In order to ensure that the project is completed on schedule and within the assigned budget, project manager, project team and the management needs to know factors affecting project health and what the future scenario of the project looks like?

Earned Value Management methodology is an analytical tool that uses data generated during the course of project execution, the collected data is used to analyse the present state of the project, trends in the data are further analysed to forecast the future project performance.

The collected data when compared to a well established baseline can indicate variance in performance and these variances can be used to assess the reasons affecting the project performance. The analysed data also assists project manager and the project team in initiating corrective actions and recommending preventive actions that can put the project back on track.

## Project Performance Analysis

The EVM analysis can help the project manager know if the project is ahead or behind schedule, is the project over or under budget, how the funds are being utilized. The evm analysis can be grouped under the following three categories. For the sake of simplicity we will take up only the first two as it helps in understanding the core concepts.

- Variance Analysis
- Schedule Variance (SV)
- Cost Variance (CV)

- Efficiency Indicators or Performance Indices
- Schedule Performance Index (SPI)
- Cost Performance Index (CPI)

- Forecasting
- Estimate To Complete The Balance Work (ETC)
- Estimate At Completion (Manual) (EAC)
- Variance At Completion (VAC)
- Estimate At Completion (Calculated)
- For the balance work at budgeted rate
- For the balance work at current CPI
- For the balance work considering both CPI and SPI

- To Complete Performance Index (TCPI)

## Variance Analysis

### Schedule Variance (SV)

Schedule Variance (SV) is the difference between the budgeted cost of work scheduled represented by planned value and the budgeted cost of work performed represented by earned value. Percentage of physical work completed when multiplied by the planned value gives us the earned value for that work package. It is expressed mathematically as

#### Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)

Earned Value (EV) is represented by the green line, Planned Value (PV) by Blue line and the Actual Cost (AC) by Red Line. The review date is represented by the dashed line in grey color and is mentioned as the data date on the graph above.

In the above graph the earned value is less than the planned value, the resulting variance is negative which indicates that the project is behind schedule.

Had the project progressed as per the baseline plan, EV would have been equal to PV and the resulting variance would have been zero. This is the ideal condition for any project and indicates that the project is on schedule.

If the EV is more, the green line will be above the blue line and the resulting difference will be a positive number. In such case, project is ahead of schedule.

- if EV is equal to (=) PV then SV = 0, project is on schedule
- if EV is greater than (>) PV then SV = (+) ve number implies project is ahead of schedule
- if EV is less than (<) PV then SV = (-) ve number implies project is behind schedule

The schedule variance is represented in units of currency, the schedule delay in units of time is indicated by horizontal line on X axis and mentioned as label A.

### Cost Variance

Cost Variance (CV) is the difference between the budgeted cost of work performed and the actual cost incurred while performing the scheduled work. It is expressed mathematically as

#### Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)

In the above graph the actual cost incurred while performeing the scheduled work is more than the earned value, the resulting variance is negative umber which indicates that the project is experiencing cost overruns (over budget).

Had the project progressed as per the baseline plan then AC would have been equal to EV and the resulting variance would have been zero. This is the ideal condition for any project and indicates that the project is on budget.

If the AC is less than EV, the red line will be below blue line and the difference will be a positive number which implies that less cost has been incurred in performing the scheduled work. In such case, project is not experiencing any cost overruns (under budget).

- if AC is equal to (=) EV then CV = 0 implies cost is as per baseline cost
- if AC is greater than (>) EV then CV = (-) ve number implies cost overrun (over budget)
- if AC is less than (<) EV then CV = (+) ve number implies no cost overrun (under budget)

The cost variance for the project at completion is indicated by AC minus Budget At Completion (BAC) which is cumulative PV for the project or the project cost baseline. This is known as Variance At Completion (VAC). However, if the Project Manager feels that the AC will not be valid until project completion AC needs to be replaced with EAC.

## Efficiency Indicators or Performance Indices

The schedule and cost variance can be converted into efficiency indicators or performance indices as follows

### Schedule Performance Index (SPI)

It is mathematically expressed as Earned Value divided by Planned Value

#### SPI = EV/PV

- if SPI is less than (< ) 1 implies PV is more than EV and hence project is behind schedule
- if SPI is greater than (>) 1 implies EV is more than PV and hence project is ahead of schedule
- if SPI is equal to (=) 1 then project is on schedule

Similarly,

### Cost Performance Index (CPI)

It is mathematically expressed as Earned Value divided by Actual Cost

#### CPI = EV/AC

- if CPI is less than (<) 1 implies AC is more than EV hence project is over budget (cost overrun)
- if CPI is greater than (>) 1 implies AC is less than EV hence project is under budget
- if CPI is equal to (=) 1 then project is on budget

## Summary

In a nutshell, the project manager and the project team should strive to ensure that earned value of their project is always more than the planned value and the actual cost booked on the project. Success of earned value management lies in proper collection of data and calculation of percent work completed on the project. Each individual has its own interpretation of the percentage of work completed. The Practice Standard on Earned Value Management highlights methodologies to be adopted for calculation of percent work complete for different types of project activities and for different situations.

For detailed explanation of earned value parameters please read my blog post

For detailed understanding of how to forecast project cost please read my post

You may download all EVM Formulas in pdf format from the resources section.

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