The blog post earned value management example attempts to solve earned value analysis example problems to understand basic concepts of earned value management methodology in project management.
Earned Value Management Example
Here are some of the solved problems to demonstrate use of for earned value management which could be beneficial to pmp aspirants. In general most of the earned value analysis problem in the pmp exam come with a brief story and some additional data. But for the sake of simplicity I am only concentrating on the necessary data to solve the problem.
Earned Value Management Example Problem 1
Compute Estimate At Completion (EAC) and Variance At Completion (VAC) if both SPI and CPI influence the project work when given variables are
- Budget At Completion (BAC) = $22,000
- Earned Value (EV) = $13,000
- Planned Value (PV) = $14,000
- Actual Cost (AC) = $15,000
Solution to EVM Problem 1
EAC (if the both SPI and CPI influence the project work) = AC + [(BAC – EV) / (CPI x SPI)]
- Schedule Performance Index (SPI) = EV/PV = $13,000/$14,000 = 0.93 Since SPI is less than 1, this indicates that the project is behind schedule
- Cost Performance Index (CPI) = EV/AC = $13,000/$15,000 = 0.87 Since CPI is less than 1, this indicates that the project is over budget.
- EAC = $15000 + [($22,000 – $13,000)/(0.93 X 0.87)] = $26,123
- VAC = BAC – EAC = $22,000 – $26,123 = -$4,123 The project is experiencing a budget overrun of -$4,123.
Earned Value Management Example Problem 2
For the following project calculate SV,CV, SPI and CPI at the end of second month.
Month | 1 | 2 | 3 | 4 |
Planned Value | ₹ 11,10,000 | ₹ 6,00,000 | ₹ 25,00,000 | ₹ 8,00,000 |
Earned Value | ₹ 10,00,000 | ₹ 7,50,000 | ||
Actual Cost | ₹ 12,50,000 | ₹ 5,00,000 |
Solution to EVM Problem 2
First calculate cumulative data
Month | 1 | 2 | 3 | 4 |
Planned Value | ₹ 11,10,000 | ₹ 6,00,000 | ₹ 25,00,000 | ₹ 8,00,000 |
(PV) cumulative | ₹ 11,10,000 | ₹ 17,10,000 | ||
Earned Value | ₹ 10,00,000 | ₹ 7,50,000 | ||
(EV) cumulative | ₹ 10,00,000 | ₹ 17,50,000 | ||
Actual Cost | ₹ 12,50,000 | ₹ 5,00,000 | ||
(AC) cumulative | ₹ 12,50,000 | ₹ 17,50,000 |
Schedule Variance (SV) = EV – PV | = (₹ 17,50,000 – ₹ 17,10,000) | = ₹ 40,000 |
Schedule Performance Index (SPI) = EV / PV | = (₹ 17,50,000 / ₹ 17,10,000) | = 1.0233918 |
Cost Variance (CV) = EV – AC | = (₹ 17,50,000 – ₹ 17,50,000) | ₹ 0 |
Cost Performance Index (CPI) = EV / AC | = (₹ 17,50,000 / ₹ 17,50,000) | = 1 |
Since SV is positive and SPI is greater than zero the above project is ahead of schedule.
As CV is equal to zero and CPI is equal to one the project is on budget.
Earned Value Management Example Problem 3
You are managing a project which is into six months of its execution. You are now reviewing the project status and you have ascertained that project is behind schedule. The actual cost of Activity A is ₹ 2,00,000 and that of Activity B is ₹ 1,00,000. The planned value of these activities are ₹ 1,80,000 and ₹ 80,000 respectively. The Activity A is 100% complete. However, Activity B is only 75% complete. Calculate the schedule performance index and cost performance index of the project on the review date.
Solution to EVM Problem 3
First tabulate the data provided in the problem
Tasks | Planned Value (PV) | Actal Cost (AC) | % Completion |
Activity A | ₹ 1,80,000 | ₹ 2,00,000 | 100% |
Activity B | ₹ 80,000 | ₹ 1,00,000 | 75% |
Since we have percentage completion data of each activity we can calculate the earned value. In order to calculate earned value of each activity multiply % completion and the planned value. Therefore, 100% x 1,80,000 = 1,80,000 and 75% x 80,000 = 60,000/-
Tasks | Planned Value (PV) | Actual Cost (AC) | % Completion | Earned Value (EV) |
Activity A | ₹ 1,80,000 | ₹ 2,00,000 | 100% | ₹ 1,80,000 |
Activity B | ₹ 80,000 | ₹ 1,00,000 | 75% | ₹ 60,000 |
Now, calculate the cumulative data for the period. Therefore add planned value, actual costs and earned value of both the activities.
Tasks | Planned Value (PV) | Actual Cost (AC) | % Completion | Earned Value (EV) |
Activity A | ₹ 1,80,000 | ₹ 2,00,000 | 100% | ₹ 1,80,000 |
Activity B | ₹ 80,000 | ₹ 1,00,000 | 75% | ₹ 60,000 |
Cumulative | ₹ 2,60,000 | ₹ 3,00,000 | ₹ 2,40,000 |
Therefore, Schedule Performance Index (SPI) = EV/PV = 2,40,000/2,60,000 = 0.92
And, Cost Performance Index (CPI) = EV/AC = 2,40,000/3,00,000 = 0.8
Schedule Performance Index (SPI) = | 0.92 |
Cost Performance Index (CPI) = | 0.8 |
Since both SPI and CPI are less than one, the project is behind schedule and is experiencing cost overrun.
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Related Posts Earned Value Management
Following posts will enhance understanding of earned value management technique.
- EVM Techniques To Forecast Project Cost Performance
- Project Monitoring Using Cost, Schedule Variance & EVM Performance Indicators
- Earned Value Management: An Integrated Approach To Performance Measurement
- Earned Value Management Challenges
- EVM Formulas
Earned Value Management analysis also uses variance analysis as a tool to calculate schedule and cost variances. To know more please read
Also read the following post for a comprehensive list of project management formulas for pmp examination.
Also read the following post for a step wise guide on schedule network analysis using critical path method (cpm) technique.
Conclusion
To sum up, given the challenges faced with implementation of evm technique; it is undoubtedly, one of the most effective and a reliable tool to report project progress and forecast performance. Moreover, understanding of earned value project management concepts is critical to successful implementation of this technique in real life projects. As shown above I certainly hope that solving earned value management example problems has helped understand evm analysis concepts .
You may also like to visit the resources page and download essential formulas
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Reblogged this on Atul Gaur.