2,000
SV $35,000 –  $40,000 -$5,000 We are behind schedule
CPI $35,000/$37,000 .95 We are getting .95 out of everydollar spent
SPI $35,000/$40,000 .875 We are progressing at 87.5% of therate originally planned

Case Study II

Same as Case study I, with the following difference. After the end of 5TH month, calculate CPI and SPI of the project the data given below

Project phases Month1 Month2 Month3 Month4 Month5 Month6 Status at the end of 5th  month
Ph I S——F Complete spent $10,000
Ph II S——– –F Complete spent $9,000
Ph III S——— ———– –F Complete spent $19,000
Ph IV S—PF 25% done, spent $5,000

 

Please do this exercise and check the result.

Solution

Term Calculation Result
PV $10,000 + $10,000 +$20,000+ $10,000 $50,000
EV $10,000 + $10,000 + $20,000 +$5,000(25% of  $20,000=$5,000) $45,000
AC $10,000 + $9,000 +$19,000+$5,000 $43,000
CV $45,000 –  $43,000 $2,000
SV $45,000 –  $50,000 -$5,000
CPI $45,000/$43,000 1.04
SPI $45,000/$50,000 .9

Questions & Answers

  1. You are a contract project manager for a wholesale flower distribution company. Your project is to develop a website for the company that allows retailers to place their flower orders online. This project involves coordinating the parent company, growers, and distributors. You are preparing a performance review and have the following measurements at hand: PV = 350,000; AC = 200,000; and EV = 280,000. What do you know about this project?
    • A. The EAC is a positive number, which means the project will finish under budget
    • B. You do not have enough information to calculate CPI.
    • C. The CV is a negative number in this case, which means you’ve spent less than you planned to spend as of the measurement date.
    • D. The CV is a positive number in this case, which means you’re under budget as of the measurement date

    Correct Answer: D. the CV is a positive number and is calculated by subtracting AC from EV as follows: 280,000– 200,000 = 80,000. A positive CV means the project is coming in under budget, meaning you’ve spent less than you planned as of the measurement date.

  2. You are a contract project manager for a wholesale flower distribution company. Your project is to develop a website for the company that allows retailers to place their flower orders online. This project involves coordinating the parent company, growers, and distributors. You are preparing a performance review and have the following measurements at hand: PV = 320,000; AC = 210,000; and EV = 250,000. What is the CPI of this project?
    • A. 1.19
    • B. 1.25
    • C. 1.5
    • D. 0.83

    Correct Answer: A. CPI is calculated as follows: EV / AC. In this case, 250000 / 210000 = 1.19

About Mark Oswald

Mark is an experienced software engineer and technology blogger. He has over five years of experience in writing in different technological domains. Writing is his passion and he contributes regularly to the Whizlabs blog to share his knowledge.
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