It’s surprising how many project managers never really know what the status of their project is until they approach the deadline, at a point when they no longer have any ability to ensure the project finishes on time or budget.
That’s why the Project Management Body of Knowledge (PMBOK) contains a process called Control Schedule within the the Time Management knowledge area. The most important piece is within the tool and techniques, which is called “Performance Reviews.” This includes any method of measuring the performance of the project, but the most important of these is called Earned Value Analysis.
During the planning stage, the PMBOK requires the creation of a Schedule Management Plan, which is a part of the overall Project Management Plan. This plan identifies how the schedule will be controlled, how often progress meetings will be held, and so forth.
This process lies within the Monitoring & Controlling process group, and it’s primary purpose is to determine project status in order to minimize risk of future project problems.
Early detection is the key to minimizing risk. The best time to measure progress is a the beginning of the project, not the end. Projects that fall behind early usually spend the whole project trying to catch up.
Earned Value Analysis
Earned Value Analysis gives you an accurate picture of the status of your project, from a time as well as a cost perspective. To be effective, it must be carried out on a regular, consistent basis, not at the end of the project when little can be done to get it back on track.
The end result of earned value analysis is, as a minimum, two numbers:
- Schedule variance.
- Cost variance.
These are numerical values representing the status of the project, i.e. how far behind (or ahead) the project is. There are others which are derived from these, but to implement the method you need to calculate at least these two. Technically, the variances can be expressed in hours, weeks, production units, or any unit of interest, but the normal practice is to use monetary units (dollars, etc.)
But before we calculate them, we must have a baseline to track against. Being ahead or behind doesn’t mean anything if you can’t define what you’re ahead or behind of. Your project must have a task list, also called a Work Breakdown Structure. Each task needs to have the following pieces of information:
- Start and end dates
- A task budget.
This part of the project planning process has been covered in our previous page on the Develop Schedule process.
Before we continue, the following definitions are required:
- Planned Value (PV): At any point in time, the amount of the task that is supposed to have been completed, in dollar terms. A linear interpolation works as good as any. Also known as Budgeted Cost of Work Scheduled (BCWS).
- Earned Value (EV): At any point in time, the amount of the task that is actually completed, in dollar terms. Also known as Budgeted Cost of Work Performed (BCWP).
- Actual Cost (AC): The actual cost to the organization of the work that has been performed. Also called Actual Cost of Work Performed (ACWP).
- Budget at Completion (BAC): The total of all task budgets, i.e. the project budget.
- Cost Performance Index (CPI): The cost variance expressed in percentage terms, for example, CPI = 1.2 means the project is 20% over budget.
- Schedule Performance Index (SPI): The schedule variance expressed in percentage terms, for example, SPI = 1.3 means the project 30% behind schedule.
- Estimate at Completion (EAC): The expected budget at the end of the project given the variances that have already taken place.
- Estimate to Complete (ETC): The expected cost to finish the rest of the project.
- To Complete Performance Index (TCPI): The required CPI necessary to finish the project right on budget. For example, TCPI = 1.25 means you need to find 25% efficiencies to finish on budget.
Earned Value Analysis Procedure
To do a basic manual calculation using the earned value method, you would perform the following actions. This must be done individually for every task.
- Estimate the expected percent complete of each task. For example if the start and end dates of the task are June 1 and June 10, respectively, and it’s June 3 today, the expected percent complete is 30%.
- Convert this to a monetary value by multiplying by the task budget. This is called the Planned Value (PV), also known as the Budgeted Cost of Work Scheduled (BCWS).
- Estimate the actual percent complete of each task based on the number of hours of work completed, or some other relevant metric.
- Convert this to a monetary value by multiplying by the task budget. This is called the Earned Value (EV), also known as the Budgeted Cost of Work Performed (BCWP).
- Calculate the Schedule Variance. SV = EV – PV (aka BCWP – BCWS).
- Determine the actual cost of the task to date (AC) and then calculate the Cost Variance. CV = EV – AC (or BCWP – ACWP).
- Graph the results if you want to see the trend.
