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.

Contents

## Project Performance Analysis

The Earned Value Management (EVM) technique of project performance analysis can help the project manager know if the project is ahead or behind schedule, is the project over or under budget?, and how the funds are being utilized? The evm project performance analysis techniques 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 impact of both CPI and SPI

- To Complete Performance Index (TCPI)

## Variance Analysis

Variance analysis in Earned Value Management (EVM) methodology compares the planned schedule and cost data with the actual schedule and cost performance to establish if the project is ahead or behind schedule and if the project is experiencing any cost overruns. Variance analysis consists of establishing Schedule Variance and Cost Variance which is achieved by assessing the deviation between the schedule and cost baseline with respect to the actual schedule progress and the actual cost booked on the project.

### Schedule Variance (SV)

Schedule Variance (SV) is defined as a measure of schedule performance of the project and is expressed as the difference between the budgeted cost of work scheduled represented by planned value and the budgeted cost of work performed represented by earned value. One method of arriving at earned value is when percentage of physical work completed when multiplied by the planned value gives us the earned value for that work package.

#### Schedule Variance (SV) Formula

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.

Schedule Variance equals to zero indicates there is no variance and the project is progressing as per the baseline schedule.

- if EV is greater than (>) PV then SV = (+) ve number implies project is ahead of schedule.

A positive schedule variance indicates project is ahead of schedule.

- if EV is less than (<) PV then SV = (-) ve number implies project is behind schedule.

A negative schedule variance 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 defined as the budget defecit or surplus of the project measured at a given point in time. It is expressed as the difference between the budgeted cost of work performed and the actual cost incurred while performing the scheduled work.

#### Cost Variance (CV) Formula

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

In the above graph the actual cost incurred while performing 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.

Cost Variance equals to zero indicates there is no variance and the project is progressing as per the baseline schedule.

- if AC is greater than (>) EV then CV = (-) ve number which implies cost overrun (over budget).

A negative cost variance implies that the project is experiencing cost overrun.

- if AC is less than (<) EV then CV = (+) ve number which implies no cost overrun (under budget).

A positive cost variance implies that the project is within the 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.

## Project Status Review Based on EVM Graphs

While reviewing the project status a number of conditions of schedule and cost variance are possible. Some typical conditions are represented in graphical form for easy understannding of the application of earned value management analysis in project monitoring and controlling.

## Efficiency Indicators or Performance Indices

The schedule and cost variance can be converted into efficiency indicators or performance indices. Project effeciency indicators specify how effeciently time and cost are being utilized on a project.

### Schedule Performance Index (SPI)

SPI is a measure of schedule effeciency of the project and indictes if the project is ahead of behind the baseline schedule. It is mathematically expressed as Earned Value divided by Planned Value.

Schedule Performance Index (SPI) = Earned Value (EV) / Planned Value (PV)

- if SPI is less than (< ) 1 implies PV is more than EV and hence project is behind schedule.

Schedule Performance Index (SPI) less than one indicates project is behind schedule.

- if SPI is greater than (>) 1 implies EV is more than PV and hence project is ahead of schedule

Schedule Performance Index (SPI) greater than one indicates project is ahead of schedule.

- if SPI is equal to (=) 1 then project is on schedule

Schedule Performance Index (SPI) equal to one indicates that the project schedule is progressing as per the baseline plan.

Similarly,

### Cost Performance Index (CPI)

CPI is the measure of how effeciently are the budgeted resources being utilized on a project. It is mathematically expressed as Earned Value divided by Actual Cost

Cost Performance Index (CPI) = Earned Value (EV) / Actual Cost (AC)

- if CPI is less than (<) 1 implies AC is more than EV hence project is over budget (cost overrun)

Cost Performance Index (CPI) less than one implies project is experiencing cost overrun.

- if CPI is greater than (>) 1 implies AC is less than EV hence project is under budget.

Cost Performance Index (CPI) greater than one implies project is within budget.

- if CPI is equal to (=) 1 then project is on budget

Cost Performance Index (CPI) equal to one indicates that the project is as per the 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

For solved example please read

For details of Project Variance Analysis please read

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

For any queries please use the contact from.

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