Applying earned value analysis to your project

Applies to
Microsoft Office Project 2003

You may have heard that earned value analysis is complicated. But aside from the many acronyms, it's not. And it can help you answer questions like, "Is there enough money left in the budget?" and, "Will we finish on time?"

Want to know more about how Project handles earned value analysis? Read on.

What is earned value analysis?

What else does earned value measure?

How do I interpret earned value?

How does % complete versus physical % complete affect earned value?

Which earned value quantities can I show or calculate in Project?

Where in Project do I see earned value data?

What is earned value analysis?

At the root of earned value analysis are three fundamental values calculated for each task (task: An activity that has a beginning and an end. Project plans are made up of tasks.):

With me, so far? Let's go on.

Earned value analysis is always specific to a status date you choose. You may select the current date, a date in the past, or a date in the future. Most of the time, you'll set the status date to the date you last updated project progress. For example, if the current day is Tuesday, 9/12, but the project was last updated with progress on Friday, 9/8, you'd set the status date to Friday, 9/8.

Here is one example of how to analyze project performance with earned value analysis. Let's say a task has a budgeted cost (BCWS) of $100, and by the status date it is 40 percent complete. The earned value (BCWP) is $40, but the scheduled value (BCWS) at the status date is $50. This tells you that the task is behind schedule—less value has been earned than was planned. Let's also say that the task's actual cost (ACWP) at the status date is $60, perhaps because a more expensive resource was assigned to the task. This tells you that the task is also over budget—more cost has been incurred than was planned. You can see how powerful such an analysis can be. The earlier in a project's life cycle you identify such discrepancies between ACWP, BCWP and BCWS, the sooner you can take steps to remedy the problem.

One common way of visualizing the key values of earned value analysis is to use a chart. Start with a simple chart showing a steady accumulation of cost over the lifetime of a project:

Projected cumulative cost

Callout 1 The vertical y-axis shows the projected cumulative cost for a project.

Callout 2 The horizontal x-axis shows time.

Callout 3 The planned budget for this project shows a steady expenditure over the lifetime of the project. This line represents the cumulative baseline cost.

After work on the project has begun, a chart of the key values of earned value analysis may look like this:

Earned value chart

Callout 1 The status date determines the values Project calculates.

Callout 2 The actual cost (ACWP) of this project has exceeded the budgeted cost.

Callout 3 The earned value (BCWP) reflects the true value of the work performed. In this case, the value of the work performed is less than the amount spent to perform that work.

What else does earned value measure?

In addition to measuring BCWS, ACWP, and BCWP, earned value analysis measures:

How do I interpret earned value?

Earned value indicators that are variances or ratios can help you determine if there is enough money left in the budget and if the project will finish on time.

Variances (variance: The difference between baseline and scheduled task or resource information, they usually occur when you set a baseline plan and begin entering actual information into your schedule. Variances can occur in work, costs, and schedule.), such as a cost variance (CV), can be either positive or negative:

  • A positive variance indicates that the project is ahead of schedule or under budget. Positive variances might enable you to reallocate money and resources from tasks or projects with positive variances to tasks or projects with negative variances.
  • A negative variance indicates that the project is behind schedule or over budget and you need to take action. If a task or project has a negative CV, you might have to increase your budget or accept reduced profit margins.

Ratios, such as the cost performance index (CPI) and the schedule performance index (SPI), can be greater than 1 or less than 1:

  • A value that's greater than 1 indicates that the project is ahead of schedule or under budget.
  • A value that's less than 1 indicates that you're behind schedule or over budget. For example, an SPI of 1.5 means that you've taken only 67 percent of the planned time to complete a portion of a task in a given time period, and a CPI of 0.8 means that you've spent 25 percent more time on a task than was planned.

How does % complete versus physical % complete affect earned value?

You can specify whether Project should use each task's percent complete (percent complete: A field that you use to enter or display how much of a task has been completed. This value is expressed as the percentage of the task duration that has been completed.) value or physical percent complete value for earned value calculations related to BCWP. (Remember, other values are calculated from BCWP, so your decision affects the entire earned value analysis.)

  • Percent complete may be calculated by Project or entered directly by you, depending on how you track actual work.
  • Physical percent complete is always entered directly by you. Use physical percent complete when percent complete would not be an accurate measure of real work performed or remaining.

Here's a simple example of how the two values may differ: a project of building a stone wall that consists of 100 stones stacked 5 high. The first row of 20 stones can be laid in 20 minutes, but the second row would take 25 minutes because you have to lift the stones up one row higher, so it takes a little longer. The third row would take 30 minutes, the fourth 35 minutes, and the last row would take 40 minutes to lay—150 minutes total. After laying the first three rows, the project could be said to be 60 percent physically complete (you laid 60 of 100 stones). However, you only spent 75 of 150 minutes; so in terms of duration, the job is only 50 percent complete.

Depending on how you get paid for the work—how the value is earned (by the stone or by the hour)—you may choose the percent complete value or the physical percent complete value to properly reflect this in the earned value analysis.

Which earned value quantities can I show or calculate in Project?

With Project, you can show:

Where in Project do I see earned value data?

You can see earned value information in any sheet view by applying the Earned Value table or the Earned Value Cost Indicators table.

  • The Earned Value table shows you BCWS, BCWP, ACWP, SV, CV, EAC, BAC, and VAC. Use this table to see consolidated earned value information, including the key variance fields. Use EAC, BAC, and VAC to evaluate the difference between your scheduled and budgeted costs. Compare CV, which shows the difference between your budgeted and actual cost?of work, with SV, which shows the difference between the budgeted cost of work and the actual cost of work.
  • The Earned Value Cost Indicators table shows you BCWS, BCWP, CV, CV%, CPI, BAC, EAC, VAC, and TCPI. Use this table to analyze cost variances. Check the CPI and TCPI to see how the project is progressing against its budget and how the rate of work compares with the expected rate. If CPI is less than than 1, you are getting less work per dollar than planned. The TCPI tells you how much of an increase in performance you'll need on the remaining tasks in order to keep within budget.