Interpreting the Results
If the schedule variance is negative, you are behind schedule. If the cost variance is negative, you are over budget. The actual amount of variance can be compared to employee charge out rates or something similar to ascertain how difficult it might be to recover. The results are as instantaneous as the input data, that is if you input the percent complete as of right now, the status reported will be as of right now as well.
Additionally, there are a few more optional steps that give you an even better idea of your project’s status:
- Calculate SPI = EV/PV. This is the schedule performance index, which gives you a view of the project status in percentage terms rather than absolute numbers.
- Calculate CPI = EV/AC. This is the cost performance index.
- Calculate EAC = AC + BAC – EV. This is the final project budget if the rest of the project went according to plan. There are several ways to extrapolate EAC, and this method is not definitive.
- Calculate ETC = EAC – AC. This is the amount of money you need to finish the project.
- Calculate TCPI = (BAC – EV) / (BAC – AC). This is the cost performance index that must be achieved to finish the project right on budget. For example, TCPI = 1.1 means you must find 10% efficiency to finish on budget.
A major assumption of the Earned Value method is that the task gets completed at a constant rate. Sometimes tasks have the bulk of their work at a certain concentrated time, or are otherwise very non-linear. If this is the case, you could make the necessary adjustments in step 1, simply skew the percent complete.
Earned Value Example
Let’s say you are the project manager for the renovation of 3 hotel rooms. The tasks are as follows:
- Preparation. Jan. 1-Jan. 10, $5,000
- Room #1: Jan. 10-20, $15,000
- Room #2: Jan. 15-25, $15,000
- Room #3: Jan. 20-30, $15,000
- Wrap-up: Jan. 25-31, $5,000
It’s Jan. 16 today and you want to know how far behind/ahead of schedule and over/under budget you are. You figure you’re 20% complete Room #1 and 10% on Room #2, and you’ve spent $5,500 on preparation and $3,500 on Room #1.
|Task||PV||AC||EV||Schedule Variance||Cost Variance|
Since the variances are both negative, the project is behind schedule and over budget.
The cost variance is minor, and maybe you can find $500 somewhere between now and the end of the project.
But the schedule variance is about 6% and finishing on time is beginning to be a concern. It’s all due to room #1, so it might be a good idea to secure some resources so the completion of room #1 doesn’t hold up the others.
To use the Earned Value method, you need to have some sort of project control points. I recommend weekly because almost any size project could use a weekly health check to keep it on the straight and narrow.
At each control point, the percent completes for each task are determined, the schedule and cost variance are calculated, and a project status meeting is used to distribute the information. When people know what the status of the project is, it has a way of getting done.
Determining Percent Complete
The primary input into the Earned Value calculation is a percent complete. Naturally, this can be rigged if you were to enter a higher percent complete than reality in order to make the schedule and cost variances look better (higher). This defeats the purpose of the calculation. But I also want to emphasize that even if this is done, the earned value method is still better than manual tracking methods because you can’t escape the schedule. Even if you are in that uneviable position of not being able to finish on time anymore, the worst that can happen is that you are only a little bit behind, not alot, because the earned value method will keep you fixed to the schedule.
Some project managers adhere to the rule that percent complete should only be measured in 0-50-100% increments. This eliminates the ability to abuse the process and skew the project variances. The task is either not started, in progress, or complete.
When I was a junior engineer at a megaproject, I would give the project managers lengthy verbal status updates only to realize they just wanted a number – a percent complete. Thus, I caution that allowing project team members to provide the percent complete estimates can make project managers look uninterested and passive, and if you can generate them yourself accurately, you should. Team members are also likely to overestimate them to look better.
Tasks that contain repititious item can be easily estimated, like the number of piles driven or number of drawings complete. However, it’s often the easiest ones that get done first. For example, we know that the piles in the swamp will be the most difficult, so we’ll do them last.
Each task should have a completion criteria which defines the completion of the task. It’s common to specify a task as complete when there are reviews, approvals, and administrative functions that are part of the task but not complete. These can be very frustrating when project team members are working on tasks that are deemed complete.